Distribution Channel in Coco Cola

The Role Of Financial Institutions In Providing Housing
Loan To Middle
Income Groups.
Dissertation submitted in partial
fulfilment of the requirements for the
Award of
degree of
MASTER OF
BUSINESS
ADMINISTRATION
No.12CQCM
A008)
Under the
Guidance
of
Mr
Haris
h
Lecturer,
DSCMIT MBA
BU
OF
BANGALORE
UNIVERSITY
By
Agnelamit
B Borges
(Reg.
DayanandaSagar
College of Arts,
Science &
Com
merc
e
ShavigeMalleshwara Hills,
KumaraswamyLayout , Bangalore 560078
CERTIFICATE OF THE FACULTY GUIDE

This is to certify that the dissertation report titled The Role Of Financial
Institutions In Providing Housing Loan To Middle Income Groups.
submitted in partial fulfilment of the requirement for the award of the degree of
Master of Business Administration to Bangalore University is a record of original
work carried out by Agnelamit B Borges (Reg. no. 12CQCMA008) under my
supervision and guidance and that no part of this report has been submitted for
the award of any other degree/diploma/certificate.
Place: Bangalore
Mr Harish
Date: Lecturer,
DSCMIT
MBA BU
INSTITUTE CERTIFICATE
This is to certify that the dissertation titled The Role Of Financial Institutions In
Providing Housing Loan To Middle Income Groups., submitted in partial
fulfilment of the requirement for the award of degree of Master of Business
Administration to Bangalore University, is a record of original work carried out by
Agnelamit B Borges (Reg. no. 12CQCMA008) under the guidance of Mr.Harish
during the academic year 2012-2014. This has not been submitted to any other
university or institution for the award of any degree/ diploma/ certificate.
Dr. Dinakar G
Professor & HOD
(DSCMIT)
Place: Bangalore
Date:
Dr N Suresh
Director
Student Declaration
I do hereby declare that the dissertation Report titled The Role Of Financial
Institutions In Providing Housing Loan To Middle Income Groups. is an
original work done by me, submitted in partial fulfilment of the requirement for the
award of the degree of Master of Business Administration to Bangalore University,
under the guidance of Mr Harish. This has not been submitted for the award of
any other degree/ diploma/ certificate.
Place: Bangalore
Agnelamit B Borges
Date:
Reg.No. 12CQCMA008
ACKNOWLEDGEMENT
I express my sincere thanks and deep sense of gratitude to Dr. N
SURESH
the director (MBA BU) of DAYANANDA SAGAR
COLLEGE OF ARTS, SCIENCE & COMMERCE, BANGALORE,

and Dr. DINAKARAN, Head of the Department (MBA BU) of
DSCMIT for granting me permission to do this project and extending all
his help and support.
With deep respect I express my sincere gratitude towards my project

guide MR HARISH for his valuable comments and guidance throughout
my project.
I express my heartfelt thanks to all the faculties of the Department of

Management Studies, DAYANANDA SAGAR COLLEGE OF ARTS,
SCIENCES & COMMERCE, BANGALORE, for their instant help and
guidance throughout my project.
I also express my sincere gratitude towards my parents and friends

who supported and encouraged me for the successful completion of the
project.
AGNELAMIT B BORGES
TABLE OF CONTENTS
Chapter
s
Contents
INTRODUCTION
1.
1 Background of the study
1.
2 Present scenario of the market
1.
3 Future trend of the market
1.4 Highlights and Comments
1.
5 Bangalore market scenario
1.6 Need and importance of the study
LITERATURE REVIEW &

RESEARCH
DESIGN
16-41
3.
1 Housing Finance
3.
2 Housing Finance Institutions
3.3 Development Of Modern Banking
3.
4 Structure Of Banking System In India
DATA ANALYSIS AND

INTERPRETATION
4
11-15
2.
1 Introduction To Housing Finance
2.2 Statement Of The Problem
2.
3 Objectives Of The Study
2.4 Research Methodology
2.5 Type Of Research
2.6 Sample Technique
2.7 Sample Size
2.8 Collection Of Data
2.9 Limitations Of The Study
INDUSTRY PROFILE
Page No
1-10
4.
1 Hypothesis
4.
2 Analysis and Interpretation
42-65
FINDINGS, RECOMMENDATIONS
&
CONCLUSION
BIBLIOGRAPHY
ANNEXURES
66-69
70
71-75
LIST OF TABLES & GRAPHS

TABLE
NO
TITLE
PAGE NO
01
Age wise classification of respondents
39-40
02
Occupation of the respondents
40-41
03
Income level of the respondents
42
04
Monthly savings of the respondents
43-44
05
Residential status of the respondents
44
06
Purpose for which home loan is to be applied
45
07
Ranks for the decision attributes
46-47
08
Ranking of the Housing Finance Institutions
47-48
09
Ranking of key attributes in selection of HFIs
49-50
10
Purpose for which home loan was opted
50-51
11
Loan amount borrowed by current applicants
12
Tenure of the loan amount
53-54
13
Type of interest rate opted
54-55
14
Satisfaction level of current applicants
55-56
15(a)
Ranking of attributes by satisfied current applicants
56-57
15(b)
Ranking of attributes by dissatisfied current

applicants
57-58
16
Suggestions by the current applicants
59-60
17
Willingness To Shift From Current To Fluctuating

Rate Of Interest BY Current Applicants
60-61
18
Most Preferred Institution By Potential Applicants
61-62
52
Role of Financial Institution Providing Housing Loan

to Middle Income Groups
Chapter-1
INTRODUCTION
A home is a place of residence or refuge and comfort. Purchasing and moving into a
dream house would generally rank among the top three things on the wish list of most
people. After all its what been proved by Maslows Law of Hierarchy as well. Middle
income groups cant buy their dream home at once paying huge amount of money that
is the reason they go for home loan to the financial institutions. But nowadays it is
difficult to choose proper financial institutions due to competencies between so many
players in the market. So that financial institutions play a important role to middle
income groups.
The industry comprises of nearly 383 housing finance companies although

disbursements from only the leading 26 institutions are eligible for re-finance from
National Housing Bank, which is the regulatory body for these companies. These
Housing Finance Companies (HFCs) constitute nearly 95 % of the total disbursement
by the industry.
In today's political scenario, India has positioned itself as one of the best place
for realty investments. The reason behind this development is India's flexible policies
and open system with social and political safety regulators and a conducive
environment that provides comfort, long-term stability and security to the foreign
investors for personal as well as business investments.
The positive outlook of Indian government is the key factor behind the rise of the
Indian real estate sector, the second largest employer after agriculture in India. This
budding sector is today witnessing development in all area such as - residential, retail
and commercial in metros of India such as Mumbai, Delhi, Kolkata, Bangalore and
Chennai. Easier access to bank loans and higher earnings are some of the pivotal
reasons behind the sudden jump in the real estate sector.
Dayananda Sagar College of Arts Science and Commerce Page 1

As access to bank loans are becoming easier, many potential buyers wish to learn
about best financial institution and real deal for home purchase.
Even the property prices are augmenting fast, especially Chennai real estate,
Hyderabad real estate and Bangalore real estate are on the very high phase. The
market boom is spread across the country and hence more and more Indians are not
interested in investing for India real estate. The economy rate as well has managed to
grow faster than 8% each year because of increasing real estate market trend.
1.1 Background of the study

The Indian housing finance industry
Since the 1970s, the Indian government had given special emphasis to the housing
industry and made providing housing one of its main objectives. However, due to the
scarcity of finance, owning a house remained a distant dream for the average Indian;
even a
lifetime'searnings and investments were not enough to fund the purchase of a house.
As a result, even by 2001, the country faced a shortage of 19.40 million dwelling
units. The housing finance industry emerged as the answer to the problem of housing
by providing finance to individuals planning to own a house.
Till then, banks had offered personal loans for properties. But these loans were
restricted to bank and government (public sector) employees. Private sector
employees had to undergo a lot of hardship to obtain housing loans.
To take care of this problem and to boost investment in housing industry, thegovernm
ent established the Housing Development Finance Corporation LTD (HDFC) in1977.
The objective of HDFC was identified as promoting home ownership by providing

long-term finance to households for their housing needs.

During the 1980s and 1990s, increased urbanization and the migration of the rural
population to the cities resulted in heavy demand for housing. This created a great
need for housing finance.
The National Housing Bank (NHB) was also established on 9
th
July 1988 the
NationalHousing Bank Act, 1987 to function as principal agency to promote Hous ing
FinanceInstitutions and to provide financial and other support to such institutions.
The National Housing Bank Act empowers National housing bank or NBH to:
1
Direct and regulate the functioning of housing finance institutions for

fair practices
Provide loans, advances or any other financial assistance to Banks and

housing finance institutions for slum improvement.
Supervise mobilization of resources and extension of credit for

housing.
Till the late-1990s, the marketing efforts of Indian HFCs were rather limited because
the industry was largely a seller's market. Even the market leader, HDFC, had not
undertaken any major marketing initiatives.
The entry of commercial banks and other private sector companies, however,
changed the dynamics of the industry, and for the first time, all the players
emphasized on marketing. Many of the HFCs targeted the middle class, which had
begun availing of housing loans largely due to the declining interest rates.
Analysts pointed out that housing loan companies needed a strong brand image to
build a strong relationship with these customers. It was felt that if interest rates
increased in the future, this brand image would help
companies gain/retain their market shares. Direct marketing emerged as a very
effective tool for attracting customers in this industry.
In the early 21st century, the housing industry in India was one of the few sectors that
were growing at a healthy rate of 28-30% in spite of the economic slowdown. A host
of reasons were responsible for this growth, including favorable government policies,
increased corporate activity, and above all, an increasing customer-base.

During 2000-2002, the government had announced many industry-friendly policies; in

addition, during the same period, real estate prices had also gone down across the
country. The industry's strong growth had a direct impact on many other related
industries, such as the cement, engineering, paint and steel industries. One industry
that experienced hectic activity during the period was the housing finance industry. In
fact, some industry observers claimed that the ease with which housing finance could
be obtained resulted in the increased activity in the housing industry. Not only were
customers given tax concessions on housing loan repayments, companies were also
given tax rebates on profits earned.
As a result, many banks and financial institutions had entered the market withattractiv
e financing rates and consumer-friendly schemes. So that the new home purchase
loan has become much easily available and is much cheaper than what was available
earlier.
Banks were everywhere and the schemes were implemented even in villages and
smaller towns. The housing loans are popular there too, however, the activity of
building flats is little slow. It would not be wrong to say that there has been a boom in
the home loan market and with this boom; there is also a boom in the number of home
loan mortgage brokers in India.
The main reason for this boom in home loan market is the change in government
policies. It is governments motivation that the home loan interest rates in
India have fallen considerably. Lot many banks are offering home loans and this is
available at low EMIs (Equated monthly Installments).
Again, there were different types of home loans available. The interest rate available
is also of two different types. One is the fixed rate loan and the other is the floating
rate loan. In the fixed rate loan, whatever interest is fixed on the start of loan is carried
on for the complete period. However, in the other one, the interest rate is not fixed and
as the interest rate goes up or low the effect is directly transferred to the person who is
taking the loan.

