A SUMMER TRAINING PROJECT REPORT ON

A STUDY ON FINANCIAL INSTITUTIONS OFFERING HOME LOANS Study conducted at .

Submitted in partial fulfillment of the requirement For the award of degree Of MASTER OF BUSINESS ADMINISTRATION SESSION (2010-2012)

SUBMITTED TO: KURUKSHETRA UNIVERSITY, KURUKSHETRA

SUBMITTED BY:Name: ANKUR SHARMA Class: MBA 3rd SEM College roll no: 1210010 University roll no:

DOON VALLEY INSTITUTE OF ENGINEERING AND TECHNOLOGY, KARNAL (APPROVED BY KURUKSHETRA UNIVERSITY, KURUKSHETRA) i

ACKNOWLEDGEMENT
It is my pleasure to be indebted to various people, who directly or indirectly contributed in the development of this work and who influenced my thinking, behaviour, and acts during the course of study. I express my sincere gratitude to DR.. G. S SHARMA, worthy director for providing me an opportunity to undergo summer training at HDFC BANK.. I am thankful to Mr. Parmod Bansal (Branch Manager) presence and blessings. I also extend my sincere appreciation to Mr. Rajesh (Relationship Manager) who provided his valuable suggestions and precious time in accomplishing my project report. Lastly, i would like to thank the almighty and my parents for their moral support and my friends with whom i shared my day to day experience and received lots of suggestions that improved my quality of work. for his support,

cooperation, and motivation provided to me during the training for constant inspiration,

ANKUR SHARMA

ii

DECLARATION
I am ANKUR SHARMA student of MBA IIIrd Semester, studying at Doon Valley Institute of ENGINEERING AND TECHNOLOGY, KARNAL, Karnal, hereby declare that the summer training report on Training Development submitted to Kurukshetra University, Kurukshetra in partial fulfillment of Degree of Masters of Business Administration is the original work conducted by me.

The information and data given in the report is authentic to the best of my knowledge. This summer training report is not being submitted to any other university for award of any other degree, diploma and fellowship.

ANKUR SHARMA

PREFACE
Industrial interface through project is compulsory for the fulfilment of MBA degree course, so that student are able to realize the practical experience of corporate world through project, we come to understand the between theories and real aspects of business. I feel pleasure in presenting this report title A STUDY ON FINANCIAL INSTITUTIONS OFFERING HOME LOANS which is detailed collection and survey of HDFC Bank and other competitors. Study of market share is very essential for an organization to position its product in the market successfully. I expect that the comparative analysis of offering home loan by different financial institutions, and various data are beneficial to bank. The conclusions are drawn and recommendations have been put better of the performance of HDFC Bank.

TABLE OF CONTENTS
S. NO.
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

TOPIC
Introduction Of The Project Objectives of the study Industry Profile Company Profile A Study On Financial Institutions Offering Home Loans Research Methodology Data Analysis & Interpretation Findings of the study Conclusions Limitations of the study Suggestions Bibliography Annexure:

INTRODUCTION

Housing finance is one of the industries which are driven by ups and downs in the real state industry. Although there has been an upsurge in the demand for the home loans in the recent past, it has not translated into a stupendous performance by the housing finance companies (HFCs).the housing finance industry is important from the point of view of over all development of the economy . Housing is being increasingly viewed as being important for over all infrastructural development in the economy. The national housing policy reflected the trust ,the government wished to give to the housing sector and pointed out that housing was not merely a consumption expenditure ,but also a productive investment which would provide economic activity and create a base for attaining several national policy goals such as providing shelter and raising the quality of life . It specifies the interest rate to be followed in lending and borrowing, income recognition & prudential norms, borrowing limits & audits to the finance cos .In spite of such figures there is an urging need on the part of management to keep close look on financial institutions offering loans. Comparative study of financial institutions that is exactly what our project aimed at. To give our project a more structured look we had taken certain parameters .This provides us a clear picture regarding the financial institutions. In addition to the above proper analysis was done with the help of certain financial tools.

OBJECTIVE OF THE STUDY

To undertake competitive analysis and to understand the information contained in the financial statement with a view to know the weakness and strength of the firm and to make a forecast about the future prospects of the firm. 1. To assess the present profitability and operating efficiency of the firm 2. To assess the long term as well as short term liquidity position of the firm. 3. To find out the influencing features / benefits behind home loans. 4. To find out the preferences of the people regarding certain parameters.

HDFC BANK A PROFILE ABOUT US

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 liberalisation 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 Sceduled Commercial Bank in January 1995. PROMOTER 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 the 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. MISSION Our mission is to be a World Class Indian Bank, benchmarking ourselves against international standards and best practices in terms of product offerings, technology, 6

service levels, risk management and audit & compliance. The objective is to build sound customer franchises across distinct businesses so as to be a preferred provider of banking services for target retail and wholesale customer segments, and to achieve a healthy growth in profitability, consistent with the Banks risk appetite. We are committed to do this while ensuring the highest levels of ethical standards, professional integrity, corporate governance and regulatory compliance.

HDFC Bank has been recognized as 'Best Bank in India' in the magazine rankings as well as surveys year on year.

ABOUT HDFC

BUSINESSES
HDFC Bank offers a wide range of commercial and transactional banking services and treasury products to wholesale and retail customers. The bank has three key business segments:

Wholesale Banking Services The Bank's target market ranges from large, blue-chip manufacturing companies in the Indian corporate to small & mid-sized corporate and agri-based businesses. For these customers, the Bank provides a wide range of commercial and transactional banking services, including working capital finance, trade services, transactional services, cash management, etc.

Retail Banking Services

The objective of the Retail Bank is to provide its target market customers a full range of financial products and banking services, giving the customer a one-stop window for all his/her banking requirements. The products are backed by world-class service and delivered to the customers through the growing branch network, as well as through alternative delivery channels like ATM, PhoneBanking, NetBanking and Mobile Banking.

