Professional Documents
Culture Documents
work presented herein is genuine work done originallyby meand has not been published or submitted
elsewhere for the requirement of anyMaster Degree Programme. Any literature, data or works done by
others andcited within this dissertation has been given due acknowledgementand listedin the
referencesection.
_______________________
(Student's name & Signature)
_______________________
(Registration No.)
Date:__________________
3
A C K N O W L E D G E M E N T
Acknowledgementis not a mere formality or ritual but a genuine
opportunity to express the indebtedness to all those without who’s active
support and encouragementthis project wouldn’t have been possible.
profound gratitude sincere appreciationto each and every one of those who
Firstly I would like to thank the Staff of the SBIBranch for allowingme
5
LIST OF FIGURES
Figure 1: Housing in India................................................................ ...........................................13Figure
2: Demographics in Housing............................................................................................14Figure 3:
Housing Finance Timeline................................ ................................ ...........................14Figure 4:
Penetration of Housing Finance in the World................................ ............................15Figure 5:
Improved Affordability................................ ................................................................15Figure 6:
Market features................................................................ .............................................16Figure 7: Issues
in Affordable Housing in India.........................................................................17Figure 8:
Shareholders of SBI......................................................................................................26Figure 9:
Software Interface for EMI calculation.......................................................................49Figure 10:
demand trends................................ ................................ ................................ .............76Figure 11:
number of sanctions and disbursals................................ ................................ ...........77Figure 12:
customer portfolio................................................................ ......................................78Figure 13:
purpose portfolio.........................................................................................................79Figure 14: Loan
amount portfolio................................................................................................80Figure 15: Home loan
book sizes................................ ................................................................81Figure 16:credit growth
trend................................................................ ....................................82Figure 17: share of home loan
segment in the retail portfolio................................ ...................83Figure 18: Quality of
Assets................................ ................................................................ ........86Figure 19: customer
complaints...................................................................................................88
6
LIST OF TABLES
Table 1: major home loan
providers................................ ................................ ............................16Table 2: Associate Banks of
SBI................................ ................................................................ .23Table 3: SBI Group
Comapnies................................ ................................ ................................ ...24Table 4: Best Practices
in SBI......................................................................................................26Table 5: SBI Hi-Five
Loan...........................................................................................................28Table 6: Processing
fee.................................................................................................................28Table 7: loan amount in
SBI easy home loan................................ .............................................29Table 8: : loan amount in SBI
advantage home loan..................................................................30Table 9: criteria and documents
required for individuals..........................................................39Table 10: Criteria for Loan
Amount................................................................ ............................46Table 11: Determination of
Repayment capacity................................................................ .......47Table 12: Enhancing Repayment
capacity options.....................................................................49Table 13: EMI calculation in the flat
rate system................................ ................................ .......50Table 14: EMI calculation in Reduced
balanced system...........................................................51Table 15: monetary
ceilings................................ ................................................................ .........53Table 16: criteria of
margin amount................................................................ ............................54Table 17:
Securitization................................................................................................................55Table 18:
Processing fee amounts................................................................ ...............................55Table 19: Rate
of interests............................................................................................................58Table 20: valuation
policies................................ ................................................................ .........62Table 21: Systems and
procedures in lending process................................ ...............................64Table 22:
competitors................................................................ ...................................................75Table 23:
strengths and weaknesses................................................................ ............................75Table 24:
demand trend................................ ................................ ................................ ................76Table 25:
customer capacity profile................................................................ ............................77Table 26:
sanctions and disbursals................................................................ ..............................77Table 27:
customer portfolio................................ ................................ ................................ ........78Table 28:
lending purposes................................................................ ..........................................79Table 29:
amounts of loans sanctioned................................................................ .......................80Table 30: loan
book size...............................................................................................................81Table 31: credit
growth trend ................................ ................................ ................................ .......82Table 32: share of
home loan segment in the retail portfolio....................................................83Table 33: take
overs......................................................................................................................84Table 34:
outstanding amounts................................................................ ....................................85Table 35:
Quality of Assets................................ ................................ ................................ ..........86Table 36:
income generated................................ ................................................................ .........87Table 37:
customer complaints................................................................ ....................................88
7
CHAPTER -1
1. INTRODUCTION
1.1.
ABSTRACT
Home is a dream of a person that shows the quantity of efforts, sacrifices
luxuries and above all gathering funds little by little to afford one‟sdream. Home is one of
the things that everyone one wants to own. Home is a shelter to person where he rests andfeels
financialinstitutions, to the people who want to have a home. Many banks are providing home
loans atcheapest rate to attract consumers towards them. Themore customer friendly attitude of
thesebanks, currently offer to consumers cheapest loan over homes. In view of acute
housingshortage in the country, and keeping in mind the social– economic role of commercial
RBI advised banks to encourage the flow of credit for housing finance. With the RBIreducing bank
rate, the home loan market rates nose-diving by 50 basis points. The ICICIBank andStandard
become the first player in this sector to announce a housing loan for a 20 years period.
Nodoubt it will enhance the end cost of the home but it will facilitate people to plan their
houseover longer duration now, it has been made easy for a person to buy that dream house
makeimprovements to a residential property. You can get a loan from banks and registered
housingfinance companies.
TheHome loan sector in India is the pivotalrole player in the growth of the real
estatescenario in India. With tax incentives given to the housing finance sector in the annual
budgetof 2001, transactions related to buying and selling of residential properties increased.
considerably and was much higher as compared to previous years. Since the new class ofbuyers
are relatively younger set of customers who are more aware about legaldocumentation and
approvals, buyers are now more 'end-users' rather than investors; theproperty market in India
undergoes transformation to align itself with global standards withan increased emphasis on
quality & cost control and documentation methods. In the currenteconomy of India, the real
estate sector has the maximum propensity to generate income anddemand for materials,
equipment and services. It can be said that housing finance companieswere formed for co-
existing with buyer's requirements of housing loans for investing inproperties. Home loans are
made available by financial institutions to both Indian and NRIcustomers at floating and fixed
The realty boom in India has given a new dimension to the finance sector in India
-both in Home Loans and Home Insurance segments. This has not only given a
competitiveedge to the finance companies to provide attractive options to customers but has
alsocontributed to the increased investments in the real estate sector. This has resulted in 13
newinstitutions foraying into the housing finance business in the last three years.
