INTRODUCTION

INTRODUCTION
A house is one of the most important thing in human life. It provides shelter, pleasure
and security to a person in modern life. With the increasing large population in year by
year, the house demand is also increasing rapidly in India. The housing deficit in India is
estimated at 24.71 million. Out of this 21.78 million is accounted for by the economically
weaker sections. It is difficult to gather huge sum of amount at once by an individual. Here
comes the role of financial institutions. During past few years middle income groups
emerged as an avenue to increase the market capacity of the home loan industry. Under
falling interest rate regime and stiff competition among industry players were given
importance to extract all possibilities to expand the business from middle income group.
But falling interest rate of home loans resulted in global crisis: Increase in real state price.
Even though Indian housing sector is suffering from impact of global crisis, there is still
huge demand of housing loan from middle income groups. And it is important to select
proper financial institutions to satisfy their need. So that it is essential to know what middle
income group expect from Housing Financial Institutions.

The important variables that influence the selection of a loan were age, income,
savings, existing debts, interest rates, tenure, convenience, and other commitments
regarding expenditures of an individual.

The research questions were centered around decision drives for a home loan,
attributes that influence in selection of loan provider, knowledge about financial institutions
among respondents, assessment of satisfaction level and factors affection satisfaction and
dissatisfaction of the applicants, service expectations, suggestions for service improvement
and finally to assess the customer loyalty.

Hypothesis is used to test the independence of attributes viz.,tax benefits, low interest
rates ,convenience on decision to go for a housing loan by an individual from middle
income group. Statistical tool used was chi-square; the out come was that the decision to go
for a housing loan is dependent on tax benefits, low interest rates and convenience.
 A home is a place of residence or refuge and comfort. Purchasing and moving into a
dream house would generally rank among the top three things on the wish list of most
people. After all it’s what been proved by Maslow’s Law of Hierarchy as well. Middle
income groups can’t buy their dream home at once paying huge amount of money, that is
the reason they go for home loan to the financial institutions. But nowadays it is difficult to
choose proper financial institutions due to competencies between so many players in the
market. So that financial institutions play a important role to middle income groups.

The industry comprises of nearly 383 housing finance companies although

disbursements from only the leading 26 institutions are eligible for re-finance from
National Housing Bank, which is the regulatory body for these companies. These Housing
Finance Companies (HFCs) constitute nearly 95 % of the total disbursement by the
industry.

In today's political scenario, India has positioned itself as one of the best place for
realty investments. The reason behind this development is India's flexible policies and open
system with social and political safety regulators and a conducive environment that
provides comfort, long-term stability and security to the foreign investors for personal as
well as business investments.

The positive outlook of Indian government is the key factor behind the rise of the
Indian real estate sector, the second largest employer after agriculture in India. This
budding sector is today witnessing development in all area such as - residential, retail and
commercial in metros of India such as Mumbai, Delhi, Kolkata, Bangalore and Chennai.
Easier access to bank loans and higher earnings are some of the pivotal reasons behind the
sudden jump in the real estate sector.

As access to bank loans are becoming easier, many potential buyers wish to learn
about best financial institution and real deal for home purchase.

Even the property prices are augmenting fast, especially Chennai real estate,
Hyderabad real estate and Bangalore real estate are on the very high phase. The market
boom is spread across the country and hence more and more Indians are not interested in
investing for India real estate. The economy rate as well has managed to grow faster than
8% each year because of increasing real estate market trend.

1.1 Background of the study

History of mortgage

The practice of securing land for payment of money in English law dates back to
Anglo-Saxon England. The practice has been named variously as vadium mortuum by
Thomas de Littleton and mortuum vadium by William Blackstone, and translated as dead
pledge in English and mortgage in French.

At common law, a mortgage was a conveyance of land that on its face was absolute
and conveyed a fee simple estate, but which was in fact conditional, and would be of no
effect if certain conditions were met – usually, but not necessarily, the repayment of a debt
to the original landowner. Hence the word "mortgage" (a legal term in French meaning
"dead pledge"). The debt was absolute in form, and unlike a "live pledge" was not
conditionally dependent on its repayment solely from raising and selling crops or livestock
or simply giving the crops and livestock raised on the mortgaged land. The mortgage debt
remained in effect whether or not the land could successfully produce enough income to
repay the debt. In theory, a mortgage required no further steps to be taken by the creditor,
such as acceptance of crops and livestock in repayment.

The difficulty with this arrangement was that the lender was absolute owner of the
property and could sell it or refuse to re-convey it to the borrower, who was in a weak
position. Increasingly the courts of equity began to protect the borrower's interests, so that a
borrower came to have an absolute right to insist on re-conveyance on redemption. This
right of the borrower is known as the "equity of redemption".

This arrangement, whereby the lender was in theory the absolute owner, but in
practice had few of the practical rights of ownership, was seen in many jurisdictions as
being awkwardly artificial. By statute the common law's position was altered so that the
mortgagor would retain ownership, but the mortgagee's rights, such as foreclosure, the
power of sale, and the right to take possession, would be protected.
 In the United States, those states that have reformed the nature of mortgages in this
way are known as lien states. A similar effect was achieved in England and Wales by the
Law of Property Act 1925, which abolished mortgages by the conveyance of a fee simple.

The Indian housing finance industry

Since the 1970s, the Indian government had given special emphasis to the housing
industry and made providing housing one of its main objectives. However, due to the
scarcity of finance, owning a house remained a distant dream for the average Indian; even a
lifetime's earnings and investments were not enough to fund the purchase of a house.

As a result, even by 2001, the country faced a shortage of 19.40 million dwelling units.
The housing finance industry emerged as the answer to the problem of housing by
providing finance to individuals planning to own a house.

Till then, banks had offered personal loans for properties. But these loans were
restricted to bank and government (public sector) employees. Private sector employees had
to undergo a lot of hardship to obtain housing loans.

To take care of this problem and to boost investment in housing industry, the
government established the Housing Development Finance Corporation LTD(HDFC) in
1977.

The objective of HDFC was identified as ‘promoting home ownership by providing

long-term finance to households for their housing needs.

During the 1980s and 1990s, increased urbanization and the migration of the rural
population to the cities resulted in heavy demand for housing. This created a great need for
housing finance.

The National Housing Bank (NHB) was also stablished on 9 th July 1988 the
National Housing Bank Act, 1987 to function as principal agency to promote Housing
Finance Institutions and to provide financial and other support to such institutions.

The National Housing Bank Act empowers National housing bank or NBH to:

 Direct and regulate the functioning of housing finance institutions for fair practices.
  Provide loans, advances or any other financial assistance to Banks and housing
finance institutions for slum improvement.

 Supervise mobilization of resources and extension of credit for housing.

Till the late-1990s, the marketing efforts of Indian HFCs were rather limited
because the industry was largely a seller's market. Even the market leader, HDFC, had not
undertaken any major marketing initiatives.

The entry of commercial banks and other private sector companies, however,
changed the dynamics of the industry, and for the first time, all the players emphasized on
marketing. Many of the HFCs targeted the middle class, which had begun availing of
housing loans largely due to the declining interest rates.

Analysts pointed out that housing loan companies needed a strong brand image to build
a strong relationship with these customers. It was felt that if interest rates increased in the
future, this brand image would help companies gain/retain their market shares. Direct
marketing emerged as a very effective tool for attracting customers in this industry.

In the early 21st century, the housing industry in India was one of the few sectors
that was growing at a healthy rate of 28-30% in spite of the economic slowdown. A host of
reasons were responsible for this growth, including favorable government policies,
increased corporate activity, and above all, an increasing customer-base.

During 2000-2002, the government had announced many industry-friendly policies;

in addition, during the same period, real estate prices had also gone down across the
country. The industry's strong growth had a direct impact on many other related industries,
such as the cement, engineering, paint and steel industries. One industry that experienced
hectic activity during the period was the housing finance industry. In fact, some industry
observers claimed that the ease with which housing finance could be obtained resulted in
the increased activity in the housing industry. Not only were customers given tax
concessions on housing loan repayments, companies were also given tax rebates on profits
earned.

As a result, many banks and financial institutions had entered the market with
attractive financing rates and consumer-friendly schemes. So that the new home purchase
loan has become much easily available and is much cheaper than what was available
earlier. Banks were everywhere and the schemes were implemented even in villages and
smaller towns. The housing loans are popular there too, however, the activity of building
flats is little slow. It would not be wrong to say that there has been a boom in the home loan
market and with this boom; there is also a boom in the number of home loan mortgage
brokers in India.

The main reason for this boom in home loan market is the change in government
policies. It is government’s motivation that the home loan interest rates in India have fallen
considerably. Lot many banks are offering home loans and this is available at low EMIs
(Equated monthly Installments).

Again, there were different types of home loans available. The interest rate available is
also of two different types. One is the fixed rate loan and the other is the floating rate loan.
In the fixed rate loan, whatever interest is fixed on the start of loan is carried on for the
complete period. However, in the other one, the interest rate is not fixed and as the interest
rate goes up or low the effect is directly transferred to the person who is taking the loan.

As shared earlier, taking a loan is not a difficult task. However, before taking a loan,
one must realize that the relationship with the bank will be for a longer period usually 15 to
20 years so one must ensure faith and integrity in bank. Apart from low rate of interest, the
bank should also provide some value added services. The other thing is to look into is the
property that is to be brought. Making sure that the builder has all sanctions and facility to
build a good building is very important.

Global crisis

At the height of the property boom in the US few years ago, banks and mortgage
financiers offered dirt-cheap loans to entice customers. But they were cheap only in
nomenclature. In structure, they were time bombs. Not surprisingly, the bombs went off in
2008, and the ensuing global crisis raised the cost of credit to astronomical levels. The
home loans offered to the customer were short-term fixed, but long-term floating.

Short-term rates were low in the US because the Federal Reserve kept monetary
policy loose and did not tighten regulations on lending practices. Home buyers were lured
by two factors: cheap and easily available home loans; and, the prospect of property prices
going up. But when the property market busted and cost of credit rose, home owners were
left with assets far depleted in value on one hand and higher interest costs on their so-called
cheap loans on the other.

After that, the loan turns floating, and will be priced based on the prime lending rate
prevailing then. A customer who takes the loan was in the exact same situation as the US
home buyer was a few years ago: loans were cheap and property prices were rising. The
moot question is, was the loan buyer fully understanding the risk he is taking with such
loans. Was he aware that there was a possibility of decline in property prices and a rise in
interest rates?

Good credit in good times becomes bad credit in bad times, especially for
customers who go for the type of loans being peddled today. And there is no hedge to these
loans except foreclosure. Property prices, as we have seen, are volatile and can remain
depressed for long periods of time. When the previous bubble in India burst in the 1990s,
prices took almost a decade to recover.

The banking regulator should ask the sellers of such loan products to prominently
place risk factors to such loans. Better still, the worst-case scenario for cash flows should
be announced or explained so that buyers of loans will know the extent of their liabilities
when interest rates move up sharply. The best case, of course, would be to avoid teasers.

Although the Indian housing industry have seen slowdown in 2009 due to after
effects of global financial crisis, it is anticipated to attain earlier growth trajectory by the
end of 2010 on account of precautionary measures.

