Amu

“HOUSING FINANCE: MARKETING
OPPURTUNITIES”
PROJECT REPORT
SUBMITTED TO
UNIVERSITY SCHOOL OF BUSINESS STUDIES
IN PARTIAL FULFILMENT OF THE REQUIREMENT
FOR THE DEGREE IN
MASTER OF BUSINESS ADMINISTRATION (MBA)
2003-2005
SUBMITTED BY
JYOTI GUPTA
1601
UNIVERSITY SCHOOL OF BUSINESS STUDIES

PUNJABI UNIVERSITY
GURU KASHI CAMPUS
TALWANDI SABO
CERTIFICATE
TO WHOM IT MAY CONCERN
This is to certify that the research project entitled “HOUSING FINANCE:

MARKETING OPPURTUNITIES” submitted in partial fulfillment of the
requirement for the award of degree of Master of Business Administration from
University School of Business Studies, Punjabi University, Guru Kashi Campus,
Talwandi Sabo is a bonafide research work carried out by Jyoti Gupta under my
guidance and no part of this study has been submitted earlier to this university for
the fulfillment of requirement of any other degree.
Dated: (Supervisor)
Dr Gurcharan Singh
Reader
University School of Business Studies
Punjabi University
Guru Kashi Campus
Talwandi Sabo
ACKNOWLEDGEMENT
It gives me immense pleasure to express my sincere and wholehearted sense of

gratitude to my esteemed guide Dr Gurcharan Singh for his guidance, invaluable
and untiring help, ever encouraging attitude and providing supervision through
out my study which enabled me to successfully complete my project. To derive
benefits of his enormous experience is a matter of great privilege to me. Without
his help, cooperation and valuable suggestions, this project would not have seen
the light of the day.
I also owe my thanks to all those who interacted with me directly or indirectly
regarding the project despite of their own busy schedule.
In the end, I would like to state that this work is not a ground final; it is at least the
end of the beginning.
(JYOTI GUPTA)
CONTENTS
Chapter no. Title
1. INTRODUCTION
2. REVIEW OF LITERATURE
3. RESEARCH METHODOLOGY
4. CRITERIA FOR HOUSING LOAN
5. DATA ANALYSIS AND INTERPRETATION
6. FINDINGS AND SUGGESTIONS
ANNEXURES
BIBLIOGRAPHY
CHAPTER 1
INTRODUCTION
Housing is one of the basic needs of mankind in terms of safety, security, self-
esteem, social status, cultural identity, satisfaction and achievement.
Growth in the housing sector is regarded as one of the indicators, which
has a reflection on the health of a particular economy. Today, for India to
achieve balanced economic growth, it is essential to boost construction
activity in the housing sector. Since independence growth in the Indian
population has aggravated the problem of housing for Indian citizens.
Scenario of Indian housing

Shortage of housing has persisted since independence. Though the government
of India has made certain efforts to curb this problem in different five-year plans
but unless private and public sector make concerted and entrepreneurial efforts
jointly, this problem cannot be solved. If we look at the scenario of Indian housing
in different years then it can be said that joint efforts have given this problem a
soluble shape. The contribution of housing to economic development is generally
measured in terms of Gross Fixed Capital Formation (GFCF) in housing, it share
in Gross Domestic Product (GDP) and the share of income from housing. The
Gross Fixed Capital Formation at constant prices grew at an annual rate of 3.6%
in 1980’s. However, the Gross Fixed Capital Formation as proportion of Gross
Domestic Product reduced from 3.2 % in 1980-81 to 2.6% in 1990-91. The share
of income from housing in GDP declined from 5.9% in 1980-81 to 4.7% in 1990-
91. Currently less than 4 dwelling units per 1000 of population per annum get
constructed in India. However the UN recommendation for developing countries
is of 8 to 10 dwelling units per 1000 per annum in the next 20-30 years to arrest
the deteoriation of housing situation (1).
Government initiatives in housing and urban development
Government of India has taken a series of initiatives for the development of
housing and urban infrastructure. The national housing and habitat policy 1998
emphasizes “housing for all” by the end of 2007. The government of India has
been transforming housing sector into an engine of economic growth through
prudent policies and a host of initiatives including the extension of benefits u/s 80
I to mass housing projects, scrapping of urban land ceiling act, increased rebates
for housing loans, increased depreciation for employee housing, lower interest
rates, securitization of housing loan etc (2).
Table no. 1
Plan outlay in housing and urban development sector
(Amount in Rs. million)
Plan Total outlay Housing and urban % Share in total
development
First plan 20688 288 2.1
Second plan 48000 1200 2.5
Third plan 85765 1276 1.5
Annual plan (1966-69) 66254 733 1.1
Fourth plan 157788 2702 1.7
Fifth plan 394262 11500 2.9
Annual plan (1977-80) 121765 3688 3.0
Sixth plan 975000 24884 2.6
Seventh plan 1800000 42295 2.3
Annual plan (1990-92) 1338350 3001 2.2
Eighth plan 4341000 105000 2.4
Source: Anil Kumar, unpublished PhD thesis:” Housing Finance In Urban
Punjab”, Deptt. Of Economics, Punjabi University, Patiala, 2001, p.no. 4,5,11-14.
As it is evident from the above that up to 8 th five year plan approximately 2-3% of
the total plan outlay is spent by the government on housing and urban
development. Actual expenditure on housing and urban development during 8th
plan was 13804.32crores. The eighth five-year plan envisages housing as the
generator of employment, both direct and indirect in the economy. The plan data
states that a 10% increase in investment in housing would lead to 10% increase
in employment in the housing sector giving an employment elasticity of unity. For
the entire economy the employment elasticity is less than half.
Financial sector reforms and housing finance market

Traditionally in India, most people used to depend upon their savings while
considering buying a home. Provident fund and gratuity amounts received after
retirement were the major sources of finance for employed or retired people
looking for owning houses. However, with the emergence of housing finance as a
major business in the country, an increasingly large number of people are going
in for home loans. Earlier it was considered socially unviable to borrow funds but
now situation has changed. The consumer today has far more positive and open
outlook on taking a loan. There is also a key change in the demographics of loan
applicants. Earlier it was in the age of 45+ but now it is under 30. There is a sea
change in the social setup of Indian families. We are shifting from joint family
concept to nuclear family concept. Income of the families is rising and their
purchasing power and loan repaying capacities are going up. This change
eventually brings more demand for housing finance. According to a United
Nations study (1995), by the year 2015, ten of the world’s fifteen largest cities will
be in Asia (excluding Japan); three of these will be in India. These projections
suggest that demographic growth in India’s large cities will be high, partly due to
national population growth and partly due to immigration. These are some of the
indications, which signal bright future for the housing finance industry (3).
Major reforms affecting housing finance sector:

1. Enactment of SARFAESI: The securitisation and reconstruction of
financial assets and enforcement of security interest (SARFAESI) act
creates a long overdue framework for resolving the distressed credit
problem in India by providing legal support to the resolution process and
thereby encourages the flow of capital in to this specialized sector.
2. Residential Mortgage Backed Securitisation (RMBS): During the year
2002-03, Reserve Bank Of India issued a notification assigning a risk
weight of 50% for investments by bank and financial institutions in
mortgage backed securities (MBS) originated by housing finance
companies registered and supervised by NHB.
3. Mortgage Credit Guarantee Company: National Housing Bank has
made efforts for incorporating Mortgage Credit Guarantee Company.
Mortgage Credit guarantee will allow lender to penetrate broader market
segments by expanding their reach by offering easier and standard
mortgage terms and conditions. The guarantee support will protect lenders
against risk of default by the borrowers. This will enhance confidence and
help the lending institutions in reaching out to all segments of population
and improving home ownership in country (4).
In order to give specialized and focused attention to different segments of

industry, certain other specialized financial institutions have come into existence.
Incorporation of National Housing Bank in the year 1987 as the controlling body
to formalize housing finance is the one of the remarkable step in this direction. In
the year 2001-2002, Banking sector and housing finance companies infused
around Rs.15000 crore each. Housing finance is a high flying sector these days
and is tipped to grow at a phenomenal 36% p.a. Housing finance market is
estimated to be about Rs.45000 crore during the yr 2003-04. Banks and financial
institutions have brought sea changes in their strategies and there is shift from
sellers market to buyers market. Liberal tax incentives by the government, low
and competitive housing finance interest rates have made this sector as red-hot
sector. It is also worth noting here that development banks such as IDBI, IFCI,
IRBI, AND IIBI, whose task it was to lend to industry for projects, are in terminal
decline. ICICI has merged with its own banking arm, and has become a bank,
plugging consumer loans (including housing) rather than industrial finance.
Banks and housing finance companies are offering attractive loans schemes with
so many lucrative add-ons to the customers. Main features of these loan
schemes are consumer flexibility, adjustable rate plans, lower processing fees,
low EMI, lower margin money, no pre-payment penalty etc. many of the players
of housing finance has offered some add-ons with their loan plans such as life
insurance, credit card and consumer loans. Some of the players has offered
tailor made loan schemes for repair, renovation, extension, conversion,
improvement, water proofing, roofing, painting, plum bring and electrical work,
tiling, flooring, grilling, etc (5).
Broadly one can categorize the providers of housing finance in three categories:
(1) Housing Finance Companies (HFC), (2) Banks, (3) Housing Co-operative
societies.
Housing finance companies (HFC): as on 31st march 2002 number of housing
finance companies on the mailing list of national housing bank was 349 but only
78 of such companies furnished the required data and only 29 of which were
approved by NHB (6). The comparative data for the last five years starting from
the 1999-2000 regarding the loans sanctioned and disbursed by the HFC’s is
given below:
Table no. 2
Loans disbursed by housing finance companies
(Amount in Rs. crores)
Year 1999-2000 2000-01 2001-02 2002-03 2003-04
Disbursed 9812.03 12637.85 14614.44 17832.17 20869
% Increase - 28.79 15.64 22.01 17.03
Source: http://www.nhb.org.in/Publications/AReport2003-2004_8.htm, Annual reports
2003-2004.
Banks: Comparative data of housing finance disbursements by the

commercial banks during the last five years ending 31 st march 2004 are as
follows:
Table no 3
Disbursements of housing loans by banks:
(Amount in Rs. crores)
Year 1999-2000 2000-01 20001-02 2002-03 2003-04
Disbursement 9911.35 9787.24 14744.85 23553 32816
% Increase over -0.12 50.65 59.73 39.32
previous year
Source: http://www.nhb.org.in/Publications/AReport2003-2004_8.htm, Annual reports
2003-2004.
HOUSING FINANCE: CHALLENGES