9
1.2.
OBJECTIVES OF THE STUDY
1.2.1. Identification Of The Problem
Tostudy and learn the various systems and procedures used by the bank in
lending to housing sector.
Toidentify the problems faced by the bankin attracting more customers to use its
home loan products.
Toidentify the problems faced by the bankat various stages of undertaking the
home loans.
Tounderstand and identify difficulties in the home loan asset management
practices of the bank.
Tostudy the valuationof collateral security method followed by the bank while
lending the home loans.
1.2.2. Offer A Solution To The Problem
Tosuggest better alternative organizational and operational practices.
Toenhance its capacity to tap potential market in the home loan sector.
To enhance the recovery system in the bank giving the home loans.
10
1.3.
NEED OF THE STUDY
It hasbeen felt very useful in future–
Tostudy the roles of the staff and the decision making processes in lending to the
home loan borrowers.
To learn and comprehend thoroughly the systems and Procedures used in
financing the segment.
Toanalyzethe issues relating to various financial aspects of lending.
To calculate the risk involved and how the risk and uncertainty to be assessed and
managed by the bank while lending the home loans.
Tostudythevaluationofcollateralsecuritymethodfollowedbybankwhile
lending the home loans.
1.4.
SCOPE OF THE STUDY
Thepresent study is confined to Home loan products offered by the
domestic operations of State Bank of India.
Thestudy is also confined to the internalfunctionalandoperational
aspects of the lending process.
The data collected here, is specific to:
The selected branch as said before.
The time period covering the financial years: FY08-09-Q1FY10.
Thedata and the information could be collected here has been taken from
the record books maintained by thebranch andfrom the oral communication
with the branch manager.
11
1.5.
RESEARCH METHODOLOGY
1.5.1.Research Design
The study done is exploratory in nature.
Thebranch of the bankwasselected by convenience and for the sake of access
to the qualitative information.
For the latest information and focus, the study is confined to the systems and
procedures in lending and the time period as said above.
1.5.2.SOURCES OF DATA
The data and the information presented here have been collected mainly from
two kinds of resources:
1.5.2.1. Primary sources
♀ Direct and oral interaction with the Bank officials, particularly, the
branch manager viaa Questionnaire, a copy of which is madeavailable
in theAPPENDIX.
♀ TheRecord books maintained at the branch office.
1.5.2.2. Secondary sources
Several secondary resources have been referred for collecting first hand
information and literature on the subject that includes:
TheTrainingand Guidance Material supplied to the staff of the Branch.
AnnualReports of RBI.
OnlineAnnualReportsbyConsultancyandResearchcompanies.
Online Content of the Bank‟sWebsite.
Thematerial supplied by the Faculty Guide.
Several websites on personal loans and
Daily News Papers like Economic Times of Indiaand Business
Standard.
Thedetails of which havebeen presented inBibliography.
1.6.
TOOLS AND TECHNOLOGIES USED
1.6.1. Statistical techniques:
Percentages.
Averages and
Tools like Tables,
Bar Charts and
Pie charts
1.6.2. Hardware and Software Technologies:
Home PC with Internet access
MS Word and Excel-2003.
World Wide Web or Internet
12
1.7.
LIMITATIONS OF THE STUDY
Some of the limitations of the project that were encountered during the study are:
In case of interaction with the representative of a particular bank it happensmany a
time that the representative cannot disclose all the data because of certain reasons like
banksprivacy policy etc. thus getting clear picture about the service provided is not
possible.
Due to paucity of time, only important factors have been analyzed and discussed.
Tocollect the data from various bankswasquite difficult due to non-cooperation
of some banks. This proved to be major limitation of the study.
Toaccess such a large number of customers was difficult because of non-cooperative
attitude of respondents.
Lack of data wasalso the other limitation of the study as some of banksdo not have
proper data on topic.
There waslimitation of time to conduct such a big survey in limited availabletime.
Generally the data on the websites of the banksare not fully disclosed i.e. other than
the charges mentioned on the website there are many hidden charges which increases
the cost like service charge etc
Ignorance and reluctant attitude of customers was also a major limitation in this study.
I have tried a lot to overcome the above mentioned limitations as far as possible.
13
CHAPTER -2
2. LITRTATURE SURVEY
2.1.
HOME LOAN INDUSTRY IN INDIA
After going through pervious studies of Home loans in India I came to conclude the
following indicated in different forms:
Figure 1: Housing in India
IN INDIA
After going through pervious studies of Home loans in India I came to conclude the
following indicated in different forms:
Figure 1: Housing in India
14
Figure 2: Demographics in Housing
Figure 3: Housing Finance Timeline
15
Figure 4: Penetration of Housing Finance in the World
Figure 5: Improved Affordability
16
Figure 6: Market features
Major Home Loan Providers
Banks &
Public Sector
Housing
Finance
Companies
State Bankof India, Corporation Bank, Punjab National Bank,
Central Bank, Dena Bank, Allahabad Bank, Bank of Maharashtra,Bank of Baroda Housing Finance,
Can Fin Homes, GIC HousingFinance, LIC Housing Finance, PNB Housing Finance, SBI
HomeFinance, Centbank Home Finance, HUDCO, LIC, etc.
Financial
Institutions
HDFC, ICICI Ltd, Citibank, HSBC, Standard Chartered- Grindlays,
IDBI Bank, etc
Table 1: major home loan providers
17
Figure 7: Issues in Affordable Housing in India
18
2.2.