Treasury Within this business, the bank has three main product areas - Foreign Exchange and Derivatives, Local Currency Money Market & Debt Securities, and Equities. With the liberalisation of the financial markets in India, corporate need more sophisticated risk management information, advice and product structures. These and fine pricing on various treasury products are provided through the bank's Treasury team. To comply with statutory reserve requirements, the bank is required to hold 25% of its deposits in government securities. The Treasury business is responsible for managing the returns and market risk on this investment portfolio.

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ORGANISATION STRUCTURE

Board of Director

Managing Director

Functional Head

Vice President

Assistant Vice President Senior Manager

Manager

Deputy Manager

Assistant Manager

Executive

HDFC BANK MILESTONES 11

2011-12 July 12, 2011 - INFINIA Credit Card launched April 27, 2011 - Our 2000th Branch inaugurated at Mangaliya Sadak near Indore 2010-11 Dec 8, 2010 - Our 5000th ATM launched at Swami Narayan Chowk , Rajkot July 29, 2010 - Our Intensive Rural Campaign launched with 1st Mega Loan Mahotsav in Pimpalgaon in Maharashtra May 13, 2010 - First Bank to retail silver bars in India 2009-10 Feb 21, 2010 - Our 4000th ATM launched Dec 21, 2009: Kanjur Marg Office inaugurated by Mr. Deepak Parekh HDFC Chairman and Mr. Aditya Puri, our MD

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AWARDS AND ACHIEVEMENTS - BANKING SERVICES

HDFC Bank began operations in 1995 with a simple mission: to be a "World-class Indian Bank". We realised that only a single-minded focus on product quality and service excellence would help us get there. Today, we are proud to say that we are well on our way towards that goal. It is extremely gratifying that our efforts towards providing customer convenience have been appreciated both nationally and internationally. 2011

Asian Banker BloombergUTV's Financial Leadership Awards 2011 IBA Banking 2010

Strongest Bank in Asia Pacific Best Bank

Winner 2) Best Online Bank 3) Best Customer Initiative 4) Best Use of Business Intelligence 5) Best Risk Management System Runners Up Best Financial Inclusion

Technology Awards 1) Technology Bank of the Year

IDC FIIA Awards 2011

Excellence in Customer Experience

2010 13

Outlook Money 2010 Awards

Best Bank

Businessworld Best Best Bank (Large) Bank Awards 2010 Teacher's Achievement Awards 2010 (Business) The Banker and PWM 2010 Global Private Banking Awards Economic Times Awards for Corporate Excellence 2010 Forbes Asia NDTV Business Leadership Awards 2010 The Banker Magazine MIS Asia IT Excellence Award 2010 Dun & Bradstreet Banking Awards 2010 Institutional Overall Best Bank Best Private Sector Bank Best Private Sector Bank in SME Financing HDFC Bank MD, Mr. Aditya Puri among "Asian 14 BEST BOTTOM-LINE I.T. Category World's Top 1000 Banks Fab 50 Companies - 5th year in a row Best Private Sector Bank Business Leader of the Year - Mr. Aditya Puri Best Private Bank in India Mr. Aditya Puri

Investor Magazine Poll

Captains of Finance 2010"

IDRBT Technology Winner - 1) IT Infrastructure 2) Use of IT within the 2009 Awards ACI Excellence Awards 2010 FE-EVI Green Business Leadership Award Celent's 2010 Banking Innovation Award Avaya Global Connect 2010 Forbes Top 2000 Companies Financial Express Ernst & Young Survey 2009-10 Asian Banker Excellence Awards 2010 Best Retail Bank in India Excellence in Automobile Lending Best M&A Integration Technology Implementation The Asset Triple A Awards Euromoney Private Banking and Wealth 1) Best Local Bank in India (second year in a row) 2) Best Private Banking Services overall (moved up from No. 2 last year) 15 Best Cash Management Bank in India Best New Private Sector Bank Best in Growth Best in strength Customer Responsiveness Award - Banking & Financial Services category Our Bank at 632nd position and among 130 Global High Performers Model Bank Award Best performer in the Banking category Bank Runners-up - IT Governance (Large Banks) Highly Commended - Asia Pacific HDFC Bank

Management Poll 2010 Financial Insights Innovation Awards 2010 Global Finance Award 2 Banking 2009 SPJIMR Marketing Impact Awards (SMIA) 2010 Business Today Best Employer Survey Listed in top 10 Best Employers in the country 2nd Prize 1) Best Risk Management Initiative and 2) Best Use of Technology Awards Business Intelligence. Best Trade Finance Provider in India for 2010 Innovation in Branch Operations - Server Consolidation Project

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COMPANY PROFILE

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The HDFC was amongst the first to receive in principal approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as a part of the RBIs liberalization of the Indian Banking Industry. The bank was incorporated in August 1994 in the name of HDFC Bank Ltd, with its registered office in Mumbai, India. The bank commenced operations as a scheduled Commercial Bank in January 1995. PROMOTER HDFC is Indias premier Housing Finance Company & enjoys an impeccable track record in India as well as in International markets. Since its inception in 1977, the corporation has maintained a consistent & healthy growth in its operations to remain the clear market leader in mortgages and banking service in India. Its outstanding loan portfolio covers 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 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. BUSINESS FOCUS HDFC Banks mission is to be a World class Indian Bank. The Banks aim is to build a sound Customer franchise across distinct businesses so as to be the preferred provider of banking service in the niche segments that the bank operates in and to achieve healthy growth in profitability, consistent with the banks risk appetite. The bank aims to ensure the highest level of ethical standards, professional integrity and regulatory compliance, HDFC Bank business philosophy is based on four core values: Operational Excellence Customer Focus Product Leadership People

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CAPITAL STRUCTURE The authorized capital of HDFC Bank is Rs. 450 crores. The paid up capital is Rs. 281.2 crores. The HDFC group hold 24.5% of the banks equity while about 13.3% of the equity is held by the depository in respect of the banks issue of American Depository Shares. The Indian Private Equity Fund, Mauritius (IPEF) and Indocean Financial Holdings Ltd, Mauritius (IFHL) (both funds advised by JP Morgan partners formally chase capital partners) together hold about 11.6% of the Banks equity. Roughly 18% of the equity is held by FIIs, NRIs / OCBs while the balance is widely hold by about 300,000 shareholders. These shares are listed on The Stock Exchange, Mumbai and National Stock Exchange. The Banks American Depository Shares are listed on the New York Stock Exchange.

