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A STUDY ON HOME LOANS


With Reference To SBI
A Report submitted in partial fulfillment for the award of the degree of
MASTER OF BUSINESSADMINISTRATION
Submitted by
P.Prajwala Devi
R.No.017-08-179
DEPARTMENT OF BUSINESS MANAGEMENT
OSMANIA UNIVERSITY
HYDERABAD - 500007
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DECLARATION

I, P.PRAJWALA DEVI, R.NO.0175-08-179, herebydeclare that the

work presented herein is genuine work done originallyby meand has not been published or submitted

elsewhere for the requirement of anyMaster Degree Programme. Any literature, data or works done by

others andcited within this dissertation has been given due acknowledgementand listedin the

referencesection.
_______________________
(Student's name & Signature)
_______________________
(Registration No.)
Date:__________________
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A C K N O W L E D G E M E N T
Acknowledgementis not a mere formality or ritual but a genuine
opportunity to express the indebtedness to all those without who’s active
support and encouragementthis project wouldn’t have been possible.

Hence, it gives me immense gratification to place on records my

profound gratitude sincere appreciationto each and every one of those who

have helped me in this endeavor.

Firstly I would like to thank the Staff of the SBIBranch for allowingme

to do my project there and providing valuablehelp in collecting the data.

I extend my sincere thanks to Mrs. Mamata Pradeep for her continuous


guidance, cooperation and valuable suggestions to initiate and carry out the
study.
.Date: -03-2010
PRAJWALA DEVI PONNALA
R.No: 017-08-179
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CONTENTS
CHAPTER -1
1. INTRODUCTION.............................................................................................................. 71.1.
ABSTRACT................................................................ ............................................... 71.2.OBJECTIVES
OF THE STUDY................................ ................................ .............. 91.3.NEED OF THE
STUDY................................ .........................................................101.4.SCOPE OF THE
STUDY................................................................ .......................101.5. RESEARCH
METHODOLOGY............................................................................111.6.TOOLS AND
TECHNOLOGIES USED...............................................................111.7.LIMITATIONS OF THE
STUDY..........................................................................12
CHAPTER -2
2. LITRTATURE SURVEY................................................................................................13
CHAPTER -3
3. COMPANY PROFILE................................................................ ....................................20
CHAPTER - 4
4.HOME LOAN PRODUCTS OFFERED BY SBI..........................................................28
CHAPTER -5
5. TERMS AND NORMS................................................................ ...................................38
CHAPTER - 6
6. SYSTEMS AND PROCEDURES................................ ..................................................64
CHAPTER -7
7. PERFORMANCE EVALUATION................................................................ ................75
CHAPTER -8
8. RECOMMENDATIONS................................ ................................................................ .90
9.UPDATE ON HOME LOANS................................................................ .......................92
C O N C L U S I O N ..........................................................................................................97
BIBLIOGRAPHY................................ ................................................................ .....................98
APPENDIX................................ ................................................................ ...............................99
QUESTIONNAIRE................................ ................................................................ ..............99

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LIST OF FIGURES
Figure 1: Housing in India................................................................ ...........................................13Figure
2: Demographics in Housing............................................................................................14Figure 3:
Housing Finance Timeline................................ ................................ ...........................14Figure 4:
Penetration of Housing Finance in the World................................ ............................15Figure 5:
Improved Affordability................................ ................................................................15Figure 6:
Market features................................................................ .............................................16Figure 7: Issues
in Affordable Housing in India.........................................................................17Figure 8:
Shareholders of SBI......................................................................................................26Figure 9:
Software Interface for EMI calculation.......................................................................49Figure 10:
demand trends................................ ................................ ................................ .............76Figure 11:
number of sanctions and disbursals................................ ................................ ...........77Figure 12:
customer portfolio................................................................ ......................................78Figure 13:
purpose portfolio.........................................................................................................79Figure 14: Loan
amount portfolio................................................................................................80Figure 15: Home loan
book sizes................................ ................................................................81Figure 16:credit growth
trend................................................................ ....................................82Figure 17: share of home loan
segment in the retail portfolio................................ ...................83Figure 18: Quality of
Assets................................ ................................................................ ........86Figure 19: customer
complaints...................................................................................................88

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LIST OF TABLES
Table 1: major home loan
providers................................ ................................ ............................16Table 2: Associate Banks of
SBI................................ ................................................................ .23Table 3: SBI Group
Comapnies................................ ................................ ................................ ...24Table 4: Best Practices
in SBI......................................................................................................26Table 5: SBI Hi-Five
Loan...........................................................................................................28Table 6: Processing
fee.................................................................................................................28Table 7: loan amount in
SBI easy home loan................................ .............................................29Table 8: : loan amount in SBI
advantage home loan..................................................................30Table 9: criteria and documents
required for individuals..........................................................39Table 10: Criteria for Loan
Amount................................................................ ............................46Table 11: Determination of
Repayment capacity................................................................ .......47Table 12: Enhancing Repayment
capacity options.....................................................................49Table 13: EMI calculation in the flat
rate system................................ ................................ .......50Table 14: EMI calculation in Reduced
balanced system...........................................................51Table 15: monetary
ceilings................................ ................................................................ .........53Table 16: criteria of
margin amount................................................................ ............................54Table 17:
Securitization................................................................................................................55Table 18:
Processing fee amounts................................................................ ...............................55Table 19: Rate
of interests............................................................................................................58Table 20: valuation
policies................................ ................................................................ .........62Table 21: Systems and
procedures in lending process................................ ...............................64Table 22:
competitors................................................................ ...................................................75Table 23:
strengths and weaknesses................................................................ ............................75Table 24:
demand trend................................ ................................ ................................ ................76Table 25:
customer capacity profile................................................................ ............................77Table 26:
sanctions and disbursals................................................................ ..............................77Table 27:
customer portfolio................................ ................................ ................................ ........78Table 28:
lending purposes................................................................ ..........................................79Table 29:
amounts of loans sanctioned................................................................ .......................80Table 30: loan
book size...............................................................................................................81Table 31: credit
growth trend ................................ ................................ ................................ .......82Table 32: share of
home loan segment in the retail portfolio....................................................83Table 33: take
overs......................................................................................................................84Table 34:
outstanding amounts................................................................ ....................................85Table 35:
Quality of Assets................................ ................................ ................................ ..........86Table 36:
income generated................................ ................................................................ .........87Table 37:
customer complaints................................................................ ....................................88

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CHAPTER -1
1. INTRODUCTION
1.1.
ABSTRACT
Home is a dream of a person that shows the quantity of efforts, sacrifices
luxuries and above all gathering funds little by little to afford one‟sdream. Home is one of

the things that everyone one wants to own. Home is a shelter to person where he rests andfeels

comfortable. Many banksproviding home loans, whether commercial banks or

financialinstitutions, to the people who want to have a home. Many banks are providing home

loans atcheapest rate to attract consumers towards them. Themore customer friendly attitude of

thesebanks, currently offer to consumers cheapest loan over homes. In view of acute

housingshortage in the country, and keeping in mind the social– economic role of commercial

banksin the present times, the

RBI advised banks to encourage the flow of credit for housing finance. With the RBIreducing bank

rate, the home loan market rates nose-diving by 50 basis points. The ICICIBank andStandard

chartered bank has

become the first player in this sector to announce a housing loan for a 20 years period.

Nodoubt it will enhance the end cost of the home but it will facilitate people to plan their

houseover longer duration now, it has been made easy for a person to buy that dream house

whichhe dreamt of long ago.

A home loan is a loan taken for buying or constructing a home or to

makeimprovements to a residential property. You can get a loan from banks and registered

housingfinance companies.

TheHome loan sector in India is the pivotalrole player in the growth of the real

estatescenario in India. With tax incentives given to the housing finance sector in the annual

budgetof 2001, transactions related to buying and selling of residential properties increased.

considerably and was much higher as compared to previous years. Since the new class ofbuyers

are relatively younger set of customers who are more aware about legaldocumentation and
approvals, buyers are now more 'end-users' rather than investors; theproperty market in India

undergoes transformation to align itself with global standards withan increased emphasis on

quality & cost control and documentation methods. In the currenteconomy of India, the real

estate sector has the maximum propensity to generate income anddemand for materials,

equipment and services. It can be said that housing finance companieswere formed for co-

existing with buyer's requirements of housing loans for investing inproperties. Home loans are

made available by financial institutions to both Indian and NRIcustomers at floating and fixed

rate of interest and also at attractive EMI options.

The realty boom in India has given a new dimension to the finance sector in India

-both in Home Loans and Home Insurance segments. This has not only given a

competitiveedge to the finance companies to provide attractive options to customers but has

alsocontributed to the increased investments in the real estate sector. This has resulted in 13

newinstitutions foraying into the housing finance business in the last three years.

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1.2.
OBJECTIVES OF THE STUDY
1.2.1. Identification Of The Problem

Tostudy and learn the various systems and procedures used by the bank in
lending to housing sector.

Toidentify the problems faced by the bankin attracting more customers to use its
home loan products.

Toidentify the problems faced by the bankat various stages of undertaking the
home loans.

Tounderstand and identify difficulties in the home loan asset management
practices of the bank.

Tostudy the valuationof collateral security method followed by the bank while
lending the home loans.
1.2.2. Offer A Solution To The Problem
 Tosuggest better alternative organizational and operational practices.

 Toenhance its capacity to tap potential market in the home loan sector.

 Toreduce credit risk

 To enhance the recovery system in the bank giving the home loans.
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1.3.
NEED OF THE STUDY
It hasbeen felt very useful in future–
 Tostudy the roles of the staff and the decision making processes in lending to the
home loan borrowers.
 To learn and comprehend thoroughly the systems and Procedures used in
financing the segment.
 Toanalyzethe issues relating to various financial aspects of lending.
 To calculate the risk involved and how the risk and uncertainty to be assessed and
managed by the bank while lending the home loans.
 Tostudythevaluationofcollateralsecuritymethodfollowedbybankwhile
lending the home loans.
1.4.
SCOPE OF THE STUDY
 Thepresent study is confined to Home loan products offered by the
domestic operations of State Bank of India.
 Thestudy is also confined to the internalfunctionalandoperational
aspects of the lending process.
 The data collected here, is specific to:

The selected branch as said before.

The time period covering the financial years: FY08-09-Q1FY10.
 Thedata and the information could be collected here has been taken from
the record books maintained by thebranch andfrom the oral communication
with the branch manager.
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1.5.
RESEARCH METHODOLOGY
1.5.1.Research Design

The study done is exploratory in nature.

Thebranch of the bankwasselected by convenience and for the sake of access
to the qualitative information.