Though the housing finance sector in India is in the developing stage but its
unexpected growth and development in the recent past has placed this sector in
one of the largest emerging area in Indian economy. Growing competition in this
sector has forced the housing finance institutions to identify the challenging areas
in this field to capture the future market and ensured their remarkable price.
Following are some of the challenges for the housing finance institutions in the
future:
 Increasing competition in housing finance sector has made the customer
more informed about the various factor in this field only such institutions
offering value added services with customized features will be able to
capture the market. Housing finance institutions has to offer more
sophisticated and tailor made housing finance products to suit customer
needs. Differentiate and diversified housing finance product will become
the factor to make a housing finance institution a market leader (7).
 Housing finance institutions has to spread out geographically while

ensuring consistency in the processing and service standards. Presently,
housing finance institutions are concentrating on the customer with
secured monthly and annual income. Customers with irregular income and
without income proof are still outside the purview of this sector.
Government and housing finance institutions must prepare some plans to
these untapped customers to fulfill their housing needs.
 There are various legal and administrative impediments in India, which are
hindering the growth of the mortgage securities market in India. These
impediments are in the nature of archaic laws such as urban land ceiling
(and regulation) act, Rent control act, and varying and high rate of stamp
duty across different states restrictive foreclosure process etc.
 Policy markers not only in India but in other emerging economies are
challenged to build sound housing finance system due to an increasing
number of middle class people, and growing urban populations
demanding home ownership. The policy framework has to be carefully
structured on a solid foundation including laws, property rights, foreclosure
procedures and mortgage markets. Risk management has to be an
integral part of such a framework.
 Identification of risk areas and development of risk management strategies

will be the biggest challenge for the housing finance institutions. Major risk
areas in this sector are: Legal/regularity risk, market risk (demand factor
and competition), credit risk (borrower and collateral), operations risk,
interest rate risk and liquidity risk. Development of effective leading
techniques and strong loan management skills will work as a line of
defense to meet this challenge (8).
REFERENCES
1. www.accommodationtimes.com, ‘Housing Sector and Housing

Finance’, June 2002.
2. Anil Kumar, unpublished PhD thesis:” Housing Finance in Urban
Punjab”, Deptt. Of Economics, Punjabi University, Patiala, 2001, p.no.
4,5,11-14.
3. Amitabh Kundu, “Urban Development, Infrastructure Financing and
Emerging System of Governance in India: A Perspective”, Management
Of Social Transformation- MOST, Vol.4, No-15, April 2001.
4. Mayank Bhatt, “Housing Finance from Primary Mortgage To
Securitization- An Industry Sector Analysis”, www.strategies.ic.gc.ca,
2003.
5. Sanjay Chaturvedi, “Corporate Giants to Enter the Market”,
www.accomodationtimes.com, june 2002.
6. http://www.nhb.org.in/Publications/AReport2003-2004_8.htm,
National
Housing Bank Annual report 2003-2004.
7. M.Y. Khan, “Housing Finance: A Perfect Future”, Analysts, Oct. 2002.
8. Chakrabarti P.G. Dhar, “Liberalization And Housing Boom In India:
Challenges, Opportunities And Constraints”, Paper Presented At
International Research Conference, Toronto,
www.urbancentre.utoronto.ca, June 2004.
CHAPTER 2
REVIEW OF
LITERATURE
In India, there is a shortage of housing, with more than 50 million people living in
slums. In developed countries like UK and USA, the outstanding mortgage loan
to GDP is above 55%, Japan 33%, Korea over 10%, in Malaysia over 20% and
Hong Kong over 30%. In India, the ratio is just 1.6%. For housing loan in India,
the primary market constitutes housing finance companies (HFCs) and the
borrower. The HFCs hold the mortgages of a borrower in their books. The
participants in the secondary market are specialized institutions, to whom
housing loan mortgages are sold by HFCs at a market determined interest rate.
Securitisation refers to conversion of cash flows into marketable securities. The
securities are highly tradable. In case of housing loans, these are referred to as
mortgage backed securities (1).
In the past, some studies and articles related to marketing opportunities in
housing finance have been conducted or published and review of these studies is
present below:
Organization of housing finance industry:
In the article, ‘Housing Finance: Legal Systems To Be Modified’, D. Chakraborty

specified that with the growing recognition of housing finance in a developing
economy like India, the housing finance industry has assumed all the more
significance and presently over 400 entities, including housing finance
companies and banks- nationalized, foreign as well as cooperative- have entered
the scene. The banks have of late come up with housing activities in a big way
and considering their customer base and wide coverage along with branch
network, they are having a good potential in this field. Since, the market situation,
there is room for any number of players to remain active. But it is important for a
player to fulfill its obligations to its clients both in term of disbursements made at
a comparatively lower cost and also the quality of service. The finance
companies, which are approved by NHB and are taking NHB refinance, can
improve their position of funds through the securitisation route. Besides, though
the service quality has improved overall there is need and scope for further
improvement in this field (2).
In a study of ‘Organizational Health Of Selected Public And Private Sector
Housing Finance Companies’, S.L. Gupta & V.K. Kohli specified that In India
various types of companies or agencies are engaged in housing finance sector.
These companies are from organized or unorganized sector, private or public
sector, registered with National Housing Bank (NHB) for refinancing or do not
have refinancing facility. Total companies that are operating in organized or
unorganized sector in India are 380.
HOUSING INDUSTRY
ORGANISED SECTOR UNORGANISED SECTOR
Registered with Not registered with

NHB NHB
(Specialized housing finance institutions like HDFC, HUDCO, LICHF)
All housing finance companies are offering certain extra facilities to attract
customers in terms of services and financial benefits. Private organizations fully
involved in the housing finance are always ready to implement new techniques of
management or methods for their development but public sector organizations
like banks have bureaucratic system (3).
According to G. Krishnan in his article ‘Housing Finance and Business Ethics’,

there is a boom in the housing finance industry with the public sector banks also
joining their private sector competitors in extending home loans at competitive
prices to the consumer. According to a report on retail finance markets, the
housing finance market has witnessed a compound annual growth rate (CAGR)
of 24.1% in incremental direct disbursement over the past five years. Direct
housing loans disbursements during 2002-03 were itself around Rs.35000 crore.
The outstanding housing loan portfolio estimated at Rs.73000 crores in 2002-03,
was expected to grow at CAGR of 30% over the next five years. In case of
intense competition Housing Finance Institutions, to increase the volumes, have
been selling home loans with floating interest rates. This means that the rate of
interest changes with the change in prime lending rate of these institutions, which
in turn is linked with RBI’s bank rate. Interest rate is highly volatile and can
overshoot during the times of rapid growth and inflation. The absence of an
option to balance transfer from a floating to fixed rate loan in most of the
schemes further increases the risk associated and leaves the customer with no
option but to comply with the higher rates (4).
Problems in housing finance:
Anil Kumar in unpublished PhD thesis titled ‘Housing Finance In Urban Punjab’
tried to find that the problem of housing is universal and even the most affluent
and advanced nations of the world are confronted with it, although not to such a
profound degree as in India, the studies dealing with role of finance in housing
sector pointed out that housing is an extraordinary expensive commodity which
requires heavy capital outlay. Housing finance as a factor of production is quite
distinct from labor, materials and risk taking. Housing finance has a long-term
character because the product involved is not readily saleable and does not yield
monetary returns as in agriculture and industry. Housing finance can be procured
from variety of sources. The importance of mortgage finance in housing is a
critical factor in generating demand for housing (5).
A. Bhoir identifies another problem, in the article ‘Banks Say No to Fixed Rate
Home Loans over Five Years’. Banks are saying no to fixed rate home loans
beyond five years as many fear an asset- liability mismatch if interest rates
significantly changes. Most banks, with the exception of ICICI bank, do not have
access to funds beyond five years. Some of the large public sector banks are
equally averse to giving loans beyond 10 years. Banks like IDBI bank never went
in for a fixed rate loan product. Public sector banks are giving fixed home rate
loans as the government due to the ownership pattern can refinance them. But
still they don’t advocate it as they feel a soft interest bias will continue. Housing
finance companies like HDFC have always been offering fixed rate loans (6).
Rise in interest rates:
O. Ninan mentioned in the article ‘Key Determinants In The Housing Finance’,

the interest rate on home loans are likely to rise, though not immediately, as the
RBI has raised risk weight that banks will have to assign on these loans from
50% to 75%. Banks would be forced to raise their interest rates for housing loans
once they have to move up the necessary capital allocation against their housing
portfolio. The private and foreign banks have effective systems for giving credit
and collecting it and they also enjoy a low cost of operations. The public sector
banks have low cost but are yet to develop effective systems (7).
According to Samik Gupta and Sehgal, in the article ‘Banks To Make Housing
Consumer Loans Costlier’, the impact of the repo rate hike affected by the
Reserve Bank of India (RBI) in its mid-term monetary policy will be faced by the
consumers in the form of higher payout for their housing and consumer loans.
Bank chiefs are actively looking for various ways of making consumer loans most
costly. As a first step, the processing fee waiver and other concessions offered
upfront will certainly go away. “We will have a re-look at our profitability. The
credit policy announcement would impact capital adequacy of our bank by 1%.
While the housing loan rates may not be affected immediately, we may have an
in-depth look at personal finance segment”, explained MS Kapur, CMD, Vijaya
Bank.
With commercial banks already having taken a hit on their treasury profits, even
cross-subsidization of incomes will not be possible this year. Higher risk
allocation certainly means increased costs for banks. The only way to recover
from this is to increase profitability from other portfolios or by increasing the
interest rate. In fact, bank chairman are also heeding to the RBI governors
warning of the possible bursting of the housing bubble. “The costs for the banks
are on the rise. Banks will have to find ways to improve on their income. One of
the ways can be increasing interest rate. We will review the prospects of
increasing the interest rate”, explained VK Chopra, CMD, Punjab and Sind Bank.
Bank of India CMD M Venugopal also said his bank will review the interest rates.
In fact some of the banks are slowly trying to refocus their portfolios more into
agriculture, small-scale industries and traders – the segment that got lost in the
housing and consumer credit boom that overshadowed banks (8).
Housing finance for low-income groups:
H. Srinivas in his PhD dissertation ‘Development Of A Housing Finance Triangle

Linking People’s Organizations, NGOs And Commercial Banks In Developing
Countries’, talked about the urban poor, with their low incomes, uncertain
employment and low assets, have been sidelined by commercial banks who do
not find them bankable. In order to rectify, this situation, there is a need of a
supportive role on the part of the government and commercial banks and a
streamlining developmental role on the part of community based financial
incentives. The connecting link between these two actors is the NGO working in
partnership with the settlement-based people’s organization and with sufficient
expertise and commitment to play role of a mediator, animator and trainer.
Together, the three community groups (or people’s organization), NGOs and
banks- will form the nodes of a housing finance triangle, which will work in
synchrony to generate and channel credit to the urban poor. Two key facts of
urban informal credit markets (ICMs) have been recognized by various authors-
one, that informal credit largely (though not completely) serves the differing
needs of low income families; two, that under the current circumstances in which
global/ national credit markets function, informal credit suppliers function at a
disadvantage and have several shortcomings. This situation is compounded by
commercial banks, which do not find low-income families viable or bankable. The
problems being faced in housing, infrastructure, credit, land and other sectors in
urban areas of Asia are a result of shortcomings inherent in the government and
its various agencies, as well as the urban poor themselves. The wide variety of
informal finance suppliers varies not only in their organizational and operational
aspects, but also by geographical region, share of the financial market etc (9).
P. Tiwari in his article on ‘Micro Finance Institutions In India’ tried to explain that
more than subsidies poor need access to credit. A large number of small loans
are needed to serve the poor, but lenders prefer dealing with large loans in small
number to minimize administration costs. For housing, the Housing Finance
Institutions have generally not evolved a leading product to serve the needs of
the very low-income group primarily because of the perceived risk of lending to
this sector.
 Credit risk
 High transaction and service cost
 Absence of land tenure for financing housing
 Irregular flow of income due to seasonality
 Lack of tangible proof for assessment of income
 Unacceptable collaterals such as crops, utensils, and jewelry
The informal financial sources generally include funds available from family
sources or local moneylenders. The local moneylenders charge exorbitant rates,
generally ranging from 36% to 60% interest due to their monopoly in the absence
of any other forms of credit system operated by groups of people for their mutual
benefit, which however have their own limitations (10).
South Asian Perspective:
As explained by R. Karnad in his article ‘Housing Finance And The Economy:

Regional Trends South Asia Perspectives’, in terms of economic growth, the
South Asia region countries to be the second fastest growing region in the world
after East Asia. The region, encompassing Bangladesh, Bhutan, India, Maldives,
Nepal, Pakistan and Sri Lanka has recorded an ave5rage annual growth rate of
over 5% in 2003. Despite the fact that most of these countries have strong
agrarian economy, the thrust in GDP growth in the recent period has emanated
from the services sector, accounting for 40% to as high as 60% of GDP.
Ironically, the South Asia region continues to remain one of the poorest regions
in the world. Macroeconomic stability or instability and the housing sector are
inextricably linked. However, in contrast, while South Asia’s GDP growth rate in
the recent period ranks among the best in the emerging countries, the same
unfortunately cannot be said about its housing sector.
In India, which is the most advanced market in South Asia, the mortgage to GDP
ratio is estimated at 2%. In Pakistan, it is less than 0.5% and other countries of
South Asia, mortgages as a percentage to GDP is insignificant. This compares to
a mortgage to GDP ratio of over 51% in USA (11).
Mechanisms adopted in South Asian nations in targeting programs for the low-
income groups:
 The Grameen Bank in Bangladesh
 Linking banks with self help groups: A pilot project from Indonesia
 Pag IBIG fund- Philippines
 HDFC (India): credit mechanism adopted for funding the low-income
group beneficiaries (12).
Banks And Housing Finance Institutions:
As per an article titled ‘Banking’ given on a site named equitymaster.com, the

much-needed reforms in the banking sector have transformed the sector
drastically in the last few years. Falling interest rates as well as strengthening of
the hands of banks (securitisation act) have changed the dynamics of the Indian
banking sector itself. The new securitisation act has given more power to the
banking sector against defaulting borrowers. Further, changes to be implemented
on the issue of voting rights among private sector banks are likely to speed up
the consolidation process. Softer interest rate scenario in itself is a policy
decision followed by the RBI that has immensely benefited the banking sector,
especially the public sector banks. Banks are recognizing the realities of a
customer preference driven market by offering customized products to cater to
various customers. A slowdown in the corporate segment has forced banks to
increasingly concentrate on the retail segment (especially the housing loans
market) in order to grow their business (13).
As per the article ‘Center For Housing Finance’, given at the site www.hdfc.com,
HDFC, having pioneered and helped develop market-oriented housing finance in
India, has continued to expand its services to a broader spectrum of clients by
offering specialized training courses. HDFC’s Center For Housing Finance (CHF)
provides technical assistance to national governments and housing finance
institutions in developing countries in the South Asian and African Regions,
especially in the field of institutional development for effective shelter finance
delivery. The second major area of activity of the CHF is managerial training for
housing finance institutions. Besides effective housing finance operations, some
established housing finance institutions also seek training for systems
development and improvement. Over the years, delegates from several countries
including Malaysia, Ghana, Mauritius, Fiji islands, Thailand, China, Sri Lanka,
Bangladesh, Nepal, Indonesia, Mongolia, Tanzania, Sultanate of Oman, Pakistan
and Philippines have participated in training programs held at the Center and
benefited greatly (14).
LICHFL was set up under the Companies act, 1956 incorporated on 19th June
1989 and recognized by National Housing Bank has about 25% market share in
the housing finance industry. Having a wide network in the industry with 67
Area/Unit Offices plus 6 Regional Offices across the length and breadth of the
country and about 5000 LIC Agents trained for housing finance (15).
As per news given in The Hindu business line, titled ‘LIC Housing Special Offer’,
LIC Housing Finance Limited has announced special rates of interest for
policyholders, by offering 0.25 percentage-point rebates on interest to all the new
applicants who have adequate LIC policy. The present rates are 7.5% (floating)
for 20 years for any amount and 8% for fixed rate of interest. LIC policyholders
are eligible for 7.25% floating and 7.75% fixed rate of interest. Mr.
P.Radhakrishnan, manager (operations) LICHFL said in a release.
The company also offers additional benefit to Jeevanshree policyholders of LIC
by way of concession in processing fee also. The company has also brought out
a new product combining the benefits of both fixed rate and floating rate called
fixed-floating rate of interest where in the rate is fixed for the first five years at the
end of which the loaned can opt for fixed or floating rate of interest (16).
In the article ‘India’s Best Banks’, Kapil explained that in housing loans, the
HDFC bank entered into an arrangement with its parent Housing Development
Finance Corporation Ltd. In September 2003, whereby it sells HDFC home loan
products. Going ahead, its Rs150crore a month of home loan business that
comes via HDFC could easily double the next year. ICICI bank, in mortgages it
has a 28% share, in auto loans it has 37%, in personal and consumer loans
29%(17).
REFERENCES
1. “Finance And Business Ethics”,

www.indiainfoline.com/bisc/hous.htm, Nov.20, 04.
2. Chakraborty D., “Housing Finance: Legal Systems Need To Be
Modified”, www.shilpabichitra.com, jan.10, 2005.
3. S.L. Gupta & V.K.Kohli, ‘ A Study Of Organizational Health Of
Selected Public And Private Sector Housing Finance Companies’,
Apeejay Journal Of Management, Vol.1, No.1, p.no. 84-99.
4. Krishnan G., ‘Housing Finance and Business Ethics’,
www.indiainfoline.com/bisc/hous.htm, Nov. 20, 04.
4,5,11-14.
6. Bhoir A., et al, ‘Banks Say No To Fixed Rate Home Loans Over Five
Years’, www.rediff.com/money.htm, Nov. 20, 04.
7. Ninan O., “Key Determinants in Housing Finance”, www.hindu.com,
Oct.28, 04.
8. Samik Das Gupta & Arshdeep Sehgal, ‘Banks to Make Housing,
Consumer Loans Costlier’, The Economic Times, Oct.28, 04, p.no.1.
9. Srinivas H., www.focaal.box.nl, ‘Development Of A Housing Finance
Triangle Linking People’s Organizations, Ngos And Commercial Banks
In Developing Countries’, PhD. Dissertation, Nov. 20, 04.
10. Tiwari P., “Micro Finance Institutions In India”,
www.gdrc.org/icm/concept-paper-india.html, Oct. 28, 04.
11. Karnad R., ‘Housing Finance and the Economy: Regional Trends
South Asia Perspectives’, www.hdfc.com/pdf/hdfc-iuhf04.pdf,
Jan10, 05.
12. Op cite ref no. 10.
13. www.equitymaster.com/research-it/sector-info/bank.htm,‘Banking’,
Oct.28, 04.
14. www.hdfc.com/we_centre.asp, ‘Centre for Housing Finance’, Oct28,
04.
15. www.namasthenri.com/housing/licscheme.html, ‘LIC Housing
Finance Limited’, Jn10, 05.
16. Kapil, ‘India’s Best Banks’, Business Today, Jan.2, 05, p.no. 80,86.
CHAPTER 3
RESEARCH
METHODOLOGY
NEED FOR THE STUDY

The housing finance sector has certainly become more competitive in recent
times with banks and Housing Finance Companies (HFCs) marketing their
products much more aggressively. Equally on the interest rates front, the players
have been adopting an aggressive policy and are reducing the interest rates in
tune with the prime lending rates. Since housing finance is considered to be a
relatively low risk form of advance, commercial banks have been promoted to
become active in housing finance. These developments have fueled in an
unforeseen competition among the various players and triggered an interest rate
war in the housing finance market. In situations where the basic offer is similar, it
is often superior service and value added services that are likely to differentiate
the leaders.
Today, consumers are seeking more than just a loan; they seek convenience in
the entire process of acquiring a home as well as the finance for it. The ultimate
beneficiary in the stiff competition prevailing in the housing finance market is the
home finance seeker, as the players are vying with one another to provide the
most value added and efficient services. And considering the various home loan
options available to the customer, the market is virtually dominated by the
customer.
In the earlier studies on housing finance, as discussed in review of literature,
many researchers and thinkers had talked about interest rate variations, need of
micro finance institutions, various developments in housing finance industry,
business ethics in housing finance and structure of housing finance industry.
Given these factors, a need was felt to gather some research work related to
various loan schemes and consumer preference regarding various banks and
financial institutions, since the same was unavailable.
OBJECTIVES OF THE STUDY
Every work step is done to attain some goals. So every study of research is
directed towards the accomplishment of certain objectives and so is the present
study. The objectives of the study are:
1. To compare the loan facilities/ schemes provided by public and private
sector banks/ housing finance institutions.
2. To determine the preference of consumer regarding various banks/
housing finance institutions.
Scope Of The Study

The scope of the study is restricted to 100 customers selected randomly from
Patiala city. The scope of the study also covered six banks- three from public
sector and three from private sector from where loan schemes were collected.
Private banks: HDFC, ICICI and Bank of Punjab.
Public banks:State Bank of Patiala, Punjab & Sind Bank, Punjab National Bank.
These six banks are selected for the study, as they are pioneer in the field of
housing loan. These are catering to the maximum number of people and also
providing them with the best of the schemes. In Punjab, banks/ financial
institutions have divided the whole area into various zones. Among these
maximum disbursements of loans is in Patiala city as the urbanization in this city
is at the fastest rate.
DATA SOURCE
In the present study both primary and secondary data is used:
I. Secondary data
The secondary data was collected from PhD thesis, published articles,
journals, magazines, and Internet sites.
II. Primary data
A survey is conducted among the consumers with the help of schedules.
The questions asked were highly structure one and objective type, in order to
take the least time of the respondents.
SAMPLING
For this survey Convenience (non-probability) Sampling Method has been used.
The sample size of 100 consumers and 6 banks was selected to keep the
sample accurate as well as manageable.
These 100 consumers include adults, who have a regular income because this is
the basic eligibility criterion for the house loans by any bank/ financial institution.
There is no fixed ratio for male or female respondents. The respondents are from
various occupations like government employees, employees in private sector
(serviceman), businessman, landlords and so on.
Collecting The Information

The contact method used was personal interviews.
The information was collected by contacting the consumers individually.
Analyzing the information

The information collected from the survey was analyzed by using different
statistical, mathematical and data interpretation techniques. The analysis
techniques used in the study are:
 Percentages
 Weighted average
For calculating weighted average following formula is used
Xw = ∑X (W)
∑X
Here, Xw = weighted average
X= no. of respondents for each scale
W= weight assigned to each scale.
The respondents were asked to tick choices according to degree of importance
on a five-point scale. Weights are assigned to these points in the following way:
Table no. 1: weights assigned to five-point scale
Scale Weight
Very important 5
Important 4
Neutral 3
Less important 2
Not important 1
LIMITATIONS OF THE STUDY

