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RESEARCH

PROJECT REPORT
On

COMPARATIVE STUDY AND ANALYSIS OF HOME


LOAN SCHEMES OFFERED BY
DIFFERENT BANKS IN NCR

CONTENTS
1.

Introduction

2.

Objective

3.

Company Profile

4.

Industry Scenario

5.

Analysis of Different Banks


ICICI
HDFC

6.

Comparison of Homesaver with Normal Home Loans

7.

Comparative analysis of Home Loan and Home Saver

8.

Research Methodology

9.

Data Analysis

10.

SWOT Analysis

11.

Conclusion

12.

Recommendation

13.

Bibliography

OBJECTIVE OF THE STUDY


The objective of this research is to analyse the home loans with a view
to arrive at the most popular loan schemes offered by the banks in
National Capital Region under study and to conclude from the analysis
the best possible schemes which would keep the bank ahead of
competition.
The purpose of the study is to find the critical factors that are
essential for any housing loan to become the most favored scheme in
the Indian scenario. The reasons being the features that the scheme
provides are not being provided by many of the housing finance
companies.

INTRODUCTION
A roof over one's head and ground beneath one's feet count as the
bare necessities of life. Theres nothing quite like owning a home,
however humble, to give one that warm and glowing feeling. But
when one buys a home, one has much more than a feel-good
purchase in mind: its also a crucial investment decision, perhaps
the biggest spending decision of one's life. There are ample
opportunities today for young salaried investors to plan their
moves early and buy a house at the right time and at the right
price. In the process, not only do they fulfill that cherished dream
of owning a house, but also put themselves on the path to
acquiring property that would meet the needs and aspirations of
their growing family, even as it leads to wealth creation. Every
individual aspires to own a home. But many either spend a
lifetime saving to purchase a house or exhaust money on monthly
house rents.
Take a house loan and let the monthly rent (easily converted
into affordable EMIs) build dream home.
Profitable Proposition
The overall demand in the residential sector has grown by about
7-8 per cent in the past few months as compared to the same
period last year. The growth is on account of two main factors:
One, income-tax exemption;
Two, with no similar rebates available for individuals in the
high-income group, they are creating a second asset.

Add to this the stable property prices over the last year and
plunging interest rates, planning for dream home could not have
been better timed. Rock-bottom interest rates, standardization of
the periodicity of interest calculation across lenders (which makes
it easier to compare loans), lower
interest charges, waiver of loan application processing fees and, a
customer-friendly attitude is reason enough to celebrate the
ascension of the home loan consumer as the king.
In response, private players like ICICI Bank, and a few others
too lowered their rates. Market leader HDFC also brought down
its interest rates to 8.0%, very recently, to participate in the
interest rate war. If one is still not satisfied with the lowered loan
rates, theres more. Some industry watchers believe the floating
home loan rate will slip to 8 per cent for long-term loans in
another two to three years.
Most banks have changed the way interest is calculated from
annual rests to monthly rests. Under the annual rests method, the
EMIs (equated monthly installments) one pays through a year are
factored in as part-repayment of the principal component only at
the end of each year. In other words, one has to pay interest even
on the installments one has paid until theyre reduced from the
principal at the end of each year. Under monthly rests, the
principal is lowered by the appropriate amount each month. The
thumb rule being that the more frequently interest is calculated,
the better for the creditor. Recently, HDFC added monthly rests on
its fixed-interest loans apart from annual rests. As a result, the fall

in EMIs on fixed-interest loans (where the interest rate is constant


for the entire tenure of the loan, irrespective of changes in the
lending rates) is more pronounced than on floating-rate loans
(where the loan interest rate varies with changes in the interest
rates). For example, the EMI on a 15-year, fixed-interest loan for
Rs 15 lakhs has come down by Rs 840; the corresponding fall in
the EMI on a floating-rate loan is only Rs 465. Apart from
lowering the cost of one's loan, the switchover to monthly rests
has another advantage: it makes it easier to compare loans.

COMPANY PROFILE
ICICI HOME FINANCE COMPANY LIMITED
-consumer

friendly

housing

finance

company

History:
ICICI Home Finance Company Limited was incorporated on May 28, 1999
as 100% subsidiary of ICICI Personal Financial Services Limited (ICICI
PFS). ICICI Home Finance Company Limited, was set up with the objective
of providing long term housing loans to individuals and corporate. The
Company was registered on March 30, 2000 with National Housing Bank
(NHB) under National Housing Bank Act, 1987 in terms of Housing Finance
Companies (NHB) Directions, 1989. With effect from May 3,2002, ICICI
Home Finance has become a 100% subsidiary of ICICI Bank Limited.
Overview:
ICICI Home Loans are at present available to customers in 150 cities/towns
across the country. Loans are offered for purchase of new homes, purchase of
resale homes and home improvement. Besides, the company also offers loans
for commercial property and loans against existing property. The loans are
offered for tenors up to 30 years. The company has also introduced several
customer friendly services such as 'door-step' service, 'know your loan on
phone' facility and 'ICICI Home Search' - free property brokerage services.
ICICI

Personal

financial

services

limited

(ICICI

PFS),

FORMERLY ICICI- CREDIT, was one of the first four


companies to obtain registration as a non-banking financial
company (NBFC) from the Reserve Bank of India (RBI) on
September 10, 1997 under the new section 45 IA of the Reserve
Bank of India Act, 1934.

During the year 1998-99, there was a significant shift in the


companys

operations

from

leasing

and

hire

purchase

to

distribution and servicing of all retail products for the ICICI


Group. It is now a focal point for marketing and distribution of all
retail asset products for ICICI, including auto loans, consumer
durable finance and other financial products. The company has
thus become a critical part of ICICIS retail strategy aimed at
offering a comprehensive range of products and services to retail
customers.
In view of this reorientation of the business, the name of the
company was changed from ICICI CREDIT CORPORATION
LIMITED to ICICI PERSONAL FINANCIAL SERVICES
LIMITED (ICICI PFS) effective March 22, 1999.
ICICI commenced its custodial services business in 1992 and
played a pioneering role in the business when it accepted the
custodian role for the first ever GDR issue by an Indian corporate
(Reliance Industries Limited). ICICI has a major market share in
the segment and acts as custodian of 41 ADR/GDR issues and, in
the process, has established relationships with all the major
overseas depository banks operating in the Indian Market. After
its success in the GDR segment, ICICI expanded its custodial
operations by offering custodial services to overseas institutional
investors including foreign institutional investors (FIIS) and as
on June 30, 1999, the value of assets held in our custody exceeded
US 2 billion.

At present, ICICI offers a full range of custodial services for


primary and secondary market operations pertaining to debt,
equity, money market instruments GDR/EURO issues conversions
and GDR arbitrage to:
1. Overseas Institutional Investors like
a. FIIs
b. OCBs
c. OFFSHORE FUNDS
d. VENTURE FUNDS
2. Overseas Govermental Agencies
3. Institutions looking for proprietary investments
4. Mutual funds
5. Private investment companies
6. Large corporate
7. High net worth individuals
As a value added service ICICI custodial services division assists
the clients in preparation, submission and follow up for various
applications for regulatory approvals including initial application
by FIIS/OCB with SEBI/RBI.

