A REPORT ON BFSI

A Project Submitted to Periyar University of Salem in Partial Fulfillment of the

requirements of the Award of the Degree of

Bachelor Degree of Commerce

Submitted By

PUNNAGAISHRI S

Reg. No: C21UG164COM025

NM ID: 3D10C5E3419CB769D1748D4DACC35DO4

Under the Guidance of

Mr.M.RAVI - BFSI TRAINE

PG DEPARTMENT OF COMMMERCE

KSR COLLEGE OF ARTS AND SCIENCE FOR WOEMN

TIRUCHENGODE

(An ISO Certified Institution, Affiliated to Periyar University, Salem-11)

Recognized under 2(f) of the UGC Act, 1956

October/November 2023
BFSI PROJECT
 Name Punnagaishri S

Department III – B.COM

3D10C5E3419CB769D1748D4DACC35DO4
Nan-Mudhalvan ID

C21UG164COM025
Register number

Per164
College code

1.Template for KYC Collection

Project Title 2.Fixed Deposit

3.Housing Loan

Date

SPOC Mr. S.Thangaraj M,A.,MA(JMC),M.Phil.,

 ACKNOWLEDGEMENT

I wish to express my gratitude to the principal Dr. M. Karthikeyan, Ph.D.,

KSR College of Arts & Science for Women, Tiruchengode.

My deep sense of gratitude to the respected Dr. B. Senthil, M.B.M., M.Com.,

M.Phil., Ph.D., NET., SET., Head, PG Department of Commerce for his
encouragement throughout the training session.

I also whole heartedly thanks to Mr. S.Thangaraj M,A.,MA(JMC),M.Phil.,

Head, Department of Tamil of KSR College of Arts & Science for Women,
Tiruchengode.

I also whole heartedly thanks to Ms.J.Abitha M.Com., Co-Ordinater of KSR

College of Arts & Science for Women, Tiruchengode.

I would like to convey my sincere thanks to Mr.M.Ravi, B.Sc., trainer from

BFSI for his valuable guidance in completing this project.
 DECLARATION

I hereby declare that this BFSI Training report submitted to Periyar University
Salem for the academic year 2023-2024 is a record of my original work done
under the guidance of Mr.M.RAVI Trainer.

DATE: Signature of the student

PLACE: (Punnagaishri S)
 INDEX

S.NO TITLE PAGE NO

1 Introduction 1

2 Project – 1

KYC 2

2 Project – 2

Fixed Deposit 12

3 Project - 3

Housing Loan 19

5 Conclusion 28
 INTRODUCTION

Banking encompasses the operations of financial institutions like banks and credit unions,
providing diverse financial services to individuals, businesses, and governments, which
encompass accepting deposits, lending capital, facilitating financial transactions, and offering
products like savings accounts, loans, and credit cards. Its pivotal role lies in sustaining the
money flow and fostering economic activities.

In the realm of financial institutions, two primary categories exist: banking institutions,
which encompass commercial banks, savings and loan associations, and credit unions, and non-
banking financial institutions, such as insurance companies, pension funds, and hedge funds.

These institutions are entities dedicated to handling financial transactions, including

deposits, loans, investments, and currency exchange, spanning a wide array of activities within
the financial services sector, from banks to insurance companies, brokerage firms, and
investment dealers.

1
 Project – 1
Know Your Customer (KYC)

Create a template for KYC collection form with the following sections

1. Personal Identity details

2. Address Details incl proof of address Evaluation criteria

Solution:

KYC means "Know Your Customer". It is a process by which banks obtain information
about the identity and address of the customers. This process helps to ensure that banks'
services are not misused. The KYC procedure is to be completed by the banks while opening
accounts and also periodically update the same.

To open a bank account, one needs to submit a ‘proof of identity and proof of address'
together with a recent photograph. The Government of India has notified six documents as
‘Officially Valid Documents (OVDs) for the purpose of producing proof of identity. These six
documents are Passport, Driving Licence, Voters' Identity Card, PAN Card, Aadhaar Card
issued by UIDAI and NREGA Card. You need to submit any one of these documents as proof
of identity. If these documents also contain your address details, then it would be accepted as
‘proof of address'. If the document submitted by you for proof of identity does not contain
address details, then you will have to submit another officially valid document which contains
address details.