LATEST TRENDS IN THE INDUSTRY
2.2.1.GDP ratio at 7% provides room for further growth
The ratio of mortgage to GDP in India has remained low at 7%, as against 12%for china,
41% for Hong-Kong and more than 80%foor developed countries, thusproviding for further
growth in the housing sector during the coming years. While thehousing finance companies
(HFC), which are regulated by National housing Board (awholly-owned subsidiary of RBI) were
pre– dominantly catering to mortgage needs.Over the past few years, banks too have started in
increasing their exposure to real estate,especially Home loans. This is evident from the fact that
the market share of HFCs hasdecreased from 65% if FYO1 to present 55%. Banks, on other hand
Due to the sluggish credit demand (up 10.1% yoy for the fortnight ended
November20, 2009), banks have been diverting their funds towards housing loans. According
to thefigures revealed by RBI, the non-food credit growth during April-august 2009 has
remainedmuted at 0.8%. On the other hand, lending to the home loan segment during this
periodincreased 2.8%. Since February 2009, banks have been aggressively pricing interest
rates onhome loans (including both floating and fixed rates). Subsidies havealso been
provided to theform of reduced processing fees and minimal/no penalty on early re-
payments. SBIs s homeloan book has increased by rs117bn or ar2.5% CQGR in the last four
quarters. With creditdemand to revive in coming period, banks are likely to divert their funds
HFCs foresee the increasing share of banks exposure towards home loan
miss-match as these loans havea long gestation period. Further, these loans are a zero-sum
game in the initial period due to lower interest rate offered. HFCs, on the other hand typically
raise money that match their requirements and thus minimize their ALM mismatch
2.2.5.Differentialinterest rate may not remain for long
While the discounted / special scheme rates are offered to new home loans,
existing customers continue to ply higher rate of interest. The Indian Bank‟s Association
has planned to introduce a uniform rate for all borrowers.
2.2.6.India's mortgage market scores over West
In India,the borrower contributes a higher share of his own funds (24-46% of
house value)at the time of purchasing a house.
Theloan installments too eat away a smaller portion of the borrowers‟ income.
Theinstallment to income ratio-ranged between 34% and 40%, in India is lower
than some countries in the West.
Thisis based on an analysis by rating agency Fitch of the home loan asset pool
that it rates.
Thisis because borrowers‟ income has kept pace with rise in property prices.
Theextent of second houses purchased is also limited and most borrowers stick
to their repurchase schedules.
Thefigures computed by Fitch based on the asset pool that it rates implies that
on an average, the borrower funds up to 30% of the house valuethrough his own
capital
Thisamong other things increases the borrower‟s willingness to repay.
Some bankers say the black money component is also high in the Indianrealty
market, resulting in higher borrower equity.
Another notable factor is that delinquencies have remained range-bound in the
last 33 months, according to residential mortgage index launched by the ratings
firm.
Theindex which tracks home loans that havenot repaid for over 90 dayshas
moved in a narrow range between 0.90% and 1.07%.
20
CHAPTER -3
3. COMPANY PROFILE
3.1. Introduction:
State Bankof India (SBI) hashistory of more than 200 years of existence. SBI is thelargest
commercial bank in India and accounts for approximately 18% of the total Indian banking
business and the group account for 25% of the total Indianbankingbusiness. Thecentral bank,
Reserve Bank of India(RBI) is the largest shareholder in the bank with 59.7% stake followed
India.As on September 06, the bankhas 14,061 branches which include 4,755 branches of
itsassociated banks. Thebank also hasthe largest network of 5,624 ATMs. Since the last 5
yearsthe bank has showed continued growth in its core business. The total asset size of the
bankreported a CAGRof 9.4% during the period FY01–FY06 and stood at Rs. 4,938.69 bn as
ofSeptember 2006. In HIFY07, the bank reported net interest income (NII) of Rs.
182.14bn,representing a growth of 2.74% over HIFY06 while the bank reported a net profit
of
Rs.19.8bn, registering a decline of 18.67% during the same period. Credit off take of the bank
has been lower than the
State Bankof India (SBI) is India's largest commercial bank. SBI has a vast domestic
network of over 9000 branches (approximately 14% of all bankbranches) and commands
one-fifth of deposits and loans of all scheduled commercial banks in India.
Theorigins of State Bank of Indiadate back to 1806 when the Bank of Calcutta (later
called the Bankof Bengal) wasestablished. In 1921, the Bank of Bengal and twoother
Presidency banks (Bank of Madras andBank of Bombay) were amalgamated to form the
Imperial Bank of India.In 1955, the controlling interest in the Imperial Bank of India was
acquired by the Reserve Bank of Indiaand the State Bank of India(SBI) came into existence
21
by an act of Parliament as successor to the Imperial Bank of India.
Today,State Bankof India (SBI) has spread its arms around the world and has a
network of branches spanningall time zones. SBI'sInternational BankingGroup delivers the
full range of cross-border finance solutions through its four wings- the Domestic division,
the Foreign Offices division, the Foreign Department and the International Services division.
Ifone measures by the numberof branch offices and employees, SBI is the
largest bank in the world. Established in 1806 as Bank of Calcutta, it is the oldest commercial
bankin the Indiansubcontinent. SBI provides various domestic, international and NRI
products and services, through its vast network in India and overseas. With an asset base
nationalizedthe bank in 1955, with the Reserve Bank of Indiataking a 60% ownership stake.
In recent years the bank hasfocused on three priorities:
1), reducing its huge staff through Golden handshakeschemes known as the
Voluntary Retirement Scheme, which saw many of its best and brightest defects to the private
sector,
2), computerizing its operations and
aptlynamed 'Parivartan' which means change) as a large number of employees are very rude
tocustomers.
22
3.2 Roots:
TheState Bank of Indiatraces its roots to the first decade of 19th century, whenthe
Bank of Calcutta, later renamed the Bank of Bengal, wasestablished on 2 June 1806.
Thegovernment amalgamated Bank of Bengal and two other Presidency banks, namely, the
Bankof Bombay (incorporated on 15 April 1840) and the Bankof Madras on 27 January 1921,
andnamed the reorganized bankingentity the Imperial Bank of India.All these Presidency
bankshad been incorporated as joint stock companies, and were the result of the royal charters.
TheImperial Bank of India continued as a joint stock company. Until the establishment of a
central bank in Indiathe Imperial Bank and its early predecessors served as India'scentral
bank,at least in terms of issuing the currency. TheState Bank of IndiaAct 1955, enacted bythe
Parliament of India, authorized the Reserve Bank of India, which is the central
January 27, 1921: all three banks amalgamated to form Imperial Bank of India.
July 1, 1955: State Bank of India formed; becomes the first Indian bank to be nationalized.
1959: State Bank of India (Subsidiary Banks)Act passed, enabling the State Bankof India to
take over eight former State-associated banks as its subsidiaries.