MANAGEMENT Mr. Jagdish Kapoor took over as the banks chairman in July 2002. Prior to this, Mr. Kapoor was a Deputy Governor of the Reserve Bank of India. The Managing Director, Mr. Aditya Puri, had been a professional banker for over 20 years and before joining HDFC Bank in 1994 was heading Citibanks operations in Malaysia. The Banks Board of Directors is comprised of eminent individuals with a wealth of experience in public policy and Administration and Commercial Banking. Senior Banking Professionals with substantial experience in India & abroad head various business & functions & report to the Managing Director. Given the professional expertise of the management team & the overall focus is on recruiting &

19

retaining the best talent in the industry. The bank believes that its people are significant competitive strength.

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DISTRIBUTION NETWORK HDFC Bank is headquartered in Mumbai. The Bank at present has an enviable network of 2000 branches spread in 996 cities across India.All branches are linked on an online real-time basis. Customers in over 500 locations are also serviced through Telephone Banking. The Bank's expansion plans take into account the need to have a presence in all major industrial and commercial centres 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 centres where the NSE/BSE have a strong and active member base.

The Bank also has 5,998 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.

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BUSINESS PROFILE HDFC Bank caters to a wide range of banking services covering both commercial and investments banking on the whole scale side & transactional / branch banking on the retail side. The Bank has three key business areas:-

A) WHOLESALE

BANKING SERVICES: - The banks target market is

primarily large, blue chip manufacturing companies in the Indian Corporate Sector & to a small extent, emerging mid sized corporate. For these corporate, the bank provides a wide range of banking services including working capital finance, trade service, transactional service, cash managements etc. based on its superior product delivery / service level with strong customer orientation, the bank has made significant inroads into the Banking consortia of a number of leading Indian Corporate including multinational companies from domestic business houses & prime public sector companies.

B)

RETAIL BANKING SERVICE: - The objective of the retail banking is to provide a full range of financial products & banking service, giving the customer a one-stop window for all his banking requirements.

The products are backed by world class service & delivered to the customer through various channels including branch network, as well as alternatives delivery channels like ATMs, phone banking, net banking and mobile banking. The bank also has a wide array of retail loan products including loans against shares, auto loans, personal loans, loans for consumer durables and two wheelers loan. It has also a leading provider of Depository Participant (DP) services for retail customers. HDFC Bank was the first in India to launch an International Debit card in association with VISA (VISA electron) and issues the MasterCard Maestro Debit card as well. The bank also launched its credit card in association with visa in November 2002. C) TREASURY OPERATION: -Within this business, the bank has three main product areas Foreign Exchange & Derivatives, Local Currency money market & debt securities & equities. With the liberalization of the financial market in India, 22

corporate need more sophisticated risk management information & product structures. These are fine pricing on various treasury products are provided through the banks treasury team. PRODUCT RANGE

SAVINGS, FIXED DEPOSIT, CURRENT AND

DEMAT ACCOUNTS:

-Apart from the usual facilities, you get a free ATM card, Interbranch banking, Net banking, Bill pay, Phone banking, Debit card, Mobile Banking, among other.

HDFC

BANK PREFERED ACCOUNT: - A preferential saving account

where you are assigned a dedicated relationship manager who is your one point contact. You also get privileges like fee waivers, enhanced ATM withdrawal limit, and Priority locker allotment & lower Interest rates on loan etc.

SWEEP-IN ACCOUNT: - A fixed deposit linked to your saving account. So

even if youre saving account so even if your Savings Account runs a bit short, you can issue a cheque (or uses your ATM card). The money is automatically swept in from your fixed deposit into your saving account.

SUPER SAVER ACCOUNT: - Super saver account gives you an overdraft

facility up to 75% of your fixed deposit. In an emergency, you can access your funds while youre fixed deposits continues to earn high interest.

HDFC BANK PLUS: - Apart from regular & premium account HDFC also
have HDFC Bank plus i.e. a current account & you can transfer up to Rs. 50

DEMAT ACCOUNT: - conduct hassle free transactions on your shares. You

can also excess your demat account on the Internet. SERVICES Insurance Life and General 23

 Mutual Funds Bonds Equity Broking Folio Management Services Personal Loans Home Loans Credit Cards Impartial Investment Advice Financial Planning Portfolio Tracking Dedicated Relationship Manager

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INNOVATIVE SERVICES FOR CUSTOMER CONVENIENCES

PHONE BANKING: - 24 hours automatic banking services with 39-phone

banking numbers available.

ATM
country.

24 HOURS BANKING: - Apart from routine transactions, you can

also pay your utility bills and transfer funds, at any of HDFC ATMs across the

INTERCITY

/INTERBRANCH BANKING: - Access your account from

any of our 241 branches in 129 cities

NET

BANKING: - Access your banking account from anywhere in the

world, at any time, at your convenience. You can also view your demat through net banking.

INTERNATIONAL DEBIT CARD: - An ATM card you can shop with all
over the country & over 140 countries with. You can spend in any currency and pay in rupees.

MOBILE BANKING: - Access your account on your mobile phone screen at

no airtime cost. Use SMS technology to conduct your Banking transactions from your cell phone.

BILLPAY: - Pay your telephone, electricity & mobile phones bills through
our ATMs, Internet Phone or Mobile Phone. 25

LOAN FOR EVERY NEED

PERSONAL LOAN: -Take a loan of up to Rs. 3 lakh for a wedding, education, purchase of a computer or a holiday.