2
The 3 components of KYC.

• Customer Identification Program (CIP)

• Customer Due Diligence (CDD)
• Ongoing Monitoring

Customer Identification Program (CIP)

The first step in KYC processes is to establish that the customer is who they claim to be.
This requires any customer – both individual and corporate – to have their identity verified.

For all individuals involved (including the identified beneficial owners for corporate
customers), identity details must be obtained and verified. Documents usually include those
that contain the following:

• Name

• Address

• Date of birth

• Government-issued identity number

• Other government-issued identities (such as passport or driving license)

For corporate customers, verification documents may also include a business license, articles
of incorporation, partnership agreements or financial statements. Financial institutions also
need to establish the company’s ownership structure and identify the Ultimate Beneficial
Owners (UBOs).

3
Customer Due Diligence (CDD)

Customer Due Diligence (CDD) takes verification further and asks whether financial
institutions trust the customer. CDD is about establishing a customer’s risk level and to what
extent they can be trusted.

There are three levels of CDD. Basic due diligence is carried out for all customers to
establish their level of risk. This can involve collecting additional information, establishing the
location of the customer, and types or patterns of transactions. For corporate customers, due
diligence needs to be carried out for all individuals that are identified as UBOs.

Simplified Due Diligence (SDD). For customers and accounts deemed to be at very low risk,
SDD can be used. With this, the full checks of CDD are not needed.

Enhanced Due Diligence (EDD). On the other hand, much more analysis is done under the
EDD approach for a customer thought to be at higher risk. This could include obtaining more
information from customers, additional checks with agencies or public sources, or further
investigation into accounts and transactions.

CDD is an ongoing process, not just carried out when onboarding a new customer. A
customer’s activity and risk profile can change over time, and periodic CDD monitoring should
be conducted. Full CDD and EDD records need to be kept for internal or regulatory audit
purposes.

Customer’s Risk Level

Low Risk: Customer with a stable and verified income source. Eg: Salaried employee.

Medium Risk: Customer who are conducting normal nature of transactions but lack sufficient
information and documents for categorizing under low risk. Eg: Firms

High Risk: Customer with higher probability of engaging in suspicious activities. Eg: Non
Resident Customer.

Ongoing Monitoring.

KYC is not just about checking new customers during onboarding. This is important, of
course, and will establish the identity and initial risk level of the customer, but financial
institutions must also have a program in place for ongoing KYC checks and monitoring.

4
 Ongoing monitoring will identify changes in customer activity that may warrant an
adjustment in risk profile or further investigation. The level and frequency of monitoring will
depend on the customer’s perceived risk and the institution’s strategy.

Monitoring should look at factors including:

• Customer transaction types, frequency and amounts

• Changes in customer or transaction locations

• Inclusion on Politically Exposed Persons (PEP) or sanction lists

• Adverse media coverage

Digital KYC

Digital KYC is an online method of verifying people’s identity, enabling them to access any
financial instrument in the market. Usually, during a digital KYC, the customers share their
live photo or video and officially valid documents with the company’s representative. The
details are then verified against official records, and the KYC is processed if everything adds
up.
Types of online or digital KYC verification
Online KYC form
In this digital KYC verification type, the customer must fill out an online KYC form and
submit the same to the respective organisation. However, the customer must attach their
signature to the form using either of the below-mentioned options:

5
 • The customer can take a printout of the KYC form, sign it and send the document to
the physical address of the concerned organisation.
• The customer can add a digital signature on the online KYC form and submit the same
to the organisation (a more convenient and entirely digital option!).

