Professional Documents
Culture Documents
PROJECT REPORT
On
Submitted to:
Mr. Gurpreet Walia
Branch Sales Manager
ICICI Home Finance Co. Ltd.
Noida
Submitted by:
VIPUL
MBA
ACKNOWLEDGEMENT
Finally, I would like to thank all the people, without whose insights and
opinions, this project would have been impossible.
CONTENTS
1. Introduction
2. Objective
3. Company Profile
4. Industry Scenario
5. Analysis of Different Banks
♦ ICICI
♦ HDFC
♦ IDBI
6. Comparison of Homesaver with Normal Home Loans
7. Comparative analysis of Home Loan and Home Saver
8. Research Methodology
9. Data Analysis
10. SWOT Analysis
11. Conclusion
12. Recommendation
13. Bibliography
OBJECTIVE OF THE STUDY
The objective of this research is to analyse the home loans with a view
to arrive at the most popular loan schemes offered by the banks in
National Capital Region under study and to conclude from the analysis
the best possible schemes which would keep the bank ahead of
competition.
The purpose of the study is to find the critical factors that are
essential for any housing loan to become the most favored scheme in
the Indian scenario. The reasons being the features that the scheme
provides are not being provided by many of the housing finance
companies.
INTRODUCTION
A roof over one's head and ground beneath one's feet count as the
bare necessities of life. There’s nothing quite like owning a home,
however humble, to give one that warm and glowing feeling. But
when one buys a home, one has much more than a feel-good
purchase in mind: it’s also a crucial investment decision, perhaps
the biggest spending decision of one's life. There are ample
opportunities today for young salaried investors to plan their
moves early and buy a house at the right time — and at the right
price. In the process, not only do they fulfill that cherished dream
of owning a house, but also put themselves on the path to
acquiring property that would meet the needs and aspirations of
their growing family, even as it leads to wealth creation. Every
individual aspires to own a home. But many either spend a
lifetime saving to purchase a house or exhaust money on monthly
house rents.
Take a house loan and let the monthly rent (easily converted
into affordable EMIs) build dream home .
Profitable Proposition
“The overall demand in the residential sector has grown by about
7-8 per cent in the past few months as compared to the same
period last year. The growth is on account of two main factors:
One , income-tax exemption;
History:
ICICI Home Finance Company Limited was incorporated on May 28, 1999
as 100% subsidiary of ICICI Personal Financial Services Limited (ICICI
PFS). ICICI Home Finance Company Limited, was set up with the objective
of providing long term housing loans to individuals and corporate. The
Company was registered on March 30, 2000 with National Housing Bank
(NHB) under National Housing Bank Act, 1987 in terms of Housing Finance
Companies (NHB) Directions, 1989. With effect from May 3,2002, ICICI
Home Finance has become a 100% subsidiary of ICICI Bank Limited.
Overview:
ICICI Home Loans are at present available to customers in 150 cities/towns
across the country. Loans are offered for purchase of new homes, purchase of
resale homes and home improvement. Besides, the company also offers loans
for commercial property and loans against existing property. The loans are
offered for tenors up to 30 years. The company has also introduced several
customer friendly services such as 'door-step' service, 'know your loan on
phone' facility and 'ICICI Home Search' - free property brokerage services.
ICICI Personal financial services limited (ICICI PFS),
FORMERLY ICICI- CREDIT, was one of the first four
companies to obtain registration as a non-banking financial
company (NBFC) from the Reserve Bank of India (RBI) on
September 10, 1997 under the new section 45 IA of the Reserve
Bank of India Act, 1934.
During the year 1998-99, there was a significant shift in the
company’s operations from leasing and hire purchase to
distribution and servicing of all retail products for the ICICI
Group. It is now a focal point for marketing and distribution of all
retail asset products for ICICI, including auto loans, consumer
durable finance and other financial products. The company has
thus become a critical part of ICICI’S retail strategy aimed at
offering a comprehensive range of products and services to retail
customers.