For the latest information and focus, the study is confined to the systems and
procedures in lending and the time period as said above.
1.5.2.SOURCES OF DATA
The data and the information presented here have been collected mainly from
two kinds of resources:
1.5.2.1. Primary sources
♀ Direct and oral interaction with the Bank officials, particularly, the
branch manager viaa Questionnaire, a copy of which is madeavailable
in theAPPENDIX.
♀ TheRecord books maintained at the branch office.
1.5.2.2. Secondary sources
Several secondary resources have been referred for collecting first hand
information and literature on the subject that includes:
 TheTrainingand Guidance Material supplied to the staff of the Branch.
 AnnualReports of RBI.
 OnlineAnnualReportsbyConsultancyandResearchcompanies.
 Online Content of the Bank‟sWebsite.
 Thematerial supplied by the Faculty Guide.
 Several websites on personal loans and
 Daily News Papers like Economic Times of Indiaand Business
Standard.
Thedetails of which havebeen presented inBibliography.
1.6.
TOOLS AND TECHNOLOGIES USED
1.6.1. Statistical techniques:
 Percentages.
 Averages and
 Tools like Tables,
 Bar Charts and
 Pie charts
1.6.2. Hardware and Software Technologies:
 Home PC with Internet access
 MS Word and Excel-2003.
 World Wide Web or Internet

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1.7.
LIMITATIONS OF THE STUDY
Some of the limitations of the project that were encountered during the study are:
 In case of interaction with the representative of a particular bank it happensmany a
time that the representative cannot disclose all the data because of certain reasons like
banksprivacy policy etc. thus getting clear picture about the service provided is not
possible.
 Due to paucity of time, only important factors have been analyzed and discussed.
 Tocollect the data from various bankswasquite difficult due to non-cooperation
of some banks. This proved to be major limitation of the study.
 Toaccess such a large number of customers was difficult because of non-cooperative
attitude of respondents.
 Lack of data wasalso the other limitation of the study as some of banksdo not have
proper data on topic.
 There waslimitation of time to conduct such a big survey in limited availabletime.
 Generally the data on the websites of the banksare not fully disclosed i.e. other than
the charges mentioned on the website there are many hidden charges which increases
the cost like service charge etc
 Ignorance and reluctant attitude of customers was also a major limitation in this study.
I have tried a lot to overcome the above mentioned limitations as far as possible.
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CHAPTER -2
2. LITRTATURE SURVEY
2.1.
HOME LOAN INDUSTRY IN INDIA
After going through pervious studies of Home loans in India I came to conclude the
following indicated in different forms:
Figure 1: Housing in India

IN INDIA
After going through pervious studies of Home loans in India I came to conclude the
following indicated in different forms:
Figure 1: Housing in India
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Figure 2: Demographics in Housing
Figure 3: Housing Finance Timeline
15
Figure 4: Penetration of Housing Finance in the World
Figure 5: Improved Affordability
16
Figure 6: Market features
Major Home Loan Providers
Banks &
Public Sector
Housing
Finance
Companies
State Bankof India, Corporation Bank, Punjab National Bank,
Central Bank, Dena Bank, Allahabad Bank, Bank of Maharashtra,Bank of Baroda Housing Finance,
Can Fin Homes, GIC HousingFinance, LIC Housing Finance, PNB Housing Finance, SBI
HomeFinance, Centbank Home Finance, HUDCO, LIC, etc.
Financial
Institutions
HDFC, ICICI Ltd, Citibank, HSBC, Standard Chartered- Grindlays,
IDBI Bank, etc
Table 1: major home loan providers
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Figure 7: Issues in Affordable Housing in India
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2.2.
LATEST TRENDS IN THE INDUSTRY
2.2.1.GDP ratio at 7% provides room for further growth
The ratio of mortgage to GDP in India has remained low at 7%, as against 12%for china,

41% for Hong-Kong and more than 80%foor developed countries, thusproviding for further

growth in the housing sector during the coming years. While thehousing finance companies

(HFC), which are regulated by National housing Board (awholly-owned subsidiary of RBI) were

pre– dominantly catering to mortgage needs.Over the past few years, banks too have started in

increasing their exposure to real estate,especially Home loans. This is evident from the fact that

the market share of HFCs hasdecreased from 65% if FYO1 to present 55%. Banks, on other hand

have been constantlyincreasing their market share, there by intensifying competition.


2.2.2.Revival in real estate prices in the initial period of the year and low
interest rate
Thecorrection in the real-estate prices in the initial period of the year and low
interest rate schemes announced by the banks/HFCs have resulted in significant surge
in volumes especially in the “Affordable housing segment”.
2.2.3.Sluggish credit demand; banks increase their exposure to housing
sector.

Due to the sluggish credit demand (up 10.1% yoy for the fortnight ended

November20, 2009), banks have been diverting their funds towards housing loans. According

to thefigures revealed by RBI, the non-food credit growth during April-august 2009 has

remainedmuted at 0.8%. On the other hand, lending to the home loan segment during this

periodincreased 2.8%. Since February 2009, banks have been aggressively pricing interest

rates onhome loans (including both floating and fixed rates). Subsidies havealso been

provided to theform of reduced processing fees and minimal/no penalty on early re-

payments. SBIs s homeloan book has increased by rs117bn or ar2.5% CQGR in the last four

quarters. With creditdemand to revive in coming period, banks are likely to divert their funds

to high yieldingassets thereby reducing their exposure to the housing sector.


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2.2.4.HFCs continue to do business as usual

HFCs foresee the increasing share of banks exposure towards home loan

segment as a temporary phenomenon. In our view,banksare likely to face asset-liability

miss-match as these loans havea long gestation period. Further, these loans are a zero-sum

game in the initial period due to lower interest rate offered. HFCs, on the other hand typically

raise money that match their requirements and thus minimize their ALM mismatch
2.2.5.Differentialinterest rate may not remain for long
While the discounted / special scheme rates are offered to new home loans,
existing customers continue to ply higher rate of interest. The Indian Bank‟s Association
has planned to introduce a uniform rate for all borrowers.
2.2.6.India's mortgage market scores over West
 In India,the borrower contributes a higher share of his own funds (24-46% of
house value)at the time of purchasing a house.
 Theloan installments too eat away a smaller portion of the borrowers‟ income.
 Theinstallment to income ratio-ranged between 34% and 40%, in India is lower
than some countries in the West.
 Thisis based on an analysis by rating agency Fitch of the home loan asset pool
that it rates.
 Thisis because borrowers‟ income has kept pace with rise in property prices.
 Theextent of second houses purchased is also limited and most borrowers stick
to their repurchase schedules.
 Thefigures computed by Fitch based on the asset pool that it rates implies that
on an average, the borrower funds up to 30% of the house valuethrough his own
capital
 Thisamong other things increases the borrower‟s willingness to repay.
 Some bankers say the black money component is also high in the Indianrealty
market, resulting in higher borrower equity.
 Another notable factor is that delinquencies have remained range-bound in the
last 33 months, according to residential mortgage index launched by the ratings
firm.
 Theindex which tracks home loans that havenot repaid for over 90 dayshas
moved in a narrow range between 0.90% and 1.07%.
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CHAPTER -3
3. COMPANY PROFILE
3.1. Introduction:

State Bankof India (SBI) hashistory of more than 200 years of existence. SBI is thelargest

commercial bank in India and accounts for approximately 18% of the total Indian banking

business and the group account for 25% of the total Indianbankingbusiness. Thecentral bank,

Reserve Bank of India(RBI) is the largest shareholder in the bank with 59.7% stake followed

by overseas investors including GDRswith 19.78% shareholding as on September 06. RBIs

stake in the bankis likely to be transferred to the Government of India (GOI).


SBI has the largest distribution network in India spread across every nook and corner of

India.As on September 06, the bankhas 14,061 branches which include 4,755 branches of

itsassociated banks. Thebank also hasthe largest network of 5,624 ATMs. Since the last 5

yearsthe bank has showed continued growth in its core business. The total asset size of the

bankreported a CAGRof 9.4% during the period FY01–FY06 and stood at Rs. 4,938.69 bn as

ofSeptember 2006. In HIFY07, the bank reported net interest income (NII) of Rs.

182.14bn,representing a growth of 2.74% over HIFY06 while the bank reported a net profit

of
Rs.19.8bn, registering a decline of 18.67% during the same period. Credit off take of the bank
has been lower than the
State Bankof India (SBI) is India's largest commercial bank. SBI has a vast domestic
network of over 9000 branches (approximately 14% of all bankbranches) and commands
one-fifth of deposits and loans of all scheduled commercial banks in India.

Theorigins of State Bank of Indiadate back to 1806 when the Bank of Calcutta (later

called the Bankof Bengal) wasestablished. In 1921, the Bank of Bengal and twoother

Presidency banks (Bank of Madras andBank of Bombay) were amalgamated to form the

Imperial Bank of India.In 1955, the controlling interest in the Imperial Bank of India was

acquired by the Reserve Bank of Indiaand the State Bank of India(SBI) came into existence
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by an act of Parliament as successor to the Imperial Bank of India.
Today,State Bankof India (SBI) has spread its arms around the world and has a
network of branches spanningall time zones. SBI'sInternational BankingGroup delivers the
full range of cross-border finance solutions through its four wings- the Domestic division,
the Foreign Offices division, the Foreign Department and the International Services division.
Ifone measures by the numberof branch offices and employees, SBI is the
largest bank in the world. Established in 1806 as Bank of Calcutta, it is the oldest commercial
bankin the Indiansubcontinent. SBI provides various domestic, international and NRI

products and services, through its vast network in India and overseas. With an asset base

of$126 billion and its reach, it is a regional bankingbehemoth. Thegovernment

nationalizedthe bank in 1955, with the Reserve Bank of Indiataking a 60% ownership stake.
In recent years the bank hasfocused on three priorities:
1), reducing its huge staff through Golden handshakeschemes known as the
Voluntary Retirement Scheme, which saw many of its best and brightest defects to the private
sector,
2), computerizing its operations and

3), changing the attitude of its employees (through an ambitious programme

aptlynamed 'Parivartan' which means change) as a large number of employees are very rude

tocustomers.

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3.2 Roots:

TheState Bank of Indiatraces its roots to the first decade of 19th century, whenthe

Bank of Calcutta, later renamed the Bank of Bengal, wasestablished on 2 June 1806.

Thegovernment amalgamated Bank of Bengal and two other Presidency banks, namely, the

Bankof Bombay (incorporated on 15 April 1840) and the Bankof Madras on 27 January 1921,
andnamed the reorganized bankingentity the Imperial Bank of India.All these Presidency

bankshad been incorporated as joint stock companies, and were the result of the royal charters.

