Chapter-II N T R O D U C T I O N

Housing has influence on the individual and the nation, since it is closely inter-connected

with economic, social and political environment. Over the last decade, major global events

that happened have left a notable impact on the global economic growth. Therefore when

housing situation in India is being examined, it is important to keep the global economic

and housing scenario in context. Housing sector has attracted a large mindshare of the

policy makers in India. It has been rightfully recognised that development of the housing

sector has a direct impact on economic growth of the country; it creates a substantial social

impact by according social status, safety and security of people; facilitates inclusion of a

larger segment of population in country’s growth journey; and it contributes substantially

towards poverty alleviation and improving the Human Development Index. The investments

in real estate and housing have an impact on over 250 ancillary industries either directly or

indirectly. Given this far reaching impact, growth in the housing sector fuels the overall

growth of the economy by facilitating social and financial inclusion and improving the

income levels of many. Likewise, a downturn in the housing sector is bound to slow down

the overall economic growth.

House is one the basic needs after food and clothing. Adequate shelter is prerequisite for a

respectable life. Housing does not mean four walls and a roof over head. It means shelter

and other facilities such as sufficient water, power, transportation, availability of schools,

hospitals, entertainment facilities and all the facilities required for a peaceful and happy and

respectable life. Housing means pucca housing with necessary facilities. In fact housing is

the important aspect in the modern society. Cities and urban areas are recognised as

providers of education, employment and entertainment. People are migrating from rural

areas to urban places in search of liveliwood, education, enjoyment, etc. The poor are

coming to cities in search of employment where as the rich are running towards cities for

entertainment.

Importance of Housing:

The International Year of Shelter for the Homeless (IYSH) was recognized in 1987 by

the United Nations. It was first declared, in principle, in UN resolution 36/71 in 1981, and

proclaimed officially in 1982 in resolution 37/221. It was mainly aimed at

improving shelter / housing for the poor in general (and not just homeless people),

1

especially in developing countries. It was also a follow-up to the Habitat I conference in

1976.

The Hon’ble Finance Minister, in the Union Budget Speech 2015-16, underlined the

importance of enabling a roof over every Indian family, and reiterated the commitment of

the Government of India to the goal of Housing for All by 2022, which would require Team

India to complete 2 crore houses in urban areas and 4 crore houses in rural areas. It has been

rightfully recognised that development of the housing sector has a direct impact on

economic growth of the country;

1. It creates a substantial social impact by according social status, safety and security of

people; facilitates inclusion of a larger segment of population in country’s growth

journey; and it contributes substantially towards poverty alleviation and improving the

Human Development Index.

2. The investments in real estate and housing have an impact on over 250 ancillary

industries either directly or indirectly, such as cement, iron, paints, sanitary, ceramic, etc.

3. It provides the employment opportunity to a large of skilled and unskilled people next to

the agriculture sector.

4. Presently, most of the state Governments and Union Government of India are preferring

new housing schemes, as their favourite schemes.

5. To reduce the urban slums which are increased due to heavy urbanization.

6. Housing activity is being awarded ‘infrastructure’ status.

7. Housing activities are being encouraged by the Government.

8. Tax incentives provided to both the builder and the buyer.

9. Increased proactive and promotional actions and programmes of the Governments.

10.Housing’s combined contribution to GDP generally averages 15-18%, and occurs in

two basic ways:

a) Residential investment (averaging roughly 3-5% of GDP), which includes construction

of new single-family and multifamily structures, residential re-modelling, production of

manufactured homes, and brokers’ fees. 

b) Consumption spending on housing services (averaging roughly 12-13% of GDP), which

includes gross rents and utilities paid by renters, as well as owners' imputed rents and

utility payments.

2

Cities and towns do have a significant share of contribution towards increasing per capita

income and GDP. Even as cities remain major drivers for economic growth and catalysts for

inclusion and innovation. However, higher population density causes inadequacies in

housing and infrastructure provisions, leading to proliferation of slums, poverty and

environmental degradation. Therefore, policies and programmes which are aimed at

addressing these issues in a holistic manner would provide maximum impact for

improvement in the affordable housing stock of the country.