CORPORATE BANKING
MOBILE COMMERCE
ICICI Bank now brings Bank Account and ICICI Credit Card to
customers fingertips. With Mobile Commerce , customers can
perform a wide range of query-based transactions from their
OrangeTM (MUMBAI) and AIRTEL (DELHI) Mobile Phone,
without even making a call.
ICICI
Attractive interest rates
Door-step service from enquiry stage till final disbursement
No guarantor required
Can transfer your existing high-interest rate loan
Can transfer your existing high-interest rate loan
Special 100% funding for select properties
Home loan
• Customer must be at least 21 years of age when the loan
is sanctioned.
• The loan must terminate before or when you turn 65 years
of age or before retirement, whichever is earlier.
• Customer must be employed or self-employed with a
regular source of income.
Loan Amount
A number of factors are taken into account when assessing
repayment capacity. Customers income, age, number of
dependants, qualifications, assets and liabilities, stability/
continuity of customer employment/ business are some of them.
However, there are ways by which you can enhance your
eligibility.
• If cusstomer spouse is earning, put him/her as a co-
applicant. The additional income shall be included to enhance
loan amount. Incidentally, if there are any co-owners they must
necessarily be co-applicants.
• customer fiancée's income can also be considered for
sanctioning the loan on your combined income? The
disbursement of the loan, however, will be done only after
submit proof of marriage.
• Providing additional security like bonds, fixed deposits
and LIC policies may also help to enhance eligibility.
HOME LOANS
We at ICICI Bank understand the value of owning your own
home. Our affordable home loans can make all the difference to
their dream of owning home.
0% processing fee for a limited period.
Refer to the table for a loan option that suits their need best
FIND THE RIGHT HOME
Introducing Home Search - Our FREE online property search
facility. A one stop shop for all their real estate needs.
Documents
Passport size photograph. Age verification: PAN card, Voters ID,
Passport, License. Bank statement for the last six months. Income
Documents e.g. Latest Form 16, Certified IT returns for latest 3
years. Processing Fee cheque. Loan Enclosure letter. These are the
documents required for sanctioning a loan. Customer may be
asked to submit further legal documents if required by ICICI or its
approved lawyers. Do retain photocopies of all documents being
submitted by them.
Disbursement
Customer loan will be disbursed after you identify and select the
property or home that customer are purchasing and on their
submission of the requisite legal documents.
While customer may be under the impression that the list of
documents asked for is rather extensive. Each and every single
document asked for will be verified and checked to ensure their
safety.
This may take some time but the bank want to ensure a clear title
and will complete all the legal and technical verifications to
ensure that they have full rights to their home.
The 230 A Clearance of the seller and / or 37I clearance from the
appropriate income tax authorities (if applicable) is also needed.
On satisfactory completion of the above, on registration of the
conveyance deed and on the investment of your own contribution,
the loan amount (as warranted by the stage of construction) will
be disbursed by ICICI.
The disbursement will be in favour of the builder/seller.
List of documents for disbursement
Standard documents:
Loan Agreements Disbursement Requests Post-dated cheques
Personal guarantor's documents, as the case may be adjustable
Rate Loans
6 - 10 9.25% 1281
years
11 – 15 9.75% 1060
years
16 – 20 9.75% 949
years
Credit Appraisal
Sanction by
committee
Letter to Reject
Defer
applicants
Approval
guarantor
Amount
This largely depends on a number of factors like ones age,
profession, salary, the city one resides in among other such
factors. It varies between Rs. 2.1 lac to Rs. 1 crore depending on
the lender. As a rule of thumb, depending upon the HFC, one will
have to cough up 15%-20% of the loan amount as a down
payment. For smaller amounts, this may not be much. But for
figures running into lakhs, this could make loads of difference.
For eg. An apartment costing Rs 10 lakh may get 85 per cent
financing. So, one will have to arrange for the remaining Rs 1.5
lakh. If one takes this into account, the additional thousands will
definitely put a strain on ones finances.