1980s When Bank of Cochin in Kerala faced a financial crisis, the government merged it
with
State Bankof India.
23
June 29, 2007: The Government of Indiatoday acquired the entire Reserve Bank of India
(RBI) shareholding in State Bank of India(SBI), consisting of over 314 million equity shares
at a total amount of over 355 billion rupees.
3.4 Associate banks:
There are seven other associate banks that fall under SBI. Theyall use the "State
Bank of" name followed by the regional headquarters' name. These were originally
banksbelonging to princely states before the government nationalized them in 1959. In tune
withthe first Five YearPlan, emphasizing the development of rural India,the government
integrated these banks with the State Bank of Indiato expand its rural outreach. TheStateBank
group refers to the seven associates and the parent bank. Allthe banksuse the samelogo of a blue
keyhole. Currently, the group is merging all the associate banks into SBI,which will create a
State Bankof Indiais present in 32 countries, where it has 84 offices serving the
international needs of the bank'sforeign customers, and in some cases conducts retail
24
3.6 Growth:
State Bankof India has often acted as guarantor to the IndianGovernment, most
notably during Chandra Shekhar'stenure as Prime Minister of India. With more than 9400
branches anda further 4000+ associate bank branches, the SBI has extensive coverage.
Following its arch-rival ICICI Bank, State Bank of India has electronically networked most
of its metropolitan, urban and semi-urban branches under its Core BankingSystem (CBS),
with over 4500 branches being incorporated so far. The bank hasthe largest ATMnetwork inthe
country havingmore than 5600 ATMs[1]. TheState Bank of Indiahas had steady growthover its
history, though the Harshad Mehta scam in 1992 marred its image. In recent years,the bank has
sought to expand its overseas operations by buyingforeign banks. Itis the onlyIndianbank to
feature in the top 100 world banksin theFortune Global 500 rating and
various other rankings. According to theForbes 2000 listing it tops all Indian companies.
3.7 Fortune Global 500 Ranking– 2007:
SBI debuted in the Fortune Global 500[2] at 498 in 2006. In 2007 it moved up to 495.
Asper fortune 500-2007 following are the data for SBI in $ million. Revenues
15,119.4. Profits 1,407.3. Assets 187,547.1. Stockholders' Equity 9,786.2
"THEMOST PREFERRED HOME LOAN PROVIDER" voted in AWAAZ
Consumer Awards
TheMOST PREFERRED BANKAWARDin a survey conducted by TV18 in
association with AC Nielsen-ORG Marg in 21 cities across India.
3.8 Group Companies:
SBI Capital Markets Ltd
SBI Mutual Fund(A Trust)
SBI Factors and Commercial Services Ltd
SBI DFHI Ltd
SBI Cards and Payment Services Pvt Ltd
SBI Life Insurance Co. Ltd - Bancassurance (Life
Insurance)
SBI Funds Management Pvt Ltd
SBI Canada
Table 3: SBI Group Comapnies
25
3.9 The main activities of SBI are into-
PersonalBanking.
NRI Services.
Agriculture.
International.
Corporate.
SM E.
Domestic Treasury.
3.10 State Bank of India offers the following services to its customers–
Domestic Treasury.
Broking Services
Revised Service Charge.
ATM Services.
Internet Banking.
E-Pay.
E-Rail.
RBIEFT.
Gift Cheques.
MICR Codes.
Moreover, State Bank of India hasColleges/Institutes/Training Centers that are the seatsof
learning and research and development. Itcaters not only to the employees of State Bankof India
Provision to finance cost of furnishing and consumer durables as part of project cost.
Getting your dream home has become easier with SBI Easy Home Loan. With low
interestrates for home loan under Rs. 50 lakhs category, SBI Easy ensures that you are not
burdenedwith high interest for your home loan. Plus with over12000 SBI branches
nationwide youcan get your Home Loan account parked at a branch nearest to your present or
proposed
residence.
Interest Rate:
Interest rate during the first year (i.e. till first anniversary date from the date of first
disbursement) is fixed at 8% p.a.
29
Interest rate during next two years is fixed at 8.5% p. a
Interest rate after three years may be Fixed or Floating as per the borrower‟s choice made at
the time of sanction. If floating rate option is chosen, then the rate will be 2.75% below
SBAR.If fixed rate option is chosen, then the rate will be 1.25% below SBARprevailing on
the third anniversary date from the date of first disbursement, and shall havea reset frequency
of 5 years from the third anniversary date of the loan. Fixed interest rate shall be subject to
force-majeure clause.
Processing Fee:
The revised processing fee structure (including service tax) from 9th November 2009 is as
under:
Loan Amount
Processing
Fee(Revised)
Upto Rs.5 Lac
Rs.1000/-AboveRs.5 Lac and upto Rs.10
30
Interest Rate:
Interest rate during the first year (i.e. till first anniversary date from the date of first
disbursement) is fixed at 8% p.a.
Interest rate during next two years is fixed at 9% p. a
Interest rate after three years may be Fixed or Floating as per the borrower‟s choice made at
the time of sanction. If floating rate option is chosen, then the rate will be 1.75% below
SBAR.If fixed rate option is chosen, then the rate will be 0.75% below SBARprevailing on
the third anniversary date from the date of first disbursement, and shall havea reset frequency
of 5 years from the third anniversary date of the loan. Fixed interest rate shall be subject to
force-major clause.
Processing Fee
The revised processing fee structure (including service tax) from 9th November 2009 is as
under:
Loan Amount
Processing Fee(Revised)
AboveRs.50 Lac and
up to Rs.1 Cr
Rs.8,000/-
AboveRs.1 Cr and up
to Rs.5 Cr
Rs.10,000/-
Above Rs.5 Cr
Rs.20,000/-
Table8: : loan amount in SBI advantage home loan
4.HOME LOAN PRODUCT VARIANTS
i)
SBI Max Gain
HOME LOAN AS AN OVERDRAFT
your savingsand minimize interest burden on Home Loans, with no extra cost.
Theloan is granted as an Overdraft facility with the added flexibility for you to operate your
finance for a property they wantto invest in without mortgaging the same. All you haveto dois
pledge any financial security that you haveandyou will get a Home Loan for your dreamhome.