The findings of this study are based on the subjective opinion of the respondents.
Although utmost care was taken to get accurate results from the respondents, yet
because of ambiguities and misinterpretation on the part of respondents, some
element of inaccuracy might have crept in. therefore, most of the studies based
on the opinion survey suffer from the limitations of “possibility of what is recorded
and what is truth”. The sample size taken is very small and may not be sufficient
to predict the results with 100% accuracy and hence findings cannot be
generalized.
CHAPTER 4
CRITERIA FOR
HOUSING LOAN
PRIVATE SECTOR BANKS
ICICI bank
BANK PROFILE:
ICICI Bank is India's second-largest bank with total assets of about Rs.1,67,659
crore at March 31, 2005 and profit after tax of Rs. 2,005 crore for the year ended
March 31, 2005 (Rs. 1,637 crore in fiscal 2004). ICICI Bank has a network of
about 560 branches and extension counters and over 1,900 ATMs. 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
specialized subsidiaries and affiliates in the areas of investment banking, life and
non-life insurance, venture capital and asset management. ICICI Bank set up its
international banking group in fiscal 2002 to cater to the cross border needs of
clients and leverage on its domestic banking strengths to offer products
internationally. ICICI Bank currently has subsidiaries in the United Kingdom and
Canada, branches in Singapore and Bahrain and representative offices in the
United States, China, United Arab Emirates, Bangladesh and South Africa. At
April 4, 2005, ICICI Bank, with free float market capitalization* of about Rs.
308.00 billion (US$ 7.00 billion) ranked third amongst all the companies listed on
the Indian stock exchanges.
ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial
institution, and was its wholly owned subsidiary. ICICI's shareholding in ICICI
Bank was reduced to 46% through a public offering of shares in India in fiscal
1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000,
ICICI Bank's acquisition of Bank of Madura Limited in an all-stock amalgamation
in fiscal 2001, and secondary market sales by ICICI to institutional investors in
fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the World
Bank, the Government of India and representatives of Indian industry. The
principal objective was to create a development financial institution for providing
medium-term and long-term project financing to Indian businesses. In the 1990s,
ICICI transformed its business from a development financial institution offering
only project finance to a diversified financial services group offering a wide
variety of products and services, both directly and through a number of
subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first Indian
company and the first bank or financial institution from non-Japan Asia to be
listed on the NYSE.
In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the
merger of ICICI and two of its wholly owned retail finance subsidiaries, ICICI
Personal Financial Services Limited and ICICI Capital Services Limited, with
ICICI Bank. The merger was approved by shareholders of ICICI and ICICI Bank
in January 2002, by the High Court of Gujarat at Ahmedabad in March 2002, and
by the High Court of Judicature at Mumbai and the Reserve Bank of India in April
2002. Consequent to the merger, the ICICI group's financing and banking
operations, both wholesale and retail, have been integrated in a single entity.
Profitability:
 35% increase in profit after tax to Rs. 6.15 billion in Q4-2005 from Rs. 4.55
billion in Q4-2004.
 22% increase in profit after tax to Rs. 20.05 billion in FY2005 from Rs.
16.37 billion in FY2004.
 Improvement in net interest margin to 2.4% in FY2005 compared to 1.9%
in FY2004.
 79% increase in fee income to Rs. 20.98 billion in FY2005 from Rs. 11.75
billion in FY2004.
Balance sheet:
 46% year-on-year growth in advances and 34% growth in total assets.
 68% year-on-year growth in retail portfolio, now constituting 61% of loans.
 Deposit growth of 47% in FY2005 compared to system deposit growth of
14%.
 Reduction in net NPA ratio to 2.0% at March 31, 2005 from 2.9% at March
31, 2004.
Capital adequacy:
Mar 31, 2004 Mar 31, 2005
Rs. Bn %age Rs bn %age
Total capital 94.01 10.36 159.03 11.78
Risk weighted assets 907.34 1350.17
HOUSING LOAN SCHEME:
ELIGIBILITY:
A person is eligible for an ICICI bank home loan if he/she is:
 Minimum age of 21 years and
 Employed or self-employed with a regular income.
LOAN PURPOSE:
 To construct or purchase a house or flat.
 For improvement or renovation.
 Plot purchase, plot cum construction.
 Balance transfer.
One can apply even before selecting a property. A loan amount would be
sanctioned, based on repayment capacity, which will help the customer in
deciding budget and plan the buying of house.
LOAN STRUCTURE:
A home loan ranging from a minimum of Rs. 1 lac to a maximum of Rs. 3 crores
can be availed of. The loan amount depends on:
 A maximum of 85% of the cost of property or cost of construction as
applicable.
 The bank taking into account age, income, qualifications, number of
dependents, assets, liabilities, stability/ continuity of employment/
business and the income of the co-applicant would determine repayment
capacity.
CO-APPLICANT:
All owners of the property need to be the co-applicant. One can also include
spouse, as a co-applicant for the home loan and his/her income will be included
to enhance loan eligibility.
RATES OF INTEREST:
If the loan amount is above 5 lacs- 7.5%.
And if it is less than 5 lacs- 7.75%.
REPAYMENT:
The repayment of the home loan is by Equated Monthly Installments (EMI)
comprising of an interest and principal amount. There is an option for selecting a
comfortable term. Adjustable rate home loans for a maximum of 20 years and
fixed rate home loans for a maximum of 30 years.
ICICI bank offers both fixed and adjustable home loans. The interest rate for a
fixed home loan remains the same for the entire tenure whereas an interest rate
for an adjustable home loan vary as per the change in the interest rates driven by
the economy.
FEES:
 Processing fees (to be paid at the time of the application). Presently, it is
0.5% of the sanctioned loan amount.
 Administration fees (deducted at the time from the amount disbursed)
DISBURSEMENT:
Loan is sanctioned within one week of the application. Disbursement is given
with in two weeks. Loans will be disbursed after all legal documentation/
formalities are completed and after payment of margin money. The loan will be
disbursed in lump sum or in installments depending on the purpose of the loan,
stage of construction and requirement of funds. For example in case of
construction of a house, loan amount is disbursed in three installments and in
case of improvement or renovation, it is disbursed in two installments.
PRE-PAYMENT:
ICICI home finance does not levy a charge on part- prepayment.
TAX BENEFITS:
Tax benefits are available on the principal and interest components of a loan as
per the Income Tax Act, 1961.
LEGAL AND TECHNICAL ASSISTANCE:

Bank has its panel of lawyers and architects who scrutinize the validity of the title
of the property as well as determine fairly accurately the actual cost of it. The
cost of such assistance is borne by the bank.
INSURANCE:
ICICI home finance offers a free accidental death cover at absolutely no extra
cost. This is extremely beneficial and protects both, your home and your family.
DOCUMENTS REQUIRED:
An indicative list of documents required to be submitted:
 Passport size photograph of all the applicants
 Age verification, which may be established from the PAN card, election ID,
passport, driver’s license, ration card.
 Bank statements for the last six months.
 Processing fee cheque.
Income documents are as follows:
 For salaried individuals
1. Latest salary slip/certificate showing all deductions from employer.
2. Latest form no. 16.
 For self employed individuals:
1. Balance sheets and P/L account of the business/profession.
2. Income tax returns for the last 3 years.
SECURITY:
A security of the property and/or such other additional/collateral security as may
be mutually agreed.
HDFC Bank
BANK PROFILE:
The Housing Development Finance Corporation Limited (HDFC) was amongst

the first to receive an ‘in principle’ approval from the Reserve Bank of India (RBI)
to set up a bank in the private sector, as part of the RBI’s liberalization of the
Indian Banking Industry in 1994. The bank was incorporated in August 1994 in
the name of ‘HDFC Bank Limited’, with its registered office in Mumbai, India.
HDFC Bank commenced operations as a scheduled commercial bank in January
1995.
HDFC is India’s premier housing finance company and enjoys an impeccable

track record in India as well as in international markets. Since its inception in
1977, the corporation has maintained a consistent and healthy growth in its
operations to remain a market leader in mortgages. Its outstanding loan portfolio
covers well over a million dwelling units. HDFC has developed significant
expertise in retail mortgage loans to different market segments and also has a
large corporate client base for its housing related credit facilities. With its
experience in the financial markets, a strong market reputation, large shareholder
base and unique consumer franchise, HDFC was ideally positioned to promote a
bank in the Indian environment.
HDFC Bank is headquartered in Mumbai. The bank at present has an enviable

network of over 472 branches spread over 214 cities across the country. All
branches are linked on an on-line real time basis. Customers in 90 locations are
also serviced through phone banking. The bank’s extension plans take into
account the need to have a presence in all major industrial and commercial
centers where its corporate customers are located as well as the need to build a
strong retail customer base for both deposits and loan products. Being a clearing/
settlement bank to various leading stock exchanges, the Bank has branches in
the centers where the NSE/ BSE has a strong and active member base. The
bank also has a network of over 1054-networked ATMs across these cities.
Moreover, HDFC Bank’s ATM network can be accessed by all domestic and
international Visa/ MasterCard, Visa electron/ Maestro, Plus/ Cirrus and
American Express Credit/ charge cardholders.
March 31, 2005 - Balance Sheet:

During 2004-05, the Bank’s total balance sheet size increased by 21.6% to
Rs.51429 crores. Total Deposits increased by 19.6% from Rs.30409 crores (as
of March 31, 2004) to Rs.36354 crores (as of March 31, 2005). Savings account
deposits, which reflect the strength of the retail liabilities franchise and are an
important source of stable, low-cost funds, increased by 46.3% from Rs.7804
crores to Rs.11418 crores as of March 31, 2005. During 2004-05, net Advances
grew by 44.1% to Rs.25566 crores. This was driven by a growth of 47.5% in
retail advances to Rs.11696 crores (including car loans, personal loans,
commercial vehicle loans, two-wheeler loans, credit cards, etc., net of sale of
retail loans of about Rs.4800 crores during the year), and an increase of 41.3%
in wholesale advances to Rs.13870 crores. The bank’s core customer assets
(advances plus credit substitutes like commercial paper, corporate debentures,
preference shares, etc.) increased by 38.0% from Rs.19494 crores in March
2004 to Rs.26902 crores in March 2005. In addition, the bank held Rs.3061
crores of investments brought in through the securitisation route where the
underlying assets were primarily commercial vehicle/car loans and mortgage
receivables. Total customer assets (including securitisation investments) were
therefore Rs.29963 crores as of March 31, 2005.
ELIGIBILITY:
The eligibility for the loan will be determined by your repayment capacity.
Repayment capacity takes into consideration factors such as income, age,
qualifications, number of dependents, spouse’s income, assets, liabilities,
stability and continuity of occupation and saving history.
LOAN PURPOSE:
LOAN STRUCTURE:
Loan can be availed of a minimum of Rs. 1 lac to maximum of Rs. 1 crore. Bank
provides up to 85% of the cost of property.
RATES OF INTEREST:
These vary from 7.5% to 8.5%.
REPAYMENT:
comfortable term. Adjustable rate home loans for a maximum of 20 years and
fixed rate home loans for a maximum of 15 years. The bank offers both fixed and
adjustable home loans.
FEES:
 Processing fees (to be paid at the time of the application). Presently
processing fees is 0.5% of the sanctioned loan amount.
 Administration fees (deducted at the time from the amount disbursed)
TAX BENEFITS:

Bank has its panel eminent lawyers and architects who scrutinize the validity of
the title of the property as well as determine fairly accurately the actual cost of it.
The cost of such assistance is borne by the bank.
DOCUMENTS REQUIRED:
SECURITY:
be mutually agreed.
Bank of Punjab
BANK PROFILE:
Bank of Punjab opened its first branch at Chandigarh, in April 1995. In a short
span of 8 years, the Bank added many firsts to its credit:
• The first bank to focus on retail banking.