As shared earlier, taking a loan is not a difficult task. However, before taking a loan,
one must realize that the relationship with the bank will be for a longer period usually
15 to20 years so one must ensure faith and integrity in bank. Apart from low rate of
interest, the bank should also provide some value added services. The other thing is to
look into is the property that is to be brought. Making sure that the builder has all
sanctions and facility to build a good building is very important.
1.2 Present scenario of the market

The housing finance sector is set to see higher growth in the next few years, with an
increase in the demand and supply of housing projects.
According to estimates, the total housing credit outstanding in India as of June 30,
2013, was over Rs 7.99 lakh crore, against Rs 7.59 lakh crore on March 31, 2013.
That is an annualized growth rate of 21 per cent, against 18 per cent in 2012-13.
Although, there was a slight decline in net interest margins and stability on the nonperforming-loan front, overall, declining net interest margins and increasing credit
provisions could lead to a 20-30 basis point reduction in profitability for housing
finance companies. However, profits could still be reasonable.
Indias ratio of housing loans to GDP is seven per cent, among the lowest in the
world. Most purchases of homes are still made out of savings.
The shortfall of dwelling units has been growing and is now estimated at over 25
million units. Bridging this gap, entails the creation of the quantum of housing that
currently exists in Mumbai, Delhi, Kolkata and Chennai together.
Decline in rates of interest to 8%-9% from 12% over the past one year; this amounts
to a 15%-25% reduction in the equated monthly installment (EMI) per lakh of loan
1
Increase in supply of affordable homes and price correction in the

residential real estate market.
2
3
Increase in economic activity

Large inventory of unleveraged homes (which could be pledged by
borrowers to raise loans)

1
Increase in income
implementation of the
of
government
employees
following
Sixth Pay Commissions recommendations.
However, it is also likely that a further correction or even stagnation in real estate
prices may lead to borrowers deferring home purchase decisions on the expectations
of another round of correction.
1.3 Future trend of the market

Housing finance companies are expected to grow 24 per cent, while banks are pegged
to grow 14 per cent. Experts say this trend is expected to continue over the next five
years.
Consequently, these finance companies, including LIC Housing Finance and Housing
Development Finance Corporation (HDFC), have been gaining share over banks over
the last few years. According to a leading credit rating agency, disbursals of home
loans are projected to grow by 19 per cent in the next financial year.
Future projections predict that the population of India would reach 1,350 million by
the year 2020. Keeping in mind the additional new housing requirements as a result of
the above, an additional 70 million new households would get added up to the existing
housing requirements. This would amount to an additional 3.5 million housing units
required during the next 10-year period. In other words, due to the population increase
alone, an additional3.5 million houses per year would be required. Hence, we need to
gear up to contribute substantially to the housing stock through streamlined efforts of
public, private, co-operative, community and self-help sectors, in order to see the
dream of "Shelter for All" turn a reality by the end of the current decade.

1.4 Highlights and Comments
Highlights:
o
1
Significantly, there has been no dearth of demand for

housing and consequently for finances for the same have been
abundant.
Market dynamics play a pivotal role in determining the lending

rates.Consideri ng the same, the housing finance industry has been in a slump
in recent times.
The entry of banks into the housing finance sector has posed a serious
threat to already existent players in the field.
1
The housing sector is witnessing a clash between major players.
Foremost amongst this is the ICICI and HDFC imbroglio.
2
Housing finance policies provided by the Government of India is a
significant step towards upholding the future prospects of this industry.
Comments
There always has been huge demand of housing and it will remain same in the future.
Indian housing sector has been developing successfully even though its going through
the impact of global crisis as any other developed and developing countries. Few
years ago housing loan interest rate was declining rapidly due to competencies of
many financial institutions in India. The declining interest rest has resulted badly to
value of real state due to increase in prices. And Government of India needed to
handle this problem through its policies. GOI has introduced feasible loan condition
through public bank sectors but it is not enough to supply all the demand. So there is
still a huge demand from the customers for the housing financial institutions. And
interest rates are still remained attractive.
1.5 Bangalore market scenario

Home loans in Bangalore are almost synonymous to any property purchase in
Bangalore. This is the result of the level the property prices have reached following a
booming commercial and industrial segments. In other words, purchasing a home for
dwelling is simply not affordable for many. Renting a house or getting financial
assistance to buy a house could be the possible housing solutions in the current

scenario. Thus home equity loans are a popular real estate service in Bangalore. Even
the real estate mortgage gets high returns since the property value is so high.
The instigation of housing finance services has helped many in getting their dream home
in Bangalore that was way beyond their immediate reach. The housing loans are available
as homeloans for buying preconstructed realty or developing or renovatinge xisting
property and also as finance against home assets or real estate assets.
With home loans, we can purchase a residential plot or a house in the forms of flats or
apartments. If our home does not have enough space to suffice our requirement and
you want to add an extra floor to it, you can get financial assistance for that. Home
loans for renovation or remodeling by many leading banks are just for that. With rate
of interest going down consistently, home loans in Bangalore offer us a good option to
bring the idea of our dream home into reality.
The erstwhile Garden City and Pensioners Paradise and todays Silicon Valley
of India due to its supremacy as the Information Technology hub has made
Bangalore a hotspot real estate destination.
Now officially renamed as Bengaluru, the city is a metropolitan with a population of
over 10million making it the third most populous city and fifth largest metropolitan
area. Information technology undoubtedly has been the forerunner in setting the stage
for development,
Growing pockets of Bangalore
On analysis of the growth pattern of Bangalore, we witness a push for developments
North of Bangalore
The demand for high-end residential units remains high in the North Bangalore
region. Residential real estate activity in North Bangalore has gained traction post the
commencement of the Bangalore International Airport. The projects located around
Hebbal, Bellary Road and surrounding areas are in the luxury segment. North
Bangalore is assured to be the next economic centre of Bangalore.

Proximity to the International Airport and planned social and the physical
infrastructure in the North have boosted development in the area. Embassy Lake
Terraces, RMZ Latitude, Karle Zenith, Equinox, Embassy Boulevard are some of the
high-end projects in the North Bangalore
South of Bangalore
The demand for high-end residential developments is low in the South. The housing
requirement in this area increased after Electronic City established itself as an IT Hub
in this micro-market. However, it did not attract premium residential developments
due to poor urban and social infrastructure. Electronic city is located in the outskirts of
Bangalore in an area of 332acres and is home for the IT behemoths including Hewlett
Packard, Infosys, and Siemens and Wipro. Sarjapur road is another promising area in
the south of the city. Jaynagar, J.P Nagar, BTM layout are the areas adjoining to
Electronic city developed primarily as residential areas.
East of Bangalore
It has grown till Whitefield, rapidly developing as a commercial area. Though the
connectivity to this part is not au courant, initiatives of government are underway in
form of metro rail and improved road connectivity. Kormangala, Indiranagar and
Hosur road are the prime areas. Prices in the East have remained stable with
priceranging between Rs 2500-7700 per square feet for residential and Rs 30008000 for commercial.
West of Bangalore
It has predominantly been the residential focus with prime areas being Malleshwaram,
Rajaji nagar and Chord Road. Being a residential area the prices have comparatively
been stable hovering between Rs 2000-6500 per square feet for residential and Rs
3000-6000 per square feet for commercial.
All leading banks and finance companies have their branches in Bangalore wherethey
provide home loans experts who guide you about the formalities and eligib ility
procedure of each bank and the housing finance product most suitable to your

requirements. Many cheap home loans products are available in the market that makes
these housing finance services more affordable for the masses.
1.6 Need and importance of the study

A positive real estate scenario in Bangalore city exists today because of connectivity
and convenience offered by infrastructure developments. This gave rise to new
residentialoptions at various parts of Bangalore city created a ideal situation to go for
purchase/construction of house. Since, middle income group constitute major portion
of Bangalores population, its important to identify the factors effecting the decision
making to go for a housing loan by this group. Here comes the need to give snap shot
picture of current scenario of housing finance industry. This will benefit the loan
applicants in their decision making to go for a loan and selection of a service provider.
The study centered on to find out the key decision attributes which affects decision
making on home loans by middle income groups in Bangalore city. The study also
reminds the role played by financial institutions and offers suggestions for
improvement. And it is important to know for me about Indian housing sector, its
features and difference from Mongolian mortgage, housing market.

Chapter-2
LITERATURE REVIEW & RESEARCH DESIGN
Home has been the centre and instrument for mankind's moral and material progress
ever since the advent of civilisation. Since home life affects the very foundation of an
individual's life, the house becomes an integral part of it. The first step in house
construction is collecting money to own a house. These days one need not have ready
cash to start house construction. There are many financing institutions which give a
helping hand in fulfilling one's dream of owning a house. This is a topic on which
many studies have not been done in our country. The available literature is reviewed
under the following heads. Importance of housing, problems, shortages, cost
effectiveness, environment awareness and various sources of housing finance, urban
sat on approach, Marxian views, effects of decentralization, and the developmental
rd
efforts for the future housing sector. Man spends 1/3 of his lifetime in sleeping. In a
modern society a house not only satisfies the need for shelter to man but also security
and pleasure in the society. To have this, one should have the capacity to purchase or
hire or to build their dream home. Since a large part of the population of middle
income groups have the capacity to own a house but lack to gather huge amount at
once. Here comes the role of financial institutions to fund this type of construction. In
the present scenario of falling interest rates, the study on role of Financial Institutions
in providing housing loans for middle class income group has become a subject
matter of paramount importance.

IMPORTANCE OF HOUSING:
According to Krishnamachari (1980) as stated in preamble of the National Housing
Policy, "shelter is a basic human need and as an intrinsic part of human settlement, is
closely linked with the process of overall socioeconomic development. Though a
house is essentially a place of dwelling, it also fulfils many important social needs of
the household. Besides providing shelter, it creates employment, generates voluntary
saving and creates a conducive condition needed for achieving crucial goals "'
In the opinion of Naik (1981) "housing is an essential element of life for most human
beings. The modern concept of housing does not limit the idea of housing merely to
the provision of shelter." Housing constitutes a physical matrix in which human
interaction occurs. The house that people live in, touch upon every facet of their lives
and the society as a whole" as cited by Paul S. (1 983)-3
According to Satyanarayana (1987), housing is an element of material culture, is one
such devices to overcome threats against physical elements or security to lives and
serves as an important purpose by making the provision of shelter. It provides a place
for the operation of many human activities Irrespective of place and time man is using
a place of accommodation which is called a house. It helps people to interact within
the family and with the outside world.4
As cited in Encyclopedia Britani B, the world housing has a general meaning covering
conditions and statistics applying to all the dwellings of the community. It is used to
refer to the problem created by deficiency in number or defects in conditions of the
dwellings.
1
Kearl (1979), The mortgage market is important for housing precisely

because it makes the asset divisible and therefore allows a household to more
closely adjust its asset portfolio as desired. This speaks volumes about the
significance of housing finance for an individual home buyer as for the
economy.
Charles (1977) expects demand for housing to be sensitive to

economic variables. Income therefore plays a major role in demand for
housing and

thereby for housing finance. The role of income is incorporated in terms of
monthly repayment burden that a potential borrower can
1
Gelfand (1966, 1970) suggests that lenders can choose borrowers with
stable incomes in the case when credit terms are too liberal
Lindsay (1971)The relationship between housing finance and income

is manifested in the fact that it enables households to spend more that what
their current income permits
Clauretie and Herzog (1990) found that loan losses for lenders
reduced when regressed on rising property prices and rising interest rates. The
reason is that an increase in the current market rate of interest reduces the
incentive for borrowers to default on the mortgage carrying lower rate
RESEARCH DSIGN
2.1 INTRODUCTION TO HOUSING FINANCE:

To give a boost to the housing scenario in India and to narrow down the margin
between the housing demand and the availability of houses, The National Housing
Bank was set up in the year 1988. This was done by keeping in mind that a home
seeker though has a desire for a house but lacks the resources for construction or
buying it. To give an enhancement to private housing finance institutions the National
Housing Bank came into the picture. It is a principal agency to promote housing
finance institutions both at local and regional levels and to provide financial and other
support to such institutions. While it is important to keep in mind that the National
housing Bank itself does not give loans or finance individuals or a party as such. It is
only a corporate body to promote, establish, support or aid the housing finance
institutions.
2.2 STATEMENT OF THE PROBLEM:
Man spends 1/3rd of his lifetime in sleeping. In a modern society a house not
only satisfies the need for shelter to man but also security and pleasure in the society.