1.2 Present scenario of the market

The Indian housing finance sector reported a compounded annual growth rate
(CAGR) of 56% during the period 2003 to 2007, aided by benign interest rates, rising
property prices, and increasing income levels. Thereafter, the growth rate slowed down,
with steep real estate prices, high interest rates, exit of investors from the market, and a
week operating environment making their impact felt. In the current financial year (2009-
10), there has been some revival in buyer sentiment with interest rates declining and
property prices witnessing some correction.

Mortgage penetration levels (mortgage loans as percentage of GDP) in India,

Which had risen from around 2% as in March 2002 to a little over 7% as in March 2007,
have remained at the 7% levels till date. This being significantly lower than the penetration
rates in developed countries, it appears there is room for further growth. Going forward,
some factor that may contribute positively to growth in mortgage penetration in the
domestic market are a follows :

 Decline in rates of interest to 8%-9% from 12% over the past one year; this
amounts to a 15%-25% reduction in the equated monthly instalment (EMI) per lakh
of loan
 Increase in supply of affordable homes and price correction in the residential real
state market.
 Increase in economic activity
 Large inventory of unleveraged homes (which could be pledged by borrowers to
raise loans)
Trend in Domestic Housing Credit

 Increase in income of government employees following implementation of the

Sixth Pay Commission’s recommendations.

However, it is also likely that a further correction or even stagnation in real estate
prices may lead to borrowers deferring home purchase decisions on the expectations of
another round of correction.
 According to ICRA’s estimates, the total mortgage debt outstanding in India as on
December 31, 2009 was over Rs. 4137 billion, with 71% in the books of the balance in that
of the HFCs. On an average, the mortgage portfolios of HFCs grew at a steady rate of 25%
per annum during the period FY2004-FY2007 while those of banks grew at a higher rate
during the same period; however both reported a significant slowdown FY2008 onwards.
Going forward, banks are likely to maintain a sizeable share of the mortgage market, given
their extensive network, access to stable low-cost funds, and their compulsion to meet
priority sector targets.

Since early 2009, low interest rate schemes have been introduced mostly by public
sector banks and this could make a positive impact on the credit growth of mortgage
finance loans of such banks. Part of this growth could come from loan takeovers from
existing lenders and may not add to the credit growth of the market as a whole. Over a
longer term, the growth rates of banks (particularly public sector banks) would be linked to
their ability to match their services to those offered by the private sector players and
generate adequate risk-adjusted returns, besides being influenced by the overall growth in
the mortgage finance market.

According to ICRA’s estimates, Indian markets would need additional Tier I capital
of around Rs. 550 billion (that is, 120-130% of the estimated Tier I capital deployed in
housing loans as on March 31, 2009), if the mortgage market were to grow at an annual
rate of over 20% during the next five years.cA large part of this could come from internal
capital generation provided mortgage lenders are focused on risk-adjusted returns. Also
influencing factors like economic growth rationalization of property prices, supply of
affordable homes, coverage of smaller markets and level of market competition have to be
conducive.

The domestic mortgage market still lacks a transparent “benchmark rate for variable
rate loans.” With over 90% of all mortgage loans estimated to be at floating rates of
interest, the average yield on advances on the overall book should be closely linked to the
interest rates offered to new borrowers. However, with the prime lending rate (PLR) being
non-transparent and therefore somewhat inflexible in a scenario of declining interest rates,
an existing borrower with a clean track record and substantial equity build-up may end up
paying a higher rate of interest (by 1.5-2%) than a new borrower. Despite the significant
size of the overall mortgage market and the presence of a large number of lenders, no
significant initiative has yet been made to address the issue of transparency. However any
regulatory initiative to align the lending terms for an existing borrower with that for a new
borrower could impact the profitability of mortgage lenders severely.

Most HFCs rely primarily on wholesale funding sources to raise money for on
lending. Therefore, a prolonged tightness in liquidity at the systematic level could affect the
cost of funds and hence the competitive position of the HFCs. Some HFCs also face
significant asset-liability mismatches in the short-to-medium term (because of the lack of
long term funding sources at competitive rates)-a problem whose resolution hinges on the
further development of the capital markets and the mortgage –backed securitization
markets in the country. The interest rate risk residing in the portfolios of HFCs is currently
low, given that their credit book consists predominantly of floating rate loans. However, a
significant increase in interest rates leading to an increase in equated monthly installments
(EMIs) could pose asset quality challenges, which, in turn, could limit the capacity of the
HFCs to raise interest rates.

Market Shares of Various Players as of December 31, 2009

The increased coverage of borrowers under the database of the Credit Information
Bureau and its extensive use by lenders, including HFCs, has helped them reject applicants
with poor credit quality. Further the securitization and Reconstruction of Financial Assets
and Enforcement of Security Interests (SARFAES) Act has been very effective in
controlling credit costs, as it has improved the speed as well as the extent of recoveries
from delinquent accounts. However, a shift in the credit mix of HFCs towards riskier
segments could lead to an increase in fresh slippages and therefore credit costs from the
currently low levels (0.15% of average advances as in March 2009).
 Although interest spreads, which are the main source of earnings for the HFCs (given
their negligible fee income), are likely to remain low, going forward, it is expected that
housing finance companies would be able to report reasonable risk-adjusted earnings on the
strength of their superior cost structures and controlled credit costs.

1.3 Future trend of the market

Future projections predict that the population of India would reach 1,350 million by
the year 2020. Keeping in mind the additional new housing requirements as a result of the
above, an additional 70 million new households would get added up to the existing housing
requirements. This would amount to an additional 3.5 million housing units required during
the next 10-year period. In other words, due to the population increase alone, an additional
3.5 million houses per year would be required.
Hence, we need to gear up to contribute substantially to the housing stock through
streamlined efforts of public, private, co-operative, community and self-help sectors, in
order to see the dream of "Shelter for All" turn a reality by the end of the current decade.

1.4 Highlights and Comments

Highlights:

 Significantly, there has been no dearth of demand for housing and

consequently for finances for the same have been abundant.

 Market dynamics play a pivotal role in determining the lending rates.

Considering the same, the housing finance industry has been in a slump in
recent times.

 The entry of banks into the housing finance sector has posed a serious threat
to already existent players in the field.

 The housing sector is witnessing a clash between major players. Foremost

amongst this is the ICICI and HDFC imbroglio.
  Housing finance policies provided by the Government of India is a
significant step towards upholding the future prospects of this industry.

Sector comments

There always has been huge demand of housing and it will remain same in the
future. Indian housing sector has been developing successfully even though it’s going
through the impact of global crisis as any other developed and developing countries. Few
years ago housing loan interest rate was declining rapidly due to competencies of many
financial institutions in India. The declining interest rest has resulted badly to value of real
state due to increase in prices. And Government of India needed to handle this problem
through its policies. GOI has introduced feasible loan condition through public bank sectors
but it is not enough to supply all the demand. So that there is still huge demand from
customers to the housing financial institutions. And interest rates are still remained
attractive.

1.5 New Delhi & NCR market scenario

Home loans in New Delhi & NCR are almost synonymous to any property purchase
in New Delhi & NCR. This is the result of the level the property prices have reached
following a boom in commercial and industrial segments. In other words, purchasing a
home for dwelling is simply not affordable for many. Renting a house or getting financial
assistance to buy a house could be the possible housing solutions in the current scenario.
Thus home equity loans are a popular real estate service in New Delhi & NCR. Even the
real estate mortgage gets high returns since the property value is so high.
The instigation of housing finance services has helped many in getting their dream
home in New Delhi & NCR that was way beyond their immediate reach. The housing loans
are available as home loans for buying pre-constructed realty or developing or renovating
existing property and also as finance against home assets or real estate assets.
With home loans, we can purchase a residential plot or a house in the forms of flats
or apartments. If our home does not have enough space to suffice our requirement and you
want to add an extra floor to it, you can get financial assistance for that. Home loans for
renovation or remodeling by many leading banks are just for that. With rate of interest
going down consistently, home loans in New Delhi & NCR offer us a good option to bring
the idea of our dream home into reality.
The erstwhile “Garden City” and “Pensioner’s Paradise” and today’s “Silicon
Valley of India” due to its supremacy as the Information Technology hub has made New
Delhi & NCR a hot spot real estate destination.
Now officially renamed as Bengalooru, the city is a metropolitan with a population of 6.5
million making it the third most populous city and fifth largest metropolitan area.
Information technology undoubtedly has been the forerunner in setting the stage for
development,

Growing pockets of New Delhi & NCR

On analysis of the growth pattern of New Delhi & NCR, we witness a push for
developments in the North of New Delhi & NCR comprising of Banaswadi, Peenya
Industrial estate, Yashwantpur and Yelahanka. The growth shift has been attributed to the
development of International airport in Devanahalli. The road from Bellary road to
Yelahanka is witnessing rapid residential development. Prices have raised sharply ranging
between Rs 3000-10000 per square feet for residential and Rs 2000-7000 per square feet
for commercial purpose. The trend is expected to remain positive in the area with
International airport acting as a catalyst for growth.
The South of Bangalore has been growing due to Electronic City- a hub of IT/ITes
offices in the city. Electronic city is located in the outskirts of Bangalore in an area of
332acres and is home for the IT behemoths including Hewlett Packard, Infosys, Siemens
and Wipro. Sarjapur road is another promising area in the south of the city. Jaynagar, J.P
Nagar, BTM layout are the areas adjoining to Electronic city developed primarily as
residential areas. Prices in the South have witnessed an increase in 2007 of approximately
5.6% with prices ranging between 2800-7000 per square feet for residential and Rs3500-
7000 per square feet for commercial.
East of Bangalore has grown till Whitefield, rapidly developing as a commercial
area. Though the connectivity to this part is not au courant, initiatives of government are
underway in form of metro rail and improved road connectivity. Kormangala, Indiranagar
and Hosur road are the prime areas. Prices in the East have remained stable with price
ranging between Rs 2500-7700 per square feet for residential and Rs 3000-8000 for
commercial.
West of Bangalore has predominantly been the residential focus with prime areas
being Malleshwaram, Rajaji nagar and Chord Road. Being a residential area the prices have
comparatively been stable hovering between Rs 2000-6500 per square feet for residential
and Rs 3000-6000 per square feet for commercial.
 All leading banks and finance companies have their branches in Bangalore where
they provide home loans experts who guide you about the formalities and eligibility
procedure of each bank and the housing finance product most suitable to your
requirements. Many cheap home loans products are available in the market that makes
these housing finance services more affordable for the masses.

HOUSING FINANCE

AND HOUSING FINANCE INSTITUTIONS

2.1 Housing finance

Housing Finance is considered both by way direct and indirect finance.

Direct finance: loans give to individuals or group of individuals such as co-

operative Housing Societies or Educational, Health, Social Cultural or other
institutions/centers which are part of a housing project and which are necessary for the
development or settlement of townships or to shopping complexes, markets and any other
centers catering to the day to day needs of the residents of the housing colonies and
forming part of a housing project or to construction meant for improving the conditions in
slum areas for which credit is to be extended directly to the slum dwellers against the
guarantee of government or indirectly through stated governments are classified under
direct finance.

