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MADRAS UNIVERSITY JOURNAL OF BUSINESS AND FINANCE

Refereed, Peer-reviewed and Bi-annual Journal from the Department of Commerce


Global Impact factor: 0.243
Vol. 2 No. 2
July 2014
Pp. 34 - 41

ISSN: 2320 - 5857

journal.unom.ac.in

HOUSING LOANS - CUSTOMER PERSPECTIVE


(A STUDY CONDUCTED WITH REFERENCE TO CHENNAI)
Dr. C. Shalini Kumar*

V. Sudha**

Abstract
Home loans are an attractive and popular means of buying a dream house for most people. In India, the demand
for home loans has increased manifold in the last decade. The purpose of the study is to study the concept of Home
Loan /Housing Finance in todays scenario. The home loan market in India has grown at a rapid and alarming
rate of over 40% over the period of the last four years. The reports from one of the industry experts, reveals that it is
evident that there is very little chance that these will be any significant decline in growth rates in the future.
Therefore it becomes important at this point in time to examine the key factors that have been instrumental in
triggering this high growth period. These are several reasons that can be considered as having attributed to the
growth of the home loan market. On the demand side, the first and the most important factor for the growth has
been faster rise in incomes as compared to property prices, thus making housing more affordable.
Key Words: Housing loan, Housing finance, Property prices, Income, Gross Domestic Product

INTRODUCTION
Home loans are an attractive and popular means of
buying a dream house for most people. In India, the
demand for home loans has increased manifold in the
last decade. Housing is a primary human need next in
importance to food and clothing. This takes
precedence over other household expenditure and
routine needs. Housing, however, is a major
expenditure and cannot be funded out of a familys
normal monthly income or savings. The prospective
house owner must look for a loan substantial in size
and so structured that he can repay it over a longer
period of time, in many cases almost ones entire
working life. Loan is offered to a borrower to purchase
or build a new house on the basis of his/her eligibility
and the banks lending rules. Government gave
encouragement for housing finance subsidiaries by
offering number of tax concessions to individuals and
with such overall encouragement given to this sector, a

number of players entered in housing finance. One of


the most important benefits of taking a home loan is
the interest rate that is allowed on the home loan. Fixed
and variable interest rate options are also available for
home loans. Many financiers also offer home
improvement loans at the same interest rate as they
offer the home loans.

IMPORTANCE OF HOUSING
Ever since human civilization evolved, human
settlement became a primary concern along with food
and clothing. Housing, in fact, laid the foundation for
human settlement and civilization.. Good housing is,
thus, a pre-requisite for human development and
welfare. It is essential for the smooth operation of a
modern society. Healthy and commodious living
provides incentives and generates efficiency, energy,
zeal and strength on which depends social, cultural
and economic prosperity.

* Principal, Annai Velankanni College of Arts & Science. Chennai


** Associate Professor, Dept of Commerce, M.O.P Vaishnav College for Women, Chennai

34

HOUSING LOANS - CUSTOMER PERSPECTIVE


(A STUDY CONDUCTED WITH REFERENCE TO CHENNAI)

Housing sector is recognized as a major employment


generator. It also results in growth of many homebased manufacturing industries like cement, iron and
steel, paints, marble / ceramic tiles, bricks, electrical
wiring and appliances, PVC pipes, furniture, sanitary
fittings, household articles and other consumer
durables. With forward and backward linkages,
housing activity provides impetus to economic
growth. Whenever the economy is facing recession, the
investment in housing sector has the potential to kickstart the economy for growth. It has a multiplier effect
on income and employment. Because of its strong
forward and backward linkages, even a small initiative
in housing will propel multiplier effect in the
economy. The main reason is that the investment in
housing increases income levels of the people having
low income, who normally have high Marginal
Propensity to Consume (MPC). This high MPC gives
rise to demand for consumer goods, which result in
higher Gross Domestic Product (GDP) by multiplier
effect, which clearly shows that housing investment
significantly contributes to economic development.
Recognizing the critical importance of human
settlement in developing countries, the UN declared
the year 1987 as International Year for Shelter for the
Homeless and Poor. Since then, there has been a
growing concern to address various forms of housing
deprivation particularly in developing countries.

