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a) which is also driving per capita income rise. The demand of real estate has reached at a new peak according to ninth five year plan there is a shortage of 42million houses .But in India the figures to GDP are smaller in comparison to the other countries Contribution of housing to GDP is close to 8%. Sources: NHB Indian Market for Home loans is more than Rs.500,000 crore Today, not only the metros are witnessing the housing crunch even the second tier cities like- Jaipur, Bhubneshwar, Lucknow, Trivendrum etc. are falling into the dearth of living space and wanting for more expansion. India Report: Indian credit report in comparison to the other Asian countries is shown in the statistics below, which is among the lowest. It is Indian psyche that credit is termed bad, Indian are traditionally not inclined to take credit this reflects in the figures below
Indian Mortgage Industry Indian Home Mortgage industry is growing at a fast pace 30% per annum, this can be seen in the stats shown below with average ticket size(loan size) and Amount disbursed is rising every year the opportunities have become more dominant for different organization in India . The demand drivers are fast growing middle class population, rise in working women workforce, bigger aspirations of youth, Tax saving, Transparency in the real estate market .
sources: ICICI bank
Still in comparison to other nations India has a long way to go, The figures shown below shows that even the GDP/mortgage ratio is low which indicates that credit is not well sought as figure below shows the average percentage of mortgage to GDP .
sources: ICICI bank
Comparison with other nations India fall behind in terms of Mortgage Penetration which directly demonstrates the potential in Indian market for Housing mortgage finance companies
Real Estate is currently sought of as a great means of Investment, the prices of residents have shot up very high which is clearly shown in the figure below , the major cities have witnesses lot of development and price appreciation which demonstrates the growing demand . more and more people are migrating to cities for work / business . More and more jobs are created and price index rise becomes inevitable. Price Index:
the above figure shows the rise in prices of space per sq feet in different major cities
Housing shortage in India
The above figure shows the ever-increasing demand for houses in India and also mentioned here is the Rural and urban requirement. Banks are driving new strategies to tap both the markets in a different way – Rural/Urban. There are categories with Indian loan demand, which is shown in this figure
The loan size vary accordingly 1) Mass – loan amlount upto $22,000 2) Middle-Loan amount ($22,000-$60,000) 3) Rich- Loan amount ($60,000-166,000) 4) Luxury- Loan amount(over $166,000)
Mortgage Sector structure
The mortgage sector is fragmented with an unorganized part playing a big role , especially to the lower strata There is regulatory body called National housing bank which controls the housing sector in India the basic structure is given below in the diagram
Households, Corporations, Trusts, Provident Funds
Government of India
Reserve Bank of India
Scheduled Banks State Governments LIC/ GIC NHB
State Apex CHFS Housing & Urban Devpt. Corporation Primary CHFS Housing Finance Companies
Public, Pvt. Agencies/ SHGs/MFIs
LIC : Life Insurance Corporation of India
Households & Corporations GIC : General Insurance Corporation of India Finance Societies
CHFS : Co-operative Housing
The green arrows had shown in the above diagram shows the incoming funds from various resources to NHB which is disbursed and directed to different bodies.
The Red Arrows indicate the disbursement of funds to different bodies ( ) On part of government allocation , there are state housing bodies which finance various housing projects , along with the LIC / GIC they provide funds to banks for housing projects in return they charge interests .
A housing Loan Customer goes to retail bodies like (Banks, Scheduled banks, Cooperative societies, housing Finance Companies etc.) for loans these agencies get funded from NHB, State government or LIC/GIC who get funded from government , state treasury, Government treasury , Market , Asian Development banks, World bank etc.
National housing Board The National Housing Bank (NHB) was established on 9th July 1988 under an Act of the Parliament viz. the National Housing Bank Act, 1987 to function as a principal agency to promote Housing Finance Institutions and to provide financial and other support to such institutions. The Act, inter alia, empowers NHB to:
Issue directions to housing finance institutions to ensure their growth on sound lines Make loans and advances and render any other form of financial assistance to scheduled banks and housing finance institutions or to any authority established by or under any Central, State or Provincial Act and engaged in slum improvement and Formulate schemes for the purpose of mobilisation of resources and extension of credit for housing
It regulates and supervisies housing finance in India and it’s a fully RBUI owned body It also provides finance to Projects, Refinance operations, Provision of guarantees and securitisation . Its main objectives are as follows : • To promote a sound, healthy, viable and cost effective housing finance system to cater to all segments of the population and to integrate the housing finance system with the overall financial system • To promote a network of dedicated housing finance institutions to adequately serve various regions and different income groups • To augment resources for the sector and channelise them for housing • To make housing credit more affordable. • To regulate the activities of housing finance companies based on regulatory and supervisory authority derived under the Act. • To encourage augmentation of supply of buildable land and also building materials for housing and to upgrade the housing stock in the country. • To encourage public agencies to emerge as facilitators and suppliers of serviced land, for housing
To promote a network of dedicated housing finance institutions to adequately serve various regions and different income groups.
