PROJECT REPORT ON

A STUDY OF COMPARATIVE ANALYSIS OF HOME LOAN

IN PARTIAL FULFILLMENT OF
THE DEGREE AWARDED AT

B.COM (ACCOUNTING AND FINANCE)

SEMESTER VI

SUBMITTED TO
UNIVERSITY OF MUMBAI

FOR ACADEMIC YEAR 2023– 2024

SUBMITTED BY

NAME: HARSH BUDHAJI DESAI

ROLL NO: 42

VIVA COLLEGE OF ARTS, COMMERCE AND SCIENCE

VIRAR (WEST)
401303
 ACKNOWLEDGEMENT

I Harsh Budhaji Desai the student of VIVA College pursuing my “B.COM

(ACCOUNTING & FINANCE)”, would like to pay the credits, for all those
who helped in the making of this project.
The first in accomplishment of this project is our Principal Dr. V. S. Adigal,
Vice-Principal Dr. Prajakta Paranjape, Course Coordinator Ms. Bhakti Vilas
Purandare and Guide Dr./Prof. Tarika Patel and teaching & non teaching staff
of VIVA college. I would also like to thank all my college friends those who
influenced my project in order to achieve the desired result correctly.
 DECLARATION

I Hereby Declare that the Project Titled A STUDY OF COMPARATIVE

ANALYSIS OF HOME LOAN is an original work prepared by me and is
being submitted to University of Mumbai in partial fulfilment of “B. Com.
(ACCOUNTING & FINANCE)” degree for the academic year 2023-2024. To
the best of my knowledge this report has not been submitted earlier to the
University of Mumbai or any other affiliated college for the fulfilment of
“B.Com (ACCOUNTING & FINANCE)” degree.

Date: Place :

Name : Signature:
INTRODUCTION- STOCK EXCHANGE
What is a Stock Exchange?

We know that companies can raise capital by issuing shares or debentures known as corporate
securities and governments also issue bonds and instruments known as government securities to
raise funds from the public. Investors hold securities either to earn income by way of interest or
dividend or to gain capital appreciation due to increase in the price of the security over time. But
investors cannot sell them without finding a buyer for the same. Similarly, people with accumulated
savings or the institutions having surplus funds may also like to invest their funds in various
securities and they also cannot do that without finding a seller.

Stock exchange is an organization which facilitates this process of buying and selling existing
securities by providing a medium for buyers and sellers to interact with each other. As there could be
a large number of buyers and sellers who want to trade in a particular security, stock exchanges
facilitates arriving at trading price based on supply and demand by providing a medium. They help
both buyers and sellers arrive at a mutually satisfactory price.

 Definition of Stock
 INDEX

SR. NAME THE TOPIC PAGE

NO. NO.
1 INTRODUCTION 1 TO 11

2 HISTORY & EVALUTION 12 TO 25

3 REVIEW OF LITERATURE 26 TO 34

4 PROCEDURE OF HOME LOAN 35 TO 38

5 HOME LOAN: TYPES & BENEFITS 39 TO 44

6 RECENT ACHIVEMENTS & MILESTONES 45 TO 47

7 CONCLUSION 48 TO 49

8 BIBLIOGROPHY 50
 CHAPTER 1

INTRODUCTION

HOME LOAN

A home loan is usually obtained from a bank but can be received from any
institution willing to loan the money. Lenders normally require an initial
payment from the borrower, typically 20 percent of the purchase price of the
house; this is called a down payment. If the house is selling for $200,000, for
example, the borrower must make a down payment of $40,000 and can then
take out a $160,000 loan to cover the rest. Lenders require a down payment as
a way to ensure that they can recover the money they have loaned in case the
borrower defaults on it (that is, fails to repay it). In the case of default, the
lender has the right to repossess the property and sell it to pay off the loan. The
process of a lender taking possession of a property as a result of a defaulted
loan is called foreclosure.

Lenders evaluate potential borrowers to make sure they are reliable enough to
pay back the loan. Among the factors they review are the borrower’s income
and ability to make the down payment. The U.S. government provides various
forms of assistance to people who would not normally qualify for home loans.
For instance, the Federal Housing Administration insures loans for low-income
citizens in order to encourage banks to lend to them. It also runs programs that
offer grants (money that does not have to be repaid) to cover down payments.
One such program is the American dream down Payment Initiative. The
Department of Veterans Affairs provides similar assistance for people who
have served in the U.S. military.

The calculation banks use to determine monthly loan payments is complicated

and often not understood by borrowers. Banks charge an annual percentage
rate (APR) on the loan amount, or principal, in order to be compensated for the
service of lending money (as well as to pay for their own expenses, such as
hiring employees and maintaining buildings). Although the interest rate is
quoted as an annual rate, in actuality the interest on a home loan is usually
charged monthly. For example, if the APR were 8 percent, the monthly interest
rate would be 0.6667 percent (8 percent divided by 12 months). The interest
also compounds monthly, meaning that each month the interest fee is added to
the original loan amount, and this sum is used as the basis for the next month’s
interest. The borrower ends up paying interest on the accumulated interest as
well as on the original loan amount.

1
To understand how this works, imagine that you had to pay an 8 percent annual
fee on $100. The first month you would pay an interest fee of roughly 0.6667
percent of $100, or a little more than 66 cents, raising the total amount due to
just over $100.66. The second month you would pay 0.6667 percent on the
new loan amount ($100.66), or 67 cents, bringing the total due to almost
$101.34. After 12 months of applying a compounding monthly interest rate of
0.6667, the total amount owed would be $108.30, or 8 percent more than the
original loan amount plus 30 cents, the amount of interest that accumulated
through compounding.

Mortgage payments are even more complicated because two things happen
each month: in the example of an 8 percent APR, a fee of 0.6667 percent is
charged to the total amount of the loan, but the total amount of the loan is
reduced because the borrower has made a payment. Because the payment by
the borrower is more than the fee of the monthly interest rate, the total amount
owed gradually goes down.

This method of calculation requires that borrowers pay more in interest each
month at the beginning of the loan than at the end. This can be seen in the
example of a $160,000 loan paid over a 30-year period with an APR of 8
percent. After the first month of the loan, the bank charges a monthly interest
rate of 0.6667 percent (really two-thirds of a percent, which would be a 0 with
an infinite number of 6s after the decimal point, but it is rounded up at the
fourth decimal point) on the $160,000 loan amount, for a fee of $1,066.67. At
the same time, the borrower sends the bank a mortgage payment of $1,174.02;
of this amount, $1,066.67 goes toward paying off the interest charge, and the
remainder, $107.35, is subtracted from the $160,000 loan, bring the total
amount due down to $159,892.65. The next month the bank charges the same
monthly interest rate of 0.6667 on this new amount, $159,892.65, resulting in
an interest charge of $1,065.95, just slightly less than the month before. When
the borrower sends in his $1,174.02 payment, $1,065.95 goes toward paying
off the new interest charge and the rest, $108.07, is subtracted from the loan
amount ($159,892.65 − $108.07), with the resulting total amount due being
$159,784.58.

Over the course of 30 years, three things happen: the total amount due on the
loan gradually goes down; the interest charge also slowly reduces (because it is
a fixed percent, 0.6667, of a gradually reducing loan amount); and an
increasing amount of the payment begins to go to the loan amount, not the
interest (because the interest charge gradually goes down while the borrower’s
payment, $1,174.02, remains the same). After 270 months, or three-fourths of
the way through the loan, $532.72 of the monthly payment goes toward
interest and $641.30 is subtracted from the loan amount. By the end of the
loan, the borrower would have paid $160,000 in principal and $262,652.18 in
interest.

2
Purchasing a home involves paying what are called “closing costs” to cover the
various transactions that must occur. Fees are charged by the broker or agent
who arranges the home loan, the people who inspect the property to make sure
it is sound, the title insurance company (which researches the legal ownership
of the property to make sure the seller is really the owner and insures that the
transfer of ownership goes smoothly). Additionally, there are various local and
state taxes and fees to be paid, and there may be a partial payment due at the
time of the mortgage’s inception. These charges are usually paid by the buyer
at the very end of the lending process (hence the term closing costs).

In order to protect themselves and the home buyer from financial loss, lenders
require that the property be covered by a homeowner’s insurance policy that
insures the property against loss from fire (and in certain cases flood or
earthquake) damage. To guarantee that the borrower makes his or her
insurance payments, mortgage lenders set up what is called an escrow account
and require that the borrower deposit a monthly payment into it to cover the
cost of the insurance. When the annual insurance bill comes due, the mortgage
company uses the money in the escrow account to pay it on behalf of the
borrower.

Additionally, most real estate is subject to property tax, which is used to fund
public schools and other local government programs. Because a failure to pay
these taxes can lead to the seizure and sale of the property, the lender wants to
make sure that these taxes are paid and hence requires the buyer to pay another
monthly amount into the escrow account.

Despite the large amount of interest paid, there are many benefits to having a
home loan. They allow people to buy homes that they would otherwise be
unable to afford. In addition, once someone has a fixed-rate mortgage, the
monthly payment never goes up. Rents, however, almost always rise over time.
A homeowner also builds up equity in the house over the years. Equity is the
difference between the current value of the property and the loans against it. In
the above example of the $200,000 house, the owner immediately has $40,000
in equity because of the down payment; as the owner gradually pays back the
loan, his or her equity increases. Furthermore, it is likely that 10 years later the
house itself will have increased in value. If the house is, for example, worth
$260,000 by then, the owner will have gained an additional $60,000 in equity.
An owner can turn the equity in a house into cash by selling the house and
pocketing the profits, possibly with the intention of buying another house,
taking a long vacation, or having extra money for retirement. Finally, interest
is usually deducted from a person’s taxable income, meaning that person will
owe less in taxes.

3
For many decades the only type of mortgage an average person could get was a
fixed-rate 15- or 30-year loan. In the late 1970s interest rates in the United
States rose sharply. Because the interest rate for a home loan has a direct
impact on the size of the mortgage payment (higher interest rates mean higher
monthly payments), fewer people could afford to buy homes or qualify for
mortgages. This situation was made more difficult by a high rate of inflation
(the general rising of prices), which lowered the value of any money that
people had saved up. In order to encourage borrowing, lenders responded by
offering new types of mortgages with lower monthly payments or artificially
low interest rates. Among these were adjustable-rate mortgages whose interest
rate (and therefore whose monthly payments) changed over time and interest-
only mortgages whose monthly payments included only the interest on the loan
and no repayment of principal.

Over time these new types of home loans contributed to a surge in lending and
a nationwide increase in housing prices beginning in the late 1990s. This trend
helped stimulate economic growth by generating income for those who
invested in existing properties and for those involved in building new ones.
The banking industry got a boost from people taking out second or third
mortgages on their homes in order to take advantage of historically low interest
rates. Some economists speculated that these loans put the national economy at
risk because a downturn in housing prices or an increase in interest rates would
leave many people with loans they could suddenly no longer afford to repay,
which could lead to a large increase in the number of foreclosures across the
country.