• The first bank in north India to install a state-of-the Art ATM payment
gateway allowing on line transactions. Till today, the only such gateway in
North India.
• The first bank to have introduced fax banking and telebanking for its
customers.
• Leveraging the strength of technology, the First bank to offer extended
banking hours to its customers.
• Realizing the importance of Human Resources, the First amongst peer
banks to set up a residential fully equipped training Institute.
• The first bank to have transferred technology to the masses.
Bank of Punjab has a wide area network of branches across the country.
Customers in excess of 55,63,07 serviced by a team of 961 dedicated
professionals. The bank has established correspondent banking relationships
across 60 countries. At its very inception, the bank's public issue in March 1995
of Rs. 29.52 million was over subscribed 20 times. From a deposit base of Rs.
2342.17 Crores in the first year ended March 1996, deposits of the bank have
grown to Rs. 3244.76 Crores, in the year ended December 2001, an annualized
growth of 200% over the last 4 years. The Bank is positioning itself at the leading
edge of technology and is coming out with various technology driven products
and services for its customers. On the anvil are Debit and Credit cards, Smart
Cards and Online e-commerce. The Bank has already launched its eBanking
services and mobile phone banking for its customers as value added services.
The Bank has put in place a 24-hour customer care center enabling secure
Online Banking and information services.
Bank of Punjab has made a strategic tie up with Master Card International for its
MASTERO, SWADHAN and CIRRUS International Card Network. Bank's own
ATM Network at On-Site Branches and Offsite locations will swell from existing
125 to over 200 in next one year.
Over and above its own ATM Network the customer of Bank of Punjab would
also be able to access hundreds of ATMs of other Master Card member banks in
India and over 5,40,000 worldwide displaying 'CIRRUS' logo.
The Bank's reach is further being extended through over 5000 merchant
establishments, which would be accepting the Bank's "ebank" card and the
Maestro Debit Card from MasterCard.
As a tribute to the memory of its founder late Dr. Inderjit Singh and his
commitment of giving the very best to customers, employees and the world of
Banking, Bank of Punjab has set up a state-of-the-art, Dr. Inderjit Singh Institute
of Banking and Insurance Management at Gurgaon, near Delhi. The first among
peer banks, the residential institute, of truly international standards, is equipped
with comprehensive training aids, an extensive library and the latest IT tools. The
institute provides an ideal learning environment for professionals from banking,
insurance and financial sectors.
ELIGIBILITY:
BOP home loans are available to resident and non-resident Indians.
 RESIDENT INDIANS: Confirmed employees able to provide pay slips and
form No. 16. Self employed with 3 years standing and professionals with 2
years standing.
 NON-RESIDENT INDIANS: Loans will be disbursed only to NRI’s holding
a valid work permit visa and passport.
LOAN PURPOSE:
 Takeover and loan against property.
LOAN STRUCTURE:
Borrowing limit is Rs.2 lacs to a maximum of Rs.50 lacs. Up to 85%of the cost of
property or on the basis of customer’s repayment capacity, as appraised by BOP
based on income.
CO-APPLICANT:
RATES OF INTEREST:
 For plot purchase- 7.5%- 8.5%
 For house purchase, construction, plot cum construction, takeover- 7.75%
 For renovation- 8.75%
 For loan against property- 9.75%.
REPAYMENT:
comfortable term. Minimum repayment period shall be 5 years and maximum
period 15 years or up to the retirement age or 65 years as applicable.
DISBURSEMENT:
Loans will be disbursed after all legal documentation/ formalities are completed
and after payment of margin money. Loans will be disbursed in favor of seller in
case of purchase or in your favor in case of extension or construction. The loan
will be disbursed in lump sum or in installments depending on the purpose of the
loan, stage of construction and requirement of funds.

Bank has its panel eminent lawyers and architects who scrutinize the validity of
the title of the property as well as determine fairly accurately the actual cost of it.
The cost of such assistance is borne by the bank.
INSURANCE:
BOP offers a free accidental death cover at absolutely no extra cost. This is
extremely beneficial and protects both, your home and your family.
DOCUMENTS REQUIRED:
PUBLIC SECTOR BANKS
Punjab National Bank
BANK PROFILE:
From a modest beginning in 1895, Punjab National Bank (PNB) has grown
in size and stature to become a frontline banking institution in India. With its
presence in virtually all the important centers of the country, PNB offers a wide
range of banking services, catering to multinational companies while financing
agriculture as well. The Bank is ranked 515 among the biggest banks in the world
by Bankers' Almanac (January 2000) London. It has strong correspondent
relations with 217 leading international banks all over the world and maintains
accounts in as many as thirteen currencies. PNB has also decided to focus on
expanding its operations outside India and has set up a representative office in
Almaty, Kazakhstan. With a long tradition of sound banking and an in-depth
knowledge of the India economy, the bank is well poised to build upon its
considerable successes for many years to come.
 The PNB has total number of 4,186 offices.

 PNB has the largest branch network in India with 3850 branches spread
throughout the country.
 The workforce amounts to 65,705 in number.
 PNB has international banking facilities in Agra, Ahmedabad, Amritsar,
Calcutta, Delhi, Jaipur, Jalandhar, Ludhina, Moradabad and Mumbai.
 PNB also has a joint venture bank with Everest Bank Limited in
Kathmandu, Nepal.
 The bank has Rupee Drawing arrangements with exchange companies in
the Gulf.
 PNB Capital Services Ltd is SEBI registered merchant banking company.
 PNB Housing Finance Limited is a successful company registering a
growth of 24%,
 PNB Gilts Ltd. is a primary dealer in Government securities and also deals
in money marketing instruments.
Table no. 1: Balance sheet of Punjab National Bank

ELIGIBILITY:
Individuals/ joint owners are eligible for sanction of housing loan.
LOAN PURPOSE:
Balance Sheet As On 31st March 2005
(Rs.000 omitted)
As on 31.03.2005 As on 31.03.2004
CAPITAL & LIABILITIES Schedule Rs. Rs.
Capital 1 3153025 3153025
Reserves & Surplus 2 78459967 47465045
Deposits 3 1031668869 879163958
Borrowings 4 27182906 12890585
Other Liabilities and Provisions 5 121948042 81144806
Total 1262412809 1023317419
As on 31.03.2005 As on 31.03.2004
ASSETS Schedule Rs. Rs.
Cash and Balances with RBI 6 94601969 67422813
Balances with Banks & Money at
Call & Short Notice 7 16288322 20782329
Investments 8 506728264 421254883
Advances 9 604127514 472247197
Fixed Assets 10 9652295 8998435
Other Assets 11 31014445 32611762
Total 1262412809 1023317419
Contingent Liabilities 12 430012965 322300265
Bills for Collection 40460716 48130808
Source: www.pnbindia.com, ‘Financial Performance’, 1st June 2005.
LOAN STRUCTURE:
A home loan up to a maximum limit of Rs. 50 lacs is sanctioned by PNB. The
bank sanctions 80% of the cost of the project.
CO-APPLICANT:
RATES OF INTEREST:
If repayment period is up to 5 years- 7.75%.

From 5-10 years- 8%
From 10-20 years- 8.25%.
REPAYMENT:
comprising of an interest and principal amount. The maximum repayment period
can be 25 years. Punjab National bank offers both fixed and adjustable home
loans.
FEES:
 Processing fees- 0.5% of the loan amount.
 Documentation fees- Rs. 1000\-.
DISBURSEMENT:
The loan will be disbursed in lump sum or in installments depending on the
purpose of the loan, stage of construction and requirement of funds. For example
in case of construction of a house, loan amount is disbursed in two installments.
PRE-PAYMENT:
If the prepayment is from own pocket of the customer, then no charges are
levied. In the case of takeover, 2% prepayment charges are levied.
TAX BENEFITS:
per the income tax act, 1961.

of the property as well as determine fairly accurately the actual cost of it.
INSURANCE:
The bank provides insurance cover for the property but extra charges are levied
in this case.
DOCUMENTS REQUIRED:
An indicative list of documents required to be submitted :

 Guarantor agreement.
SECURITY:
be mutually agreed. A guarantor i.e. third party is required for the case of any
contingency.
State Bank of Patiala
BANK PROFILE:
His Excellency Bhupinder Singh, Maharaja of the erstwhile Patiala state,

established State Bank of Patiala on 19th November 1917 on Diwali Day, with its
first branch at Chowk Fort, Patiala. The Bank takes pride in the pivotal role during
the last 85 years in the small business finance, professionals and for the
upliftment of the living conditions of the oppressed and downtrodden strata of
society.
Today, the Bank is operating through a network of over 834 outlets (745
branches and 89 Ext. counters) in 17 States and one Union Territory. The total
deposits of the Bank stood at Rs. 22044 crores and advances Rs. 13590 crores
at the end of the March 2004. The Bank is interconnecting its branches through
V-SAT, SWIFT, etc.
State Bank of Patiala has emerged as one of the two best banks in Public Sector
banking industry which satisfy all the seven efficiency criteria laid down by
working group headed Shri M.S. Verma, former Chairman of SBI, appointed by
Govt. of India. The Bank has Capital Adequacy Ratio 13.56% against a
benchmark of 9% without raising any capital from the market. The Bank has also
maintained CD ratio of 61.43% and achieved benchmark of 41.45 % in priority
sector advances and 18.19% in agricultural advances.
TABLE NO.2: Balance sheet of State Bank of Patiala
Balance Sheet
(Rs. in thousands)
st
Capital & As on 31 As on 31st As on 31st
Schedule
Liabilities March 2003 March 2004 March 2005
1 Capital 1 24,75,00 24,75,00 24,75,00
Reserves and
2 2 1387,42,58 1706,10,17 2019,62,71
surplus
3 Deposits 3 17869,67,52 22473,28,02 26495,67,21
4 Borrowings 4 433,98,54 498,06,48 559,65,35
Other Liabilities
5 5 1573,06,35 2194,55,61 2403,09,41
and provisions
Total 21288,89,99 26896,75,28 31502,79,68
As on As on
As on 31st
Assets Schedule 31st 31st
March 2003
March 2004 March 2005
Cash and
balances with
1 6 1175,95,95 1086,80,61 1668,94,65
Reserve Bank
of India
Balances with
Banks & money
2 7 285,69,63 289,06,76 674,56,85
at call & short
notice
3 Investments 8 8122,06,03 11110,20,96 12312,41,44
4 Advances 9 10746,39,75 13086,33,86 15359,27,35
5 Fixed Assets 10 119,39,33 123,97,78 127,70,96
6 Other Assets 11 839,39,30 1200,35,31 1359,88,43
Total 21288,89,99 26896,75,28 31502,79,68
Contingent
12 4067,00,72 6502,59,21 4718,12,56
Liabilities
Bills for
404,68,75 1798,16,60 530,83,81
Collection
Source: www.sbpindia.com, ‘About Us’, 1st June 2005.
ELIGIBILITY:
Individuals/ group of individuals with steady source of income.
LOAN PURPOSE:
 To construct or purchase new\old house or flat.
 For improvement or renovation or to extend an existing house.
 To finance earnest money for booking of residential plots/ houses/ flats
built by govt. agencies.
LOAN STRUCTURE:
 To construct or purchase new\old house or flat- no maximum limit.
 For improvement or renovation or to extend an existing house and for plot
purchase- maximum Rs.10 lacs.
CO-APPLICANT:
RATES OF INTEREST:
From 5-10 years- 8.25%.
From 10-15 years- 8.25%.
Above 15 years- 8.50%.
REPAYMENT:
can be 20 years for applicants up to age of 45 years. 15 years maximum for
applicants above 45 years. State bank of Patiala offers both fixed and adjustable
home loans.
FEES:
 Processing fees- 0.5% of the loan amount.
 Documentation fees- Rs. 1000\-.
DISBURSEMENT:
PRE-PAYMENT:
TAX BENEFITS:
per the income tax act, 1961.

