A PROJECT REPORT On UNION BANK OF INDIA Submitted to The Director Bharati Vidyapeeth Deemed University IMED, Pune For

the Award Master of Business Administration (MBA) By Pooja Dwivedi Under the Guidance of Prof.Dr.Kriti Gupta 2013

Certificate from the company/organization (On company letter head)

This is to that (pooja dwivedi)daughterof( Mr R.R dwivedi)pursuing MBA from Institute of management and entrepreneurship development,pune has successfully completed the project report in our organization on the titled,Retail lending &NPA Managementfrom 10 june to6th Augest2013.During

Certificate of Originality This is to certify that the project report entitled Retail lending & NPA Managent Submitted to Bharati Vidyapeeth Deemed University, Pune in partial fulfilment of the requirement for the award of the degree of MBA is an original work carried out by Ms Pooja dwivedi under the guidance of Ms. Kirti Gupta.The matter embodied in this project is a genuine work done by Pooja Dwivedi to the best of my knowledge and belief and has not been submitted before,neither to this University nor to any other University for the fulfilment of requirement of any course of study.

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Signature of the Guide Designation

Certificate This is to certify that the project titled Finance of Retail lending & NPA Management is an academic work done by pooja dwivedi submitted in the partial fulfilment of the requirement for the award of the degree of Master of Business Administration from Bharati Vidyapeeth Deemed University; Pune. It has been completed under the guidance of Ms.kirti Gupta and Mr. Ms Patel We are thankful to Union bank of india.for having allowed our student to undergo project work training. The authenticity of the the project work will be examined by the viva examiner which includes data verification,checking duplicity of information etc.and it may be rejected due to non fulfilment of quality standards set by the institute.

Dr. Sachin S.Vernekar (Director IMED)

Acknowledgement

I would like to express my gratitude to MR. MS PATEL, Branch manager,Union Bank of India, pune krve road and MR. vyankat patil manager), Union Bank of India, krve road branch, pune, for giving me the permission to carry out my summer internship at Union Bank of India, pune. Their support and encouragement has been a source of inspiration for me and made my journey in Bank of India a delight. I would like to thank MR . (Senior manager) and Mr. vyankat patil, Manager (Credit) of Advances Department,Union Bank of India, Pune i who as my Project guide always encouraged me to do new things, critically analyze the cases and gave his inputs as and when it was necessary. My gratitude also goes to Professor krirti gupta, Institute of Management and Entrepreneurship Development, Pune, who as my faculty guide help me in my project and guide me . I thank him for guiding me at every step of the project. I was almost convinced that I was aware of the business & market forces that drive the Banking industry. However, once I started out working on the same, I realized how grossly inadequate my knowledge had been.

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Preface

This project report attempts to bring under one cover the entire hard work and dedication put in by me in the completion of the project work on A Study on Retail Banking & NPA Management I have expressed my experiences in my own simple way. I hope who goes through it will find it interesting and worth reading. All constructive feedback is cordially invited. The research project has thoroughly revised & made up to date. The contents have been strengthened up date & modified to improve clearly & arouse enthusiastic interest in the subject of finance. Figures, charts, diagrams, models, tables etc. liberally used to easily understand the complex things. The extract of the work is presented in this report under various heading that include s Industry profile, research objective, research design, data collection method, Sampling design, analysis and interpretation, results, conclusion and suggestions Thank you

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Name & Signature of the student

CONTENT

Company profile

History
Union Bank of India (UBI) was registered on 11 November 1919 as a limited company in Mumbai and was inaugurated by Mahatma Gandhi. At the time of India's Independence in 1947, UBI still only had four branches - three in Mumbai and one in Saurashtra, all concentrated in key trade centres. After Independence UBI accelerated its growth and by the time the government nationalized it in 1969, it had grown to 240 branches in 28 states. Shortly after nationalization, UBI merged in Belgaum Bank, a private sector bank established in 1930 that had itself merged in a bank in 1964, the Shri Jadeya Shankarling Bank. Then in 1985 UBI merged in Miraj State Bank, which had been established in 1929. In 1999 the Reserve Bank of India requested that UBI acquire Sikkim Bank in a rescue after extensive irregularities had been discovered at the non-scheduled bank. Sikkim Bank had eight branches located in the North-east, which was attractive to UBI. UBI began its international expansion in 2007 with the opening of representative offices in Abu Dhabi, United Arab Emirates, and Shanghai, Peoples Republic of China. The next year, UBI established a branch in Hong Kong, its first branch outside India. In 2009, UBI opened a representative office in Sydney, Australia. At present, the offshore banking operations of Union Bank of India are lead by its branches in Hong kong and newly opened branch in Dubai at Dubai International Financial Centre.