Indirect Finance: loans granted t public housing agencies like HUDCO, Stated
Housing Boards, State Level Agencies, HDFC, Housing Finance Institutions, Housing
Boards and other Agencies are classified under Indirect Finance. Also, financing for Land
Acquisitions and to Private Builders is classified under Indirect Finance.

Nature of housing loans:

1) Longer tenure of loans, ranging from minimum 5 years to 20/25 years. Higher outlay of
funds and longer duration of the housing loans make it different form that of other retail
loans. Therefore, the risk horizon also differs for the housing vis-à-vis retail loans.

2) Rather low cost of operations in terms of deployment of manpower for processing and
follow up, etc., as compared to other loans of the same size within the retail or any other
segments.

3) Safe advances as these are invariably backed by tangible security the form of mortgage
of house/flat.

4) Tendency to default on housing loans low as house is considered as the big ticket deal of
an individual’s life.

5) Housing finance provides a higher and rather consistent risk adjusted return to banks.

6) Cut throat competition prevails among Banks, Housing Finance Companies and
NBFC’s

Types of home loans

Today, home loans have been restructured to suit your constantly changing needs
starting with a basic loan to buy a home, to loans required for construction or for repairing
your existing home. Featured below are a few other kinds of loans available.

 Out Right Purchase Loans

As the name indicates, we can avail these loans for the outright purchase of our homes.

 Construction Loans
We can avail these loans for the construction of your home.

 Home Extension Loan

We could avail of this loan if we want to build a floor or expand it but only after we obtain
the requisite approvals from the municipal and town authorities.

 Home Improvement Loans

External work like structural repairs or waterproofing and internal work like tiling,
plumbing, electrical work painting, flooring, etc., remains to be done even after we’ve
bought the house. This is when a home improvement loan come in handy.

 Home Conversion Loan

Simply put, this loan enables us to transfer our current loan (which we took to buy our
house ) to the new house, thereby providing us with additional finances for the incremental
cost of the new house. Which means, we can move to our new house without having to pre-
pay our existing loan.

 Land Purchase Loan

If we’ve opted to invest in land instead of buying a flat in town, we could apply for a land
purchase loan. We could later apply for a construction loan separately to build our dream
home on the land.

 Stamp Duty Loan

This is extended against the stamp duty amount payable on our purchase of a house. This
particular loan could be worth considering, especially in cities like Delhi, Mumbai and
Bangalore where Real Estate prices are on the high side and the stamp duty payable is
substantial.

 NRI Loans

Loans today are available not only to resident Indians but also to NRI’s if they wish
to buy or construct a house in India. But for an NRI the documentation required is
different. He/She would have to submit his/her work permit ( where applicable), stamped
visa on the passport, employment contract, latest salary slip and overseas bank statement of
the past few months, Repayment of the loan could be done through the normal banking
channels using either a Non-Resident (external)or a Non-Resident (ordinary) account.

 Bridge Loans

In short, bridge loans are short-term finance loans that cover the period till we sell
off your old house. To elaborate slightly, supposing we plan to buy a new house (which
we’ve already found) and want to sell the one we’re currently living in but are unable to
find a buyer, a bridge loan proves useful. Repayment of a bridge loan can be done through
a lump sum or in installments.

 Refinance Loan

This simply means that a housing finance company gives us a home loan to repay
our earlier debt. But the condition is that the earlier debt shouldn’t be over six moths. A
refinance loan therefore works out cheaper when your present house has entailed a
borrowing from other sources such as friends, provident funds, etc.

Balance Transfer (swap)

A balance transfer loan is rally useful when interest rates fall even as we’re still
repaying our home loan. And if we’ve opted for fixed-interest rate repayment terms, we’ll
be paying a higher rate of interest. What we could do is get our existing loan refinanced
(usually by another finance company). The new lender will repay our existing loan and
give us a new loan at the current, lower rate of interest. We might have to face a pre-
payment penalty on our old loan, but it will be worth it if the new EMI ( based on the new,
lower interest rate ) ensures sufficient savings.

Sanctioning criteria for Housing Loans

 Age

It influences the amount and eligibility for a loan by the way of being a major and the
period remaining for retirement.

 Savings

How much of one’s savings can one put for the house? The more one can put into
the down payment, the less he needs to borrow. Yes, given the low interest rates and
attractive tax breaks, it perhaps makes more sense to take higher loans now than never
before. But remember: there isn’t a one-size-fits-all option here; the down payment- loan
ratio will largely be determined by one’s specific financial situation.

For instance, the young couple in our example won’t have a substantial corpus of
savings but will be looking to make the most of their tax breaks by taking the largest
possible loan. With their incomes likely to increase over time, they can easily service their
loan on the other hand single mother with her child’s education to worry about, or man with
dual responsibilities will want to limit their loan repayment liability with higher down
payments.

 Income

Obviously a major determinant of how much loan one can get and how much quickly
one can repay it. Each EMI consists of a principal component and an interest component.
As a thumb rule, the maximum possible EMI is usually put at 35-40% of your gross
monthly income., most lender allow the borrowers to club one co-applicant’s income with
his own to increase one’s loan eligibility.

As a young couple looking at a growing income curve, one can afford to take a
large loan or even a step-up land where the EMIs keep increasing with rising repayment
capacity. On the other hand, declining future income will deter the man on the verge of
retirement from taking a large loan. He may find it prudent to in for step-down plan. That
lets him scale down his EMIs in his post-retirement years or he may opt to return the loan
partially or fully with his super-annuation benefits.

 Debts

If one has commitments like repayment of a car loan, it will limit the finances one
can raise for a house. Then the loan will be lesser than what one could have taken had one
been debt-free. Basically, it is about one’s disposable income. The lender is interested in
knowing what resources are available to the borrower to service the loan.

 Interest rate

The choice of lender may also be determined by how the interest is calculated.
Under certain calculation methods, the interest outgo is more.
 A part of each EMI one pays goes towards reducing the principal amount. How
much this portion is- on which the interest rate is based- depends on how the interest is
calculated by the lender. It may be calculated on a yearly, monthly, or daily reducing basis.
The daily reducing balance method is the most cost-effective. As a thumb rule, given an
interest rate, the more frequently the interest is computed, the better for the borrower.

 Tenure

One can opt for long loan tenures when he is sure he can still repay even after 15 or
25 years. One must also be reasonably certain that unexpected and substantial monetary
obligations won’t crop up, as in the case of the young widow or the man with a growing
family and aged parents. If he is close to retirement, he mist be looking at a declining
repayment capacity- it makes sense to go for shorter tenures or smaller loans.

But even for the young couple, a 30 year loan can prove counter-productive. Unlike
in the US, where interest rates are lower for long-term loans, in India the rates are same for
all tenure. This results in a sharp increase in interest obligation for 30-year loans without a
corresponding increase in loan amounts.

Procedure For Availing Housing Loan

 The appraisal officer attends to the queries of a prospective borrower. Various

details. e.g., eligibility criteria are discussed during this meeting.
 Customer collect the application form, which is generally available at the reception
counter.

 Applicant pay the processing fees, which is about 1% of the loan amount. The fees
are non-refundable. Generally they are asked to pay the fees only if the chances of
the loan getting sanctioned are really good as per the Officer's analysis.

 The date of the personal interview is fixed up as per mutual convenience. The
appraisal officer conducts the interview.

 The Appraisal Officer prepares the file and discusses the case with the Branch
Manager. The Branch Manager should substantiate recommendations of the
Appraisal Officer. The file is then recommended for sanctioning by the competent
authority.
  The competent authority concerned sanctions the loan proposal. In case there are
some queries, the same have to answer by the Appraisal Officer to the satisfaction
of the sanctioning authority.

 If approved, applicant collect the Loan Offer letter. They fill Property Details form
and Acceptance Note and sign the same. This signifies your acceptance of the
proposal. Then, they are required to collect the disbursement within a month of the
acceptance of the offer letter failing which a Commitment Charge of generally 1%
on the loan is levied

 The Legal and Technical fees is generally 1% of the loan sanctioned is paid by the
borrower. The file is then transferred to the Legal department. You submit the legal
documents to the Legal Officer. The Loan Agreement and the other documents are
signed. The Legal Officer then prepares the Legal Report after studying the legal
documents in depth.

 The Technical Officer visits the property and submits the Technical Report. The
Technical officer as per the stage of completion recommends the amount for
disbursement.

 The Disbursement Memo is prepared and is signed by the Appraisal, Legal and
Technical Officers, and countersigned by the Branch Manager.

 The accounts department the prepares the cheque which is then sent to the
authorized signatories. The Disbursement Memo is attached with important
documents like interview sheet, Legal Report, Technical Report, PEMI Status
Report applicable etc.

 The PEMI cheque of the amount disbursed is collected before releasing the
disbursement amount cheque. PEMI is the interest charged on the amount already
disbursed by the company.

 Consequent to the final disbursement the EMI starts, which amortizes the interest
and adjust the principal for the tenure allotted.

 The documents mortgaged are released on closure of loan.

List of Documents In Case Of Salaried Borrowers

 The following documents are required to be submitted by the borrower at the time
of submitting his application: -

 Loan Application form duly filled and signed by the borrower and co-borrower
(where applicable).
 Latest salary slips in original.

 Employment certificate on the letterhead of the borrower's employer.

 Xerox copy of the first and last page of the ration card.

 Xerox copy of the first and balance page of Bank Pass Book.

 Xerox copies of Rent Receipt and Electricity Bill, if applicable.

 Xerox copy of the LIC policy along with a copy of the latest premium receipt.

 Xerox Copies of various investments of the borrower.

 Proof of educational qualification

 Proof of age.

 Previous experiences certificate wherever applicable.

 Xerox copy of the agreement of the property if the property is already selected and
agreement is entered into.

 Xerox copies of the own contribution receipts, wherever applicable.

 In case of borrowers whose salary is taxable, the companies generally call for the 3
years form 16 for tax deducted at source by the employer

Factors to be considered before taking individual loan

Here are some of the factors one should consider before making decisions on home
loans.

 Rate of interest

This is one of the most important factors. Simply put, this is the rate at which we
borrow money to buy the house.
 It’s not always a fixed rate. Though interest rates vary from lender to lender, they
usually range from 8% to 10%, depending on the amount of loan.

The rate for small loans (below Rs.5 lakhs) is lower than that for Rs.10 lakhs and
above. The interest rate on home loans is much lower compared to that of a personal loan,
like a car loan.

Interest rates offered are of two types:

1) The floating interest rate loan : Here, the interest rate payable is linked to the market
rate like the bank lending rate. As the bank rate varies, the interest rate payable will also
rise or fall. Since there’s an element of risk due to the interest rate fluctuations, the floating
interest rates offered are slightly lower than the fixed interest rates.

2) The fixed interest rate loan : The interest rate is constant over the loan tenure.

 Tenure of the loan

This is the period of time for which we are taking the loan. Usually it ranges from 5
years to 15 years. Typically, the tenure of the loan dose not extend beyond the age of
retirement or when we turn 65- whichever comes first.

 Equated Monthly Installment(EMI)

EMI means the amount of money returned back by the borrower to the money
lending institution every month , till the end of the loan tenure. It is the spread of loan
amount payable in the form of small parts each month.