Tenure
Generally, the maximum tenure of home loans is 15 years, with a
few lenders offering tenure of 20 years or more (ICICI has
recently launched a 30 year loan). The longer the tenure, more one
pays in total interest, but ones monthly payments will be less. So
depending on ones earning potential and bank balance, one can
choose an appropriate tenure. An important requirement of most
banks/HFCs is that one pays up the entire loan before one retires.
One can always prepay ones entire loan amount before it is due.
There is a trend to do away with the pre-payment penalty being
imposed by some lenders so its best one checks on this as well.
Interest Rate
Without doubt the most important parameter to factor into ones
calculations. The interest rates may vary from institution to
institution and generally range from about 7.0% to around 8.0%.
Repayment is in the form of EMI's (equated monthly
installments). The longer the tenure, the more one pays in interest,
but ones monthly payment will be less.
Refinance
This is a concept that is yet to catch on in the home loan market
but is bound to be a major service in the months to come. Under
this facility, one can take a new loan from another bank/HFC to
pay back an old loan before its natural tenure. It gives one the
opportunity of prepaying ones high cost debt and gets a lower cost
one. In today's falling interest rate scenario one should use this
vehicle to lower ones debt payments as much as possible. The
lender facilitates the shift by paying the outstanding and
transferring the asset to their portfolio.
Miscellaneous charges
A heading that should be ignored at one’s peril! The interest rates
and EMIs are not the only cost factor. Never underestimate how
much the processing and administration fees amount to. A 0 .5%
administration fee and a 0.5% processing fee on, say, a Rs
5,00,000 loan, would amount to Rs 5,000. Other times, it could be
just one fee (either administration or processing) but could yet
work out to be much more if it is considerably higher at, say, 2.5
per cent or 3 per cent. The various other fees, which one is
required to pay along with the margin amount, are:
a) Interest Tax
This is the tax payable on the interest paid on a home loan and not
the principal. This tax is some times included in the interest rate
of the loan, or may be charged separately as interest tax.
b) Processing Charge
c) Prepayment Penalties
When a loan is paid back before the end of the agreed duration a
penalty is charged by some banks/companies, which is usually
between 1% and 2% of the amount being pre paid.
d) Commitment Fees
Some institutions levy a commitment fee in case the loan is not
availed of within a stipulated period of time after it is processed
and sanctioned.
e) Others
It is quite possible that some lenders may levy a documentation or
consultant charge.
INDUSTRY SCENARIO
It is also expected that the housing finance sector will maintain its
high growth rates in future given that the key growth drivers the
government's thrust on the housing sector in terms of fiscal
incentives for individual housing loans coupled with the demand-
supply gap in housing - would remain strong.
STANDARD CHARTERED BANK
Overview
Standard Chartered is the world's leading emerging markets bank.
It employs 27,000 people in over 500 offices in more than 50
countries in the Asia Pacific Region, South Asia, the Middle East,
Africa, United Kingdom and the Americas.
With nearly 150 years in the emerging markets the Bank has
unmatched knowledge and understanding of its customers in its
markets.
Today-Standard Chartered
Today Standard Chartered is the world's leading emerging markets
bank employing 30,000 people in over 500 offices in more than 50
countries primarily in countries in the Asia Pacific Region, South
Asia, the Middle East, Africa and the Americas.
The new millennium has brought with it two of the largest
acquisitions in the history of the bank with the purchase of
Grindlays Bank from the ANZ Group and the acquisition of the
Chase Consumer Banking operations in Hong Kong in 2000.
Unique Features
• Freedom to save more
• Freedom to reduce your loan period
• Freedom to take a break from EMI payments
• Freedom to access your money - anytime, anywhere
HomeSaver is currently available in Bangalore, Chennai, Delhi,
Kolkata, Mumbai and Pune.
All the customer have to do is to call Phone Banking or contact us
at any of their branches and they'll assist you with a better
understanding of the products and in taking care of the
formalities.
Still deciding which home loan to take? Choose the one that
sets free.