NON PERFORMING ASSETS FIRST PART: DIFINITION OF NPA Definition of 'Nonperforming Asset' A debt obligation where the borrower has not paid any previously agreed upon interest and principal repayments to the designated lender for an extended period of time. The nonperforming asset is therefore not yielding any income to the lender in the form of principal and interest payments. explains 'Nonperforming Asset' For example, a mortgage in default would be considered non-performing. After a prolonged period of non-payment, the lender will force the borrower to liquidate any assets that were pledged as part of the debt agreement. If no assets were pledged, the lenders might write-off the asset as a bad debt and then sell it at a discount to a collections

CLASIFICATION OF NPA NPA is a classification used by financial institutions that refer to loans that are in jeopardy of default. Once the borrower has failed to make interest or principal payments for 90 days the loan is considered to be a non-performing asset. Non-performing assets are problematic for financial institutions since they depend on interest payments for income . Banks are required to classify non-performing assets further into the following three categories based on the period for which the asset has remained non-performing and the realisability of the dues: 1. Sub-standard assets: a sub standard asset is one which has been classified as NPA for a period not exceeding 12 months. 2. Doubtful Assets: a doubtful asset is one which has remained NPA for a period exceeding 12 months. 3. Loss assets: where loss has been identified by the bank, internal or external auditor or central bank inspectors but the amount has not been written off, wholly or partly. Sub-standard asset is the asset in which bank have to maintain 15% of its reserves. All those assets which are considered as non-performing for period of more than 12 months are called as Doubtful Assets. All those assets which cannot be recovered are called as Loss Assets.

EFFECT OF NPA IN BANK NPA in simple words may be defined as the borrower does not pay principal and interest for a period of 180 days.

The core banking business is of mobilizing the deposits and utilizing it for lending to industry. Lending business is generally encouraged because it has the effect of funds being transferred from the system to productive purposes which results into economic growth . The debtor take the funds from the bank in the form of credit and he have to payback the principle amount with the interest to the creditor as a result the creditor (Bank)gets the profit in the form of interest and again this profit is reinvested leading to the growth of the economy. Because of the non performance or non recipt of interest or principal , the banks (creditor) money in the form of funds get blocked and is not available for furtherence of Banking business and thus the profit margin of the Banks goes down.

Profitability: NPA means booking of money in terms of bad asset, which occurred due to wrong choice of client. Because of the money getting blocked the prodigality of bank decreases not only by the amount of NPA but NPA lead to opportunity cost also as that much of profit invested in some return earning project/asset. So NPA doesnt affect current profit but also future stream of profit, which may lead to loss of some long-term beneficial opportunity. Another impact of reduction in profitability is low ROI (return on investment), which adversely affect current earning of bank. Liquidity: Money is getting blocked, decreased profit lead to lack of enough cash at hand which lead to borrowing money for shot\rtes period of time which lead to additional cost to the company. Difficulty in operating the functions of bank is another cause of NPA due to lack of money. Routine payments and dues. Involvement of management: Time and efforts of management is another indirect cost which bank has to bear due to NPA. Time and efforts of management in handling and managing NPA would have diverted to some fruitful activities, which would have given good returns. Now days banks have special employees to deal and handle NPAs, which is additional cost to the bank. Credit loss: Bank is facing problem of NPA then it adversely affect the value of bank in terms of market credit. It will lose its goodwill and brand image and credit which have negative impact to the people who are putting their money in the banks.

Provision on types of assets

Provision is allocating money every year to meet possible future loss.

REASON OF NPA

NPA arises due to a number of factors or causes like:1. Speculation : Investing in high risk assets to earn high income.

2. Default : Willful default by the borrowers.

3. Fraudulent practices : Fraudulent Practices like advancing loans to ineligible persons, advances without security or references, etc . 4. Diversion of funds : Most of the funds are diverted for unnecessary expansion and diversion of business.

5. Internal reasons : Many internal reasons like inefficient management, inappropriate technology, labour problems, marketing failure, etc. resulting in poor performance of the companies.

6. External reasons : External reasons like a recession in the economy, infrastructural problems, price rise, delay in release of sanctioned limits by banks, delays in settlements of payments by government, natural calamities, etc MEASURES TO SLOVE PROBLEM OF NPA 1. Debt Recovery Tribunals (DRTs)

Narasimham Committee Report I (1991) recommended the setting up of Special Tribunals to reduce the time required for settling cases. Accepting the recommendations, Debt Recovery Tribunals (DRTs) were established. There are 22 DRTs and 5 Debt Recovery Appellate Tribunals. This is insufficient to solve the problem all over the country (India).

