Innovative Journal of Business and Management 2 : 5 September – October (2013) 123 - 127.

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INNOVATIVE JOURNAL OF BUSINESS AND MANAGEMENT

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A STUDY ON COMPREHENSIVE PROBLEMS OF HDFC & SBI HOME LOAN TAKERS IN

ANDHRA PRADESH STATE
S.Tarakeswara Rao

Dept. of Commerce & Mgt. Studies, Dr.B.R.Ambedkar University, Srikakulam – 532458, Andhra Pradesh State

ARTICLE INFO ABSTRACT

Corresponding Author: The urban poor, with their low incomes, uncertain employment and low
S.Tarakeswara Rao assets, have been side-lined by commercial banks who do not find them
Dept. of Commerce & Mgt. Studies, bankable. In order to rectify this situation, there is a need for a supportive
Dr.B.R.Ambedkar University, role on the part of the government and commercial banks and a
Srikakulam – 532458 streamlining developmental role on the part of community based
Andhra Pradesh State financial initiatives. The Indian housing finance sector has failed to
promote housing development across the country. In its desire to stabilize
itself mainly in the major urban areas, the housing finance has largely
Key words: Commercial Banks, neglected issues of the housing sector in rural and less–developed
Housing Finance, HDFC, SBI, Home regions. Further, the financial housing needs of a large segment of the
loan. population are not being addressed. They continue to rely on informal
sources for housing finance. This paper describes and analyses the
perceptions and problems of home loan takers in Andhra Pradesh State. It
offers policy options to make the housing finance more effective in
addressing the hitherto neglected segment, the rural and less–developed
region.

©2013, IJBM, All Right Reserved

INTRODUCTION

Housing finance is a relatively new concept in India
comparing to other financial services that are widely
available in the country since a long year back. However,
the speedy development in housing and various housing
activities have understandably led to the growth of Indian
housing finance market. As a result, a number of players
have barged into the market. It was in the year 1970 when
Housing and Urban Development Corporation (HUDCO)
was established to finance various housing and urban
infrastructure activities. However, the Housing
Development Finance Corporation (HDFC) was the India's
first private sector housing finance company came into
existence in 1977. Since then, the housing finance in India
has been flying high. It's expected to grow at a growth rate
of 36% in the coming years.
HOUSING SECTOR
Housing Sector refers to the entire construction
activity, it has maximum propensity to generate income
and demand for materials, equipments and services. In
fact, housing provides necessary impetus to the economy
as a whole. Small initiatives in housing will propel
multiplier effects in the economy through a chain of linkage
effects. For every one crore rupees of investment in
housing, nearly 290 industries in the building material
sector get activated besides the core manufacturing sector
constituting cement, steel and bricks etc. It has been
estimated that out of every Rs. 100 spent on housing Rs.
11.40 is returned back to the national exchequer by way of
stamp duty, registration and taxes.
Housing Sector has seen exceptional changes in the
last 15 years, both globally and nationally. In the last few
years, the housing sector in India has witnessed a spurt in
demand not just for residential property but also for
commercial property. This rise in demand may be
attributed to the large and growing middle class population
of 300 million people. The Technology and business
Process Outsourcing have correspondent to growing
demand for shopping malls, multiplexes, food outlets, office
spaces ad business centers etc.
HOUSING FINANCE
Blessed are those who live in their own house and
fortunate are those who have the money to buy one. But all
are not privileged to buy a house of their own. For many
such people, buying a house has become possible in
modern times through Housing Finance. The term “Housing
Loan” or “Housing Finance” means fiancé for
construing/purchasing or modifying a property. The
various Hosing Loans offered by Housing Finance
institutions (HFIs) are for house Purchase, house extension,
house improvement and land purchase. Hence, “Housing
Finance” means the financial resources for an individual or
group of persons used especially for the purpose of
housing.
HOUSING FINANCE IN INDIA