INTRODUCTION TO COMPANY:

PUNJAB NATIONAL BANK:

PNB has over 4500 branches and offices bringing the Punjab National Bank to
your doorstep. Around 2400 offices come under the network of Centralized
Banking Solution or CBS. A need for centralized banking system prompted
PNB to go computerized and what followed was the establishment of CBS in
Punjab National Bank branches in all the leading cities like Delhi, Pune,
Chennai, Mumbai, Ahmedabad, Chandigarh, Gurgaon, Hyderabad, Jalandhar,
Kolkata, Ludhiana, Nodal and Bangalore.
Internet Banking Services are provided to all customers in the CBS branches.
A branch and ATM locator is also available on the official website of Punjab
National Bank. For an overview of the annual report or the bank profile, the
site can be resourceful. The website also provides info on the careers and
recruitments at PNB and the exam results. The careers at nationalized banks
like PNB are the most sought after one and candidates are selected on the basis
of their exam result. PNB topped the Best Paying Commercial Bank category

4
with an overall rating of 87.45% as evaluated by the SSS Retirement, Death &
Funeral Benefits Program.

Growth and Development:

With over 38 million satisfied customer & 4668 offices, PNB has continued to
retain its leadership position among the nationalized banks. The Bank enjoys
strong fundamentals, large franchise value and good brand image. Besides
being ranked as one of India's top service brands, PNB has remained fully
committed to its guiding principles of sound and prudent banking. Apart from
offering banking products, the bank has also entered the credit card
& debit card business, billion business, life and non-life insurance business; Gold
coins & asset management business, etc. Since its humble beginning in 1895 with
the distinction of being the first Indian bank to have been started with Indian
capital, PNB has achieved significant growth in business which at the end of
June2012 amounted to Rs. 6,79,823 cr.

Financing home purchases, construction, and renovation have been tedious, but
PNB customers can use PNB home loans for this purpose. Since it is also one
of the country's most reputed home loan offers, it has also been providing the
best rates for eligible clients for over thirty years.

Punjab National Bank provides a variety of home loan schemes at competitive

rates beginning at 8.80% p.a. and up to Rs.1 crore. You have the choice of
extending the repayment period to 30 years (maximum). The applicable
processing fee is 0.35% of the loan amount plus GST. PNB offers subsidized
rates to EWS, LIG, and MIG applicants under the PMAY scheme.

Punjab National Bank, one of the country's public sector banks, provides a
variety of home loans. PNB Max Saver, PNB Gen-Next Housing Finance, and
PNB Pride Housing Loan are some of the housing loans available. The bank
provides home loans up to Rs.75 lakh at competitive interest rates.

PNB Housing offers home loans at floating interest rates linked to its
benchmark interest rate, PNBHFR. The prevailing market conditions can
influence this benchmark rate, so an increase in the repo rate may result in an
increase in home loan interest rates. PNB also offers a unique financing
program called Own a Philippine Home Loan (OPHL), which allows Filipinos
and non-Filipinos residing and working in the United States to obtain bank
financing for residential properties in the Philippines. To be eligible for a PNB
home loan, you need to be a Filipino citizen, at least 21 years old (but not more

than 65 years old upon loan maturity), and employed or self-employed. The
minimum loanable amount for the purchase of a lot is PHP 500,000 (within

5
 and outside Metro Manila). For more information and to apply for a PNB
home loan, you can visit the PNB website or go to the nearest PNB branch.
Please note that the information provided is based on the given text and may be
subject to change. It is always recommended to verify the latest information
from official sources.

As far as Home Loans are concerned, government employees enjoy easier

access and special privileges than others. A stable job with a regular salary
makes them low-risk borrowers for loan companies. It encourages many
housing finance companies to offer them lucrative loan deals with low-interest
rates and favorable terms and conditions. Special benefits and easier
accessibility make Home Loans a better and cheaper funding option for
government employees.

Here are 3 benefits they enjoy with Home Loans for government employees
compared to self-employed professionals and salaried employees in the private
sector.

Benefits of taking a home loan PNB HOUSING:

You must have come across people having ample funds to buy a new house but
still opt for a home loan. This happens because people often find ways to get a
tax exemption by applying for a loan. Paying for a house upfront with savings
isn't a smart move. An individual might end up paying more taxes at the end of
the financial year by paying for a house upfront. After taking a home loan, they
must pay the interest charges and principal amount in each EMI. Since the
individual is paying EMIs to a financial institution at frequent intervals, a tax
waiver is applied.

The tax reliefs offered to people taking PNB home loans are as follows:

 As per section 24(b) of the income tax act, an individual can get an exemption
of up to INR 2,00,000 for home loan interest charges paid in a financial year
 As per section 80(c) of the income tax act, an individual can get an exemption
of up to INR 1,50,000 for the home loan principal amount paid in a financial
year

Co-applicant Options:

Financial institutions allow people to apply for loans together. Two people can
apply for a PNB home loan and reap extra benefits. Many people choose to
apply for a home loan with their partner, father, or child.

6
 The pros of applying for a home loan with a co-applicant are as follows:

 With a co-applicant, an individual can get enhanced home loan eligibility

 If there are two applicants for the same house loan, both can reap tax waivers
 With a co-applicant, an individual has less liability for timely repayment of
loan EMIs

Overdraft System

Many financial institutions allow individuals to use the overdraft facility and
escape interest charges. If possible, an individual can choose to repay the
principal amount before the pre-decided loan tenure.

Once the principal amount of the home loan is returned to the financial
institution, no interest charge is applied. By paying more than the minimum
amount in every EMI, people have the option to close the home loan faster.

Top Up Options:

PNB home loans also include the top-up option. With the top-up option, an
individual can get an extra amount on the existing home loan.

Apart from buying a house, several emergencies can arise. For example, home
renovation, medical expenses, a child's education, and many other things can
demand urgent funds.

If someone has taken a home loan, they can apply for a top-up and get more
funds. The extra funds taken via a top-up will be added to the existing loan
amount. With pocket-friendly EMIs, individuals can repay the entire loan
amount within the given tenure.

Flexible Repayment Tenure:

With PNB housing, individuals can get home loans with flexible repayment
tenures. You aren't forced to repay the entire home loan amount at once. With
pocket-friendly EMIs, people won't feel the monetary pressure.

At the end of the home loan tenure, an individual will have a home without
financial stress. People can easily return the loan amount with a low home loan
interest rate.

PNB housing also has flexible eligibility criteria for a home loan. The
processing fee charged for a home loan is also low (up to 0.5% of the loan
amount), which is all the more reason to apply for a home loan with PNB
Housing in 2022.

7
STATE BANK OF INDIA

State Bank of India (SBI) is India's largest commercial bank. SBI has a vast
domestic network of over 9000 branches (approximately 14% of all bank
branches) and commands one-fifth of deposits and loans of all scheduled
commercial banks in India. The State Bank Group includes a network of eight
banking subsidiaries and several non-banking subsidiaries offering merchant
banking services, fund management, factoring services, primary dealership in
government securities, credit cards and insurance. The eight banking
subsidiaries are State Bank of Bikaner and Jaipur (SBBJ), State Bank of
Hyderabad (SBH).State Bank of India (SBI), State Bank of Indore (SBIR),
State Bank of Mysore (SBM), State Bank of Patiala (SBP), State Bank of
Saurashtra (SBS) and State Bank of Travancore (SBT). Today, State Bank of
India (SBI) has spread its arms around the world and has a
Network of branches spanning all time zones. SBI's International Banking
Group 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 service division.

SBI Home Loans is the largest Mortgage Provider in the country. It has
successfully helped over 30 Lakh families achieve their dream of owning a
home.
"THE MOST PREFERRED HOME LOAN PROVIDER" voted in AWAAZ
Consumer Awards along with the MOST PREFERRED BANK AWARD in a
survey conducted by TV 18 in association with AC Nielsen-ORG Marg in 21
cities across India. SBI Home Loans come to you on the solid foundation of
trust and transparency built in the tradition of SBI. It includes options for
purchase of ready built property, purchase of under construction property,
purchase of pre-owned homes, construction of a house, extension of house and
repair/renovation.

SBI offers "SBI Home Top Up Loan" to their customer to borrow certain
amount over and above their home loan amount. The customer who already
have a home loan from SBI and requires more funding, can opt for Home Top
up loans. It can be availed for any personal purpose. The interest rates are
much lower than usual personal loan interest rates.

8
BENEFITS OF TAKING HOME LOAN FOR SBI HOUSING

1. Attractive Interest Rates

Interest rates for SBI Home Loans are known to be the most attractive in the
market today. In fact, SBI offers interest rate starting at just 8.15% p.a. for
women borrowers. This includes a 0.05% concession in the interest rates for
women borrowers, celebrating the importance of a women in the Indian
Household milieu.

2. Assistance in choosing the right property

SBI helps you choose the right property from various pre-approved projects
according to your budget, location and amenities through its home search
portal: www.sbirealty.in .

3. Products Designed to suit your unique needs

SBI has products customized to suit specific home loan needs of various
customers like Flexi Pay Home Loan for the Young Salaried Earners,
Privilege Home Loans for Government Employees, Shaurya Home Loan for
Defense Employees, Businessmen, NRI Home Loans and lot more.

4. Low EMIs

EMIs (Equated Monthly Installments) for SBI Home Loans start at just INR
744 per lac for a home loan of Rs.30 lakh with a tenure of 30 years at interest
rate of 8.15% p.a.

5. Complete Transparency

With SBI you can be assured of complete transparency in the loan process and
loan servicing thereafter. This includes eligible loan amount, documentation,
and more importantly, all the fees and charges. You can be sure and assured
that everything will be communicated in a simple and precise manner to you.

6. Swift Processing of PMAY subsidy

SBI has become a Central Nodal Agency (CNA) for Pradhan Mantri Awas
Yojana subsidy claims for Home Loans. As a result, the subsidy is expected to
be released in fastest possible manner.

9
7. Instant Top-Up Loans for existing Home Loan borrowers

Eligible existing customers can avail Top-Up instantly through the SBI
YONO app which can be used for multiple purposes like wedding, travel etc.
The Top-Up amount will be directly credited to their savings account in as
low as 5 minutes.

8. India’s preferred home loan provider

1 in every 3 Home Buyers in the country today avail Home Loan from SBI.

9. Trust of 40 lakh happy families

More than 40 lakh families have chosen SBI as the preferred Banker for their
home loan.

10. Top-up Loans at rates starting at just 8.60% p.a.

In addition to conventional home loans, you can also get Top-Up loans from
SBI at really attractive interest rates starting at just 8.60% p.a.

11. Pre-Approved Home Loans

In case you have not finalized a home, you can opt for a Pre-Approved Home
Loan from SBI. This gives you an estimate of the budget within which you
can search for a property.

12. Dedicated Relationship Managers at Various Locations

SBI has dedicated Relationship Managers for home loan seekers at various
locations. These relationship managers handhold the home buyers right from
the start of the application process till the end of the process. This ensures that
the consumer gets door step service and the entire process gets completed in a
hassle-free manner. In addition to dedicated relationship managers, SBI has
8500+ feet on street providing door step services for the home loan seekers.

