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Comparative Study On Housing Loans In India

Finance Essay
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Aims- This research article is aimed to compare and critically analyse the housing loan schemes
offered by State Bank of Mysore and Union Bank of India, Bangalore Branch, India

OBJECTIVE OF THE STUDY


To recognize and evaluate literature relevant to the theories of home loans.
To evaluate the general awareness of the various schemes currently offered by HFCs / banks and the
purpose of which housing loan are given.
To perform comparative analysis for housing loan schemes for State Bank of India and Union Bank of
India.
To study the documentation process in HFCs (Housing Finance Companies) and critically evaluate
problem faced by clients during the process of lending housing finance in banks.
To assess and suggest appropriate Conclusions and Recommendations with regards to housing loan
schemes offered by SBM or UBI Bank to the customers.

Introduction
This article explains the housing loan schemes offered by banks in order to give a enhance 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.
India have been serving the people for around three decades and providing various housing loan
schemes according to the customers various needs at attractive and reasonable interest rates. In order
to facilitate the best housing loan schemes at the least interest rate this research article will help in
critically evaluating and comparing the schemes of housing loan for two banks i.e. State Bank Of India
and Union Bank of India, Bangalore, India in order to know the best offers provided by the banks as
well their performances in order to retain in competition within marketplace.
This research article analyses the effectiveness and efficiency of housing loan schemes provided by
SBM and UBI bank which will provide its customers a attractive interest rates in on housing loan.

Company Overview of SBM and UBI


State Bank of Mysore was established in the year 1913 as Bank of Mysore Ltd. under the patronage of
the erstwhile Govt. of Mysore, at the instance of the banking committee headed by the great EngineerStatesman, Late Dr. Sir M.Visvesvaraya. Subsequently, in March 1960, the Bank became an
Associate of State Bank of India.State Bank of India holds 92.33% of shares. The Bank's shares are

listed in Bangalore, Chennai, and Mumbai stock exchanges.


Branch Network
The Bank has a widespread network of 682 branches (as on 30.09.2009) and 20 extension counters
spread all over India which includes 5 specialised SSI branches, 4 Industrial Finance branches, 3
Corporate Accounts Branches, 4 specialised Personal Banking Branches, 10 Agricultural Development
Branches, 3 Treasury branches, 1 Asset Recovery Branch and 8 Service Branches, offering wide
range of services to the customers.
Human Resources
The Bank has a dedicated workforce of 9720 employees consisting of 3169 supervisory staff, 6551
non-supervisory staff (as on 31.03.2008). The skill and competence of the employees have been kept
updated to meet the requirement of our customers keeping in view the changes in the environment.

Union Bank of India


Union Bank of India is firmly committed to consolidating and maintaining its identity as a leading,
innovative commercial Bank, with a proactive approach to the changing needs of the society. This has
resulted in a wide gamut of products and services, made available to its valuable clientele in catering
to the smallest of their needs. Today, with its effecient, vlaue-added services, sustained growth,
consistent profitability and development of new technologies, Union Bank has ensured complete
customer delight, living up to its image of, "GOOD PEOPLE TO BANK WITH". Anticipative bankingthe ability to gauge the customer's needs well ahead of real-time - forms the vital ingredient in valuebased services to effectively reduce the gap between expectations and deliverables.
The key to the success of any organisation liew with its people. No wonder, Union Bank's unique family
of about 26,000 qualified / skilled employees is and ever will be dedicated and delighted to serve the
discerning customer with professionalism and wholeheartedness.
Union Bank is a Public Sector Unit with 55.43% Share Capital held by the Government of India. The
Bank came out with its Initial Public Offer (IPO) in August 20, 2002 and Follow on Public Offer in
February 2006. Presently 44.57 % of Share Capital is presently held by Institutions, Individuals and
Others.

Reason behind choosing the topics for the study


Housing is the one of the main priority sector needs a lot attention now days the interest rate of the
housing loan is raising very high customers are worried about the rates due to indefinite fluctuation.
This study is about the comparison of the various schemes and the interest rate of the two banks State
Bank of Mysore and Union Bank of India. After this study we will be able to know that which bank is
more convenient in the lending of loan. Different schemes of the bank are convenient in different
manner according to customer's priority. The study is important also in case of comparison of the many
other banks' schemes to these two banks.