REVIEW OF LITERATURE
Several studies have been done by various researchers
in the context of home loans. The details of reviews are
below.
Berstain David (2009) examined in his study taken
from 2001 to 2008 that in this period there is increasing
use of home loans as compared to private mortgage
insurance (PMI).
Vandell, Kerry D (2008) analyses the sharp rise and
then suddenly drop down home prices from the period
1998- 2008. Changes in prices are for the reasons as
such economic fundamentals , the problem was not
subprime lending per se, but the dramatic reductions
and subsequent increases in interest rates during the

early- mid-2000 , the housing loan boom was


concentrated in those markets with significant supplyside restrictions, which tend to be more price-volatile.
The problem was not in the excess supply of credit in
aggregate, or the increase in subprime per se, but
rather in the increased or reduced presence of certain
other mortgage products.
La courr, Micheal (2007) analyses in his study, the
factors that affect the increase in the level of Annual
percentage rates (APR) spread reporting during 2005
over 2004.The three main factors are (1) changes in
lender business practices; (2) changes in the risk profile
of borrowers; and (3) changes in the yield curve
environment. The result shows that after controlling
the mix of loan types, credit risk factors, and the yield
curve, there was no statistically significant increase in
the reportable volume for loans originated directly by
lenders during 2005.
La cour Micheal (2006) examined the home purchase
mortgage product preferences of LMI households.
Objectives of his study were to analysis the factors that
determined their choice of mortgage product. The role
pricing and product substitution play in this segment
of the market and to verify whether results vary when
loans are originated through mortgage brokers. In this
case regression analysis has been used and results
have shown that high interest risk reduces loan value.
Dr. Rangarajan C. (2001) said that the financial system
of India built a vast network of financial institutions
and markets over times and the sector is dominated by
banking sector which accounts for about two-third of
the assets of organized financial sector.
Haavio, Kauppi (2000) stated that countries where a
large proportion of the population live in owner
occupied housing experience higher unemployment
rates than countries where the majority of people live
in private rental housing.This might suggest that
rental housing enhances labour mobility. In this paper,
they develop a simple inter temporal two region model
that compares owner occupied housing markets to
rental markets and to analyze how these alternative
arrangements allocate people in space and time. SBI
has taken the rate war in the home loans category to

35

Dr. C. Shalini Kumar

and

V. Sudha

new heights announced that it will offer loans for Rs. 210 lakhs at 12.5 percent the lowest rate offered by any
housing finance provider, Narasimham Committee
(1991) points out that although the banking system has
made rapid progress during the last two decades, there
is decline in productivity and efficiency and erosion of
profitability. The committee strongly makes
indications of liberalizing, deregulating economy to
make the Indian banking system more competitive
and efficient.
Ojha (1987) in his paper "Modern International
Caparison of Productivity and Profitability of Public
Sector Banks of India" has made a comparison on the
basis of per employee indicators and taking cases of
State Bank group and Punjab National Bank noted that
Indian banks are the lowest in all accounts.
Godse (1983) observes that productivity aspect is only
at the Conceptualization stage in the banking industry.
He suggested improvement in productivity and
procedures, costing of operations and capital
expenditure etc.
Fanning (1982), while examining bank productivity of
British banks observed that although the productivity
of the UK clearing banks is improving, they are still
heavily over manned as compared with similar banks
elsewhere.
Kulkarni (1979) in his study Development
responsibility and profitability of banks stated that
while considering bank costs and profits, social
benefits arising out of it cannot be ignored. He
suggested that while meeting social responsibility
banks should try to make developmental business as
successful as possible.
Varde and Singh (1979) in a study "Profitability of
Commercial Banks" over 15 years gave consideration
to two types of factors that affects interest rates levels
i.e. internal factors (including operational and
managerial efficiency of individual basis). Banking
Commission (1972) reviewed bank operating methods
and procedures and made recommendations for
improving and modernizing these, particularly
relating to customer services, credit procedure and

36

internal control systems. It observed that present


methods of working out branch profitability are not
appropriate and an integrated costing and financial
reporting system is essential.