10
13. More than 1000 SBI Home Loan Processing Centers

SBI has 1000+ home loan processing centers spread across the length and
breadth of the country. These dedicated centers are known to ensure that all
home loan applications get attended to within a prescribed TAT of less than
two weeks.

14. Apply through 6 Easy Ways

SBI has various customer friendly and easy channels to apply for a home loan:

a. Download and Login to the YONO App

b. Visit www. homeloans.sbi

c. Apply through www. psbloansin59minutes.com

d. Call on 1800 11 2018

e. Apply at the nearest SBI Branch

f. SMS “HOME” to 567676

11
 CHAPTER 2

HISTORY AND EVALUATION

Banking in India has a long and elaborate history of more than 200 years. The
beginning of this industry can be traced back to 1786, when the country’s first
bank, Bank of Bengal, was established. But the industry changed rapidly and
drastically, after the nationalization of banks in 1969. As a result, the public
sector banks began experiencing numerous positive changes and enormous
growth. Then came the much talked about liberalization and economic reforms
that allowed banks to explore new business opportunities and not just remain
constrained to generating revenues from mere borrowing and lending. This
provided the Indian banking scenario a remarkable facelift that only continues
to get better with time. However, even today, despite the foray of foreign
banks in the country, nationalized banks continue to be biggest lenders in the
country. This is primarily due to the size of the banks and the penetration of
the networks. The Indian banking system can be classified into nationalized
banks, private banks and specialized banking institutions. The industry is
highly fragmented with 30 banking units contributing to almost 50% of
deposits and 60% of advances. The Reserve Bank of India is the foremost
monitoring body in the Indian Financial sector. It is a centralized body that
monitors discrepancies and shortcomings in the system. Industry estimates
indicate that out of 274 commercial banks operating in the country, 223 banks
are in the public sector and 51 are in the private sector. These private sector
banks include 24 foreign banks that have begun their operations here. The
specialized banking institutions that include cooperatives, rural banks, etc.
form a part of the nationalized banks category.

PNB

Punjab National Bank Today, State Bank of India (SBI) has spread its arms
around the world and has a network of branches spanning all time zones. SBI's
International Banking Group 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 of
India was established by Lala Lajpat Rai in the pre independence India in 1895
in Punjab, with Lahore as its head office. Today it is the second largest public
sector bank in India. It was nationalized in 1969 along with 13 other major
commercial banks. The privatization started in 1989 when 30 per cent of its
shares were offered to the public and it was listed on the stock exchange. In
1992, PNB became the first Philippine bank to reach P100 billion in assets.
Later that year, privatization continued with a second public offering of its
shares. In August 2005, PNB was fully privatized. The joint sale by the
Philippine government and the Lucio Tan Group of the 67% stake in PNB was

12
 completed within the third quarter of 2005. The Lucio Tan Group exercised its
right to match the P 43.77 per share bid offered by a competitor and purchased
the shares owned by the government. The completion of sale is expected to
speed up the development of PNB’s franchise and operational competitiveness.

SBI

The origins of State Bank of India date back to 1806 when the Bank of
Calcutta (later called the Bank of Bengal) was established. In 1921, the Bank
of Bengal and two other Presidency banks (Bank of Madras and Bank 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 India and the State Bank of India (SBI) came into existence by an act
of Parliament as successor to the Imperial Bank of India.

Today, State Bank of India (SBI) has spread its arms around the world and has
a network of branches spanning all time zones. SBI's International Banking
Group 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.

2.2: PROFILE OF THE ORGANIZATION

PROFILE OF PNB:

The profile of the PNB shows superior banking services in corporate, personal
and international banking, industrial and agricultural finance and finance of
trade. Punjab National Bank boasts of a varied clientele consisting of small and
medium industrial units, exporters, multi-national companies, Indian
conglomerates and NRI. The Bank is changing outdated front and back end
processes to modern customer friendly processes to help improve the total
customer experience. With about 8500 of its own 10000 branches and another
5100 branches of its Associate Banks already networked, today it offers the
largest banking network to the Indian customer. The Bank is also in the
process of providing complete payment solution to its clientele with its over
8500 ATMs, and other electronic channels such as Internet banking, debit
cards, mobile banking, etc. The objectives of the Company are in line with
objectives laid down by RBI for the Primary Dealers:

 Strengthen the infrastructure in the government securities market in order to

make it vibrant, liquid and broad based.
 Ensure the development of underwriting and market making capabilities for
Government Securities.

13
 Improve secondary market trading system, which would contribute to price
discovery, enhance liquidity and turnover and encourage voluntary holding of
Government securities amongst a wider investor base

 Become an effective conduit for conducting open market operations.

PROFILE OF SBI

The SBI’s powerful corporate banking formation deploys multiple channels to

deliver integrated solutions for all financial challenges faced by the corporate
universe. The Corporate Banking Group and the National Banking Group are
the primary delivery channels for corporate banking products.

The Corporate Banking Group consists of dedicated Strategic Business Units

that cater exclusively to specific client groups or specialize in particular
product clusters. Foremost among these a specialized group is the Corporate
Accounts Group (CAG), focusing on the prime corporate and institutional
clients of the country’s biggest business centers. The others are the Project
Finance unit and the Leasing unit. The National Banking Group also delivers
the entire spectrum of corporate banking products to other corporate clients, on
a nationwide platform.

The bank is also looking at opportunities to grow in size in India as well as

internationally. It presently has 82 foreign offices in 32 countries across the
globe. It has also 7 Subsidiaries in India – SBI Capital Markets, SBICAP
Securities, SBI DFHI, SBI Factors, SBI Life and SBI Cards - forming a
formidable group in the Indian Banking scenario. It is in the process of raising
capital for its growth and also consolidating its various holdings. Throughout
all this change, the Bank is also attempting to change old mindsets, attitudes
and take all employees together on this exciting road to Transformation. In a
recently concluded mass internal communication programme termed
‘Parivartan’ the Bank rolled out over 3300 two day workshops across the
country and covered over 130,000 employees in a period of 100 days using
about 400 Trainers, to drive home the message of Change and inclusiveness.
The workshops fired the imagination of the employees with some other banks
in India as well as other Public Sector Organizations seeking to emulate the
programme.

Banking Sector Opportunities:The Banking sector is considered the most

lucrative option in today’s job market. In the industry, a position in Treasury or
Forex is considered right on top and this is followed by careers in Private
Banking, Investment Banking and Retail Banking. One could work in a variety
of areas in banking industry including Recurring Deposit account, banking

14
officer, probationary officer, loan officer, assessor, personal loan officer, home
loan officer, home loan agent, loan manager, mortgage loan underwriter, loan
processing officer, accountant, product marketing and sales executive, and
Customer service executive among others. In the Financial Services, some of
the important jobs include that of a stockbroker who is essentially a person
who buys and sells securities on behalf of individuals and institutions for some
commission. While some brokers like to practice with individual clients others
work for institutions. Brokers who work for institutional investors are often
called securities traders. Many prefer to work as dealers, advisors and
securities analysts. Security analysts are those who advise companies on
floatation’s of shares as they are expected to have sound knowledge of capital
markets. Investment analysts are the backbone of the financial services sector.
They study the financial reports of companies, assess various statistical
information, profitability projections, compare financial results, survey the
industry as a whole and on the basis of the available information, and finally
conclude to a decision. Equity Analysts do jobs similar to investment analysts
and research the equity markets and make predictions.

Growth:

The limit for foreign direct investment in private banks has been increased
from 49% to 74%. In addition, the limit for foreign institutional investment in
private banks is 49%. Liberalization and globalization have created a more
challenging environment in the banking sector as well as in the other segments
of the financial sector such as mutual funds, Non-Banking Finance Companies,
post offices, capital markets, venture capitalists, etc.

Research and Markets has announced the addition of 'Indian Retail Banking,
2006' to their offering. Indian Retail Banking continues to redefine the credit
growth in the country. It grew by a whopping 44.4% in 2005-06 to touch Rs.
3,538 billion. This leap was despite the increase in risk weight by RBI for
housing and real estate loans during August, 2005. Housing, which constitutes
more than 52% of all retail loans, grew at a robust rate of 44.35% during 2005-
06. In order to help banks in India to understand the market and competition
and plan future strategies, we have just come out with an Industry Insight on
Indian Retail banking - 2006 edition. This report analyses the retail banking
market and its segments in India and presents the key trends, along with issues
and challenges. The report also paints a future outlook for the market. Besides
it profiles 21 major players in the retail banking space and their strategies.
Finally, it seems Reserve Bank of India's (RBI) flurry of measures to restrain
the home finance market is paying off. With tightening of interest rates by the
RBI and a simultaneous increase in real estate prices in a few markets, the
banking sector is witnessing a decline in the growth of its home loan portfolio.
The home loan industry is experiencing a growth of 25% this year, as against
30% growth in home loans earlier. Rajiv Sabharwal, senior general manager,
15
 ICICI Bank which has recorded the highest incremental growth in home
finance segment in recent past, said, “The real estate prices have become very
high in few markets, which has resulted in the fall in growth rates for home
loans for the banking industry. Home loan growth has reduced to 25% from its
earlier growth rate at 30% and since we are an Integral part of the industry,
there will be some impact on us too.”

He added that the bigger impact had come from real estate prices, but
obviously interest rates hikes will also have an impact. He, however, declined
to disclose the bank’s current home loan growth rate. Echoing a similar view, a
senior official of State Bank of India (SBI) said the home loan market is
showing some signs of slowing down. However, another major player,
Housing Development Finance Corporation (HDFC) said the housing finance
market for the middle class segment was growing at a healthy pace. PNB Bank
is a leading home loan lender of the country with about 30% market share.
Retail lending comprises 70% of the total loan portfolio of the bank, of which
the home loan lending is about 50%. In the first half of fiscal 2007, the bank
experienced total home loan disbursements of Rs 13,400 cr.

MAJOR PLAYERS:

The financial sector in India has become stronger in terms of capital and the
number of customers. It has become globally competitive and diverse aiming,
at higher productivity and efficiency. Exposure to worldwide competition and
deregulation in Indian financial sector has led to the emergence of better
quality products and services. Reforms have changed the face of Indian
banking and finance. The banking sector has improved manifolds in terms of
capital adequacy, asset classification, profitability, income recognition,
provisioning, exposure limits, investment fluctuation reserve, risk
management, etc.