of the property as well as determine fairly accurately the actual cost of it.
DOCUMENTS REQUIRED:
SECURITY:
contingency.
Punjab and Sind Bank
BANK PROFILE:
It was in the year 1908, when a humble idea to uplift the poorest of poor of the
land culminated in the birth of Punjab & Sind Bank with the far-sighted vision of
luminaries like Bhai Vir Singh, Sir Sunder Singh Majitha and Sardar Tarlochan
Singh. They enjoyed the highest respect with the people of Punjab.
The bank was founded on the principle of social commitment to help the weaker
section of the society in their economic endeavors to raise their standard of life.
Decades have gone by; even today Punjab & Sind Bank stands committed to
honor the social commitments of the founding fathers.
Achievements:
 The total business of the Bank stood at Rs.200525 Million as on March 31,
2004.
 The bank earned a Net Profit of Rs.88.9 Million in the last fiscal.
 The Bank has 760 branches and 131 extension counters as on
30.09.2004
 The Export-Import turnover crossed Rs. 45916 Million as on 31.03.2004
 The Bank's Priority Sector Advances exceed the stipulated target of 40%.
 It is the first bank in Northern India to get ISO 9002 certification for our
selected branches.
 The corporate office of the bank is situated at Rajendra Place, New Delhi
with 19 zonal offices (as on 30.09.2004) scattered in various states
controlling the branches.
The Bank has a vast network of 760 branches and 131-extension counters (as
on 30.09.2004) spread all over India catering to the needs to all section of society
irrespective of their social and economic strata. These branches are manned by
a dedicated work force of 9778 personnel.
In line with the spirit of liberalization, the Bank is laying special stress on
International Banking Divisions, Merchant Banking, Hire Purchase and Leasing,
Telebanking & Credit Card.
TABLE NO.3: PERFORMANCE OF PUNJAB & SIND BANK
Rs. in Million
31st March 31st March 31st March
Parameters
2002 2003 2004
TOTAL BUSINESS 180130 192773 200525
DEPOSITS 124826 132230 136420
NON RESIDENT DEPOSITS 10970 11816 11848
ADVANCES 55767 58920 60300
PRIORITY SECTOR ADVANCE 24744 28869 31046
OPERATING PROFIT 1637 2808 1496
NET PROFIT 230 44 88.9
INVESTMENT MARKED TO MARKET 75.88% 75.23% 76.61%
FOREIGN EXCHANGE MERCHANT
37410 46790 45916
TURNOVER
EXPORT CREDIT 5997 6281 5544
EXCHANGE PROFIT 198 281 215
NO. OF OFFICES 887 890 891
NO. OF PERSONNEL 9916 9813 9778
SOURCE: www.psb.com, ‘Performance and Achievements’, 1st June 2005.
ELIGIBILITY:
Salaried individuals, individuals engaged in business/ professionals/ self-
employed. NRI’s also eligible.
LOAN PURPOSE:
 To construct or purchase new\old house or flat.
 For improvement or renovation or to extend an existing house.
 To finance earnest money for booking of residential plots/ houses/ flats
built by govt. agencies.
 Taking over of housing loan liability with other institutions.
LOAN STRUCTURE:
 To construct or purchase new\old house or flat- Rs. 50 lacs.
 For improvement or renovation or to extend an existing house and for plot
purchase- maximum Rs. 7.5 lacs.
CO-APPLICANT:
RATES OF INTEREST:

From 6-10 years- 9.25%.
REPAYMENT:
can be 10 years.
FEES:
Processing fees- 0.5% of the loan amount to a minimum of Rs. 500/- and
maximum of Rs. 10,000/-.
DISBURSEMENT:
PRE-PAYMENT:
TAX BENEFITS:
DOCUMENTS REQUIRED:
SECURITY:
contingency.
PRIVATE SECTOR BANKS
BANKS ICICI BANK HDFC BANK BANK OF PUNJAB
FEATURES
1. Eligibility Min. age 21 years Repayment capacity Confirmed employees
employed or self employed
with regular income
2. Loan purpose To construct or purchase a -Do- -Do-
house or flat, improvement
or renovation, plot
purchase, plot cum
construction, Balance
transfer
3. Loan Ranging from Rs. 1lac to Ranging from Rs. 1lac Ranging from Rs. 2lacs
structure 3crores 85% of total cost is to 1crore. 85% of total to 50 lacs. 85% of total
sanctioned. cost is sanctioned. cost is sanctioned.
4. Co applicant All owners/ spouse - -Do-
5. Rates of Above 5lacs- 7.5%. Less Varies from 7.5% to Varies from 7.5% to
interest than 5lacs- 7.75%. 8.5% 8.75%.
6. Repayment EMI. 20yrs to 30yrs. EMI. 15yrs to 20yrs. EMI. 5yrs to 15 yrs.
7. Fees 0.5% 0.5% -
8.Disbursement Within two weeks - After all formalities and
payment of margin
money.
9. Prepayment No charge - -
10. Tax benefits As per the Income tax act -Do- -
1961.
11. Legal and Borne by the bank -Do- -Do-
technical
assistance.
12. Insurance Free accidental death - -Do-
cover at no extra charge.
13. Documents Photographs, age -Do- -Do-
required verification, bank
statements, processing fee
cheque, income proof, and
income tax returns.
14. Security As mutually agreed. -Do- -
PUBLIC SECTOR BANKS
BANKS PUNJAB NATIONAL STATE BANK OF PUNJAB AND SIND

BANK PATIALA BANK
FEATURES
1. Eligibility Individuals or joint ownersIndividuals with steady Confirmed employees
source of income.
2. Loan purpose To construct or purchase a -Do- -Do-
house or flat, improvement
or renovation, plot
purchase, plot cum
construction, Balance
transfer
3. Loan Maximum limit up to To construct or To construct or purchase
structure 50lacs. 80% of total cost is purchase new\old new\old house or flat-
sanctioned. house- no maximum Rs.50lacs.
limit, for improvement For improvement or
or to extend an existing renovation or to extend
house & for plot an existing house and for
purchase- max plot purchase- maximum
Rs.10lacs. Rs.7.5lacs.
4. Co applicant - All owners or spouse. -Do-

5. Rates of 7.75% to 8.25%. 7.75% to 8.50%. Varies from 8.75% to
interest 9.25%.
6. Repayment EMI. Maximum 25 years. EMI. 15yrs to 20yrs. EMI. Maximum 10yrs.
7. Fees 0.5% + Rs.1000/- 0.5% + Rs.1000/- 0.5%
8.Disbursement In lump sum or -Do- -Do-
installments.
9. Prepayment 2% charge -Do- -Do-
10. Tax benefits As per the Income tax act -Do- -Do-
1961.
11. Legal and Borne by the bank -Do- -Do-
technical
assistance.
12. Insurance Insurance cover of - -
property with extra charge.
13. Documents Photographs, age -Do- -Do-
required verification bank
statements, processing fee
cheque, guarantor
agreement, income proof,
and income tax returns.
14. Security As mutually agreed and a -Do- -Do-
guarantor or third party.
CHAPTER 5
DATA ANALYSIS AND
INTERPRETATION
PART I: FROM BANKER’S POINT OF VIEW
The present study was concerned to compare the various loan schemes
provided by public sector and private sector banks/ housing finance institutions.
For this purpose three-banks/ financial institutions each from Private sector
(HDFC, ICICI, Bank of Punjab) and public sector (State Bank of Patiala, Punjab
& Sind Bank, Punjab National Bank) were surveyed. The information obtained is
analyzed and interpreted as below:
 Both public and private sector banks/ institutions have their own eligibility
criteria for providing housing loan. But main thing in all is that the person
should be with steady source of income.
 All the banks/ financial institutions are providing finance for the purpose of
Purchase a house/ flat.
Extension/ renovation.
Plot purchase.
Plot cum construction.
Balance transfer.
 In case of loan amount, private sector provides larger amounts than public
sector. ICICI bank among all provides best loan scheme ranging from Rs.
I lac to Rs. 3 crores.
 In case of public sector, 80% of total required money is disbursed as the
loan amount whereas it is 85% with private sector.
 All owners or spouse can be the co-applicant in all the banks/ financial
institutions except HDFC and Punjab National Bank.
 Interest rates are very high in public sector banks ranging from 7.75% to
9.25%. On the other hand in private sector banks/ institutions, interest rate
ranges from 7.5% to 8.75%. Among all, ICICI bank is serving at the lowest
rate of 7.5%.
 Repayment period is very less in Bank of Punjab i.e. from 5 to 15 years. In

Punjab & Sind Bank, it is only up to 10 years. In all other banks,
repayment period varies from 15 to 30 years.
 All the banks charge processing fees of 0.5% of loan amount. Public
sector banks charge additional Rs. 1000/- as documentation fee.
 The disbursement of loan amount is either in lump sum or installments. It
is usually done after all the formalities are completed and payment of
margin money.
 In case of prepayment of loan amount, no charges are levied by private
sector banks/ financial institutions but public sector banks charges 2% on
the prepayment.
 A person can avail tax benefits for housing finance from any bank as per
the Income Tax Act, 1961.
 All the banks borne the expenses of legal and technical assistance.
 Punjab National Bank provides insurance cover of property with some
extra charge. ICICI Bank and Bank of Punjab provide free accidental
death cover. No other bank provides such facilities.
 All the banks require following documents:
Photographs.
Age verification.
Bank statements.
Processing fee cheque.
Income proof.
Income tax returns.
 In private sector banks/ financial institutions, the person has to mortgage
the property as security but in public sector banks, a guarantor or third
party is also required for security.
 All the banks provide both fixed and floating interest rates. All the banks/
financial institutions provide the facility of shifting from one type of interest
rate to other.
PART II: FROM CUSTOMER’S POINT OF VIEW
The present study tries to identify the consumer’s preference and perception
about the housing finance from banks. The information obtained from the survey
has been analyzed and interpreted under different heads as below:
1. Respondents who have already taken housing finance:

Table no. 1.1: Income wise distribution.
Occupation Serviceman Govt. employee Businessman Any other
Income Yes no Yes no Yes no Yes no
Up to 15000 01 04 13 12 05 01 00 00
15000-30000 06 07 12 11 10 03 01 00
30000-45000 00 00 02 02 03 03 00 00
Above 45000 00 00 00 00 01 03 00 00
Source: primary data from schedules.
Table no. 1.2: Age wise distribution.