To get the right perspective on the housing situation in India, it is necessary to understand

the extent of challenge that faces the country. The Government of India has launched the

Housing for All by 2022 Mission to facilitate home ownership for every Indian household

by 75th year of India’s Independence. Various measures taken by successive governments

in the past did set in motion several activities to improve the housing situation. But the real

challenges that continue to exist today are consolidation of all efforts and resources for

effective execution of the schemes on the ground.

Multiplier effect of the Housing Sector:

Housing is highly labour intensive and provides major employment opportunity in the

economy. Housing is the second largest provider of employment in India. Housing

development is linked to a large number of micro and macro level industries. More than

600 industries are directly or indirectly related to the housing industry. For every Rs.1 lakh

invested in the housing sector, 4 new jobs were created.

The housing industry of India is one of the fastest growing sectors. A large population base,

rising income level and rapid urbanization leads to growth in this sector. The problems of

housing in India are both qualitative and quantitative. Both central and state Governments

are implementing a number of housing schemes from the first five year plan. Though

emphasis was laid on housing during five year plans, the investment in housing was not

adequate to the raising demand owing to faster growth of population and the new household

formations. In the initial stages, adequate priority was not accorded to the housing sector,

thus the resulting in low investment in this particular area. The policy of economic reforms

announced by the union Government in 1991 recognizes housing and the related

infrastructure services as integral part of the process of economic development. Moreover

housing has been accorded the status of infrastructure by the Union Government. It has

been estimated that the urban infrastructure alone need more funds out which the

3

Government would provide only 10 percent of the funds. This gap of funding for housing

sector and infrastructure is difficult to be met from the public exchequer.

Urbanisation and Housing:

Unemployment and lower income levels are some of the key factors due to which people

gravitate towards cities and towns, leading to increased housing requirements in the urban

areas. Cities and towns do have a significant share of contribution towards increasing per

capita income and GDP. Even as cities remain major drivers for economic growth and

catalysts for inclusion and innovation. The heavy migration to urban places resulted heavy

slums, where there is heavy shortage of housing and other living facilities.

The following table is showing the population of India is continuously increasing from the

year 1951 to year 2011. The total population increased from 361.10 millions in the

year1951 to 1210.20 by the year 2011. A good percentage of population is migrating to

urban areas. The table explains that the migration has increased from 17.29 percent in the

year 1951 to 31.16 percent by the year 2011. The data is clearly explaining the severe

urbanisation in India.

Table 1.1GROWING URBAN FOOTPRINT (URBANISATION SHARE(%)

Year 1951 1961 1971 1981 1991 2001 2011

Total

Population

(millions)

361.10 439.20 548.20 683.30 846.40 1028.70 1210.20

% of

population

17.29 17.070 19.91 23.34 25.71 27.81 31.16

Source: Census of India, 2011.

The country has seen rapid urbanisation in the last few decades. Over a period from 1996 to

2015, the urban population increased by over 17.1 crore people. As per the Census 2011

data, the urban population has been estimated to be approximately 37.7 crore, which is the

second largest in the world. The number of urban cities and towns in India has gone up to

7,933. The metropolitan cities have gone up from 35 in 2001 to 52 in 2011 and they cover

approximately 43 per cent of the total urban population. The Census towns in the same

period have increased by 2,532 towns. Such growth in the number of cities and towns has

significant implications for housing. Globally, 330 million urban households around the 4

world live in substandard housing or are financially stretched by housing costs. Around 200

million households in the developing world live in slums; and in US, EU, Japan and

Australia more than 60 million households are financially stretched by housing costs.

Based on current trends in urban migration and income growth, it is estimated that, by 2025,

about 440 million urban households around the world, would occupy crowded, inadequate

and unsafe housing or will be financially stretched.

The growth in population and urbanisation resulted in formation of the slums in and around

the urban areas. The slums are not suitable for peaceful and healthy living conditions. The

table 1.2 is showing the increasing slum population in India. The slum population was

increased from 93.06 million in the year 2011 to 104.07 million by the year 2017. The

trend is explaining that there is a heavy formation of slums in and around the urban areas

during the period.

Table 1.2SLUM POPULATION IN INDIA

YEAR 2011 2012 2013 2014 2015 2016 2017

POPULATION

(MILLIONS)

93.06 94.98 96.91 98.95 100.79 102.73 104.67

Source: Report of the committee on slum statistics.