Literature Review
1.) In December 2006 Fulbag Singh and Reema Sharma had studied about the housing Finance in
India. Housing, as one of the three basic needs of life, always remains on the top priority of any person,
economy, government and society at large. In India, majority of the population lives in slums and
shabby shelters in rural areas. From the last decade, the Government of India has been continuously
trying to strengthen the housing sector by introducing various housing loan schemes for rural and
urban population. The first attempt in this regard was the National Housing Policy (NHP), which was
introduced in 1988. The National Housing Bank (NHB) was set up in 1988 as an apex institution for

housing finance and a wholly-owned subsidiary of Reserve Bank of India (RBI). The main objective of
the bank is to promote and establish the housing financial institutions in the country as well as to
provide refinance facilities to housing finance corporations and scheduled commercial banks.
Moreover, for the salaried section, the tax rebates on housing loans have been introduced. The paper
is based on the case study of LIC Housing Finance Ltd., which analyzes region-wise disbursements of
individual house loans, their portfolio amounts and the defaults for the last ten years, i.e., from 1995-96
to 2004-05 by working out relevant ratios in terms of percentages and the compound annual growth
rates. A relevant chart has also been prepared to highlight the results.
3) In May 18, 2007 Michael La Cour-Little had studied about the Economic Factors Affecting Home
Mortgage Disclosure Act Reporting. The public release of the 20042005 Home Mortgage Disclosure
Act data raised a number of questions given the increase in the number and percentage of higherpriced home mortgage loans and continued differentials across demographic groups. Here we assess
three possible explanations for the observed increase in 2005 over 2004: (1) changes in lender
business practices; (2) changes in the risk profile of borrowers; and (3) changes in the yield curve
environment. Results suggest that after controlling for the mix of loan types, credit risk factors, and the
yield curve, there was no statistically significant increase in reportable volume for loans originated
directly by lenders during 2005, though indirect, wholesale originations did significantly increase.
Finally, given a model of the factors affecting results for 2004-2005, we predict that 2006 results will
continue to show an increase in the percentage of loans that are higher priced when final numbers are
released in September 2007
"The housing finance market has been consistently exhibiting rapid growth in the past few years.
Growth has been largely concentrated on urban areas and in the middle to high income groups,
focusing on the salaried class. This growth was partly fuelled by the entry of commercial banks seeking
asset growth in a sluggish business environment coupled with the tax incentives on housing loans. The
banks, with their lower cost of funds, extensive branch network, capability to provide a range of
personal banking services and aided by the average low default rates in housing finance, could
expand the market considerably. They however, continued to focus on middle to higher income groups.
Lower income groups, self employed and the rural population are by and large excluded. While the
middle and higher income groups may continue to access conventional housing finance, increasing
attention will need to be paid to the needs of the underserved". (Source: Saravanan P. Recent
Experiences in the Housing Finance Sector - A Study with Reference to India. Housing Finance
International [serial online]. September 2007; 21(5):45-48. Available from: Business Source
Complete, Ipswich, MA. Accessed June 17, 2010)

OPERATIONAL DEFINITION OF THE CONCEPT


EMI- Equated Monthly Installment is what a loaner pays the Banks every month towards repayment of
loan. It is comprises of principle and interest.

EMI = L * r (1 + r) n x 1
(1 + r) n - 1 12
Interest rate- It is the amount which banks charge along with the principal amount per year on the basis
of fixed rate or floating rate.
UBI- Union Bank of India
SBM- State Bank of Mysore
HFC- Housing Finance Company

METHODOLOGY

Method of data collection


The study dwells on both secondary and primary data. The primary data is collected through
interviewing staffs of the banks, secondary data is collected through past details of the Housing finance
structure, reports, pamphlets, brochures etc. This is descriptive type of research.
2). TOOLS AND TECHNIQUES
For convenience of the study techniques are used as drawing of percentages for generalization,
graphs and charts for better pictorial understanding and drawing of tables for tabulating the primary
data.
Quantitative and Qualitative data
3). LIMITATION OF THE STUDY
This is basically an academic study suffers from time and money constraints.
The other limitation includes the sample size, which is small.
Since banks are not willing to disclose their client details so the availed information is limited to report,
pamphlet, brochure etc.

SCOPE OF STUDY
The study mainly deals with Housing Finance Sectors. The two important sectors identified for this
purpose are companies and client of public and private Housing finance sector in Bangalore.

AREA OF THE STUDY


The study is limited to only one branch of both banks i.e. UBI and SBM situated in Bangalore due to
time, money and information availability constraints.
Limitations Of study
If there are advantages of study then obviously there are limitations of that study also. So, some
limitations of this study are: Time period for the study is limited to three months for
this project, but if we got more time than analysis can be much broad.
Analyses of only two banks are done rather than more banks.
Study is limited to local area of Surat.