PERSONAL BANKING
At ICICI BANK, they are commited to making banking a
pleasure. This commitment is manifested in the services they offer
a wide range of accounts, investment schemes, and facilities.
Each service offers their customers security, flexibility of
operation and maximum returns. The various services provided
under this is as follows:
Maxi Cash savings Account
Quantum Fixed Deposits
Quantum optima Value added Savings Account
Money plus Current Account
ATM
Phone Banking
Treasure Chest Locker facility
Power Pay Payroll
Retail Treasury Instruments
CORPORATE BANKING
MOBILE COMMERCE
ICICI Bank now brings Bank Account and ICICI Credit Card to
customers fingertips. With Mobile Commerce , customers can
perform a wide range of query-based transactions from their
OrangeTM (MUMBAI) and AIRTEL (DELHI) Mobile Phone,
without even making a call.
Access multiple accounts
Balance enquiry to the linked accounts

Cheque book requests


Mini statement Listing of last three transactions
Request for account statements (by mail or fax)
ICICI
Attractive interest rates
Door-step service from enquiry stage till final disbursement
No guarantor required
Can transfer your existing high-interest rate loan
Can transfer your existing high-interest rate loan
Special 100% funding for select properties

Home loan
Customer must be at least 21 years of age when the loan is
sanctioned.
The loan must terminate before or when you turn 65 years of
age or before retirement, whichever is earlier.
Customer must be employed or self-employed with a regular
source of income.
Loan Amount
A number of factors are taken into account when assessing
repayment
dependants,

capacity.

Customers

qualifications,

assets

income,

age,

number

and

liabilities,

of

stability/

continuity of customer employment/ business are some of them.

However, there are ways by which you can enhance your


eligibility.
If cusstomer spouse is earning, put him/her as a co-applicant.
The additional income shall be included to enhance loan
amount. Incidentally, if there are any co-owners they must
necessarily be co-applicants.
customer

fiance's

sanctioning

the

income

loan

on

can
your

also

be

considered

for

income?

The

combined

disbursement of the loan, however, will be done only after


submit proof of marriage.
Providing additional security like bonds, fixed deposits and
LIC policies may also help to enhance eligibility.
While there is no need for a guarantor, it could be that having one
might enhance your credibility with us. If so, our loan officer
would provide customer with the necessary details.
The final amount to be sanctioned will depend on your repayment
capacity. However, what customer ultimately are entitled to will
have to conform within the limits fixed for each loan.
Also, when the company looks at the total cost, registration
charges, transfer charges and stamp duty costs are included.
HOME LOANS
We at ICICI Bank understand the value of owning your own
home. Our affordable home loans can make all the difference to
their dream of owning home.
0% processing fee for a limited period.
Refer to the table for a loan option that suits their need best

FIND THE RIGHT HOME


Introducing Home Search - Our FREE online property search
facility. A one stop shop for all their real estate needs.
What you get
0% brokerage on first sale properties
Access the entire market under one roof
Site visits to properties short listed by you
Help in negotiating the best price
Help with legal documentation
Documents
Passport size photograph. Age verification: PAN card, Voters ID,
Passport, License. Bank statement for the last six months. Income
Documents e.g. Latest Form 16, Certified IT returns for latest 3
years. Processing Fee cheque. Loan Enclosure letter. These are the
documents required for sanctioning a loan. Customer may be
asked to submit further legal documents if required by ICICI or its
approved lawyers. Do retain photocopies of all documents being
submitted by them.
Disbursement
Customer loan will be disbursed after you identify and select the
property or home that customer are purchasing and on their
submission of the requisite legal documents.
While customer may be under the impression that the list of
documents asked for is rather extensive. Each and every single

document asked for will be verified and checked to ensure their


safety.
This may take some time but the bank want to ensure a clear title
and will complete all the legal and technical verifications to
ensure that they have full rights to their home.
The 230 A Clearance of the seller and / or 37I clearance from the
appropriate income tax authorities (if applicable) is also needed.
On satisfactory completion of the above, on registration of the
conveyance deed and on the investment of your own contribution,
the loan amount (as warranted by the stage of construction) will
be disbursed by ICICI.
The disbursement will be in favour of the builder/seller.

List of documents for disbursement


Standard documents:
Loan Agreements Disbursement Requests Post-dated cheques
Personal guarantor's documents, as the case may be adjustable
Rate Loans
Home Loans/Land Loans: Special offer - 0% processing fee
ICICI

Bank

Home

Loans

announces

it's

Special

Interest

Rates.These interest rates are valid for new home loans for a
limited period only. The interest rate on these loans is linked to
the ICICI Home PLR and moves up or down with the ICICI Home
PLR The ICICI Home - PLR for ICICI Home Loans is currently
10.25% p.a.The EMI table for ARHL is given below:
Fixed Rate Loans
Home Loan: Special offer - 0% processing fee
ICICI Bank Home Loans has now brought Fixed Rate Home
Loans at par with Adjustable Rate Home Loans, starting from
January 17, 2003. The EMI table for Fixed Rate Home Loans is
given below:

Fixed rate
Tenure

Rate

(yrs)

Interest *

of EMI per Lac

Upto 5years 8.75%

2064

10 9.25%

1281

15 9.75%

1060

20 9.75%

949

30 10.25%

897

years
11
years
16
years
21years

The interest rate is calculated on an monthly reducing basis.


0%
Processing Fee.
No fee for part prepayment

Exhibit 2.3: Product Process Flow for Housing Finance


Enquiry

Application with processing fee submission

Credit Appraisal

Interview

Checking with

Verification with employer

Recommendation to the Sanctioning Authority

Sanction by
committee

Defer

Letter to
applicants

Reject

Approval
guarantor

Acceptance Letter with Administrative fees

Legal title Documents review

Signing loan disbursement documents

EMI repayment

Prepayment Penalty Charge

Listed below are the steps involved in availing of a home loan:

Step 1

A person applies for a home loan.


The executive meets the applicant and briefs him the

Step 2

entire loan process, requirements and the various options


available.
The applicant chooses a Housing Finance Company

Step 3

Step 4

Step 5

(HFC) and hands over the income documents to the


executive.
The income documents are handed over to the HFC for
eligibility and approval.
The HFC verifies the documents and checks the repaying
capacity, saving habits, tenure of service, etc. of the
applicant and approves the loan amount.
After approval, an offer letter is given to the applicant by

Step 6

Step 7
Step 8

Step 9

the HFC, along with a list of original property title


documents that have to be handed over to the HFC.
The applicant gives the original property title documents
to the HFC.
The HFC scrutinises the legal and technical aspects of the
original title documents.
If the HFC is satisfied as to the legal & technical aspects
of the documents then the applicant is called to sign the
loan agreement.
The loan disbursement schedule is decided by the HFC

Step 10

according to the stage of construction (if property under


construction)or a one time payment is made if property is

ready for possession


Step 11 The applicant gets possession of the property depending

upon the level of completion of the property.


Step 12 The applicant starts paying the EMIs.

WHAT ALL CAN ONE TAKE A LOAN FOR:


There are different types of home loans tailored to meet ones
needs. Heres are some of them:
Home Purchase Loans: This is the basic home loan for the
purchase of a new home.
Home

Improvement

Loans:

These

loans

are

given

for

implementing repair works and renovations in a home that has


already been purchased by the client.
Home Construction Loan: This loan is available for the
construction of a new home.
Home Extension Loan: This is given for expanding or extending
an existing home. For eg: addition of an extra room etc.
Home Conversion Loan: This is available for those who have
financed the present home with a home loan and wish to purchase
and move to another home for which some extra funds are
required. Through home conversion loan, the existing loan is
transferred to the new home including the extra amount required,
eliminating the need of pre-payment of the previous loan.
Land Purchase Loans: This loan is available for purchase of land
for both construction or investment purposes.