The welfare Government is showing interest to reduce slums in the country by massive

construction of housing. The Government is encouraging housing activities through Five

Year Plans and by establishing some specialized organizations.

Housing Shortage in India:

In spite of all the encouraging housing activities, the housing shortage is ever increasing.

The shortage of housing is observed in rural areas and urban areas also. The rural housing

shortage as well as the urban housing shortage is alarmingly increasing in India. The urban

housing shortage in the year 2001 is high and the total shortage is also very high. There

after the Government has recognised the importance of housing and initiated promoting

activities. As a result of these positive actions, the shortage is stabilizing. The total housing

shortage as estimated by the Technical Group on Urban Housing Shortage for the twelfth

plan period (2012-17) was 1.88 crore and 4.37 crore in urban areas and rural areas,

respectively . The break-up of the shortage is given in the table 1.3 below. For the twelfth

plan period (2012 to 2017), shortage of housing units in India has been estimated to be 1.88

crore and 4.37 crore in urban areas and rural areas, respectively. Urbanisation and Housing 5

Unemployment and lower income levels are some of the key factors due to which people

migrate towards cities and towns, leading to increased housing requirements in the urban

areas.

Table 1.3 Housing Shortage in India

(in millions)

Sl.No. Year Rural Urban Total

1 1951 6.5 2.5 9.0

2 1961 11.6 3.6 15.2

3 1971 11.6 2.9 14.5

4 1981 16.3 7.0 23.3

5 1991 20.6 10.4 31.0

6 2001 15.1 34.0 49.1

7 2005 18.4 30.1 48.5

8 2008 19.3 26.7 46.0

9 2010 20.5 26.0 46.5

10 2011 28.9 18.8 47.7

11 2014 21.7 19.7 41.4

12 2017 18.8 43.7 62.5

Source: www.mhupa.gov.in

Reasons for Housing Shortage:

To get the right perspective on the housing situation in India, it is necessary to understand

the extent of challenge that faces the country. With growing demand for housing, India is

facing a significant housing shortage. Factors such as the shifting social and demographic

patterns in the country, the cultural and economic diversity and the growing population have

further complicated the housing situation in India. Urbanisation, nuclearisation of families,

education, income levels and affordability, etc. have added further to the housing

requirements in the country. For the twelfth plan period (2012 to 2017), shortage of housing

units in India has been estimated to be 1.88 crore and 4.37 crore in urban areas and rural

areas, respectively. Some of the important factors having a bearing on the housing shortage

include;

6

1. Inadequate supply of land for housing specifically affordable housing

2. Availability of long term and low cost sources of funds on the demand as well as supply

side of the spectrum.

3. Factors such as the shifting social and demographic patterns in the country, the cultural

and economic diversity and the growing population have further complicated the

housing situation in India.

4.Urbanisation, nuclearisation of families, education, growing income levels and

affordability.

Table 1.4

FACTORS LEADING TO SHORTAGE OF HOUSES IN URBAN AREAS

Factors leading to shortage of houses in Urban Areas Units (crore)

Households living in non-serviceable Katcha houses 0.10

Households living in Obsolescent Houses 0.23

Households living Congested Houses requiring new houses 1.50

Households in homeless conditions 0.05

Total Urban Housing Shortgage (2012-2017) 1.88

96% of total Urban Hs.g Shortage in the EWS and LIG in 2012-2017 1.80

Source: Report of the Technical Group on Urban Housing Shortage (TG-12) (2012-17),

2011 and Annual report 2016-17, MHUPA.

From the table1.4, it is derived that most of the urban housing shortage is in the EWS and

LIG categories, which is in the middle class or lower middle class people. The policy

makers should look into the housing problems or housing shortage of these categories.

India to the goal of Housing for All by 2022, which would require Team India to complete 2

crore houses in urban areas and 4 crore houses in rural areas.

Reasons for Housing Shortage:

To get the right perspective on the housing situation in India, it is necessary to understand

the extent of challenge that faces the country. With growing demand for housing, India is

facing a significant housing shortage. Factors such as the shifting social and demographic

patterns in the country, the cultural and economic diversity and the growing population have

further complicated the housing situation in India. Urbanisation, nuclearisation of families,

education, income levels and affordability, etc. have added further to the housing

requirements in the country. For the twelfth plan period (2012 to 2017), shortage of housing

7

units in India has been estimated to be 1.88 crore and 4.37 crore in urban areas and rural

areas, respectively. Some of the important factors having a bearing on the housing shortage

include;

4. Inadequate supply of land for housing specifically affordable housing

5. Availability of long term and low cost sources of funds on the demand as well as supply

side of the spectrum.