To have this, one should have the capacity to purchase or hire or to build their dream
home. Since a large part of the population of middle income groups have the capacity
to own a house but lack to gather huge amount at once. Here comes the role of
financial institutions to fund this type of construction. In the present scenario of
falling interest rates, the study on role of Financial Institutions in providing housing
loans for middle class income group has become a subject matter of paramount
importance.
2.3 OBJECTIVES OF THE STUDY:

The study was conducted in order to achieve the following objectives:
1
To identify those factors which influence the decisions to apply for
home loan and in selection of housing financial institution by prospective
middle-income
group customers for home loan.
2
3
4
To assess the satisfaction level of current home loan customers.
To study the role played by financial institutions in providing housing loans.

To study the effect of falling interest rates on home loan seekers.
2.4 RESEARCH METHODOLOGY:
Any type of research should deal with the methods employed and the tools
applied to fulfill the objectives of the study.
2.5 TYPE OF REASERCH:
A descriptive study has been undertaken for this study to know about the
functionality of housing loan industry, major players, norms and procedure, interest
rates patterns, cost of loan to the customers.
2.6 SAMPLE TECHNIQUE:
The respondents with respect to current and potential applicants had been
picked on the basis of random convenience sampling.

2.7 SAMPLE SIZE:
The sample size of this study was 50 for current customers and 50 for potential
customers. These samples would be selected from Bangalore.
2.8 SAMPLE DESCRIPTION:
The sample size obtained for the study would be between the age group of
25years to 60 years whose monthly income ranges between Rs10,000/- to Rs.40,000/and would be chosen from different parts of the city.
2.9 COLLECTION OF DATA:
Primary source of data
Primary source of data from potential customers is obtained from meeting them
personally and got the questionnaire filled. It is a firsthand data.
The primary collection of data from current customers is done through sending
questionnaire through friends, relatives and also by personal meeting with the
respondents.
Secondary source of data
Secondary source of data is obtained from internet and websites, various

publications, news papers, magazines, books etc
LIMITATIONS OF THE STUDY:
The study would be subjected to the following limitation:
1
The study conducted is restricted to the available information from the

sources.
It would take into consideration the confidentiality of certain facts and

figures.
During the course of study time constraint would be a limitation.

Chapter-3
INDUSTRY PROFILE:
3.1 Housing finance

Housing Finance is considered both by way direct and indirect finance.
Direct finance:
Loans give to individuals or group of individuals such as co-operative Housing

Societies or Educational, Health, Social Cultural or other institutions/centers which
are part of a housing project and which are necessary for the development or
settlement of townships or to shopping complexes, markets and any other centers
catering to the day to day needs of the residents of the housing colonies and forming
part of a housing project or to construction meant for improving the conditions in
slum areas for which credit is to be extended directly to the slum dwellers against the
guarantee of government or indirectly through stated governments are classified under
direct finance.
Indirect Finance:
Loans granted t public housing agencies like HUDCO, StatedHousing Boards, State L
evel Agencies, HDFC, Housing Finance Institutions, Housing Boards and other
Agencies are classified under Indirect Finance. Also, financing for Land acquisitions
and to Private Builders is classified under Indirect Finance.
Nature of housing loans:

1) Longer tenure of loans, ranging from minimum 5 years to 20/25 years. Higher
outlay of funds and longer duration of the housing loans make it different form that of
other retail loans. Therefore, the risk horizon also differs for the housing vis--vis
retail loans.

2) Rather low cost of operations in terms of deployment of manpower for processing
and follow up, etc., as compared to other loans of the same size within the retail or
any other segments.
3) Safe advances as these are invariably backed by tangible security the form of
mortgage of house/flat
.4) Tendency to default on housing loans low as house is considered as the big ticket
deal of an individuals life.
5) Housing finance provides a higher and rather consistent
risk adjusted return
to banks.
6) Cut throat competition prevails among Banks, Housing
Finance Companies
and NBFCs
Types of home loans

Today, home loans have been restructured to suit your constantly changing needs
starting with a basic loan to buy a home, to loans required for construction or for
repairing your existing home. Featured below are a few other kinds of loans available.
1
Out Right Purchase Loans
As the name indicates, we can avail these loans for the outright purchase of our
homes.
1
Construction Loans
We can avail these loans for the construction of your home.

1
Home Extension Loan
We could avail of this loan if we want to build a floor or expand it but only after we
obtain the requisite approvals from the municipal and town authorities.
1
Home Improvement Loans
External work like structural repairs or waterproofing and internal work like tiling,
plumbing, electrical work painting, flooring, etc., remains to be done even after weve
bought the house. This is when a home improvement loan comes in handy.
1
Home Conversion Loan
Simply put, this loan enables us to transfer our current loan (which we took to buy our
house) to the new house, thereby providing us with additional finances for the

incremental cost of the new house. Which means, we can move to our new house
without having to pre- pay our existing loan?
1
Land Purchase Loan
If weve opted to invest in land instead of buying a flat in town, we could apply for a
land purchase loan. We could later apply for a construction loan separately to build
our dream home on the land.
1
Stamp Duty Loan
This is extended against the stamp duty amount payable on our purchase of a house.
This particular loan could be worth considering, especially in cities like Delhi,
Mumbai and Bangalore where Real Estate prices are on the high side and the stamp
duty payable is substantial.
1
NRI Loans
Loans today are available not only to resident Indians but also to NRIs if they wish
to buy or construct a house in India. But for an NRI the documentation required is
different. He/ She would have to submit his/her work permit ( where applicable),
stamped visa on the passport, employment contract, latest salary slip and overseas
bank statement of the past few months, Repayment of the loan could be done through
the normal banking channels using either a Non-Resident (external)or a Non-Resident
(ordinary) account
1
Bridge Loans
In short, bridge loans are short-term finance loans that cover the period till we sell off
your old house. To elaborate slightly, supposing we plan to buy a new house (which
weve already found) and want to sell the one were currently living in but are unable
to find a buyer, a bridge loan proves useful. Repayment of a bridge loan can be done
through a lump sum or in installments.
1
Refinance Loan
This simply means that a housing finance company gives us a home loan to repay our
earlier debt. But the condition is that the earlier debt shouldnt be over six months.
A refinance loan therefore works out cheaper when your present house has entailed a
borrowing for mother sources such as friends, provident funds, etc.
Balance Transfer (swap)

A balance transfer loan is really useful when interest rates fall even as were still
repaying our home loan. And if weve opted for fixed-interest rate repayment terms,
well be paying a higher rate of interest. What we could do is get our existing loan
refinanced (usually by another finance company). The new lender will repay our
existing loan and give us a new loan at the current, lower rate of interest. We might
have to face a pre-payment penalty on our old loan, but it will be worth it if the new
EMI (based on the new, lower interest rate) ensures sufficient savings.
Sanctioning criteria for Housing Loans

1
Age
It influences the amount and eligibility for a loan by the way of being a major and the
period remaining for retirement.
1
Savings
How much of ones savings can one put for the house? The more one can put into the
down payment, the less he needs to borrow. Yes, given the low interest rates and
attractive tax breaks, it perhaps makes more sense to take higher loans now than never
before. But remember: there isnt a one-size-fits-all option here; the down paymentloan ratio will largely be determined by ones specific financial situation.
For instance, the young couple in our example wont have a substantial
corpus of savings but will be looking to make the most of their tax breaks by taking
the largest possible loan. With their incomes likely to increase over time, they can
easily service their loan on the other hand single mother with her childs education to
worry about, or man with dual responsibilities will want to limit their loan repayment
liability with higher down payments.
1
Income
Obviously a major determinant of, how much loan one can get and how much quickly
one can repay it. Each EMI consists of a principal component and an interest
component. As a thumb rule, the maximum possible EMI is usually put at 35-40% of
your gross monthly income. Most lenders allow the borrowers to club one coapplicants income with their own to increase ones loan eligibility.

As a young couple looking at a growing income curve, one can afford to take a large
loan or even a step-up land where the EMIs keep increasing with rising repayment
capacity. On the other hand, declining future income will deter the man on the verge
of retirement from taking a large loan. He may find it prudent to in for step-down
plan. That lets him scale down his EMIs in his post-retirement years or he may opt to
return the loan partially or fully with his super-annotation benefits.
1
Debts
If one has commitments like repayment of a car loan, it will limit the finances one
can raise for a house. Then the loan will be lesser than what one could have taken had
been debt-free. Basically, it is about ones disposable income. The lender is interested
in knowing what resources are available to the borrower to service the loan.
1
Interest rate
The choice of lender may also be determined by how the interest is calculated. Under
certain calculation methods, the interest outgo is more.
A part of each EMI one pays goes towards reducing the principal amount. How
much this portion is- on which the interest rate is based- depends on how the interest
is calculated by the lender. It may be calculated on a yearly, monthly, or daily reducing
basis. The daily reducing balance method is the most cost-effective. As a thumb rule,
given an interest rate, the more frequently the interest is computed, the better for the
borrower.
1
Tenure
One can opt for long loan tenures when he is sure he can still repay even after 15 or
25 years. One must also be reasonably certain that unexpected and substantial
monetary obligations wont crop up, as in the case of the young widow or the man
with a growing family and aged parents. If he is close to retirement, he must be
looking at a declining repayment capacity- it makes sense to go for shorter tenures or
smaller loans.
But even for the young couple, a 30 year loan can prove counter-productive. Unlike in
the US, where interest rates are lower for long-term loans, in India the rates are same
for all tenure. This results in a sharp increase in interest obligation for 30-year loans
without a corresponding increase in loan amounts.

Procedure for Availing Housing Loan
1
The appraisal officer attends to the queries of a prospective borrower.

Various details e.g., eligibility criteria are discussed during this meeting.
Customer collects the application form, which is generally available at

the reception counter.
Applicant pays the processing fees, which is about 1% of the loan

amount. The fees are non-refundable. Generally they are asked to pay the fees
only if the chances of the loan getting sanctioned are really good as per the
Officer's analysis.
The date of the personal interview is fixed up as per mutual

convenience. The appraisal officer conducts the interview.
The Appraisal Officer prepares the file and discusses the case with the
Branch Manager. The Branch Manager should substantiate recommendations
of the Appraisal Officer. The file is then recommended for sanctioning by the
competent authority.
The competent authority concerned sanctions the loan proposal. In case

there are some queries, the same have to answer by the Appraisal Officer to
the satisfaction of the sanctioning authority.
If approved, applicant collects the Loan Offer letter. They fill Property
Details formand Acceptance Note and sign the same. This signifies your
acceptance of the proposal. Then, they are required to collect the disbursement
within a month of the acceptance of the offer letter failing which a
Commitment Charge of generally 1% on the loan is levied
The Legal and Technical fee is generally 1% of the loan sanctioned is

paid by the borrower. The file is then transferred to the Legal department. You
submit the legal documents to the Legal Officer. The Loan Agreement and the
other documents are signed. The Legal Officer then prepares the Legal Report
after studying the legal documents in depth.
The Technical Officer visits the property and submits the Technical
Report. TheTechnical officer as per the stage of completion recommends the
amount f or disbursement.