Video-based KYC

The video-based KYC procedure is perhaps the most authentic and legalised by the Reserve
Bank of India. There is a complete audio-visual interaction wherein the registered officer
captures the customer’s live photo, video and valid documents. Mainly, video-based KYC is
used while opening a new bank account.
A quick look at the procedure:

1. The customer signs up for a service and is prompted to complete the video KYC
verification before accessing the service.
2. The customer then receives a link via text or email that they need to click on.
3. An executive from the concerned organisation on the other end will then conduct the
video KYC.
4. The executive captures the live photo and video of the customer along with the required
documents such as the PAN card or Aadhaar card. They also use geotagging to make
sure that the customer is within India.
5. Once all the details are captured, the customers are informed of the KYC status within
a few days.

6
OTP-based KYC

OTP-based KYC verification is yet another type of digital KYCs commonly used to open
digital wallets or bank accounts. The OTP is usually sent to the mobile number registered with
the Aadhaar card. The steps followed in the procedure are:

1. The customer enters the primary details and reaches the Aadhaar e-KYC tab.
2. Once there, the customer is prompted to add their Aadhaar number.
3. The customer then receives an OTP on the mobile linked with the Aadhaar number.
4. The customer enters the OTP, and the KYC process is completed.

Customer Identification Procedure

Customer identification means identifying the customer and verifying his/her identity
through reliable and independent documents, data and information. The features to be verified
and documents that may be obtained vary depending upon the type of customers. The same are
furnished below:

7
Features Documents
1.0 Accounts of individuals
1.1 Legal name and any other names used

i) Passport

ii) PAN Card

iii) Voter's Identity Card

iv) Driving License

v) Identity Card (Subject to the bank's satisfaction)

vi) Letter from a recognized public authority or public servant verifying the identity and
residence of the customer to the satisfaction of bank

1.2 Correct permanent address

i) Telephone bill (not older than 3 months)

ii) Bank account statement /Pass Book

iii) Letter from any recognized public authority

iv) Electricity bill (not older than 3 months)

v) Ration Card

vi) Letter from employer (Subject to satisfaction of the bank)

2.0 Accounts of Companies

2.1 Name of the Company

2.2 Principal place of business

2.3 Mailing address of the company

2.4 Telephone / Fax Number

i) Certificate of incorporation and Memorandum & Articles of Association.

ii) Resolution of the Board of Directors to open an account and identification of those who
have authority to operate the account.

iii) Power of Attorney granted to its managers, officers or employees to transact business on
its behalf

8
iv) Copy of PAN allotment letter

v) Any officially valid document establishing the proof of existence and proof of address of
the entity to the satisfaction of the bank.

vi) Certificate of Commencement of Business.

3.0 Accounts of Partnership firms

3.1 Legal name

3.2 Address

3.3 Names of all partners and their addresses

3.4 Telephone numbers of the firm and partners

i) Registration certificate, if registered.

ii) Partnership deed

iii) Power of Attorney granted to a partner or an employee of the firm to transact business on
its behalf

iv) Any officially valid document identifying the partners and the persons holding the Power
of Attorney and their addresses

v) Proof of existence & proof of address of the firm.

4.0 Accounts of Trusts & Societies

4.1 Names of trustees, settlers, beneficiaries and signatories

4.2 Name and addresses of the founder, the managers / Directors and the beneficiaries

4.3 Telephone \ Fax Number

i) Certificate of registration, if registered.

ii) Power of Attorney granted to transact business on its behalf

iii) Any officially valid document to identify the trustees, settlers, beneficiaries and those
holding Power of Attorney, founders/managers / directors and their addresses.

iv) Resolution of the managing body of the foundation/association

v) Any officially valid document establishing the proof of existence and proof of address of
the entity to the satisfaction of the bank.

9
Know Your Customer Application Form

State Bank of India (SBI)

10
 Project – 7
FIXED DEPOSIT

Fixed Deposit

Fixed deposit accounts are an investment instrument offered by banks and other financial
institutions. Under this account, investors would deposit a lump sum over a period. In return,
they would get a fixed rate of interest throughout the investment tenure.

The rate of interest provided on FDs is much higher than that of a regular savings bank
account. Once the tenure of the deposit ends, investors can withdraw their investment. On the
other hand, they have a choice of reinvesting their money for another term.