IT raises revenues through bonds and RBI funding , central government has allowed it to raise bonds and debentures
How do they raise funds? NHB raises resources for the housing sector towards increasing new housing stock and provides refinance to a large set of retail lending institutions. These include scheduled commercial banks, scheduled state cooperative banks, scheduled urban cooperative banks, specialised housing finance institutions, apex co-operative housing finance societies and agriculture and rural development banks. Refinance is provided by NHB under various schemes, which are formulated taking into account, several aspects of the National Housing Policy, the constraints facing the sector etc. NHB has also a window for direct lending to Public Agencies such as, State Level Housing Boards and Area Development Authorities for large scale integrated housing projects and slum redevelopment projects. NHB is also operating a special window for extending financial assistance to the people affected by natural calamities viz. eaerthquake, cyclone etc. Mr. S. Sridhar is Chairman and MD of National Housing Bank
Indian Mortgage Market The major lenders in India are 1) ICICI Bank
2) HDFC 3) SBI 4) LIC housing finance Ltd. 5) GIC housing finance 6) BOB Housing finance Ltd. 7) CanFin home Ltd. 8) Allahabad Bank 9) PNB housing ltd. 10) ABN Amro 11) Citibank Apart from these there are various agencies who give loans for home e.g. AB home finance, Birla home Finance., Mercantile housing finance ltd etc. ICICI is leading the Home mortgage loan Industry with HDFC following it , SBI /LIC come after that foreign banks have started operating in India like ABN Amro, CitiBank , GE money etc. all have set up special units for catering to the Home loan market It is estimated that more than 35 % of market share is taken by ICICI bank and HDFC combine in home mortgage loans category .
Mortgage Banking solutions Banks in India are adopting technology really fast to be abreast with the demands. The market of Banking solutions is growing at a rapid pace in India with the Increase in adoption of technology there are many players in the market today .
A new landscape pf banking solutions has- Core banking software, mortgage banking software, Transaction based softwares, Asset/treasury management softwares Mortgage softwares like-Loan Origination softwares , Loan servicing softwares, Loan collection softwares etc. Mortgage banking sofwares are Installed in many banks currently – HDFC, ICICI , SBI all have there IT system of LOS placed whereas International banks like Citibank, HSBC, ABN Amro are using there systems already in use in other countries such as USA, UK etc. The evolution of IT services outsourcing in the Indian banks has presently moved on to the level of Facilities Management (FM). Banks now looking at business process management (BPM) to increase returns on investment, improve customer relationship management (CRM) and employee productivity A recent study by Nasscom- Mckinsey states that BFSI segment will be the biggest driver for software Industry. Gartner report states that banking software will grow at 13.5 % by 2005 There are many Indian organization in the Mortgage Lending solution space is verticalI flex, Polaris, Infosys, Wipro, TCS, Nucleus, Indus Software(R systems), IGATE, 3iInfotech etc. apart from mortgage lending the organizations are ther who are into different softwares making such as – transaction business management service- suntec ( trivendrum) and cheque processing softwares- JD ( Chennai). Nucleus software is among those organization who provide mortgage solutions (LOS) to many banks such as – HDFC, ICICI CITIBANK, HSBC etc in India Its suite called FinnOne has a distinction of being a leading and universal banking solution . The solution was also ranked top 10 backoffice banking solution as per report of IBS • • • • Standard charted uses Indus Softwares loan origination system Syndicate bank/Union Bank are biggest customer of I FLEX UTI bank uses INFOSYS banking softwares ABN Amro uses “Input Accel” from Captiva ( EMC)/ Fiserv lending solutions for LOS in USA
The mortgage process requires document scanning, Processing, capturing the exceptions these scanned document are easily processed, stored, transferred and interpreted. The paper cheques are practiced a lot but the manual remittance process is slow and takes time . Outgoing payment is done electronically but the incoming is Cheque based henceforth the adoption to an integrated solution for mortgage is slow .
Bank ICICI bank HDFC Bank of Baroda PNB Abn Amro Deutsche Bank CITI bank SBI Standard Charted
Mortgage Software Software used Banking Software Finnone(Nucleus ) Polaris Finnone(Nucleus ) Flexcube (I Flex) Finacle(Infosys ) UniFi pro( Fiserv) Emagine (GFT technologies) Equinox solutions (IFLEX) Banc(TCS) Loan Origination (Indus Softwares)
Category of softwares used in Indian banking systems : The IT Packages and services available in India can be broadly classified into the following 6 types: (I) Stand-alone branch-level packages- These are usually written in FoxPro, C or Dbase and handle specific functions at branches; these are sometimes networked on a LAN to simulate a TBA environment. But there are also high-end packages with a central Server (which can be a Pentium PC or NT or a MINI or even a Main Frame, supported by multiple (dumb or intelligent) terminals. Some of them use sophisticated RDBMS like ORACLE as back-end and provide user-friendly frontend with Windows GUI. (ii) Multi-branch solutions - These are used to network a cluster of branches in a city (or spread over several cities); the account maintenance can be central (where facilities like Anywhere Banking are required) or can be distributed, networking being achieved through Wide Area Network (WAN) on terrestrial lines / high speed lines/ satellite networks - and now even wireless. (iii) Foreign Packages - Examples are Bank Master, Kappiti, Sanchez etc. These need to be extensively customised to suit Indian requirements - but their strength lie in their proven capabilities in developing and offering modern / global banking products / services that India is just ushering in.