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 Rao/A Study on Comprehensive Problems of HDFC & SBI Home Loan Takers in Andhra Pradesh State
Home-buyers in India were traditionally debt
averse and opted for external funding only as a last resort.
Consequently, formal external funding of house
construction/purchase has accounted for a relatively small
proportion of housing finance in the three decades after
independence and this business activity had formally began
in India in the 1970s.
Construction/purchasing of a house needs a large
investment, it requires long-term finance. In India, the
main source of credit that flows into house construction is
both formal and the informal sectors. The formal sector
includes budgetary allocation of Central and State
Government, assistance from the Financial Institutions,
agencies and corporations like Life Insurance Corporation
(LIC) and General Insurance Corporation (GIC) etc., the
latter, it refers to finance from money lenders, household
savings, disposal of existing property and borrowings from
friends and relatives.
Since independence, the institutional framework
for housing finance was in the form of insurance companies
like LIC and GIC. Then in 1970, the Government set up the
HUDCO as a 100 per cent, Government owned enterprise
with the objective of housing and urban development as
well as infrastructure development. The housing policy of
HUDCO was designed to allocate 55 per cent of its housing
finance to the low income and weaker sections of society.
Housing Development Finance Corporation (HDFC):
HDFC was incorporated in 1977 with the primary
objective of meeting a social need that of promoting home
ownership by providing long-term finance to households
for their housing HDFC was guided by its core objective-
housing for all, though the development of the Housing
Finance Sector in India. It is viewed as an innovative
institution and a market leader in the housing finance
sector in India. The World Bank considers HDFC, as a
model Private Sector Finance Company in developing
countries and a provider of technical assistance for new
and existing institutions in India and Abroad.
State Bank of India (SBI):
The State Bank of India, the country’s oldest bank
and a premier in terms of balance sheet size, number of
branches, market capitalization and profits. It is the two
hundred year old Public Sector Bank. It is the bank having
very wide product mix, such as Project fiancé, Home loans,
Auto loans, Car loans, Education loans, Loans to Small
Medium Enterprises, Government business, Rural and Agri
business, Corporate Business etc. SBI is moving ahead with
cutting-edge technology and innovative new banking
models, to expand its rural banking base, looking at the
vast untapped potential in the hinterland and proposes to
cover 100,000 villages in the next two years. It is the only
the India bank to feature in the Fortune 500 list.
Need for the Study:
Today due to inflation in the economy, there is rise
in the price of all commodities. Due to this an ordinary
individual is not able to save sufficiently to meet the high
cost requirement of house construction or purchase. He
has to essentially depend upon of the Financial Institutions
(FIs) for borrowing money for the purpose of house
constructions or purchase. The proposed study will bring
out the various sources of finance for house
construction/purchase and a detailed study about the types
of home loans, loan procedure and documents required for
home loan sanction from the FIs. There is a need to
examine the housing policies, Government and RBI
124
initiatives in order to appreciate the liquidity in the
housing finance sector.
Objectives of the Study:
1. To examine the Housing Policy frame work in India.
2. To analyze the trends and progress in Housing Finance
in India.
3. To study the operational performance of HDFC and SBI
with regard to providing housing finance to individuals.
4. To assess the perceptions and problems of home loan
takers in the State of Andhra Pradesh.
Hypotheses of the Study:
i) Whether the concerted efforts made by the government,
in the form of policy frame work are helpful to the home
loan borrowers.
ii) Whether the selection of the housing financial
institution is influenced by the operational factors.
iii) Whether the home loans are taken by the borrowers of
all income groups to avail the tax benefits.
Scope of the Study:
In view of the objectives set for the research, the
study examines the efforts made by the government in the
form of policies are helpful to home loan borrowers. The
study mainly concerned with the evaluation of operational
performance of HDFC and SBI with regard to providing
housing finance to individual borrowers and to examine
the operational factors which influenced them in the
selection of the Housing Financial Institution.
Sources of the Data:
For the purpose of the study, two sources of data
have been collected.
1. Primary Data:
A broad questionnaire was administered to the
individual home loan borrowers of HDFC and SBI to know
their perceptions i.e. factors influencing the selection of the
HFI, opinion regarding the rate of interest on home loan,
time taken in processing the loan, procedural formalities,
security for getting the loan and difficulties faced by
borrowers, in addition to this, personal interviews with the
officers and branch managers of HDFC & SBI were held to
fill the gaps in the data.
2. Secondary Data:
To explain the housing policy changes and to
analyze the trends and progress in the housing finance in
India, the secondary data were used. The was collected
from the annual reports of the NHB, Drafts of National
Housing and Habitat Policies, published by Ministry of
Urban Development and Poverty Alleviation, Government
of India, RBI Bulletins, Union Budgets of India, Ministry of
Finance, Government of India and Survey Reports on
Indian Housing Finance, published by Federation of Indian
Chambers of Commerce and Industry etc.
Methodology of the Study:
The major lenders of housing finance to
individuals are considered for the study, namely HDFC and
SBI, representing Housing Finance Company and Public
Sector Bank respectively. Further, to study perceptions and
problems of home loan borrowers, respondents have been
selected randomly. That is respondents have been selected
from the list of the borrowers/customers provided by the
various branches of HDFC and SBI of Hyderabad,
Vijayawada and Visakhapatnam in the state of Andhra
Pradesh for the present study. The sample includes 300
respondents consisting 150 respondents from HDFC and
150 respondents from SBI, representing various
occupational groups such as Businessmen, Employees,
 Rao/A Study on Comprehensive Problems of HDFC & SBI Home Loan Takers in Andhra Pradesh State