All scheduled commercial banks and some NBFCs and HFCs in India offer fixed deposit
accounts. If you are to invest in FDs provided by an NBFC or HFC, then check the ratings of
the financial institution provided by agencies, such as CRISIL. This is to make sure that your
money is safe.

Private sector banks and other financial institutions may offer a slightly higher rate of interest
than the public sector banks.

Tax Saving Fixed Deposits

As per Income Tax Act, an individual can claim a tax deduction under Section 80C for
investments in tax-saving fixed deposits of up to Rs.1.5 lakh. Below are the criteria to be
fulfilled to claim this deduction:

• Only individuals and Hindu Undivided Families (HUF) are eligible to invest in tax-
saving FD schemes.
• The tax-saving FDs have a 5-year lock-in period. Premature withdrawals of the FD are
not permitted.
• Individuals can invest in FDs through any public or private bank, except rural and co-
operative banks.
• The Post Office Time Deposit of 5 years tenure also qualifies for claiming tax
deductions under the Income Tax Act of 1961.

11
 • FDs can be held individually or jointly. In the case of a joint FD, the tax benefit will be
given to the first holder.
• Interest earned on the FDs is taxable under the investor’s tax bracket, thus, Tax
Deductible at Source (TDS) is applicable.
• Banks offer higher interest rates to senior citizens on FDs. The increased interest rate
exists for a tax-saving FD also.

Taxation on FD Earnings

Banks deduct tax at source if the interest earned exceeds Rs.40,000 in a financial year across
all the accounts held with the bank. A TDS certificate will be issued to confirm the details of
the deduction.

Process to Open an FD Account

Fixed deposit accounts can be opened either online or offline. Here is the general process to
follow:

Online:

• Log in to the selected bank’s net banking account.

• Search for the ‘Open a Fixed Deposit Account’ option among the available features and
click on the option.
• Fill up the online application form with the relevant information.
• Upload the soft copies of all the requested documents.
• Mention a nominee for the maturity amount if applicable.
• Transfer the amount you would like to invest and complete the application.

Offline:

• Visit the nearest branch of the bank or financial institution.

• Request for the FD application form and duly fill the application form with relevant
details.
• Attach the requested documents, such as proof of identity and address, with the
application form and submit them at the counter.
• Provide a cheque/cash for the amount that you would like to invest.
• Your application will be processed, and the account will be opened as per the timelines
specified by the bank/financial institution.
12
FD Interest Rate

Bank FD interest rates help the depositor to get a good Return on Investment over a fixed
tenure. At the end of the tenure, the interest accrued is calculated on the principal amount and
the total amount is paid back to the depositor. The tenure of fixed deposits may range from 7
days to 10 years. Banks provide a comparatively lower rate of interest on bulk deposits
exceeding Rs. 1. crore and higher rates on deposits less than 1 crore. DHFL Bank is one of the
highest interest offering banks and provides an interest rate of up to 9.25% for fixed deposits.
The fixed deposit interest rates are determined by changes in the RBI monetary policy such as
the repo rate, base rate, internal liquidity position of banks, credit demand, economic
conditions, etc. The factors on which the bank FD rates vary are the deposited amount, deposit
tenure, and the type of depositor.

Deposits with shorter tenure are often offered a lower rate of interest than those having a
longer tenure. For instance, the highest FD interest rate offered by Canara Bank FD on a 1-year
FD is 5.25% whereas for a 5 year FD, it offers 5.30%.All the banks in India offer a
comparatively higher interest rate on senior citizens’ fixed deposits. Currently, banks offer a
rate of interest ranging from 3.50% – 9.25% on senior citizens FDs depending on the deposit
amount and the deposit tenure.

Interest rate 1.85% p.a. – 7% p.a.