CAR LOANS: - HDFC finance up to 90% of the cost of a car, new or used. And the loans come to you with easy documentation and speedy processing at attractive Interest rates.

TWO WHEELER LOANS: - You can get a loan for your new Two Wheeler.

CONSUMER DURABLE LOANS: -To help you by the best durable for your home HDFC provides you loan. MARKETING EFFORT

Marketing efforts and initiatives at HDFC LTD have always revolved around the customer. The objective is to reach out to the customer and provide him/her with all housing related solutions. Thus HDFC LTD has right since inception positioned it self not just as a company providing finance to customers, but a company that also provides loan counselling, technical and legal assistance and other property related solutions. Credit appraisal skill and legal and technical expertise has been built over the years. These set of skills, supplemented with the vast database and trained personnel is today proving to be one of HDFC LTD strongest assets. Approvals and Disbursements Total approvals during the year stood at Rs.9, 041.25 crores as against Rs.6879.77 crores in the previous year, representing a growth of 31%. Loan disbursements during the year were Rs.7, 616.56 crores against Rs.5, 803.01 crores in the previous year representing a growth of 31%.

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SUBSIDIARIES AND ASSOCIATES Housing is the core business of HDFC LTD. while the main focus is to grow the housing portfolio, organically and inorganically, in order to capitalise on HDFC strong brand value and maximise returns for shareholders, HDFC LTD has made investments in various group companies. These group companies have strong synergies with HDFC LTD and such diversification will enable HDFC LTD to offer a wide gamut of financial services and products to customers. Investments made in the group companies are from borrowed funds, where there is an interest charge debited to the profit and loss account, with out a corresponding revenue flow in the initial years. While these investments are long-term in nature, the businesses have tremendous potential, thereby enhancing the valuations of HDFC. The shareholding of HDFC in its subsidiary and associate companies as at March 31, 2003: are given:HDFC Developers Limited, HDFC Investments Limited, HDFC Holdings Limited, HDFC Trustee Company Limited, HDFC Chubb General Insurance Company Limited, HDFC Realty Limited, HDFC Asset Management Company Limited, GRUH Finance Limited, Intelenet Global Services Limited, Credit Information Bureau(India) Limited, HDFC Securities Limited, HDFC Bank Limited. RISK MANAGEMENT HDFC manages various risks associated with the mortgage business. These risks include credit risk, liquidity risk and interest rate risk. HDFC manages credit risk through stringent credit norms. Liquidity risk and interest rate risks arising out of maturity mismatch of assets and liabilities are managed through regular monitoring of the maturity profiles. PRUDENTIAL NORMS FOR HOUSING FINANCE COMPANIES(HFC's)

The NHB has issued guidelines to HFC's on prudential norms for income recognition provisioning, asset classification, provision for Bad and Doubtful, Capital adequacy and concentration of credit / investment. HDFC's position with respect to the guidelines is as follows:-

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HDFC's capital for the purpose of determine the capital adequacy companies entirely of Tier 1 Capital. The Tier was Rs. 2,066.71 Crores. In accordance with the norms prescribed by NHB, HDFC's capital adequacy is at 14.05% of risk weighted assets.

Assets are classified as standard, Sub-Standard, doubtful and loss assets. Any asset which is not standard asset is a non-performing asset. The principal loans outstanding(along with Preference Shares and Debentures for financial real

Estate projects) , where payments were in arrears for over six months as of march 31,2000,amounted to Rs. 98.71crores and constituted 0.90% of the portfolio.

HDFC is in compliance with the limits prescribed by NHB in respect of concentration of credit/investment.

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THIS TABLE SHOWS THE CRITERIA THAT HAS BEEN FOLLOWED IN STUDYING THE FINANCIAL INSTITUTIONS OFFERING HOME LOANS

CRITERIA

PARAMETERS
Interest rate

TYPE OF ANALYSIS

Ratio Analysis
Charges

Trend Analysis
Product offer Advertising

Schemes Balance sheet

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ROLE OF NATIONAL HOUSING BANK National housing bank was formed as a subsidiary of the RBI when national Housing Policy was announced in 1998 regulating the housing finance industry in India. The national housing policy reflected the trust, the government wished to give to the housing sector and pointed out that housing was not merely consumption expenditure, but also a productive investment which would provide economic activity and create a base for attaining several national policy goals such as providing shelter and raising the quality of life. The national housing policy also envisaged that an impetus given to housing would stimulate economic activity through creation of substantial employment opportunities. The national housing bank specifies various norms to be followed by the HFCs and regulates the industry on line of regulation of NBFCs by the RBI. It specifies the interest rate to be followed in lending and borrowing, income recognition and prudential norms, borrowing limits and audit to the housing finance companies. It provides refinancing facility to the housing finance companies and facilitates promotion of these companies on the specified lines. Objectives of NHB The following are the major objectives of NHB1. to promote , establish, support or aid in the promote and establishment of housing finance institutions; 2. to make a loans and advances or render any other form of financial assistance whatsoever to housing finance institutions and scheduled bank to any authority established by /under any central state act and engaged in slum clearance; 3. to subscribe to or purchase stocks, shares, bonds, debentures and securities of every other description;

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4. to guarantee the financial obligations of housing finance institutions and underwrite the issues of stocks, shares, bonds, debentures and securities of every other description of housing finance institutions; 5. to coordinate with LIC, UTI, GIC and other financial institutions in the discharge of its overall functions and 6. To act as an agent of the central /state government (s) or RBI/any authority authorized by RBI.