Professional and Self employed people. The care has been The thumb rule is that fixed rates are beneficial when
taken to include the respondents who are availing tax interest rates are increasing. A recent development in
benefits through their home loans. housing finance is that a few premier institutions are no
Limitations of the Study: longer offering fixed interest rates on home loans with
Housing Finance Sector growth is influenced by tenures exceeding 210 years. Besides, in many cases the
various factors such the prices of land, steel, cement, labor lender’s fixed interest rates would be reset at the end of
cost, savings, inflation rate, etc., the impact of these factors every two years on the basis of the ten prevailing market
was not taken for the present study. The other limitations rates. When the rate of interest charged varies with the
are: Prime Lending Rate (PLR), i.e., if the PLR increases, the
1. Only individual loan schemes offered by interest rate charged on a loan increases and vice versa is
the FIs had been studied. Thus, the study neither said to be the floating rate of interest. Here, the interest
covers the corporate loan schemes offered by the rate risk is high. The thumb rule is that, floating interest
FIs nor the corporate customers. rates are beneficial when PLR is falling and costly when
2. Only operational performance of the HFIs rates move up.
under review was studied and the evaluation of Table.3: Shows Type of interest opted by borrowers
the institutions had been done on the basis of their Type HDFC SBI Total
Fixed rate 49(32.7) 47(31.3) 96(32)
figures from the annual reports at all India level. Floating 101(67.3) 103(68.7) 204(68)
3. Since the data was obtained from more rate
than one source, there may be discrepancies Total 150 150 300
between one resource and another about the same It can be observed form the table.3 that, 67.33 per
variable. cent of HDFC and 68.67 per cent of SBI opted for floating
Perceptions and Problems of home loan takers in rate of interest as present economy is featured by falling
Andhra Pradesh State: rate regime.
Purpose of borrowings loan: Opinion regarding rate of interest charged by the HDFC
HFIs offer various home loan products to its & SBI:
clientele that include loan for land purchase, for house To examine the opinion regarding the rate interest
construction, house purchase, house improvement etc. charged by the HFIs, the borrowers were asked to indicate
Table 1: Shows Purpose of home loan their opinion on five-point scale.
Purpose HDFC SBI Total Table.4: Opinion regarding rate of interest charged by the HDFC &
Land purchase 8(5.3) 1(0.7) 9(3) SBI
House purchase 89(59.3) 79(52.7) 168(56) Opinion HDFC SBI Total
House construction 38(25.3) 51(34) 89(29.7) Very high 10(6.7) 6(4) 16(5.3)
House modification 10(6.7) 14(9.3) 24(8) High 53(35.3) 25(16.7) 78(26)
Other purposes 5(3.3) 5(3.3) 10(3.3) Moderate 70(46.6) 70(46.7) 140(46.7)
Total 150 150 300 Low 15(10) 39(26) 54(18)