TOP 10 PLAYERS IN BANKING & FINANCE:

1. State Bank of India

2. HDFC bank
3. Citibank
4. ICICI Bank
5. Punjab National bank
6. UTI Bank
7. Hong Kong & Shanghai Banking Corp.
8. Kotak Mahindra Bank

16
9. Sundaram Bank
10. Oriental Bank of Commerce

TOP 10 PLAYERS IN INSURANCE:

1. Life Insurance corporation of India
2. Bajaj Allianz General Insurance
3. ICICI Prudential Life Insurance
4. ICICI Lombard General Insurance
5. Birla Sun life Insurance
6. Tata AIG General Insurance
7. New India Assurance Co.
8. Iffco Tokio General Insurance
9. Oriental Insurance Co.
10. HDFC Standard Life Insurance

2.3: ELIGIBILITY CRITERIA

Punjab National Bank Home Loan Eligibility:

Punjab National Bank home loan eligibility is based on minimal criteria based
on income or salary which makes it accessible to a wide range of individuals.
The maximum repayment tenure is 30 years with attractive interest rates

Punjab National Bank Home Loan Eligibility Criteria

Punjab National Bank provides home loans to individuals who have a regular
source of income, i.e., who are salaried, self-employed, professionals, farmers,
entrepreneurs, etc. It is also open to staff members of the bank.

For PNB Flexible Housing Loan, the maximum age for eligibility is 50 years.

For the PNB Gen-Next Housing Finance Scheme, the maximum age for
eligibility is 50 years, with a minimum net monthly income of Rs.35,000, and
minimum 3 years of experience. This scheme is for employees of the state or
central government, Public Sector Undertakings (PSUs), public sector banks,
as well as those in the IT industry.

Punjab National Bank Home Loan Eligibility Based on Salary:

17
The Punjab National Bank home loan eligibility calculator given below shows
you the loan amount that you are eligible for based on your monthly income
taking into consideration a repayment tenure of 30 years with an interest rate
of 6.80% p.a. (which is the starting interest rate for Punjab National Bank's
home loans).

Monthly Income Loan Amount

Rs. 25,000 Rs.15,33,918

Rs. 30,000 Rs.20,70,790

Rs. 35,000 Rs.24,15,921

Rs. 45,000 Rs.31,06,185

Rs. 50,000 Rs.34,51,316

Rs. 55,000 Rs.42,18,275

Rs. 60,000 Rs.46,01,755

Rs. 65,000 Rs.49,85,235

Rs. 70,000 Rs.53,68,714

Rs. 75,000 Rs.57,52,194

Punjab National Bank Home Loan Eligibility Based on Value of Property

The Loan to Value (LTV) ratio is the quantum of loan that is disbursed based
on the value of the property that you intend to purchase. The LTV ratio for
different loan amounts is as given below:

Loan Amount LTV Ratio

Up to Rs.30 lakh 80% to 85%

Between Rs.30 lakh to Rs.75 lakh 80%

Loans above Rs.75 lakh 75%

18
 Punjab National Bank Home Loan Eligibility Based on Credit Score

Your home loan eligibility is dependent on your Credit Score. The higher your
credit score, the lower your interest rate and vice versa. Here are the ratings for
different credit scores:

Rating Credit Score

Good 750 and Above

Average 600 - 750

Poor Below 600

A Credit Information Company (CIC) score of 800 and above attracts the
lowest interest rates on home loans offered by Punjab National Bank. To be
eligible for a PNB home loan, the minimum credit score required is 650.

Punjab National Bank Home Loan Eligibility for Women

The eligibility criteria for women are the same as for other applicants.
However, women are given an interest rate concession of 0.05% for all
categories except for the Commercial Real Estate (CRE) loans.

Punjab National Bank Home Loan Eligibility for Co-Applicant

Punjab National Bank accepts co-applicants who have an assured and regular
salary or source of income.

Factors Affecting Punjab National Bank Home Loan Eligibility

Punjab National Bank home loan eligibility is determined by the factors given
below:

 Applicant's age
 Applicant's credit score
 Applicant's salary or income source
 Indian citizenship status
 Repayment capacity

19
SBI Home Loan Eligibility Based on Salary
State Bank of India’s home loan eligibility depends on a number of factors
such as the age of the applicant, credit score, and income or salary.
The SBI home loan eligibility calculator given below shows you the loan
amount that you are eligible for based on different ranges of monthly income
considering an interest rate of 9.15% p.a. – 12.95% p.a., which is the
starting interest rate, and a maximum repayment tenure of 30 years, and
assuming there are no other financial commitments towards the Equated
Monthly Instalments (EMI) towards other loans.

Monthly Income Loan Amount

Rs. 25,000 Rs.15,10,693

Rs. 30,000 Rs.20,39,435

Rs. 35,000 Rs.23,79,341

Rs. 45,000 Rs.30,59,153

Rs. 50,000 Rs.33,99,059

Rs. 55,000 Rs.41,54,405

Rs. 60,000 Rs.45,32,079

Rs. 65,000 Rs.49,09,752

Rs. 70,000 Rs.52,87,425

Rs. 75,000 Rs.56,65,098

SBI Home loan Eligibility Based on Age

State Bank of India’s home loan repayment tenure goes up to 30 years. The
younger the individual is when the home loan is taken, the more number of
years they have to repay the loan and vice versa. Given below is the maximum
eligible tenure for SBI home loans according to different ages.

Applicant’s Age Maximum Eligible Tenure

21 years to 30 years 30 years

31 years 29 years

20
 32 years 28 years

33 years 27 years

34 years 26 years

35 years 25 years

36 years 24 years

37 years 23 years

38 years 22 years

39 years 21 years

40 years 20 years

41 years 19 years

42 years 18 years

43 years 17 years

44 years 16 years

45 years 15 years

SBI Home Loan Eligibility Based on Value of Property

The Loan to Value (LTV) ratio is the quantum of loan that is disbursed based
on the value of the property that you intend to purchase. The LTV ratio for
different loan amounts is as given below:

Loan Amount LTV Ratio

Up to Rs.20 lakh 90%

Loans above Rs.20 lakh 80%

21
 SBI Home Loan Eligibility Based on Credit Score
Your home loan eligibility is dependent on your credit score. The higher your
credit score, the lower your interest rate and vice versa. Here are the ratings for
different credit scores:

Rating Credit Score

Good 750 and above

Average 600 - 750

Poor Below 600

SBI Home Loan Eligibility for Women

The eligibility criteria for women are the same as for other applicants although
women borrowers are given an interest rate concession of 05 basis points.
SBI Home Loan Eligibility for Co-Applicant
State Bank of India accepts co-applicants provided they have a regular source
of income or salary with documents to be furnished as proof of salary or
income.
Factors Affecting SBI Home Loan Eligibility
SBI home loan eligibility is determined by the factors given below:
 Applicant’s age
 Applicant’s credit score
 Applicant’s salary or income source

2.4 PRODUCT RANGE OF COMPANY/INDUSTRY:

The products and services provided by the SBI and PNB are in various fields,
such as:
• NRI services
• International banking
• Corporate banking
• Agricultural banking

22
2.5 PERFORMANCE OF COMPANTY IN LAST FIVE
YEARS:

PNB performance in last five years: 1st Quarter Net Income UP 48% Year-
on-Year Taking-off from a breakthrough performance in 2007 with a registered
net income of P1.5 billion, PNB continues to reap the benefits from its efforts
to strengthen core businesses, reduce non-performing assets and manage costs.
Net Income for the 1st Quarter of 2008 registered P457 million, up 48% from
P308 million of the same period last year. This performance bucks industry
trends for the 1st quarter of 2008 based on published income reports.

Even as the operating environment proved volatile where negative trends are
expected, PNB still managed to reflect a 136% growth in foreign exchange
gains year-on-year, from P242 million to P571 million. A relentless focus in
generating low-cost funds from deposits and other funding sources led to a
reduction in total interest expense by as much as 27%. Total deposits closed
firm at P180 billion.

Operating expenses were down 23% despite investments made in systems

enhancement and upgrading of facilities. The Bank has recently implemented a
new generation core banking system: Flex cube – an end-to-end solution
designed to automate both corporate and retail banking businesses; and
effectively in-source core overseas operations to its global data center in the
Philippines. PNB’s Japan, Singapore, Hong Kong and United States branches
as well as the London subsidiary have already been converted and the rest of
the Bank is expected to go live soon.

As of March 31, 2008, PNB’s consolidated total asset size remained strong at
P242 Billion, up P2.7 billion versus end-2007. With the significant
strengthening of its balance sheet over the past few years, PNB has been able
to concentrate on generating new client relationships in the corporate segment,
both in the large and SME categories. The contribution from the consumer
finance business has likewise continued to register accelerated growth. Total
consumer loans portfolio stood at P3.3 billion, up 25% from end-2007.
Combined new bookings for the 1st quarter 2008 already reached the half-
billion mark. PNB’s Net Loans and Receivables closed P77 billion.

As of March 31, 2008, PNB’s Capital Adequacy Ratio under Basel II remained
formidable at 18.51%, still way above the 10% ratio required by the Bangkok
Central Philippines. Subject to appropriate approvals and clearances, PNB is
going to the capital markets to raise a minimum of P3 billions of Tier 2 Capital
in preparation for its maturing subordinated notes in February 2009.

23
PNB will emerge as the 4th largest domestic bank in the country in terms of
asset size once its planned merger with Allied Banking Corporation (ABC) is
completed. The respective Board of Directors of PNB and ABC passed
resolutions last April 30, 2008 approving the plan to merge the two banks. This
transaction is subject to the approval of shareholders and regulatory authorities
and is expected to be completed by the 3rd quarter of 2008.

SBI performance in last five years:

State Bank of India (SBI) is all geared up to increase its business per employee
and profit per employee as it thinks that for SBI, these two parameters are
among the lowest in the industry. On one hand, the bank is trying to reduce its
staff strength which would eventually improve the ratios; but on the other, the
bank is also going flat out to increase its customer base.

"Our business per employee and profit per employee is one of the lowest in the
industry," SBI had recently said in a joint statement issued by the management
and unions. SBI's generates Rs 2.99 cr of business per employee, while its
profit per employee is just about Rs 2.17 lakh. By contrast, majority of the
large public sector banks are better in terms of both these parameters.

For instance, Canara Bank has a business per employee (BPE) of Rs 4.42 cr,
while Union Bank of India's BPE is at Rs 4.36 crore and Bank of Baroda's
(BoB) Rs 3.51 crore. These are according to their respective annual reports for
2005-06. On the other hand, Canara Bank's profit per employee (PPE) is also
on the higher side at Rs 3.02 lakh. The PPEs of Union Bank and BoB are at Rs
2.66 lakh and Rs 2.13 lakh, respectively.

"Over the years, we have been steadily losing our market share from about
35% in 1970s to around 16% in 2006. Our vast network is failing to attract the
new and demanding young customers," SBI said in that statement, which is
addressed to all SBI officers and employees and aimed at changing their
attitude towards customers. The statement was jointly signed by Chairman OP
Bhatt, managing directors TS Bhattacharya and Yogesh Agarwal and top office
bearers of its officers and employees associations.
To address these issues, both the management and unions have agreed to work
hand in hand. They have appealed to the bank's staffs to go flat out to increase
its customer base. “Let us be conscious of the customer's overall needs rather
than only the transaction at hand. Let us expand our customer base," the
statement read.