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NORMS FOR APPROVAL OF HOUSING FINANCE COMPANIES BY NHB

NHB refinances only those HFCs that are approved to be set up by it. Some of the conditions that have to be set up by it . Some of the conditions that have to be met for approval are: 1. Minimum paid up capital of HFC should at least be Rs.1 cr. 2. At least 2 directors on the board should be nominated by banks, financial institutions or by NHB. 3. Any appointment of auditors should only be done by prior approval of the NHB. 4. At least 75% of the housing loans that are to be granted should be of long term nature. 5. Promoters contribution in HFC should at least be 30% of the total paid-up capital. Of the remaining capital, at least 20% of the capital should be contributed by either one or all of banks, financial institutions, and government or approved housing finance companies. 6. The proposed housing finance company should not promote a real estate or a construction company and should maintain an arms length distance from such companies. NHB has imposed restrictions as regards to their names, relationship with construction companies and so on. The names of HFCs. Should not resemble the name of any construction company and the top management of the HFC should not hold similar offices in construction company.

Tax treatment of Loans for constructing Houses: Section 24(1) of the Income Tax Act allows deduction of interest on borrowed capital from the Gross Annual Value of the house on accrual basis. Any interest paid on the loan borrowed for the purpose of constructing/ buying or upgrading the house for 32

which the annual value is assessed, is allowed as deduction. Also, any interest on the amount borrowed during the pre-construction period (starting form the date of borrowing and ending on March 31st or the date of completion of the construction, which ever is earlier) is allowed to be deducted in five successive years. Reduce taxable income by claiming deduction upto Rs.1, 50,000/- p.a. on the interest payable u/s 24(b) of the income Tax Act, 1961. Claim tax rebate upto Rs.4000/-p.a. subject to a maximum principal repayment of Rs.20, 000/-p.a. u/s 88(2) (xiv) of the income Tax Act, 1961. The Other Initiatives Problems The lack of adequate loan security is cited as the most pernicious stimulizing block of mortgage finance. Low mortgage tenure. The existing loan tenure is 15 years in India while in overseas it can exceed 40 years. HFCs face asset mismatch problem. Sudden spurt in credit will have an inflationary impact on housing with regard to prices. Mainly because of construction time lag. Possible solutions One route adopted overseas to tackle defaults is by mortgage Insurance, where mortgage premiums are paid along with EMIS. Mortgage terms should be raised and the escalation in mortgage risk for the HFI due to higher tenure can be mitigated by early repayment option. Mortgage securitization permits the HFCs to offload long-term mortgages to other investors. The stumbling block here is high stamp dutyas high as 3 percent. Route more funds through the consumer to the developer. Which obviates the need for HFCs to directly finance the developer in addition, if the developer is 33

dependent on the consumer demand simulated by mortgage availability for a large part of funds, he will reduce cash component to house value too.

GENERAL TERMS AND CONDITIONS OF A HOUSING LOAN

The Following are the terms and conditions applicable to the basic Housing Loan product only. These are likely to vary with respect to the different types of Housing Loans. 1. The loan to value ratio cannot exceed a particular percentage. This differs from product to product and from one HFI to another. 2. The maximum tenure of the loan is normally fixed by HFIs. However, HFIs do provide for different tenors with different terms and conditions. 3. The instalment that you pay is normally restricted to about 40% of your monthly gross income. This is known as the Instalment to Income Ratio (IIR). 4. Your total monthly outflow towards all the loans that you have availed of including the current loan is normally restricted to 50% of your Gross Monthly Income. This is known as the Fixed Obligation To Income Ratio (FOIR). 5. You will be eligible for a loan amount which is the lowest as per your eligibility. This is calculated as per the LTV norms, the IIR norms and the FOIR norms as mentioned above. 6. Most HFIs consider your profile before they judge your repayment capacity. You are judged on the basis of age, qualifications , number of dependents , employment details , employer credentials , work experience , previous track record of repayment of any loans that you have availed of occupation , the industry to which your business relates to if you are self- employed , your turn over in the last 3 4 years , etc.

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7. Some HFIs have a team of civil engineers visit the site to get a technical report on the quality of construction and compliance with the local laws before they disburse the loan. 8. Some HFIs insist on guarantees from other individuals for due repayment of your loan. In such cases you have to arrange for the personal guarantee before the disbursement of your loan takes place. 9. Most HFIs have a panel of lawyers who go through your property documents to ensure that the documents are clear and are not misrepresented. This is an added benefit that you get when you avail of a loan from HFI. 10. The disbursement of your loan is as per the progress of construction of your property unless it is a ready property in which case the disbursement will be by one single cheque. PEMI or Simple Interest on the loan amount disbursed to you in case of a part disbursement will be payable by you on the disbursement. 11. The disbursement, in most cases, will be favouring the builder or the seller or the society or the development authority as the case may be. The disbursement will come in your favour under special circumstances only. 12. You repay the loan either through Deduction Against Salary, Post Dated Cheques, standing instructions or by cash / DD. 13. The principal is amortized either on annual reducing or monthly reducing basis as the case may be. The above terms and conditions are generally true for most HFIs with respect to Housing Loans. However, The specific terms and conditions vary with respect to specific HFIs. Credit Documentation What are the typical credit documents that need to be submitted to the HFI? Given below is the exhaustive list of credit documents that need to be submitted for a general product. The documents vary from one HFI to another based on your employer, qualifications, etc. The general requirements are as follows : 35

Income documents Proof of employment Employers details (In case of private limited companies) Proof of age Proof of residence Proof of name change (If applicable) Proof of investments (If required) A copy of the marriage certificate is required by some HFCs

Income Documents

Salary slips for the last three months Appointment letter Salary certificate Retainership agreement, if appointed as a consultant Form 16 issued by the employer in your name Last three years Profit & Loss Account Statement duly attested by a Chartered
Accountant employed.

Last three years Balance Sheets duly attested by a Chartered Accountant, if

self employed.