It can be observed from Table 1, that highest Very low 02(1.3) 10(6.6) 12(4)
proportion of respondents of HDFC 59.33 per cent and Total 150 150 300
52.67 per cent respondents of SBI had taken home loans for Table.4, depicts that 32.66 per cent of SBI
purchase of house. For construction of house 29.67 per respondents felt that the interest rate charged it is low and
cent and 34 per cent had taken belonging to HDFC and SBI very low. Whereas 31.33 per cent of HDFC’s respondents
respectively. opined that it is charging very high and high rate of
Tenure of home loans: interest. And 46.67 per cent respondents of both the HFIs
Tenure of the loan depends upon borrower’s age, type of expressed their opinion that the interest rate is moderate.
the loan, earning capacity etc. SBI, a Public Sector Bank, is able to raise funds at a
Table 2: Shows Tenure of home loan lower rate of interest and offering home loans at lower
Years HDFC SBI Total rates and it is acting as a major influencing factor in
5-10 30(20) 39(26) 69(23) choosing SBI by the borrowers.
10-15 45(30) 55(36.7) 100(33.3)
15-20 55(36.7) 44(29.3) 99(33)
Processing Time:
Above 20 20(13.3) 12(8) 32(10.7) All the institutions take few days to process the
Total 150 150 300 application and to sanction the loan. Table.5 presents the
Many Indian loan takers are loan averse and processing time taken by HDFC and SBI.
though they avail the loan for 15-20 years period, many re- Table.5: Shows Time taken in processing the loan
pay the full amount, on an average, in seven to eight years. Days HDFC SBI Total
Less than 7 65(43.3) 22(14.7) 8729)
It is evident from Table.2, that 36.67 per cent of
7-15 46(30.7) 24(16) 70(23.3)
respondents with reference to HDFC took the loan for the 15-21 27(18) 28(18.7) 55(18.3)
period of 15-20 years. Similar number of respondents of Above 21 12(8) 76(50.7) 88(29.3)
SBI took the loan for period of 10-15 years. 26 per cent of Total 150 150 300
SBI respondents had taken loan for 5-10 years which is the It can be concluded from the table.5 that, 43.33 per
shortest period. And 13.33 per cent of the HDFC cent and 30.66 per cent of HDFC’s respondents specified
respondents have taken loan for the period of above 20 that processing time was less than 7 days and 7-15 days.
years. Whereas 50.66 per cent of SBI’s respondents claimed that
Type of interest rate: the processing time was above 21 days. It was obvious that
Keeping in mind the competition among HFIs, they the loan processing of HDFC is much lesser than that of SBI,
are offering fixed and floating rate of interest to their as it follows decentralization system is processing. As a
customers. In case of fixed rate system, interest on the loan factor it was ranked as second by the respondents of HDFC.
remains the same for the entire lending period. No interest The chi-square test was applied to test the hypothesis that
rate risk is involved as there is no change in interest rates. the processing time varies according the institution.