 Reducing balance factor

This is the method of reducing the principal amount repaid from the outstanding
loan amount. Every time you make a payment, the interest you pay is on the part of the
original principal sum that remains un-prepaid till then. Your could calculate the reducing
balance in three ways :

 Daily reducing balance

 Monthly reducing balance
 Annual reducing balance
 In the daily reducing balance method, the principal is reduced every day as if you
were making repayment of the principal on a daily basis.

In the other two cases, the reducation in the principal outstanding is made at the
end of every month and every year respectively. So, the EMI in the monthly reducing
balance method will be lower than in the annual reducing balance method given the same
rate of interest.

 Service from the lender.

Today, many companies offer a wide range of personalized services. Sometimes a

loan is sanctioned even before a property is identified. The speed of approval and
processing, however, varies across HFI’s. A few institutions offer you not only financial
advice but also consultation services on property. Some incentives offered to the customer
range form free credit cards, free ATM cards, free accident insurance to discounted
consumer loans. Some companies even send a representative to your home to discuss and
deliver the loan and also pick up the EMI cheques.

 Additional charges

This includes processing and administrative charges and is expressed as a

percentage of the loan amount. And currently rages from 0.50% to 2% of the loan amount.

 Processing charges

This is a certain charge payable on the loan we have applied for and not on the
amount of loan eventually sanctioned. This charge varies and is typically fixed,
irrespective of the loan amount or maybe a certain percentage of the loan applied for. Paid
upfront, this amount effectively reduces the loan availed of by you. For instance, a 1%
processing charge on Rs.10 lakhs loan means you are effectively getting a amount of
Rs.9,90,000/- (Rs.10 lakhs minus the Rs.10,000/- processing charges). You still have to
pay the interest on Rs.10 lakhs. Therefore, a lower processing charge would prove more
beneficial to you.

 Commitment fees

There could be a delay in availing of the sanctioned loan as you may not have found
the right house or the builder couldn’t deliver the property on time. In such case, a
commitment fee, depending on the lender’s policy, may be levied on the loan amount set
aside for you.

 Hidden Charges

Documentation charges, consultation fee of an advocate to get the title clearance for
the property, etc., could be a few of the hidden charges payable. But this should be
considered as part of the total charges levied by the lender.

 Interest tax

This is a tax on the interest paid on the loan. The interest rate announced may not
include the interest tax. HFI’s normally include the interest tax while banks charge it as 2%
additional interest tax- ( charged only on the interest paid and not on the principal- i.e. on a
loan carrying an interest rate of 15, the additional interest payable will be 2% of 15% -i.e.
0.3%)

 Pre-payment

Returning part of the loan before it is actually due for repayment, as per the
repayment schedule, means a pre-payment.

 Foreclosure

S foreclosure is when you repay the entire outstanding loan at any point of the time
before the end of the loan tenure.

 Pre-payment or Foreclosure penalty

In both cases you are charged a penalty called pre-payment penalty. This ranges
between 1% to 2% of the amount being pre-paid. But it varies across HFI’s. There are a
few HFI’s which do not charge either of the penalties.

Some points to remember on loan transfer:

 Interest rates may look upwards again, so if you wish to avail a loan transfer do so
now, by locking an old loan into a new, lower rate loan.
 Be aware that the old institution will not allow you to walk away easily.

 A loan transfer makes sense when the loan amount outstanding is still large.
  Institutions are always on the lookout for a good loan. Try and convince your own
finance company to provide the benefit of a lower interest rate regime. They will
respond.

 Check out what is the pre-payment penalty for an old loan. Some institutions have
waived it off.

 Check out the tax benefits relating to a loan transfer. The tax benefits may or may
not accrue to you if you go in for a loan transfer, as there is currently no income tax
ruling on this.

 Try and get the new organization to directly buy the loan from the old one, by
paying a certain premium. Do not try and chase documents yourself.

To go for best home loan the applicant should check following points:

 Is the interest computation on daily rest, monthly rest or annual rest basis.
 Quantum of processing fee
 Are there add-on benefits like free personal accident insurance, waiving of
processing fee, etc.
 Quantum of prepayment charges in the eve4nt of foreclosure.
 Ideal tenure that will maximize tax benefits.

2.2 Housing finance institutions

To give a boost to the housing scenario in India and to narrow down the margin
between the housing demand and the availability of houses, The National Housing Bank
was set up in the year 1988. This was done by keeping in mind that a home seeker though
does have a desire for a house but lacks the resources for construction or buying it. To give
an enhancement to private housing finance institutions the National Housing Bank came
into the picture. It is a principal agency to promote housing finance institutions both at
local and regional levels and to provide financial and other support to such institutions.
While it is important to keep in mind that the National housing Bank itself does not give
loans or finance individuals or a party as such. It is only a corporate body to promote,
establish, support or aid the housing finance institutions.

The housing finance institutions can be segregated into three categories:

  Public Sector Finance

 Banks

 Private Sector Finance

Public Sector Finance

 HUDCO (Housing and Urban Development Corporation Limited)

HUDCO is an influential Government of India Enterprise. HUDCO - Housing And Urban

Development Corporation Ltd was incorporated on 25th April 1970. HUDCO India was
formed to assist various agencies and authorities in upgrading the housing conditions in the
country. Special emphasis was laid on the development of housing facilities or HUDCO
Niwas Yojana for the lower income group (LIG) and the economically weaker sections
(EWS) of the society.
Starting with an initial equity base of Rs. 2 crores, HUDCO India has a net worth of Rs.
3977 crores today. HUDCO Inc primarily aims to provide financing for housing
developments. HUDCO Financial Services are the task of HUDCO Bank that has
mobilized finances from:

 Financing institutions like LIC, GIC and other banking institutions

 International assistance from KfW, JBIC, ADB, USAID etc.

 Market borrowings through debentures, taxable and tax-free bonds

 Public deposits

HUDCO has been associated with not just housing development but the overall
infrastructure development assistance. The activity areas of HUDCO include:

 Urban housing

 Rural housing

 Staff rental housing

 Repairs and renewal

  Shelter and sanitation facilities for footpath dwellers

 Workingwomen ownership condominium housing

 Housing through private builders/ joint sector

 Individual HUDCO housing loans and HUDCO home loan for construction and
renovation through 'HUDCO Niwas'

 Land acquisition

 Valmiki Ambedkar Awas Yojana (VAMBAY)

 Jawahar Lal Nehru National Urban Renewal Mission (JLNNURM)

The interest rates for individual loans under HUDCO Niwas for 1 st 2 years have been fixed
with at 8.00% (floating) for loan up to Rs.10.00 lakhs and 8.50% for loans above Rs.10.00
lakhs. After completion of 2 years, prevailing floating rate of interest will be applicable.The
fixed rate for individual housing loans has been reduced to 12.00%. From the earlier
13.50%. The fixed rate for individual housing loans to women beneficiaries /SC/ST has
been reduced to 11.25%. from the earlier 12.75%.

 LICHFL (Life Insurance Corporation Housing Finance Limited)

LIC Housing Finance Ltd. is one of the leading and oldest home funding organizations,
which offers one of the finest services in the trade. It has branches all over India. It offers
variety of loans like housing finance for new purchases, re-constructions, renovations, NRI
housing finance etc. Some of the schemes that LICHFL offers are the Griha Shobha, which
is for NRIs, Griha Sudhar, where one can apply for a loan for renovations and repairs in
existing houses. Green Channel Facility is meant for professionals like practicing doctors,
CAs, computer engineers, etc. Lately LICHFL introduced a new scheme Apna
Chikitsalaya, which is especially for medical practitioners for renovating, purchasing or
extending their clinic, hospital, laboratory, etc. Then it also has the scheme of Sampurna
Griha (A) & (B) for resident Indians.

 GICHFL (General Insurance Corporation Housing Finance Ltd)

GIC Housing Finance Limited was incorporated as 'GIC Grih Vitta Limited'. The name was
changed to GIC Housing Finance Limited or GICHFL on 16th November 1993. The
company was incorporated to provide financial assistance to individuals and to persons and
entities engaged in construction of houses/flats for residential purposes.
GIC Housing Finance Ltd has contribution in the initial share capital from General
Insurance Corporation of India and its subsidiaries namely, National Insurance Company
Limited, The New India Assurance Company Limited, The Oriental Insurance Company
Limited and United India Insurance Company Limited along with UTI, ICICI, IFCI, HDFC
and SBI.
The sales team employed by GICHFL includes, individual direct sales assistants and
tie ups with corporates and builders to provide home loans and other housing finance
products to individuals. With 23 branches all across the country, GIC Housing Finance
aims to make home loans accessible to all.
The housing loan products by GICHFL cater to not just the individual home buyer or
constructor but the builders and developers too for construction of large residential units.
Housing finance solutions by GIC Housing Finance Limited have gained popularity among
the housing societies builders. GIC housing finance Ltd. is offering lowest floating rate at
7.95% for loan 15 years.

 PNBHFL (Punjab National Housing Bank Housing Finance Ltd)

A subsidiary of the Punjab National Bank, PNBHFL offers the Apna Ghar Yojana for
construction or buying a house. It also offers the Ghar Sudhar Yojana for renovation or
repair of house or flat. It has home loan facilities for NRIs and Line of Credit Facilities for
companies to give loans to their employees for construction or renovation of a house.

Punjab National Bank offers up to 80 % of the costs loan. Loan up to 10 lacs is offered
for housing requirements, while furnishing limit is 2 lacs. A third party guarantee is
mandatory for official purposes. Purchases on the first power of attorney an additional
security of up to 125 % of the amount by the way of mortgages or other property must be
provided. Purchases from housing boards where mortgages can not be immediately
provided, an agreement that includes the housing board is signed and agreed upon. The
fixed rates are as low as 9.00% for up to a period of 5 years, 9.50 for periods between 16
and 20 years. The floating options for a period of 5 years are as low as 10.50%. These rates
are quite low as compared to the various competitors of Punjab National Bank such as
ICICI bank, State Bank of India, Central Bank, Citibank and Bank of India. The loans can
be repaid in equal monthly installments. And the period of the loans can extend up to 25
years, or before the client turns 65, a policy followed by most financial institutions. For
immediate purchases purposes, the loan is paid in the form of a lump sum to the borrower.
In case of construction purposes, loans are issued or granted as per the requirement in the
construction process. All rules and regulations are checked by the sanctioning authority to
avoid any frauds.

 SBIHF(State Bank of India Housing Finance)

State Bank Of India is one such government bank, which understands your needs and
helps you to purchase the homes of your dreams. A lot of hard work goes into building a
home, owning it and then decorating it. State Bank Of India understands your efforts and
for that matter they have designed their Home Loan schemes in a way to make the process
hassle free and full transparency has been offered.The Unique Features of their Home Loan
Schemes are no cap on maximum loan amount for purchase or construction of house or
flat. They give an option to club the income of your partner and children to compute
eligible loan amount. You can repay the loan up to 70 years of age. The home loan schemes
also have free personal accident insurance cover. They charge no administration fee or
application fee. Provision for downward refixation of EMI in respect of floating rate
borrowers who avail Housing Loans of Rs.5 lacs and above, to avail the benefit of
downward revision of interest rate by 1% or more.