Age Yes no Yes no Yes no Yes no
Up to 30 00 03 02 01 03 01 00 00
30-40 02 02 07 05 02 02 00 00
40-50 02 05 10 08 09 04 00 00
50 and above 03 01 08 11 05 03 01 00
From the above two tables, it is revealed that out of the sample of 100 persons,
54 respondents have taken housing finance from any of the banks/ housing
finance institutions. Among these 54 respondents, majority is of government
employees, as their salary is not sufficient for owning a house. Also, as the
interest on house loan is tax deductible, it is preferred by most of the people. The
salary of most of the respondents who have taken housing loan is less than Rs.
30,000. Maximum number of respondents is in age group of 40-50 years who are
presently availing the home loan facility.
2. Respondents who have not taken housing finance earlier but interested to
avail it in future:
Table no.2.1: Income wise distribution.


Up to 15000 03 01 12 00 02 01 00 00
15000-30000 06 01 06 05 02 01 00 00
30000-45000 00 00 02 00 03 00 00 00
Above 45000 00 00 00 00 00 01 00 00
Table no.2.2: Age wise distribution.

Yes no Yes no Yes no Yes no

Age
Up to 30 03 00 01 00 00 01 00 00
30-40 01 01 04 01 01 01 00 00
40-50 04 01 06 02 04 00 00 00
50and above 01 00 09 02 02 01 00 00
From these tables, it is clear that out of 46 respondents who have not taken
housing finance yet, 36 respondents want to avail it. Most of the respondents
who want to avail this facility in future are from age group 40-50 years and
earnings up to Rs. 30,000. Remaining 10 respondents are not interested in
housing loan as they have their parental property or enough earnings from the
business. But tax savings is the major reason for a person to use house loan
from a bank/ financial institution.
3. Preference for public sector or private sector banks/ financial institutions:
Table no. 3.1: Occupation wise distribution.

Sector Public sector Private sector Total
Occupation
Serviceman 08 08 16
Govt. employee 27 20 47
Businessman 09 17 26
Any other 01 00 01
Total 45 45 90
Source: primary data from the schedules.
The above table represents that overall share of public sector and private sector
banks/ financial institutions, is same. But government employees are using more
of public sector banks/ financial institutions and businessmen are using more of
private sector banks/ financial institutions. This is so because government
employees are availing loans from a long period back (usually 10-15 years) from
the banks like State Bank of Patiala, which is most dominating, bank in Patiala
city. But in recent times private banks/ financial institutions are getting up with
their new and improved schemes. So many people are shifting from public sector
banks/ financial institutions or want to use the facility of these in future.
4. Preference for bank/ financial institution as 1st choice:
Table no. 4.1: preference for bank/ financial institution.

Banks No. of respondents Percentage
HDFC 13 14%
ICICI 11 12%
Bank Of Punjab 5 6%
State Bank of Patiala 24 26%
Punjab& Sind Bank 8 9%
Punjab National Bank 6 7%
Others 23 26%
TOTAL 90 100%
The present data shows that State Bank of Patiala is most preferred in the city as
it has the largest number of branches in Patiala only and is most common among
the people in the city. Among others are banks like Oriental Bank of Commerce
and State Bank of India, which are also preferred by the local people.
5. Purpose for housing finance:
Table no. 5.1: Occupation wise distribution.

Purpose Purchase a Construct Ready built Renovation Total
plot a house house/ flat / extension
Occupation
Serviceman 04 06 04 02 16
Govt.employee 10 16 14 07 47
Businessman 04 10 07 05 26
Any other 00 00 01 00 01
Total 18 32 26 14 90
The above table represents that most of the respondents are using a housing
loan or wants to use it for construction of house, as they want a house of their
own choice and they get technical assistance for this from the banks/ financial
institutions. Many government employees want to procure a ready built house
from the loan, as it is easy and faster process for having their own house.
6. Inducements through advertisements:
Table no.6.1: Income wise distribution.

Up to 15000 03 01 17 08 04 01 00 00
15000-30000 09 03 10 08 05 07 01 00
30000-45000 00 00 02 02 04 02 00 00
Above 45000 00 00 00 00 00 03 00 00
Table no.6.2: Age wise distribution.
Age Yes no Yes no Yes no Yes no
Up to 30 02 01 01 02 00 03 00 00
30-40 03 00 08 03 01 02 00 00
40-50 04 02 07 09 07 06 00 00
50 and above 03 01 13 04 05 02 01 00
Above tables represent that maximum number of respondents i.e. 61% are
influenced by advertisements as this is the major source of information for
providing a comparative study of various banks/ financial institutions. These
banks/ financial institutions highlight their facilities and schemes by using every
possible media like television including local cable network, newspaper,
pamphlets, banners and canopies.
7. Source of information regarding home loan facility:
Table no. 7.1: occupation wise distribution.

Occupation Serviceman Govt. Businessman Any other Total
Source of employee
information
Advertisement/ 05 10 05 00 20
newspaper
Friends/ relatives 04 07 09 01 21
Bank staff 06 22 06 00 34
Brochures/ bulletins 00 08 04 00 12
Internet 01 00 02 00 03
Total 16 47 26 01 90
Table no. 7.2: Age wise distribution.

Age Up to 30 30-40 40-50 50 and Total
Source of above
information
Advertisement/newspaper 02 04 08 06 20
Friends/ relatives 01 03 09 08 21
Bank staff 04 08 14 08 34
Brochures/ bulletins 01 01 03 07 12
Internet 01 01 01 00 03
Total 09 17 35 29 90
According to the above data, bank staff is the major source of information as
every employee tries to promote his/ her bank/ financial institution and also
knows better about it. He/ she can give the complete and accurate knowledge
about the facility. Then comes friends/ relatives who have already used such a
facility or has information along with. It becomes a reliable source for information,
easily available and cheapest too.
8. Type of the interest rate preferred by the customer:
Table no. 8.1: Occupation and income wise distribution.

Income Floating Fixed Floating Fixed Floating Fixed Floating Fixed
Up to 15000 03 01 09 16 02 03 00 00
15000-30000 07 05 07 11 05 07 00 01
30000-45000 00 00 00 04 04 02 00 00
Above 45000 00 00 00 00 02 01 00 00
The present table makes it clear that 57% of the respondents prefer fixed interest
rate due to several reasons like:
 It has consistency
 Less risk involved
 Easy repayment calculations
 Fixed liability
The respondents who preferred floating rate did so only due to the reason there
is a possibility of decrease in interest rate.
9. Factors considered important while selecting a bank:
Table no. 9.1: Factors for selecting bank.

s. No. Factors Total score Weighted Rank
obtained average score
1 Employee behavior 390 4.6 R3
2 Speed of service 386 4.83 R1
3 Branch network 361 4.25 R6
4 Use of technology 346 4.12 R7
5 Wide range of schemes 306 4.43 R4
6 Infrastructure facilities 315 3.8 R8
7 Bank reputation 371 4.36 R5
8 Working hours 296 3.57 R9
9 Working days 275 3.35 R10
10 Security for loan 399 4.7 R2
Source: Compiled from Annexure 1.
The respondents gave highest priority to speed of service as they want that their
loan should be disbursed as early as possible by the bank/ financial institution.
Then security for loan is very important i.e. mortgage for the loan, it should be
easily available as required by the banks/ financial institutions so that
documentation can be completed as early possible. Due to cutthroat competition
and number of alternatives available to the consumer, employee behavior is also
given due consideration while selecting a bank. Although working days and
working hours can play a vital role for employees but due to extended services of
banks/ financial institutions, these factors are least considered.
10. Factors considered while taking house finance from the bank.
Table no. 10.1: Selection factors

s. No. Factors Total score Weighted average Ranks
obtained score
1 Interest rate 417 4.9 R1
2 E.M.I. 381 4.7 R2
3 Loan period 369 4.4 R3
4 Processing time 322 4.07 R6
5 Processing charges 336 4.15 R5
6 Technical assistance 311 3.7 R7
7 Insurance cover 347 4.23 R4
Source: Compiled from Annexure 2.
The above data reveals that respondents give consideration to interest rate, EMI
and loan period. Interest rate is ranked first because this is the cost to the
consumer for availing the particular facility. So, the customer properly analyses
and compares interest rates charged by various banks/ financial institutions while
taking housing finance. Other thing the customer considers is EMI i.e. equated
monthly installments, these should be easy to calculate and understand. Loan
period has its own importance as each customer has its individual resources and
capability to repay the loan over a period. The customer also has to consider this
as generally banks decrease the interest rate on smaller loan periods.
CHAPTER 6
FINDINGS AND
RECOMMENDATIONS
Housing finance is a highflying sector these days and is tipped to grow at a
phenomenal 39% p.a. Keeping in view the global economic environment banks
and financial institutions have brought sea changes in their strategies and there
is shift from sellers market to buyers market. Liberal tax incentives by the
government, low and competitive interest rates for housing finance has made this
sector as red hot sector. About six seven years ago, finance was available at 15-
17 percent. Now it has gradually come down to 7-8 percent. As the customer
expectations are changing and increasing day by day the bank has recognized
the changing needs and has come up with different schemes for different
customers. In case of public sector banks, the need is to make the processing of
the scheme easier and to change the inner atmosphere of the banks. In case of
private banks, there is a need of opening more and more branches, so that more
number of people can be made aware about the services available.
The housing finance industry at present is witnessing an unprecedented

competition. Apart from the established players, there are a number of new
entrants in this segment. However, the huge market size coupled with the steady
growth rate in the industry means that the pie is large and is getting even larger,
and that every player can have a piece of it.
OBJECTIVES OF THE STUDY
Every work step is done to attain some goals. So every study of research is
directed towards the accomplishment of certain objectives and so is the present
study. The objectives of the study are:
3. To compare the loan facilities/ schemes provided by public and private
sector banks/ housing finance institutions.
4. To determine the preference of consumer regarding various banks/
housing finance institutions.
FINDINGS:
From the data collected and analyzed in the previous chapter, following findings
can be inferred:
 From the analysis of various loan schemes, it is clear that private banks
are providing better loan schemes to the customers. They are giving more
facilities and assistance to the customers.
 90% of the people use or want to use the loan facility provided by the
banks. Others have either parental property or enough earnings that they
do not require loans.
 In Patiala city, people prefer public sector banks as compared to private
banks but the private banks are getting up by using promotional schemes.
 Out of various banks under study, State Bank of Patiala is the most
preferred bank in Patiala city.
 Both private and public sector have been providing loans for all purposes.
From the customer’s viewpoint, 35% are taking the loan for construction of
a house followed by 29% for purchase of ready built house or flat.
 The study reveals that most of the people are highly influenced by the
advertisements.
 According to the study, bank staff is the major source for giving
information to the customers about the housing finance facility. Then come
friends and relatives who are already availing the services from a
particular bank or financial institution serves as the source for information.
 Most of the people prefer fixed rate interest loan due to less risk involved
and easy to calculate. In floating rate interest loan more risk is involved
and thus it is less preferred.
 The study states that while selecting the bank, the motivational factors for
customers were speed of service followed by security, employee behavior
and wide range of schemes.
 The customers gave more weightage to factors like interest rate, loan
period and EMI and are indifferent towards banks market share.
SUGGESTIONS:
 In case of private sector banks, although services are far better but
number of branches should be increased.
 There are lots of requirements for public sector banks like interest
rates should be lowered, as they are relatively higher than private
sector.
 Public sector banks should provide extra facilities like insurance cover
or some other benefits so as to retain or increase its market share.
 Both sectors should try to give loan facilities to lower income group
where maximum marketing opportunity exists for these banks or
institutions.
 According to the consumers, speed of service should be high as they
want that their loan should be disbursed as early as possible by the
bank/ financial institution.
 Security for loan is very important i.e. mortgage for the loan, it should
be easily available as required by the banks/ financial institutions so
that documentation can be completed as early as possible.
 All the banks/ financial institutions should try to introduce mobility in
their business style. With the use of mobile vans they can easily reach
more number of consumers and can fetch higher market share.
ANNEXURES
Annexure 1: Factors considered important while selecting a bank.
Scales Very Important Neutral Less Not