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 Rao/A Study on Comprehensive Problems of HDFC & SBI Home Loan Takers in Andhra Pradesh State

H0: There is no significant difference between the H0: There is no significant difference between the
institutions with regard to time taken for processing the institutions with regard to the kind of security advanced to
loan, as against. the institution, as against
H1: There is significant difference between the institutions H1: There is significant difference between the institutions
with regard to time taken for processing the loan. with regard to the kind of security advanced to the
From the data, the calculated Chi-square test institution.
statistic value 73.85 and the critical value at 5% level of From the data, the calculated Chi-square test
significance for 3 degrees of freedom is 7.81. Since, statistic value 1.12 and the critical value at 5% level of
calculated value is greater than the critical value. H0 is significance for 2 degrees of freedom is 5.99. Since,
rejected. It can be concluded that there is significant calculated value is less than the critical value therefore H0
difference between the institutions with regard to time is accepted. It can be concluded that there is no significant
taken for processing/sanctioning the loan. difference between the institutions with regard to the kind
Repayment schedule: of security advanced to the institutions.
The loan is repaid in the form of installments. SBI Awareness regarding recovery procedure followed by
offers the option of payment in the form of EMI only, where the concerned HFI with regard to the default loans:
as HDFC offers various flexible repayment options like Step To know the awareness regarding the procedure
up Repayment Facility. Flexible Loan Installment Plan, that is being followed by the HFI with regard to the default
Balloon Payment Plan and Structured Repayment Plan etc. loans, the respondents were asked about awareness and
Thus, these flexible repayment options given to the results were shown in the table.9.
borrower, provides freedom to structure the repayment Table.9: Shows Awareness about default loans
schedule to suit the individual needs. Particulars HDFC SBI Total
Table.6: Shows Repayment schedule of the loan Yes 132(88) 122(81.3) 254(84.7)
Repayment HDFC SBI Total No 18(12) 28(18.7) 46(15.7)
Schedule Total 150 150 300
EMI 136(90.7) 150(100) 286(95.3) It can be revealed from the table.9 that, awareness
Others 14(9.3) NIL(-) 14(4.7) level was high with regard to the respondents of both the
Total 150 150 300 institutions. 88 per cent of the HDFC’s respondents and
It can be observed from the table.6 that, majority 81.33 per cent of SBI’s respondents were aware of the
of the respondents of both HDFC and SBI opted for EMI. concerned procedure. The Chi-square test was applied to
Very less percentage of respondents i.e. 9.33 per cent of test the hypothesis that the awareness about recovery
HDFC opted for other methods of repayment. procedure followed by the concerned HFI with reference to
Opinion regarding procedural formalities: the default loans.
All the institutions sanction the loan after H0: There is no significant difference between the
customers abide certain formalities, which differ from institutions with regard to the awareness about recovery
institution to institution. Respondents were asked to procedure followed by the concerned financial institution
indicate their opinion on five-point scale and table.7 shows with reference to the default loans, as against
the opinion regarding procedural formalities towards H1: There is no significant difference between the
HDFC and SBI. institutions with regard to the awareness about recovery
Table.7: Shows Opinion regarding procedural formalities
procedure followed by the concerned financial institution
Days HDFC SBI Total
Very personable 56(37.6) 26(17.7) 82(27.3) with reference to the default loans.
Reasonable 70(46.7) 50(33.3) 12(40) From the data, the calculated Chi-square test
Un reasonable 22(14.7) 55(36.7) 77(25.7) statistic value is 2.57 and the critical value at 5% level of
Very unreasonable 2(1.3) 19(12.7) 21(7) significance for I degree of freedom is 3.84. Since,
Total 150 150 300 calculated value is less than the critical value therefore H0
The table.7 reveals that, 37.33 per cent and 46.66 is accepted. It can be concluded that there is no significant
per cent of the respondents of HDFC claimed that difference between the institutions with regard to the
procedural formalities are very reasonable and reasonable awareness about recovery procedure followed by the
respectively, which is really noticeable with regard to SBI, concerned HFI with reference to the default loans.
36.66 and 12.66 per cent specified that procedural Availing tax benefits on Home Loans:
formalities are un-reasonable and very unreasonable. This The home loan borrower is eligible for certain tax
is the issue which has to be taken care by SBI. benefits of principal and interest components of a loan
Security provided for getting loan: under the Income Tax Act, 1961. The borrower can claim
All the customers have to mortgage the property these benefits, whether he borrows HDFC or SBI.
purchase/constructed as security, in addition to various Table.10: Shows Availing tax benefits
other securities. Particulars HDFC SBI Total
Table.8: Shows Security for obtaining Home Loan Yes 138(92) 142(94.7) 280(93.3)
Type of Security HDFC SBI Total No 12(8) 8(5.3) 20(6.7)
Mortgage 50(33.3) 46(30.7 96(32) Total 150 150 300
Mortgage & Guarantee 50(33.3) 55(30) 95(31.7) Table.10, shows that 92.00 per cent and 94.66 per
LIC Policy 47(31.3) 53(35.3) 100(33.3) cent of the respondents’ belonging to HDFC and SBI are
Collateral 3(2) 6(4) 9(3)
Total 150 150 300
availing tax benefits.
It can be seen from the table.8 that, there is equal H0; Income level and availing tax benefits availed by the
response for various types of securities provided for Home Loan borrowers are independents as against.
getting loan. The Chi-square test was applied to test the H1: Income level and availing tax benefits availed by the
hypothesis that the institutions vary in terms of security to Home Loan borrowers are independent.
be provided for getting loan. From the data, the calculated Chi-square test
statistic value is 27.64 and the critical value at 5% level of