The Disbursement Memo is prepared and is signed by the Appraisal,

Legal and Technical Officers, and countersigned by the Branch Manager.
The accounts department prepares the cheque which is then sent to the
authorizedsignatories. The Disbursement Memo is attached with important do
cuments likeinterview sheet, Legal Report, Technical Report, PEMI Status
Report applicable etc.
The PEMI cheque of the amount disbursed is collected before releasing

the disbursement amount cheque. PEMI is the interest charged on the amount
already disbursed by the company.
Consequent to the final disbursement the EMI starts, which amortizes

the interest and adjust the principal for the tenure allotted.
The documents mortgaged are released on closure of loan.
List of Documents In Case Of Salaried Borrowers

The following documents are required to be submitted by the borrower at the time
of submitting his application: 1
Loan Application form duly filled and signed by the borrower and coborrower (where applicable).
Latest salary slips in original.
Employment certificate on the letterhead of the borrower's employer.
Xerox copy of the first and last page of the ration card.
Xerox copy of the first and balance page of Bank Pass Book.
Xerox copies of Rent Receipt and Electricity Bill, if applicable.
Xerox copy of the LIC policy along with a copy of the latest premium
receipt.
Xerox Copies of various investments of the borrower.
Proof of educational qualification
10
Proof of age.
11
Previous experiences certificate wherever applicable.
12
Xerox copy of the agreement of the property if the property is already
selected and agreement is entered into.

1
Xerox copies of the own contribution receipts, wherever applicable.
In case of borrowers whose salary is taxable, the companies generally

call for the 3years form 16 for tax deducted at source by the employer
Factors to be considered before taking individual loan

Here are some of the factors one should consider before making decisions on
home loans.
1
Rate of interest
This is one of the most important factors. Simply put, this is the rate at which we
borrow money to buy the house.
Its not always a fixed rate. Though interest rates vary from lender to lender, they
usually range from 8% to 10%, depending on the amount of loan.
The rate for small loans (below Rs.5 lakhs) is lower than that for Rs.10 lakhs and
above. The interest rate on home loans is much lower compared to that of a personal
loan, like a car loan.
Interest rates offered are of two types:
1) The floating interest rate loan:
Here, the interest rate payable is linked to the market rate like the bank lending rate.
As the bank rate varies, the interest rate payable will also rise or fall. Since theres an
element of risk due to the interest rate fluctuations, the floating interest rates offered
are slightly lower than the fixed interest rates.
2) The fixed interest rate loan:
The interest rate is constant over the loan tenure.
1
Tenure of the loan

This is the period of time for which we are taking the loan. Usually it ranges
from 5years to 15 years. Typically, the tenure of the loan dose not extends beyond the
age of retirement or when we turn 65- whichever comes first.
1
Equated Monthly Installment (EMI)

EMI means the amount of money returned back by the borrower to the money
lending institution every month, till the end of the loan tenure. It is the spread of loan
amount payable in the form of small parts each month.
1
Reducing balance factor
This is the method of reducing the principal amount repaid from the
outstanding loan amount. Every time you make a payment, the interest you pay is on
the part of the original principal sum that remains un-prepaid till then. You could
calculate the reducing balance in three ways:
1
2
Daily reducing balance

Monthly reducing balance
Annual reducing balance
In the daily reducing balance method, the principal is reduced every day as if you
were making repayment of the principal on a daily basis.
In the other two cases, the reduction in the principal outstanding is made at the end of
every month and every year respectively. So, the EMI in the monthly reducing balance
method will be lower than in the annual reducing balance method given the same rate
of interest.
1
Service from the lender.
Today, many companies offer a wide range of personalized services. Sometimes a loan
is sanctioned even before a property is identified. The speed of approval and
processing, however, varies across HFIs. A few institutions offer you not only
financial advice but also consultation services on property. Some incentives offered to
the customer range form free credit cards, free ATM cards, and free accident insurance
to discounted consumer loans. Some companies even send a representative to your
home to discuss and deliver the loan and also pick up the EMI cheques.
1
Additional charges
This includes processing and administrative charges and is expressed as a percentage

of the loan amount. And currently rages from 0.25% to 0.50% of the loan amount.
1
Processing charges
This is a certain charge payable on the loan we have applied for and not on the
amount of loan eventually sanctioned. This charge varies and is typically fixed,

irrespective of the loan amount or maybe a certain percentage of the loan applied for.
Paid up front, this amount effectively reduces the loan availed of by you.
For instance, a 1% Processing charge onRs.10 lakhs loan means you are effectively
getting a amount of Rs.9, 90,000 /- (Rs.10 lakhs minus the Rs.10, 000/- processing
charges). You still have to pay the interest on Rs.10 lakhs. Therefore, a lower
processing charge would prove more beneficial to you.
1
Commitment fees
There could be a delay in availing of the sanctioned loan as you may not have found
the right house or the builder couldnt deliver the property on time. In such case, aco
mmitment fee, depending on the lenders policy, may be levied on the loan amount set
aside for you.
1
Hidden Charges
Documentation charges, consultation fee of an advocate to get the title clearance for
the property, etc., could be a few of the hidden charges payable. But this should be
considered as part of the total charges levied by the lender.
1
Interest tax
This is a tax on the interest paid on the loan. The interest rate announced may not
include the interest tax. HFIs normally include the interest tax while banks charge it
as 2%additional interest tax- ( charged only on the interest paid and not on the
principal- i.e. on a loan carrying an interest rate of 15, the additional interest payable
will be 2% of 15% -i.e.0.3%)
1
Pre-payment
Returning part of the loan before it is actually due for repayment, as per their payment
schedule, means a pre-payment.
1
Foreclosure
S foreclosure is when you repay the entire outstanding loan at any point of the time
before the end of the loan tenure.
1
Pre-payment or Foreclosure penalty
In both cases you are charged a penalty called pre-payment penalty. This ranges from
1% to 2% of the amount being pre-paid. But it varies across HFIs. There are a few
HFIs which do not charge either of the penalties.RBI advised that banks will not be
permitted to charge foreclosure charges or pre-payment penalties on all floating rate
term loans sanctioned to individual borrowers, with immediate effect,

Some points to remember on loan transfer:

1
Interest rates may look upwards again, so if you wish to avail a loan
transfer do so now, by locking an old loan into a new, lower rate loan.
Be aware that the old institution will not allow you to walk away
easily.
A loan transfer makes sense when the loan amount outstanding is still
large.
Institutions are always on the lookout for a good loan. Try and
convince your own finance company to provide the benefit of a lower interest
rate regime. They will respond.
Check out what is the pre-payment penalty for an old loan. Some
institutions have waived it off.
Check out the tax benefits relating to a loan transfer. The tax benefits
may or may not accrue to you if you go in for a loan transfer, as there is
currently no income tax ruling on this.
Try and get the new organization to directly buy the loan from the old
one, by paying a certain premium. Do not try and chase documents yourself.
To go for best home loan the applicant should check following points:
Is the interest computation on daily rest, monthly rest or annual rest

basis.
Quantum of processing fee
10
Are there add-
on benefits like free personal accident insurance, waiving of processing
fee,
etc.
3.2 Housing finance institutions

To give a boost to the housing scenario in India and to narrow down
the
margin between the housing demand and the availability of houses, The National
Housing Bank was set up in the year 1988. This was done by keeping in mind that a
home seeker though does have a desire for a house but lacks the resources for
construction or buying it. To give an enhancement to private housing finance
institutions the National Housing Bank came into the picture. It is a principal agency
to promote housing finance institutions both at local and regional levels and to
provide financial and other support to such institutions. While it is important to keep
in mind that the National housing Bank itself does not give loans or finance

individuals or a party as such. It is only a corporate body to promote, establish,
support or aid the housing finance institutions. The housing finance institutions can be
segregated into three categories:
1
2
Public Sector Finance
Banks
Private sector Finance
Public Sector Banks

o HUDCO (Housing and Urban Development Corporation Limited)
HUDCO is an influential Government of India Enterprise. With the main aim of
funding state governments for infrastructure development. HUDCO intends to surface
as the lone Organization of its kind for dealing with the needs of shelter and
infrastructure development in the human settlements.
Since HUDCO entered into the individual housing finance sector, the complete state
of affairs has changed. 44.33% of housing loan of HUDCO has been allocated for
Economically Weaker Section (EWS) and Low Income Group (LIG) which carries a
concessional rate of interest of 8.5%(floating) to 9.75%(floating), over 93% of the
dwelling units sanctioned by HUDCO benefit these sections of society.
o LICHFL (Life Insurance Corporation Housing Finance Limited)

L.I.C Housing Finance Ltd. is one of the leading and oldest home funding
organizations, which offers one of the finest services in the trade. It has branches all
over India. It offers variety of loans like housing finance for new purchases, reconstructions, renovations, NRI housing finance etc. Some of the schemes that
L.I.C.H.F.L offers are, the Griha Shobha, which is for NRIs, Griha Sudhar, where one
can apply for a loan for renovations and repairs in existing houses. Green Channel
Facility is meant for professionals like practicing doctors, CAs, software
professionals etc. Of late L.I.C.H.F.L introduced a new scheme Apna Chikitsalaya,

which is especially for medical practitioners for renovating, purchasing or extending
their clinic, hospital, laboratory, etc. Then it also has the scheme of Sampurna Griha
(A) & (B) for resident Indians.
o
GICHFL (General Insurance Corporation Housing Finance

Limited)
GIC Housing Finance Ltd., a company from the house of General Insurance
Company has also emerged as a strong housing finance institution in the recent years.
o PNBHFL (Punjab National Housing Bank Housing Finance

Limited)
A subsidiary of the Punjab National Bank, PNBHFL offers the Apna Ghar
Yojana for construction or buying a house. It also offers the Ghar Sudhar Yojana
for renovation or repair of house or flat. It has home loan facilities for NRIs and Line
of Credit Facilities for companies to give loans to their employees for construction or
renovation.
o SBIHF (State Bank of India Housing Finance)

SBIHF offers loan for construction and renovation of houses at the lowest interest
rates, which range from 8% p.a. to 10% p.a.
o
OTHERS:
The other major players in the public sector are: Corporation bank Homes,
Canara Bank Home Finance Limited (can fin homes), HDFC etc...
Banks
Almost all the banks throughout India provide housing finance, except a few small
branches. The major banks that provide loans for housing are Bank of Baroda, Bank
of India, Bank of Maharashtra, Bank of Punjab, Canara Bank, Cooperative Banks,
Citi Bank NA, Corporation Bank, Dena Niwas, HSBC, ICICI Home Finance,