SBI Home Loan Features :

They have a package for exclusive benefits like complimentary international ATM-
Debit card. They provide complimentary SBI Classic and International Credit Card with
waiver of joining and first year's fees. State Bank Of India provides an option for E-
Banking. There is a concessional package for car home loan borrowers.
They provide Home Loans for various purposes such as: for the purchase or
construction of a new house or flat, purchase of an already built house or flat and if you
want to buy a plot of land for construction of house. Finance for home is also provided if
you want to undertake extension, repair, renovation, and alteration of an existing house or
flat, if you wish to buy furniture, furnishings and other commodities for your home.

 Others

The other major players in the public sector are the Indbank Housing, Corpbank
Homes, Cent Bank Home Finance Limited, etc
Banks

Almost all the banks through out India provide housing finance, except a few small
branches. The major banks that provide loans for housing are Bank of Baroda, Bank of
India, Bank of Maharashtra, Bank of Punjab, Canara Bank, Cooperative Banks, Citi Bank
NA, Corporation Bank, Dena Niwas, HSBC, ICICI Home Finance, IDBI Bank, IndusInd
Bank, Lakshmi Vilas Bank, Punjab National Bank, SBI (State Bank of India), UCO Bank,
and many others.

Amongst these ICICI and SBI are the leaders. ICICI gives the maximum period of 30 years
for the repayment of loans. It offers loans ranging from a minimum of Rs. 1 lac to Rs. 1
crore.

 Canara bank

As a premier commercial bank in India, Canara Bank has a distinct track record in the
service of the nation for over 100 years. Today, Canara Bank has a strong pan India
presence with 3002 branches and over 2000 ATMs, catering to all segments of an ever
growing clientele base of over 36 million. They are recognized as a leading financial
conglomerate in India, with as many as nine subsidiaries/sponsored institutions/joint
ventures in India and abroad. As they step into the second century, they aspire to emerge as
a Global Bank with Best Practices.

 HSBC bank

HSBC's origins in India date back to 1853, when the Mercantile Bank of India was
established in Mumbai. The Bank has since, steadily grown in reach and service offerings,
keeping pace with the evolving banking and financial needs of its customers.
In India, the Bank offers a comprehensive suite of world-class products and services
to its corporate and commercial banking clients as also to a fast growing personal banking
customer base.

 ICICI home finance

 ICICI Bank is India's second-largest bank with total assets of Rs. 3,562.28 billion
(US$ 77 billion) at December 31, 2009 and profit after tax Rs. 30.19 billion (US$ 648.8
million) for the nine months ended December 31, 2009. The Bank has a network of 1,694
branches and about 4,883 ATMs in India and presence in 18 countries. ICICI Bank offers a
wide range of banking products and financial services to corporate and retail customers
through a variety of delivery channels and through its specialised subsidiaries and affiliates
in the areas of investment banking, life and non-life insurance, venture capital and asset
management.

ICICI Bank Home Loans, offer unbeatable benefits to ensure that we get the best
deal without any hassles.

As one of the leading home loan provider, ICICI Bank understands how special building a
new home is for us and their Home Loan help us lay the foundation for our dream home.

ICICI offers us the most convenient home loan plans to suit our needs. With so
many attractive features in every type of home loan they offer, creating the home us always
wanted is no longer a distant dream. Some of their key benefits are:
 Guidance through out the process
 Home loan amounts suited to your needs
 Home Loan tenure upto 20 years
 Simplified documentation
 Doorstep delivery of home loan papers
 Sanction approval without having selected a property.
 Free Personal Accident Insurance (Terms & Conditions)
 Insurance options for your home loan at attractive premium

 IDBI bank

Presenting IDBI Bank's ultra flexible home loan we have been looking for. They
realise what owning our home means to us and our family.

We can avail of the Home Loans for constructing a home, purchasing a ready built
house/flat, residential plot and even for re-financing existing loans we may have availed
from other banks or housing finance companies.
Advantages of IDBI Ultra Flexible Home Loans

 Maximum Funding

 Flexibility of choosing between Floating or Fixed interest rate

 Attractive rate of interest

 EMI on daily reducing balance

 Personalised doorstep service

 Simple documentation

 Legal and technical assistance

 Balance transfer facility

 Reassessment and adjustment of applicant's loan eligibility in case of change of

income and residence status
 Punjab national bank

With over 38 million satisfied customers and 4668 offices, PNB has continued to
retain its leadership position among the nationalized banks. The bank enjoys strong
fundamentals, large franchise value and good brand image. Besides being ranked as one of
India's top service brands, PNB has remained fully committed to its guiding principles of
sound and prudent banking.

PNB reaches out to us with fast, friendly and most convenient home loans for:

Construction or purchase of house/ flat.

Purchase of house/ flat on First Power of Attorney basis from the original
allottee.
Carrying out repairs/ renovations/ additions/ alterations to existing house/ flat.
Special Feature- To cover the loan outstanding, life Insurance cover is also
available on payment of one time premium which can also be financed by the
Bank.

Private sector finance

  HDFC (Housing Development Finance Corporation)

With the objective of augmentation of housing through the stipulation of housing finance
HDFC was established in 1978 with the support of the Industrial Credit and Investment
Corporation of India, the International Finance Corporation (IFC) in Washington and the
Aga Khan Fund. Today HDFC and Housing finance are synonymous. It has become one of
the largest home loan providers in India.

 DHFCL (Dewan Housing Finance Corporation Limited)

Dewan Housing Finance Limited (DHFL) was established in April '1984 by Mr. Rajesh
Kumar Wadhwan. The soul motive behind the establishment of Dewan Housing Finance
Corporation was to provide housing finance or in simpler terms home loans to the lower
and middle income group marked as high credit risk by most other financial institutions.
DHFL believed in helping them realize their dream of owning a house of their own.
Dewan Housing Finance with an asset base of over Rs. 3580 crores is a fast growing
corporation winning the trust of their customers by helping them where they need someone
the most i.e. by giving them the finance needed for buying a property that is not mere an
investment to them but an extension of their individuality.

With a branch network of over 54 branches and 111 service locations, Dewan Housing
Finance Corporation Limited try their best to be easily accessible to every Indian with a
dream to buy a home. Customer care policy of DHFL proclaims respect and dignity for all
the customers, prompt and courteous reply to all enquiries and a totally transparent
transaction and dealing.
The housing finance products listing by Dewan Housing includes:

o Home Loans
o Home Extension Loans

o Home Improvement Loans

o Home Loans For NRI's

o Plot Loans

o Mortgage Loans
 o Non-Residential Property Loans

o Home Loan Linked Insurance Plans

o Reverse Mortgage

 GHFCL (Global Housing Finance Corporation Limited)

GHFCL a syndicate of reputed builders, incorporated in June 1994, offers Individual Home
Loan Scheme and Home Improvement Scheme. Oriental Bank of Commerce, one of the
leading nationalized banks, also participates in the equity of the company.

 BHFL (Birla Home Finance Limited)

BHFL offers Easy Title for registration of the property or land purchased, Easy Upgrade
loans for renovation of the existing house, which has been purchased or constructed at least
one year ago. The renovation can be in the form of flooring, tiling, plumbing, paint, polish,
etc., Easy extend loans for extensions of an existing house, Easy Home loans for outright
purchase of a ready built house, Easy Build loans for construction of house on self-acquired
or inherited vacant plot of land, and Easy Bridge Loans for purchase of a ready built house,
when an individual already owns a property, which would be sold on getting possession of
the new one.

 Maharishi Housing

Maharishi Housing Finance Corporation Ltd., a company from Maharishi Group started in
1997 also caters home loans. One of the key attractions of Maharishi Housing is its 35-year
loan repayment scheme.

 Others

Other key housing finance providers in the private sector are Sundaram Home Finance,
Hometrust Housing, Gruh Finance, Weizmann Homes, GLFL housing, etc.

Home loan rates

BANK/HFC Red.Bal. Period Floating Rate (%) Fixed Rate (%)
(years)

Bank of Daily (Up to 30 (Above 30 (Up to 30 (30 to 50

Baroda lakhs) lakhs) lakhs) lakhs)

00-05 8.50 9.25 9.75 10.25

05-15 8.75 9.50 9.75 10.50

15-25 9.00 9.75 10.00 10.75

Bank of India Daily (Up to (30 to (Above

30 50 50
lakhs) lakhs) lakhs)

00-05 8.75 9.50 10.25

05-10 9.00 9.75 10.50

10-15 9.25 10.00 10.75

15-20 9.50 10.25 11.00

Corporation Daily Any amount Any amount

Bank 1st year 08.00 11.00

2nd & 3rd 08.50

year

Canara Bank Daily (Upto 30 (Above 30

lakhs) lakhs)

1st year 08.00 08.75

2nd to 5th 09.00 09.50

Indian bank Daily (Upto (20 to (Above

20 30 30
lakhs) lakhs) lakhs)

00-05 08.25 08.50 09.00

05-10 09.25 09.75 09.00

10-15 09.50 10.00 09.00

15-20 10.00 10.50 09.00

Syndicate Daily 01-05 10.00 09.50

Bank 05-10 10.50 10.00
 10-15 10.75

15-20 11.00

Punjab Monthly (Upto 20 (Above 20

National lakhs) lakhs)
Bank 00-05 09.25 09.75 10.25

05-10 10.00 10.50 10.25

10-15 10.25 10.75 11.00

State Bank of Daily (Upto 30 lakhs ) (Upto 30 lakhs)

India First one 8.00 8.00
year

Next one 9.00 9.00

year

Remaining 9.75 10.25

period

LIC Housing Daily 0-20 (Upto 75 (Above 75 (Upto (Above

Finance lakhs) lakhs) 75 75
lakhs) lakhs)

08.75 09.75 3 8.90 9.90

yrs.

CANFIN Monthly 5-20 years 12.00 5-20 yrs 14.00

HOMES

HDFC Monthly 0-18 years 11.75 0-20 yrs 14.00

ICICI Monthly 1-20 yrs 13.00 1-20 yrs 15.50

AXIS BANK Monthly 1-20 yrs Upto 20 Above 20 14.00

lakhs lakhs

8.75 09.25
OBJECTIVES
 Objectives:

 To identify those factors which influence the decisions to apply for home loan and
in selection of housing financial institution by prospective middle-income group
applicants for home loan in New Delhi & NCR.

 To assess the satisfaction level of current home loan applicants in New Delhi &
NCR.

 To study the role played by housing financial institutions in providing housing

loans.

 To study the effect of changing interest rates on home loan seekers.