Minimum Deposit Amount Rs.1,000

Investment Tenure 7days to 10 years

Interest Compound Frequency Monthly, Quarterly or Annually

Partial and Mid-term withdrawal Allowed with Penalty

Premature closure Allowed with Penalty

13
Lock-in Period in FDs

In the case of an FD account, the lock-in period is the same as the maturity period or deposit
tenure. This simply means that you cannot withdraw the amount deposited within this duration.
Even if you do, it comes with a penalty.

When it comes to tax-saver FD schemes, you strictly cannot withdraw the funds within 5
years from the date of account opening. In the case of other FD schemes, premature withdrawal
is still allowed with certain penalty terms defined at the time of opening the account. The terms
may differ from bank to bank.

Loan against FD

Consider that you have deposited Rs.1 lakh in a fixed deposit account with Bank B for a
tenure of 3 years. Since you have made the deposit for a long period, the bank agrees to offer
6% p.a. and you are happy about it.However, at the end of the first year, you have come across
an emergency situation and need Rs.70,000. If you withdraw the deposit prematurely, you will
be penalised and will not receive the expected returns.

In this scenario, the bank will suggest you take a loan on the FD instead of closing the deposit
account. That is you can take a loan on the FD amount, utilise the money for the emergency,
and pay it back before the account maturity. This allows the FD account to accrue interest as
usual and you receive money to address the emergency, both at the same time.

If you Rs.200,000 (INR Two Lakh), how will you invest the money among

Organisation Amount Interest Rate Return after 24

months

Government Bank

Private Bank

Non-Banking Financial
Company

Post Office Savings

14
Solution:

Organisation Amount Interest Rate Return after 24

(p.a.) months

Government Bank 20,000 7% 22800

Private Bank 70,000 7.25% 80150

Non-Banking Financial 90,000 7.77% 103986

Company

Post Office Savings 20,000 7% 22800

Total 200000 229736

Interpretation

Government bank: Out of Two Lakh, I deposited Rs.20,000 in State Bank of India which is
a government bank. The interest rate is 7%. The total interest for the principal amount is 2800.
In total I received Rs.22800 at the end of tenure (Tenure: 24 Months). Fixed deposit in a
government bank offers safety, assured returns, some liquidity, potential tax benefits, and
convenience due to the wide network of branches and ATMs. It's a reliable and low-risk
investment option for those seeking stable returns on their savings. For Senior citizen, the
interest rate is 7.5%.Hence his/her total interest for principal amount is 3000 which the total
returns after 24 months would be 23000.

15
Private Bank: Out of Two Lakh, I deposited Rs.70000 in Yes Bank which is a private bank.
The interest rate is 7.25%. The total interest for the principal amount is 10,150. In total I
received Rs.80150 at the end of tenure (Tenure: 24 Months). Fixed deposits in private banks
can be an attractive investment choice for those seeking safety and predictable returns. It helps
in achieving short-term financial goals and access to funds after maturity. It provide Safety and
insurance protection. Private bank has higher interest rate comparing government banks. . For
Senior citizen, the interest rate is 7.75%.Hence his/her total interest for principal amount is
10850 which the total returns after 24 months would be 80850.

Non-Banking Financial Company: Out of Two Lakh, I deposited Rs.90000 in Muthoot

finance which is a Non-Banking Financial Company. The interest rate is 7.77%. The total
interest for the principal amount is 13,986. In total I received Rs.103,986 at the end of tenure
(Tenure: 24 Months). Fixed deposits in Non-Banking Finance Institutions (NBFCs) can offer
potentially higher interest rates, but they come with increased risk due to the lack of
government insurance. The Muthoot Finance is registered with Reserve bank of India which I
assume safe to deposit. For Senior citizen, the interest rate is 8.05%.Hence his/her total interest
for principal amount is 14490 which the total returns after 24 months would be 104490.

16
Post Office Saving: Out of Two Lakh, I deposited Rs.20,000 in Indian Post which is a Post
Office. The interest rate is 7%. The total interest for the principal amount is 2800. In total I
received Rs.22800 at the end of tenure (Tenure: 24 Months). Fixed deposits in post offices,
also known as Post Office Time Deposits (POTD), can be a safe and straightforward investment
option for risk-averse individuals. They offer fixed interest rates and come with government
backing, providing a high level of security. However, the interest rates is lower compared to
some other investments, and the tenure is fixed. For Senior citizen, the interest rate is 7%.Hence
his/her total interest for principal amount is 3000 which the total returns after 24 months would
be 23000.