RESEARCH METHODOLOGY
Objectives of the Study
For the purpose of the study the following objectives
have been identified:
1)

To study the concept of Home Loan /Housing


Finance in todays scenario.

2)

To examine types of loans in India.

3)

To identify the reasons for availing home loans in


nationalized and private banks.

4)

To analyze the impact of EMI and interest on


loans charged by banks on the customers.

HYPOTHESES
The Hypotheses that are tested in this study are as
follows:
1.

There is no association between age, educational


qualification, profession, income, type of banks
and various reasons for home loan.

2.

There is no association between education,


profession of the respondents, income of the
respondents, EMI and tenure of repayment.

3.

There is no association between reasons for


availing home loans and choice of banks.

4.

There is no association between type of banks


and interest charged on housing loan.

5.

There is no association between age, educational


qualification, profession, income of respondents
and the type of interest (fixed/ floating)

RESEARCH TOOL
Questionnaire is the research tool used in the study
and it consists of 5 prominent factors which influence

HOUSING LOANS - CUSTOMER PERSPECTIVE


(A STUDY CONDUCTED WITH REFERENCE TO CHENNAI)

the general public to opt for housing loan. These


factors also have an impact on the choice of the type of
loan and the financial institution sought, for the
purpose of availing such loan. The statements
pertaining to the 5 factors were responded by the
chosen respondents who had availed housing loans
from both public and private banks. The statements
have been designed using Likerts 5 point scale which
ranges from strongly agree to strongly disagree.

SAMPLE SIZE & DATA COLLECTION


The researcher applied simple random sampling
method to obtain the responses from the general
public. The study was focused on both public and
private sector banks which were chosen by the
respondents for availing housing loan.
The researcher has sourced out respondents who have
availed of housing loan from different financial
institutions and collected around 100 responses .

DATA ANALYSIS
The researcher used t-test, f-test and factor analysis by
Principle - Component method and KMO Bartletts test.

LIMITATIONS OF THE STUDY

TYPES OF HOUSING LOANS:


The following are some popular types of home loans
available in the Indian housing finance market:

LAND PURCHASE LOANS


Land purchase loans are taken to buy a plot of land on
which a borrower wishes to construct his house. Most
banks offer up to 85 percent of the price of the land.
These loans can be availed for residential as well as for
investment purposes. Almost all leading banks offer
this loan like ICICI Bank (Land Loan), Axis bank (Loan
for land purchase) etc.

HOME PURCHASE LOANS


The home purchase loans are the most popular and the
most commonly available home loan variants. These
loans can be used to finance the purchase of a new
residential property or an old house from its previous
owners. In this type of loan also, lenders usually
finance up to 85 percent of the market value of the
house. These loans are provided either on fixed
interest rates or floating interest rates or as hybrid
loans. All banking institutions and housing finance
companies provide this type of loan.

HOME CONSTRUCTION LOANS


1.

This research study was time bound and only


certain criteria were taken up for study.

2.

This research study was taken in a limited area


only (i.e Chennai city) and findings may vary
from place to place.

3.

The study was limited to one nationalized bank


and private bank.

4.

Some of the respondents might have been biased


in their responses as it depends on their
experience gained by them during processing of
such loans.

5.

Some of the conclusions also depend upon


secondary data which are reliable to the extent
and as such the conclusions derived from them
are justifiable.