Bridge Loans: Bridge loans are designed for people who wish to
sell the existing home and purchase another one. The bridge loans
help finance the new home, until a buyer is found for the home.
Amount
This largely depends on a number of factors like ones age,
profession, salary, the city one resides in among other such
factors. It varies between Rs. 2.1 lac to Rs. 1 crore depending on
the lender. As a rule of thumb, depending upon the HFC, one will
have to cough up 15%-20% of the loan amount as a down
payment. For smaller amounts, this may not be much. But for
figures running into lakhs, this could make loads of difference.
For eg. An apartment costing Rs 10 lakh may get 85 per cent
financing. So, one will have to arrange for the remaining Rs 1.5
lakh. If one takes this into account, the additional thousands will
definitely put a strain on ones finances.
Tenure
Generally, the maximum tenure of home loans is 15 years, with a
few lenders offering tenure of 20 years or more (ICICI has
recently launched a 30 year loan). The longer the tenure, more one
pays in total interest, but ones monthly payments will be less. So
depending on ones earning potential and bank balance, one can
choose an appropriate tenure. An important requirement of most
banks/HFCs is that one pays up the entire loan before one retires.
One can always prepay ones entire loan amount before it is due.

There is a trend to do away with the pre-payment penalty being


imposed by some lenders so its best one checks on this as well.
Interest Rate
Without doubt the most important parameter to factor into ones
calculations. The interest rates may vary from institution to
institution and generally range from about 7.0% to around 8.0%.
Repayment

is

in

the

form

of

EMI's

(equated

monthly

installments). The longer the tenure, the more one pays in interest,
but ones monthly payment will be less.
Refinance
This is a concept that is yet to catch on in the home loan market
but is bound to be a major service in the months to come. Under
this facility, one can take a new loan from another bank/HFC to
pay back an old loan before its natural tenure. It gives one the
opportunity of prepaying ones high cost debt and gets a lower cost
one. In today's falling interest rate scenario one should use this
vehicle to lower ones debt payments as much as possible. The
lender facilitates the shift by paying the outstanding and
transferring the asset to their portfolio.

Miscellaneous charges
A heading that should be ignored at ones peril! The interest rates
and EMIs are not the only cost factor. Never underestimate how
much the processing and administration fees amount to. A 0 .5%

administration fee and a 0.5% processing fee on, say, a Rs


5,00,000 loan, would amount to Rs 5,000. Other times, it could be
just one fee (either administration or processing) but could yet
work out to be much more if it is considerably higher at, say, 2.5
per cent or 3 per cent. The various other fees, which one is
required to pay along with the margin amount, are:
a) Interest Tax
This is the tax payable on the interest paid on a home loan and not
the principal. This tax is some times included in the interest rate
of the loan, or may be charged separately as interest tax.
b) Processing Charge
It's a fee payable to the lender on applying for a loan. It is either a
fixed amount not linked to the loan or may also be a percentage of
the loan amount. The loan amount received by you can be less
than the processing fee.
c) Prepayment Penalties
When a loan is paid back before the end of the agreed duration a
penalty is charged by some banks/companies, which is usually
between 1% and 2% of the amount being pre paid.

d) Commitment Fees

Some institutions levy a commitment fee in case the loan is not


availed of within a stipulated period of time after it is processed
and sanctioned.
e) Others
It is quite possible that some lenders may levy a documentation or
consultant charge.

INDUSTRY SCENARIO
The housing finance industry, encompassing banks and housing
finance companies (HFCs), has exhibited a 36 per cent growth
between April and December 2004 despite the high prepayment
levels experienced by some HFCs.
Were it not for prepayments, the industry's outstanding assets
would have grown at a higher 43 per cent. Aggressive marketing
efforts of banks and HFCs have further precipitated this trend.
Banks have an inherent advantage in retail finance, especially in
housing loans, because of the lower cost of funds, existing retail
relationships in liability products and large branch network.
It is expected that banks will further increase their market share in
the housing finance sector in the medium term.
It is also expected that the housing finance sector will maintain its
high growth rates in future given that the key growth drivers the
government's thrust on the housing sector in terms of fiscal
incentives for individual housing loans coupled with the demandsupply gap in housing - would remain strong.

HDFC BANK

The Housing Development Finance Corporation Limited (HDFC)


was amongst the first to receive an in principle approval from
the Reserve Bank of India (RBI) to set up a bank in the private
sector, as part of the RBIs liberalization of the Indian Banking
Industry. It was incorporated in August 1994 in the name of
HDFC Bank Limited, with its registered office in Mumbai.
HDFC began operations as a Scheduled Commercial Bank in
January 1995.
About the Promoter
HDFC, the promoter, is Indias premier housing finance company
and enjoys an impeccable track record in India as well as in
international markets.
Since its inception in 1997, HDFC has maintained a consistent
growth in its operations and profitability and over the past 5 years
has achieved annual growth rate of 25 30 %.
Its outstanding loan portfolio covers over a million dwelling units.
HDFC has developed significant expertise in retail mortgage loans
to different market segments and also has a large corporate client
base in relation to its housing related credit facilities and its
investment portfolio.

With its tremendous brand equity, strong reputation in the Indian


and international financial services market, large shareholder base
and unique consumer franchise, HDFC was ideally positioned to
promote a bank in the Indian environment. HDFC (together with
its fully owned subsidiary HDFC Investments Ltd.) owns about
31% of the equity.
They had started with a strategic alliance with the NatWest group
in UK with 20% equity, which was divested later on. The bank
also signed a memorandum of understanding for strategic business
collaboration with the Chase Manhattan Bank in February 2 nd
1999.
Business Philosophy
The mission of HDFC Bank is to be world class Indian bank. This
would imply a bank that would meet various financial needs of its
customers

in

convenient

and

cost

effective

manner

at

international standards of service.


The bank seeks to achieve the status of a "preferred organization"
among its major constituents- customers, shareholders, regulators,
employees, suppliers etc.-while maintaining the highest levels of
integrity and corporate governance.
The business philosophy at HDFC Bank is based on four core
values

:Operational

Leadership and People.

Excellence,

Customer

Focus,

Product

Competitors
Bank faces strong competition in all of their principal lines of
business. Their primary competitors are large public sector banks,
other private sector banks, foreign banks and, in some product
areas, non-banking financial institutions.
Wholesale Banking: Principal competitors in wholesale banking
are public and new private sector banks as well as foreign banks.
The large public sector banks have traditionally been the market
leaders in commercial lending. Foreign banks have focused
primarily on serving the needs of multinational companies and
Indian corporations with cross-border financing requirements
including trade, transactional and foreign exchange services,
while the large public sector banks have extensive branch
networks and large local currency funding capabilities.

Retail Banking: In retail banking, their principal competitors are


the large public sector banks, which have much larger deposit
bases and branch networks, other new private sector banks and
foreign banks in the case of retail loan products. The retail deposit
shares of the foreign banks is quite small by comparison to the
public sector banks, and have also declined in the last five years,
which we attribute principally to competition from new private
sector banks. However, some of the foreign banks have a
significant presence among non-resident Indians and also compete

for non-branch-based products such as auto loans and credit cards.


They face significant competition primarily from foreign banks in
the provision of debit cards and also expect to face competition
from foreign banks when we begin offering credit cards. In mutual
fund sales and other investment related products, their principal
competitors are brokers and foreign private banks.
Treasury: In treasury advisory services for corporate clients, they
compete principally with foreign banks in foreign exchange and
derivatives trading, as well as the State Bank of India and other
public sector banks in the foreign exchange and money markets
business.
Loans
HDFC Bank brings you a wide range of loans to cater your
financial needs.
The bank offers the following loans Personal Loans
Consumer Loans
Auto Loans
Loans against shares
Loans against RBI Bonds
Loans against Insurance policy
.

E-instant loans-gives the facility of loan approval in 60

seconds on the internet.