TheImperial Bank of India continued as a joint stock company. Until the establishment of a
central bank in Indiathe Imperial Bank and its early predecessors served as India'scentral

bank,at least in terms of issuing the currency. TheState Bank of Ind

f India continued as a joint stock company. Until the establishment of a


central bank in Indiathe Imperial Bank and its early predecessors served as India'scentral

bank,at least in terms of issuing the currency. TheState Bank of IndiaAct 1955, enacted bythe

Parliament of India, authorized the Reserve Bank of India, which is the central

bankingorganization of India, to acquire a controlling interest in the Imperial Bank of

India,whichwasrenamed the State Bank of India on 30 April 1955.


3.3 Timeline:
June 2, 1806: The Bank of Calcutta established.
January 2, 1809: This became the Bank of Bengal.
April 15, 1840: Bank of Bombay established.
July 1, 1843: Bank of Madras established.
1861: Paper Currency Act passed.

January 27, 1921: all three banks amalgamated to form Imperial Bank of India.

July 1, 1955: State Bank of India formed; becomes the first Indian bank to be nationalized.

1959: State Bank of India (Subsidiary Banks)Act passed, enabling the State Bankof India to
take over eight former State-associated banks as its subsidiaries.
1980s When Bank of Cochin in Kerala faced a financial crisis, the government merged it
with
State Bankof India.

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June 29, 2007: The Government of Indiatoday acquired the entire Reserve Bank of India
(RBI) shareholding in State Bank of India(SBI), consisting of over 314 million equity shares
at a total amount of over 355 billion rupees.
3.4 Associate banks:
There are seven other associate banks that fall under SBI. Theyall use the "State

Bank of" name followed by the regional headquarters' name. These were originally

banksbelonging to princely states before the government nationalized them in 1959. In tune

withthe first Five YearPlan, emphasizing the development of rural India,the government

integrated these banks with the State Bank of Indiato expand its rural outreach. TheStateBank

group refers to the seven associates and the parent bank. Allthe banksuse the samelogo of a blue

keyhole. Currently, the group is merging all the associate banks into SBI,which will create a

"megabank",and one hopes, streamline operations and unlock value.


State Bankof Bikaner & Jaipur
State Bankof Hyderabad
State Bankof Indore
State Bankof Mysore
State Bankof Patiala
State Bankof Saurashtra
State Bankof Travancore
Table2: Associate Banks of SBI
3.5 Foreign Offices:

State Bankof Indiais present in 32 countries, where it has 84 offices serving the

international needs of the bank'sforeign customers, and in some cases conducts retail

operations. The focus of these offices is India-related business.

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3.6 Growth:
State Bankof India has often acted as guarantor to the IndianGovernment, most
notably during Chandra Shekhar'stenure as Prime Minister of India. With more than 9400
branches anda further 4000+ associate bank branches, the SBI has extensive coverage.
Following its arch-rival ICICI Bank, State Bank of India has electronically networked most
of its metropolitan, urban and semi-urban branches under its Core BankingSystem (CBS),
with over 4500 branches being incorporated so far. The bank hasthe largest ATMnetwork inthe

country havingmore than 5600 ATMs[1]. TheState Bank of Indiahas had steady growthover its

history, though the Harshad Mehta scam in 1992 marred its image. In recent years,the bank has

sought to expand its overseas operations by buyingforeign banks. Itis the onlyIndianbank to

feature in the top 100 world banksin theFortune Global 500 rating and
various other rankings. According to theForbes 2000 listing it tops all Indian companies.
3.7 Fortune Global 500 Ranking– 2007:
 SBI debuted in the Fortune Global 500[2] at 498 in 2006. In 2007 it moved up to 495.
 Asper fortune 500-2007 following are the data for SBI in $ million. Revenues
15,119.4. Profits 1,407.3. Assets 187,547.1. Stockholders' Equity 9,786.2
 "THEMOST PREFERRED HOME LOAN PROVIDER" voted in AWAAZ
Consumer Awards
 TheMOST PREFERRED BANKAWARDin a survey conducted by TV18 in
association with AC Nielsen-ORG Marg in 21 cities across India.
3.8 Group Companies:
SBI Capital Markets Ltd
SBI Mutual Fund(A Trust)
SBI Factors and Commercial Services Ltd
SBI DFHI Ltd
SBI Cards and Payment Services Pvt Ltd
SBI Life Insurance Co. Ltd - Bancassurance (Life
Insurance)
SBI Funds Management Pvt Ltd
SBI Canada
Table 3: SBI Group Comapnies

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3.9 The main activities of SBI are into-

 PersonalBanking.

 NRI Services.

 Agriculture.

 International.

 Corporate.

 SM E.

 Domestic Treasury.
3.10 State Bank of India offers the following services to its customers–

 Domestic Treasury.

 SBI Vishwa Yatra Foreign TravelCard.

 Broking Services
 Revised Service Charge.

 ATM Services.

 Internet Banking.

 E-Pay.

 E-Rail.

 RBIEFT.

 Safe Deposit Lockers.

 Gift Cheques.

 MICR Codes.

 Foreign Inward Remittances.

Moreover, State Bank of India hasColleges/Institutes/Training Centers that are the seatsof

learning and research and development. Itcaters not only to the employees of State Bankof India

butalso other banks/establishments in India and abroad.


26
3.11Per for mance:
 SBI Bank Indiahad Total Income of Rs 68376.83 cr for the financial year 2006 -07.
 State Bankof India hasposted Net Income to the tune of Rs 6364.38 crore or the
financial year 2006 -07.
3.12Organization:
State Bankof India is headed by Mr. Shri O. P. Bhatt, Chairman.
3.13The Bank stands for Best Practicesas it claims itself as under:
Best practices followed in SBI
People dealing with
you
End to End service byPermanentemployeesofSBI who are
accountable to you.
Place
SBI branch of your choice will service your loan account. You can
alwaysmeet our employees face to face.
Price
Completetransparency.
Interest charged on thedailyreducingbalance.
Prepayment chargesNo penalty for prepayments made, out of bonafide savingsor windfall
gains for which evidence is produced.
Costs hidden in fine
print
No hidden costs
Transparency
Complete transparency. All the features of our product, including
interest rates, are in the public domain.
Table 4: Best Practices in SBI
3.14 Share Holders:
Figure 8: Shareholders of SBI
27
3.15. Unique features of SBI Home Loan Products:

 Provision for on the spot "In principle" approval.

 Loan sanctioned within 6 days of submission of required documents.

 Option to avail Home Loan as a Term Loan or as an Overdraft facility to save on


interest and maximise gains.
 Option to club income of your spouse and children to compute eligible loan amount.
 Provision to club depreciation, expected rent accruals from property proposed to
compute eligible loan amount.

 Provision to finance cost of furnishing and consumer durables as part of project cost.

 Repayment permitted upto 70 years of age.

 Free personal accident insurance covers upto Rs.40 Lac.

 Optional Group Insurance from SBI Life at concessional premium (Upfront


premium).
28
CHAPTER - 4
4.HOME LOAN PRODUCTS OFFERED BY SBI
1. SBI HI-FIVE LOAN
SBI Hi-Five is availableup to 31st March 2010
Amount
Maximum Rs.5 Lacs
Term
Maximum120 months (i.e. 10 years) including moratorium
period.
Interest Rates
8% p.a.Fixed interest rate during first 60 months.
61st month Onwards- floating at 2.75% below SBAR
Or
Fixed interest at 1.25% below SBAR
Table 5: SBI Hi-Five Loan
Processing Fee
The revised processing fee structure (including service tax) from 9th November 2009 is as
under:
Loan Amount
Processing
Fee(Revised)
Upto Rs.5 Lac
Rs.1000/-
Table6: Processing fee
2. SBI EASY HOME LOAN
FOR LOAN AMOUNT UPTO Rs. 50 Lacs
SBI Easy is availableup to 31st March 2010

Getting your dream home has become easier with SBI Easy Home Loan. With low

interestrates for home loan under Rs. 50 lakhs category, SBI Easy ensures that you are not

burdenedwith high interest for your home loan. Plus with over12000 SBI branches

nationwide youcan get your Home Loan account parked at a branch nearest to your present or

proposed
residence.
Interest Rate:
Interest rate during the first year (i.e. till first anniversary date from the date of first
disbursement) is fixed at 8% p.a.

29
Interest rate during next two years is fixed at 8.5% p. a
Interest rate after three years may be Fixed or Floating as per the borrower‟s choice made at

the time of sanction. If floating rate option is chosen, then the rate will be 2.75% below

SBAR.If fixed rate option is chosen, then the rate will be 1.25% below SBARprevailing on

the third anniversary date from the date of first disbursement, and shall havea reset frequency

of 5 years from the third anniversary date of the loan. Fixed interest rate shall be subject to

force-majeure clause.
Processing Fee:
The revised processing fee structure (including service tax) from 9th November 2009 is as
under:
Loan Amount
Processing
Fee(Revised)
Upto Rs.5 Lac
Rs.1000/-AboveRs.5 Lac and upto Rs.10

LacRs.2000/-AboveRs.10 Lac andupto Rs.20


Lac
Rs.5000/-
AboveRs.20 Lac andupto Rs.50
Lac
Rs.7,000/-
Table7: loan amount in SBI easy home loan
3.SBI ADVANTAGE HOME LOAN
FOR LOAN AMOUNT ABOVERs. 50 Lacs
SBI Advantageis available up to 31st March 2010
SBI AdvantageHome Loan with competitive rates of interest is available for home loans
aboveRs.50 lakhs. Plus with over 12000 SBI branches nationwide you can get your Home
Loan account parked at a branch nearest to your present or proposed residence.

30
Interest Rate:
Interest rate during the first year (i.e. till first anniversary date from the date of first
disbursement) is fixed at 8% p.a.
Interest rate during next two years is fixed at 9% p. a
Interest rate after three years may be Fixed or Floating as per the borrower‟s choice made at

the time of sanction. If floating rate option is chosen, then the rate will be 1.75% below

SBAR.If fixed rate option is chosen, then the rate will be 0.75% below SBARprevailing on

the third anniversary date from the date of first disbursement, and shall havea reset frequency

of 5 years from the third anniversary date of the loan. Fixed interest rate shall be subject to
force-major clause.
Processing Fee
The revised processing fee structure (including service tax) from 9th November 2009 is as
under:
Loan Amount
Processing Fee(Revised)
AboveRs.50 Lac and
up to Rs.1 Cr
Rs.8,000/-
AboveRs.1 Cr and up
to Rs.5 Cr
Rs.10,000/-
Above Rs.5 Cr
Rs.20,000/-
Table8: : loan amount in SBI advantage home loan
4.HOME LOAN PRODUCT VARIANTS
i)
SBI Max Gain
HOME LOAN AS AN OVERDRAFT

Aninnovativeand customer-friendly product to enable you to earn optimal yield on

your savingsand minimize interest burden on Home Loans, with no extra cost.