Fixed Deposit Interest Calculation

There are two methods to calculate fixed deposit interest

• Simple interest method

• Compound interest method

Here I used a simple interest method to calculate the fixed deposit interest.

Simple Interest Method

Simple" interest refers to the straightforward crediting of cash flows associated with some
investment or deposit. The formula for Simple Interest (SI) is “principal x rate of interest x
time period divided by 100” or (P x R x T/100).Where,

17
P= Principal amount;

R = Rate of interest per annum;

T= No. of periods (in years)

Example,

Now, if you invest Rs.20,000 at 7% p.a. for 2 years, you can calculate the interest like this.

Step 1: 20,000 x 7 x 2 = Rs.2,80,000.

Step 2: Now divide that by 100. You get Rs.2,800.

So, the interest you earn for 2 years is Rs.2,800.

Therefore, if you invest Rs.20,000 in a Fixed Deposit with 7% p.a. simple interest, you will get
back Rs.22,800 at the end of 2 years.

Conclusion:

Here I splitted the Rs.2,00,000 into four parts and deposited them in four different financial
institution. Twenty thousand in government bank because they are safe. But I shouldn’t invest
more amount because their interest rate is low comparatively. Then seventy thousand in private
bank because their interest rate is the second highest in comparison and private banks are safe
to invest. Private bank provide predictable returns with guaranteed interest rates. After that
Ninety thousand in Non-Banking Financial Company (NBFC) because NBFC has the highest
interest rate. I invested only ninety thousand because it has higher risk as well. At last 20,000
in Post Office Savings because they offer fixed interest rates and come with government
backing, providing a high level of security.

Total returns after 24 months would be

➢ For Normal Citizen: Rs.229736.

➢ For Senior Citizen: Rs.231340.

18
 Project – 8
HOUSING LOAN

Housing loan

A house loan is an amount an individual borrows from a financial institution such as a

housing finance company to buy a new or a resale home, construct a home or renovate or
extend an existing one. The money is borrowed at a specific interest rate and repaid within a
particular duration in smaller instalments known as EMIs (Equated monthly instalments).

Types of Housing Loans available in India

In India, financial institutions offer different types of house loan to suit the specific needs
of customers.

• House loan

This is the most common type of house loan. As the name suggests, these loans are
meant for buying a new apartment, row house, or bungalow, from a developer or a
development authority. You can use this type of loan to purchase under-construction or
ready properties.

• Home Construction Loan

You can avail a home construction loan if you already own a plot and require funds
for the construction of the house on that land.
19
 • Home Renovation Loan

If you already own a house and want to renovate it, you can apply for a house
renovation loan. You can use a house renovation loan for painting, tiling, roof repairs,
etc.
• Plot Loan

If you wish to buy a plot with the intention of constructing your own home in the
future, you can avail a plot loan.

• Home Extension Loan

As your family grows, you may need a bigger house to accommodate all the
members comfortably. A home extension loan could be helpful in such a situation. You
can get this type of loan to fund the cost of adding a new room/floor to your home,
extending the kitchen, building a new bathroom, etc.
• Balance Transfer Loan

Housing Finance Companies (HFCs) offer this unique service that allows you to
transfer your existing house loan from one lender to another. A Balance Transfer is
usually done to get loans at a lower interest rate, flexible repayment terms and some
other benefits.

Eligibility Criteria for House loan

• Current age & loan repayment tenure

Your age plays a vital role in determining house loan eligibility. The younger you
are, the better your chances of getting house loan approval. Also, when you are young,
you can get a loan for a longer duration.
• Financial profile of the customer

Income stability and quantum of income significantly impact the amount you can
borrow. Whether you are a salaried employee or self-employed, you must have a steady
income.