(iv) Packages for specialized niche areas -Like Asset Liability Management (ALM), Treasury Management, Trading / Dealing Room activities, Custodial Services/ Depository Participant etc. These are high-end packages with sophisticated analytical and decision tools. (v) Service Branch / high-volume transaction processing packages - These include, clearing, drafts issue/ payments / reconciliation (Remittances), Bills (payments/ collection/ purchases), Dividend Warrant Processing, inter-branch reconciliation etc. These are often developed and implemented by service providers to whom the work is outsourced. (vi) IT Services - These are not Packages in the sense, these are developed to handle specific problems like disaster recovery, virus protection, security handling, linking / networking multiple legacy systems between themselves or to new platforms or to new delivery channels like ATMs, etc.
About India’s leader ICICI bank
The largest private sector bank in India , it also provides largest consumer credit .The bank is having over 15million retail customers accounts and it has asset base of over $45 billion The bank at present has a market share of about 27 per cent of the total market of home loan The bank offers different products and type of loans for mortgage . It gives following services:
• • • • • •
Adjustable Rate Home Loan Fixed Rate Home Loan Part fixed Part Floating Rate Home Loan Smartfix Home Loan MaxMoney Home Loan and also a Balance Transfer of your existing home loan from other banks
It charges 9% Interest for floating home loan it features ICICI bank has 35% growth plan and is the biggest lender in India for consumer credit It has a base of Rs.250000 crore
How to obtain Home Mortgage ? Home mortgage is obtained after the selection of land/ house/space and certification obtainment of Infrastructure plans by a government body. Certifying the ownership of seller (incase it’s a second hand property), legal documents and planning the fund pool The features of home mortgage
Maximum loan 85% of the cost of the property (including the cost of the land) and based on the repayment capacity of the customer. Maximum Term 20 years subject to your retirement age. Applicant and Co- Applicant to the loan Home Loans can be applied for either individually or jointly. Proposed owners of the property, will have to be co-applicants. However, the co-applicants need not be coowners. Adjustable Rate Home Loan Loan under Adjustable Rate is linked to Retail Prime Lending Rate (RPLR). The rate on your loan will be revised every three months from the date of first disbursement, if there is a change in RPLR, the interest rate on your loan may change. However, the EMI on the home loan disbursed will not change*. If the interest rate increases, the interest component in an EMI will increase and the principal component will reduce resulting in an extension of term of the loan, and vice versa when the interest rate decreases. Fixed Rate
Types of loan offered : • • • • • • • • • • • Home Purchase Loans Existing Home Improvement Loans Home Construction Loans Home Extension Loans Home Conversion Loans Land Purchase Loans Bridge Loans Balance Transfer Loans Refinance Loans Stamp Duty Loans Loans to NRIs
It takes around fifteen days for processing of one's application if the documentd are in order.
Purchase of o Flat, row house, bungalow from developers o Existing freehold properties o Properties in an existing or proposed co-operative housing society or apartment owner's association o First Power of Attorney purchases in Delhi for DDA flats allotted before 1992. Self Construction
Fees: 1% of the loan amount applied plus applicable service taxes and cess. No Charges for
• • • •
Part or Full Prepayment of loan under Adjustable Rate (except in case of prepayment through a refinance from other bank or institutions prepayment charges will be applicable) Fixed Rate - Part prepayment upto 25% of opening loan outstanding in a financial year Replacement of cheques Income Tax Certificates Accelerated Repayment Option
Other facilities provided are : • Flexible Loan installments Plan
The categories for giving loan are: Salaried Customers Application form with photograph Identity and Residence Proof Latest Salary-slip Form 16 Self Employed Professionals Application form with photograph Identity and Residence Proof Education Qualifications Certificate and Proof of business existence Last 3 years Income Tax returns (self and business) Last 3 years Profit /Loss and Balance Sheet Self Employed Businessman Application form with photograph Identity and Residence Proof Education Qualifications Certificate and Proof of business existence Business profile Last 3 years Income Tax returns (self and business) Last 3 years Profit /Loss and Balance Sheet Last 6 months bank statements (self and business) Processing fee cheque
Last 6 months bank statements
Processing fee cheque
Last 6 months bank statements Processing fee cheque
According to the requirement the loan amount generally in India is limited to 5 times of annual pay package on average
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