HDFC has offices spread all over the country. This extensive
network helps HDFC in providing service to large and well spread

out clients. This network of interconnected offices (on Data


Circuits) helps HDFC to process applications for purchase of
property anywhere in India. HDFC has further established an
office in Dubai and Service Associates in Kuwait, Oman and
Qatar to make it easier for Middle East based Non-Resident
Indians to apply for a loan to HDFC - India.
HDFC is the pioneer of housing finance in India and has been a
leader in the business for the last 23 years. HDFC has vast
experience and a very committed and skilled staff to handle
housing loan applications and solving customer problems.
HOME LOAN SCHEMES
PURPOSE
HDFC Ltd. offers loans for the following purposes:
Land Purchase
Home Construction/Purchase
Home Extension
Home Improvement loans
Short-term Bridge Loans
Non-Residential Premises Loans For Professionals

2-in-1 Home Loan scheme


A home-loan scheme thats twice as good!
Confused whether to opt for an Adjustable Rate or Fixed Rate
Loan?
HDFC brings you the best of both options with 2-in-1 Home
Loan.
2-in-1 Home Loan provides customers with a choice of breaking
up the loan requirement into Adjustable and Fixed Rate loans.
Customers benefit both ways, as it helps them hedge their interest
rate risk against rising interest rates to the extent of the fixed rate
portion of the loan and take the advantage of falling interest rates,
with the Adjustable Rate portion.
2-in-1 Home Loans can be taken in any proportion. With no
prepayment charges under the Adjustable Rate Home Loan,
customers planning to make part prepayments can take a portion
of the loan intended for prepayment under Adjustable Rate loan
option; the rest can be taken under Fixed Rate Loan option.
LOAN AMOUNT
Loans can be availed up to a maximum of 85% of the cost of the
property (including the cost of the land). HDFC lends up to a
maximum of Rs. 1,00,00,000 on a Home Loan to an individual.
LOAN TENURE
You can repay the loan over a maximum period of 20 years.
RATE OF INTEREST
Interest is calculated on annual rests. Principal repayments are
credited at the end of HDFC's financial year. The effective rate of
interest varies depending on the term of the loan. For a loan with a

term of 15 years, the effective interest rate would be higher by


0.37% per annum than the indicated rate of interest.
SECURITY
Typically the security for the loan is a first mortgage of the
property to be financed, normally by way of deposit of title deeds
and/or such other collateral security as may be necessary.
Interim security may be additionally required, if the property is
under construction. Collateral or interim security could be
assignment to HDFC of life insurance policies, the surrender
value of which is at least equal to the loan amount, guarantees
from sound and solvent guarantors, pledge of shares and such
other investments that are acceptable to HDFC.
The title to the property should be clear, marketable and free from
encumbrance. To elaborate, there should not be any existing
mortgage, loan or litigation which is likely to affect the title to the
property adversely.
Interim security may be additionally required, if the property is
under construction. Collateral or interim security could be
assignment to HDFC of life insurance policies, the surrender
value of which is at least equal to the loan amount, guarantees
from sound and solvent guarantors, pledge of shares and such
other investments that are acceptable to HDFC.

DOCUMENTATION
Following documents should be produced for approval of loan:
a) Common for all applicants:
1. Allotment letter of the co-operative society / association of
apartment owners.
2. Copy of approved drawings of proposed construction /
purchase.
3. Agreement for sale/sale deed/detailed cost estimate from
architect/engineer

for

the

property

to

be

purchased

constructed.
4. If you have been in your present employment / business or
profession for less than a year, mention details of occupation
for previous 5 years, giving position held, reasons for change
and period of the same.
5. Applicable Processing Fees.
6. Any other information regarding your repayment capacity that
is necessary and will assist HDFC in appraising the case.
b) Additionally,
If borrower is Employed:
1. Latest salary slip/salary certificate showing all deductions.
2. If

your

job

is

transferable,

permanent

address

where

correspondence relating to the application can be mailed.


3. A letter from your employer agreeing to deduct the monthly
installment towards repayment of the loan from your salary.
This will expedite the processing of your loan application.

If borrower is Self-Employed:
1. Balance

Sheets

and

Profit

&

Loss

Accounts

of

the

business/profession along with copies of Individual Income Tax


Returns for the last three years certified by a Chartered
Accountant.
2. A note giving information on the nature business/profession,
form of organization, clients, suppliers, etc.
ELIGIBILITY
The repayment capacity as determined by HDFC will help in
deciding how much one can borrow (the cost of the property or
Rs. 1 crore, whichever is lower). Repayment capacity takes into
consideration factors such as income, age, qualifications, number
of dependants, spouse's income, assets, liabilities, stability and
continuity of occupation and savings history. And, of course,
HDFC's main concern is to make sure customer can comfortably
repay the amount they borrow
TAX BENEFIT
Resident Indians are eligible for certain tax benefits on principal
and interest components of a loan under the Income Tax Act,
1961. Interest repayment of Rs. 1,00,000 p.a. (for a loan on or
after April 1, 2000) can get borrower a tax saving up to
approximately Rs. 33,000 p.a. Moreover, customer can get added
tax benefits under Sec 88 on repayment of principal amount up to
Rs. 20,000 p.a. which can further reduce borrowers tax liability
by Rs. 2,000 p.a.

About the product


HDFC's Home Loans offers you various unique benefits and are
easy to arrange and repayable in easy monthly installments. The
terms of the loan can be structured according to customer unique
requirements.
Home Loans can be applied for by either individually or jointly.
Proposed owners of the property, in respect of which the loan is
being sought, will have to be co-applicants. However, the coapplicants need not be co-owners.
Loans can be availed upto a maximum of 85% of the cost of the
property (including the cost of the land). HDFC lends upto a
maximum of Rs. 1,00,00,000 on a Home Loan to an individual.
You can repay the loan over a maximum period of 20 years . They
determine the loan amount after evaluating the repayment capacity
of the individual. HDFC's main concern is to help individuals
comfortably repay the borrowed amount.
Get in touch with your nearest HDFC office today. We will be
pleased to discuss and help you realise your plans for a house
USP
Superior Processing Capacity: HDFC has over the years
invested substantially into computer systems and training. This
has enabled HDFC to respond to customer needs and build up
capabilities to approve loans on the spot or disburse them fast.

Branch Network: HDFC has offices spread all over the country.
This extensive network helps HDFC in providing service to large
and well spread out clients. This network of interconnected offices
(on Data Circuits) helps HDFC to process applications for
purchase of property anywhere in India. HDFC has further
established an office in Dubai and Service Associates in Kuwait,
Oman, Qatar, Bahrain and Saudi Arabia to make it easier for
Middle East based Non-Resident Indians to apply for a loan to
HDFC - India.
Experienced and Trained Staff: HDFC is the pioneer of housing
finance in India and has been a leader in the business for the last
25 years. HDFC has vast experience and a very committed and
skilled staff to handle housing loan applications and solving
customer problems.
Free Counselling: HDFC believes that it is in the business of
providing solutions to an individuals need for owning a house,
and not just in the business of providing finance. Keeping this in
mind HDFC will provide free counselling to on how and where to
buy a house in India (Property Services) or what are the prices and
trends in the real estate market or what precautions one should
take before buying a house. This service is offered at any of
HDFC's offices.
Legal and Technical Guidance: HDFC has qualified Legal and
Technical staff who liase with the developers to collect and
scrutinise the property documents and permissions. We have

Master Files of most projects being developed by reputed


developers. It has always been HDFC's endeavor to protect the
interest of the borrower, as we believe that buying a house is one
of the most important decisions in his life.
Extension Products: Over the last 25 years, HDFC has developed
various products in response to the needs of our customers. Today
we offer Home Loans, Adjustable Rate Home Loans, Home
Extension Loans, Home Improvement Loans, Home Equity Loans,
Short Term Bridging Loans and Land Purchase Loans.
Flexible (Customised) Repayment Schemes: Keeping in mind
the fact that each individual has a unique problem requiring
unique solutions, HDFC has developed various repayment options
like Step Up Repayment Facility, Flexible Loan Instalment and
Balloon Payment Scheme.
Pari Passu/ Second Mortgage Arrangements : HDFC has a tieup with a large number of Public Sector Organizations and banks
which enables us to
offer loans to your employees with the flexibility of their spouse
also availing a loan from his/her own employer.
Safe Document Storage Facilities: HDFC has state of art storage
facilities, which are theft and fire proof, at various locations
where loan and property documents are stored. In this way
valuable documents are stored safely over the period of the loan
and are released almost immediately after a customer repays his
loan.