20
 • Credit score

A high credit score and clean repayment records will enhance your chances of getting
a faster loan approval.

• Other financial obligations

Lenders evaluate the existing liabilities such as personal loans, credit card bills, car
loans, etc., to ensure that you have the financial capacity to repay the house loan. If you
have no liabilities, you may get your loan approved without any hassles.

Home Loan Tax Benefit

Acquiring a home loan can provide opportunities to save on taxes, in accordance with the
regulations of the Income Tax Act, 1961. While obtaining a housing loan can be costly, it is
also possible to benefit from several tax deductions that can save money each year. It is
important to understand how to maximize these benefits.

Deduction for interest paid on housing loan under Section 24

A home loan must be taken for the purchase or construction of a house to claim a tax
deduction. If it is taken for the construction of a house, then it must be completed within five
years from the end of the financial year in which the loan was taken.

The interest paid on the home loan EMI for the year can be claimed as a deduction from your
total income up to a maximum of Rs 2 lakh under Section 24.

21
 For let out property, there is no upper limit for claiming tax exemption on interest, which
means that you can claim deduction on the entire interest paid on your home loan.

In case the construction exceeds the stipulated time, i.e. 5 years, you can claim deductions
on interest of home loan only up to Rs 30,000 for the financial year.

However, the overall loss can be claimed under the head ‘Income from House Property’
against any other head of income up to to Rs 2 lakh only. This deduction can be claimed from
the year in which the construction of the house is completed.

Home Loan EMI

Home loan EMI or Equated Monthly Instalment is a systematic way of repaying the home
loan. It includes the repayment of principal amount as well as the interest payable on the
outstanding home loan amount. The EMI is divided throughout the tenure of the loan so that a
uniform amount is paid every month.

Factors That Determine Home Loan EMI

• Principal amount

Principal amount is the amount you borrow from the lender. The higher your principal
amount, the higher will be your home loan EMI.

22
 • Interest rate

The rate at which you borrow the money from the lender plays a crucial role in
determining your home loan EMI. The higher the interest rate, the greater would be your home
loan EMI. Therefore, you must avail a home loan in India with a lender that offers a
competitive interest rate. With us at Kotak Mahindra Bank, you can get a home loan at an e
rate of 6.65% p.a. Keep in mind that a high credit score, good repayment capacity, and steady
monthly income can help you avail home loan at a lower interest rate.

• Loan tenure

A long-term home loan will have a relatively lower EMI. However, by opting for a
long-term home loan, you would end up spending more towards the interest pay-out. This will
increase the overall cost of borrowing.

On the other hand, if you opt for a short-term home loan, your EMI will be higher.
However, you will be able to save on the interest outgo by choosing a short-term home loan.
It’s advisable to opt for a tenure that makes your home loan EMI affordable. This would reduce
the chances of default on your home loan.

Imaging you are working in a bank and you get an application for a housing loan of Rs.25
lakh

A. From a government employee with annual income of Rs.10 lakh

B. From a private sector with annual income of Rs.15 lakh

C. From a businessman with a turnover of Rs.50 lakh

D. A rich farmer with lands worth over Rs.1 crore

23
You have to give to loan only two persons.

• What will be the criteria you will look for?

• What details will you collect from each applicant?
• How will you process the loan application?
• Give clear reasons for your decision

Solution:

I would likely approve loans for the government employee (A) and the rich farmer (D).

Criteria:

1. Creditworthiness: I would assess the applicant's credit history, credit score, and repayment
history on any previous loans or debts. This information helps determine their ability to repay
the housing loan.

2. Income and Stability: I would look at the applicant's annual income and job stability.
Specifically, I would verify the source and stability of their income.

3. Financial Status: I would inquire about the applicant's existing financial commitments, such
as outstanding loans, credit card debts, or other liabilities.

4. Loan Amount Requested: I would evaluate if the loan amount requested is reasonable in
relation to the applicant's income and financial situation.

5. Collateral or Assets: If applicable, I would assess the collateral or assets the applicant can
offer as security for the loan. This could be the property being purchased.