These loans can be availed by those individuals who


want to construct a house according to their wishes
rather than purchasing an already constructed one.
The loan application and approval process for home
construction loans are somewhat different from those
of the commonly available housing loans. The plot of
land on which the borrower wishes to construct the
house should have been bought within a year for the
cost of the land to be included as a component for
calculating the total price of the house. If the plot has
been purchased more than a year ago, then the above
clause is not applicable. The borrower has to make a
rough estimate of the cost that will be incurred for the
construction of the house and then apply for the loan
with the same amount. The lender then takes over from
their and analyses the application to decide whether or
not to sanction the loan. The approval or disapproval

37

Dr. C. Shalini Kumar

and

V. Sudha

of the same is intimated by the lender to the applicant.


The loan amount may be disbursed at one go or in
several installments according to the progress in the
construction of the house. Banks like Canara Bank,
UCO Bank, Bank of Baroda provide these loans.

developing countries is the provision of the basic


amenities for human settlement. Like other
developing countries, India too is not an exception to
this seriously growing human concern.

ANALYSIS & INTERPRETATION

DIMENSION OF HOUSING PROBLEM


The problem of Housing mainly centered on
population growth, urbanization and quality of housing.
The economic development, which is closely associated
with industrialization and urbanization, has resulted in
the rapid growth of cities in developing countries and
acute shortages of housing in urban areas.
The rapid pace of urbanization had serious
implications on demand for housing. The demand for
housing has increased phenomenally not only in
quantitative terms but also in qualitative terms. The
rapid spread of urbanization is also accompanied by
the prolific growth of huge slums and shantytowns.
The slum settlements, without any basic amenities,
today represent over one third of the urban population
in developing countries. Their numbers are to double
over the next 25 years. Given the phenomenon of
massive and historically unprecedented movements
of people from rural areas to burgeoning cities, the
critical issue that needs to be addressed particularly in

In this section ,the researcher is intended to measure


the influence of demographic profile of the housing
loan beneficiaries in particular occupation and income
are considered crucial demographic variables to
identify the perceptual difference over the home loans.
After reviewing national and international literature,
the researcher has identified the following factors
which determine a crucial role in determining
customer perception. The following five factors have
been predominantly quoted by the customers to
perceive their opinion.
1.
2.
3.
4.
5.

EMI
Rate of interest.
Years of repayment.
Type of interest
Total charges

Influence of income on the factors of home loans


The application of analysis of variables over the 5
factors derived the following results.

ANOVA
Sum of
Squares

Factors
EMI

Rate of interest

Year of repayment

Type of interest

Total charges

38

Between Groups

Mean
Square

.313

Within Groups

158.528

513

.309

Total

159.155

515

Between Groups

.627

df

.485

Within Groups

128.975

513

.251

Total

129.945

515

Between Groups

.970

.471

Within Groups

129.002

513

.251

Total

129.943

515

Between Groups

.941

3.380

Within Groups

154.775

513

Total

158.155

515

Between Groups

2.201

Within Groups

139.077

513

Total

141.278

515

1.690

Sig.

1.014

.363

1.930

.146

1.871

.155

5.602

.004

4.059

.018

.302
1.100
.271

HOUSING LOANS - CUSTOMER PERSPECTIVE


(A STUDY CONDUCTED WITH REFERENCE TO CHENNAI)

DESCRIPTIVES

EMI

Rate of interest

Year of repayment

Type of interest

Total charges

Mean

Std. Deviation

4.2045

.48620

4.1357

.56681

4.2500

.57150

Total

4.1531

.55591

4.1429

.55522

4.2142

.49206

4.3490

.48334

Total

4.2119

.50231

4.1017

.47921

4.1896

.50668

4.2969

.48588

Total

4.1831

.50231

4.0519

.52930

4.1499

.55121

4.4375

.57150

Total

4.1531

.55416

3.9502

.58369

4.0586

.50590

4.2604

.54697

Total

4.0549

.52376

From the above table it is found that type of interest (f=


5.602,p=0.004) and total charges for home loan
(f=4.059,p=0,018) are statistically significant at 5 %
level. This implies there is a perceptual difference in
the three income groups respectively less than 25,000,
25,000 to 50,000.After comparing the mean values, it is
found that the customers of home loans with a salary of
above Rs. 50,000 (mean 4.43) agree to a great extent
about the problems of type of loans.
Similarly the respondents in the same income group of
above Rs. 50,000 also strongly agree for the charges
made by the bank for housing loan (mean =4.26). This