Post disbursement services:


a) The exemption in respect of interest on borrowed capital is Rs
1,50,000 under section 24 (b) of the Income Tax Act. Further
interest on housing loans can now be taken into account by an
employer while computing the tax to be deducted from an
employee's salary.
b) HDFC sends interest certificates to its customers well in
advance which enables them to take advantage of the tax
exemption in their monthly salary
c) We can transfer files of customers from one location to
another in case of transfer of the customer in course of his job.
d) A customer, after availing of a loan can approach HDFC
anytime thereafter to increase the Equated Monthly
Installment which will help him repay the loan faster. This
facility is offered free of charge to our customers.
Electronic Mail: HDFC through its e-mail service can promptly
respond to queries. In addition, HDFC can promptly send it is
application form cum brochure and other details on its loan
products by e-mail to interested individuals. For Non-Resident
Indians, our interactive Website offers

another means

for

contacting us. In our effort to reach out globally dispersed NonResident Indians, we will continuously enhance our Website.
Home Conversion Loans: HDFC offers the option of a Home
Conversion Loan to its existing customers who are interested in
moving to a new house. Through this scheme customers can apply
to have their existing loan transferred towards the purchase of the

new home. Customers may also apply for an additional loan


amount for the purchase of the new house. This gives the
customer the option of selling their existing house, if they wish to,
without having to repay their old loan.
Applications

can

be

made

before

selecting

property:

Individuals may make an application for a loan even if the


property has not been selected or the construction has not
commenced. HDFC can provide assistance in locating an
appropriate house to such customers.
Home Improvement Loans: As an exclusive offer to it's existing
customers HDFC offers Home Improvement Loans upto 100% of
the improvement cost as compared to Home Improvement Loans
of upto 70% of the improvement cost offered to the general
public.
Fee
A processing fee of 0.5% of the loan amount applied for i.e. Rs. 5
per Rs. 1000 of the loan applied for is payable when the
application form is submitted to HDFC. This fee is in respect of
costs incidental to the application.
For example :
Loan applied for
Rs. 20,000

Fees
Rs. 100

Rs. 1,00,000

Rs. 500

On approval of the loan, a loan offer is made to you. On

acceptance of the
offer, you will have to pay an administrative fee of 0.5% of the
loan approved. You can also pay the processing and administrative
fees upfront i.e. 1% of the loan at the time of submission of the
loan application itself.
Rate of Interest
Adjustable rate of Interest
The interest rate on your ARHL is linked to HDFC's Retail Prime
Lending Rate (RPLR). The rate of interest is revised every three
months from the date of first disbursement, if there is a change in
RPLR. However, the EMI on the ARHL will not change. For
instance, if the interest rate increases, the interest component in
EMI will increase; the principal component would reduce,
resulting in an extension of the term of the loan and vice-versa
when the interest rate decreases. customer will be provided with
an annual statement indicating the details of the interest and
principal payments made during the year.
Annual Rest Option
Term of Loan (No. of Years)
1 20
Monthly Rest Option
Term of Loan (No. of Years)
Upto 5
6 - 10

Rate Per Annum (%p.a)


8.00
Rate Per Annum (%p.a)
9.00
9.25

11 20
9.75
Rate of interest under ARHL is linked to HDFC's RPLR (Retail
Prime Lending Rate) which currently is 8.00% per annum.
customer repay the loan in EMIs comprising principal and
interest. Pending final disbursement, you pay interest on the

portion of the loan disbursed. This interest is called pre-EMI


interest .
EMI per Rs.1,00,000 for Annual Rest
Option

Term of loan (No. of years)


20
EMI per Rs.1,00,000 for Monthly Rest

Rupees
979

Option
Term of loan (No. of years)
5
10

Rupees
2,076
1,281

20

949

There is no early redemption charge on repayment of a loan ahead


of schedule.
Fixed rate of interest
The current applicable fixed rate of interest in respect of the total
loan approved is are as follows:
Annual Rest Option
Term of Loan (No. of Years)
Upto 5

Rate Per Annum (%p.a)


9.25

6 - 10

9.25

11 20
Monthly Rest Option
Term of Loan (No. of Years)
Upto 5

9.75

6 - 10

9.50

Rate Per Annum (%p.a)


9.25

11 20
9.75
You repay the loan in Equated Monthly Instalments (EMIs)

comprising principal and interest.


EMI per Rs.1,00,000 for Annual Rest
Option
Term of loan (No. of years)
5
10
20
EMI per Rs.1,00,000 for Monthly Rest
Option
Term of loan (No. of years)
5
10
20

Rupees
2,157
1,313
963

Rupees
2,088
1,294
966

Pending final disbursement, customer pay interest on the portion


of the loan disbursed. This interest is called pre-EMI interest .
An early redemption charge of 2% of the amount being prepaid is
payable on repayment of a loan ahead of schedule.
How to Apply
customer can either download (in a pdf format) the application
form or, get the application form by email or normal mail.
Alternately, customer can collect the application forms from any
of your nearest HDFC Offices.
customer need to submit it along with supporting documents and
the processing fees at any HDFC office that is convenient to the
customer. customer can make payments by cheque marked
"Payee's account only" drawn on a bank in a city where HDFC has
an office, by demand draft (payable at par to HDFC) or by cash.
Customer can make an application at any time after they have

decided to acquire a house, even if the house has not been selected
or the construction has not commenced.
HDFC will consider your application, make enquiries as it deems
necessary and convey its decision to you. On approval of the loan,
a loan offer is made to you. On acceptance of the offer, you will
have to pay an administrative fee for the loan approved.
customer can take disbursement of the loan after the property has
been technically appraised, all legal documentation has been
completed and you have invested your own contribution in full
(Own contribution is the total cost of the property less HDFC's
loan). The loan will be disbursed in full or in suitable instalments
(normally not exceeding three in number) taking into
account the requirement of funds and progress of construction, as
assessed by HDFC and not necessarily according to a builder's
agreement.

Supporting Documents to be attached :


For approval of loan
a) Common for all applicants:
1. Allotment letter of the co-operative society / association of
apartment owners.
2. Copy of approved drawings of proposed construction /
purchase.
3. Agreement for sale/sale deed/detailed cost estimate from
architect/engineer

for

the

property

to

be

purchased

constructed.
4. If you have been in your present employment / business or
profession for less than a year, mention details of occupation
for previous 5 years, giving position held, reasons for change
and period of the same.
5. Applicable Processing Fees.
6. Any other information regarding your repayment capacity that
is necessary and will assist HDFC in appraising the case.
b) Additionally,
If You Are Employed:
1. Latest salary slip/salary certificate showing all deductions.
2. If job is transferable, permanent address where correspondence
relating to the application can be mailed.
3. A letter from

employer agreeing to deduct the monthly

instalment towards repayment of the loan from the salary. This


will expedite the processing of your loan application.

If You Are Self-Employed:


1.