A must-take for those who do not wantto pay stamp duty for mortgage of their property or go
through the hassles of creation of mortgage.
You also havean option to take the loan by wayof mortgage of the property and pledge
financial securities in lieu of margin money.
Repayment is highly customized, giving you the option to repay through regular EMIs or
through maturity proceeds of the securities pledged.
ii)
SBI Realty
HOME LOANS FOR PURCHASE OF PLOT OF LAND FOR THE PURPOSE OF
CONSTRUCTIONOF A DWELLING UNIT
A uniqueproduct if you are on the lookout for a loan to purchase a plot of landfor house
construction. The loan is availablefor a maximum amount of Rs.1 crore* and with a
comfortable repayment period of upto 15 years.
32
Customers are also eligible to avail another Housing Loan for construction of house on the
plot financed abovewith the benefit of running both the loans concurrently.
(House construction should commence within 2 years from the date of availmentof „SBI-
Realty‟ Housing Loan)
(Other terms and conditions– as applicable to regular Home Loans)
(* relaxation considered on case to case basis)
iv)SBIFlexi
HOME LOANS WITH A COMBINATIONOF FIXED AND FLOATINGINTEREST
RATES
Home Loans with an option to choose a combination of floating interest rate and fixed
interest rate, in a pre determined ratio.
Minimum Loan AmountRs.5.00 lacs.
A customized product designed to enable borrowers to hedge their Home Loan against
unfavourablemovement in interest rates. The product gives you a onetime irrevocable option
to choose one of the three customized combinations of fixed and floating interest rates and
also to choose the order in which the fixed andfloating rate will be availed.
v)NRI Home Loans
HOME LOANSTO NON RESIDENT INDIANS(NRIs) ANDPERSONS OF INDIAN
ORIGIN (PIOs HOLDING A FOREIGN PASSPORT)
Eligibility
Individual(s)over 18years of age with a steady source of income who
AreNon Resident Indians (NRIs) holding a validIndianpassport.
42
Similar Document -separately for each co-applicant.
Employment Proof
Identity card issued by your employer
Visiting card
Age Proof
Passport
Voter's ID card
PAN card
Ration card
Employer's Identity card
School leaving certificate
Birth certificate
Residence Proof
Ration card
Passport
PAN card
Rent agreement, if you are staying currently on rent
Bank Pass book
Allotment letter from your company if you are residing in company quarters.
43
Name Change Proof (If Applicable)
a. A copy of the official gazette
b. A copy of a newspaperadvertisement publicizing the name change
c. Marriage certificate
Investment Proof (If Applicable)
Bank statement for the last six months of all operating and salary accounts
Bank statements for the last six months of all current accounts, if self-employed.
Any other photocopies of investments held, if required by the Bank
Property Title Proof
Original Sale agreement with Builder/Developer duly registered, Registration receipt
Tripartite agreement from builder/developer
Land documents indicating ownership, e.g.- Photocopies of title deeds, if applicable
A certificate by the legal advisor of the builder to the effect that the builder has a good
reputation and it is free from encumbrance and other charges.
A certificate from builder's Chartered Accountant certifying that the builder has not
mortgaged the property anywhere else.
Certified true copy of approved plan.
Copies of receipts of payments made to builder/developer.
Allotment letter
Possession letter
Lease agreement, if applicable (Property bought from a development authority)
Mortgage deed if the Bank opts for a registered mortgage.
44
NoObjection Certificate from the developer, society or development authority as
applicable
Personal Guarantees, if applicable.
In case of alternate or additional security, documents for the same depending upon the
security details.
For self-construction: Approved plans and clearance certificates along with estimates
Post dated cheques for the EMIs.
Confirmation of Rental Income
Copy of the existing tenancy agreement, or a rental appraisal,from a local real estate agent
signed by branch manager, or rental manager.
Deposit or Investments
Evidenceof your deposit or investment funds, i.e. a bank statement or term deposit
receipt.
For low equity loans (5-19% deposit), copy of your savings account statements over
the last six months.
Sale and Purchase Agreement
If you are planning to buy a property, please provide a copy of the successful sale and
purchase agreement signed by both you and the vendor.
If you are planning to sell or have already sold your existing property, pleaseprovide
a copy of that property's sales and purchase agreement.
45
New Customer to the banks of India
If you are refinancing from another bank please provide copies of your loan
statements covering the last six months.
Please provide copies of your account statements covering the last six months from
your current bank.
Please provide copies of your identification and if you have arrived in the country
within the last 5 years, please provide a copy of your passport.
Government Valuation and rating System
46
5.4. QUANTUMOF LOAN
Actual loan amount will be determined taking into consideration such factors as
applicant‟s income and repaying capacity, age, assets and liabilities, cost of the proposed
house/flat etc.
Applicants aged between 18 and 45 years, can get 60 times Net Monthly Income(NMI)
or 5 times Net AnnualIncome (NAI)and for applicants aged over 45 years of age,it is 48 times
47
a)Theincomeofthesalariedindividualisconsideredinthefollowingmanner:
Gross monthly income as it appearson the salary slip
Less:- Any non regular variableincome appearing on the salary slip (including overtime, etc.)
norms. For calculation of FOIR, the installments of all the loans that one hasavailed
of currently for which repayment is being made is taken into account as well. The
For calculation of eligibility of professional's income is computed by most HFIs using thegross
professional receipts instead of the Net profit as in the case of self-employed non-
professionals.
• Non-Professionals: - The income of non-professionals is normally calculated by
HFIsin the following manner: -
Averageof the net profits of last 2 years as it appears in the profit and loss
account (Returns need to be filed for the same. They should be filed regularly before
the due date is over).
Less: - Anyincome, which is unusualandnon-recurring in nature like sale of some asset, etc
which affects profits substantially,
Add: - Anyexpense that is unusual andnon-recurring in nature like repairs and maintenance
that has not been capitalized and effect profit adversely.
Add:- 50 per cent of the averagedepreciation of the last two years. Theaboveincome is
calculated for the calculation of eligibility using IIR and FOIR norms.
For calculation of FOIR the installments of all the loans that one has availedofcurrently
for which repayment is being made is taken into account and the eligibility isworked out.