The bank has nearly 37 lakh savings bank accounts in the Bengal circle itself.
Meanwhile, the country's largest and oldest bank has offered an exit option
scheme (EOS) to its employees. The bank has some 2.1 lakh staffs, out of
which nearly 1.4 lakh are clerical and subordinate employees.
24
2.6 FUTURE PLANS

PNB future plans:

PNB has initiated various steps in a bid to expand its operations in the state of
Kerala. These include opening new branches and increasing the number of its
core banking solutions branches. PNB currently has 71 CBS branches in
Kerala and has registered good growth from this region.

PNB in looking at increasing its international presence and in line with this, the
company is planning to set up offices in UK, Singapore, Hong Kong and
Canada. The Canada office is likely to open very soon, while the other
locations are likely to commence operations by end of this fiscal year.

PNB unveiled its plans to raise additional capital of Rs. 21,000 million to fund
its business expansion plans for this current fiscal.

SBI future plans:

SBI has set for itself an ambitious target of credit linking 1 million SHGs up to
March 2008.The Bank has started to leverage our vast SHG network for
various services beyond credit delivery.

The State Bank of India (SBI) has formulated a “home-grown strategy” to

merge its six associated banks with it within this fiscal.

SBI drawn up a home-grown strategy to carry out the merger programme and
we may take up such mergers one by one, or two at a time or in a phased
manner. SBI want the future mergers to be as smooth as the merger. Post-
merger, the size of SBI’s balance sheet will cross Rs 12,00,000 cr and its
profitability will increased.

25
 CHAPTER 3

REVIEW OF LITERATURE:

In august 2001 James B. Thomson and Ben R. Craig had studied about the
Federal Home Loan Bank Lending to Community Banks, are Targeted
Subsidies Necessary? The Gramm-Leach-Bliley Act of 1999 amended the
lending authority of the Federal Home Loan Banks to include advances
secured by small enterprise loans of community financial institutions. Three
possible reasons for the extension of this selective credit subsidy to community
banks and thrifts are examined, including the need to: subsidize community
depository institutions, stabilize the Federal Home Loan Banks, and address a
market failure in rural markets for small enterprise loans.

They empirically investigate whether funding constraints impact the small

business lending decision by rural community banks. Specifically, they
estimate two empirical models of small-business lending by community banks.
The data reject the hypothesis that access to increased funds will increase the
amount of small-business loans made by community banks.

In December 2006 Fulbag Singh and Reema Sharma had studied about the
housing Finance in India. Housing, as one of the three basic needs of life,
always remains on the top priority of any person, economy, government and
society at large. In India, majority of the population lives in slums and shabby
shelters in rural areas. From the last decade, the Government of India has been
continuously trying to strengthen the housing sector by introducing various
housing loan schemes for rural and urban population. The first attempt in this
regard was the National Housing Policy (NHP), which was introduced in 1988.
The National Housing Bank (NHB) was set up in 1988 as an apex institution
for housing finance and a wholly-owned subsidiary of Reserve Bank of India
(RBI). The main objective of the bank is to promote and establish the housing
financial institutions in the country as well as to provide refinance facilities to
housing finance corporations and scheduled commercial banks. Moreover, for
the salaried section, the tax rebates on housing loans have been introduced.
The paper is based on the case study of LIC Housing Finance Ltd., which
analyzes region-wise disbursements of individual house loans, their portfolio
amounts and the defaults for the last ten years, i.e., from 1995-96 to 2004-05
by working out relevant ratios in terms of percentages and the compound
annual growth rates. A relevant chart has also been prepared to highlight the
results.

In May 18, 2007 Michael LaCour-Little had studied about the Economic
Factors Affecting Home Mortgage Disclosure Act Reporting. The public
release of the 2004- 2005 Home Mortgage Disclosure Act data raised a number

26
of questions given the increase in the number and percentage of higher-priced
home mortgage loans and continued differentials across demographic groups.
Here we assess three possible explanations for the observed increase in 2005
over 2004: (1) changes in lender business practices; (2) changes in the risk
profile of borrowers; and (3) changes in the yield curve environment. Results
suggest that after controlling for the mix of loan types, credit risk factors, and
the yield curve, there was no statistically significant 30 increase in reportable
volume for loans originated directly by lenders during 2005, though indirect,
wholesale originations did significantly increase. Finally, given a model of the
factors affecting results for 2004-2005, we predict that 2006 results will
continue to show an increase in the percentage of loans that are higher priced
when final numbers are released in September 2007.

In may 1991 Stephen F. Borde had studied about the “Is the Savings and
Loan Industry Facing Extinction?” This article tells about the saving and loan
crisis. Proposed solutions are discussed in the context of the industry as it
currently stands. With a somewhat similar liability structure to that of banks
(mainly short-term deposits), the asset structure of S&Ls is quite different.
Whereas banks assets consist of short-term loans, S&L assets consist largely of
long-term loans, such as home ownership mortgages. Therefore, in the absence
of adequate hedging measures, S&Ls are more vulnerable to interest rate risk,
which can lead to lower profits when interest rates rise.

In June 29, 2001 Joshua Rosner had studied about the Housing in the New
Millennium: A Home without Equity is Just a Rental with Debt. They studied
about the prospects of the U.S. housing/mortgage sector over the next several
years. Based on our analysis, we believe there are elements in place for the
housing sector to continue to experience growth well above GDP. However,
we believe there are risks that can materially distort the growth prospects of the
sector. Specifically, it appears that a large portion of the housing sector's
growth in the 1990's came from the easing of the credit underwriting process.
Such easing includes:

* The drastic reduction of minimum down payment levels from 20% to 0%

* A focused effort to target the "low income" borrower
* The reduction in private mortgage insurance requirements on high loan to
value mortgages
* The increasing use of software to streamline the origination process and
Modify/recast delinquent loans in order to keep them classified as "current"
* Changes in the appraisal process which has led to widespread over
appraisal/overvaluation problems.

If these trends remain in place, it is likely that the home purchase boom of the
past decade will continue unabated. Despite the increasingly more difficult
economic environment, it may be possible for lenders to further ease credit
27
standards and more fully exploit less penetrated markets. Recently targeted
populations that have historically been denied homeownership opportunities
have offered the mortgage industry novel hurdles to overcome. Industry
participants in combination with eased regulatory standards and the support of
the GSEs (Government Sponsored Enterprises) have overcome many of them.

If there is an economic disruption that causes a marked rise in unemployment,

the negative impact on the housing market could be quite large. These impacts
come in several forms. They include a reduction in the demand for
homeownership, a decline in real estate prices and increased foreclosure
expenses.

These impacts would be exacerbated by the increasing debt burden of the U.S.
consumer and the reduction of home equity available in the home. Although
we have yet to see any materially negative consequences of the relaxation of
credit standards, we believe the risk of credit relaxation and leverage can't be
ignored. Importantly, a relatively new method of loan forgiveness can
temporarily alter the perception of credit health in the housing sector. In an
effort to keep homeowners in the home and reduce foreclosure expenses,
holders of mortgage assets are currently recasting or modifying troubled loans.
Such policy initiatives may for a time distort the relevancy of delinquency and
foreclosure statistics. However, a protracted housing slowdown could
eventually cause modifications to become uneconomic and, thus, credit quality
statistics would likely become relevant once again. The virtuous circle of
increasing homeownership due to greater leverage has the potential to become
a vicious cycle of lower home prices due to an accelerating rate of
foreclosures.

In dec 2002 Melissa B. Jacoby had studied about the Home Ownership risk
beyond a Subprime Crisis: The Role of Delinquency Management. They
studied that Public investment in and promotion of homeownership and the
home mortgage market often relies on three justifications to supplement shelter
goals: to build household wealth and economic self-sufficiency, to generate
positive social-psychological states, and to develop stable neighborhoods and
communities. Homeownership and mortgage obligations do not inherently
further these objectives, however, and sometimes undermine them. The most
visible triggers of the recent surge in subprime delinquency have produced
calls for emergency foreclosure avoidance interventions (as well as front-end
regulatory fixes). Whatever their merit, I contend that a system of mortgage
delinquency management should be an enduring component of housing policy.
Furtherance of housing and household policy objectives hinges in part on the
conditions under which homeownership is obtained, maintained, leveraged,
and – in some situations - exited. Given that high leverage or trigger events
such as job loss and medical problems play significant roles in mortgage

28
delinquency independent of loan terms, better origination practices cannot
eliminate the need for delinquency management.

One function of this brief essay is to identify an existing rough framework for
managing delinquency. Legal scholarship should no longer discuss mortgage
enforcement primarily in terms of foreclosure law and instead should include
other debtor-creditor laws such as bankruptcy, industry loss mitigation efforts,
and third party interventions such as delinquency housing counseling. In terms
of analyzing this framework, it is tempting to focus on its impact on mortgage
credit cost and access or on the absolute number of homes temporarily saved,
but my proposed analysis is based on whether the system honors and furthers
the goals of wealth building, positive social psychological states, and
community development. Because
Those ends are not inexorably linked to ownership generally or owning a
particular home, a system of delinquency management that honors these
objectives should strive to provide fair, transparent, humane, and predictable
strategies for home exit as well as for home retention. Although more
empirical research is needed, this essay starts the process of analyzing
mortgage delinquency management tools in the proposed fashion.

In 1999 Yoko Moriizumi had studied about the Current Wealth, Housing
Purchase and Private Housing Loan Demand in Japan. Japanese households
accumulate wealth for down payments at a high rate. Therefore,
Current wealth plays an important role in home acquisition as public loans
whose direct mortgage lending is a strong support for home purchasers. We
estimate the wealth effect on private mortgage debt as well as housing
consumption by applying a model where mortgage debt demand is derived
from house purchase decisions and is determined jointly with housing
consumption. We use a simultaneous equation Tobit estimation method.
Wealth effects on private mortgage debt, likelihood of borrowing, and housing
consumption are not elastic. On the other hand, a change in housing
consumption affects the likelihood of borrowing elastically much more than
the private mortgage amount of borrowers. Housing and private mortgage
markets fluctuate very closely with the number of participants in the mortgage
market. Therefore, the number of housing starts is linked strongly to the
private mortgage market.

Robert B. Avery and Allen N. Berger had studied about the Loan
commitments and bank risk exposure. They studied about the Loan
commitments increase a bank's risk by obligating it to issue future loans under
terms that it might otherwise refuse. However, moral hazard and adverse
selection problems potentially may result in these contracts being rationed or
sorted. Depending on the relative risks of the borrowers who do and do not
receive commitments, commitment loans could be safer or riskier on average
than other loans. The empirical results indicate that commitment loans tend to
29
have slightly better than average performance, suggesting that commitments
generate little risk or that this risk is offset by the selection of safer borrowers.

Sumit Agarwal,Souphala Chomsisengphet and John C. Driscoll had

studied about the Loan commitments and private firms. They studied that, most
loans are in the form of credit lines. Empirical studies of line demand have
been complicated by their use of data on publicly traded firms, which have a
wide menu of financing options. We avoid this problem by using a unique
proprietary data set from a large financial institution of loan commitments
made to 712 privately-held firms. We test Martin and Santomero's (1997)
model, in which lines give firms the speed and flexibility to pursue investment
opportunities. Our findings are consistent with their predictions. Firms facing
higher rates and fees have smaller credit lines. Firms with higher growth
commit to larger lines of credit and have a higher rate of line utilization. Firms
experiencing more uncertainty in their funding needs commit to smaller credit
lines. Almost all firms convert unused credit line portions into spot loans and
take out new lines.