2. Securitisation Act 2002

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 is popularly known as Securitisation Act. This act enables the banks to issue notices to defaulters who have to pay the debts within 60 days. Once the notice is issued the borrower cannot sell or dispose the assets without the consent of the lender. The Securitisation Act further empowers the banks to take over the possession of the assets and management of the company. The lenders can recover the dues by selling the assets or changing the management of the firm. The Act also enables the establishment of Asset Reconstruction Companies for acquiring NPA. According to the provisions of the Act, Asset Reconstruction Company of India Ltd. with eight shareholders and an initial capital of Rs. 10 crores has been set up. The eight shareholders are HDFC, HDFC Bank, IDBI, IDBI Bank, SBI, ICICI, Federal Bank and South Indian Bank.

3. Lok Adalats

Lok Adalats have been found suitable for the recovery of small loans. According to RBI guidelines issued in 2001. They cover NPA up to Rs. 5 lakhs, both suit filed and non-suit filed are covered. Lok Adalats avoid the legal process. The Public Sector Banks had recovered Rs. 40 Crores by September 2001.

4. Compromise Settlement

Compromise Settlement Scheme provides a simple mechanism for recovery of NPA. Compromise Settlement Scheme is applied to advances below Rs. 10 Crores. It covers suit filed cases and cases pending with courts and DRTs (Debt Recovery Tribunals). Cases of Willful default and fraud were excluded.

5. Credit Information Bureau

A good information system is required to prevent loans from turning into a NPA. If a borrower is a defaulter to one bank, this information should be available to all banks so that they may avoid lending to him. A Credit Information Bureau can help by maintaining a data bank which can be assessed by all lending institutions.

HOW TO MANAGE NPA Do should be taken during the session of loan Should be proper use of fund. Should be session term complains Should be loan term and condition fulfil. Should be abdicating term loan. Should be following up.

(i) Interest and/or instalment of principal remain overdue for a period of more than 90 days in respect of a Term Loan. (ii) The account remains 'Out of order'@ for a period of more than 90 days, in respect of an Overdraft/ Cash Credit (OD/CC).

(iii) The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted,

(iv) Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts..

>.NPA is part of the operational risk of the banking industry. NPA can be reduced and managed a certain level by a prudential banker. Before account turn NPA its give signals, which type of accounts should be categarised as Special Mentioned Account (SMA) and treatment should be given accordingly: (i) The account should be categorised as SMA 1 if overdue remains for 30 days & SMA 2 if remains overdue more than 30 days to 89 days. Efforts for recovery of overdue within the time to be done. Regular follow-up and notices should be sent to borrower

(ii) Restructuring/rescheduling/re negotiation of the terms of loan agreement in Term loan in case to case basis in case of need (iii) Recovery of interest in CC/OD account be done.

(iv) Submission of stock statement and financial data within the prescribed time limit. These are some steps to manage (Recover and Reduce) NPA in Banking Sector Early symptoms By which one can Recognize performing Assest Turning in to Non Performance Assests

Four categories of early symptoms:-

( 1 ) Financial: Non-payment of the very first instalment in case of term loan. Bouncing of cheque due to insufficient balance in the accounts. Irregularity in instalment. Irregularity of operations in the accounts. Unpaid overdue bills. Declining Current Ratio.

Payment which does not cover the interest and principal amount of that instalment. While monitoring the accounts it is found that partial amount is Diverted to sister concern or parent company.

( 2 ) Operational and Physical: If information is received that the borrower has either initiated the process of winding up or are not doing the business. Overdue receivables. Stock statement not submitted on time. External non-controllable factor like natural calamities in the city where borrower conduct his business. Frequent changes in plan. Non payment of wages.

( 3 ) Attitudinal Changes: Use for personal comfort, stocks and shares by borrower. Avoidance of contact with bank. Problem between partners.

( 4 ) Others: Changes in Government policies. Death of borrower. Competition in the market.

Effect of NPA On borrower

The day to day operating the account becomes difficult as Bank starts adjusting money deposited against their dues.

The reputation of the borrower in the market is adversely affected. The Bankers attitude towards the borrower becomes more arrogant, authoritative and threatening, instead of extending helping hand to them to get out of the situation.

