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A Study and Analysis of Loan Appraisal Process, Accounting and Disbursement at HDFC LTD

Presented by : Divya Kiron Vinay Gupta

About HDFC LTD

Established in

October 17, 1977 in Bombay and it

was started by Late HD Parekh. The present owner is Deepak Parekh who is non executive chairman of HDFC Ltd. A Non Banking Housing Finance company registered under Companies act 1956. Governed by guidelines of National Housing bank which is governed by RBI.

Primary objectives
To improve residential housing in India by providing housing finance in a simple and systematic way to promote home ownership.

To provide financial assistance to corporate.

Organisational policies
Growth should be 30% every year. NPA should be less than 1 %. Profitability also to be raised along with general equity. Cost effectiveness.

Sister concerns
HDFC Bank HDFC SLIC HDFC ERGO HDFC Mutual Fund HDFC Sales

HDFC home loan products Housing loan- construction / purchase

Home Extension / Improvement Loans Land Purchase Loan Home equity loan Home equity loan for educational purposes Top-up financing Take over loan NRI loan NRP loan

Loan Appraisal process at HDFC LTD

Preliminary Process

Customer approaches for loan through various sources: Walk in: Applicants visit the regional branch or apply through website. DSA (Direct Sales Agents): This consists of HLSIL and HDFC bank DSE (Direct Sales Executive): Organizations which work in agreement with HDFC and forwards them the loan requests of applicants they contact or those who contact them.

Credit officer

Interacts with the customer and evaluate the credit worthiness of the customer. Determines how much the borrower may be able to afford and the amount of loan to be sanctioned. Interview sheet is maintained for future reference. Filled in application form is received from applicant. Various documents are also collected from applicant as per the checklist .

Processing Fees is also collected.


Residents - 1% of the loan amount Non residents - 1.25% of the loan amount

Log in sheet is created. A physical file with a file number of the customer and the place of service mentioned is created which is forwarded to hub for processing.

HOW TO DETERMINE ELIGIBILITY OF APPLICANT?

Installment to income ratio: Ratio of monthly instalment repayable per month to income of applicant. HDFC EMI IIR = -----------------------------Gross Adjusted Income IIR is generally fixed at 30-45%.

Fixed obligation to income ratio


Ratio includes all the fixed obligations that the customer is supposed to pay regularly on a monthly basis. Existing loan installments+ Proposed HDFC loan installment. FOIR = -------------------------------------------------------Gross Adjusted income FOIR could be up to a maximum of 5% greater than the IIR fixed by the appraiser.

Loan to cost ratio Ratio to calculate the loan amount that a person is eligible for on the total cost of the property. Loan amount LCR = --------------------------------Estimated cost of property HDFC finance 85 % of cost of property. Own contribution is 15 % of cost of property.

Rate of interest
i. ii. Fixed rate of interest loan Variable rate of interest loan

 RPLR: Retail Prime Lending Rate is dependent on

market forces.
 Spread: Spread refers to a special discount offered

to loan applicants coming to HDFC.


 ROI: Rate of interest that is applicable to the loan at

the time of lending.

Hub process

Detailed data entry. Scanning of documents submitted by applicant. Know your customer : KYC norms include the submission of all documents in respect of their identity and residential proof. Customer Point Verification : A field investigation process is initiated to validate the details in the application form. Next step in hub is to submit a request to CIBIL.

CIBIL
A snapshot of credit history of people. It contains:
 Personal information  Credit information  The number of recent inquiries made about

applicant s credit report


 The type of credit applicant is using

Consumer Credit Information Reports (CIR) is later verified by Hub. Double checking of data entry take place. Recommendation bench gives their opinion on applicant. The sanction letter and a SMS are sent to the customer But disbursement take place only after legal and technical appraisal .

Technical appraisal

Technical appraisal is physical verification of property. HDFC sends technical experts for:
i. ii. Confirm Existence Of The Property / Transaction Assess Quality And Progress

iii. Assess Value Of The Property iv. Decide the Amount Of Disbursement

Documents Approved plan with proceedings order in original (In the case of construction). Copy of the DTCP approval or corporation regularization order for land (In the case of land purchase). Estimate for proposed construction or

improvement work (In the case of construction).

Legal Appraisal

Clear and valid title to the property and whether the property can be mortgaged with HDFC. Confirm Property Assess Genuineness Loan Agreement Follow-up in case of default Transaction and Title Of The

Documents
Title deeds No-objection certificates Encumbrance certificate Parent document Patta

Disbursement

Full Disbursement:
 In case of purchase of a ready built property entire

cost is paid at once Part disbursement:


 In case of construction of property
i. Payment and construction is linked and disbursed accordingly ii. Pre EMI : Simple interest paid until final disbursement

take place.

Accounts Department

Handles post disbursement transaction Provides statement concerned with customers loan account Clarify customer regarding EMI Doubts regarding outstanding balance Issue income tax certificate

EMI
EMI refers to the monthly payment the customers make on their home loan Combination of interest and principal repayment EMI depends upon the rate of interest and the tenure of the loan. L * R [(1+R) ^N/ (1+R) ^N-1] EMI = 12

Repayment
Methods Post dated cheque Deduction at source Electronic Clearing System Standing instruction with bank

Types of Repayment options


Tranche EMI : Borrowers can pay EMI either on disbursed component or on total amount of loan. Flexible Loan Instalment Plan : In case of retirement . Balloon payment : When applicant wants a higher loan than what he is eligible for HDFC accepts one or more lump sum payments from a specified source on a predetermined rate during term of loan. Step Up Repayment Facility : Loan repayment on basis of income.

Loan closure
The loan will get completely paid off on the expiry of the tenure of the loan if the customer has paid all the instalments on time. Account of customer is closed. The entire set of original property documents is handed back to the customer. A separate letter for each of the guarantors stating that their liability has come to an end is issued.

Recovery department

Recovery team comes into the picture when the customer becomes defaulters. Five buckets- Greater than 60 days , Greater than 90 days ,Greater than 6 months ,Greater than 12 months ,Greater than 27 months. NPA - If the defaulting period is greater than 3.01 months HDFC has the lowest NPA .

Tele callers : Customer Default to pay EMI or PREEMI for any period between 0.1 months and 3 months, tele callers of HDFC will inform about this to borrowers.

JFO :If default exceeds 3 months then Junior Field Officers (JFO) visit customers in person and analyse the reason and try to make him pay the amount defaulted.

Auction : If the default term exceeds enormously further Securitisation and Reconstruction of Financial and Enforcement of Security Interest act (SURFACE), 2002 provides HDFC to sell the property by auction in case of default exceeding 60 days.

Two authorised officers (branch manager and recovery department head) will get permission from court to sell the property. The property will have to be sold in 90 days by auction. Here a reserve price will be fixed by management which is between the guideline value and market value Any excess amount will be given to borrower. In case of deficit the amount will be deducted from salary of the borrower.

Recommendations
All the loan financing companies should submit the credit history of their customer with CIBIL. PAN card should be mandatory for all the customers who are applying for loan. All kind of loans should be included in CIBIL records. HDFC was understaffed.