Factors important important important
a) Employee behavior 55 28 01 00 00
b) Speed of service 66 14 00 00 00
c) Branch network 37 36 08 04 00
d) Use of technology 35 31 11 07 00
e) Wide range of 36 28 04 01 00
schemes
f) Infrastructure 19 37 18 09 00
facilities
g) Bank reputation 42 34 08 00 01
h) Working hours 21 25 18 18 01
i) Working days 16 22 20 23 01
j) Security for loan 62 21 01 01 00
Calculating weighted average
Xw = ∑X (W)
∑X
Here, Xw = weighted average
X= no. of respondents for each scale
W= weight assigned to each scale.
Example
Weighted average mean
for speed of service = 66*5 + 14*4
66+14
= 330+56
80
= 4.825
In the similar way weighted average mean is calculated for all the other factors.
Annexure 2: Factors considered while taking house finance from the bank.
Scale Very Importan Neutral Less Not

Factors important t important important
a) Interest rate 77 08 00 00 00
b) E.M.I. 59 20 02 00 01
c) Loan period 50 25 03 04 02
d) Processing time 23 45 05 06 00
e) Processing charges 32 37 05 06 01
f) Technical assistance 13 47 11 12 01
g) Insurance cover 38 30 09 05 00
Example
Weighted average mean
for interest rate = 77*5 + 8*4
77+8
= 385+32
85
= 4.906
In the similar way weighted average mean is calculated for all the other factors.
Annexure 3: QUESTIONNAIRE
1. Have you ever taken house finance?

a) Yes [ ] b) no [ ]
2. If no, are you interested in taking house finance?

a) Yes [ ] b) no [ ]
3. Which banking sector would you prefer for financing a house?

a) Public sector [ ] b) Private sector [ ]
4. Which bank would you consider for housing finance as your 1st choice?
a) HDFC [ ] d) State bank of Patiala [ ]
b) ICICI [ ] e) Punjab & Sind Bank [ ]
c) BOP [ ] f) Punjab National Bank [ ]
g) Any other specify__________________________
5. For what purpose you need a housing finance?

a) Purchase a plot [ ]
b) Construct a house [ ]
c) Ready built house/ flat [ ]
d) Renovation/ Extension of house [ ]
e) Any other specify________________________________
6. Do the advertisements induce you to take a home loan?

a) Yes [ ] b) no [ ]
7. What is your source of information regarding home loan facility?
a) Advertisement/ newspaper
b) Friends/ relatives
c) Bank staff
d) Brochures/ bulletins
e) Internet
f) Any other specify______________________________
8. Which one of the following you prefer?

a) Floating rate interest loan
b) Fixed rate interest loan
Give the reasons for the preference
________________________________________________________
9. Rate the factors, you consider important while selecting a bank. (Tick the
relevant one)
Factors Very Important Neutral Less Not

important important important
a) Employee behavior [ ] [ ] [ ] [ ] [ ]
b) Speed of service [ ] [ ] [ ] [ ] [ ]
c) Branch network [ ] [ ] [ ] [ ] [ ]
d) Use of technology [ ] [ ] [ ] [ ] [ ]
e) Wide range of [ ] [ ] [ ] [ ] [ ]
schemes
f) Infrastructure [ ] [ ] [ ] [ ] [ ]
facilities
g) Bank reputation [ ] [ ] [ ] [ ] [ ]
h) Working hours [ ] [ ] [ ] [ ] [ ]
i) Working days [ ] [ ] [ ] [ ] [ ]
j) Security for loan [ ] [ ] [ ] [ ] [ ]
10. Rate the factors you consider while taking a house finance from the bank:
Factors Very Importan Neutral Less Not
important t important important
a) Interest rate [ ] [ ] [ ] [ ] [ ]
b) E.M.I. [ ] [ ] [ ] [ ] [ ]
c) Loan period [ ] [ ] [ ] [ ] [ ]
d) Processing time [ ] [ ] [ ] [ ] [ ]
e) Processing charges [ ] [ ] [ ] [ ] [ ]
f) Technical assistance [ ] [ ] [ ] [ ] [ ]
g) Insurance cover [ ] [ ] [ ] [ ] [ ]
Personal Profile
Name _____________________________
Age _____________________________
Occupation
 Serviceman
 Govt. employee
 Businessman
 Any other, specify ___________________
Monthly Income
 Up to 15000
 15000-30000
 30000-45000
 Above 45000
Address _____________________________
_____________________________
Phone no. _____________________________
BIBLIOGRAPHY
1. www.accommodationtimes.com, ‘Housing Sector and Housing

Finance’, June 2002.
4,5,11-14.
3. Amitabh Kundu, “Urban Development, Infrastructure Financing and
Emerging System of Governance in India: A Perspective”, Management
Of Social Transformation- MOST, Vol.4, No-15, April 2001.
4. Mayank Bhatt, “Housing Finance from Primary Mortgage To
Securitization- An Industry Sector Analysis”, www.strategies.ic.gc.ca,
2003.
5. Sanjay Chaturvedi, “Corporate Giants to Enter the Market”,
www.accomodationtimes.com, june 2002.
6. http://www.nhb.org.in/Publications/AReport2003-2004_8.htm,
National
7. Housing Bank Annual report 2003-2004.
8. M.Y. Khan, “Housing Finance: A Perfect Future”, Analysts, Oct. 2002.
9. Chakrabarti P.G. Dhar, “Liberalization And Housing Boom In India:
Challenges, Opportunities And Constraints”, Paper Presented At
International Research Conference, Toronto,
10. www.urbancentre.utoronto.ca, June 2004.
11. “Finance And Business Ethics”, www.indiainfoline.com/bisc/hous.htm,

Nov.20, 04.
12. Chakraborty D., “Housing Finance: Legal Systems Need To Be Modified”,
www.shilpabichitra.com, jan.10, 2005.
13. S.L. Gupta & V.K.Kohli, ‘ A Study Of Organizational Health Of Selected
Public And Private Sector Housing Finance Companies’, Apeejay Journal
Of Management, Vol.1, No.1, p.no. 84-99.
14. Krishnan G., ‘Housing Finance and Business Ethics’,
www.indiainfoline.com/bisc/hous.htm, Nov. 20, 04.
4,5,11-14.
16. Bhoir A., et al, ‘Banks Say No To Fixed Rate Home Loans Over Five
Years’, www.rediff.com/money.htm, Nov. 20, 04.
17. Ninan O., “Key Determinants in Housing Finance”, www.hindu.com,
Oct.28, 04.
18. Samik Das Gupta & Arshdeep Sehgal, ‘Banks to Make Housing,
Consumer Loans Costlier’, The Economic Times, Oct.28, 04, p.no.1.
19. Srinivas H., www.focaal.box.nl, ‘Development Of A Housing Finance
Triangle Linking People’s Organizations, Ngos And Commercial Banks In
Developing Countries’, PhD. Dissertation, Nov. 20, 04.
20. Tiwari P., “Micro Finance Institutions In India”,
21. www.gdrc.org/icm/concept-paper-india.html, Oct. 28, 04.
22. Karnad R., ‘Housing Finance and the Economy: Regional Trends South
Asia Perspectives’, www.hdfc.com/pdf/hdfc-iuhf04.pdf, Jan10, 05.
23. www.equitymaster.com/research-it/sector-info/bank.htm,‘Banking’, Oct.28,
04.
24. www.hdfc.com/we_centre.asp, ‘Centre for Housing Finance’, Oct28, 04.
25. www.namasthenri.com/housing/licscheme.html, ‘LIC Housing Finance
Limited’, Jn10, 05.
26. Kapil, ‘India’s Best Banks’, Business Today, Jan.2, 05, p.no. 80,86.

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“HOUSING FINANCE: MARKETING

UNIVERSITY SCHOOL OF BUSINESS STUDIES

TO WHOM IT MAY CONCERN

This is to certify that the research project entitled “HOUSING FINANCE:

It gives me immense pleasure to express my sincere and wholehearted sense of

Chapter no. Title

Scenario of Indian housing

Financial sector reforms and housing finance market

Major reforms affecting housing finance sector:

In order to give specialized and focused attention to different segments of

Banks: Comparative data of housing finance disbursements by the

HOUSING FINANCE: CHALLENGES

 Housing finance institutions has to spread out geographically while

 Identification of risk areas and development of risk management strategies

1. www.accommodationtimes.com, ‘Housing Sector and Housing

Organization of housing finance industry:

In the article, ‘Housing Finance: Legal Systems To Be Modified’, D. Chakraborty

ORGANISED SECTOR UNORGANISED SECTOR

Registered with Not registered with

According to G. Krishnan in his article ‘Housing Finance and Business Ethics’,

Problems in housing finance:

O. Ninan mentioned in the article ‘Key Determinants In The Housing Finance’,

Housing finance for low-income groups:

H. Srinivas in his PhD dissertation ‘Development Of A Housing Finance Triangle

South Asian Perspective:

As explained by R. Karnad in his article ‘Housing Finance And The Economy:

Banks And Housing Finance Institutions:

As per an article titled ‘Banking’ given on a site named equitymaster.com, the

1. “Finance And Business Ethics”,

NEED FOR THE STUDY

Scope Of The Study

Collecting The Information

Analyzing the information

LIMITATIONS OF THE STUDY

HOUSING LOAN SCHEME:

LEGAL AND TECHNICAL ASSISTANCE:

The Housing Development Finance Corporation Limited (HDFC) was amongst

HDFC is India’s premier housing finance company and enjoys an impeccable

HDFC Bank is headquartered in Mumbai. The bank at present has an enviable

March 31, 2005 - Balance Sheet:

HOUSING LOAN SCHEME:

LEGAL AND TECHNICAL ASSISTANCE:

• The first bank to focus on retail banking.

LEGAL AND TECHNICAL ASSISTANCE:

PUBLIC SECTOR BANKS

Punjab National Bank

 The PNB has total number of 4,186 offices.

Table no. 1: Balance sheet of Punjab National Bank

If repayment period is up to 5 years- 7.75%.

LEGAL AND TECHNICAL ASSISTANCE:

An indicative list of documents required to be submitted :

State Bank of Patiala

His Excellency Bhupinder Singh, Maharaja of the erstwhile Patiala state,

TABLE NO.2: Balance sheet of State Bank of Patiala

HOUSING LOAN SCHEME:

LEGAL AND TECHNICAL ASSISTANCE:

Punjab and Sind Bank

TABLE NO.3: PERFORMANCE OF PUNJAB & SIND BANK

HOUSING LOAN SCHEME:

If repayment period is up to 5 years- 8.75%.

PRIVATE SECTOR BANKS

BANKS ICICI BANK HDFC BANK BANK OF PUNJAB