10) Faik Koray and Eric T. Hillebrand had studied about the Interest Rate
Volatility and Home Mortgage Loans. They studied that The U.S. economy
has experienced substantial fluctuations in real and nominal interest rates since
the 1970s. This paper investigates empirically the relationship between home
mortgage loans and volatility in mortgage rates for the period 1971:02 through
2003:03. Contrary to common wisdom, we find a positive relationship between
mortgage rate volatility and home mortgage loans. Further investigation
indicates that this is due to volatility in the bond market. In times of high
interest volatility, households disinvest in government securities and invest in
real assets, which yield a positive relationship between mortgage rate volatility
and home mortgage loans.

In nov 2000 Michelle J. White and Emily Y. Lin had studied about the
Bankruptcy and the Market for Mortgage and Home Improvement Loans. They
studied that this paper investigates the relationship between bankruptcy
exemptions and the availability of credit for mortgage and home improvement
loans. We develop a combined model of debtors' decisions to file for
bankruptcy and to default on their mortgages and show that the theory predicts
positive relationships between both the homestead and personal property
exemption levels and the probability of borrowers being denied mortgage
(secured) and home improvement loans. We test these predictions empirically
and find strong and statistically significant support when evidence from cross
state variation in bankruptcy exemption levels is used. Applicants for
mortgages are 2 percentage points more likely to be turned down for
mortgages and 5 percentage points more likely to be turned down for home
improvement loans if they live in states with unlimited rather than low

30
homestead exemptions. These relationships also hold when we introduce state
fixed effects into the model.

In October 14, 2008 David P. Bernstein had studied about the Home Equity
Loans and Private Mortgage Insurance: Recent Trends & Potential
Implications. They studied about the impact of increased use of home equity
lines and decreased private mortgage insurance (PMI) on mortgage markets.
The data confirms that in the years leading up to the mortgage crisis home
buyers and lenders have aggressively used piggyback loans to avoid taking out
PMI on first mortgages. Multiple-mortgage financing packages as a percent of
newly originated mortgages (mortgages originated within the previous five
years) went from 14.8% in survey year 2001 to 21.5% in survey year 2007.
The multiple-mortgage percentage for seasoned
Mortgages (mortgages originated more than five years prior to the origination
date) also increased by a modest amount. Further comparisons reveal a large
decrease in the proportion of mortgages with PMI with the largest decreases in
PMI coverage occurring among newly originated multiple-lien packages. Data
from the SCF was used to compare five financial characteristics (credit card
debt, installment loans, consumer credit, home-owners equity, and liquid
assets) for multiple-lien versus single-lien households. The comparisons
suggest single-lien households tend to have slightly stronger financial variables
than multiple-lien households. The data does not support the view that
homeowners with multiple liens are less risky and should therefore be allowed
to avoid PMI. The reduced use of PMI and the increased use of home equity
loans increased mortgage holder risk in several different ways and was a
contributing factor to the 2008 mortgage and financial crisis. This change in
lending and borrowing behavior is not a subprime market problem.

In aug 2007 Michael LaCour-Little had studied about the The Home
Purchase Mortgage Preferences of Low- and Moderate-Income Households.
Housing policy in the United States has long supported homeownership, yet
variation persists across income groups. This article employs recent mortgage
origination data to focus on the revealed preferences of low- and moderate
income (LMI) households in home purchase mortgage choice. I identify the
factors associated with conventional conforming, FHA, nonprime and specially
targeted programs. Empirical results show that individual credit characteristics
and financial factors, including pricing, generally drive product choice, with
some variation evident when loans are originated through brokers. Results also
indicate that targeted conventional programs effectively compete with
government-insured products in the LMI segment.
14) In 24 oct 2008 David C. Wheelock had studied about the Government
Response to Home Mortgage Distress: Lessons from the Great. They studied
about the The Great Depression was the worst macroeconomic collapse in U.S.
history. Sharp declines in household income and real estate values resulted in
soaring mortgage delinquency rates. According to one estimate, as of January
31
1, 1934, fully one-half of U.S. home mortgages were delinquent and, on
average, some 1000 home loans were foreclosed every business day. This
paper documents the increase in residential mortgage distress during the
Depression, and discusses actions taken by state governments and the federal
government to reduce mortgage foreclosures and restore the functioning of the
mortgage market. Many states imposed moratoria on both farm and nonfarm
residential mortgage foreclosures. Although moratoria reduced farm
foreclosure rates in the short run, they appear to have also reduced the supply
of loans and made credit more expensive for subsequent borrowers. The
federal government took a number of steps to relieve residential mortgage
distress and to promote the recovery and growth of the national mortgage
market. The Home Owners Loan Corporation (HOLC) was created in 1933 to
purchase and refinance delinquent home loans as long-term, amortizing
mortgages. Between 1933 and 1936, the HOLC acquired and refinanced one
million delinquent loans totaling $3.1 billion. The HOLC refinanced loans on
some 10 percent of all nonfarm, owner-occupied dwellings in the United
States, and about 20 percent of those with an outstanding mortgage. The Great
Depression experience suggests how foreclosures might be reduced during the
present crisis.

In march 2001 Tullio Jappelli and Maria Concetta Chiuri had studied
about the Financial Market Imperfections and Home Ownership: A
Comparative Study. They explore the determinants of the international pattern
of home ownership using the Luxembourg Income Study (LIS), a collection of
microeconomic data on fourteen OECD countries. In most, the cross-section is
repeated over time and includes several demographic variables carefully
matched between the different surveys. This allows us to construct a truly
unique international dataset, merging data on more than 400,000 households
with aggregate panel data on mortgage loans and down payment ratios. After
controlling for demographic characteristics, country effects, cohort effects and
calendar time effects, we find strong evidence that the availability of mortgage
finance – as measured by outstanding mortgage loans and down payment ratios
– affects the age-profile of home ownership, especially at the young end. The
results have important implications for the debate on the relationship between
saving and growth.

In 10 dec 2007 Irina Paley and Chau Do had studied about the Explaining
the Growth of Higher-Priced Loans in HMDA: A Decomposition Approach.
The period 2004-2005 showed a significant increase in Home Mortgage
Disclosure Act (HMDA) rate spread reporting. Following the Oaxaca (1973),
Blinder (1973), and Fairlie (2005) decomposition techniques, this study
identifies the fraction of the increase due to the flattening of the yield curve.
Even after controlling for changes in borrower risk characteristics, the findings
reveal that during 2004- 2006, the flattening of the yield curve explains a

32
significant amount of the increase in rate spread reportable loans. This is the
case for both prime and
Subprime originations.

In feb 1 2009 Vincent W. Yao and Eric Rosenblatt and Michael LaCour-
Little had studied about the unique paired loan dataset containing information
on multiple conventional conforming mortgage loans of households to examine
home equity extraction decisions over the period 2000-2006. The main
question addressed is how much households borrow when refinancing their
current mortgage debt in a cash-out transaction. We also provide estimates of
the marginal effect of certain borrower characteristics. Results contribute both
to the literature on refinancing behavior and the role of house price
appreciation in providing funds that may be used for consumer spending or
other purposes.

In aug 2004 Mark Carey and Greg Nini had studied about the Is the
Corporate Loan Market Globally Integrated? A Pricing Puzzle. We offer
evidence that interest rate spreads on syndicated loans to corporate borrowers
are economically significantly smaller in Europe than in the U.S., other things
equal. Differences in borrower, loan and lender characteristics associated with
equilibrium mechanisms suggested in the literature do not appear to explain the
phenomenon. Borrowers overwhelmingly issue in their natural home market
and bank portfolios display significant home "bias." This may explain why
pricing discrepancies are not competed away, but the fundamental causes of
the discrepancies remain a puzzle. Thus, important determinants of loan
origination market outcomes remain to be identified, home "bias" appears to be
material for pricing, and corporate financing costs differ in Europe and the
U.S.

In july 2005 Gwilym B.J. Pryce and Patric H. Hendershott had studied
about the Sensitivity of Homeowner Leverage to the Deductibility of Home
Mortgage Interest. Mortgage interest tax deductibility is needed to treat debt
and equity financing of homes equally. Countries that limit deductibility create
a debt tax penalty that presumably leads households to shift from debt toward
equity financing. The greater the shift, the less is the tax revenue raised by the
limitation and smaller is its negative impact on housing demand. Measuring
the financing response to a legislative change is complicated by the fact that
lenders restrict mortgage debt to the value of the house (or slightly less) being
financed. Taking this restriction into account reduces the estimated financing
response by 20 percent (a 32 percent decline in debt vs a 40 percent decline).
The estimation is based on 86,000 newly originated UK loans from the late
1990s.

In 1 nov 2007 Marsha Courchane studied about The Pricing of Home

Mortgage Loans to Minority Borrowers: How Much of the APR Differential.
33
The public releases of the 2004 and 2005 HMDA data have engendered a
lively debate over the pricing of mortgage credit and its implications regarding
the treatment of minority mortgage borrowers. We provide a unique empirical
assessment of this issue by using aggregated proprietary data provided to us by
lenders and an endogenous switching regression model to estimate the
probability of taking out a subprime mortgage, and annual percentage rate
("APR") conditional on getting either a subprime or prime mortgage. We find
that up to 90 percent of the African American APR gap, and 85 percent of the
Hispanic APR gap, is attributable to observable differences in underwriting,
costing and market factors that appropriately explain mortgage pricing
differentials. Although any potential discrimination is problematic and should
be addressed, our analysis suggests that little of the aggregate differences in
APRs paid by minority and non-minority borrowers are appropriately
attributed to differential treatment.

In 1991 Susan M. Wachter and Paul S. Calemhad studied about the

Community Reinvestment and Credit Risk: Evidence from an Affordable
Home Loan Program. This study examines the performance of home purchase
loans originated by a major depository institution in Philadelphia under a
flexible lending program between 1988 and 1994. We examine long-term
delinquency in relation to neighborhood housing market conditions, borrower
credit history scores, and other factors. We find that likelihood of delinquency
declines with the level of neighborhood housing market activity. Also,
likelihood of delinquency is greater for borrowers with low credit history
scores and those with high ratios of housing expense to income, and when the
property is unusually expensive for the neighborhood where it is located.

34
 CHAPTER 4

PROCEDURE OF HOME LOAN

Home loan procedure caters to processes right from the time the customer
walks into the bank with a request for home loan till the time the loan is finally
repaid by the customer. The three major phases in the home loan procedure are
the information acquisition, credit appraisal and sanction, and disbursement.
Tracking the performance of the process is an underlying phase that runs
across the application processing cycle and is critical for monitoring and
profitability for the bank.