Balance

Sheets

and

Profit

&

Loss

Accounts

of

the

business/profession along with copies of Individual Income


Tax Returns for the last three years certified by a Chartered
Accountant.
2.

note

giving

information

on

the

nature

of

business/profession, form of organisation, clients, suppliers,


etc.

COMPARISON OF HOME SAVER WITH


NORMAL HOME LOAN
Lets suppose that the customer have a home loan of Amount RS.
10 lakhs Repaid in 16 years (192 months) at an interest rate of
11.25% p.a. (monthly rests)
Some Interesting facts about you home loan
You owe the bank

Total Payments In
Rupees Lakhs

25
Principal Paid
20

Interest Paid

10

15

4.98

4.13

10
5
0

1.5

9.37

10.09

11.6

5.25

60

120

134

192

Months

Imaging how much the value of their home will have to appreciate
to just be worth the value you finally paid for it!

COMPARATIVE ANALYSIS OF
HOME LOAN AND HOMESAVER
Home Loan
HomeSaver
A fixed repayment structure The interest customer pay
with high interest & low

may be substantially reduced

principal recovery

&

consequently

towards

repayment

principal

can

be

high. The interest you pay


depends on their loan balance
each day. When you loan
balance

is

interest

reduced

component

the
comes

down.
Inflexible repayment plan

Customer

have

option

to

make excess payment over &


above your EMI to reduce
their balance daily. Payment
holiday also available.
Prepayment may be subject No prepayment hassle & no
to many constraints including

penalty is chargeable on any

penalties.

excess

customer

use

to

reduce their loan principal.


They can also with draw any
surplus at your convenience
anytime & anywhere.

Interest is calculated on a Interest is calculated daily on


monthly balance & applied

net loan balance & applied

monthly

monthly

Their home loan A/C in kept HomeSaver is one single A/C


separate from their bank A/C.

where home loan & deposits

Saving & other surplus reside

or surplus funds is integrated

in a separate current/saving

together. Every rupee they

account

is

pay goes to repaying the loan

earning either Zero or low

rather than repaying interest.

interest.

So they can use their surplus

where

money

cash to save there as much


interest as in charged on
homesaver A/C.

HOW DOES HOMESAVER COMPARE WITH


A NORMAL HOME LOAN ?
Normal home loan
HomeSaver
A fixed repayment structure The
Potential

to

with high interest and low

substantially reduce interest

principal recovery

and consequently repayment


towards

principal

high
Flexible

Inflexible repayment plan

can

be

repayments

including Payment Holidays


Prepayment are subject to No part prepayment hassle
many constraints, including
prenalties
Interest is

calculated

or penalty

on Interest calculated on daily

monthly balance and applied

balances

and

applied

monthly
monthly
Their home loan account is One single account where
separate from bank account

home

loan

integrated

principal
with

deposits and credits

is

their

THE HOMESAVER ADVANTAGE

Reduction in Interst Paid

Reduction in Tenure

10.00

5.00

8.00
6.00

11.60

4.00

6.60

2.00
0.00
Normal hom e loan

Hom eSaver

Tenure (in months)

Interst Paid (in Rs. lakhs)

12.00

200
180
160
140
120
100
80
60
40
20
0

74

192
118

Normal home loan

HomeSaver

RESEARCH METHODOLOGY
Research Methodology is an important part of every project. Because it help
in knowing how to select representative sample from the world or
the general population, the right research tools and techniques to
complete the research.
To satisfy the customer the study of comsumer behavior is important because
he is the king. The Research Process is based on survey method, so
in order to implement the survey we go to Service Provider and the
Services user which is the customers.
The research involves the following steps : Define the problem & research objective - The problem and objective is
to assess the services offered by various service provider and
what the consumer wants.
Developing the research Plan - The second stage of research
methodology is to develop a research plan.The research plan
desigined to take decesion on the data soruces, research
approaches, research, instruments, sampling plan and contact
methods.
Survey Research It was a descriptive research.

Research Instrument The use of an effective research instrument is


very important. Because through this instrument we collect data. In
this project through observations & personal interviews were
conducted.
Personal Interview As we were doing direct selling. we interacted with
my customers are asked about there views in selecting a service and what
are there wants and expectations from a service provider
Sampling Plan - After finalizing the research approch and instruments a
sampling must be designed.
Sampling Unit data have been collected from banks
Sample size It has been collected from four banks.
Sampling Procedure :- What process should be used to collect the
sample. So, representation samples, convenience sampling is used.
Collect the Information :-After completing all the steps, the data are
collected from different sources.
Analyze the Information:-After the data is collected they are analyzed to
Know the findings. The data is then tabulated to develop frequency
distribution.
Present the findings:-As the last step, the findings are presented that are
relevant to the major marketing decisions.

DATA ANALYSIS
The home loans provided by various banks are more or less same
at a basic level. The banks generally try to go ahead of other
banks in terms of attracting number of customers to their
countries. For this they are trying to offer some unique services as
per the unique requirements of the unique and important
customers.
In the next page various datas have been shown which shows that
are the home loans provided by various banks and SCB have also
tried to compare the services offered by the banks,.
TRENDS IN INTEREST RATES OF HOUSING LOANS
Interest Rates Have Dropped

18
16
14
12
10
8
6
4
2
0

16.5
15
13.25

12.5
10

2000

2001

2002

2003

2004

And Housing Loan Disbursement Have Soared

50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0

45,000

29,359
19,723

22,425

11,352

1999-00 2000-01 2001-02 2002-03 2003-04

MARKET SHARE OF MAJOR PLAYERS

Source: http://indiaproperties.com
Market Share of Players
8

32

10

Standard Chartered Bank


Citibank
ICICI
HDFC
IDBI
OTHERS

5
45

PROPERTY RATES IN NCR

COMPARISON OF MAJOR PLAYERS

The market for home loans has been sizzling in India. The spurt in
growth in recent years and the prospects of continued buoyancy in
demand have attracted many players to the industry, which till a
couple of years back had two major players - HDFC and LIC
Housing Finance. The result - cut throat competition, which has
benefited the loan seeker.
The home loan market has grown at a compounded rate of over
40% over the last four years. And from what industry experts will
have us believe, there is little chance that there will be any
significant decline in growth rates going forward. So what have
been the key factors in triggering of this high growth period?
There are several reasons for the same. On the demand side Faster rise in incomes as compared to property prices, thus
making housing more affordable
Declining interest rate, which has greatly reduced the cost of
servicing a loan.
Tax benefits, which further reduced the effective cost of
borrowing (both on interest and capital)
Then there are factors on the `supply side' too which have
supported this growth More competition in the housing finance sector resulted in
companies charging lower interest rates, sometimes even at the
cost of the spread (i.e. profit margin)

The fee for getting a home loan has reduced dramatically over the
last couple of years, from over 2% of the loan amount to as low as
0.25% (some companies are known to waive off the fee entirely!)
Housing finance companies have introduced several new products
to meet the needs of a wide variety of customers. One such
scheme, the step up loan, where the EMIs increase as the income
of the individual increases has been a big hit with individuals just
starting off with their careers.
One other factor is the increasing collaboration between housing
finance companies and builders. Such partnerships minimise
service and funding related issues significantly, thus making it
easier to buy property.