This leads to demoralization of the borrower who has been working with the Bank for number of years and as customer has contributed in the profit of the bank

INRODUCTION:-

For retail lending, the Internet has opened the door to a whole new world In fact, it has fundamentally changed the way in which business is done and services are delivered. Whether in a retail store, a restaurant, or a bank, consumers expectations have changed. They expect businesses to provide services that are simple to understand, tailored to their needs, and rapidly delivered. They also expect to connect in real time and on demand through whatever channel they prefer in person, over the Internet, by phone, or through a mobile device. Financial institutions have recognized these trends and have increased their hours of operation, enhanced their online offerings, and developed mobile applications. Although these changes have already improved the way banking is done, todays retail lenders still have the opportunity to be on the leading edge of this transformation. To be successful, lenders will need a clear view of how these changes will be reflected in their market and how to make the most of this new reality.

PROJECT ON RETAIL LENDIND SECOND PART

RETAIL LENDING SCHEME UNION HOME PURPOSE Purchase of house/flat Construction of house/flat Repairs/improvement/extension Repayment of loan availed from other agency/Bank/NBFC For purchase of plot sold by Govt. recognized agencies, local development authorities, housing boards and construction of house thereon For purchase/construction of 2nd house/flat ELIGIBILITY Indian Citizen not below 21 years Individuals who may be employed/self-employed in business, having regular income Person engaged in agriculture & allied activities Singly or jointly with other family members viz. father, mother, spouse, son who have regular source of income Minimum 50% marks as per investment grade scoring chart QUANTUM Depending on repayment capacity and value of property MARGIN 20% for purchase/construction for loans upto ` 200 Lakh 35% for home loan limit above ` 200 Lakh 20% of cost of repair 20% for purchase of plot Margin has to be calculated on the value of the property, excluding registration charges, stamp duty, insurance, transfer fee, etc. SUSTENANCE (NET TAKE HOME PAY) Gross Income levels* Up to ` 3 Lakh ` 3 Lakh to ` 8 Lakh ` 8 Lakh to ` 12 Lakh ` 12 Lakh to ` 18 Lakh Above ` 18 Lakh Sustenance (Percentage of Net) 45% 40% 35% 30% 25%

*Income of all the applicants to be considered together. REPAYMENT TENURE Moratorium period upto 18 months Maximum repayment period of 30 years for construction/purchase of house/flat

Case of home loan sample calculation Assumption :gross annul income=rs.9 lakhs,ROI=9%p.a,tenure=25years,cost of property=rs.45 lakhs,annual taxes=rs 1.32 lakh,total other obligations=rs.1.44 lakhs Calculation for arriving at quantum of loan

UNION MILES

PURPOSE

ELIGIBILITY -employed in business, having regular income

irement

QUANTUM 40% -wheeler -wheeler -wheeler

MARGIN -road price (Vehicle Cost + Registration Charges + Insurance + Road Tax)

REPAYMENT TENURE -Wheeler: Max. 84 months -wheeler: Max. 60 months -Wheeler: Max. 36 months SECURITY

GUARANTEE
rd

party guarantee of sufficient means

INSURANCE

21/11/2011) RATE OF INTEREST Rate of Interest 10.70% (fixed) 15.00% (fixed) 15.50% (fixed)

New 4-wheeler New 2-wheeler Old 4-wheeler (not older than 3 years) PROCESSING CHARGES

UNION MORTGAGE Loan against property PURPOSE Loan would be granted for meeting personal needs like marriages, higher education, business travel, medical emergencies or any unforeseen expenses and even as a liquidity finance ELIGIBILITY Any individual owning residential / commercial property (land/plot/building) and who files income tax return. In absence of IT assessment for agriculturists, income certificates by relevant authorities can be accepted Minimum age 18 years Maximum age 60 years for salaried class and 65 years for non-salaried class Net monthly income of ` 10,000 p.m. for salaried individuals and net annual income of minimum ` 1.20 Lakh for others Income of earning family members (spouse, father, mother, son, unmarried daughter) can be added to enhance quantum of loan, if he / she join as co-applicant All the owners of the property, with/without income, must compulsory join as co-applicant SOD limit allowed only to non-salaried including professionals as liquidity finance Salaried persons are not eligible for SOD facility NRIs are not eligible Min. 40% marks as per investment grade scoring chart of Union Home model QUANTUM Loan up to 4 times of gross annual income as per the latest IT return (for both salaried & non-salaried class) subject to the following sustenance Sustenance Income levels (Percentage of Net) Up to ` 3 Lakh 45% ` 3 Lakh to ` 8 Lakh 40% ` 8 Lakh to ` 12 Lakh 35% ` 12 Lakh to ` 18 Lakh 30% Above ` 18 Lakh 25% Minimum ` 5 Lakh Maximum as follows In Metro / Urban centres Salaried class ` 100 Lakh In Semi-urban centres Salaried class ` 50 Lakh