Theloan is granted as an Overdraft facility with the added flexibility for you to operate your

Home Loan Account like your SB or Current Account.


31
Theproduct serves to minimize your interest cost by enabling you to park your surplus funds
in „SBI-Maxgain‟(with the benefit to withdraw the surplus fundswheneveryou require),
specially in the wakeof low yields from other deposit/ investment avenues.
Minimum Loan Amount:Rs.5 lacs
ii)SBI Freedom
A revolutionary product designed for customers who are on the look out for a source of

finance for a property they wantto invest in without mortgaging the same. All you haveto dois

pledge any financial security that you haveandyou will get a Home Loan for your dreamhome.
A must-take for those who do not wantto pay stamp duty for mortgage of their property or go
through the hassles of creation of mortgage.
You also havean option to take the loan by wayof mortgage of the property and pledge
financial securities in lieu of margin money.
Repayment is highly customized, giving you the option to repay through regular EMIs or
through maturity proceeds of the securities pledged.
ii)
SBI Realty
HOME LOANS FOR PURCHASE OF PLOT OF LAND FOR THE PURPOSE OF
CONSTRUCTIONOF A DWELLING UNIT
A uniqueproduct if you are on the lookout for a loan to purchase a plot of landfor house
construction. The loan is availablefor a maximum amount of Rs.1 crore* and with a
comfortable repayment period of upto 15 years.
32
Customers are also eligible to avail another Housing Loan for construction of house on the
plot financed abovewith the benefit of running both the loans concurrently.
(House construction should commence within 2 years from the date of availmentof „SBI-
Realty‟ Housing Loan)
(Other terms and conditions– as applicable to regular Home Loans)
(* relaxation considered on case to case basis)
iv)SBIFlexi
HOME LOANS WITH A COMBINATIONOF FIXED AND FLOATINGINTEREST
RATES
Home Loans with an option to choose a combination of floating interest rate and fixed
interest rate, in a pre determined ratio.
Minimum Loan AmountRs.5.00 lacs.
A customized product designed to enable borrowers to hedge their Home Loan against
unfavourablemovement in interest rates. The product gives you a onetime irrevocable option
to choose one of the three customized combinations of fixed and floating interest rates and
also to choose the order in which the fixed andfloating rate will be availed.
v)NRI Home Loans
HOME LOANSTO NON RESIDENT INDIANS(NRIs) ANDPERSONS OF INDIAN
ORIGIN (PIOs HOLDING A FOREIGN PASSPORT)
Eligibility
Individual(s)over 18years of age with a steady source of income who
 AreNon Resident Indians (NRIs) holding a validIndianpassport.

 Are persons of Indian origin (PIOs) holding a foreign passport.

 Minimum employment tenure in India/abroad not less tha

42

Similar Document -separately for each co-applicant.
Employment Proof

Identity card issued by your employer

Visiting card
Age Proof

Passport

Voter's ID card

PAN card

Ration card

Employer's Identity card

School leaving certificate

Birth certificate
Residence Proof

Ration card

Passport

PAN card

Rent agreement, if you are staying currently on rent

Bank Pass book

Allotment letter from your company if you are residing in company quarters.
43
Name Change Proof (If Applicable)
a. A copy of the official gazette
b. A copy of a newspaperadvertisement publicizing the name change
c. Marriage certificate
Investment Proof (If Applicable)

Bank statement for the last six months of all operating and salary accounts

Bank statements for the last six months of all current accounts, if self-employed.

Any other photocopies of investments held, if required by the Bank
Property Title Proof

Original Sale agreement with Builder/Developer duly registered, Registration receipt

Tripartite agreement from builder/developer

Land documents indicating ownership, e.g.- Photocopies of title deeds, if applicable

A certificate by the legal advisor of the builder to the effect that the builder has a good
reputation and it is free from encumbrance and other charges.

A certificate from builder's Chartered Accountant certifying that the builder has not
mortgaged the property anywhere else.

Certified true copy of approved plan.

Copies of receipts of payments made to builder/developer.

Allotment letter

Possession letter

Lease agreement, if applicable (Property bought from a development authority)

Mortgage deed if the Bank opts for a registered mortgage.
44

NoObjection Certificate from the developer, society or development authority as
applicable

Personal Guarantees, if applicable.

In case of alternate or additional security, documents for the same depending upon the
security details.

For self-construction: Approved plans and clearance certificates along with estimates

Post dated cheques for the EMIs.
Confirmation of Rental Income
Copy of the existing tenancy agreement, or a rental appraisal,from a local real estate agent
signed by branch manager, or rental manager.
Deposit or Investments

Evidenceof your deposit or investment funds, i.e. a bank statement or term deposit
receipt.

For low equity loans (5-19% deposit), copy of your savings account statements over
the last six months.
Sale and Purchase Agreement

If you are planning to buy a property, please provide a copy of the successful sale and
purchase agreement signed by both you and the vendor.

If you are planning to sell or have already sold your existing property, pleaseprovide
a copy of that property's sales and purchase agreement.
45
New Customer to the banks of India

If you are refinancing from another bank please provide copies of your loan
statements covering the last six months.

Please provide copies of your account statements covering the last six months from
your current bank.

Please provide copies of your identification and if you have arrived in the country
within the last 5 years, please provide a copy of your passport.
Government Valuation and rating System

A copy of the latest Government or Ratings Valuation is to be provided. Depending on theage

andvalueindicated in conjunction with the amount required to borrow, the Bankmayrequire a

Registered Valuation and your Banker will advise you.


5.3. PURPOSE
Thebankoffers home loans for purchase and/or construction of house property as
well as plot loans.
Itoffers loans for:

 Purchase/ Construction of new House/ Flat

 Purchase of an existing House/ Flat

 Purchase of a plot of land for construction of House

 Extension/ repair/ renovation/ alteration of an existing House/ Flat

 Purchase of Furnishings and Consumer Durables as a part of the project


cost
 Takeoverofan existing loan from other Banks/ Housing Finance
Companies

46
5.4. QUANTUMOF LOAN
Actual loan amount will be determined taking into consideration such factors as
applicant‟s income and repaying capacity, age, assets and liabilities, cost of the proposed
house/flat etc.
Applicants aged between 18 and 45 years, can get 60 times Net Monthly Income(NMI)

or 5 times Net AnnualIncome (NAI)and for applicants aged over 45 years of age,it is 48 times

NMI or 4 times NAI.


Thiswill be subject to a maximum EMI/NMI ratio as under:
 Increase upto 5% in the EMI/NMIratio may be permittedby the sanctioning
authority, depending on the availability of disposable surplus income after
meetingexpendituretowards maintenanceof family.
 Judgment regarding repayment capacity on the basis of income:
Tounderstand how the income of a customer is considered to arrive at his repayment
capacity, it is first necessary to classify customers into salaried and self employed
individuals.
Net AnnualIncome
EMI/NMI Ratio
Upto Rs.2 lacs
40%
AboveRs.2 lac to Rs. 5 lacs50%
AboveRs. 5 lacs
55%
Table10: Criteria for Loan Amount

47
a)Theincomeofthesalariedindividualisconsideredinthefollowingmanner:
Gross monthly income as it appearson the salary slip

Less:- Any non regular variableincome appearing on the salary slip (including overtime, etc.)

Add:- 50 per cent of the averagevariableincome of the last six months.


Add: - Anyfixed cash/voucher payments for which proof can be submitted.
Add: - 50 per cent of the averagevariablecash/voucher payments with proof like traveling
reimbursement etc.
Add:- HRA receivable if not being received already in the salary slip.
The above income calculated for the calculation of eligibility using IIR andFOIR

norms. For calculation of FOIR, the installments of all the loans that one hasavailed

of currently for which repayment is being made is taken into account as well. The

lower of the two eligibilities is considered as the maximumrepayment capacity.


E.g.:Determi nati onofloanamounteligi bi l it yofasalariedindi vi dual:
Net Monthly Income i.e. Takehome salary
85,000/-
Expected rental from proposed property
15,000/-
Add any other monthly regular income
-
Total Net Monthly Income
1, 00,000/-
Take55% of this for total loan EMI provision i.e.
55,000/-
Subtract all existing loan EMI‟s being paid now: (other loans)
15,000/ -
Net EMI availablefor the present loan
40,000/-
Now, for repayment period 15 yrs @ 9 % the EMI/ lakh is
1,014/-
To arrive at your eligibility Divide 40,000/ by 1014 39.44 lacs
Table11: Determination of Repayment capacity
i.e. 39.44 lacs or80% of project cost whichever is lower.
48
b)ToconsiderincomeofSelf-employedindividualswefurtherclassifytheminto
Professionals and non-professionals.
• Professionals: - Comprising doctors, chartered accountants, lawyers, architects, etc.

For calculation of eligibility of professional's income is computed by most HFIs using thegross

professional receipts instead of the Net profit as in the case of self-employed non-

professionals.
• Non-Professionals: - The income of non-professionals is normally calculated by
HFIsin the following manner: -
Averageof the net profits of last 2 years as it appears in the profit and loss
account (Returns need to be filed for the same. They should be filed regularly before
the due date is over).
Less: - Anyincome, which is unusualandnon-recurring in nature like sale of some asset, etc
which affects profits substantially,
Add: - Anyexpense that is unusual andnon-recurring in nature like repairs and maintenance
that has not been capitalized and effect profit adversely.
Add:- 50 per cent of the averagedepreciation of the last two years. Theaboveincome is
calculated for the calculation of eligibility using IIR and FOIR norms.

For calculation of FOIR the installments of all the loans that one has availedofcurrently

for which repayment is being made is taken into account and the eligibility isworked out.

Thelower of the two eligibilities is considered as the maximum repaymentcapacity.