 To understand Indian housing market comparing with Mongolian mortgage and

housing sector.
Scope of the Study
 Scope of the Study

Need and importance of the study

A positive real estate scenario in New Delhi & NCR exists today because of
connectivity and convenience offered by infrastructure developments. This gave rise to new
residential options at various parts of New Delhi & NCR created a ideal situation to go for
purchase/construction of house. Since, middle income group constitute major portion of
Delhi & NCR population, its important to identify the factors effecting the decision making
to go for a housing loan by this group. Here comes the need to give snap shot picture of
current scenario of housing finance industry. This will benefit the loan applicants in their
decision making to go for a loan and selection of a service provider. The study centered on
to find out the key decision attributes which affects decision making on home loans by
middle income groups in New Delhi & NCR. The study also reminds the role played by
financial institutions and offers suggestions for improvement. And it is important to know
for me about Indian housing sector, its features and difference from Mongolian mortgage,
housing market.
 RESEARCH
METHODOLOGY
 RESEARCH METHODOLOGY

Any type of research should deal with the methods employed and the tools applied to
fulfill the objectives of the study.

 Type of research
A descriptive study has been undertaken for this study to know about the
functionality of housing loan industry, major players, norms and procedure, interest rates
patterns, cost of loan to the applicant.

The primary source of information was from current and potential applicants were
obtained from a structured questionnaire.

The questionnaires prepared separate for each of the sample size in this study and
the information collected through personal interview with respondents.

 Sample techniques

The respondents in respect to current and potential applicants had been picked on
the basis of random convenience sampling.
 Sample size

The sample size of this study was 50 for current applicants and 50 for potential
applicants. These samples were selected from the New Delhi & NCR.

 Sample description

The sample size obtained for the study was between the age group of 21 years to 60
years who’s monthly income ranges between Rs10,000/- to Rs.50,000/- and were chosen
from different parts of the city.

The current applicant were chosen with the help of friends.

 Instrumentation technique

The instrument used to collect primary data for the current and potential applicants
was a questionnaire drafted to identify the decision drives for a home loan and selection
criteria for housing loan institution.
 The information gathered form the primary source would be analyzed by tabulating all
information received. Conclusion and interpretation of this study would then be made using
various tools like graphs, charts and tables.

 Hypothesis

Null Hypothesis: Decision to go for a home loan by a middle income group

individual is independent of the decision attributes viz.tax benefits, low interest rates and
convenience.

Alternative Hypothesis: Decision to go for a home loan by a middle income group

individual is dependent of the decision attributes viz.tax benefits, low interest rates and
convenience.

 Statement of the problem:

In modern society a house not only satisfies the need of the shelter to man but also
security and pleasure in the society. To have this, one should have the capacity to purchase
or hire or to build their dream home. Since the large part of the population of middle
income groups having the capacity to own a house but lack to gather huge amount at once.
Here comes the role of financial institutions to fund this type of construction. Nowadays
there are so many financial institutions which are providing housing loans are offering to
customers many different kind of schemes as well as terms and conditions. And it has
become complicated to the customers to select proper financial institution due to stiff
competition and global crisis. It is also important to know what exactly customers want
from financial institutions as well as their experience, taste & preferences. So that, the
study on role of Financial Institutions in providing housing loans for middle class income
group has become important.
 Methods of data collection

Actual collection of data

Actual collection of data from potential applicants is made from meeting them
personally and got filled the questionnaire.

The actual collection of data from current applicants is done through sending
questionnaire through friends and also by personal meet with the respondents.

Tools used for hypothesis

The tool used to test the hypothesis is Chi-square represented as X2 Chi-square is

used to find the dependency of one variable/s over the other. In this study the researcher
had used Chi-square to test the independency of decision to go for home loan on tax
benefits, low interest rates, convenience by middle-income group in New Delhi & NCR.

Software used for data analysis

Software like Microsoft Office (EXECL) was used to draw graphs, tables which
were used to show the analysis of the data collected.
LIMITATIONS OF THE
STUDY
 Limitations of the study

 The study is restricted to New Delhi & NCR only.

 Study focuses on only direct home loan finance and ignores the commercial home
loan disbursement.
 This study was unable to cover the options for potential respondents such as,
housing loan opted for renovation, extension of the property.
 Interest rates mentioned in this study are subject to fluctuations.
 Time and cost limitations
ANALYSIS OF DATA

COLLECTED
 DATA ANALYSIS AND INTERPRETATION

Chi-Square test

The chi-square is used to test the statistical significance of the observed association
in a cross-tabulation. It assists in determining whether a systematic association exists
between the variables. The test is conducted by computing the cell frequencies that would
be expected if no association were present between the variables, given the existing row
and column totals. These expected cell frequencies, denoted Fe, are then compared to the
actual observed frequencies, denoted Fo, found in the cross-tabulation to calculate the chi-
square statistic. The greater the discrepancies between the expected and actual frequencies,
the larger the value of the statistic. Assume that a cross-tabulation has r rows and c columns
and a random sample of n observations. Then the expected frequency for each cell can be
calculated by using a simple formula:

Fe = nr*nc/n

where nr => total number in the row

nc => total number in the column

n => total sample size

Rankings by potential applicants

Decision attributes
1 2 3 4 Total

Low Interest rates 31 12 7 0 50

Tax benefits 10 20 14 6 50

Convenience 7 9 18 16 50

Total 48 41 39 22 150

Decision attributes Rankings by potential applicants

 1 2 3 4 Total

Low Interest rates 16 13.66 13 7.3 50

Tax benefits 16 13.66 13 7.3 50

Convenience 16 13.66 13 7.3 50

total 48 41 39 22 150

Then the value of chi-square is calculated as follows

c2 = å (Fo - Fe) ^2 / Fe

where å=> Sum of all cells

From the data in the table above, the value of c2 is calculated as:

c2(cal) = (31-16) ^2 /16 + (10-16) ^2 / 16 + (7-16) ^2 /16 + (12-13.66) ^2 / 13.66 +

(20 – 13.66)^2 / 13.66 + (9-13.66) ^2 /13.66 + (7 – 13) ^2/ 13 +

(14-13) ^2 /13 + (18-13) ^2 /13 + (0-7.3) ^2/7.3 + (6-7.3) ^2/7.3 +

(16 – 7.3) ^2 /7.3

c 2(cal) = 48.765

To determine whether a systematic association exists, the probability of obtaining a

value of chi-square as large as or larger than the one calculated from the cross-tabulation is
estimated. An important characteristic of the chi-square statistic is the number of degrees of
freedom (df) associated with it. In general, the number of degrees of freedom is equal to the
number of observations less the number of constraints needed to calculate a statistical term.
In case of chi-square statistic associated with cross-tabulation, the number of degrees of
freedom is equal to the product of number of rows (r) less one and the number of columns
(c) less one. That is, df = (r-1) * (c-1), therefore df = (3-1) * (4-1) = 6.

To illustrate, for 6 degree of freedom, the value of upper-tail area of 0.05 is 12.59.
This indicates that for 6 degree of freedom the probability of exceeding a chi-square value
is 0.05. In other words, at the 0.05 level of significance with 6 degree of freedom, the
critical value of the chi-square statistic is 12.59.
 For the cross-tabulation given in the above table, the calculated chi-square statistic
had a value of 38.038 (c2cal). Since c2cal(48.765) is greater than the critical value of
c2tab (12.59), the null hypothesis has to be rejected or alternate hypothesis is accepted,
indicating that the association is statistically significant at the 0.05 level of significance and
degree of freedom 6.

CONCLUSION

From the chi-square statistic, it is clear that, the decision to go for home loan by a
middle income group individual is dependent on decision attributes viz. tax benefits low
interest rates, convenience. Thus it is been concluded that the alternate hypothesis is
accepted or the null hypothesis is rejected, i.e. decision to go for a home loan by a middle
income group individual is independent of the decision attributes viz.tax benefits, low
interest rates and convenience.
  Data presentation

The data collected from the survey conducted at New Delhi & NCR has been
analyzed and interpreted in this section. The interpretation is based on the information
collected through a structural questionnaire prepared for research..

The sample size of 100 divided into 2 parts of 50 each for present/existing
applicants and potential/prospective applicants respectively. Researcher maintained
similarity with respect to age, occupation, monthly income and savings in order to have
better comparison between the two sample sizes. There fore the Table from 5.1 to 5.4 and
graphs G-1 to G-4 will be for the total of 100 respondents.

TABLE-4.1 Table to represent age wise classification of respondents

Age No. of Respondents

21-30 25(25%)

31-40 35(35%)

41-50 30(30%)

51-60 10(10%)

Total 100(100%)

Explanation (Table-4.1): Out of 100 respondents 25% were the age group of 21-30 years,
35% were the age group of 31-40 years, 30% were the age group of 41-50. Finally 10%
were the age group of 51-60 years.

GRAPH-1
Interpretations (Graph-4.1): This study was focused on the age group between 21 years to
60 years. Graph-4.1 shows that 75% of respondents are active applicants to the housing
loan market, age range between 31-50 years. Applicants below 30 and above 50 years are
not much active as 31-50 because of work experience and retirement.

Table-2 Table to represent the occupation of the respondents

Occupation No. of Respondents

Govt.Employee 26(26%)

Business Man 28(28%)

Professional (Except Govt. Emp. And IT Professional) 16(16%)

IT Professional 30(30%)

Total 100(100%)

Explanation (Table-2): 30 respondents were from IT professional group. Government

employees totaled 26. Professionals(other than government and IT professionals) and
Businessman were respectively represented as 16 and 28 respondents each in the study.

GRAPH-2:

35
30
25
20
15
10
5
0
Gvt.Employee Business Man Prof essional ( Except IT Prof essional
Gvt. Emp. And IT
Prof essional)

Interpretation (Graph-2): IT professionals occupy high percentage in this study because of

IT industry development in Bangalore. Next is Business man group. Gvt.employees are
becoming active in housing loan due to Increase in their salary and decrease in interest
rates

TABLE-3 Table to represents monthly income level of the respondents

Monthly Income
No. of Respondents
(In Rs)

Less than 15000 26(26%)

15000-20000 42(42%)

20000-35000 19(19%)

35000-50000 13(13%)

Total 100(100%)

Explanation (Table-3): 26 respondents represents income level of less than Rs.15,000 and
42 respondents represents Rs.15,000-Rs.20,000. 19 and 13 respondents were from
Rs.35,000-Rs.40,000 and Rs.20,000-Rs.35,000 income category respectively.

GRAPH-3:

Interpretation (Graph-3): Income is another social economic variable frequently used to

approximate social class standing. Shift focus toward middle income groups by Housing
Finance Institutions (HFI’s) gave importance to study the expectations of this class. The
graph-4.3 reveals 26 respondents represents the category of lower middle income group
i.e., Less than Rs.15,000 and 42 respondents represents category of middle income group,
Rs.15,000-Rs.20,000 respectively. The rest covered by higher middle income group
consisting of 19 and 13 respondents were from Rs.35,000-Rs.40,000 and Rs.20,000-
Rs.35,000 category respectively.

TABLE-4 Table to represent monthly savings of respondents

Monthly Savings No.of respondents

Below Rs.2,500 12(12%)

Rs.2,500-Rs.5,500 18(18%)

Rs.5,500-Rs.8,500 32(32%)

Rs.8,500-Rs.11,500 15(15%)

Rs.11,500-Rs.15,500 23(23%)

Total 100(100%)

Explanation (Table-4): Table – 4 reveals 32 respondents were from Rs.5,500-Rs.8,500

savings category. Rs.11,500-Rs.15,500 category covered by 23 respondents. 18, 15 and 12
respondents were from Rs.2,500-Rs.5,500 , Rs.8,500-Rs.11,500 and Below Rs.2,500
income categories respectively.