Non-salaried class ` 200 Lakh

Non-salaried class ` 100 Lakh

Income of family member (father / mother / son / spouse / unmarried daughter) can be added to arrive at the quantum of loan, if he / she join as co-applicant SOD facility: Procedure for sanctioning working capital to be followed MARGIN 50% of the fair market value of the property mortgaged as per the latest valuation report from approved valuer of the bank at the time of sanctioning of advance Fresh valuation every three years is required during currency of advance REPAYMENT TENURE Loan amount together with interest is to be repaid in maximum 120 equal monthly installments - Subject to closure of loan in full by the time the borrower attains the age of o 60 years for salaried class o 65 years for non-salaried class SOD limit gets reduced by 20% at the time of each annual review/renewal dates commencing from 5 years prior to attaining 65 years of age RATE OF INTEREST Rate of Interest (floating) (Base Rate + 3.75) % = 14.00%

UNION HEALTH Loan Scheme for Medical Practitioners

PURPOSE and other sophisticated equipments including operation theatre equipment, air conditioners, generators, personal computer and accessories with software for diagnosis and UPS system. the area of operation of the branch. -up of clinic, furnishing and cost of medicines, if any to be procured. when taken along with loan for other purposes i.e. premises, equipment etc. i.e. a composite loan. covered under this scheme. The same should not be classified under priority sector advances.

physiotherapy centre / set-up by radiologists / qualified doctors. Composite loan is also permissible i.e. AND of premises taken on lease) can be considered with a maximum cap of up to 6 months rent or ` 30 Lakh, whichever is lower, subject to following terms and conditions: and the lease period not to be, in any case, less than tenure of the loan

undertaking from the owner of premises that he/she will refund the deposit amount, to the party through the bank only case there is any surplus left the same will be returned to the borrower concerned Regional Office and his report must be held on record. ELIGIBILITY minimum 3 years experience in any branch of medical science, with minimum qualification of:

(Bachelor of Homoeopathic Medicine & Surgery) OR like -Ray Technology and Radiology

-year experience can be considered for financing under the scheme with a maximum loan quantum restricted to ` 20 Lakh. This norm will be applicable only for borrowers having experience between 1-3 years. 25 years 65 years profession in which only Doctors/ Dentists are Partners/ Proprietor

QUANTUM Minimum ` 2 Lakh MARGIN and other assets to be financed REPAYMENT TENURE Maximum repayment tenure of 60 months for purchase of equipment/ machinery/ vehicle etc 84 months for others & composite loans Moratorium period of upto 6 months Interest during moratorium period to be serviced as when applied in the account. The repayment period should be co-terminus with the maximum permissible age. RATE OF INTEREST Fixed Floating PROCESSING CHARGES 0.50% of loan amount + service tax SECURITY Purchase of equipment / machinery / vehicles etc. Rate of Interest 12.60% (Base Rate + 3.00) % = 13.25% Maximum ` 500 Lakh

Prime Security Collateral Security Hypothecation of assets 50% of loan amount by way of purchased / created out of Mortgage of immovable assets. No EM of 3rd party banks finance property to be accepted. (irrespective of quantum Pledge of movable assets like Bank Deposits/ NSCs/ of loan). KVPS/ surrender value of LIC policies Acquisition of premises and/or expansion / renovation / modernization of existing premises Prime Security Collateral Security Mortgage of land and building for which advance is given Nil. The sanctioning authority may stipulate hypothecation of existing / future movable assets as security on a case to case basis Composite loan, i.e. for purchase of equipment/machinery vehicles etc. and acquisition of premises and/or expansion / renovation / modernization of existing premises Prime Security Collateral Security Hypothecation of The value of land and building for which advance is given, in assets purchased excess of 100% of loan amount, can be considered as collateral / created out of security towards that quantum of loan sanctioned for purchase banks finance of euipment / machinery / vehicle etc. and mortgage of In case of shortfall, further security by way of: land and Mortgage of immovable assets. No EM of 3rd party property to building for be accepted. which advance is Pledge of movable assets like Bank Deposits/ NSCs/ KVPS/ given. surrender value of LIC policies etc GUARANTEE No third party guarantee in case of individuals and proprietary concerns. Personal guarantee of all partners in case loan is given to a firm. REPAYMENT CAPACITY Repayment capacity to be worked out on the basis of existing income & projected cash flows. Need based subject to assessment of the repayment capacity.