49
To enhance loan eligibility you haveoption to add:
5.5.
Equated Monthly Installment Calculation:

Thestaff at the selected Branch did not want to reveal the actual method adopted bySBI as

they used to havea computer software Application for the purpose that looks justas below:
1)
Income of your spouse/ your son/ daughter living with you, provided they
have a steady income and his/ her salary account is maintained with SBI.
2)
Expected rent accruals (less taxes, cess, etc.) if the house/ flat being
purchased are proposed to be rented out.
3)
Depreciation, subject to some conditions.
4)
Regular income from all sources.
Table12: Enhancing Repayment capacity options
EMI Calculated: Rs.36398.28
Total Interest: Rs.1367793.
6
Calculate EMI For
Amount
3000000
Duration
120Months
Interest Rate
8
%
Calculate
Reset
Figure 9: Software Interface for EMI calculation

50
However, the actual calculation model for EMI could be as follows:
From various resources, it is found that:
1)The EMI break up, for SBI is:
 68% - Principal Component and
 32% - Interest Component
2)ThewayEMI is calculated can be broadly categorized under two heads:
 Flat rate system and
 Reducing balance system.
Theflat rate system:

Therate of interest on the loan amount is calculated over the full duration of the

loan,the principal and the interest is divided over the number of installments and the

valuearrivedis your EMI. Let us understand this better:


Table13: EMI calculation in the flat rate system
A flat rate loan is the most expensive as in this case the interest is calculated on the entire
loan amount and no principal deduction is taken into account. Thusthe effective rate of
interest works out to be much higher.
51
Reducing balance system:

Theinterest is charged on the outstanding balance of the loan, which goes on

reducing. Hence the cost of the same loan amount on an annualreducing balance method

works out to 29% and 35% on a monthly reducing balance method. Againin case of
reducing system, there are three types:
Table 14: EMI calculation in Reduced balanced system
Daily reducing balance method (Used by SBI)
Here, there is immediate reduction in principal thereby reducing the interest
calculated on it. If you havetaken a loan of Rs.1, 00,000/- at 21% interest for 3 years and
you pay Rs.3, 760/- on Jan 10, the lender will consider total outstanding principal as
Rs.96, 240/- from Jan 11. The interest will be calculated on Rs.1,00,000/- from Jan 1 to
Jan 10 and from Jan 11, interest will be calculated on Rs.96,240/-. With a lower
outstanding principal, the total interest paid out reduces and so does the EMI.
Monthly reducing balance method
Here, the principal component is deducted at the end of every month andthen the interest
is calculated on this new outstanding reduced principal. Theabovetable gives thecash
outflow on a loan of Rs.1, 00,000/- at 21% interest for 3 years, when interest is calculated
by monthly reducing balance method.
52
Annual reducing balance method
Here the principal component of EMI though reduced every month, is summated
annually.Therefore, the interest is calculated on the original loan amount for the

entire year. Atthe end of the year, the accumulated principal component is deductedfrom the

original loan amount and the interest for the next year is on this reduced loanamount. Ifyou

havetaken a loan of Rs.1,00,000/- at 21% interest for 3 years, the EMIwill be Rs.4,018/-.
Which EMI plan to choose?
Payment of EMIs in advance or in arrears?
Paying the EMI at the beginning of the month (EMI in advance)means that
you lock your money for the month; while paying in arrears, (i.e. at the end of the
month) givesyou an extra month before the payout. Theeffective rate of interest onthe loan also

goes up when you paythe EMI at the beginning of the month. Hence iftwo schemes offer the

same EMI, choose the one, which allows paymentin arrears.


Advance EMI payment
In advanceEMI schemes a certain number of EMIs are collected from the

borrower in advance.The number of EMIs that have to be paid out in advancevarieswith the

interest charged on the loan. Themore you payin advancethe lesser shouldbe the interest

charges.

Also in 100% financed loans, some EMIs haveto be paid upfront as

advance.Thiseffectively reduces the loan amount and in real terms the financier has not

givenyou 100% finance but charges interest on the entire cost of the asset.

dvance.The number of EMIs that have to be paid out in advancevarieswith the interest charged

on the loan. Themore you payin advancethe lesser shouldbe the interest charges.

Also in 100% financed loans, some EMIs haveto be paid upfront as

advance.Thiseffectively reduces the loan amount and in real terms the financier has not

givenyou 100% finance but charges interest on the entire cost of the asset.
53
Deposit linked plan
Here, the financier offers a lower rate of interest, provided the borrower

invests 20% to 25% of the asset cost as a fixed deposit with the financier. The intereston this

deposit is usually lower than the interest charged on the loan. Here again youmust consider

the cost of parking your funds in the deposit as the returns on it maynot weigh favorably with

the low interest charged on the loan.

In the end, the thumb rule of EMI to remember: EMI is lowest, when interestis

calculated on a daily reducing basis. Thereason whyEMI varies for the same loanamount,

tenure and interest rate is the difference in the compounding frequency ofinterest rates.
We can remember that one liner joke - “Why sharks never take lenders?” The
answer is “Professional courtesy”.
Pre-EMI:
In case of part of disbursement of the loan, monthly interest is payable
only on the disbursement amount. This interest is payable monthly till the final
disbursement is made, after the EMIs would commence.
5.6.
MONETARY CEILINGS
The Maximum Permissible Loan Amount is subject to following monetary ceilings:
Repairs/RenovationRs. 10 lacs
AboveRs.10 lacs require prior
administrative clearance of network
GM
Furnishings and consumer
durables
10% of the
Project Cost
(or)
3 lacs
Whichever is less where additional
security is available
Table15: monetary ceilings

54
5.7.
TOTAL PROJECT COST
Thetotal valuehouse or flat or the project cost includes:

 Thecost of undivided share of the flat/land /construction cost,

 Additional Amenities like Car Parking, KEB & BWSSB deposits,

 Insurance premium

 VAT & service taxes,

 Maintenance cost &

 Stamp duty and Registration expenses subject to your eligibility as calculated


abovewhicheveris lower for purchase /construction of new or old property.
5.8.
MARGIN
 Purchase/ Construction of a new House/ Flat/ Plot of land:
TheSBI home loan borrower should pay 20% of the cost of home for loans up to Rs 1
crore and 25% for loans above Rs 1 crore.
 Repairs/ Renovation of an existing House/ Flat: 20%

*LTV ratio - Loan to value ratio=Loan amount/Value(project)
Loan Amount
Margin (Min.) Maximum LTV* Ratio (Max.)
Upto Rs. 75 Lacs
20%
80%
Above Rs. 75 Lacs. 25%
75%
Table16: criteria of margin amount
55
5.9.
SECURITIZATION
Inmost cases, the property to be purchased itselfbecomes the security and is
mortgaged to the bank tillthe entire loanis repaid.
Equitable or Registered mortgage of property
(or) Other tangible security of adequate value like NSCs, Life Insurance policies
etc., if the property cannot be mortgaged
Table17: Securitization
5.10.
FEES OR CHARGES
5.10.1. Pre-Sanction Fees
(i)Processing Fee:
The revised processing fee structure (including service tax) from 9th November
2009 is as under:
Loan Amount Processing Fee (Revised):
Upto Rs.5 Lac
Rs.1000/
AboveRs.5 Lac and upto Rs.10 Lac
Rs.2000/
AboveRs.10 Lac andupto Rs.20 Lac
Rs.5000/
AboveRs.20 Lac andupto Rs.50 Lac
Rs.7,000/
AboveRs.50 Lac andupto Rs.1 Cr
Rs.8,000/
AboveRs.1 Cr and upto Rs.5 Cr
Rs.10,000/
Above Rs.5 Cr
Rs.20,000/
Table 18: Processing fee amounts

56
 Processing Fee:
0.50% of loan amount or Max.Rs.10,000/-
(Waived for loans partially/fully disbursed before 30/09/2009)
Note:75 % of the processing fee may be refunded in the following
cases:
(a) Rejection of loan application on account of unsatisfactory pre-sanction
survey report.
(b) Rejection of loan application on account of unsatisfactory
legal/valuation reports.
In cases where applications are sanctioned or rejected after complete loan
processing,
fee willnot be refunded.
(ii) Legal Charges:
Advocate's fee for property search and the title investigation
report.
LegalFee/charges: Rs.1500/-

(iii)Govt. Stamp duty: 0.25% of loan amount as stamp duty at the timeof equitable

mortgage creation at the Bank.

(iv)Approx Govt. Stamp papers ofRs.1500/-(approx) for execution of loan documents at


the time of sanction
(Legal/Engineer/Processing fee cheques to be paid at the time of submission of

applicationform to the bank. Govt Stamp duty of 0.25 %( prevailing now) of the loan amount

and Rs750/- approxto be paid at the timeof documentation of loan. Insurance will be done

after the registration of the


property.)
57
(iii) Valuation Charges:
Valuer's fee for valuation report.
Engineer's Valuation fee: Rs.1, 500/-
5.10.2.Post-sanction Fees
(i) Stamp duty payable for Loan agreement & mortgage.
(ii) Property insurance premium:
Insurance: Insurance of property building against fire/earthquake etc with
New India Assurance Company to be done.
(iii) Service Charges
Payable to builders who have been engaged as Marketing Associates.
5.11.
RATE OF INTEREST
Interest Rates w.e.f. 29.06.2009
a)FloatingRates linkedto SBAR
SBAR w.e.f. 29.06.2009 = 11.75 % p.a.
Loans (i.e. Sanctioned limits)upto Rs.30 Lacs
Loan amount
Loan Tenure ->
Upto 5
Yrs
Above 5
Yrs & upto
15 Yrs
Above 15
Yrs & upto
25 Yrs
Loans upto Rs.30 lacs
for new loans sanctioned
on or after 29.06.2009
Linkage with SBAR in the loan
document
2.25%
below
SBAR,
2.00 below
SBAR
1.75%
below SBAR
Special product level discount whichmay be withdrawn/revised solely atthe discretion
of the Bank.
0.25%
0.25%
0.25%
Effective
Rate
9.50%
p.a.
9.75% p.a.
10.00% p.a.
Loans (i.e. Sanctioned limits)above Rs.30 Lacs and upto Rs.75 Lacs
Loan
Tenure ->
Upto 5 Yrs
Above 5 Yrs
& upto 15
Yrs
Above 15 Yrs
& upto 25
Yrs
Above Rs.30 lacsand
upto Rs.75 Lacs w.e.f.
29.06.2009
Linkage
with SBAR
2.00% below
SBAR
1.75% below
SBAR
1.50% below
SBAR
Effective
rate
9.75%p.a.
10.00% p.a.
10.25% p.a.
Loans (i.e. Sanctioned limits)above Rs.75 Lacs
Above Rs.75 Lacsw.e.f.
29.06.2009
Linkage with
SBAR
2.00% below
SBAR
1.75% below
SBAR
1.25% below
SBAR
Effective rate 9.75% p.a.
10.00% p.a.
10.50% p.a.
58
b) Fixed rates - Re-payment Upto 10 Years
(w.e.f. 29.06.2009):
Fixed rates (subject to ‘force majeure’ clause and interest rate reset at the end of
every
two years on the basis of fixed interest rates prevailingat that time)
Upto Rs. 30 Lacs
Above Rs. 30 Lacs
11.25% p.a.
12.25% p.a.
c) Loans for deposit of earnest money for allotmentof a plot / house / flat
(Floating rates only)- w.e.f. 29.06.2009 - 1% above SBAR, Min. 12.75% p.a.
Loan amount
Margin
Upto Rs.30 Lacs
20%Above Rs.30 Lacsandupto
Rs.75 Lac20%Above Rs.75 Lac
25%
d)CurrentRate of Interestby Products:
Loan Schemes
1st Year
2nd and 3rd
year
After 3rd Year
SBI HI-FIVE Loan
Loan Amount upto Rs. 5
Lacs
8.00% (p.a.)
Fixed interest
rate
9.00% (p.a.)
Floating Interest
Rates
OR
10.50% (p.a.)
Fixed Interest
Rates
9.00% (p.a.)
Floating Interest
Rates
OR
10.50% (p.a.)
Fixed Interest
Rates
SBI Easy Home Loan
Loan Amount upto Rs. 50
Lacs
8.00% (p.a.)
Fixed interest
rate
8.50% (p.a.)
Fixed Interest
Rate
9.00% (p.a.)
Floating Interest
Rate
OR
10.50% (p.a.)
Fixed Interest
Rate
SBI Advantage Home
Loan
Loan Amount Above Rs.
50 Lacs
8.00% (p.a.)
Fixed interest
rate
9.00% (p.a.)
Fixed Interest
Rates
10.00% (p.a.)
Floating Interest
Rate
OR
11.00% (p.a.)
Fixed Interest
Rate
Table19: Rate of interests
Note: - Interestrate after three years may be Fixed or Floatingas per the
borrower’s choice made at the time of sanction.
59
5.12.
MORATORIUM