• Terms, conditions and RBI regulations apply. All loans at
the sole discretion of Standard Chartered Bank.
This would allow the customer the flexibility to tide over a tight
financial situation without having to pay a penalty for skipping an
EMI. "This is a feature again unique to HomeSaver and not
provided by any traditional home loan,".
They had started with a strategic alliance with the NatWest group
in UK with 20% equity, which was divested later on. The bank
also signed a memorandum of understanding for strategic business
nd
collaboration with the Chase Manhattan Bank in February 2
1999.
Business Philosophy
The mission of HDFC Bank is to be world class Indian bank. This
would imply a bank that would meet various financial needs of its
customers in a convenient and cost effective manner at
international standards of service.
The bank seeks to achieve the status of a "preferred organization"
among its major constituents- customers, shareholders, regulators,
employees, suppliers etc.-while maintaining the highest levels of
integrity and corporate governance.
Loans
HDFC Bank brings you a wide range of loans to cater your
financial needs.
The bank offers the following loans-
· Personal Loans
· Consumer Loans
· Auto Loans
· Loans against shares
· Loans against RBI Bonds
· Loans against Insurance policy
. E-instant loans-gives the facility of loan approval in 60
seconds on the internet.
HDFC has offices spread all over the country. This extensive
network helps HDFC in providing service to large and well spread
out clients. This network of interconnected offices (on Data
Circuits) helps HDFC to process applications for purchase of
property anywhere in India. HDFC has further established an
office in Dubai and Service Associates in Kuwait, Oman and
Qatar to make it easier for Middle East based Non-Resident
Indians to apply for a loan to HDFC - India.
HDFC is the pioneer of housing finance in India and has been a
leader in the business for the last 23 years. HDFC has vast
experience and a very committed and skilled staff to handle
housing loan applications and solving customer problems.
LOAN AMOUNT
Loans can be availed up to a maximum of 85% of the cost of the
property (including the cost of the land). HDFC lends up to a
maximum of Rs. 1,00,00,000 on a Home Loan to an individual.
LOAN TENURE
You can repay the loan over a maximum period of 20 years.
RATE OF INTEREST
Interest is calculated on annual rests. Principal repayments are
credited at the end of HDFC's financial year. The effective rate of
interest varies depending on the term of the loan. For a loan with a
term of 15 years, the effective interest rate would be higher by
0.37% per annum than the indicated rate of interest.
SECURITY
Typically the security for the loan is a first mortgage of the
property to be financed, normally by way of deposit of title deeds
and/or such other collateral security as may be necessary.
The title to the property should be clear, marketable and free from
encumbrance. To elaborate, there should not be any existing
mortgage, loan or litigation which is likely to affect the title to the
property adversely.
b) Additionally,
If borrower is Employed:
1. Latest salary slip/salary
certificate showing all deductions.
2. If your job is transferable,
permanent address where correspondence relating to the
application can be mailed.
3. A letter from your employer
agreeing to deduct the monthly installment towards repayment
of the loan from your salary. This will expedite the processing
of your loan application.
If borrower is Self-Employed:
1. Balance Sheets and Profit & Loss Accounts
of the business/profession along with copies of Individual
Income Tax Returns for the last three years certified by a
Chartered Accountant.
2. A note giving information on the nature
business/profession, form of organization, clients, suppliers,
etc.
ELIGIBILITY
The repayment capacity as determined by HDFC will help in
deciding how much one can borrow (the cost of the property or
Rs. 1 crore, whichever is lower). Repayment capacity takes into
consideration factors such as income, age, qualifications, number
of dependants, spouse's income, assets, liabilities, stability and
continuity of occupation and savings history. And, of course,
HDFC's main concern is to make sure customer can comfortably
repay the amount they borrow
TAX BENEFIT
Resident Indians are eligible for certain tax benefits on principal
and interest components of a loan under the Income Tax Act,
1961. Interest repayment of Rs. 1,00,000 p.a. (for a loan on or
after April 1, 2000) can get borrower a tax saving up to
approximately Rs. 33,000 p.a. Moreover, customer can get added
tax benefits under Sec 88 on repayment of principal amount up to
Rs. 20,000 p.a. which can further reduce borrower’s tax liability
by Rs. 2,000 p.a.