UNION REVERSE MORTGAGE Loan against property PURPOSE+ supplementing the present income Loan amount should not be used for speculative, trading and business purposes Lump sum payment is to be used only for medical treatment of self, spouse and dependents if any Purchasing annuity plan from SUD Life (Refer IC: 8866 dated 27th January 2011) ELIGIBILITY Single or jointly with spouse in case of a living spouse Minimum age of borrower to be 60 years and that of the spouse to be 55 years The property against which the borrower proposes to raise the loan should be his/her permanent primary residence and should be self owned and self-acquired DISBUSEMENT Monthly payout by credit of SB account in joint name of borrowers with 'E' or 'S' mandate Disbursement in combination of monthly payout & lump sum However maximum lump sum payment (including interest up to maturity) may be permitted to the extent of 50% of loan QUANTUM The loan amount along with interest for the entire tenure will be 90%(Metro)/ 80%(Urban)/70%(Other areas) of the assessed market value of the property at the time of sanction Minimum of ` 1 Lakh Maximum of ` 100 Lakh MARGIN Metro - 10% Urban - 20% Other Areas - 30% RATE OF INTEREST Rate of Interest RAPAYMENT TENURE Need based, subject to maximum of 20 years Minimum Tenure based on age of borrower: Age 60 to 65 years - 15 years Age more than 65 years - 10 years 12.75% (Fixed & to be reset every five years)

PROCESSING CHARGES One time upfront fee of 0.50 % of the loan amount, subject to a maximum of ` 10,000 plus service tax

SECURITY The loan shall be secured by way of equitable mortgage of residential property OTHER CONDITIONS The house property is to be insured by the borrower at his cost against fire, earthquake and other calamities The borrower shall ensure to pay all taxes, charges etc, on time The borrower shall maintain the property in good condition Bank reserves the right to pay insurance premium, taxes, charges, etc. by reducing the loan amount to that extent, if the borrower fails to pay the same on time

Personal Loans - Advantages & Disadvantages

Personal loans can be availed for any purpose and so it helps at any point you do not have cash. The rate of interest for personal loan is very low, so it is advisable to take a personal loan for most purposes, even for buying consumer durables. You should know the advantages and disadvantages of personal loans before going for it. Advantages: Personal loans do not require you to produce any collateral or security, like other loans. There is no agent or middleman while obtaining this loan. Banks are always ready to offer personal loans. All that is required is that you need to satisfy the eligibility criteria. You may use the loan for educational or even holiday purposes. You can avail a personal loan during times of emergency when you are short of cash, since you need not answer too many questions to the bank. You may avail personal loans according to your eligibility ranging anywhere from Rs. 15,000 to Rs. 10,00,000. The payment period is up to a maximum of 60 months. It is better to avail a personal loan than to borrow cash on your credit card comparing the interest rate on both. Disadvantages: The eligibility criteria are stricter in case of personal loans, since there is no security required and the paper work is minimum. The bank checks on you capability to repay more than any other loan due to the same reason. Since the bank has a higher risk while providing personal loans, they follow a list of approved categories of borrowers. Interest rates for personal loans could range from 12 percent to 30 percent, while the service charges and prepayment penalty are also very high.

Advantages of home loan It gives you the opportunity through which you can build your own house, your own place where you can spend the rest of your life according to your own standard and lifestyle. A home loan gives you the facility to get the complete money that you need to build your house and pay the amount that you have taken for the loan in instalments without giving you mental pressure of getting out such a big amount from your business or if you are salaried then saving such big amount in years is a difficult task and saving such a big amount in the world of today takes an age. Home loan provides an advantage that you don't have the pressure that you will have to pay that amount in one go you have the option to pay the instalments in time and complete the tenure and as your loan gets pay-off you are living in your own house as well where you feel relaxed and calm down

. The disadvantages of loan Home are that the interests rates have really gone high now and for a salaried person pertaining a home loan from a bank is really very suffering because he has to pay the interest+ principal upon every instalments and after the loan tenure finishes when the customer calculates how much interest he has paid then he finds out that he had paid double the amount of which he got the loan approved. If you want to settle the loan before instalments at that time the bank will also not facilitate you and further charge you with penalty charges for early settlements and one point more that if your reason of termination is not that much satisfactory then the bank will not get your loan settled early and because of this you will be strangled in this thing for the duration that you have got the loan. during the tenure of the loan the banktakes his interests in the first 2 years of your instalments and after 2 years when you go to terminate your loan your principal is outstanding is standing where it was at the start and the bank has recovered its interest in the first 2 years so this really pisses of the customer so home loan is a good option for persons who can manage there cashflows otherwise its a trap in which one you jump then you really have to pay a very heavy price.

Advantages Of Education Loan Define as education loan can change the entire life of a person ,lending him towards a successful life and financial indipendence.education loan enables you to meet a financial demand of reputed MBA or any such professional course .the best part of these loan is that ones you complete you objective and achieve financial freedom.you can pay easily. Hence, the commitment involved with such loan is very reasonable and appealing.