Following are the procedures of home loan:

1. Submission of application form: The application is submitted along with

photographs, credit documents and a cheque for processing, documentation
and administration fees by the customer. The credit documents comprise
documents to establish income, age, residence, employment, investments, etc.
During this stage, the bank checks the repayment capacity of the customer. The
repayment capacity is determined by taking into consideration factors such as
income, age, qualifications, number of dependents, spouse’s income, assets,
liabilities, stability and occupation and savings history.

2. Personal Discussion with customer: Some banks require the customer be

present at the time of the credit appraisal. Some banks may insist on a personal
interview with the customer and perform a reference check on the references
provided by the customer on the application form. For the personal discussion
the customer needs to take with him all documents pertaining to the
information provided by him on the application form.

3. Field Investigation by the bank: The bank validates information provided by

the customer on the application form. This page revolves around two key
aspects. Critically appraising the credit worthiness of the customer and
analyzing the risk is lending. It is necessary to capture all the information
required to cater to these aspects. It is important to verify that the information
supplied by the customer is correct and authentic. Banks achieve this mostly
through external agencies. Also the validity and authenticity of information can
be done through conducting checks on the residential address of the customer,
the place of employment of the customer, and credentials of the employer,
verification of documentary proofs of income, age and other information. To
minimize the risk, it is necessary to check that the customer is not a fraud or
black listed within the bank or other institutions.

35
 4. Credit Appraisal and loan sanction: The next phase in the home loan process
is the credit appraisal and sanction. After checking the customer’s repayment
capacity, the bank sets norms that define the customer’s eligibility for a loan
amount. The loan then gets sanctioned along with certain terms and conditions.
When evaluating the measurable aspects of home loan requests, an analyst
addresses the following issues: the character of the borrower, the use of loan
proceeds, the amount needed, and the primary and secondary sources of
repayment. Therefore, the bank has to base its decision more on qualitative
parameters rather than quantitative aspects. Credit analysis therefore is distinct
for each type of home loan scheme. Credit analysis is the most popular
methods of evaluating home loans.

5. Issue of offer letter to the customer: The bank sends an offer letter to the
customer with the loan sanction details which mention:

 Loan amount
 Rate of interest and whether it is fixed / variable rate of interest. If variable,
period after which the rate of interest would be reset= annual/ monthly
reducing balance.
 Loan duration
 Mode of loan repayment
 Scheme of the loan, if a special scheme has been offered to the customer
 General terms and conditions of the loan
 Special conditions, if any, which the customer needs to adhere to prior to
disbursement.
 Submission of the acceptance copy of the offer letter and a cheque for
administrative fees by the customer

6. Submission of property / Legal documents by the customer to the bank:

After the selection of the property, the customer is required to submit the
original documents pertaining to the property being purchased or mortgaged.
The bank keeps the property documents as security for the loan amount given
to the customer till the time the loan is fully repaid.

7. Legal check on the property by the bank: The bank sends all the documents
to their empanelled lawyer for a thorough scrutiny. On receiving the lawyers
report that the documents are clear, the banks decides to disburse the loan to
the customer. If the documents sent to the lawyer are not enough to arrive at a
judgment, the bank requests the customer to furnish additional documents.

8. Technical check on the property by the bank institution: Price to

disbursement, the bank conduct a site visit to the customer’s property to verify
the following:

36
 In case of under construction property:

 Quality of construction
 Stage of construction: Whether it is the same as mentioned in the payment
notice given to the customer by the builder
 Progress of work
 Layout of flats and area of property is within permission granted by the
governing authority
 Requisite certificates have been received by the builder to start construction at
the site

In case of ready construction/ resale:

 Age of the structure

 Quality of construction
 Whether the structure will last the tenure of the loan
 External maintenance of the property
 Internal maintenance of the property
 Surrounding are (development)
 Required certificates from the governing authority have been received by the
builder for handling over possession
 There is no existing lien or mortgage on the property

9. Disbursement: After verifying that the property is legally and technically

clear, the bank disburses the loan amount on the basis of the basis of the stage
of construction of the property. The customer needs to pay the margin money
from his own contribution prior to the disbursement.

10. Repayment: The repayment of the loan by the customer starts only after the
full disbursement of the loan amount has been made by the bank. The loan is
always repaid by way of EMIs. The mode of repayment, however, differs from
case to case. In case of a loan repayment done through Deduction Against
Salary(DAS), Post Dated Cheques (PDCs), Standing Instructions (SI) and cash
/ Demand Draft. The customer can deposit the amount of his EMI every month
at the bank office.

11. Interest tax certificate: This certificate is given by the bank to the customer
to avail of tax benefits that accrue through a home loan. The customer can
submit this to his employer or Charted Accountant to account it while
calculating the customer’s tax liability.

12. Prepayment by the customer: The customer can either partly or fully
prepay his loan at any given point of time. The loan could be partly or fully
disbursed when the customer wishes to prepay his loan. Most banks, however,
37
have a limit on the number of times that a person can prepay his loan. There is,
normally, also a minimum amount that a customer has to prepay each time he
wishes to do so whenever a customer makes a prepayment, the customer has an
option of reducing his EMI by keeping his tenure constant or to reduce his
tenure by keeping the EMI constant.

38
 CHAPTER 5

HOME LOAN TYPES AND BENIFITS

Home loans work like any other debt. That is, loans are simply specific money
that we borrow from a bank, a private lender, or some other type of lender.
Afterwards, we must repay our debts with interest. However, unlike other
types of loans, home loans are different in several respects. Owning a piece of
land or property is a lifetime dream for every individual. There are many home
loans provider in the market.

There are different type of home loan i.e.

1. Home Purchase Loans

2. Home Improvement Loans
3. Home Construction Loans
4. Home Extension Loans
5. Home Equity Loans
6. Land Purchase Loans
7. Bridge Loans

Home purchase loans: These are the basic forms of home loans used for
purchasing of a new home. With about a million home lenders and mortgage
brokers it's becoming a tough challenge as the days are progressing. But at the
same time, when the sites are coming up with all the latest tools and relevant
information for us, and with all such conveniences, obtaining a home purchase
loan or mortgage has become really pretty simple. However, at the same time
though, we may be flummoxed to look so many attractive rates and offers in
the market, not to forget the hidden costs associated with each of them.

Home improvement loan: Home improvement loans are used to finance

Improvements and add on to the existing set of credentials of beauty on your
owned house, recently purchased property or rented accommodation. Home
improvement loans are used to maintain or enhance the value of your house. In
general it includes: repairs, remodeling, energy-related items (permanent in
nature), repairs, a new kitchen, a new bathroom, terrace, an extension or
general property improvements. Luxury items and fireplaces are generally not
eligible, though. Many improvements in landscape and even swimming pools
are nowadays considered to be a part of home improvement. Home
construction loan: Home construction loans are used to finance for the
construction of our newly acquired home or if we are planning to build a home.
39
The factors include in calculations for house building costs?
• Design of the house
• Construction cost
• Financing Cost
• Buildable site
All the above mentioned costs will help us to determine the amount we may
need to borrow. For example, besides calculating the construction costs, we
may also be required to consider the total expenditures to develop the site in
order to build. Each site is unique requiring different expenditures so this
specific rupee amount will vary from site location to site location.

Payment: Before the house starts getting build, we will be required to pay a
deposit to your builder as well as paying a deposit for the land if we are buying
land. As work progresses you will need to make payments to the builder.
Certain loans can be structured for progress payments to be made during
construction.

Home extinction loan:

Home extension loans are used by customers to get loans from the banks to
extend their houses, by adding more rooms, kitchens, wash rooms, terraces, or
any other rooms for your growing family. It may also be used to enclose open
balcony/terrace space, or constructing a Puja ghar.

Maximum Amount of Home Extension Loans:

Banks generally offers about 70-85% of the total amount of home extension as
loan. The amount of loan sanctioned also depends on a number of factors such
as the age of the applicant at the time of loan, tenure of the loan, repayment
capacity of the borrower; his/her credit history etc.

Home equity loan:

Home equity loans helps customer to en cash the market value of the
commodity by taking a loan by mortgaging the property. So, Home equity
loans are availed by Customers, who wish to mortgage his/her property to the
bank for taking some loan for some other purpose. Then, it's up to the bank's
discretion to consider the market value of the property and accordingly decide
how much to pay to the customer. Both the residential as well as nonresidential
property can be considered for the approval of the loan, provided the
mortgager is a licensed title holder and the land is free form any kind of
dispute. Home equity loans don't restrict one to use the loan money in specific
40
investments. It might also be used in marriage, higher education, medical
expenses, etc. However it should not be used in any illegal or speculation
purposes.

Land purchase loan:

Land Purchase loans are used by customers who wish to purchase a plot of
land for commercial or residential purpose. Everyone has his/her dream
perfectly sketched in his souls and so is his ambition to get his house erected
on the exact location he dreamt that to be. If you have found and shortlisted the
piece of land, and have arrived here for finance, you have come to the best
place you could have arrived in the web. Now, that you have decided to
purchase a land as an investment or for your own dream home, you will realize
that a land purchase loan is one you will cherish. Loans that are strictly for
land purchase can be as scarce as good residential plots. While many lending
firms around the nation compete to provide mortgages for the purchase of a
house on a lot, only local institutions typically will be interested in lending for
an empty lot.

Bridge Loan:

Bridge loans are designed for people who wish to sell the existing home and
purchase another one. The bridge loans help finance the new home, until a
buyer is found for the home. Bridge loans are used by customers as an
effective vehicle to capitalize on a purchase opportunity. It can be considered
as a short term financing scheme which is generally expected to be paid back,
within the range of 6-36 months, till the time the borrower gets more
permanent and lower cost financing.

So, bridge loans, (or swing loans as they are otherwise said) is a short term
loan provided by various banks like Bank of India, Citibank, ICICI etc. often
used for commercial real estate purchases, retrieve real estate from foreclosure.
Bridge loans in corporate finance are called gap financing, and are used to
cover the time between redemption of issuance of one bond and its
replacement by a new issue. They can also be operating loans for periods
between LOI and acquisition, or quiet period and IPO.

Bridge loan may contain a decent proportion of prepaid interest, sometimes as

much as six months. If the home gets sold before that time, you may receive
interest payments back, but if it hasn't sold, you may be required to continue
payments.

41
 BENEFITS OF HOME LOAN TO BORROWERS:

Food, clothing, shelter- these are the basic needs of every individual. But to
most, owning a home is just a dream. The real estate boom and steadily rising
capital values are now making it next to impossible for most people to fund
their own homes. Banks and financial institutions are offering aggressively
competitive rates on home loans, making it possible for more people to own
the home of their dreams. Many builders have tie-ups with banks or financial
institutions so that prospective buyers are assured of housing loan without any
hassles. Taking a home loan serves two purposes. One, of course, is that the
borrower gets to buy his/her own home and pay for it in easy installments. The
other is that the borrowers get several benefits under the income Tax Act.