IDBI Bank, IndusInd Bank, Lakshmi Vilas Bank, Punjab National Bank, SBI (State
Bank of India), UCO Bank, and many others
.Amongst these ICICI and SBI are the leaders. ICICI gives the maximum period of 30
years for the repayment of loans. It offers loans ranging from a minimum of Rs. 1 lac
to Rs. 1crore.
o
Canara bank
As a premier commercial bank in India, Canara Bank has a distinct track record in the
service of the nation for over 100 years. Today, Canara Bank has a strong pan India
presence with3002 branches and over 2000 ATMs, catering to all segments of an ever
growing clientele base of over 36 million. They are recognized as a leading financial
conglomerate in India, with as many as nine subsidiaries/sponsored institutions/joint
ventures in India and abroad. As they step into the second century, they aspire to
emerge as a Global Bank with Best Practices.
o HSBC bank
HSBC's origins in India date back to 1853, when the Mercantile Bank of India was
established in Mumbai. The Bank has since, steadily grown in reach and service
offerings,keeping pace with the evolving banking and financial needs of its customers
.In India, the Bank offers a comprehensive suite of world-class products and services
to its corporate and commercial banking clients as also to a fast growing personal
banking customer base.
o
ICICI home finance
The Bank has a network of 1,694 branches and about 4,883 ATMs in India and
presence in 18 countries. ICICI Bank offers a wide range of banking products and
financial services to corporate and retail customers through a variety of delivery
channels
and
through
its
the areas of investment banking,
specialized
subsidiaries
and
affiliates
in
life and nonlife insurance, venture capital and asset
management. ICICI Bank Home Loans, offer unbeatable benefits to ensure that we
get the best deal without any hassles. As one of the leading home loan provider, ICICI
Bank understands how special building a new home is for us and their Home Loan
help us lay the foundation for our dream home. ICICI offers us the most convenient
home loan plans to suit our needs. With so many attractive features in every type of
home loan they offer some of their key benefits are:

1
Guidance throughout the process
Home Loan tenure up to 20 years
Simplified documentation
Doorstep delivery of home loan papers
Free Personal Accident Insurance (Terms & Conditions)
IDBI bank
Presenting IDBI Bank's ultra flexible home loan we have been looking for. They
realize what owning our home means to us and our family.
We can avail of the Home Loans for constructing a home, purchasing a ready built
house/flat, residential plot and even for re-financing existing loans we may have
availed from other banks or housing finance companies.
o
Punjab national bank
With over 38 million satisfied customers and 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.
PNB reaches out to us with fast, friendly and most convenient
home
loans
for:
Construction
or
purchase
of
house/flat.
Carrying
out
repairs/renovations/ additions/ alterations to existing house/flat.

Special Feature to cover the loan outstanding, life Insurance cover is also available on
payment of one time premium which can also be financed by the Bank
PRIVATE SECTOR FINANCE

HDFC (Housing Development Finance Corporation)
With the objective of augmentation of housing through the stipulation of
housing finance HDFC was established in 1978 with the support of the Industrial
Credit and Investment Corporation of India, the International Finance Corporation

(IFC) in Washington and the Aga Khan Fund. Today HDFC and Housing finance are
synonymous. It has become one of the largest home loan providers in India.
The maximum loan HDFC offers is Rs.250, 000 or 85 per cent of the cost of
the property. The repayment of the loan is on a monthly basis in equated monthly
installments over a period of between 5 and 15 years.
o
DHFCL (Dewan Housing Finance Corporation Limited)

Dewan Housing Finance Corporation Ltd. is one of the finest preferences in
private housing finance sector. Since 1984 in the market, today it has 22 branches all
over the country. Union Bank of India has obtained an equity involvement in
DHFCL's capital composition. It is interesting to note that DHFCL's shares are listed
on Mumbai, Delhi and Ahmadabad Stock Exchanges.
DHFCL offers a Double Protection Plan in the form of Free Accident Risk Cover +
Property Insurance to the extent of the loan liability to safeguard the interest of the
borrower. It also has a Regressive Payment Scheme for applicants who are due for
retirements within 5-10 years and apply jointly with the eligible younger coapplicants.
o
GHFCL (Global Housing Finance Corporation Limited)

GHFCL, A syndicate of reputed builders was incorporated in June 1994, offers
Individual Home Loan Scheme and Home Improvement Scheme. Oriental Bank of
Commerce, one of the leading nationalized banks, also participates in the equity of the
company.
o
BHFL (Birla Home Finance Limited)

BHFL offers Easy Title for registration of the property or land purchased Easy
Upgrade loans for renovation of the existing house, which has been purchased or
constructed at least one year ago. The renovation can be in the form of flooring, tiling,
plumbing, paint, polish, etc., Easy extend loans for extensions of an existing house,
Easy Home loans for outright purchase of a ready built house, Easy Build loans for

construction of house on self-acquired or inherited vacant plot of land, and Easy
Bridge Loans for purchase of a ready built house, when an individual already owns a
property, which would be sold on getting possession of the new one.
o
Maharishi Housing
Maharishi Housing Finance Corporation Ltd., a company from Maharishi
Group started in 1997 also caters home loans. One of the key attractions of Maharishi
Housing is its 35-year loan repayment scheme.
o
Others
Other key housing finance providers in the private sector are Sundaram Home
Finance, Home trust Housing, Gruh Finance, Weizmann Homes, GLFL housing, etc.
History of Banking Industry

Banking system occupies an important place in a nations economy. A Banking
institution is indispensable in a modern society. It plays a pivotal role in the economic
development of a country and forms the core of the money market in an advanced
country. Banking was primarily the business of dealing in money and instruments of
credit. Banks were traditionally differentiated from other financial institutions by their
principal functions of accepting deposits- subject to withdrawal or transfer by checkand making loans.
General History
A simple form of banking was practiced by the ancient temples of Egypt, Babylonia,
and Greece, which loaned at high rates of interest the gold and silver deposited for
safekeeping. Private banking existed by 600 B.C. and was considerably developed by
the Greeks, Romans, and Byzantines. The forerunners of modern banks were
frequently chartered for a specific purpose, e.g., The Bank of Venice (1171) and the
Bank of England (1694), in connection with Loans to the government. The bank of
Amsterdam (1609) to receive deposits of gold and silver.

Indian Banking system
Banks in India were started on the British pattern in the beginning of the 19th
Century. In those days, all the banks were joint stock banks and a large number of
them were small and weak. At the time of the Second World War, about 1500 joint
stock banks were operating in un-divided India, out of which over 1400 were not
scheduled banks. Quite a few of them were managed by bad and dishonest
management and naturally they were a number of banks failures. Hence the
Government has to step to the Banking Companies Act, 1949 (which was
subsequently renamed as banking regulation act) was enacted which led to gradual
elimination of weak bank that were not in a position to fulfill the various requirements
of the Act. In order to strengthen the weak units and revive public confidence in the
banking system a new section 45 was inserted in the banking regulation act in
September 1960, empowering the government of India to compulsorily amalgamate
weak units with stronger ones on the recommendations of RBI. RBI was empowered
in 1960, to force compulsory merger of weak banks with the stronger ones. The total
number of banks was thus reduced from 566 in 1951 to 85 in 1969. In July 1969,
Government Nationalized 14 banks having deposit of Rs. 50 crores and above. In
1980, Government acquired 6 more banks with deposits of more than Rs. 200 crores.
Nationalization of banks was to make them play the role of catalytic agents for
economic growth. The Narsimham committee report suggested wide ranging reforms
for the banking sector in 1992 to introduce internationally accepted banking practices.
The Amendment of Banking Regulation Act in 1993 saw the entry of new private
sector banks.
3.3 DEVELOPMENT OF MODERN BANKING:

For the history of modern banking in India, a reference to the English agency houses
in the days of the east India Company would be necessary. These agency houses with
almost no capital of their own and depending entirely on deposits were in fact trading
firms carrying on banking as a part of their business. Such a combination of trading
with banking had necessarily to be fatal. No wonder, therefore that almost all such
agency houses vanished from the scene in the crisis of 1829-1832.In the first half of
the 19th century, the east India company established 3 banks-the bank of Bengal in

1809, the bank of Bombay in 1840 and the bank of madras in 1843.the 3 banks are
also known as presidency banks were independent units and functioned as well .it was
however considered that it would be in the interest of these banks and the country that
they should amalgamate. In 1920 was passed the imperial Bank of India was
established in 1921.The Bank was authorized to hold government balances and
manage and public debt. It was not, however given power to issue notes .the branches
of the bank were to work as clearing houses .it was mainly a commercial bank
competing with other banks .the Imperial Bank of India was nationalized in 1955, by
the state bank of India act.
DEFINITION OF BANKING /BANKING COMPANY/
BANKER/BANK
Section 5(1) (c)of the Indian Banking Regulation act of 1949 defines the term
banking as accepting ,for the purpose of lending or investment of deposits of
money from public ,repayable on demand or otherwise and withdraw able by cheque ,
t ,order or otherwise . . Kin lay defines a bank as an establishment which makes to
individuals .such advance of money as may be required and safely made and to which
individuals entrust money when not needed by them for use. G Crowther defines a
bank as a dealer in debt, his own and other peoples. Dr H l Hart defines a banker as
one who in the ordinary course of his business, honors ceruse drawn upon him by
persons from and for whom he receives money on current accounts.
RBI Banking
The reserve Bank of India is the Central banking institution in India. It is the sole
authority for issuing Bank notes and the supervisory body for banking operations in
India. It supervises and administers exchange control and banking regulations and
administers the governments monetary policy. It is also responsible for granting
licenses for new bank branches. 25 Foreign banks operate in India with full banking
licenses. Several licenses for private banks have been approved. Despite fairly broad
banking coverage nationwide, the financial system remains in accessible to the
poorest people in India.

Government and RBI regulations:
All commercial banks face stiff restrictions on the use of both their assets and
liabilities. 40% of the loans must direct to Priority Sectors and the high liquidity
ratio and cash reserve requirements severely limit the availability of deposits for
lending. The RBI requires that domestic Indian banks make 40% of their loans at
concessional rates to priority sectors selected by the government. These sectors consist
largely of agriculture, exporters and small businesses. Since July 1993, foreign banks
have been required to make 32% of their loans to these priority sectors. Within the
target of 32% two sub-targets for loans to the small-scale sector (minimum of 10%)
and exports (minimum of 12%) have been fixed. Banking regulation act of
India, 1949 defines banking as Accepting, for the purpose of lending of deposits of
money from the public repayable on demand or other wise and withdrawal by cheque,
draft, Order or otherwise. Most of the activities a bank performs are derived from the
above definition. In addition, banks are allowed to perform certain activities that are
ancillary to this business of accepting deposits and lending. A banks relationship with
the public, therefore, revolves around accepting deposits and lending money. Another
activity that is assuming increasing importance is transfer of money- both domestic
and foreign- form one place to another. This activity is generally known as
remittance business in banking parlance.
The so-called forex (foreign exchange) business is largely a part of remittance albeit
it involves buying and selling of foreign currencies. The law governing Banking
Activities in India is called Negotiable Instruments Act 1881. The Banking
activities can be classified as:
1
Accepting Deposits from public/ others (Deposits)
Lending money to public (Loans).
Transferring money from one place to another (Remittance).
Acting as Trustees.
Acting as Intermediaries.
Keeping valuables in safe custody.
Collection Business.
Government Business.