-financial institutions have made an education loan an easygoing task for the applicants one can apply for the loan by visiting the bank in person or through website of the bank.majority of the bank provide online application forms and detailed relevant information for application convenience.

Student loan are great alternative as compared to conventional loan ,they not only offer lucreative interest rate but also have easier terms and conditions,majority of the nationalized bank generally do not ask for any security and charge no margins for the loan amount up to rs 4 lacs. Anoter key benefitof these loans is the deferment, the borrower is required to repay the loan while studing as the re-payment process commences after completion of the said course and attaining a job within stipulated span of time student loans also show considerable flexibility towards loaner in terms of repayment schedules.

The best advantages of education loans is that it not only satisfies the financial need to proceed with higher education but helps saving repayment. Tax benefits on education loan end up reducing overall cost of loans.

Retail lending process Loan origination Loan origination is the process by which a borrower applies for a new loan, and a lender processes that application. Origination generally includes all the steps from taking a loan application up to disbursal of funds (or declining the application). Loan servicing covers everything after disbursing the funds until the loan is fully paid off. Loan origination is a specialized version of new account opening for financial services organizations. Certain people and organizations specialize in loan origination. Mortgage brokers and other mortgage originator companies serve as a prominent example. There are many different types of loans. For more information on loan types, see the loan and consumer lending articles. Steps involved in originating a loan vary by loan type, various kinds of loan risk, regulator, lender policy, and other factors.

Application Process Applications for loans may be made through several different channels and the length of the application process, from initial application to funding, means that different organizations may use various channels for customer interactions over time. In general, loan applications may be split into three distinct types:

Agent assisted (branch-based) Agent assisted (telephone-based) Broker sale (third-party sales agent) Self-service

Retail loans and mortgages are typically highly competitive products that may not offer a large margin to their providers, but through high volume sales can be highly profitable. The business model of the individual financial institution and the products they offer therefore affects on which application model they will offer Agent Assisted (Branch-Based) Loan Application The typical types of financial services organizations offering loans through the face to face channel have a long-term investment in 'brick and mortar' branches. Typically these are:

Banks Credit Unions Building Societies

The appeal to customers of the loan offered directly in branches is the often long-standing relationship that a customer may have with the institution, the appearance of trustworthiness this type of institution has, and the perception that holding a larger portfolio of products with a single organization may lead to better terms. From a bank's standpoint, cross-selling products to current customers offers an effective marketing opportunity, and agents in branches may be trained to handle the sale of many different types of financial products. In a branch, customers typically sit with a sales agent who will assist the customer in completing the application form, selecting appropriate product options (such as payment terms and rates), collecting required documentation (new account opening compliance

requirements must be met at this stage), selecting add-on products (such as Payment protection insurance), and eventually signing a completed application. Dependent on the institution and product being offered, the application may be completed on a paper application form, or directly into an online application through the agent's desktop system. In either case, this phase of application is mostly concerned with the accurate capture of customer's details, and does not incorporate any of the background decisioning work required to assess the suitability of the customer and the risk of default, or the due diligence that must be performed to mitigate risk of fraud and money laundering activities. A major complexity for the branch origination channel is making the process simple enough that sales agents can be easily trained to handle many different products, while ensuring that the many due diligence and disclosure requirements of the financial and banking regulators regionally are met. Many back-office functions of loan origination continue from this point and are described in the Processing section below. Agent Assisted (Telephone-Based) Loan Application Broker-Sourced (Third Party Sales Agent) Loan Application Self-service Loan Application

Self-service web applications are taken in a variety of ways, and the state of this business has evolved over time Print and fax applications or pre-qualification forms. Some financial institutions still use these.

Print, write or type data into the form, send it to the financial institution

Form fill on the web, print, and send to the financial institution (not much better) Web forms filled out and saved by the applicant on the web site, that are then sent to or retrieved by (ostensibly securely) the financial institution True web applications with interfaces to a loan origination system on the back end Many of the early solutions had a lot of the same problems as general forms (bad work flows, trying to handle all manner of loan types in one form) Wizard-style applications that are very intuitive and don't ask superfluous questions

Jobs the online application should perform: 1. Present required disclosures, comply with various lending regulations) 2. Be compliant with security requirements (such as Multi-Factor Authentication) where applicable. 3. Collect the necessary applicant data 1. Exactly what is needed varies by loan type. The application should not ask for data the applicant doesn't absolutely have to provide to get to a prequalification decision for the loan type(s) they seek. 2. The application should pre-fill demographic data if the applicant is an existing client and has logged in. 4. Make it easy, quick, and friendly for the applicant (so they actually complete the application and don't abandon)