Upto 18 months from the date of disbursement of first instalment or 2

months after final disbursement in respect of loans for construction of new

house/ flat (moratorium period will be included in the maximumrepayment


period)
5.13.
GUARANTOR:
 Thebankinsists on a Guarantor till the property is registered/title
transferred on your name and Equitable Mortgage registered in favour
of the bank.
 Guarantor details in the application with Assets & Liabilities duly
filled in along with the above mentioned documents are required.
 For Takeover Loans From Other Banks– Guarantor Is A Must
 An eligibility criterion of guarantor is that:
80% of the net credit
worthiness of the guarantor should be more than the loan amount
(takeover amount).
 TheTitle holders of the property should ONLY be the borrowers. If
the agreement is on the joint names (maximum three persons), then the
Sale deed also should be on the joint names and the loan also willbe
on the joint names. Thesame is also applicable for take over loans.
i.e.Joint Owners then Joint name in the loan application / Single
Owner then Single name in the loan application.
60
5.14.
TAX BENEFITS
 Both principal as well as interest of home loans attract tax benefits. With effect from
1st April 2005 (i.e. assessment year 2005-07) under section 80C of the Income Tax
Act 1965:
 Principal amount of repayment of loan along with other savings such as PF, PPF,
Life Insurance premium etc up to a maximum of Rs 1, 00,000/- will be eligible for
deduction from gross income.
 Interest paid on loan after completion of construction will be deductible from income
from property
 For self occupied - Income will be treated as nil and interest payment will be treated
as minus income which will be adjusted against other income.
For rental property - It will be adjusted against rental income.
5.15.
PACKAGE OF EXCLUSIVE BENEFITS
 ComplimentaryinternationalATM-Debitcard.
 ComplimentarySBIClassic/InternationalCreditCardwithwaiverofjoiningand
first year's fees.
 OptionforE-banking.
 Concessional package under 'Credit Khazana'for prospective car loan borrowers
whose accounts are conducted satisfactorily.
 50% concession in charges in respect of all personal remittances/ collection of
outstation cheques.
61
5.16.
INSURANCE COVER

Compulsory insurance of property. Optional life cover from SBI Life & freeaccident

insurance cover for borrower available. Thehouse/flat to be insured againstthe risk of

fire/riots/earthquake/lighting/floods etc. in the joint names of the borrowerand the bank for

the actualproject cost after netting off the cost of land, stamp dutyan registration charges.

People seeking home loan often encounter such worries like what if anythinghappens to

them in that case what would happen to the home loan? Naturally, theirmain concern is that

should something happen to them their folks would havetoencounter the problem of facing the

impact of repaying the loan debt. Home loaninsurance is completely different from home

insurance.

Thistype of insurance covers the amount of home loan you owe to the bank.Thisdoesn't

include the amount you havealready paid butthe amount still to be paidand evidently your

family members will not face the problem of paying the amountbeing owed to the bankbut the

insurance provider will bear the brunt of the same.Theinsurance companies are not very

impending about how much amount is to bepaid as part of the insurance premium as the

premium amount varies depending onthe case.

Thepremium amount broadly relies on conditions like - age of the person

availingthe loan (the younger the person, the lower the premium amount); loan

amount (the lesser the loan amount, the lower the premium); period of the loan (the

more the loan repayment period, more is the premium); another important factor is

the health of the loan taker (the premium amount would below in case of good
health of the individual).SBI offers mortgage life insurance policy to the SBI home

loan applicants thereby consolidating the insurance premium along with the EMIs.

62
TheState Bank of India offers a free personal accident insurance cover to their clients
availinghome loan so that the client's family doesn't have to face any problem if he/she meets
an accident that proves to be fatal.
5.17.
VALUATION POLICIES
The existing valuation policy was reviewed, and ECCB approved the following
valuation and re valuation policy w.e.f. 01.04.08 for individual home loans (IHLS):
(1) Asset ValuationPolicy for IHLS:
Purpose Of Home Loan
Valuation Policy
Construction of new dwelling unit
Valuation of land plus project cost i.e.stae-wise
estimated expenditure obtained from the
empanelled architect / engineer irrespective of
loan amount. Disbursement to be made
according to the stage of construction.
For loans unto rs 2 laces at rural /semi-urban

branches, the sanctioning authority may waivevaluation as above and my assess the

valuationbased on market prices by enquiry and a


certificate by the contractor/engineer involved
in construction.
Purchase of second sale plot
/dwelling units
Valuation report obtained from the empanelled
architect/engineer/valuer irrespective of the
loan amount and ageof the property.
Purchase of new dwelling units
For loans up to rs 20 lacks, reasonableness of
the price mentioned in the underlying sale

did/agreement to sale etc.ascertained by the

sanctioning authority as per prevailing market

prices. For loans above rs 20 lacks, valuation

report obtained from an external empanelled


architect/ engineer / valuer.
Purchase of plot for constructions of
dwelling unit from regional
govt.housing development
authorities/boards/
Property valued at cost price as per the
agreement of sale/lease.
Table 20: valuation policies
63
(2) Asset RevaluationPolicy for IHLs:
 Loans abovers.1 crore are given up to an LTVratio of 75% only, andas such
will not attract the higher CRW (Credit Ratio Weight).
 Loans of Rs 1 crore and below were given up to a LTVof 85 %( now reduced to
80%), which attract higher CRW of 100%.
 However, for a regular loan, a part of the principal gets repaid, and over a period
of about 2.5 years from commencement of repayment, the LTV ratio comes
down to 75%.
 Therefore,higher CRW would be applicable only during this period.
 There could also be appreciation in valueof the property during this initial
repayment period of 2.5 years, which could bring down the LTV ratio below
75%.
 Tohavethe benefit of lower CRW, the appreciation through a proper
revaluation of the property.
 Therevaluation is to be carried in such cases by the Asst/Dy.manager
(advances)/appraisal officer at the branch/RACPC. Theprocess need not be as
detailed as n the case of a fresh loan sanction.
 In case of all home loans with out standings aboveRs 1 crore that are standard
assets, the underlying properties should be revalued once after the expiry of
3years by engagingan empanelled architect / engineer / value.Thecost of such
valuation will be borne by borrower.
 Thefirst revaluation, in terms of this policy is due in January 2009 for loans
(standard assets havingan LTV ratio of more than 75%) sanctioned during last
3 years. (A format for valuation is enclosed.)
 Concessionary capital risk weight (CRW) on home loans is availableto banks

under Basel 2 frame work, provided the assets are valued/revalued in

accordance with a collateral valuation policy approved by banksboard. Risk

weights on home loans based on loan to valu


g
.

aluation, in terms of this policy is due in January 2009 for loans


(standard assets havingan LTV ratio of more than 75%) sanctioned during last
3 years. (A format for valuation is enclosed.)
 Concessionary capital risk weight (CRW) on home loans is availableto banks

under Basel 2 frame work, provided the assets are valued/revalued in

accordance with a collateral valuation policy approved by banksboard. Risk

weights on home loans based on loan to valueratio (LTV)as per the Basel 2
final guide lines issued by RBI are as under.
64
CHAPTER - 6
6.SYSTEMS AND PROCEDURES
6.1.
STAFF INVLOVED AND THEIR ROLES
Stage
Operations/Considerations
STAFF
MEMBER(S)
How
many days
it takes
Promotion
 Advertisements in Print Media
 Demos at Home Fairs
 M As
 Builders
 Field Officers
1
Guidance to
prospective
 Demos at Home Fairs
Application submission At Home Fairs
 Tothe Field Officers at Branch
Field Officer
Pre-
Sanction
Process
Inspections Document verification
 Bank's Field Investigation
 Documents sent to RACPC.
2
Credit
appraisal
 Customer‟s worthiness is evaluated. Branch
Manager/RACPC
2-3
Legal
Sanctions
 The title deed investigation
 Search report may be required from
Registry office
An advocate from
Bank‟s External
Panel
As per the
visit of
legal
advisor
Valuation Estimation of market valueof the
property or construction
An Engineer from
the Bank‟s Panel
2-3
Sanction
 Loan sanction
Branch
Manager/RACPC
1
 Offer Letter to the customer
 Eligibility Certificate to the
customer.
Field Officer
Post-Sanction Process
 Property/Constructioninspections
 Signing of Agreements
 Submitting post-dated cheques .
4-5
Disbursement
 Progress of the work is considered.
 Complete execution of documents.
 Creation of valid mortgage.
 Cheques are given directly to the
suppliers/builders
In differentproportionsin different
phases as
per the
progress of
the work.
(3-15)
Post-Disbursement
Process
 Property inspection is carried out
and recorded in the Inspection
Register at each stage of
disbursement.
 Registration of Property documents.
 After disbursal, once every 3 years
for standard assets.
Table21: Systems and procedures in lending process
65
6.2.
PROMOTION AND DISTRIBUTION OF THE PRODUCTS
(a) PROMOTION:
 State Bank of India,has come up with a non-conventional method to promote
its home loanbusiness.
 SBI promotes home loan segment at its „Home FairMelas’ at each circle
level.
 SBI also use to enter into an agreement with the known builders to promote its
home loan segment.
 The bank is looking forward to develop special processing channels so as to
provide quick services to home loan customers.
 There would be no processing fees on loans, adding that the home loans
approved at the fair would bear 0.25 per cent less interest than the nominal rate from the
start of fourth year of repayment.
 Around 24 property dealers and builders were present at the fair.
 Several kinds of staff are involved in these Fairs, who include:
♀ Marketing Associates

♀ Field Officers

♀ Associated Builders and

♀ The staff from respective Retail Asset Central Processing Cells


(RACPC).
 The staffdo undertake several initiatives with theprospective customers at
these Fairs itselflike:
 Enquiries
 Guidance
 Instructions
 Requirement Specifications

 Application forms distribution

 Application Approvals and

 Customer Services
(b) DISTRIBUTION:
State Bankof India supplies and sells its home loan products through its over
11,440 branches nation-wide and associated RACPCs.