Commercial Banks
Banking segment in India functions under the umbrella of Reserve Bank of India the
regulatory,
1 Central Bank. This segment broadly consists of:
Commercial Banks
2
Co-operative Banks
Commercial Banks:
Amongst the banking institutions in the organized sector, the commercial banks are
the oldest institutions having a wide network of branches, commanding utmost public
confidence and having the lion shares in the total banking operations. Initially they
were established as corporate bodies with share holdings by private individuals, but
subsequently there has been a drift towards central ownership and control. Up to late
sixties commercial banks were mainly engaged in financing organized trade,
commerce and industry, but since they are actively participating in financing
agriculture, small business and borrowers also. Progress of Commercial Banking in
India banking in India on western lines had started from the beginning of 19th century.
The first joint stock bank was established at Calcutta by the name Bank of Hindustan
and was under European Management. But this bank failed at that time. Then later
The Bank of Bengal (1806), Bank of Bombay (1840), and Bank of Madras (1843)
were started with final participation of the Government. These banks were called as
the Presidency Banks and were given the right of note issue in their respective
regions. The first purely Indian Joint stock company was the Oudh Commercial Bank
which came into existence in 1889; it was followed by the Punjab National Bank in
1894 and the Peoples Bank in 1901.
The Swadeshi Movement of 1905 gave great stipules to the starting of the Indian
banks. The Indian Banking system had gone through a series of crisis and consequent
bank failures. Its growth was quite slow during the first half of 19th century. But after
independence, the Indian banking system recorded rapid progress; this was due to
planned economic growth, increase in money supply, and growth of banking habit,
control and guidance of Reserve Bank etc. The number of commercial banks declined

since 1950 due to the Reserve banks policy of Amalgamation of small banks with
bigger banks, as a measure of strengthening the banking system. The Indian Economy
has been fast developing under the impact of economic planning and the banking
system was developing quite fast.
Functions of Commercial Banks:
The term Bank originally referred to an individual or organization which exchanged
one currency to another (i.e., money- changer). But these days banks refer to an
institution in which people keep their cash balances in the form of deposits. The main
functions of commercial banks are as follows:
1. Receiving Deposits from the public:
An important function of commercial bank is to attract deposits from the public. The
commercial banks not only protect them but also provide the depositors with the
convenient method for transferring funds through the use of cheques.
2. Making Loans and Advances:
The next important function of commercial bank is to make loans and advances out of
the money which comes to it from the public by way of deposits. Direct loans and
advances are given to all types of persons particularly to businessman and investors
against personal security, gold, silver and other movable and immovable assets. The
most common way of lending is by Overdraft facilities, i.e., allowing the borrower to
overdraw his current account and also through discounting bills of exchange.
A. Use of cheques system:
Apart from these two major functions a commercial bank performs a number of other
useful functions of the community. For instance, it has developed the cheques system,
under which the depositors are given the right to withdraw from their deposits any
amount to their convenience by means of a cheques.

B. Transfer of funds:
Another function of commercial bank is to provide facilities for transfer of funds from
one part of the country to another.
C. Other functions:
Other miscellaneous functions performed by commercial bank include the provision
of safety holders to keep the value articles of the customers in safe custody, making
and receiving payments on behalf of its depositors, issuing letters of credit and
travelers cheques for its customers.
The Lending Operations of commercial Banks:

Lending of funds constitutes mainly to traders, business and industrial enterprises.
The major portion of the bank funds are employed by the way of loans and advances,
which is most profitable employment of its funds. The major part of the banks income
is earned from the interest and discounts on the funds so lent. The business of lending,
nevertheless is not without certain
Inherent risks largely depending upon the borrowed funds a banker cannot afford to
make undue risk in lending. While lending his funds, a banker therefore, follows a
very cautious policy and conducts his business on the basis of the well known
principles of sound lending in order to minimize risks.
The commercial banking structure in India consists of:
1
Scheduled commercial banks
Unscheduled Banks

Scheduled Commercial banks
It constitute of those banks that have been included in the second schedule of Reserve
Bank of India (RBI) act, 1934. RBI in turn includes only those banks in these schedule
that satisfy the criteria laid down vide section 42 (60 of the act). Some co-operative
banks are scheduled commercial banks albeit not all cooperative banks are. Being the
parts of the second scheduled confers some benefits to the banks in term of access to
accommodation by RBI during the terms of liquidity constraints. At the same time,
however, this status also subjects the bank certain conditions and obligations towards
the reserve regulations of RBI.
This1
sub sector can broadly be classified into:
Public sector
2
Private sector
Foreign banks
Unscheduled Banks
They are those joint stock banks, which are not included in the second schedule of the
RBI act on account of the failure to comply with the minimum requirements for being
scheduled.
In the first category the primary co-operative banks which are small sized units
organized in the cooperative sector which operate both in urban and non urban centers
.they finance small borrowers in industrial and trade sectors, besides professionals and
salaried classes .regulated by Reserve Bank of India, they are governed by the
banking regulations act 1949 and banking laws (co operative societies) act 1965.

Co-operative Banks
It is retail and commercial banking organized on a cooperative basis. Cooperative

banking institutions take deposits and lend money in most parts of the world.
Cooperative banking, as discussed here, includes retail banking carried out by credit
unions,
mutual savings banks,
building societies and
cooperatives, as well as
commercial banking services provided by mutual organizations (such as cooperative

federations) to cooperative businesses. Like credit unions, cooperative banks are
owned by their customers and follow the cooperative principle of one person, one
vote. Unlike credit unions, however, cooperative banks are often regulated under both
banking and cooperative legislation. They provide services such as savings and loans
to non-members as well as to members and some participate in the wholesale markets
for bonds, money and even equities. Many cooperative banks are traded on public
stock markets, with the result that they are partly owned by non-members. Member
control is diluted by these outside stakes, so they may be regarded as semicooperative.
Cooperative banking systems are also usually more integrated than credit union
systems. Local branches of cooperative banks select their own boards of directors and
manage their own operations, but most strategic decisions require approval from a
central office. Credit unions usually retain strategic decision-making at a local level,
though they share back-office functions, such as access to the global payments
system, by federating.
Some cooperative banks are criticized for diluting their cooperative principles.
Principles 2-4 of the "Statement on the Co-operative Identity" can be interpreted to
require that members must control both the governance systems and capital of their
cooperatives. A cooperative bank that raises capital on public stock markets creates a
second class of shareholders who compete with the members for control. In some
circumstances, the members may lose control. This effectively means that the bank
ceases to be a cooperative. Accepting deposits from non-members may also lead to a
dilution of member control.

3.4 Structure of banking system in India:
Reserve Bank Of India

Chapter 4
DATA ANALYSIS AND INTERPRETATION
The data collected from the survey conducted at Bangalore city has been analyzed and
interpreted in this section. The interpretation is based on the information collected
through a structured questionnaire prepared for research...
The research was divided into a sample size of 100 into 2 parts of 50 each for
present/existing applicants and potential/prospective applicants respectively. Research
was maintained in similarity with respect to age, occupation, monthly income and
savings in order to have better comparison between the two sample sizes. Following
are the Tables and graphs which will be for the total of 100 respondents.
TABLE NO 4. 1 to represent age wise classification of respondents
Age
No. of Respondents
Percentage
25-34
32
32
35-44
22
22
45-55
22
22
55-60
24
24
Total
100
100

Graph 4.1
5-34
35
35-44
45-55
55-60
30
Respondents No of
25
Age
2
0
No.
of
Resp
onde
nts
1
5
1
0
5
Perc
enta
ge
0
2
u35n44yea
INTERPRE
TATION: drs and
e22%
This r of
study
g ectively.
r
Table No 4.2 to
represent the
u occupation of the
p respondent
o
was them
focused on t under
the
age hthe
eage
group
between
group
25years
to aof 44-
60years.
g55yea
The graph-1 ers.

shows
Out Finall
of
100 gy
respondents urespo
fall
age s fall
group of 25- ounder

34years,
22%
f the
fall age
Professional (Except Govt.

Emp. And IT Professional)
32%
the
Business Man
IT Professional
under pndent
Govt. Employee
respondents r 24%
of oof the
Occupation
Total
r
e Dayananda Sagar
s College of Arts
Science and
p Commerce
43
Page

Graph 4.2
Govt.Employee
22%
30%
26%
22%
IT Professional
Business Man
Professional
(Except
Govt. Emp. And
IT
Professional)
INTERPRETATION:
The effect has been made to cover people of earning class having lower and higher
income levels in middle income group (MIG). Table shows, 30% respondents were
from professional group (other than government and IT professionals). Government
employees totaled 26%. IT professionals were about 22% and Businessman was
respectively represented as 22% respondents each in the study.

TABLE NO 4. 3 to represent monthly income level of the
respondents.
Monthly Income
No. of Respondents
Percentage
Below 15000
32
32
15000-20000
32
32
20000-35000
16
16
35000 & Above
20
20
Total
100
100
(In Rs)
s Respondent
Graph 4.3
35
30
25
Monthly
Income
No of
20
15
10
No.
of
Respo
ndent
s
Perce
ntage
imp
c respondents each represent
orta
INTERPRETATION
nce
:
to
lthe category of lower middle
Income is another stud

social economic variable y
frequently
used
to the
approximate social class expe
standing. Shift focus toward
ctati
middle income groups by
ons
Housing Finance
of
Institutions (HFIs) gave
this
aincome group i.e., Below Rs.

s15000 & Rs.15, 000-Rs.20,
s000 respectively. The rest
.covered by higher middle
3income group consisting of
216% respondents were from
%
Rs.20,000-Rs.35,000
o
f
Dayananda Sagar
College of Arts Science
and
Co
m
erce
m
Page 45

category and the last group consisted of 20% of respondents falling under the
category of 35,000 and above respectively.
TABLE NO 4.4 to represent monthly savings of respondents
Monthly Savings
No. of respondents
Percentage
Below Rs.2,000
12
12
Rs.2,000-Rs.5,000
18
18
Rs.5,000-Rs.8,000
34
34
Rs.8,000-Rs.11,000
14
14
Rs.11,000 & Above
22
22
Total
100
100
Respondents No of
Graph 4.4
3
5
3
0
2
5
2
0
1
5
1 N
0
5
0P
Monthly Savings
Dayananda Sagar College

of Arts Science and
Commerce Page 46

INTERPRETATION:
Savings play an important role while determining the equated monthly
installments of the loan amount and the tenure. From the study conducted 12% of the
respondents were from Rs. below 2,000 Rs. savings category. 18% of the respondents
are in the category of 2,000-Rs.5, 000. 34% of the respondents come under the class
of 5000-8000 Rs. However it was interesting to know that 14% of the respondents fall
under the category of 8000-11000 Rs. And finally 22% of the respondents fall under
the category of 11,000 and above respectively.
TABLE NO 4.5 to represent the residential status of respondents.
Residential Status
No. of Respondents
Percentage
Own House
46
46
Rented
44
44
Lease
10
10
Total
100
100
N of
o
Respond
ents
Graph 4.5
No. of
Respondents
50
20
40
30
10
0
Own House
Percentage
Rented
Residential Status
Lease

INTERPRETATION
Most of the respondents were stated residing at own house, representing 46% of
the total percentage respectively. The respondents living in rented house represented
by 44% and 44 by numbers. The rest 10% is covered by 10 respondents having
residential status of lease type.
TABLE NO 4.6 to represent purpose for which the housing loan

applied
Purpose
No. of respondents.
Percentage
26
26
74
74
Any others
Total
100
100
Purchase of plot/house
Purchase of site for
construction
Respondents No of
G
1
0
0
5
0N
Percentage
0
Purpose
da Sagar College of Arts