5. Get a current credit report 6. Prequalify (auto-decision) the application and return a quick response to the applicant. Typically this would be approved subject to stipulations, referred to the financial institution, declined (many FIs shy away from this preferring to refer any application that can't be automatically pre-approved.) Processing Decisioning & credit risk The mortgage business consists of a few people: the borrower, the lender, and sometimes the mortgage broker. The people that originate the loans are usually the mortgage broker or the lender. Depending if the borrower has credit worthiness, then he/she can be qualified for a loan. The norm qualifyingFICO score is not a static number. Lender guidelines and mitigating factors determine this number. Recent changes in the market and industry have made stated income and stated asset loans a thing of the past and full income and asset documentation is now required from the majority of Fannie Mae and Freddie Mac back mortgage securities. Not only does one's credit score affect their qualification, the fact of the matter also lies in the question, "Can I (the borrower) afford this mortgage?" In most cases the borrower can afford their mortgage. However, some borrowers seek to incorporate their unsecured debt into their mortgage (secured debt.) They seek to pay off the debt that is outstanding in amount. These debts are called "liabilities," these liabilities are calculated into a ratio that lenders use to calculate risk. This ratio is called the "Debt-to-income ratio" (DTI). If the borrower has excessive debt that he/she wishes to pay off, and that ratio from those debts exceeds a limit of DTI, then the borrower has to either pay off a few debts in a later time and pay off just the outstanding debt. When the borrower refinances his/her loan, they can pay off the remainder of the debt.

Pricing policy varies a great deal. While you probably can't influence the pricing policy of a given financial institution, you can:

Shop around Ask for a better rate - some financial institutions will respond to this, some won't Price match - many financial institutions will match a rate for a current customer[1]

Pricing is often done in one of these ways. Follow the internal links for more details: Everyone pays the same rate. This is an older approach, and most financial institutions no longer use this approach because it causes low risk customers to pay a higher than market rate, while high risk customers get a better rate than they might otherwise get, causing the financial institution to get a lower rate of return on the loan than the risk might imply. Risk-based pricing. With this approach, pricing is based on various risk factors including loan to value, credit score, loan term (expected length, usually in months)[1] Relationship based pricing is often used to offer a slightly better rate to customers that have a substantial business relationship with the financial institution. This is often a price improvement offered on top of the otherwise computed rate. Loan Specific Compliance Requirements

Many of the customer identification and due diligence requirements of loan origination are common to new account opening of other financial products. The following sections describe the specific requirements of loans and mortgages. Fees and 'Points' Fees for loan origination are called loan [origination fee]s and are often required by most lenders and brokers. Add-on Credit insurance & debt cancellation Credit cross selling Up-selling Down-selling Refinancing Loan Recapture Appraising Collateral The next step is to have a Real Estate appraiser appraise the borrower's property that he wishes to have the loan against. This is done to prevent fraud of any kind by either the borrower or the mortgage broker. This prevents fraud like "equity stripping" and money embezzlement. The amount that the appraiser from either the borrower's side or the lender's side is the amount that the borrower can loan up to. This amount is divided by the debt that the borrower wants to pay off plus other disbursements (i.e. cash-out, 1st mortgage, 2nd mortgage, etc.) and the appraised value (if a refinance) or purchase price (if a purchase) {which ever amount is lower} and converted into yet another ratio called the Loan to value (LTV) ratio. This ratio determines the type of loan and risk the lender is put up against. For example: if the borrower's house appraises for $415,000 and they wish to refinance for the amount of $373,500 - the LTV ratio would be 90%. The lender also may put a limit to how much the LTV can be - for example, if the borrower's credit is bad, the lender may limit the LTV that the borrower can loan. However, if the borrower's credit is in Good condition, then the lender most likely not put a restriction on the borrower's LTV. LTV for loans may or may not exceed 100% depending on many factors. The appraisal would take place on location of the borrower's property. Processing Documents/Loan Underwriting Document Preparation Document Preparation or Doc Prep is the process of arranging and preparing the borrowers closing contracts. These documents vary from industry to industry but generally contain a note, disclosures, and other documents describing and detailing the agreement between the borrower and lender. Electronic Signature Digital Signature Mortgage Underwriting An underwriter is a person who evaluates the loan documentation and determines whether or not the loan complies with the guidelines of the particular mortgage program. It is the underwriter's responsibility to assess the risk of the loan and decide to approve or decline the loan. A processor is the one who gathers and submits the loan documents to the underwriter.