shows that higher income group respondents


identified the difficulties of type of interest and
charges in the home loan transaction. They feel that
they always encounter problems in their domains.
Influence of occupation on the factors of home loans
Similarly, the researcher intended to measure the
influence of occupation. The researcher considered
only employee in public and private sector
organisations as respondents.
The application of ANOVA derived the following
results.

39

Dr. C. Shalini Kumar

and

V. Sudha
ANOVA
Sum of
Squares

df

Mean
Square

Sig.

Between Groups

.858

.858

2.785

.096

Within Groups

158.297

514

.308

Total

159.155

515

Between Groups

1.184

1.184

4.728

.030

Within Groups

128.761

514

.251

Total

129.945

515

Between Groups

1.448

1.448

5.793

.016

Within Groups

128.495

514

.250

Total

129.943

515

Between Groups

.858

.858

2.802

.095

Within Groups

157.297

514

.306

Total

158.155

515

Between Groups

1.576

1.576

5.800

.016

Within Groups

139.701

514

.272

Total

141.278

515

Factors
EMI

Rate of interest

Year of repayment

Type of interest

Total charges

DESCRIPTIVES

EMI

Rate of interest

Year or repayment

Type of interest

40

Mean

Std. Deviation

4.1315

.55713

4.2301

.54705

Total

4.1531

.55591

4.1865

.51660

4.3024

.43788

Total

4.2119

.50231

4.1551

.49709

4.2832

.51025

Total

4.1831

.50231

4.1315

.55293

4.2301

.55415

HOUSING LOANS - CUSTOMER PERSPECTIVE


(A STUDY CONDUCTED WITH REFERENCE TO CHENNAI)

Total charges

Total

4.1531

.55416

4.0256

.53424

4.1593

.47213

Total

4.0549

.52376

From the above table ,it is found that the rate of


interest ( f=4.728,p=0.030),years of repayment
(f=5.793,p=0.016). The total charges (f=5.800,p=0.016)
are statistically significant at 5% level. This leads to
mean comparison between public and private sector
employees and their perception. It indicates that
private sector employees have more problems with
rate of interest (mean =4.3024),years of repayment
(mean = 4.28) and total charges (mean =4.15). They
express their opinion that the rate of interest of housing
loan is enormous and the banks do not give them the
opportunity to fix their years of repayment. They also
feel that the bank charges are exorbitant and
disproportionate to their loan amount.

specified time period. The customer chooses housing


loan to avail himself of a decent home. Hence, the loan
providers need to ensure that the procedures followed
should not be cumbersome but it should be for the
ultimate benefit of loan provider and the customer.

REFERENCES
1.

Dr.S.Hasanbanu and V.Jeya shree, A


comparative study on factors influencing
Housing loan Borrowers of public and private
sector Banks in Uthanapalayam Taluk. K.K.R.H.
Colleges Uthamapalayam. Tamilnadu.

2.

Pushpa Sangwan & Kanwar Bhan, A


Comparative Analysis On Home Loans Of Public
&Private Sector Banks In IndiaInternational
Journal of Research in Commerce, Economics &
Management,Volume No.2 (2012), Issue No.9
(September),ISSN 2231-4245

3.

S.Rajalakshmi,Assistant Professor of
commerce,&Mrs.C.PappeswariAssistant
Professor of Commerce, Govindammal Aditanar
college for women, Tiruchendur, Thoothukodi
Tamilnadu

4.

Venkatesh.A ,Assistant Professor of Commerce,


Ambai Arts college ,Tirunelveli District,
Tamilnadu, A study on housing loan borrowers
of Public and private sector banks in Thoothukudi
area Research Journal of Commerce Vol. 1 , No. 2
December, 2013.