Science and Commerce
Dayanan
Page 48

INTERPRETATION:
Given the option for purchase of site for construction 74% of respondents
were stated their consent as purpose. The rest 26% of respondents stated that their
purpose was to purchase plot. However no respondents had any other option apart
from the stated above two options.
Matrix TABLE NO 4.7 to represent the ranks for the attributes

affecting the decision about home loan.
Rank-1
Rank-2
Rank-3
Rank-4
Tax benefits
16 (16%)
32(32%)
32(32%)
20(20%)
Low interest rates
58 (58%)
8(8%)
26 (26%)
8(8%)
Convenience
16(16%)
40 (40%)
16(16%)
28(28%)
10(10%)
20 (20%)
26(26%)
44(44%)
Attributes
Good Service by financial

institutions
Graph 4.7
RespondentsNo of
6
0
5
0
4
0
3
0
2
0
1
0
0
R
a
nk-1 Rank-2
Rank-3 Rank-4
Att
rib
ute
s
Ran
k
Tax
benefits
Low
interest
rates
Convenien
ce
Good
Service
by
financial institutions
Dayanan
da Sagar
Colle Arts Science and

ge of Commerce Page 49

INTERPRETATION:
The graph depicts the ranking of decision attributes by the respondents. The most
important decision drive was identified as the low interest rate which was
considered as important by 58% respondents ranked as ONE. The least important
attribute identified was the good service expectation from Housing Finance
Institutions (HFIs) by 44% respondents ranked as FOUR. Since the lower interest
rates were the basic expectation, the research concludes that the next important
attributes are the key factors for decision. Convenience considered as the Key
factor in decision to go for housing loan which accumulates funds needed at
different stages of construction. It was rated SECOND and THIRD by 32% of the
respondents.
Matrix TABLE NO 4.8 to represent ranking of HFIs by respondents.
HFIs
R-1
R-2
R-3
R-4
R-5
R-6
R-7
Vijaya Bank
60(60%)
2(2%)
9(9%)
8(8%)
--
18(18%)
6(6%)
PNB
--
10(10%)
--
9(9%)
44(44%)
8(8%)
32(32
%)
SBM
--
16(16%)
9(9%)
24(24
%)
18(18%)
36(36%)
--
HDFC
38(38%)
18(18%)
20(20%)
9(9%)
8(8%)
10(10%)
--
Canara Bank
--
18(18%)
42(42%)
30(30
%)
4 (4%)
6(6%)
--
ICICI Bank ltd.
2(2%)
36(36%)
20(20%)
20(20
%)
14(14%)
8(8%)
--
IDBI Bank
--
--
6(6%)
6(6%)
12(12%)
14(14%)
62(62
%)

Graph 4.8
7 -5
0
R-6
Ranks
on
HFI's
Vij
ay
a
Ba
nk
6
0
Respondents No of
R-7
5
0
4
0
PN
B
3
0
2
0
SB
M
1
0
H
DF
C
0
R
1
Ca
na
ra
Ba
nk
R
2
ICI
CI
Ba
nk
ltd
.
R
3
R
4
ID
BI
Ba
nk
svider
in
ethe minds
sbest
r of
respondents
INTERPR vcustomer
ETATION
i plays
:
cmajor
erole
The
knowledg
e
of
tijaya Bank as the
in
bank.
62
rranked IDBI Bank

aas the least known
nbank
for
home
kloans. More over
business
econsumers prefer
psuccess.
dnationalized banks
r 60
over private banks
oresponden
Vas they are more
safe,
i on
secure
nrespect to
and
with
private
usually
cbanks and
the
othats the
interest
mreason
rate
of pICICI
nationaliz abank gets

ed banks r the
are
least
low i score.
and better s
Dayananda
Sagar College of
Arts Science and
Commerce
Page 51

Matrix TABLE NO 4.9 to represent ranking of key attributes for
selecting housing loan provider by the respondents.
Attributes
No. of schemes
offered
Past/Present
relationship
Service offered
Reputation/Brand
image
R-1
R-2
R-3
R-4
--
12(12%)
36(36%)
52(52%)
28(28%)
20(20%)
22(22%)
30(30%)
42(42%)
28(28%)
18(18%)
12(12%)
30(30%)
40(40%)
24(24%)
6(6%)
Graph 4.9
6 -2
0
Respondents No of
5
0
4
0
3
0
2
0
1
0
0
R
1
R
R-3
R4
R
a
n
k
s
o
n
A
t
t
r
i
b
u
t
e
s
No. of
schemes
offered
Past/Prese
nt
relationshi
p
Service
offered
Reputation
/Brand
image

of Arts Science and
Commerce Page 52

INTERPRETATION:
Service offered by the HFIs plays key role in their selection by the applicants. 42
respondents ranked ONE for service offered by the HFIs as an attribute for selecting
the service provider. The ignored attribute being number of schemes offered was
ranked FOUR, which is the least by 52 respondents. Reputation/Brand image and past
relationship with the service provider also played a key role in selection of HFI by
respondents. These attributes were ranked as SECOND and THIRD by 40 and 22
respondents respectively.
TABLE NO 4.10 to represent the purpose for which the housing loan
was opted.
Purpose for opting home

loan
No. of Respondents
Percentage
Purchase of plot
12
12
Sit for construction
82
82
Renovation of existing
property
Extension of existing
property
100
100
Total

Graph 4.10
2%
4%
12%
Purchase
Sit for
constructi
82%
INTERPRETATION:
The Major purpose behind applying for housing loan is identified as Loan for
purchase of site and for Residential construction which accounts for 82% of the
total by 82 respondents. 12 respondents stated that the purpose to have loan for
purchase of plot.
Renovatio
existing
property
Extension
existing
property

TABLE NO 4.11 to represent loan amount borrowed by the
respondents
Loan amount
No. of respondents
Percentage
Below Rs.2 lakhs
18
18
Rs.2 lakhs-Rs.5 lakhs
24
24
Rs.5 lakhs- Rs.10 lakhs
48
48
Above Rs.10 lakhs
10
10
Total
100
100
Graph 4.11
RespondentsNo of
60
0
10
5
0 0
4
0
Below Rs.2
lakhs
3
0
Rs.2 lakhs- Rs.5 lakhsAbove Rs.10

No.Rs.10
of
Rs.5 lakhs
respond
lakhs
ents
Loan
Amoun
2
t
INTERPRETATION:
Loan amount plays

a major role affected by the
tenure, savings and income
levels of the respondents.
Percent
age
Mhe
48% for nearly 5-10 lakhs, the next
orespondents
of
s had
applied
the lakhs and above Rs.10 lakhs
t for
loan
resp represents the remaining part
Rs.2
onde with
amount
categories were below Rs.2
18%
olakhs to Rs.5
nts respectively.
f lakhs
had
accounted
t nearly
to
24%.
and
10%
appli Dayananda Sagar College

ed
of Arts Science and

Commerce Page 55

TALBE NO 4.12 to represent tenure of the loan amount of current
respondents
Tenure
No. of respondents
Percentage
Below 3years
20
20
3years-8years
38
38
8years-12years
30
30
Above 12 years
12
12
Total
100
100
0
RespondentsNo of
4
0
3
5
3
0
2
5
2
0
1
5
1
0
5
Graph
4.12
No. of
respondents
Perce
ntage
Tenure

of Arts Science and
Commerce Page 56

INTERPRETATION:
Tenure is one of the critical factors to determine the decision on loan amount.
38 respondents opted the tenure of 3 years to 8 years was the highest percentage i.e.,
38%. The second largest groups of respondents have chosen the tenure between
8years to 12 years were accounted 30% with 30 respondents. Remaining 20% were
from below 3years and the rest 12% for above 12 years of tenure.
TABLE NO 4.13 to represent the type of interest rate opted by the

current applicants.
Type of interest rate
No. of respondents
Percentage
Fixed interest rate
92
92
Floating interest rate
Total
100
100
Graph 4.13
0
Respondents No of
1
0
0
8
0
6
0
4
0
2
0
Dayan
anda
No.
of
Percent
age
respond
ents
Typ
e
of
Int
ere
st
Rat
e
Fixed
interest
rate
Floating
interest
rate
Sa r College of Arts Science

ga and Commerce
Page 57

INTERPRETATION:
Under falling interest rate regime it was important to identify that the popularity of
different types of interest rates. 92 respondents had opted for fixed interest rate which
represents 92% of the total. Fluctuating interest rate accounted for 8% by 8
respondents opted.
TABLE NO 4.14 to represent satisfaction level of current applicants

towards service provided by HFIs.
Satisfaction
No. of respondents
Percentage
Yes
80
80
No
20
20
Total
100
100
Graph 4.14
20%
Yes
No
80%

INTERPRETATION:
It is important to know that the customer satisfaction with respect to service
provided by HFIs is to gauge the industry performance with respect to the service
offered 80% were satisfied and 20% of total respondents were not satisfied.
TALBE NO 4.15 (a) SATISFIED APPLICANTS

Matrix Table to represent the ranking of attributes those satisfied current
applicants with respect to service provided by the HFIs.
Attributes
R-1
R-2
R-3
R-4
Fast process@ low cost
20(20%)
30(30%)
16(16%)
14(14%)
24(24%)
18(18%)
28(28%)
10(10%)
Low interest rates offered
34(34%)
24(24%)
18(18%)
4(4%)
Attractive schemes
2(2%)
8(8%)
18(18%)
32(32%)
Accessibility
payment/repayment
for

Graph 4.15a
3
5
Respondents No of
3 Fast
0 process@
low cost
2
5
2
0 Acce
ssibili
1 ty for
5 paym
ent/r
1 epay
0 ment
5 Low
0interest
R rates
offered
1
R Attractive
- schemes
2
R
3
R
4
Attributes
Ranks
t
s
TABLE
NO 4.15
(b)
Dissatisfi
.
ed
Applican
Low
payment/repayment
Terms and Dayananda
conditions Sagar
College of Arts
Science and
Commerce
Page 60

Attribute
Ranks
1
4
Graph
4.15b
RespondentsNo of
1
2
High processing cost
1
0
Attitude of the staff at financial
8
6
Low accessibility for
4
2
Terms and conditions
0
R
ai
t
D
t
r
INTERPR
ETATION: i
b
Satisfied u
current t
applicant
s ranked e
high for s
the
lowest
w
interest
e
rates
offered r
by the e
atisfied
the staff at some
current
financial
HFIs as
the major a
attribute c
for their c
satisfactio e
n and next s
important s
attribute
applicants institutions.
ranked
rigid terms
and
conditions
for availing
home loan
as the most
dissatisfyin
g attribute.
The
next
important
that
dissatisfied
the
Dayananda Sagar
applicants College of Arts

was
the Science and
attitude of
Commerce
Page 61

Table NO 4.16 to represents suggestions given by the applicants for

further improvement in the service provided by the HFIs.
No. of
Suggestions
respondents
Attractive schemes
20
20
Simple terms and conditions
34
34
Low interest rates
28
28
Use of new technology
18
18
Total
100
100
Graph 4.16
RespondentsNo of
Percentage
3
5
3
0
2
5
2
0
1
5
1 N
0
5
0
n
d
e
n
t
s
P
e
r
c
e
n
t
a
g
e
S
u
g
g
es
ti
o
ns
Dayananda Sagar College of

Arts Science and Commerce
Page 62

INTERPRETATION:
The inference drawn from the above table was that simple terms and
conditions for availing loan must be improved was what 34 respondents had to tell
which represented 34%. Lower interest rates being the basic demand accounts for
28% by 28 respondents. Attractive schemes and new technology suggested by 20 and
18 respondents covering 20% and 18% of the total respectively.
Table NO 4.17 to representing the willingness & un-willingness of customers to

shift from fixed interest to fluctuating interest rates?
Respondents
Total
Percentage
Willingness
64
64
Un-Willingness
36
36
Total
100
100
Graph 4.17
36%
Willingness
Un-Willingness
64%

Table NO 4.18 to represent the name of the institution customers
would apply in the future
Banks
Respondents
Percentage
Vijaya Bank
18
18
Canara Bank
22
22
SBM
36
36
HDFC Bank
08
08
PNB
06
06
IDBI
06
06
ICICI
04
04
Total
100
100
Graph 4.18
Vijaya Bank
Canara Bank
SBM
HDFC Bank
PNB
IDBI
ICICI

INTERPRETATION:
From the above Pie Chart it is evident that people mostly like to go
in for nationalized banks rather than going in for Private Banks the reason being such
as safety, security, less interest rate and other things too. However a major chunk of
the respondents opted for SBM and the number of respondents being 36 which sums
up to 36%, the next bank respondents have shown interest is in Canara bank the
number of respondents being 22 which amounts to over 22%. Over 18% of
Respondents have chosen Vijaya bank and the rest of the ones have given their will
for HDFC bank as 8%, PNB 6%, IDBI and ICICI 6% and 4% respectively.