One innovation in the housing finance sector has been the


introduction of `floating rate' home loans. Simply put, the cost of
such loan, or the interest rate, is not fixed during the tenure of the
loan. Instead the interest rate is benchmarked against some
index/indicator. So as the benchmark rate moves up/down, the
cost of your loan too changes, at some predetermined frequency
(usually once a quarter).
Ideally, loan seekers should opt for a floating rate home loan when
it is expected that interest rates will decline going forward. Fixed
rate loans should be preferred when interest rates are expected to
rise.
But is making a choice that simple? In today's environment, when
there is a lot of talk about rising interest rates, should investors
shun floating rate home loans altogether? Or is there still some
merit in this instrument? In the last one year, there was a trend of

floating rate home loans being more popular as compared to the


fixed rate loan. As of now, this trend is continuing. says Mr.
Suresh Menon, GM (Mumbai Region), HDFC Ltd.
There are three important issues which one needs to consider
before opting for one type of a loan over the other.
First, an important determinant of what you go in for should be
the long term expectation of interest rates. For example, if you (or
the experts) expect rates to rise for the next one year, but then
decline gradually over the next several years, a floating rate
product may be preferable. The other option of going in for a
fixed rate product and then switching at the end of the year will
entail costs (there could be a penalty of 1% - 2% of the
outstanding loan amount) and may not make financial sense.
Moreover, floating rate home loans do not change the rate of
interest every quarter (even though they may review the rate every
quarter). Mr. Menon points out The attraction of a floating rate
home loan is that it does not attract a part prepayment charge.
This could appeal to individuals who get lump sum bonuses which
they can use to reduce their loan exposure.
Second, the issue whether fixed rate home loans are actually
`fixed rate'. When considering a fixed rate home loan over a
floating rate home loan a strong selling point is that if interest
rates were to rise dramatically you will be `protected'. Apparently
the reality is somewhat different. It seems that companies that
have given out fixed rate loans can revise their rates upwards in
exceptional circumstances (significant rise in interest rates for
one). So if you think rates will remain range bound over the near
term and decline over the long term, you are still better off with a

floating rate product.


Third, a fixed rate loan is generally priced higher as compared to a
floating rate product. This holds true in the current environment
where the fixed rate loan is at a higher interest rate as compared to
a floating rate loan. The difference is currently about 0.25% to
1.00%. So if you expect that interest rates are likely to move up,
but only to the extent of this differential, then you should ideally
be indifferent between the two types of a loan. The deciding
factors then should be when you think the rates will increase, and
also the long term expectations of interest rates.
As always, there is no one answer to whether you should go in for
a floating or a fixed rate home loan. If you are person with very
little appetite for risk or negative surprises, opt for the fixed rate
home loan. But in case you can take on some risk, a floating rate
home loan is worth a look!
Five steps to picking the right loan
1.

Gather

data

on

interest

rates

Get interest rate information from more than one source, and get
the same information from each so you can compare the offers.
2.

Get

info

on

fees

Find out about processing fees, administration charges and other


costs that may be involved in taking the home loan. A written
statement of all fees from the housing finance companies will
ensure that there are no surprises later on. Use the lowest amount
of fees to negotiate with the other lenders.
3.

Get

pre-approval

letter

This gives you substantial leverage as you are then seen as a


serious buyer by the seller of the property. Also, having the letter

in your hand will set a limit to the amount of money you can
commit to a property. This will help in identifying the right
property.
4.

Bargain

for

lower

rate

of

interest

Housing finance companies will reduce their `rack' rates for


customers with a good credit record. A bargain deal will easily
fetch a home loan at significantly lower rates (at times you can get
a discount of as high as 0.50%). Here again, get a confirmation of
the rate (and for how long it will remain fixed) via a letter.
5.

Watch

out

for

predatory

lending

Don't include false information on your home loan application to


get quick approval. Also do not borrow more money than you
need or can afford.

A floating interest rate allows customer to take advantage of


interest rate movements --they get immunity from adverse
movements and reap the benefits of any fall in interest rate. But a
floating rate loan makes sense only when interest rates are high,
so that they can take advantage of a possible fall. But predicting
interest rate movements could confound even seasoned marketwatchers.
If they are looking for a home loan, be prepared to cough up a
pretty sum as down payment. The Reserve Bank of India, in a
recent meeting with bankers, cautioned banks against lending 100
per cent of the property value. Thats because given the increasing
competition in home loans, some banks have been funding even

110 per cent of the agreement value. This means your loan not
only pays for the property, it helps with stamp duty and
registration charges, and even furnishings. Its been a sweet deal
so far, as borrowers not only need have no access to other funds,
they also get tax breaks.
The RBIs position is that lending such sums will mean additional
risk for the bank. In case of default, the bank may not have
sufficient collateral to recover dues, and may have to write off the
additional borrowings. However, bankers do not seem unduly
worried. Non-performing assets in the housing segment are quite
low--below 1 per cent--and that, say bankers, is due to the high
asset quality.
As per officials of Bank: "For a house to become a home, there
are additional costs incurred by the borrower, which he meets by
borrowing from friends or family members. Also, the default risk
in housing loans is
quite low, so they think that with proper checks, theres nothing
wrong in lending more." Bank was the first to see this and slashed
the interest on its 15-year.

They want to achieve a serious

leadership position in home loans, so they thought of giving the


best possible rate to the customers.
Housing finance companies like HDFC, however, lend only up to
85 per cent of the agreement value. There has to be some equity
and commitment from the house buyer, so we ask for at least 15

per cent down payment from the house buyer. They try to make
sure that their risks are well-covered.
For the moment, however, banks can continue lending more than
100 per cent of the property value. But if push comes to shove,
and if RBI makes its suggestion a rule, this sweet deal may not
last long.
More proof that home is indeed sweet home. Bimal Jalans latest
announcement of a cut in bank rate is a clear sign that the soft
interest rate policy is all set to continue. The 25 basis points
decrease in the bank rate means the central bank has reduced the
rate at which banks borrow from it. This means that banks, in
turn, could reduce the interest rates they charge on housing
mortgages.
Already, State Bank of India, one of the biggies in the housing
finance business, has announced a rate cut of 25 basis points. Its
rates for loans up to 10 years have been reduced to 8.75 per cent
from 9 per cent, and for loans over 10 years to 9.25 per cent from
9.5 per cent. The cost of funds has come down; therefore, they
have decided to reduce their home loan rates.
When interest rates fall, lenders lower not the EMI amount but the
number of months that you pay those EMIs. The table shows the
number of months
by which your loan tenure is cut when interest rates are lowered
by 0.25 to 1 percentage point.

% cut
-0.25
20 yrs
11
15 yrs
5
10 yrs
2
On a 9 per cent Rs 1 lakh

-0.5
20
10
4
loan

-0.75
29
14
6

-1
37
18
8

There's good news for those wanting a home loan. Over the past
few months, lenders have been cutting interest rates on home
loans by 25-50 basis points. Banks like HDFC, ICICI Bank, and
State Bank of India have cut rates by 0.75 per cent in the last two
weeks to 9.75 per cent for 15-year loans.
One reason for the rate cut is that borrowing costs have come
down, which is a result of a cut in interest rates in the general
economy.
The general economy apart, lenders have been forced to cut rates
to keep up with competition. More players want to enter the home
loan market, and existing players are fighting for a larger share.
HDFC has also felt the heat. It has decided to reduce the review
time of its variable interest rate from 6 months to 3 months, so
that existing variable rate borrowers can benefit faster in the
falling interest rate scenario. ICICI too has kept pace with its
peers. While interest rates on fixed mortgages tend to be higher,
ICICI has decided to offer the same rate it charges floating rate
borrowers.

Fixed rate products are not widely available now; lenders like and
Citibank do not offer fixed rate home loans. Others like
Corporation Bank
are not extending fixed rates loans beyond a 10-year period. This
is good in the short-term, but if rates go up, floating rate
borrowers may be in for a tough time.