Thestaff at the selected Branch did not want to reveal the actual method adopted bySBI as
they used to havea computer software Application for the purpose that looks justas below:
1)
Income of your spouse/ your son/ daughter living with you, provided they
have a steady income and his/ her salary account is maintained with SBI.
2)
Expected rent accruals (less taxes, cess, etc.) if the house/ flat being
purchased are proposed to be rented out.
3)
Depreciation, subject to some conditions.
4)
Regular income from all sources.
Table12: Enhancing Repayment capacity options
EMI Calculated: Rs.36398.28
Total Interest: Rs.1367793.
6
Calculate EMI For
Amount
3000000
Duration
120Months
Interest Rate
8
%
Calculate
Reset
Figure 9: Software Interface for EMI calculation
50
However, the actual calculation model for EMI could be as follows:
From various resources, it is found that:
1)The EMI break up, for SBI is:
68% - Principal Component and
32% - Interest Component
2)ThewayEMI is calculated can be broadly categorized under two heads:
Flat rate system and
Reducing balance system.
Theflat rate system:
Therate of interest on the loan amount is calculated over the full duration of the
loan,the principal and the interest is divided over the number of installments and the
reducing. Hence the cost of the same loan amount on an annualreducing balance method
works out to 29% and 35% on a monthly reducing balance method. Againin case of
reducing system, there are three types:
Table 14: EMI calculation in Reduced balanced system
Daily reducing balance method (Used by SBI)
Here, there is immediate reduction in principal thereby reducing the interest
calculated on it. If you havetaken a loan of Rs.1, 00,000/- at 21% interest for 3 years and
you pay Rs.3, 760/- on Jan 10, the lender will consider total outstanding principal as
Rs.96, 240/- from Jan 11. The interest will be calculated on Rs.1,00,000/- from Jan 1 to
Jan 10 and from Jan 11, interest will be calculated on Rs.96,240/-. With a lower
outstanding principal, the total interest paid out reduces and so does the EMI.
Monthly reducing balance method
Here, the principal component is deducted at the end of every month andthen the interest
is calculated on this new outstanding reduced principal. Theabovetable gives thecash
outflow on a loan of Rs.1, 00,000/- at 21% interest for 3 years, when interest is calculated
by monthly reducing balance method.
52
Annual reducing balance method
Here the principal component of EMI though reduced every month, is summated
annually.Therefore, the interest is calculated on the original loan amount for the
entire year. Atthe end of the year, the accumulated principal component is deductedfrom the
original loan amount and the interest for the next year is on this reduced loanamount. Ifyou
havetaken a loan of Rs.1,00,000/- at 21% interest for 3 years, the EMIwill be Rs.4,018/-.
Which EMI plan to choose?
Payment of EMIs in advance or in arrears?
Paying the EMI at the beginning of the month (EMI in advance)means that
you lock your money for the month; while paying in arrears, (i.e. at the end of the
month) givesyou an extra month before the payout. Theeffective rate of interest onthe loan also
goes up when you paythe EMI at the beginning of the month. Hence iftwo schemes offer the
borrower in advance.The number of EMIs that have to be paid out in advancevarieswith the
interest charged on the loan. Themore you payin advancethe lesser shouldbe the interest
charges.
advance.Thiseffectively reduces the loan amount and in real terms the financier has not
givenyou 100% finance but charges interest on the entire cost of the asset.
dvance.The number of EMIs that have to be paid out in advancevarieswith the interest charged
on the loan. Themore you payin advancethe lesser shouldbe the interest charges.
advance.Thiseffectively reduces the loan amount and in real terms the financier has not
givenyou 100% finance but charges interest on the entire cost of the asset.
53
Deposit linked plan
Here, the financier offers a lower rate of interest, provided the borrower
invests 20% to 25% of the asset cost as a fixed deposit with the financier. The intereston this
deposit is usually lower than the interest charged on the loan. Here again youmust consider
the cost of parking your funds in the deposit as the returns on it maynot weigh favorably with
In the end, the thumb rule of EMI to remember: EMI is lowest, when interestis
calculated on a daily reducing basis. Thereason whyEMI varies for the same loanamount,
tenure and interest rate is the difference in the compounding frequency ofinterest rates.
We can remember that one liner joke - “Why sharks never take lenders?” The
answer is “Professional courtesy”.
Pre-EMI:
In case of part of disbursement of the loan, monthly interest is payable
only on the disbursement amount. This interest is payable monthly till the final
disbursement is made, after the EMIs would commence.
5.6.
MONETARY CEILINGS
The Maximum Permissible Loan Amount is subject to following monetary ceilings:
Repairs/RenovationRs. 10 lacs
AboveRs.10 lacs require prior
administrative clearance of network
GM
Furnishings and consumer
durables
10% of the
Project Cost
(or)
3 lacs
Whichever is less where additional
security is available
Table15: monetary ceilings
54
5.7.
TOTAL PROJECT COST
Thetotal valuehouse or flat or the project cost includes:
Insurance premium
56
Processing Fee:
0.50% of loan amount or Max.Rs.10,000/-
(Waived for loans partially/fully disbursed before 30/09/2009)
Note:75 % of the processing fee may be refunded in the following
cases:
(a) Rejection of loan application on account of unsatisfactory pre-sanction
survey report.
(b) Rejection of loan application on account of unsatisfactory
legal/valuation reports.
In cases where applications are sanctioned or rejected after complete loan
processing,
fee willnot be refunded.
(ii) Legal Charges:
Advocate's fee for property search and the title investigation
report.
LegalFee/charges: Rs.1500/-
(iii)Govt. Stamp duty: 0.25% of loan amount as stamp duty at the timeof equitable
applicationform to the bank. Govt Stamp duty of 0.25 %( prevailing now) of the loan amount
and Rs750/- approxto be paid at the timeof documentation of loan. Insurance will be done
Compulsory insurance of property. Optional life cover from SBI Life & freeaccident
fire/riots/earthquake/lighting/floods etc. in the joint names of the borrowerand the bank for
the actualproject cost after netting off the cost of land, stamp dutyan registration charges.
People seeking home loan often encounter such worries like what if anythinghappens to
them in that case what would happen to the home loan? Naturally, theirmain concern is that
should something happen to them their folks would havetoencounter the problem of facing the
impact of repaying the loan debt. Home loaninsurance is completely different from home
insurance.