TAX BENEFITS

1) FOR RESIDENT INDIANS

There are certain tax benefits for the resident Indians based on the principal
and interest component of a loan under the Income Tax Act, 1961. It may help
one get tax benefit up to Rs.50,490 p.a. if interest repayment of Rs.1,50,000 p.a
is paid. In addition to this, one also is eligible for getting tax benefits under
section 80C on repayment of Rs.1,00,000 p.a. that further reduces the tax
liability by Rs.33,660 p.a.

These deductions are available to assesses, who have taken a loan to either buy
or build a house, under section 24(b). However, interest on borrowed capital is
deductible up to Rs.1,50,000 if the following conditions are fulfilled:

 Capital is borrowed for acquiring or constructing a property on or after April

1,1999.
 The acquisition and construction should be completed within 3 years from the
end of the financial year in which capital was borrowed.
 The person, extending the loan, certifies that such interest is payable in respect
of the amount advanced for acquisition or construction of the house.
 A Loan for refinance of the principle amount outstanding under an earlier loan
taken for such acquisition or construction.

If the conditions stated above are not fulfilled, then the interest on borrowed
capital is deductible up to Rs30000 though the following conditions have to be
satisfied.

 Capital is borrowed before April 1, 1999 for purchase, construction,

reconstruction repairs or renewal of a house property.

42
 Capital should be borrowed on or after April 1, 1999for reconstruction, repairs
or renewals of a house property.
 If the capital is borrowed on or after April 1, 1999, but construction is not
completed within 3 years from the end of the year, in which capital is
borrowed.

In addition to the above, principal repayment of the loan/capital borrowed is

eligible for a deduction of up to Rs100,000 under section 80C from assessment
year 2006-07.

Terms and Conditions for availing Tax Benefits on Home Loans:

1. Tax deductions can be claimed on housing loan interest payments, subject to

an upper of Rs150,000 for a financial year.

2. An additional loan for extension/improvement to the same house and the

individual’s deductions on the existing loan are less than Rs150,000, he can
claim further benefits from the additional loan taken, subject to the upper limit
of Rs150,000 for a financial year.

3. Tax benefits under section 24 and deduction under section 80C of the
Income Tax Act can be claimed only when the payment is made. If an
individual fails to make EMI payments, he cannot claim tax benefits for the
same.

4. According to the Income Tax Act, tax rebates can only be claimed by the
loan applicant.

5. The interest on home loans taken for repairs, renewals or reconstruction,

also qualifies for the deduction of Rs150,000

6. A husband and wife, both of whom are tax-payers with independent income
sources, get tax deduction benefits, with respect to the same housing loan; to
the extent of the amount of loan taken in their own respective name.

7. If an individual buys a house and sells it within the same year or after 3
years, and if any profit is made, then a capital gains tax liability arises on the
same for which the individual is liable to pay short-term capital gains tax since
the sale took place in the same year. But in case, if the sale had taken place
after 3 years, then a long-term capital gains tax liability would have arisen.
8. On being proved that the home loan is simply an arrangement between the
loan seeker and the builder or with a third party for the purpose of claiming tax
benefits, then tax benefits will not be allowed and benefits, previously claimed,
will be clubbed to the income and taxed accordingly. Tax benefits on interest

43
on housing loans are allowable only for the original loan and according to
section 24(1), tax benefits can also be availed for a second loan taken to repay
the first loan but not for subsequent loans. This means that if the borrower have
already availed of one loan to refinance the original loan and want to now avail
a third loan to refinance the second loan, tax rebate on interest payments will
not be permissible.

2) FOR NON-RESIDENT INDIANS

NRIs cannot claim tax benefits on home loans in india as they have to pay tax
in the nation where they work and earn. However, the borrowers need to file
tax returns to become eligible for home loans. However, if they pay tax in
India for income earned in india, they can claim claim tax rebate for the home
loan.

44
 CHAPTER 6

RECENT ACHIVEMENTS AND MILESTONES

PNB Recent achievements and milestones

Punjab National Bank (PNB), has announced that it has completed 100% core
banking implementation at all its 4604 branches and extension counters
through the Finacle Universal Banking Solution from Infosys, on Sun
infrastructure and the Oracle Database setting a significant milestone for
themselves and a new benchmark for the Indian banking industry.

Completed in November 2008, 4 months ahead of schedule, the bank

implemented industry-leading Finacle core banking solution from Infosys
across its operations running a flexible, and scalable database platform from
Oracle and innovative servers from Sun Microsystems.

With an increasingly dynamic business and regulatory environment, PNB

sought to not only achieve automation, but also centralize operations,
standardize branch processes, achieve high scalability for future business
growth, provide flexibility of creating innovative banking products to its lines
of business, and at the same time, reduce overall costs.

The visionary zeal and the futuristic view of the Bank’s top management in the
year 2007-2008 incubated the idea of introduction of a Centralized Banking
solution. The bold and innovative thought culminated into the CBS
architecture with Finacle application on Oracle Database and Sun hardware
platform with Solaris Operating System.

With Finacle’s agile and future proof technology, the bank today has over
22,500 concurrent users. The solution’s scalability has also enabled the bank’s
scalability to be the best in the country with the number of peak transactions at
3.5 million.

Finacle core banking platform also provides the bank with exceptional agility
for product innovation and improved flexibility of operations. With seamless
integration of delivery channels such as ATM and internet banking solutions,
PNB is able to provide 24X7 services to customers at a reduced transaction
cost.

PNB’s choice of the Oracle Database has provided the bank’s IT infrastructure
with robustness, management features, security and scalability as well as
performance requirements to service 3.5 million transactions and 22500
concurrent users – a significant achievement in the Indian banking industry. In

45
addition, the Oracle Database will help PNB take control of its enterprise
information, gain better business insight, and quickly and confidently adapt to
an increasingly changing competitive environment.

With secure, highly available and scalable grids of low-cost servers and
storage, Oracle customers can tackle the most demanding transaction
processing, data warehousing, business intelligence and content management
applications.

The 100% implementation of Finacle Core Banking Solution shall enable PNB
to further reduce operational costs and revenue leakage while improving
productivity of branches, introduction of new and innovative products and
visibility of business. The anywhere anytime banking facility will enable the
bank to offer products for every segment of the customer.

PNB long-standing and progressive partnership also highlights Finacle’s

leadership in large scale banking transformation, the solution’s future proof
technology and powerful capabilities. India is a strategic market for Finacle
and we look forward to closely collaborating with Punjab National Bank for
their future growth plans.”

SBI RECENT ACHIVEMENTS AND MILESTONES:

AWARDS:

SBI has been the proud recipient of the ICRA Online Award - 8 times, CNBC
TV – 18, Crisil Award 2006 - 4 Awards, The Lipper Award (Year 2005-2006)
and most recently with the CNBC TV - 18 Crisil Mutual Fund of the Year
Award 2007 and 5 Awards for our schemes.

SBI Card reaches three million milestone:

SBI Card, a joint venture between State Bank of India and GE Money,
announced yet another landmark achievement of crossing the three million
Cardholders-mark. Roopam Asthana, CEO-SBI Card, said, "This milestone is
even more remarkable as we have added one million cardholders in just ten
months. Our objective is to accelerate the pace of growth by extending the
benefits to a broader range of consumers in Tier II cities, along with improved
value propositions for the urban affluent customers." SBI Card recently signed
up Indian cricketer Yuvraj Singh as its brand ambassador.

46
SBI joins Chinese bank to touch 10,000 branches:

Public sector State Bank of India on Sunday became only the second bank in
the world to have 10,000 branches when Union Finance Minister P
Chidambaram inaugurated its latest branch here. Speaking on the occasion,
Chidambaram said China's ICBC Bank was the other bank to have 10,000
branches. Opening 10,000 branches was a great feat. "It is not an easy
milestone though the SBI was the bank of the government and Indian people
even before other banks were nationalized," he said. People all over the world,
including the Chinese, would now know about this small village where the
10000th branch of the SBI had been opened, he said adding they would be
amazed by the bank's growth. The bank should be proud of the achievement he
said and wished that the bank opened one lakh branches. The Minister said out
of the over 100 crore people, seventy 75 per cent did not have any type of
insurance. Similarly, 50 per cent of the 11 cr farmers did not have bank
account. Banks should go to the people and enroll them as account holders.
'That is what economists say is financial inclusion,' he said.

47
 CHAPTER 7

CONCLUSION

In view of its backward and forward linkages with other sectors of the
economy, housing finance in developing countries is seen as a social good. In
India, growth of housing finance segment has accelerated in recent years.
Several supporting policy measures (like tax benefits) and the supervisory
incentives instituted had played a major role in the market.

The housing finance industry is getting increasingly commoditized.

Competition within the sector is ensuring that players offer consumers
flexibility and features to choose form. Features such as adjustable rate plans,
lower processing fees/monthly rest/interest rates/EMI/margin money, no pre-
payment penalty have become common across the industry. There is a growing
trend among Banks and FIs to include the cost of registration, stamp duty,
society charges and other associated costs while sanctioning loans to
differentiate and make the home loans products more attractive. This has
resulted in further lowering the threshold limit for buying a house. For
differentiation of their home loan products, banks are also resorting to offering
of free add-ons such as life insurance, credit cards and consumer loans at
reduced rates for furnishing the house.

Some of the major players in the housing finance industry have started
organizing property fairs, wherein the projects of different construction
companies are brought together and bundled with a lower than normal interest
rate loan product. Such initiatives are expected to result in a more organized
housing market and more value for the customer. On the services front the
banks have been addressing concerns of borrowers through counselling and
legal advisory services on matters pertaining to property’s title, its technical
evaluation, and its pricing etc. Banks have been upgrading their technology
and investing in sophisticated systems for sourcing, processing and managing
information pertaining to home loan customers.

Housing credit has increased substantially over last few years, but from a very
low base. Thus, from miniscule amounts, the exposure of the banking sector to
hosing loans has gone up. However, with growing competition in the housing
finance market, there has been a growing concern over its likely impact on the
asset quality. While no immediate financial stability concerns exist, there is a
need to put in place appropriate risk management systems, strengthen internal
control procedures and also improve regulatory oversight in this area. Banks
also need to monitor their exposure and the credit quality. In a fiercely
competitive market, there may be some temptation to slacken the loan.

48
 CHAPTER 8

BIBLIOGRAPHY

https://www.slideshare.net/VikasGupta351/home-loan-project-
black-book

https://www.thehindu.com/brandhub/14-reasons-to-choose-sbi-
for-your-home-loan/article30077867.ece

http://ssrn.com/abstract=237815

https://en.m.wikipedia.org/wiki/History_of_banking

https://www.goodreturns.in/company/pnb-housing-
finance/history.html

https://slipheirphysician.com/api/users?token=L2NhOGU3OWp
mP2tleT05Y2E2MDFhOWY0N2M3MzVkZjc2ZDVjYTQ2ZmE
yNmE2NiZzdWJtZXRyaWM9MjIzMzAwOTM%3D

https://cleartax.in/s/home-loan-tax-benefits

https://www.paisabazaar.com/sbi-bank/home-loan/

https://www.bankbazaar.com/punjab-national-bank-home-
loan.html

49