SWOT ANALYSIS OF THE HOUSING FINANCE INDUSTRY


STRENGTHS
The industry has been witnessing a very fast growth rate, which is
6% growth in the first quarter of 2002-2003 as against 3.5 %
growth recorded in the first quarter of 2001-02.
The market faces a high demand curve, thoroughly mismatched by
a low supply curve
Investment is based in assets that are securities and those that have
historically appreciated rapidly.
Tax benefits and other facilities provided on loan repayments
WEEKNESSES:
The foreclosure rules of court of law such as provision regarding
the ownership of not more than one house (In Delhi) binds the
industry.
The health of an HFC depends upon its ability to mob up low cost
funds.
An HFC is unable to tap the rural market due to lack of proper
retrieval procedures, so whilst the rural market offers a higher rate
of return, it has a higher risk and default rate.
Many legal impediments exist, deferring purchase of certain types
of property beyond a certain extent thereby negatively impacting
the housing finance industry. Weak mortgage laws, resulting in an
increase in risk compound this
OPPORTUNITIES:
The housing industry faces a severe shortage of houses. The total

demand for houses is expected to touch around 19.40 million units


by the year 2003. Of these 12.8 million dwelling units (65.98 per
cent) would be in rural areas and 6.6 million dwelling units (34.02
per cent) in urban areas.
While the loan facility is backed by the security of the property this
sector represents a low margin but on same line low risk segment. To
address this market the ones lies on the HFCs to device bold and
innovative alternatives like mortgage based securities, use of
methods such as door to door collection of installments, assessing
the creditworthiness of the prospective client and providing for
group security.
The roles of NHB in refinancing and providing regulation of housing
finance system.
The government's initiative to promote the sector and its
contribution in uplifting the sector
THREATS:
The industry faces increased competition as more and more
foreign backs and housing finance companies are providing loan
facility.

SWOT ANALYSIS OF ICICI HOME FINANCE


STRENGTHS:
Save substantial interest
Prepay whenever the customer wants
Reduce their loan outstanding without any penalties
Access the surplus funds anytime
Use surplus funds to invest when the right opportunity arises
WEAKNESS:
Product is very good but it is mainly suitable for the higher
income group and is not suitable for the middle income group.
OPPORTUNITIES:
Ample scope for financing flats and apartments for the salaried
class in the higher income group.
THREATS:
Nationalized banks like SBI, Union Bank and PNB
Private Banks like HDFC and Standard Chartered and Citibank
with its Home Credit scheme.

CONCLUSIONS
The Indian customer has come a long way from purchasing to fulfilling their
needs from buying a house. Customers now grab everything that comes their
way but they do their own survey of optimum loans; same is the case with
banks, and housing loans. With innumerable choices before him, the
customer is indeed the king. It is therefore imperative that if a bank has to
succeed in the competitive world, it should be technological savvy, customer
centric progressive driven by highest standards of corporate governance and
guided by sound ethical values and above all should be cordial and should
have personalize customer services.
There is scope of exploiting the vast middle income group by releasing loans
with special interest rate which would be beneficial to both parties.

RECOMMENDATIONS
The following suggestions are strongly recommended:
1. To broaden the customer base the vast middle income strata should be
fully exploited
2. Simplify the procedure, reduce service charges, and demand only the
basic essential proof.
3. Most banks are reluctant to advance loan to the service class e.g. lawyers,
police officers etc.. This aspect must be exploited.
4. Adoption of flexible and more lenient penalty should the customer fail to
deposit the payment on time. The penalty should be on case to case basis
rather then the same for the entire customer base.
5. Restriction to be reduced to bare minimum for loan advances and for
repayment. For e.g. offer long-term repayment facilities and have no age
restriction to choosing repayment.
6. The maximum age for repayment could be increase to 65-70 years of age.
Such facility will help grow fast retail segment of the bank.
7. Offer multiple repayment loans.
8. Service class to be exploited by offering special reduced rates and linking
the repayment from the source from where the pay-cheque to the
employee is issued.

This needs to undergo special contract with

government organisation to ensure implementation.

GLOSSARY

Equal Monthly Installment (EMI) :


Loan repayments are usually in Equal Monthly Installments over
the tenure of the loan. Some banks also offer a Variable
Installment Scheme were in repayments are higher in the
beginning of the loan period. This is beneficial for those
individuals who are trying to maximise their tax breaks in the
initial years and expect future tax breaks to fall (we believe that
the opposite is more likely!)
Fixed /Floating rate:
Under a floating rate loan, the interest rate on the loan varies from
time to time depending on the Prime Lending Rate fixed by the
Reserve Bank. This change can happen as frequently as one in six
months. If the PLR falls, you benefit as the effective interest rate
on your remaining loan falls. However, your payments every
month stay the same. The Finance Company will refund some of
your EMI cheques and effectively compensates you by reducing
the tenure of the loan. The reverse happens if the PLR rises, much
to your disadvantage.
Choosing between fixed and floating loans:
In the last 2-3 years the PLR has fallen as the Indian economy had
slowed down and demand for money was low. If you expect this
trend to continue, you stand to benefit from a floating rate loan. If
interest rates begin to rise again, you can prepay your floating rate
loan and lock in to fixed rate loan. You must them choose a
floating rate loan with no repayment charges (one is offered by
HSBC). However, if you do not want to speculate on interest rates
and need a stable loan to help planning the future, then go for a
Fixed rate loan.
Rest:
Interest rates are quotes on a daily rest, monthly rest or annual rest
basis. The annual rest quote implies that the company gives you
the credit for the monthly principal repayments only at the end of
each year. Such loans are therefore more expensive than a

monthly /daily rest loan. The shorter the tenure of the loan, the
greater the effective interest rate difference will be.
AbodesIndia.com has standardised all interest rate quotes from
companies on a MONTHLY REST basis ( rates will therefore look
different from Company brochure quotes which maybe on a
annual rest basis)
Processing Fee:
A one time fee which is normally non-refundable and payable
along with your initial loan application. Rates can vary from 1-2%
of the loan amount.
Administrative Fee:
A one time fee which is normally non-refundable and payable
before your loan is disbused. Rates can vary from 1-2% of the
loan amount.
Commitment fees:
This interest is charged if you do not draw the sanctioned loan
within a period of 6-9 months. The rate of interest is usually about
1-2% a months.
Interest Tax:
Housing Finance companies have to pay a tax on the interest
income they receive from you. They sometimes pass this on to the
customer. Always check with the company if the interest rate they
are quoting includes interest tax or not. This tax normally about
2% of the interest rate charged. E.g if the interet rate quoted is
14% then the actual interest rate including interest tax is about
14.28%. AbodesIndia.com has standardised all rates AFTER
Interest Tax, on a monthly rest basis to aid comparison across
companies.This rate is called the Effective rate.
Prepayment charge:
Most Housing Finance companies charge a fee for prepaying your
loan before its full tenure is over. This helps them plan their
finances, at your expense. Your earning capacity will normally
increase with age and a prepayment fee can be a big cost. This fee
also limits your ability to refinance the loan if interest rates fall
after a few years. The fee is normally in the range of 1-2% of the

prepaid amount.
Refinance Charge:
Some Housing Finance companies do not charge you for
prepayments from your own savings. However, if you retire a loan
using money borrowed from another Finance Company, you will
have to pay a Refinance charge of 1-2% of the loan outstanding.
Down payment:
Housing finance companies would normally give a loan up to 8085% of the value of the property. The remaining amount would
have to paid by the buyer (to the seller), as a down payment
before the he draws on the loan.
Tenure of the loan
Normally, loans are given for a period of 1-15 years. Some
companies also give loans upto 20 years at an additional interest
cost of 0.25% -0.5%. Most companies do not allow loans for a
fraction of a year.

BIBLIOGRAPHY
www.indiaproperties.com
www.apnaloan.com
The Economic Times, 15 February 2005
The Financial Times, 06 December 2004
Philip Kotler, Marketing Management, 9th edition
Akkar ;Marketing Research
Business Today, July 20 2004 issue