HDFC's Home Loans offers you various unique benefits and are
easy to arrange and repayable in easy monthly installments. The
terms of the loan can be structured according to customer unique
requirements.
Branch Network : HDFC has offices spread all over the country.
This extensive network helps HDFC in providing service to large
and well spread out clients. This network of interconnected offices
(on Data Circuits) helps HDFC to process applications for
purchase of property anywhere in India. HDFC has further
established an office in Dubai and Service Associates in Kuwait,
Oman, Qatar, Bahrain and Saudi Arabia to make it easier for
Middle East based Non-Resident Indians to apply for a loan to
HDFC - India.
Fee
A processing fee of 0.5% of the loan amount applied for i.e. Rs. 5
per Rs. 1000 of the loan applied for is payable when the
application form is submitted to HDFC. This fee is in respect of
costs incidental to the application.
For example :
Loan applied for Fees
Rs. 20,000 Rs. 100
Rs. 1,00,000 Rs. 500
Rate of Interest
Adjustable rate of Interest
The interest rate on your ARHL is linked to HDFC's Retail Prime
Lending Rate (RPLR). The rate of interest is revised every three
months from the date of first disbursement, if there is a change in
RPLR. However, the EMI on the ARHL will not change. For
instance, if the interest rate increases, the interest component in
EMI will increase; the principal component would reduce,
resulting in an extension of the term of the loan and vice-versa
when the interest rate decreases. customer will be provided with
an annual statement indicating the details of the interest and
principal payments made during the year.
Annual Rest Option
Term of Loan (No. of Years) Rate Per Annum (%p.a)
1 – 20 8.00
Monthly Rest Option
Term of Loan (No. of Years) Rate Per Annum (%p.a)
Upto 5 9.00
6 - 10 9.25
11 – 20 9.75
Rate of interest under ARHL is linked to HDFC's RPLR (Retail
Prime Lending Rate) which currently is 8.00% per annum.
customer repay the loan in EMIs comprising principal and
interest. Pending final disbursement, you pay interest on the
portion of the loan disbursed. This interest is called pre-EMI
interest .
EMI per Rs.1,00,000 for Annual Rest
Option
How to Apply
customer can either download (in a pdf format) the application
form or, get the application form by email or normal mail.
Alternately, customer can collect the application forms from any
of your nearest HDFC Offices.
customer can take disbursement of the loan after the property has
been technically appraised, all legal documentation has been
completed and you have invested your own contribution in full
(Own contribution is the total cost of the property less HDFC's
loan). The loan will be disbursed in full or in suitable instalments
(normally not exceeding three in number) taking into
account the requirement of funds and progress of construction, as
assessed by HDFC and not necessarily according to a builder's
agreement.
b) Additionally,
If You Are Employed:
1. Latest salary slip/salary certificate showing all deductions.
2. If job is transferable, permanent address where correspondence
relating to the application can be mailed.
3. A letter from employer agreeing to deduct the monthly
instalment towards repayment of the loan from the salary. This
will expedite the processing of your loan application.
IDBI promoted idbi bank to mark the formal foray of the IDBI
Group into commercial Banking. This initiative has blossomed
into a major success story. idbi bank , which began with an equity
capital base of Rs.1000 million (Rs.800 million contributed by
IDBI and Rs.200 million by SIDBI), commenced its first branch at
Indore in November 1995. Thereafter in less than seven years the
bank has attained a frontranking position in the Indian Banking
Industry.
Retail Bank has acquired software for its Retail Assets products.
Also, on its way is Internet Banking with Bancaway, from
Infosys. idbi bank has recently launched its upgraded, state-of-
the-art telebanking product across 17 centres with latest software
from BK Systems. Mobile banking
The bank has recently announced its strategic alliance with TATA
AIG General Insurance Company for selling General Insurance
Products through select branches & ATMs of idbi bank .