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 Rao/A Study on Comprehensive Problems of HDFC & SBI Home Loan Takers in Andhra Pradesh State

significance for 3 degrees of freedom is 7.81. Since, 5. HFIs should inform the reason for rejecting the loan
calculated value is greater than the critical value therefore application. This will help the applicants in rectifying
H0 is rejected. It can be concluded that there is an their mistakes.
association, all the borrowers are availing tax benefits 6. To win confidence of the customer sand bring
irrespective of their income levels, and they are using home transparency in all the transactions, it is necessary that
loans to reduce the tax burden. their loan accounts should be made available on the
Overall opinion on Home Loans of HDFC and SBI: Internet. HDFC is the way ahead in these criteria.
To know the satisfaction level of the customers 7. The customers of SBI suggested that the loan
with regard to the overall functioning of the loan of two processing/sanctioning time should be reduced further.
HFIs under review, five-point scale has been used. 8. All employees, especially the front officers of SBI should
Table.11: Shows Overall perceptions on home loans of HDFC & SBI be familiar with the details of Housing Loan schemes of
Days HDFC SBI Total their banks.
Very good 49(32.7) 14(9.3) 63(21)
Good 60(40) 39(26) 99 (33)
9. All information regarding Housing Loans should be
Moderate 29(19.3) 50(33.3) 79(26.3) available on the websites of the HFIs in an interactive
Poor 12(8) 40(26.7) 52(17.3) mode.
Very Poor NIL 7(4.7) 7(2.3) 10. There should be uniformity in loan sanction procedure,
Total 150 150 300 interest rate structure among the various lenders.
It can be concluded from the table.11 shows that, 32.66 per
cent and 40 per cent of HDFC are opined that overall CONCLUSION
functioning is very good and good respectively, which is Thus, the Housing Finance in India faced a number
noteworthy. 33.33 per cent of SBI respondents expressed of set-backs in decades, such as an unorganized market,
its functioning as moderate and 26.66 per cent specified as development disparities and compartmentalized
poor. development approach. There was not even a concerted
Difficulties in loan Sanction: attempt to understand the housing problem let alone
The customers while taking the home loan from promote it. Reforms introduced in the sector during the
FIs may face certain difficulties like a too lengthy 1990s, however, have overturned the situation to a great
procedure, delay in processing & sanctioning of the loan, extent. The deigning of a shelter policy, the organization of
lack of communication, no transparency, unco-operative the housing finance market, the introduction of fiscal
attitude of the staff members etc. incentives, increased public investment, legal reforms and
Table.12: Nature of difficulties faced by borrowers others initiatives have brought about a number of changes
Nature of HDFC SBI in the housing finance. Home Loan providers should
difficulties continue to address the huge potential in the industry and
Formalities 23 (15.3) 47 (31.33)
Delay 18 (12) 61 (40.6)
would maintain their focus on the individual loan segment.
Communication delay 8 (5.3) 27 (18) A trend that has emerged over the years in the housing
No transparency 6 (4) 3 (25.3) finance is that the decreasing role of interest rates as a
Others 9 (6) 10 (6.6) competitive tool. Service and product innovations are the
It can be observed from the table.12 depicts that, key tools for success at present.
maximum proportion of the respondents of SBI faced the
difficulties with regard to formalities to be fulfilled. BIBLIOGRAPHY
Problems of the home loan borrowers 1. Annual Report – 2008, Ministry of Urban Development
1. The home loan application/sanction procedure is too & Poverty Alleviation, GOI.
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administration, conversion fee and other charges like 3. Jasmindeep Kaur. 2008, Problems of Housing Finance
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3. The change in the terms and conditions especially with 4. Jay Sampath.2006, Tackling rising home loan rates,
regard to interest rate changes are not being Dalal Street, Vol XXVII, No.21, June-2006, pp 89-91
communicated. 5. P.S.N. Rao.1998, Transformation of Housing Policy in
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not charge any processing, administration, conversion Mortgage backed Securities, Newsletter NHB, June-
fee and other charges like prepayment penalty. 2003, pp5-8.
3. The customers also suggested that institutions should 10. Vijaya Bhole.1998, Housing & Urban development in
provide online approval of applications. India, Classical Publishing Company, New Delhi, 1988,
4. The change in the terms and conditions especially with pp43-47.
regard to interest rate, the concerned customers should
be informed.

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