Thistype of insurance covers the amount of home loan you owe to the bank.Thisdoesn't
include the amount you havealready paid butthe amount still to be paidand evidently your
family members will not face the problem of paying the amountbeing owed to the bankbut the
insurance provider will bear the brunt of the same.Theinsurance companies are not very
impending about how much amount is to bepaid as part of the insurance premium as the
availingthe loan (the younger the person, the lower the premium amount); loan
amount (the lesser the loan amount, the lower the premium); period of the loan (the
more the loan repayment period, more is the premium); another important factor is
the health of the loan taker (the premium amount would below in case of good
health of the individual).SBI offers mortgage life insurance policy to the SBI home
loan applicants thereby consolidating the insurance premium along with the EMIs.
62
TheState Bank of India offers a free personal accident insurance cover to their clients
availinghome loan so that the client's family doesn't have to face any problem if he/she meets
an accident that proves to be fatal.
5.17.
VALUATION POLICIES
The existing valuation policy was reviewed, and ECCB approved the following
valuation and re valuation policy w.e.f. 01.04.08 for individual home loans (IHLS):
(1) Asset ValuationPolicy for IHLS:
Purpose Of Home Loan
Valuation Policy
Construction of new dwelling unit
Valuation of land plus project cost i.e.stae-wise
estimated expenditure obtained from the
empanelled architect / engineer irrespective of
loan amount. Disbursement to be made
according to the stage of construction.
For loans unto rs 2 laces at rural /semi-urban
branches, the sanctioning authority may waivevaluation as above and my assess the
weights on home loans based on loan to valueratio (LTV)as per the Basel 2
final guide lines issued by RBI are as under.
64
CHAPTER - 6
6.SYSTEMS AND PROCEDURES
6.1.
STAFF INVLOVED AND THEIR ROLES
Stage
Operations/Considerations
STAFF
MEMBER(S)
How
many days
it takes
Promotion
Advertisements in Print Media
Demos at Home Fairs
M As
Builders
Field Officers
1
Guidance to
prospective
Demos at Home Fairs
Application submission At Home Fairs
Tothe Field Officers at Branch
Field Officer
Pre-
Sanction
Process
Inspections Document verification
Bank's Field Investigation
Documents sent to RACPC.
2
Credit
appraisal
Customer‟s worthiness is evaluated. Branch
Manager/RACPC
2-3
Legal
Sanctions
The title deed investigation
Search report may be required from
Registry office
An advocate from
Bank‟s External
Panel
As per the
visit of
legal
advisor
Valuation Estimation of market valueof the
property or construction
An Engineer from
the Bank‟s Panel
2-3
Sanction
Loan sanction
Branch
Manager/RACPC
1
Offer Letter to the customer
Eligibility Certificate to the
customer.
Field Officer
Post-Sanction Process
Property/Constructioninspections
Signing of Agreements
Submitting post-dated cheques .
4-5
Disbursement
Progress of the work is considered.
Complete execution of documents.
Creation of valid mortgage.
Cheques are given directly to the
suppliers/builders
In differentproportionsin different
phases as
per the
progress of
the work.
(3-15)
Post-Disbursement
Process
Property inspection is carried out
and recorded in the Inspection
Register at each stage of
disbursement.
Registration of Property documents.
After disbursal, once every 3 years
for standard assets.
Table21: Systems and procedures in lending process
65
6.2.
PROMOTION AND DISTRIBUTION OF THE PRODUCTS
(a) PROMOTION:
State Bank of India,has come up with a non-conventional method to promote
its home loanbusiness.
SBI promotes home loan segment at its „Home FairMelas’ at each circle
level.
SBI also use to enter into an agreement with the known builders to promote its
home loan segment.
The bank is looking forward to develop special processing channels so as to
provide quick services to home loan customers.
There would be no processing fees on loans, adding that the home loans
approved at the fair would bear 0.25 per cent less interest than the nominal rate from the
start of fourth year of repayment.
Around 24 property dealers and builders were present at the fair.
Several kinds of staff are involved in these Fairs, who include:
♀ Marketing Associates
♀ Field Officers
Customer Services
(b) DISTRIBUTION:
State Bankof India supplies and sells its home loan products through its over
11,440 branches nation-wide and associated RACPCs.
66
6.3.
PROCESS UNDERTAKEN
6.3.1. APPLICATION SUBMISSION
Thehome loan application form of SBI is rather lengthy compared to the
forms at other private sector lenders.
the
Bank‟s staff (or) outsourced agency.
Bank'sFieldInvestigation for address proof/Employment etc.
All the documents are sent to Retail Assets Central Processing Cell (RACPC) forcredit
appraisalbased on the customer‟s financial capacities.
All the terms are conditions including Loan amount, interest rate, tenure, EMI etc are
determined.
The RACPC would submit its credit appraisal report on the customer to the branch.
67
Legal Opinion:
Empanelled Lawyer(s) does submit the Title Deed verification and the
search report for 30 years in respect of properties of the customer.
Thelegal clearances/ opinion of the flat/property which you are buying/
staying /constructing have to be obtained from an advocate from Bank panel.
Submission of legal documents & legal check.
Thesearch report reveals encumbrance on the property based on which the
grant of loan can be avoided andthe prospect borrower may be asked to
rectify it.
Valuation check:
TheEngineer‟s valuationof the property and estimate for the construction to
be obtained with bank panel engineer.
In case of takeover loans, two panelengineer valuation is required and the
least valuebetween them should be more than the takeover amount.
PRECAUTIONS TO BE TAKEN:
The authenticity of salary slip, form 16 return, and proof of identification, address
and income etc. should be cross checked.
Income from all sources is to be considered, wherever applicable, whenthe
sanctioning authority is satisfied about the quantum and uninterrupted flow thereof
during the tenure of the loan.
6.3.3. SANCTION STAGE
68
Thebranch manager would consider the credit appraisal report of RACPC andwill take
a decision whether to sanction or not the loan to the customer.
Thedecision is informed to the prospect customer the decision so taken via Field
Officer.
If the decision is “sanctioned”, the Field Officer would issue Offer letter to the prospect.