SL#
Tenure (yrs) Rate of EMI per Lac
Interest *
Upto 5years 9.25 % 2088.00
6 - 10 years 9.75% 1308.00
11 – 20 years 10.00% 982.00
Pre-payment Fees
Pre-payment Fee of 2% on principal outstanding if the
prepayments are through institutional / HFC s Cheque / pay
order.In case of customer premature closing his home loan
account with his own funds no prepayment will be levied
COMPARISON OF HOME SAVER WITH
NORMAL HOME LOAN
Let’s suppose that the customer have a home loan of Amount RS.
10 lakhs Repaid in 16 years (192 months) at an interest rate of
11.25% p.a. (monthly rests)
25
Principal Paid
Total Payments In
20
Rupees Lakhs
Interest Paid
10
15
4.98
4.13
10
1.5 11.6
9.37 10.09
5
5.25
0
60 120 134 192
Months
Imaging how much the value of their home will have to appreciate
to just be worth the value you finally paid for it!
COMPARATIVE ANALYSIS OF
HOME LOAN AND HOMESAVER
Home Loan HomeSaver
• A fixed repayment structure • The interest customer pay
with high interest & low may be substantially reduced
principal recovery & consequently repayment
towards principal can be
high. The interest you pay
depends on their loan balance
each day. When you loan
balance is reduced the
interest component comes
down.
12.00 200
Interst Paid (in Rs. lakhs)
180
♦ Define the problem & research objective - The problem and objective is
to assess the services offered by various service provider and
what the consumer wants.
♦ Collect the Information :-After completing all the steps, the data are
collected from different sources.
♦Present the findings:-As the last step, the findings are presented that are
relevant to the major marketing decisions.
DATA ANALYSIS
The home loans provided by various banks are more or less same
at a basic level. The banks generally try to go ahead of other
banks in terms of attracting number of customers to their
countries. For this they are trying to offer some unique services as
per the unique requirements of the unique and important
customers.
In the next page various data’s have been shown which shows that
are the home loans provided by various banks and SCB have also
tried to compare the services offered by the banks,.
18 16.5
16 15
14 13.25
12.5
12 10
10
8
6
4
2
0
2000 2001 2002 2003 2004
And Housing Loan Disbursement Have Soared
50,000 45,000
45,000
40,000
35,000 29,359
30,000
25,000 22,425
19,723
20,000
15,000 11,352
10,000
5,000
0
1999-00 2000-01 2001-02 2002-03 2003-04
MARKET SHARE OF MAJOR PLAYERS
Source: http://indiaproperties.com
5 OTHERS
45
The market for home loans has been sizzling in India. The spurt in
growth in recent years and the prospects of continued buoyancy in
demand have attracted many players to the industry, which till a
couple of years back had two major players - HDFC and LIC
Housing Finance. The result - cut throat competition, which has
benefited the loan seeker.
There are several reasons for the same. On the demand side -
Then there are factors on the `supply side' too which have
supported this growth -
The RBI’s position is that lending such sums will mean additional
risk for the bank. In case of default, the bank may not have
sufficient collateral to recover dues, and may have to write off the
additional borrowings. However, bankers do not seem unduly
worried. Non-performing assets in the housing segment are quite
low--below 1 per cent--and that, say bankers, is due to the high
asset quality.
As per officials of IDBI Bank: "For a house to become a home,
there are additional costs incurred by the borrower, which he
meets by borrowing from friends or family members. Also, the
default risk in housing loans is
quite low, so they think that with proper checks, there’s nothing
wrong in lending more." IDBI Bank was the first to see this and
slashed the interest on its 15-year. They want to achieve a serious
leadership position in home loans, so they thought of giving the
best possible rate to the customers.
For the moment, however, banks can continue lending more than
100 per cent of the property value. But if push comes to shove,
and if RBI makes its suggestion a rule, this sweet deal may not
last long.