Last three years Income Tax Returns duly filed and certified by the Income
Tax authorities. Proof of Employment

Identity card issued by your employer Visiting card

Employers details (In case of private limited companies)

36

 Profile of employer on employers letterhead (to be signed by a senior person

in the organization) comprising of : a) Name of promoters / Directors b) Background of promoters / Directors c) Nature of business activity of your employer d) Number of employees e) List of branches / factories f) List of suppliers g) List of clients / customers h) Turn over of your employer. i) Annual reports of your employer for the last two to three years. Proof of age (Any one of the following)

Passport Voters ID card PAN card Ration card Employers Identity card School leaving certificate Birth certificate.
Proof of residence.(Any one of the following)

PAN card Ration card Passport Rent agreement, if you are staying currently on rent
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 Bank pass book Allotment letter from your company if you are residing in company quarters.
Proof of name change (If applicable)

A copy of the official gazette A copy of a newspaper advertisement publicizing the name change Marriage certificate
Proof of investments (If required)

Bank statement for the last six months of all operating and salary accounts Bank statements for the last six months of all current accounts, if selfemployed

Any other photocopies of investments held, if required by the HFI.

Legal Documentation What are the typical legal documents that need to be submitted to the HFI? Given below is a list of legal property documents that need to be submitted to the HFI for mortgage of your property. The name and the list of documents vary from state and also depend on the property being financed. A broad outline of documents required is given below. For a detailed the documents are required to be submitted, for a property in Maharashtra. 1. Acceptance copy of the offer letter issued by the HFI. 2. Title documents of the property that include

Sale agreement duly registered Own contribution receipts Allotment letter Registration receipt
38

 Land documents indicating ownership, if applicable Possession letter Lease agreement, if applicable (Property bought from a development
authority)

Mortgage deed if the HFI opts for a registered mortgage

3. No objection certificate from the developer, society or development authority as applicable. 4. Personal Guarantees, if applicable. 5. In case of alternate or additional security, documents for the same depending upon security details. 6. Post dated cheques for the EMIs. The above documents are only indicative in nature and do not cover the entire list. It may also be noted that in a resale case, the previous chain of agreements also need to be taken. Different kinds of charges applicable to Housing Loan products:All the different kinds of charges mentioned below may not be levied by all HFIs. You will need to check the different charges that are levied by your HFIs before availing of a loan. The different kinds of charges applicable to Home Loans are listed below. Pre-disbursement charges 1. Processing fees. 2. Administrative fees. 3. Rate of Interest. 4. Legal charges 5. Technical charges. 6. Stamp duty and registration charges. 7. Personal Guarantee form charges 39

Post-disbursement charges 1. Cheque Bounce charges 2. Delayed Payment charges 3. Additional charges 4. Incidental charges 5. Prepayment charges 6. PDC Swapping charges

Look before you leap 1. How not to trip up while taking a loan? Applying for a loan is a complicated process where a customer is faced with many bewildering choices. It is important to make the right impression on your loan officer to get the loan you want. However, there are some important to make the right impression on your loan officer to get the loan you want. However, there are some things that you should just not do. Here are 10 common-enough pitfalls to avoid while applying for a loan. Dont lie in your application form All the columns in the application form are meant to provide vital information that the prospective lender uses to evaluate your creditworthiness. Do not leave out any important details about your income, your address (both temporary & permanent) and about your past or existing relationship with the lender. All this information has also to be supported by documents. Lying in the application form amounts to fudging documents. Dont fudge salary slips and income statements. Dont ever fudge salary slips or income statement. Your loan officer handles hundreds of loan cases. The chances are, he knows ever trick in the book before you could even think of one. Fudging salary slips is a serious offence. It is fraudulence of a high order. Dont ever do it .not only will you not get this loan, you can even be blacklisted 40

by not only this lenders too (given the amount of information-sharing between companies). Dont go in for a co-applicant unless it is necessary Loan officers are notoriously conservative. The greater the pile of documents related to your case in their files, the more comfortable they feel. You should always put your foot sown when a loan officer asks for more guarantors or asks you to bring another co-applicant. The loan officer could be convinced of your case but may be merely trying to protect himself from all possible eventualities. If you follow his dictates. You are killing the prospects of the co-applicant to procure a loan for herself in the future. Dont offer proof of a lavish lifestyle to prove creditworthiness. Your loan officer is only interested in seeing the adequacy of your income. This emerges clearly out of the income documents you submit with your loan application. So an effort to project al lifestyle merely to impress him is a define no-no. It could even backfire on you if he feels that you are living beyond your means. Remember, he can reject your loan application on this ground. If you ever blew your months salary on your favourite perfume or that gorgeous pashmina shawl, please dont tell him. Dont bounce or return cheques Your bank statement speaks volumes about your spending habits. It mirrors your spending behaviour. It provides your loan officer with a comprehensive view of how you manage your money. If there are too many cheques bounced or returned check entries in your bank statement, be prepared with a convincing explanation and papers to prove it. Generally, though, there should not be any Cheque returns or bounced cheques. It lowers your creditworthiness and could result in lower or no borrowing.

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Dont show a cleaned-out account. Maintain a certain balance a show some savings in your account. Otherwise you will come across as someone who is barely able to meet his expenses. Savings in your account will show the loan officer that youll be able to meet the EMI. Otherwise you will have to come up with a convincing plan of lowering your expenses. Dont hide details about other loans If there is a recurring payment on an exiting loan, make sure youve mentioned the existing liability in the form. Since other loan repayments bring sown your incometo instalment ratio and result in a lower loan, this is a vital piece of information. Dont hide details about the loan. Consider consolidating all your debt before going in for another loan. Dont fudge details of professional degrees Loans to self-employed professionals are extended on the strength of the professional degree and the income (especially in case of a personal loan). In such a case, fudging your professional degree or income documents can seriously jeopardize your loan application. Professional qualifications are almost always verified. Dont ever attempt to bribe the loan officer You perhaps fees that your loan application is not strong enough to get you the loan amount you are asking for. And you probably think that you can grease the palm of the loan officer to enhance your loan eligibility. Cant even think about it. Even if you got lucky and your loan officer was the bad apple in the companys basket (it could happen), your loan is reviewed by two or sometimes three other people. You were not planning to bribe all of them, were you? Dont take a loan against your FD as collateral, Break it. A common mistake most borrowers commit is to borrow against their fixed deposit. They prefer taking loan against their own money at a rate higher than the rate they are receiving on their fixed deposit. You should consider this option only when you require funds for a very short term. Otherwise, it makes sense to encash your FDs. This way youd be able to borrow less.