Details to collect:

A. Government Employee with Rs.10 lakh annual income:

• Employment history
• Job stability
• Current income
• Outstanding debts
• Credit score and credit history
• The loan amount requested
• Other financial commitments (if any).

24
B. Private Sector Employee with Rs.15 lakh annual income

• Employment history
• Current income
• Outstanding debts
• Credit score and credit history
• The loan amount requested.
• Other financial commitments (if any).

C. Businessman with a turnover of Rs.50 lakh:

• Business financials
• Personal income
• Outstanding debts
• Credit score and credit history
• The loan amount requested.
• Other financial commitments (if any).

D. Rich Farmer with lands worth over Rs.1 crore:

• Property ownership details

• Income
• Outstanding debts
• Credit score and credit history
• The loan amount requested.
• Other financial commitments (if any).

Loan Application Process

1. Loan application form and documents

The first step in the home loan procedure is filling out the home loan application form. You
will need to furnish personal and financial details to help the lender assess your loan eligibility.
You will have to attach the following documents to support the information on the form, such
as:

• Identity proof
• Age proof

25
 • Address proof
• Income proof
• PAN card
• Proof of educational/professional qualifications
• Employment details
• Bank statements
• Property details (if finalised)

2. Payment of processing fee

Impose a non-refundable loan processing fee, which varies among banks based on the loan
amount. This fee is essential to initiate and facilitate the home loan process efficiently.

3. Discussion with Bank Officials

After receiving the application and verifying documents, Request a face-to-face meeting to
gather additional information and assess loan repayment ability of customer. This meeting
can also be used to address any queries about the loan, repayment plans, interest rates, or
associated fees.

4. Evaluation of the documents

Review all the information been provided, which is essential in determining the
creditworthiness. The representative may conduct on-site verifications at customer’s residence
or workplace and check the references listed in the application. Also assess the credit history
through CIBIL records. Inaccurate or outdated documents can cause delays..

5. Issuing of offer letter

Upon loan approval, certified offer letter be provided containing crucial information such as
the loan amount, interest rate, tenure, repayment method, and terms. It's vital to review these
details thoroughly before accepting or declining the offer.

Reason:

I would likely approve the housing loans for the government employee (A) and the rich farmer
(D) for the following reasons:

1. Government Employee (A): Government employees generally have stable and secure jobs,
which provides a steady source of income. With an annual income of Rs.10 lakh, they have a

26
reasonable income to support a housing loan of Rs.25 lakh. The stable employment and income
make them a lower-risk candidate for loan approval.

2. Rich Farmer (D): The rich farmer with lands worth over Rs.1 crore has substantial assets
that can be used as collateral for the housing loan. Even though the annual income may be
lower than some other applicants, the significant value of the farmer's land assets provides a
strong guarantee for the loan. This reduces the risk for the bank.

As for the reasons not to select the private sector employee (B) and the businessman (C):

1. Private Sector Employee (B): While their annual income is higher, private sector jobs can
be less secure, leading to potential income fluctuations. This could pose a higher risk for the
bank when it comes to loan repayment, especially considering the loan amount.

2. Businessman (C): Business turnover of Rs.50 lakh does not necessarily correlate with stable
income, as business profits can vary significantly. Businessmen may have irregular income
streams, making it challenging to ensure consistent loan repayment.

27
Conclusion:

The banking sector is a cornerstone of modern economies, providing essential

financial services to individuals, businesses, and governments. Its role extends
beyond basic transactions, encompassing trust, responsibility, and financial
stability. As the banking sector continues to adapt to technological advancements
and changing customer expectations, its ability to innovate and ensure the
security of financial systems will remain vital for the prosperity and stability of
nations.

Banks serve as a dependable platform for individuals to manage their finances,

facilitating savings, investments, and borrowing, all governed by specific terms
and conditions. Whether it's safeguarding our earnings, making strategic financial
moves, or seeking monetary aid, banks act as trustworthy partners in navigating
various economic aspects.

28