More proof that home is indeed sweet home. Bimal Jalan’s latest
announcement of a cut in bank rate is a clear sign that the soft
interest rate policy is all set to continue. The 25 basis points
decrease in the bank rate means the central bank has reduced the
rate at which banks borrow from it. This means that banks, in
turn, could reduce the interest rates they charge on housing
mortgages.
When interest rates fall, lenders lower not the EMI amount but the
number of months that you pay those EMI’s. The table shows the
number of months
by which your loan tenure is cut when interest rates are lowered
by 0.25 to 1 percentage point.
% cut -0.25 -0.5 -0.75 -1
20 yrs 11 20 29 37
15 yrs 5 10 14 18
10 yrs 2 4 6 8
On a 9 per cent Rs 1 lakh loan
There's good news for those wanting a home loan. Over the past
few months, lenders have been cutting interest rates on home
loans by 25-50 basis points. Banks like HDFC, ICICI Bank, and
State Bank of India have cut rates by 0.75 per cent in the last two
weeks to 9.75 per cent for 15-year loans.
One reason for the rate cut is that borrowing costs have come
down, which is a result of a cut in interest rates in the general
economy.
The general economy apart, lenders have been forced to cut rates
to keep up with competition. More players want to enter the home
loan market, and existing players are fighting for a larger share.
HDFC has also felt the heat. It has decided to reduce the review
time of its variable interest rate from 6 months to 3 months, so
that existing variable rate borrowers can benefit faster in the
falling interest rate scenario. ICICI too has kept pace with its
peers. While interest rates on fixed mortgages tend to be higher,
ICICI has decided to offer the same rate it charges floating rate
borrowers.
Fixed rate products are not widely available now; lenders like
IDBI and Citibank do not offer fixed rate home loans. Others like
Corporation Bank
are not extending fixed rates loans beyond a 10-year period. This
is good in the short-term, but if rates go up, floating rate
borrowers may be in for a tough time.
SWOT ANALYSIS OF THE HOUSING FINANCE INDUSTRY
STRENGTHS
• The industry has been witnessing a very fast growth rate, which is
6% growth in the first quarter of 2002-2003 as against 3.5 %
growth recorded in the first quarter of 2001-02.
• The market faces a high demand curve, thoroughly mismatched by
a low supply curve
• Investment is based in assets that are securities and those that
have historically appreciated rapidly.
• Tax benefits and other facilities provided on loan repayments
WEEKNESSES:
• The foreclosure rules of court
of law such as provision regarding the ownership of not more than
one house (In Delhi) binds the industry.
• The health of an HFC depends upon its ability to
mob up low cost funds.
• An HFC is unable to tap the rural market due to
lack of proper retrieval procedures, so whilst the rural market
offers a higher rate of return, it has a higher risk and default rate.
• Many legal impediments exist, deferring
purchase of certain types of property beyond a certain extent
thereby negatively impacting the housing finance industry. Weak
mortgage laws, resulting in an increase in risk compound this
OPPORTUNITIES:
• The housing industry faces a
severe shortage of houses. The total demand for houses is expected
to touch around 19.40 million units by the year 2003. Of these 12.8
million dwelling units (65.98 per cent) would be in rural areas and
6.6 million dwelling units (34.02 per cent) in urban areas.
• While the loan facility is backed by the security
of the property this sector represents a low margin but on same line
low risk segment. To address this market the ones lies on the HFCs
to device bold and innovative alternatives like mortgage based
securities, use of methods such as door to door collection of
installments, assessing the creditworthiness of the prospective client
and providing for group security.
• The roles of NHB in refinancing and providing
regulation of housing finance system.
• The government's initiative to promote the
sector and its contribution in uplifting the sector
THREATS:
• The industry faces increased competition as more and more
foreign backs and housing finance companies are providing loan
facility.