GRAPH-4:
Interpretation (Graph-4): Savings play important role while determining the equal monthly
installments of the loan amount and the tenure. Most of respondents who are having higher
savings came from current applicants.

TABLE-4.5 Table to represent the residential status of respondents.

Residential Status No. of Respondents

Own House 20(40%)

Rented 25(50%)

Lease 5(10%)

Total 50(100%)

Explanation (Table-5): Most of the respondents were stated residing at rented house,
representing 50% and 23 of the total number of respondents. The respondents living in
own house represented by 40% and 20 by numbers. The rest 10% is covered by 5
respondents having residential status of lease type.

GRAPH-5:

30

25

20

15

10

0
Own House Rented Lease

Interpretation (Graph-5): 60% of respondents are not having their own house, so there is
demand in housing loan from more than half of the respondents. Remaining 40% of
respondents wanted to have extra house even they are having their own.
 TABLE-6 Table to represent purpose for which the housing loan applied

Purpose No. of respondents.

Purchase of plot/house 10(10%)

For construction 40(40%)

Any others 00(0%)

Total 50(100%)

Explanation (Table-6): Given the option for construction 80% of respondents were stated
their consent as purpose. The rest 20% of respondents stated that their purpose was to
purchase plot.

GRAPH-6:

45
40
35
30
25
20
15
10
5
0
Purchase of plot/house For construct ion Any others

Interpretation(Table-6): Most of the respondents wanted to build their own house

themselves instead of purchasing new house. It means it is cost effective option than others.
There was no respondents opted to renovation and extension of loan.
 TABLE-7 Matrix table to represent the ranks for the attributes affecting the decision about
home loan.

Attributes Rank-1 Rank-2 Rank-3 Rank-4 Rank-5 Total

Low interest 0 50
31 12 7 0
rates

Tax benefits 10 20 14 6 0 50

Convenience 7 9 18 16 0 50

Good 5 50
2 9 11 23
Service

Total 50 50 50 45 5 200

Explanation (Table-7): 31 respondents ranked low interest rate as No.1, 12 respondents as

No.2, 7 respondets as No.3. 10 respondents have chosen tax benefits as No.1, 20
respondents as No.2, 14 respondents as No.3, 6 respondents as No.4, no respondents as
No.5 etc…….

GRAPH-7:

Interpretation(Table-7): The graph depict the ranking of decision attributes by the

respondents. The most important decision drive was identified as the low interest rate
which was considered as important by 31 respondents ranked as ONE. The least important
attribute identified was the good service expectation from Housing Finance Institutions
(HFI’s) by 20 respondents ranked as FOUR. Since the lower interest rates were the basic
expectation, and concluding that the next important attributes are the key factors for
decision. Tax benefit is SECOND key factor by 20 respondents. Convenience considered as
the Key factor in decision to go for housing loan which accumulates funds needed at
different stages of construction. It was rated THIRD by 18 respondents. The FORTH one is
Good Service.

TABLE-8 Matrix table to represent ranking of HFI’s by respondents.

HFI’s No. of respondents

HDFC 12(24%)

ICICI Bank ltd. 7(14%)

Canara bank 8(16%)

SBM 4(8%)

PNB 6(12%)

IDBI 2(4%)

Vijaya bank 11(22%)

Total 50(100%)

Explanation (Table-8): 12 respondents ranked HDFC as No.1. And only 2 respondents

selected IDBI as No.1.

GRAPH-8:

Interpretation(Graph-8): The knowledge of service provider in the minds of customer plays

major role in business success. 12 respondents ranked HDFC as the best bank. 30
respondents ranked IDBI Bank as the least known bank for home loans.
 TABLE-9 Matrix table to represent ranking of key attributes for selecting housing loan
provided by the respondents.

Attributes Rank-1 Rank-2 Rank-3 Rank-4 Rank-5 Total

No. of schemes 0 50
16 12 20 2
offered

Past/Present 3 50
19 10 11 7
relationship

Service offered 11 21 10 6 2 50

Reputation/Brand 1 50
4 5 8 32
image

Total 50 48 49 47 6 200

Explanation (Table-9): 16 applicants chosen No. of schemes offered as No.1, 12 applicants

as No.2. 20 applicants as No.3. 2 applicants as No.4 etc…..

GRAPH-9:

Interpretation(Graph-4.9): Service offered by the HFI’s plays key role in their selection by
the applicants. 19 respondents ranked ONE for Past/Present relationship by the HFI’s as an
attribute for selecting the service provider. The ignored attribute being Reputation/Brand
image was ranked FOUR, which is selected by 33 respondents as rank-4. No. of Schemes
Offered and Service Offered with the service provider also played a key role in selection of
HFI by respondents. These attributes were ranked as THIRD and SECOND by 23 and 20
respondents respectively.
 TABLE-10 Table to represent the purpose for which the housing loan was opted.

Purpose for opting home loan No. of Respondents

Purchase of plot/house 3(6%)

For construction 40(80%)

Renovation of extension property 5(10%)

Extension of existing property 2(4%)

Total 50(100%)

Explanation(Table-10): Out of 100 respondents 6% has taken loan for Purchase of Plot and
80% has taken for Site for construction etc…………..

GRAPH-10:

40

35

30

25

20

15

10

0
Purchase of For construction Renovation of Extension of
plot/house extension existing property
property

Interpretation(Graph-10): Major purpose behind applying for house loan is identified as

loan for residential construction accounts for 80% of the total by 40 respondents. Four
respondents stated that the purpose to have loan for purchase of plot/house. So that
applicants interested in construction loan due to low cost.
 TABLE-11 Table to represent loan amount borrowed by the respondents.

Loan amount No. of respondents

Below Rs.5 lakhs 9(18%)

Rs.5 lakhs-Rs.12 lakhs 22(44%)

Rs.12 lakhs- Rs.15 lakhs 13(26%)

Above Rs.15 lakhs 6(12%)

Total 50(100%)

Explanation(Table-11): Most of the respondents were applied for loan amount Rs.5 lakhs to
Rs.12 lakhs and Rs.12 lakhs to Rs.15 lakhs accounted 44% and 26% of the total
respondents respectively. The next categories were below Rs.2 lakhs and above Rs.10
lakhs represents the remaining part with 18% and 12% respectively.

GRAPH-11:

Interpretation(Graph-11): Loan amount plays a major role effected by the tenure, savings
and income levels of the respondents. If applicants purchase house or apartment the loan
amount will be higher than construction loan. So that most of the applicants have taken
loan for construction, renovation and extension.
 TABLE-12 Table to represent tenure of the loan amount of current respondents

Tenure No. of respondents

Below 5years 12(24%)

6years-10years 18(36%)

11years-15years 14(28%)

16years-20years 6(12%)

Total 50(100%)

Explanation(Table-12): 18 respondents opted the tenure of 6 years to 10 years was the

highest percetage i.e., 36%. The second largest group of respondents chosen the tenure
between 11 years to 15 years were accounted 28% with 14 respondents. The rest 24% and
12% were from below 5years and 16years-20 years years of tenure.

GRAPH-12:

20
18
16
14
12
10
8
6
4
2
0
Below 3years 3years-8years 8years-12years Above 12 years

Interpretation(Graph-12): Tenure is one of the critical factors to determine the decision on

loan amount. The higher loan amount tend to have longer period. In this case most loans
has taken 3-8 years according to construction. Applicants don’t like to have longer period
of loan,they try to finish as soon as possible.
 TABLE-13 Table to represent the type of interest rate opted by the current applicants.

Type of interest rate No. of respondents

Fixed interest rate 33(66%)

Fluctuating interest rate 17(34%)

Total 50(100%)

Explanation(Table-13): 33 respondents, had opted for fixed interest rate which represents
66% of the total. Fluctuating interest rate accounted for 34% by 17 respondents opted.

GRAPH-13:

Fluctuating
interest rate
34%
Fixed in terest
rate
66%

Iterpretation(Graph-13): After falling interest rate regime it was important to identify the
popularity of different types of interest rates. Most of applicants have chosen Fixed
Interest rate, it means customers are not sure about market condition after global crises. But
usually they transfer their balance after choosing fixed interest rate.
TABLE-14 Table to represent satisfaction level of current applicants towards service provided by
HFI’s

Satisfaction No. of respondents

Yes 31(78%)

No 19(22%)

Total 50(100%)

Explanation(Table-14): With respect to service offered 78% were satisfied and 22% of total
respondents were not satisfied.

GRAPH-14:

11

Yes
No

39

Interpretation(Graph-14): It is important to know the customer satisfaction with respect to

service provided by HFI’s to gage the industry performance. Most of applicants satisfied
towards service provided by HFIs. It is the result of developing real state market with many
players offering flexible services.

15(a) SATISFIED APPLICANTS

 Matrix Table to represent the ranking of attributes those satisfied current applicants with
respect to service provided by the HFI’s.

Attributes R-2 R-3 R-4 R-5 Total

R-1

Fast process @ low cost 7 5 15 5 3 31

Accessibility for payment/repayment 6 3 8 10 4 31

Low interest rates offered 10 12 8 1 0 31

Attractive schemes 10 12 4 5 0 31

Total 31 31 31 31 31 124

Explanation(Table-15a): 7 respondents have chosen Fast process @ low cost as No.1, 5

respondents as No.2, 15 respondents as No.3, 5 respondents as No.4, 3 respondents as No.5
etc……….

GRAPH-15:

Interpretation(Graph-15a): Satisfied current applicants ranked high for the lowest interest
rates offered by the HFI’s as the major attribute for their satisfaction and next important
attributes were attractive schemes and fast processing at low costs.

15(b) Dissatisfied Applicants

 Attributes R-1 R-2 R-3 R-4 R-5 Total

High processing cost 4 4 7 4 -- 19

Attitude of the staff at financial institutions 6 8 5 -- -- 19

Low accessibility for payment/repayment 2 2 4 7 4 19

Terms and conditions 7 3 2 3 1 19

Total 19 17 18 17 5 76

Explanation(Table-15b): 4 respondents have chosen High Processing Cost as No.1, 4

respondents as No.2, 7 respondents as No.3, 4 respondents as No.4, no respondents as
No.5etc….

GRAPH-15:

Interpretation(Graph-15b): Dissatisfied current applicants were ranked rigid terms and

conditions for availing home loan as the most dissatisfying attribute. The next important
attribute that dissatisfied the applicants was the attitude of the staff at some financial
institutions.
TABLE-16 Table to represents suggestions given by the applicants for further improvement
in the service provided by the HFI’s.

Suggestions No. of respondents

Attractive schemes 7(14%)

Simple terms and conditions 18(36%)

Low interest rates 20(40%)

Use of new technology 5(1%)

Total 50(100%)

Explanation(Table-16): Out of 50 respondents 7 of them suggested attractive schemes and

18, 20, 5 respondents suggested Simple terms and conditions, Low interest rates and Use of
new technology respectively.