6.3.4. POST-SANCTION PROCESS
Registration of Property documents
Signing of Agreements and submitting post-dated cheques
SBI insists on all the margin money contributions to have been made to the seller and
the money receipts to be handed over to them prior to the loan disbursement.
Thecustomer needs to submit the cash amount for various stamps, mortgage fee etc.
They would take12 cheques of SBI a/c for security.
You can link your SBI savingsa/c to havestanding instruction to deduct EMI.
Normally, almost all home purchase transactions will entail paymentof an advanceto
the seller and on the dayof registration, the remaining contribution from the buyer and the
loan amount from the bankare exchanged with the property documents. Not with SBI.
Andonce the registration is done, the loan applicantneeds to get the latest
Encumberance Certificate (EC) from the Registrar‟s Office and submit it to SBI.Subsequent
to this process, SBI will create an equitable mortgage on the property in favourof the bankas
collateral. This entails a fee of Rs 7000 (I understand that this is a percentage of the registered
valueof the property) to the loan applicant. Only after all this is done, will the process be
complete. I never saw this equitable mortgage fee being mentioned anywhere in the high
decibel advertisements from SBI.
69
6.3.5. DISBURSEMENT
Thedisbursement is made in phases correlating to the actual progress made in the
construction.
Theproper end-use of funds is ensured by visits to the sites.
Certificate from the engineer may be required to be submitted by the borrower
stating the status of the project.
By BC/DD crossed A/c Payee only incorporating the builder‟s/seller‟s A/c No. and
banker‟s name and sent directly to builder/seller by Regd. AD/Speed Post.
6.3.6.POST- DISBURSEMENT PROCESS
Property inspection is carried out and recorded in the Inspection Register at each stage
of disbursement by the field officers.
Theinstallments are disbursed in different proportions in different phases as per the
progress of the work.
6.3.7. REPAYMENT
Loan repayment options:
SBI lays down certain rules and regulations pertaining to the repayment of
loans.
Theloan applicants can repay the amount in the form of equated monthly
installments.
Therepayment is allowed up to the ageof 70 years.
Repayment period:
Maximum 25 years (or) Up to the age of 70 years (the age by which the loan
should be fully repaid) of the borrower, whichever is early.
70
MAXIMUM REPAYMENTPERIOD:
For applicantsupto 45 yearsof age:25 years
For applicantsover 45 years of age: 15 years
Moratorium period (Repayment holiday): The moratorium period is included
within the maximum repayment period.
6.3.8. PRE-CLOSURE
Pre-closure is allowed by the Bank at any time after the complete disbursal and before
the actual tenure.
If the loan is pre-closed from own resources for which proof is submitted by the
customer, penalty is not levied irrespective of period for which the a/c has run.
Pre-closure Penalty:
No penalty if the loan is pre-closed from own savings/windfall gains for which
documentary evidence is produced by the customer.
In case, such proof is not produced by the borrower, penalty @2% on the amount
prepaid in excess of normal EMI dues shall belevied if the loan is pre closed within 3
years from the date of commencement of repayment
6.3.9.NON-PERFORMAING ASSET FORMATION
When a loan or an advance does become an NPA:
The main business of a bank is through loans and advances section the bankaccept
deposits from the public and certain amount they keep it as reservebalance andthe rest of it they
lend it to the needed customers who require it in the form of loansand advances. The customer
who deposits the money they get interest and the personwho takes the loan pays interest and the
Suppose the customer who took loan could not pay back the loan amount orthe
installment money which consist of the interest amount and the principal amountcontinuously
for some specific period of time they are then converted to probableNPA and then comes the
role of recovery team which put theirmaximum effort to getback the amount back which they
have given as a loan or advances and at the end ifthey fail to get back the money then finally the
(v) A loan granted for short duration crops is treated as NPA, if the installment
ofprincipal or interest thereon remains overdue for two crop seasons and a loan granted for
7 dayswill be forwarded. Theletter will state that failure to make paymentin full or to enter into
fund, short fall in investment, will fall default etc. So a credit managershould take
When a defaulter does not respond to the demand notice a direct notice isissued to
him that if he does not repay the loan action would be taken against himlegally and the court
SBI home loan customer care services can be accessed from everywhere and
atanytime using the toll-free helpline numbers or the Internet. Thebank hasextensively
coveredall major cities of the country while at the same time not overlooking the customer
care
requirements of people residing in rural and semi-urban areas. You can get instant solutions
to all your home loans related queries the moment you get in touch with the staff working
in a local SBI home loan customer care center.
State Bankof India is undoubtedly the largest financial institution among all the
public and private sector banks operational in India. Asa result, it receives an extremelylarge
numberof requests seeking home loans and other types of financial assistance. Withan
extensive customer base spanning all across the country and also at some locations
abroad, SBI has emerged as the largest provider of home loans in India.Thusit is not
uncommon to see an SBI branch at a remotely located rural or semi-urban area, no matter
where it lies on the geographical map of the country.
Thecustomers can talk to SBI executives in a friendly environment and obtain
information regarding the types of home loans, current interest rates, repayment options,
maximumloan terms, EMI calculation and so on. Moreover, you can use SBI home loan
74
customer care service for registering your complaints and grievances, which ensure a
swiftremedial action by the concerned authority of the bank. Furthermore, it is also possible
tomeet an SBIsenior official directly through a special service known as Public GrievanceCell
Facility and get solutions instantly. This facility is availableat all SBI branches acrossthe
nation andto availthe same you need not take prior appointment or permission.
You can access SBI home loan customer care service through toll-free numbers and
also through Internet. Thoughthe customer care toll free numbers are different for eachcity, the
services provided there remain the same, comprehensive, instant and bearing thequality
84
7.12.
TAKE OVERS
Name of the Bank
Number of Accounts
Amount (Rs.)
Dewan Housing Finance Ltd.06
50 lacs.
-
-
-
Table33: take overs
Interpretation:
There wasless demand for the take over of advancesfrom other banks in the region
from the customers of other banks in the home loan segment.
It wasfound from the collected complaints from the customers that the Bank itself
follows stringent mechanisms to entertain the take over requests of the customers of
other banks in the rest of the regions and that, may be the reason for the low level