SWOT ANALYSIS OF ICICI HOME FINANCE
STRENGTHS:
• Save substantial interest
• Prepay whenever the customer wants
• Reduce their loan outstanding without any penalties
• Access the surplus funds anytime
• Use surplus funds to invest when the right opportunity arises
WEAKNESS:
• Product is very good but it is mainly suitable for the higher
income group and is not suitable for the middle income group.
OPPORTUNITIES:
• Ample scope for financing flats and apartments for the salaried
class in the higher income group.
THREATS:
• Nationalized banks like SBI, Union Bank and PNB
• Private Banks like HDFC and Standard Chartered and Citibank
with its Home Credit scheme.
CONCLUSIONS
The Indian customer has come a long way from purchasing to fulfilling their
needs from buying a house. Customers now grab everything that comes their
way but they do their own survey of optimum loans; same is the case with
banks, and housing loans. With innumerable choices before him, the
customer is indeed the king. It is therefore imperative that if a bank has to
succeed in the competitive world, it should be technological savvy, customer
centric progressive driven by highest standards of corporate governance and
guided by sound ethical values and above all should be cordial and should
have personalize customer services.
There is scope of exploiting the vast middle income group by releasing loans
with special interest rate which would be beneficial to both parties.
RECOMMENDATIONS
1. To broaden the customer base the vast middle income strata should be
fully exploited
2. Simplify the procedure, reduce service charges, and demand only the
basic essential proof.
3. Most banks are reluctant to advance loan to the service class e.g. lawyers,
police officers etc.. This aspect must be exploited.
4. Adoption of flexible and more lenient penalty should the customer fail to
deposit the payment on time. The penalty should be on case to case basis
rather then the same for the entire customer base.
5. Restriction to be reduced to bare minimum for loan advances and for
repayment. For e.g. offer long-term repayment facilities and have no age
restriction to choosing repayment.
6. The maximum age for repayment could be increase to 65-70 years of age.
Such facility will help grow fast retail segment of the bank.
7. Offer multiple repayment loans.
8. Service class to be exploited by offering special reduced rates and linking
the repayment from the source from where the pay-cheque to the
employee is issued. This needs to undergo special contract with
government organisation to ensure implementation.
GLOSSARY
Under a floating rate loan, the interest rate on the loan varies from
time to time depending on the Prime Lending Rate fixed by the
Reserve Bank. This change can happen as frequently as one in six
months. If the PLR falls, you benefit as the effective interest rate
on your remaining loan falls. However, your payments every
month stay the same. The Finance Company will refund some of
your EMI cheques and effectively compensates you by reducing
the tenure of the loan. The reverse happens if the PLR rises, much
to your disadvantage.
In the last 2-3 years the PLR has fallen as the Indian economy had
slowed down and demand for money was low. If you expect this
trend to continue, you stand to benefit from a floating rate loan. If
interest rates begin to rise again, you can prepay your floating rate
loan and lock in to fixed rate loan. You must them choose a
floating rate loan with no repayment charges (one is offered by
HSBC). However, if you do not want to speculate on interest rates
and need a stable loan to help planning the future, then go for a
Fixed rate loan.
Rest:
Interest rates are quotes on a daily rest, monthly rest or annual rest
basis. The annual rest quote implies that the company gives you
the credit for the monthly principal repayments only at the end of
each year. Such loans are therefore more expensive than a
monthly /daily rest loan. The shorter the tenure of the loan, the
greater the effective interest rate difference will be.
AbodesIndia.com has standardised all interest rate quotes from
companies on a MONTHLY REST basis ( rates will therefore
look different from Company brochure quotes which maybe on a
annual rest basis)
Processing Fee:
Administrative Fee:
Commitment fees:
Interest Tax:
Prepayment charge:
Refinance Charge:
Down payment:
• www.indiaproperties.com
• www.apnaloan.com
• The Economic Times, 15 February 2005
• The Financial Times, 06 December 2004
• Philip Kotler, Marketing Management, 9th edition
• Akkar ;Marketing Research
• Business Today, July 20 2004 issue