GRAPH-16:

Interpretation(Graph-16): Interest rate play important role to the decision go for loan. It is
No.1 factor that affects customers decision. In other hand some institutions still offering
higher interest rate after global crisis. Next important thing is Simple terms and condition.
Stiff competition among the players made loan terms and conditions more complicated to
the customers. Customers are confused to select proper scheme and institutions.
FINDINGS FROM THE STUDY
 Findings from the study

(a) Potential applicants

 It was found that the service provided by the HFI’s play a key role in future
market.
 Information avenues given rise to increased knowledge about the service
provider in the minds of applicants.
 Convenience with respect to Equal Monthly Installments, tenure of the loan and
repayment modes, down payment, tax benefits were the major attributes in
selecting a home loan by the applicants.
 There was an increase in income level of earning class people aged between 21-
30 and 31-40 years due to high growth profile in Information Technology
industry.
 From the Graph-4.6, most of the respondents wanted to have loan for purchase
of plot or construction of house on the owned site.
 All of the respondents were willing to take advantage of falling interest rates in
the housing loan industry.
 In Graph-4.8, HDFC Bank is the well known bank for providing housing loan in
the minds of potential applicants.
 From the Graph-4.9, Service offered, reputation/brand image, past/present
relationship, No. of schemes offered with the service provider plays important
role in selection of HFI’s. Some respondents preferred low interest rate, longer
tenure etc.
 In Graph-4.5, it was found that the respondents having own house were prefer to
have another residential house rather than the respondents living at rented house
 From the Graph-4.7, it was found that tax benefits, low interest rates and
convenience were the major decision drives behind a decision for seeking home
loan from Financial Institutions. Some applicants prefer Stable terms and
condition, Fast accessibility and Simple documentations.
 The expectations from HFI’s were low interest rate, simple and feasible terms
and condition, stability of floating rate and service quality.
(b) Current applicants

 In Graph-4.10, it was found that loan for renovation and extension of property
has become least purpose. The most important purpose for which home loan is
opted was for purchase of site and construction.
 Tenure is a key factor which affects:
1. Cost of the loan to the applicant
2. Risk to the lending firm
 From the Graph-4.13, most of the respondent felt comfortable with fixed
interest rates. It assumes that the borrower is risk averse.
 It was found that applicants were willing to shift from existing service provider
if the other service provider in the market would offer better services and low
interest rate.
 From the Graph-4.14, satisfaction level among potential applicants is high this
regard to low interest rates, accessibility for payment/repayment.
 In Graph-4.15a, Applicants mostly satisfied with low interest rate offered and
attractive schemes due to competition among players. Some applicants preferred
the offerings from the bank when they apply for next loan and skill and
experience of the loan officers.
 From the Graph-4.15b, those current applicants were not satisfied with the
service provided by HFI”s due to rigid terms and conditions for availing home
loan and with the behavior of staffs at some HFI’s. Some also were not satisfied
with changing loan policy of the institutions.
 In Graph-4.16, low interest rates and simple terms and conditions are important
variable and customers always want these variables more and more attractive.
 Most applicants who have big amount and long tenure of loans are not satisfied
with services and they are willing to shift to another institutions.
 Cutthroat competition is affecting the customer loyalty in the industry
CONCLUSIONS
 Conclusions from the study

Nearly 25 lakh houses are built every year in India. However, the nation’s
requirement is around 65 lakh houses per annum.The housing deficit in India is estimated
at 24.71 million. Out of this 21.78 million is accounted for by the economically weaker
sections.

Real Estate sector which is slowly coming out of the Mid 2008 slump, but has
received good support from Union Budget 2010-11. While the budget has encouraged
affordable housing below Rs 20 lakhs with 1% interest subvention for housing loan upto 10
lakhs and extension of benefits available under section 80IB by one more year, extension
of some services are extended so as to bring under service tax impacting the industry in
difficult times.

Fitch Ratings in a Special Report, said that its 2010 Outlook for the Indian real
estate sector remains Negative; however, the sector could exhibit signs of stability by the
second half of the year. Fitch notes that the fundamentals of India’s real estate sector are
improving, as seen by better liquidity and improved demand in the residential segment.

The agency expects growth in 2010 to be driven by government support, especially

for the affordable housing segment, improved access to debt and capital markets, and the
recovery of real estate demand. Yet, there are concerns that the government may roll out
moderately adverse policies to keep property prices in check when economic conditions
become more stabilised. In addition, the government may also find it politically difficult to
provide a supportive environment if developers continue to increase real estate prices.

From the analysis that the occupations viz., Government employees, professionals
and IT professionals were ideal groups to target home loans. The tenure and monthly
savings were inversely proportional to each other. Current housing loan industry scenario
had influenced the applicants to go for housing loans and Financial institutions play
important role to the overall economic conditions of the country. Low interest rates, tax
benefits and convenience were the major decision drives for home loans. Most of the
customers were aware of best offers in the industry. Services are the key for next
competitive era in the housing loan industry.

In Mongolia there are only 17 commercial banks which are providing housing loan.
In 2008 Mongolian mortgage market had influenced hardly by global crisis and all
mortgage providers had been stopped offering mortgage loan. So that there was nothing to
do with loan officers and unemployment rate also had increased. Since middle of 2009 they
started offering mortgage loan again. But the Indian housing sector has not much
influenced by global crisis and there are many financial institutions offering housing loan
with feasible terms and conditions if compare to Mongolian mortgage market. Indian
housing sector is high developed than Mongolian.
SUGGESTIONS AND
RECOMMENDATIONS
 Suggestions and recommendations

1. Before taking a decision on home loans, applicants should consider other factors such
as tricky EMI calculations, unfair collateral demands, prepayment penalties, and
hidden costs.
2. Key decision on home loans viz., type of interest rate, mode of interest calculations
should be given serious thought by the applicants.
3. Tailor made schemes should be offered to applicants by HFI’s.
4. Process time and cost should be minimized by the HFI’s.
5. Brand building programs and relationship marketing concepts would be prudent for
next competition era of home loan industry.
6. New technologies for speeding process should be implemented.
7. There is certain need of GOI help to control competition among players and increase
in real state prices.
ANNEXURE
 BIBLIOGRAPHY

1. Book Referred :

 “HOUSING LOAN MANUAL FOR MANAGERS, OFFICERS”

 “RESEARCH METHODOLOGY METHODS AND TECHNIQUES” 2 nd

revised edition,C.R.Kothari, Page No.2, 184, 233.

2. Daily News Papers :

 TIMES PROPERTY – TIMES OF INDDIA

 ECONOMIC TIMES

3. Journals Referred :
 “REALTY PLUS” march 2010, volume 6, issue 4, Page No.58 – 59

 “INDIAN REAL STATE INVESTOR AND HOUSING FINANCE HAND BOOK”

2010 Bengaluru edition, Page No. 81 – 83

 “REAL STATE REPORTER” March 2010, Page No. 55

4. Websites :

1. www.guide2homeloan.com
2. www.indiahousing.com
3. www.timeofmoney.com
4. www.bharatbook.com
5. www.propertymart.com
6. www.indiahomeseek.com
7. www.inverster_seby.gvt.comm
8. www.1888pressrelease.com
9. www.housingfinance,com
10. www.home@indiainfoline.com
11. www.indianrealestateforum.com/bangalore/

QUESTIONNAIRE
Questionnaire – 1

1. Age : 21-30 yrs 31-40 yrs

41-50 yrs 51-60 yrs

2. Occupation : Govt. employee,

Professionals (except govt. employee and IT professionals)

IT professional

Businessman

Others (specify) ___________

3. Income :
Less than Rs.15,000/-

Rs.15,000-Rs.20,000/-

Rs.20,000-Rs.35,000/-

Rs.35,000-Rs. 50,000/-

4. Monthly savings:

Below Rs.2,500/- Rs.2,500-Rs.5,500/-

Rs.5,500-Rs.8,500/- Rs.8,500-Rs.11,500/-

Rs.11,500-Rs 15,500/-

5. Please indicate the current residential status.

Own house Rented Lease

6. If you are planning to own new house, which option would you prefer, please
specify.

a. Purchase of plot/house
b. Purchase of plot for Construction
c. Any others, __________________

7. If your response is (a) please rate the following attributes, affecting your decision
making according to your specification.(Highest rate-1,lowest rate-4 or 5)

Tax benefit

Low interest rates

Convenience.

Good service by financial institution

Any other, please specify_________________________

8. Rank the following financial institution according to your preference(Highest

rank-1,Lowest rank-7)

Vijaya Bank Canara Bank

PNB ICICI Bank

State Bank of Mysore IDBI Bank

HDFC Ltd.

9. Please rank the attributes that made your selection of financial institution for
housing loan?(Highest rank-1, Lowest rank-4 or 5)

Number of schemes offered

Past / present relationship

Service offered

Reputation / brand image.

 Any other, please specify, ______________________

10. What is your expectation from HFI’s with respect to housing loan service?

Please specify, ____________________________________________

Questionnaire – 2

1. Age : 21-30 yrs 31-40 yrs

41-50 yrs 51-60 yrs

2. Occupation : Govt. employee,

Professionals (except govt. employee and IT professionals)

IT professional

Businessman

Others (specify) ___________

3. Income :
Less than Rs.15,000/-

Rs.15,000-Rs.20,000/-

Rs.20,000-Rs.35,000/-

Rs.35,000-Rs. 50,000/-

4. Monthly savings:

Below Rs.2,500/- Rs.2,500-Rs.5,500/-

Rs.5,500-Rs.8,500/- Rs.8,500-Rs.11,500/-

Rs.11,500-Rs 15,500/-

5. Please indicate the purpose for which you applied for home loan?
 Purchase of plot

Site for residential use (construction)

Renovation of existing property

Extension of existing property

Others (other please specify)

6. Please indicate your loan amount?

Below Rs.5 lakhs

Above Rs. 5 lakhs – Below Rs. 12 lakhs

Above Rs. 12 lakhs - Below Rs.15 lakhs

Above Rs.15 lakhs

7. Please indicate the repayment period of the loan amount

Below 5 years

Above 6 years - Below 10 years

Above 11 years – Below 15 years

Above 16 years – Below 20 years

8. Please indicate the type of interest rate charged on the loan?

Fixed interest rate

Floating interest rate

9. Are you satisfied with service provided by housing financial institution?

Yes

No
If Yes, Please rank the following service attributes according to your preference.(Highest
rank-1,Lowest Rank-5)
 Fast processing at low cost.

Accessibility for payment or repayment

Low interest rates offered

Attractive schemes

Others (Please Specify & Rank)

If No, Please rank the reasons for not satisfied with services provided by Housing Finance
Institution (Highest rank-1,Lowest rank-5)

High processing cost

Attitude of the staff at financial Institution

Low accessibility for payment or repayment

Terms and conditions

Others (Specify)

10. Please tick the areas to be improved by Housing Finance Institutions in

providing better services to customers and society?

Attractive schemes

Simple terms and conditions

Low interest rates

Use of new technology

Others (Specify)

11. Are you willing to shift from fixed interest to fluctuating interest rates?

Yes

No

If Yes,
12. Will you take advantage of lower interest rates offered by other Financial
Institutions?

If Yes, Please mention the name of the institution,

_________________________________________________________________________
_________________________________________

SYNOPSIS