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43

MAJOR PLAYERS IN THE FIELD OF HOUSING FINANCE

Major housing finance institutions are identified on the basis of the following parameters: a) Net Sales b) Net Profit c) Net Worth a) NET SALES

NET SALES
3000 Net Sales (In Crores) 2500 2000 1500 1000 500 0 HDFC LIC ICICI CANFIN Sbi Financial Institutions c Series1

In the financial year 2010 11 , HDFC Ltd. recorded the highest net sales of Rs. 2690.47 crores followed by LIC Housing Finance Ltd. with net sales of Rs.873.26 crores,ICICI Home fin.co.ltd with Rs.191.96 crores, CANFIN HomesLtd. Rs. 138.94 crores and SBI Home Finance Ltd. Rs.39.36 crores.

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NET PROFIT

NET PROFIT
700 600 500 400 300 200 100 0 -100 -200

Net Profit (In crores)

Series1

FI N AN

FC

LI C

IC

Financial Institutions

In the year 2010 11 , HDFC Ltd. recorded the highest net profit of Rs. 580.01 crores followed by LIC Housing Finance Ltd.with net profit of Rs.147.54 crores,ICICI Home fin.co.ltd Rs.9.58 crores, CANFIN Homes Ltd. with Rs. 16.63 crores and SBI Home FinanceLtd. Rs.-90.19 crores.

Sb i

IC

45

b) NET WORTH

NET WORTH
3000 Net Worth (in crores) 2500 2000 1500 1000 500 0 -500 HDFC LIC ICICI CANFIN Sbi

Financial Institutions

In the year 201011, HDFC recorded the highest net worth of Rs. 2702.84 crores followed by LIC Housing Finance Ltd. with net worth of Rs. 737. 23 crores, ICICI Home fin.co.ltd Rs.161.88 crores, CANFIN Homes Ltd. Rs. 113.05 crores and SBI Home Finance Ltd.Rs.-154.78 crores.

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ANALYSIS (LOAN TRANSFER) Q1. What is the reason / benefit that influences your choice of the financial institution for a housing loan ?

40 35 30
Percentage

25 20 15 10 5 0
Interest Repayme Scheme nt Pd 0 4 Easy Avail 4 Ads 12 Int/Easy avail 28 Int/Sch 12

Reasons(%)

40

Reasons / Benefits

ANALYSIS From the above given data we can conclude that out of a sample size of 25 , majority, that is 40% of the respondents are influenced by interest rates,28% by interest rates and easy availability of the loan, 4% look out for various schemes, and 12% are influenced by both interest rates and schemes available.

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Q2. Allocate Your preferences in ranking order which makes you decide about a financial institution for a housing loan .

40 35 30
Percentage(%)

25 20 15 10 5 0
Interest Repayme nt Pd 1 Easy Avail 4 Interest/a Interest/S vailabilit cheme 28 12

Scheme 3

Ads 12

Percentage(%)

40

Preferenecs Ranked 1 ANALYSIS

From the above graph and data it can be said that 40% of the customers give their first priority to rate of interest, 28% rank interest rates / easy availability as their priority,12% each are affected by advertisements and interest rates / schemes, and 4%,3% and 1% give their first preference to easy availability, scheme and repayment period.

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Q3. Which attribute of the Bank Satisfied you the most ?

Completely satisfied Dissatisfied Neither Satisfied Nor dissatisfied

65% 25% 10%

ANALYSIS Out of a Completely Satisfied 65% , Dissatisfied 25% and Neither satisfied nor dissatisfied 10%.

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Q4 . From which bank you have taken home loan? Bank HDFC PNB SBI ICICI Other Percentage 30% 27% 20% 15% 8%

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5. Do you know about HDFC Bank?

Yes No

91% 9%

% of Respondents
9% No Yes 91%

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Q 6. Which type of loan you have taken ?

Type of loan Home Loan Study Loan Vehicle Loan Personal Loan

Percentage 45% 15% 30% 10%

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Q.7) What is the reason of your loan transfer from HDFC Ltd. ?

40 35 30
Percentage(%)

25 20 15 10 5 0
Higher Rate Of Interest 40 Less Lack of Longer Loan Informati Sanction Amount on Period 16 16 8 Annual Rest 20

Percentage(%)

Reasons Of Loan Transfer

ANALYSIS Out of a sample size of 25 , 40% of the respondents said that they shifted to other financial institutions because of Higher rate of interest charged in HDFC LTD, 16% transferred because they did not get the full amount they wanted as loan, 16% said they were not given relevant information time to time by the HDFC LTD staff , 8% said that disbursement period was too long and 20% said that EMI was calculated on Annual Rest basis rather than on Monthly rest basis.

Q8. In what terms / services do you find the other institutions (in which your loan is transferred) is better than us ? 53

20%
Better Services Customer Care Full Loan Amount Sanctioned Low Rate Of Interest

44%

24% 12%

ANALYSIS

From the above given data we can conclude that 20% out of a sample size of 25, said that services of other financial institutions are better than HDFC LTD, 44% said that they shifted to other institutions because of low interest rate as compared to HDFC LTD, 24% said that customer care services are better as proper information is given and customers are informed personally about the new schemes and 12% said they shifted because they got the desired loan amount sanctioned.

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Q9. Are you satisfied with services of the financial institution you are currently dealing with?

40% 60%

Yes

No

ANALYSIS Out of the sample size of 25 , 60% of the customers said that they are satisfied with the services of the financing institutions they are currently dealing with but still 40% of the respondents said that services of HDFC LTD were better as compared to other institutions.