5.

Vijayakumar.M and Dr.B.Subburaj, Housing


Finance An Analysis of post purchase Behavior
of consumers. Gandhi gram Rural University,
Indigo, TamilNadu

FINDINGS & CONCLUSIONS


The home loan market in India has grown at a rapid
and alarming rate of over 40% over the period of the
last four years. The reports from one of the industry
experts, reveals that it is evident that there is very little
chance that these will be any significant decline in
growth rates in the future. Therefore it becomes
important at this point in time to examine the key
factors that have been instrumental in triggering this
high growth period. These are several reasons that can
be considered as having attributed to the growth of the
home loan market. On the demand side, the first and
the most important factor for the growth has been
faster rise in incomes as compared to property prices,
thus making housing more affordable.
Most of the housing finance companies in India have
introduced several new home loan products in order to
meet the needs of a wide variety of customers. The
various home loan schemes have market. The
customer can choose those schemes which he feels is
good for him and have the capacity to repay it on that

41

MADRAS UNIVERSITY JOURNAL OF BUSINESS AND FINANCE


Refereed, Peer-reviewed and Bi-annual Journal from the Department of Commerce
Global Impact factor: 0.243
Vol. 2 No. 2
July 2014
Pp. 42 - 50

ISSN: 2320 - 5857

journal.unom.ac.in

A COMPARATIVE STUDY OF SIZE, STRUCTURE AND TREND IN THE


WORKING CAPITAL IN SELECT SUGAR MILLS IN CHITTOOR DISTRICT, AP.
Dr. V. Ramesh Babu*

Prof. B. Bhagavan Reddy**

Abstract
Working capital plays a key role in a business enterprise just as the role of heart in human body. Working capital
acts as grease to run the wheels of fixed assets. Its effective provision can ensure the success of a business while its
inefficient management can lead not only to loss but also to the ultimate downfall of what otherwise might be
considered as a promising concern. . There is a positive trend in the CCSFL in current assets, current liabilities
and net working capital during the period leaving 2004 and 2005. Between the CCSFL and the PSCL, the trend
in net working capital is positive in the former while negative in the latter. It means the net working capital has
declined in subsequent years over the base year in the PSCL. A contrary situation emerges in the CCSFL.
Key Words: Working Capital, Structure, Size, Trend analysis, Liquidity

INTRODUCTION
Working capital plays a key role in a business
enterprise just as the role of heart in human body.
Working capital acts as grease to run the wheels of
fixed assets. Its effective provision can ensure the
success of a business while its inefficient management
can lead not only to loss but also to the ultimate
downfall of what otherwise might be considered as a
promising concern. Thus the efficiency of a business
enterprise depends largely on its ability to manage its
working capital. It is one of the important facets of
overall financial management of a firm. Therefore,
management of working capital is analysed in terms of
size, structure and trend. For this purpose, two sugar
factories are selected to analyse meaningfully and
compare aptly. At the end of 2012, there were 6 sugar
factories in Chittoor district. Out of these, 2 are in the
cooperative sector and the remaining, 4 in the private

sector. Out of them, one sugar mill from each sector is


purposely brought into the sample frame. These
include the Chittoor Co-operative Sugar Factory
Limited (CCSFL), Chittoor, and the Prudential Sugar
Corporation Limited (PSCL), Nindra. The period of
the study covers 10 years from 2003-12.

SIZE:
The size of working capital implies total current assets.
The term, gross working capital, is most important
from the point of view of financing of working capital.
On the other hand, the networking capital concept is
most significant from the liquidity point of view.
Therefore, gross and net working capitals of select
sugar mills are analyzed. The gross working capital in
the CCSFL has increased from Rs. 2907.89 lakhs in 2003
to Rs. 7192.26 lakhs in 2012(see Table 1). On an
average, per year,

*Guest Lecturer in Commerce, PVKN Govt. College, Chittoor 517002.


** Dean, Faculty of Commerce & Management, SV University, Tirupati -517502.

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