66
6.3.
PROCESS UNDERTAKEN
6.3.1. APPLICATION SUBMISSION
 Thehome loan application form of SBI is rather lengthy compared to the
forms at other private sector lenders.

 Completely filled in Form along with the necessary documents.

 Need to submit the documents from builder.

 In my case, the project had APF no in SBI (basically already approved by


SBI); so not much documentation was required.
 Otherwise they would make a surgereport, which can consume some time. I
guess they are quite strict about it.
6.3.2. PRE-SANCTION PROCESS
 The Field Officers hold Personal Discussion with the prospect customer regarding
Interest Rate, Eligibility, EMI and all the terms and conditions

 Theprospect customer’s options and acceptance are ascertained and recorded.

 Necessarydocuments are collected from the customer.

 Pre-Inspection Sheet is maintained along with the documents to record inspection by

the
Bank‟s staff (or) outsourced agency.
 Bank'sFieldInvestigation for address proof/Employment etc.
 All the documents are sent to Retail Assets Central Processing Cell (RACPC) forcredit
appraisalbased on the customer‟s financial capacities.
 All the terms are conditions including Loan amount, interest rate, tenure, EMI etc are
determined.
 The RACPC would submit its credit appraisal report on the customer to the branch.

67
 Legal Opinion:

Empanelled Lawyer(s) does submit the Title Deed verification and the
search report for 30 years in respect of properties of the customer.

Thelegal clearances/ opinion of the flat/property which you are buying/
staying /constructing have to be obtained from an advocate from Bank panel.

Submission of legal documents & legal check.

Thesearch report reveals encumbrance on the property based on which the
grant of loan can be avoided andthe prospect borrower may be asked to
rectify it.
 Valuation check:

TheEngineer‟s valuationof the property and estimate for the construction to
be obtained with bank panel engineer.

In case of takeover loans, two panelengineer valuation is required and the
least valuebetween them should be more than the takeover amount.
PRECAUTIONS TO BE TAKEN:

 Applications form to be complete in all respects.

 Market information about the potential borrower should be gathered.

 Pre-sanction survey should be conducted wherever required.

 The authenticity of salary slip, form 16 return, and proof of identification, address
and income etc. should be cross checked.
 Income from all sources is to be considered, wherever applicable, whenthe
sanctioning authority is satisfied about the quantum and uninterrupted flow thereof
during the tenure of the loan.
6.3.3. SANCTION STAGE
68
 Thebranch manager would consider the credit appraisal report of RACPC andwill take
a decision whether to sanction or not the loan to the customer.
 Thedecision is informed to the prospect customer the decision so taken via Field
Officer.
 If the decision is “sanctioned”, the Field Officer would issue Offer letter to the prospect.
6.3.4. POST-SANCTION PROCESS
 Registration of Property documents
 Signing of Agreements and submitting post-dated cheques
 SBI insists on all the margin money contributions to have been made to the seller and
the money receipts to be handed over to them prior to the loan disbursement.
 Thecustomer needs to submit the cash amount for various stamps, mortgage fee etc.
 They would take12 cheques of SBI a/c for security.
 You can link your SBI savingsa/c to havestanding instruction to deduct EMI.
Normally, almost all home purchase transactions will entail paymentof an advanceto
the seller and on the dayof registration, the remaining contribution from the buyer and the
loan amount from the bankare exchanged with the property documents. Not with SBI.
Andonce the registration is done, the loan applicantneeds to get the latest
Encumberance Certificate (EC) from the Registrar‟s Office and submit it to SBI.Subsequent

to this process, SBI will create an equitable mortgage on the property in favourof the bankas

collateral. This entails a fee of Rs 7000 (I understand that this is a percentage of the registered
valueof the property) to the loan applicant. Only after all this is done, will the process be

complete. I never saw this equitable mortgage fee being mentioned anywhere in the high
decibel advertisements from SBI.
69
6.3.5. DISBURSEMENT
 Thedisbursement is made in phases correlating to the actual progress made in the
construction.
 Theproper end-use of funds is ensured by visits to the sites.
 Certificate from the engineer may be required to be submitted by the borrower
stating the status of the project.
 By BC/DD crossed A/c Payee only incorporating the builder‟s/seller‟s A/c No. and
banker‟s name and sent directly to builder/seller by Regd. AD/Speed Post.
6.3.6.POST- DISBURSEMENT PROCESS
 Property inspection is carried out and recorded in the Inspection Register at each stage
of disbursement by the field officers.
 Theinstallments are disbursed in different proportions in different phases as per the
progress of the work.
6.3.7. REPAYMENT
 Loan repayment options:
 SBI lays down certain rules and regulations pertaining to the repayment of
loans.
 Theloan applicants can repay the amount in the form of equated monthly
installments.
 Therepayment is allowed up to the ageof 70 years.
 Repayment period:
Maximum 25 years (or) Up to the age of 70 years (the age by which the loan
should be fully repaid) of the borrower, whichever is early.
70
MAXIMUM REPAYMENTPERIOD:
 For applicantsupto 45 yearsof age:25 years
 For applicantsover 45 years of age: 15 years
 Moratorium period (Repayment holiday): The moratorium period is included
within the maximum repayment period.
6.3.8. PRE-CLOSURE
 Pre-closure is allowed by the Bank at any time after the complete disbursal and before
the actual tenure.
 If the loan is pre-closed from own resources for which proof is submitted by the
customer, penalty is not levied irrespective of period for which the a/c has run.
Pre-closure Penalty:
 No penalty if the loan is pre-closed from own savings/windfall gains for which
documentary evidence is produced by the customer.
 In case, such proof is not produced by the borrower, penalty @2% on the amount
prepaid in excess of normal EMI dues shall belevied if the loan is pre closed within 3
years from the date of commencement of repayment
6.3.9.NON-PERFORMAING ASSET FORMATION
When a loan or an advance does become an NPA:

The main business of a bank is through loans and advances section the bankaccept

deposits from the public and certain amount they keep it as reservebalance andthe rest of it they

lend it to the needed customers who require it in the form of loansand advances. The customer
who deposits the money they get interest and the personwho takes the loan pays interest and the

difference between is the profit of the bank.


71

Suppose the customer who took loan could not pay back the loan amount orthe

installment money which consist of the interest amount and the principal amountcontinuously

for some specific period of time they are then converted to probableNPA and then comes the

role of recovery team which put theirmaximum effort to getback the amount back which they

have given as a loan or advances and at the end ifthey fail to get back the money then finally the

amount is converted as NonPerforming Assets.


 If the installment is overdue or pending for more then 90 days then a bank can convert
the loan amount to probable NPA and
 If it could not be recovered by the recovery management team then it is converted into
NPA.
 An asset becomes non-performing when it ceases to generate income for the Bank.
Asfrom 31st March 2006, a non-performing Asset (NPA) is an advance
Where:
(i) Interest and/or installment of principal remain „overdue‟ for a period of more than
90 days in respect of a Term Loan,
(ii) Theaccount remains „out of order‟ for a period of more than 90 days, in respect of
an Overdraft/Cash Credit (OD/CC),
(iii) The bill remains „overdue‟ for a period of more than 90 days in the case of bills
purchased and discounted,
(iv) Any amount to be received remains „overdue‟ fora period of more than 90 days
in respect of other accounts.

(v) A loan granted for short duration crops is treated as NPA, if the installment

ofprincipal or interest thereon remains overdue for two crop seasons and a loan granted for

longduration crops is treated as NPA, if installment of principal or interest thereon

remainsoverdue for one crop season.


vi) An account would be classified as NPA only if theinterest charged during any
quarter is not serviced fully within 90 days from the end of the quarter.
72
6.3.10. RECOVERY MECHANISM
Thefollowing debt collection practices will be applied to all debts (rates and
sundry debtors) over $200 that is not in dispute which havebeen outstanding for 90 days:
 First reminder letter will be forwarded, requesting paymentwithin 14 days
or to contact Council to enter into an arrangement.
 Where no response is received, second reminder letter will be forwarded
requesting payment within 14 days or to contact Council to enter into an
arrangement.
 Where no response has been received a letter of demand for paymentwithin

7 dayswill be forwarded. Theletter will state that failure to make paymentin full or to enter into

an arrangement will result in the commencement oflegal action.


 Where no response has been received, outstanding debt will be forwarded to
Council‟sdebtcollectionagent.
 Various Recovery Procedures
State Bankof India adopts various recovery procedures to recover the debt from its
defaulters.
The various recovery procedures are mentioned below:
 Reasons For Default :

There are various reasons for default like mismanagement, diversification of

fund, short fall in investment, will fall default etc. So a credit managershould take

various factors into account before lending a loan.


 Demand Notice:
When a defaulter does not repays loan a demand notice is issued to him that he
has to repay his loan with a stipulate time period.
73
 Legal Notice:

When a defaulter does not respond to the demand notice a direct notice isissued to

him that if he does not repay the loan action would be taken against himlegally and the court

notice is issued against him.