Chapter 5
FINDINGS FROM THE STUDY
POTENTIAL APPLICANTS:
It was found that the HFIs play a key role in the provision of housing
finance.
Information avenues have given rise to increased knowledge about the

service provider in the minds of applicants.
The major attribute in selecting a home loan by the applicants is the

interest rate charged by the banks
Convenience with respect to Equated Monthly Installments, tenure of

the loan and repayment modes, tax benefits were the other major attributes
in
selecting a home loan by the applicants.
There was an increase in income level of earning class people aged

between 25 years to 34 years due to high growth profile in Information
Technology industry.
Most of the respondents wanted to have loan for purchase of site or for
construction of house on the owned site.
All of the respondents were willing to take advantage of falling interest

rates in the housing loan industry.

1
Vijaya Bank is the well known bank for providing housing loan in the
minds of potential applicants.
Service offered, reputation/brand image, past/present relationship with

the service provider plays important role in selection of HFIs.
It was found that applicants were willing to shift from existing service
provider if the other service provider in the market would offer better
services and low interest rate.
4 Those current applicants were not satisfied with the service provided by
HFIs due to rigid terms and conditions for availing home loan.
It was found that the current applicants were not satisfied with the
behavior of staffs at some HFIs
Cut throat competition is affecting the customer loyalty in the industry.
It was found that loan for renovation and extension of property has
become least purpose. The most important purpose for which home loan is
opted
was for purchase of site and construction.
Tenure is a key factor which affects:

1. Cost of the loan to the applicant
2. Risk to the lending firm
Most of the respondent felt comfortable with fixed interest rates. It

assumes that the borrower is risk averse.

1
It was found that the respondents having own house would prefer to
have another residential house rather than the respondents living at rented
house
It was found that tax benefits, low interest rates and convenience were
the major decision drives behind a decision for seeking home loan form
Financial Institutions.
SUGGESTIONS AND RECOMMENDATION:
1.
Before taking a decision on home loans, applicants should consider other factors
such as tricky EMI calculations, unfair collateral demands, prepayment
penalties, and hidden costs.
2.
Key decision on home loans viz., type of interest rate, mode of interest
calculations should be given serious thought by the applicants.
3.
Tailor made schemes should be offered to applicants by HFIs.
4.
Process time and cost should be minimized by the HFIs.
5.
Brand building programs and relationship marketing concepts would be prudent

for next competition era of home loan industry.
6.
New technologies for speeding process should be implemented.

CONCLUSION FROM THE STUDY:
Falling interest rates and stabilized real estate prices since from the year 1995
bought boom in housing finance industry. It has been known that only 36% of total
construction was financed through Housing Financial Institutions. The industry is
growing at the rate of 25% to 30% every year. Housing Development Finance
Corporation Ltd. the industry leader covers 45% of market share and facing rivalry
from new entrant for the industry ICICI Home loans Ltd. During the period 1995-96
to 20013-14, the interest rates on housing loans have declined from a high of 16%18% to 9%-12% in line with decline in the inflation rates in the economy. At present
the interest rates are one of the lowest as far as housing finance is concerned. The
housing loan portfolio of Banks is highly sensitive to sops announced by the
Government of India on exemption on personal tax.
From the analysis made the research concludes that the occupations viz.,
Government employees, professionals and IT professionals were ideal groups to target
home loans. The tenure and monthly savings were inversely proportional to each
other. Current housing loan industry scenario had influenced the applicants to go for
housing loans. Low interest rates, tax benefits and convenience were the major
decision drives for home loans. Most of the customers were aware of best offers in the
industry. Services are the key for next competitive era in the housing loan industry.

BIBLIOGRAPHY:
1. Book Referred :
HOUSING LOAN MANUAL FOR MANAGERS, OFFICERS
2. Daily News Papers :
1. TIMES PROPERTY TIMES OF INDDIA
2. DECCAN HARALD
WEBSITES
1. www.hdfc.com
2. www.indiahousing.com
3. www.timeofmoney.com
4. www.propertymart.com
5. www.indiahomeseek.c
6. www.housingfinance.com
7. www.home@indiainfoline.com

ANNEXURES
Questionnaire
on THE ROLE OF FINANCIAL INSTITUTION IN
PROVIDING HOUSING LOAN TO MIDDLE INCOME GROUP

Sir/Madam, i am Agnelamit Borges currently pursuing my MBA (4
th
Sem) and as per our MBA program we are supposed to carry out a dissertation and the
title of my study is: a study on the role of financial institution in providing housing loan
to middle income groups, This is the questionnaire i have designed. i request you to
kindly spare a few minutes and fill this questionnaire.
(KINDLY FILL THIS FORM FOR OUR ACADEMIC REQUIREMENTS)
1. Name
2. Age
25-34 yrs
45-55 yrs
3. Occupation
Govt. employee,
Professional,
4. Income
35-44 yrs
55-60 yrs
Business Man,
Others Specify
:
Below Rs.15,000
Rs.15,000-Rs.20,000
Rs. 20000-Rs. 35000
Rs.35, 000 and above
5.Monthly savings: Below Rs.2,00

Rs.5,000-Rs.8,000
Rs.2,000-Rs.5,000
Rs.8,000-Rs.11,000
Rs.11, 000 and above

6. Please indicate the current residential status.
Own house
Rented
Lease
7. Are you planning to own a new house in near future?

Yes
No
If yes, continue.
8. Which option would you prefer, please specify.
Purchase of Plot/House
Purchase of plot for Construction
Any others,
If yes to (a) or (b) go to question number 9.
9.
What would be your preference for financial arrangement for
purchase/construction of house/ plot?

Loan from financial institution
Personal arrangements
Any other arrangements/ source
10. If your response is (a) please rate the following attributes, affecting your decision
making according to your specification.(Highest rate-1, lowest rate-4)
Tax benefit
Convenience
Low interest rates
Good service by financial institution
11. Rank the following financial institutions according to your preference (Highest
rank-1, lowest rank-7)
Vijaya Bank
Canara Bank
PNB
ICICI Bank
State Bank of Mysore
IDBI Ban
HDFC Ltd.

12.
Please rank the attributes that made your selection of financial institution for
housing loan? (Highest rank-1, lowest rank-4)

Number of schemes offered
Service offered
Past /Present relationship
Reputation / Brand image.
13. Please indicate the purpose for which you applied for home loan?
Purchase of plot
Site for residential use (construction)
Renovation of existing property
Extension of existing property
14.Please indicate your loan amount?

Below Rs.2 lakhs
Rs.5 lakhs Rs.10 lakhs
Rs.2 lakhs - Rs.5 lakhs

Above Rs.10 lakhs
15.Please indicate the repayment period of the loan amount

Below 3 years
3 years 8 years
8 years - 12years
above 12 years
16.Please indicate the type of interest rate charged on the loan?

Fixed interest rate
Floating interest rate
17.Are you satisfied with services provided by housing financial institution?
Yes
No

If Yes, Please rank the following service attributes according to your preference.
(Highest rank-1, lowest Rank-5)
Fast processing at low cost.
Accessibility for payment or repayment
Low interest rates offered
Attractive scheme
If No, Please rank the reasons for not satisfied with services provided by Housing
Finance Institution (Highest rank-1, lowest rank-5)
High processing cost
Attitude of the staff at financial Institution
Low accessibility for payment or repayment
Terms and conditions
18. Please tick the areas to be improved by Housing Financial Institutions in

providing better services to customers and society?
Attractive schemes
Simple terms and conditions
Low interest rates
Use of new technology
Others (Specify)
19. Are you willing to shift from fixed interest to fluctuating interest rates?
Yes
No

If Yes,
20.Please tick the Institutions which customer would apply in the future
Vijaya Bank
Canara Bank
PNB
ICICI Bank
State Bank of Mysore
IDBI Bank
HDFC Ltd.
21. Time taken to process the loan
Less than 15 days
15 to 30 days
30 days and above
22. Is the documentation process complicated?

Yes
No
Date: Thanking You

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The Role Of Financial Institutions In Providing Housing

CERTIFICATE OF THE FACULTY GUIDE

the director (MBA BU) of DAYANANDA SAGAR

COLLEGE OF ARTS, SCIENCE & COMMERCE, BANGALORE,

With deep respect I express my sincere gratitude towards my project

I express my heartfelt thanks to all the faculties of the Department of

I also express my sincere gratitude towards my parents and friends

LITERATURE REVIEW &

DATA ANALYSIS AND

LIST OF TABLES & GRAPHS

Age wise classification of respondents

Occupation of the respondents

Income level of the respondents

Monthly savings of the respondents

Residential status of the respondents

Purpose for which home loan is to be applied

Ranks for the decision attributes

Ranking of the Housing Finance Institutions

Ranking of key attributes in selection of HFIs

Purpose for which home loan was opted

Loan amount borrowed by current applicants

Tenure of the loan amount

Type of interest rate opted

Satisfaction level of current applicants

Ranking of attributes by satisfied current applicants

Ranking of attributes by dissatisfied current

Suggestions by the current applicants

Willingness To Shift From Current To Fluctuating

Most Preferred Institution By Potential Applicants

Role of Financial Institution Providing Housing Loan

The industry comprises of nearly 383 housing finance companies although

Dayananda Sagar College of Arts Science and Commerce Page 1

Role of Financial Institution Providing Housing Loan

1.1 Background of the study

The objective of HDFC was identified as promoting home ownership by providing

Dayananda Sagar College of Arts Science and Commerce Page 2

Role of Financial Institution Providing Housing Loan

The National Housing Bank (NHB) was also established on 9

July 1988 the

Direct and regulate the functioning of housing finance institutions for

Provide loans, advances or any other financial assistance to Banks and

Supervise mobilization of resources and extension of credit for

Dayananda Sagar College of Arts Science and Commerce Page 3

Role of Financial Institution Providing Housing Loan

During 2000-2002, the government had announced many industry-friendly policies; in

Dayananda Sagar College of Arts Science and Commerce Page 4

Role of Financial Institution Providing Housing Loan

1.2 Present scenario of the market

Increase in supply of affordable homes and price correction in the

Increase in economic activity

Dayananda Sagar College of Arts Science and Commerce Page 5

Role of Financial Institution Providing Housing Loan

Sixth Pay Commissions recommendations.

1.3 Future trend of the market

Dayananda Sagar College of Arts Science and Commerce Page 6

Role of Financial Institution Providing Housing Loan

Significantly, there has been no dearth of demand for

Market dynamics play a pivotal role in determining the lending

1.5 Bangalore market scenario

Dayananda Sagar College of Arts Science and Commerce Page 7

Role of Financial Institution Providing Housing Loan

Dayananda Sagar College of Arts Science and Commerce Page 8

Role of Financial Institution Providing Housing Loan