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Q10. Financial Institutions in which Customers of HDFC LTD transferred their loan ?

LIC 12% BOB 8%

OTHERS 4% ICICI 44%

SBI 16% PNB 16%

ANALYSIS From the above data we can conclude that majority of customers that is 44% have shifted to ICICI Home fin. co. ltd the reason being low interest rates, 16% have transferred to SBI and PNB, and 8 % have shifted to BOB, 12% have shifted to LIC and rest 4% to other financial institutions like SYNDICATE bank, STANDARD CHARTERED, ALLAHABAD BANK etc.

RESULT AND SUGGESTIONS

On the basis of the ratio analysis and trend analysis it can be said that the position of the HDFC Ltd is sound from the point of view, of leverage, profitability, and solvency. On the other hand interest coverage ratio and fixed assets turnover ratio of 56

HDFC Ltd is showing and increasing position, of course, never falling below the previous year. This means that firm is maintaining its liquidity and long term solvency position of the firm seems to be stronger than other financial institutions. The gross profit ratio of HDFC Ltd has also increase which reflects better managerial and operational picture. The HDFC Ltd. is showing a study and upward trend of percentage sales and the trend percentage of profit before tax which is growing year by year. Finally we want to give some suggestions on the basis of comparative study of financial institution offering home loans. RATE OF INTEREST should be competitive with other financing institutions. Emphasis should be given on retaining customers. Proper credit appraisal of the customers should be done. Relevant information should be provided to customers time to time. People who deal with customers should have full knowledge about the housing finance industry. The area where we lack is the area of Advertising HDFC Ltd should do more organized communication between the costumer and the branch offices. Regular news letter should be send to the customers by post ,courier to enhance awareness of the home loan schemes .

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LIMITATIONS

1) Time was a major constraint, in completing the project. As the project was very vast and there was paucity of time. 2) From the different financial institutions we could not get the data of ending year 2005 so I am not able to comparative study on the ending year 2006. 3) During the analysis I have taken those financial institutions which have the same accounting policies. 4) Some of miner factor where neglected during the analysis because of lack of time how ever I try to put in my best in the limited period and covered the major factor.

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Which interest rate structure is better - daily/monthly/annual reducing and why? Before you agree to a re-payment structure, here are the pros and cons of them all Daily Reducing In this case, reducing principal repayments are credited at the end of every day Monthly Reducing Here, whatever you repay on your principal is credited at the end of every month, and interest is calculated on the outstanding principal remaining. Since you end up paying interest on the reduced principal every month as compared to interest On the outstanding principal at the end of every year in the case of annual reducing, this tends to be the most beneficial structure, and is indeed what most people go for! Annual Reducing Under this arrangement, interest is calculated on an annual basis on the outstanding at the beginning of the year. The EMI therefore becomes 1/12th the Equated Annual Installment. The difference between daily and monthly rest is very negligible. 1) Can I get the benefit of reduced interest rates in the intervening period or the during the balance tenure of my loan? Yes you can, but only if you have opted for the floating rate being offered by some of the big HFCs. 2) What is meant by security? Simply what you can offer as guarantees to the HFC! As you will see, there are various types of securities acceptable

The first mortgage (equitable/registered) of the property to be financed by way of deposit of title deeds.

The personal guarantee of one/two individuals acceptable to the HFC. 59

In the case of loans to allottees of flats/houses built by state housing development authorities or members of co-operative housing societies - interim security such as LIC policies, pledge of marketable shares and such other investments need to be provided. 3) What kind of security do most Housing Finance companies require? In most cases, the property itself, bought or intended to be bought, becomes the security and is mortgaged to the lending institution till the entire loan is repaid. Some companies require additional security such as life insurance policies, FD receipts, share or savings certificates. 4) What is EMI? EMI or Equated Monthly Instalment, refers to the fixed sum of money that you will be paying to the HFC every month. It comprises both interest and principal repayment.

The size of the EMI depends on various factors 1. the quantum of the loan, 2. the interest rate applicable and the term of the loan.

5) What is a Monthly Reducing Loan? A loan in which the principal on which you pay interest reduces with every monthly payment you make. Like we mentioned earlier, this is the most beneficial type for the borrower! 6) What is an Annual Reducing Loan? Under this scheme, the principal reduces only at the end of the year. Therefore, you continue to pay interest on a portion of the principal which you've already actually paid back to the lending company. In effect, you end up paying more under the Annual Reducing Loan as compared to a Monthly Reducing Loan 60

7) What is Fixed Rate of Interest? A fixed rate of interest means that the rate of interest on the loan amount remains unchanged for the entire duration of the loan agreement, irrespective of changes in the interest rates in the economy. Therefore, if you opt for a fixed rate of interest you will not be able to benefit if interest rates are falling! On the other hand, if the rates are rising, you end up paying more than you had bargained for! So you see, it's one of those double-edged decisions! 8) What are the tax benefits that are applicable to Home Loans and Home Extension Loans? Every Home Loan customer is eligible for tax benefits under Section 24 of the Income Tax Act.

Allowable deduction of interest paid during the year As per the Budget 2000-01, every customer can claim a deduction on interest amount of a maximum of Rs. 1,50,000 or the actual interest paid (whichever is lower) to the Housing Finance Company from his Gross Taxable Income.

Tax

exemption

on

Principal

repaid

during

the

year

Budget 2000-01 provides for tax exemption on a maximum of 20% of a principal amount of Rs. 20,000 or the actual interest paid during the year (whichever is lower) to the Housing Finance Company from the total tax payable by the customer. 9) Can I repay my loan ahead of schedule? Wow, looks like you're liquid! Yes, you can pay your loan ahead of schedule. However, you must consider that Housing Finance companies charge a fee for early redemption of loans. This fee can vary between 1-2% of the loan amount being prepaid.

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