 Transfer To NPA Account:
When a defaulter does not respond to respond to any legal notice or he
becomes bankrupt the Whole account is transferred to NPA account.
6.3.11. CUSTOMER CARE

SBI home loan customer care services can be accessed from everywhere and

atanytime using the toll-free helpline numbers or the Internet. Thebank hasextensively

coveredall major cities of the country while at the same time not overlooking the customer

care
requirements of people residing in rural and semi-urban areas. You can get instant solutions
to all your home loans related queries the moment you get in touch with the staff working
in a local SBI home loan customer care center.
State Bankof India is undoubtedly the largest financial institution among all the

public and private sector banks operational in India. Asa result, it receives an extremelylarge

numberof requests seeking home loans and other types of financial assistance. Withan

extensive customer base spanning all across the country and also at some locations
abroad, SBI has emerged as the largest provider of home loans in India.Thusit is not
uncommon to see an SBI branch at a remotely located rural or semi-urban area, no matter
where it lies on the geographical map of the country.
Thecustomers can talk to SBI executives in a friendly environment and obtain
information regarding the types of home loans, current interest rates, repayment options,
maximumloan terms, EMI calculation and so on. Moreover, you can use SBI home loan
74

customer care service for registering your complaints and grievances, which ensure a

swiftremedial action by the concerned authority of the bank. Furthermore, it is also possible

tomeet an SBIsenior official directly through a special service known as Public GrievanceCell

Facility and get solutions instantly. This facility is availableat all SBI branches acrossthe

nation andto availthe same you need not take prior appointment or permission.
You can access SBI home loan customer care service through toll-free numbers and

also through Internet. Thoughthe customer care toll free numbers are different for eachcity, the

services provided there remain the same, comprehensive, instant and bearing thequality

standard of State Bank of India.


SBI Home Loans Customer Care Number (Toll Free):
Ahmedabad:1800 233 7933
Bangalore: 1800 425 8002
Bhopal: 1800-233-7551
Chennai: 1800 425 4424
Delhi: 1800 11 4545
Guwahati: 1800-345-3631
Hyderabad:1800 425 3888
Kolkata: 1800 345 3455
Lucknow: 1800 180 5201
Mumbai: 1600 22 8866
Patna: 1800 345 6100
SBI Customer Care Mail ID:
Ahmedabad: helpline.lhoahm@sbi.co.in
Bangalore: sbihelpline.lhoblr@vsnl.net
Bhopal: mysbi@sbi.co.in
Chennai: helpline.lhoche@sbi.co.in
Delhi: helpline.lhodel@sbi.co.in
Guwahati: luithelp@sify.com
Hyderabad: helpline.lhohyd@sbi.co.inKolkata: sbihelpline.lhokol@sbi.co.inLucknow:
sbihelp@sancharnet.in
Mumbai: helpline.lhom
75
CHAPTER -7
7. PERFORMANCE EVALUATION
7.1.
COMPETITORS
S.No. Competitor
Severity of Competition
(Low/moderate/High)?
1
ICICI
low
2
HDFC
moderate
3
Andhra Bank
low
Table22: competitors
Interpretation:
 Majority of the competitors for the bank are from private sector in region.
 Theclosest competitor for the bank is HDFC .Virtually; there was an “adwar”with
teasing rates between the two banks.
 Others include the local player Andhrabank andthe privategiant ICICI.
7.2.
STRENGTHS AND WEAKNESSES
S.NO. Strengths
Weaknesses
1
Able Work Force
Long TurnaroundTime
2
Network
Multiple Visits
3
Innovative Schemes
Documentation Needs
4
Loan Pricing
Competition
5
Lack Of Prepayment Penalty, Varied Customer Demands
6
Transparency
Shortage Of Staff
7
The Interest Rates
Table23: strengths and weaknesses
Interpretation:
 Thebiggeststrengthofthebankhasbeenitslargedistributionnetworkandable
workforce.
 Theweakest elements of the institution are the long processing times and the
shortage of staff.
76
7.3.
DEMAND TREND:
Enquiries for Home loans
65
40
60
48
0
10
20
30
40
50
60
70
2006-07
2007-08
2008-09
2009-10
D
e
m
a
n
d
Figure 10: demand trends
Interpretation:
 There has been instability in the demand for home loans in the region.
 Back in 2006-07, there were enquiries for the home loan from 65 individualsat the
branch.
 Later on, the figure came down slightly to 40 and then rose to 60 in the next year.
 However, there has been an increasing demand in the current year.
Financial Year Number of
Enquiries
2006-07
65
2007-08
40
2008-09
60
2009-10
48
Table24: demand trend
77
7.4.
CUSTOMER CAPACITY
NMI Range
No. of BorrowersTotal Amount(Rs.)
Upto Rs.2 Lacs
48
5.25 crore
BetweenRs.2 Lacs and Rs. 5 Lacs0
Above Rs.5 Lacs
0
Table25: customer capacity profile
Interpretation:
 Therepayment capacity of all of the existing customers was just below Rs.2 lacs p.a.
 There were no customers with repayment capacity more than Rs.2 lacs p.a.
7.5. SANCTIONS-DISBURSEMENTS
Customers (2008-09)
Number of
Proposals
Enquiries
60
Applied(Applications)
50
Approved
48
Sanctioned
48
Disbursed
48
Table26: sanctions and disbursals
Number of Applications
65
40
60
53
38
50
45
32
48
0
20
40
60
80
Financial Year
Enquiries
65
40
60
Approved
53
38
50
Sanctioned and
Disbursed
45
32
48
2006-07
2007-08
2008-09
Figure 11: number of sanctions and disbursals
78
Interpretation:
 There has been an increase in the Approvalsto Enquiries Ratio from the year 2006-
07(81.5%) to the year 2008-09 (95%) and a slight decrease in the next year to 83.3%.
 However, there has been huge improvement in Sanction-Disbursal to Approvals ratio
to 96% in 2008-09 from average Ratio of 83.3% in the preceding years.
 One can understand the trend in terms of transforming the stringent system to hassle-
free system.
7.6.
CUSROMER PORTFOLIO
Existing customers
Number of accounts Amount (Rs.)
Individuals from Weaker sections
119
23.8 lacs
Salaried individuals
44
4.7crores
Self-Employed individuals
4
5 lacs
Realtors
0
-
Staff of the Branch
0
-
Table27: customer portfolio
% of Borrowers for the Year 2008-09
0%
0%
92%
8%
Salaried Individuals
Business men
Realtors
Staff
Figure 12: customer portfolio
79
Interpretation:
 Majority of the customers are salaried individuals in the region.

 The other section of customers is local self- employed.

 There is no housing finance to the normal individualsand the weakersections.


7.7.
PURPOSE PORTFOLIO
Purpose
Number of
Accounts
Amount(Rs.)
ToPay for First homes
40
5 crore
To Purchase second homes
-
-
To Improve/renovate existing homes
8
25 lacs
Table28: lending purposes
Purpose as a % of borrowers for the Year 2008-09
83%
17%
First Home
Renovation
Figure 13: purpose portfolio
Interpretation:
 Most of the existing customers have availedthe loans for construction/purchasing
their first homes.
 Theminority of the customers have sought the loans for
repairs/renovation/improvement of their existing houses/properties.
 I wastold that the branch is not interested in approvingthe loans for
purchasing/constructing second houses.
80
7.8.
QUANTUM OF LOAN
Loan Amountsanctioned
No. of Borrowers
Upto Rs.5 Lac
25
AboveRs.5 Lac and upto Rs.10 Lac
19
AboveRs.10 Lac andupto Rs.20 Lac
04
AboveRs.20 Lac andupto Rs.50 Lac
-
Table29: amounts of loans sanctioned
Loan amount break up as a % of Total Borrowers
for the Year 2008-09
52%
40%
8%
<5 lacs
5-10 lacs
10-20 lacs
Figure 14: Loan amount portfolio
Interpretation:
 More than half of the existing customers are sanctioned loan amount not exceeding
Rs. 5 lacs.
 The second majority of the customers are sanctioned loan amount above Rs.5 lacs to
Rs. 10 lacs.
 Thelow repayment capacity of the customers in the region could be the main reason
for the sanction of smaller quantities of loan.
 Thisimplies that there wasa demand for the lower weightproducts like SBI HI-
FIVE LOANS in the region.
81
7.9.
SIZE OF HOME LOAN BOOK
Financial Year Amount(Rs.
crores) lent
2006-07
2.50
2007-08
3.62
2008-09
5.25
Table30: loan book size
Home Loan Book Size
0123456
2006-07
2007-08
2008-09
Financial Year
A
m
o
u
n
t
(
C
r
o
r
e
s
)
Book Size of
Home loan
Figure 15: Home loan book sizes
Interpretation:
 There has been steady increase in the home loan book size of the branch.
 In the year 2008-09, the size had grown to 5.25 cr from 2.50 cr in the year 2006-07,
which implies the size had doubled in two years.
82
7.10.
CREDIT GROWTH TREND
Financial Year % Growth rate
2007-08
44.8
2008-09
45.02
Table 31: credit growth trend
YoY Credit Growth Rate
44.8
45.02
44.6
44.7
44.8
44.9
45
45.1
Financial Year
Growth Rate
44.8
45.02
2007-08
2008-09
Figure 16:credit growth trend
Interpretation:
 There has been a slight growth trend seen from the year 2007-08 to 2008-09.
 Thegrowth rate of 44.8 of the year 2007-08 was almost sustained in the year 2008-
09.
 Thetrend can be attributed to the reflection of decrease in demand and the impact of
global recessional sentiments in the banking sector.
83
7.11.
SHARE OF HOME LOANS in retail portfolio
Retail Credit segment Amount in Rs. crores
Home loans
5.25
Other advances
4.725
Total retail advances
52.5
Table32: share of home loan segment in the retail portfolio
Share of Home Loans in Retail PortFolio for 2008-09
home loans
10%
others
90%
Figure 17: share of home loan segment in the retail portfolio
Interpretation:
 Thehome loan segment had got a very small i.e., 10% share in the total retail
segment of advancesby the branch in the year 2008-09.
 Theother retail advances like car loans, educational loans, personal loans etc got the
90% share of total retail advances of Rs.52.5crores in the year.

84
7.12.
TAKE OVERS
Name of the Bank
Number of Accounts
Amount (Rs.)
Dewan Housing Finance Ltd.06
50 lacs.
-
-
-
Table33: take overs
Interpretation:
 There wasless demand for the take over of advancesfrom other banks in the region
from the customers of other banks in the home loan segment.
 It wasfound from the collected complaints from the customers that the Bank itself

follows stringent mechanisms to entertain the take over requests of the customers of

other banks in the rest of the regions and that, may be the reason for the low level

accounts of such requests to avert risks.


 The branch could entertain the transfer of only six such accounts from Dewan
Housing Finance Ltd of total amount Rs. 50 lacs.
85
7.13.
OUTSTANDINGS
Number of Accounts Outstanding
94
Total Amount Outstanding(Rs.)
5.25 crore
Total Outstanding/Total Advances (%)
10%
Table 34: outstanding amounts
Interpretation:
 90% of the short-term loans lent during the period 2006-09 have been recovered
leaving rest of 10% yet to be recovered or repaid by the customers in installments i.e.,
94 accounts.
 Of Course, all the advanceslent in the current year havebeen pending i.e.,
outstanding amount of Rs.5.25 cr.