6. Factors such as the shifting social and demographic patterns in the country, the cultural

and economic diversity and the growing population have further complicated the

housing situation in India.

7. Urbanisation, nuclearisation of families, education, growing income levels and

affordability.

GLOBAL HOUSING SCENARIO:

The global financial crisis that hit the world in the period 2007-08, had a long lasting effect

on the housing situation in different countries. The Sub-prime crisis in the United States of

America resulted in falling housing prices, showed diverse housing patterns across the

world economies. The IMF Global Watch Report classifies the world economies into three

different categories and analyses the behaviour of house price index in respect of those

categories of economies. The same is summarised below.

The above study classified the world economies in terms of housing, into three types of

economies, Boom Economies, Bust Economies and Gloom Economies. In boom

economies, the prices of housing are falling when the world economy is falling and

recovering quickly when the economy is recovering. In bust economies, the prices of

housing are falling along with the downfall of the economy and not recovering even the

economy is recovering.

S.No. Contents

1 As per the IMF’s Global House Price Index, average of real house prices across

countries in 2016, is almost back to the level it was before the onset of the

financial crisis

2 There were 21 economies, referred to as “Boom” economies, where the drop in

prices in the financial crisis period of 2007-2012 was modest and was followed

by a quick rebound. India was categorised amongst the “Boom” economies.

8

3 There were 18 economies, referred to as “Bust and Boom” economies where

housing markets rebounded post 2013, after falling sharply in the period 2007-

2012.

4 There were 18 economies referred to as “Gloom” economies in which house

prices fell substantially at the onset of the crisis and have remained on a

downward path.

5 Credit expanded much faster in “Boom” economies compared to others

6 During the period 2007 to 2012, the Gross Value Added for construction sector

and number of building permits issued, fell sharply in the Bust and Boom

economies and continued to remain more or less at that level post 2013.

7 In the Gloom economies, the Gross Value Added for construction sector and

number of building permits have fallen in the period post 2013. Even prior to

that these economies witnessed only marginal levels of increase in the years

after 2000 and they started falling from 2008 onwards.

Source: IMF Global Hsg.Watch, July 2016 and IMF Global Hsg. Watch, November 2016.

In gloom economy, the prices of housing are falling when the economy is down and

continuously falling.

India is considered as in Boom economy, in which prices of housing are increasing and

institutional finance is also increasing.

The Global Urbanisation Trend is also shown in the following box. About 54 per cent of the

world’s population lives in cities and by the middle of this century this affordability gap is

defined as the difference between the cost of an acceptable standard housing unit, which

Sl.No

.

Contents

1 About 54 per cent of the world’s population lives in cities and by the middle of this

century this may rise to 66 per cent by 2030.

2 By 2030, one in every three people will live in cities with at least half-a-million

inhabitants and the rural population will be maintained at about the 3 billion level,

9

as against the urban population reaching about 5.4 billion.

3 Cities with a population of more than 10 million households have increased to 25 in

2015, as compared to 13 in 1995.

4 Globally, 330 million urban households around the world live in substandard

housing or are financially stretched by housing costs.

5 Around 200 million households in the developing world live in slums; and in US,

EU, Japan and Australia more than 60 million households are financially stretched

by housing costs.

6 Based on current trends in urban migration and income growth, it is estimated that,

by 2025, about 440 million urban households around the world, would occupy

crowded, inadequate and unsafe housing or will be financially stretched.

7 The housing affordability gap is equivalent to US$650 billion per year, or 1 per

cent of the global GDP. In some of the least affordable cities, this gap exceeds 10

per cent of the local GDP with a majority of the countries in the Asian and African

continents having very low institutional housing finance penetration.

Sources: World Urbanisation Prospects 2014- UN report, World Cities Report by UN 2016 and Mckinsey Global Institute report, October 2014.

varies by location, and what households can afford to pay using no more than 30 percent of

income. Study on Impact of Investment in the Housing Sector on GDP and Employment in

Indian Economy, NCAER, 2014.

HOUSING POLICY IN INDIA:

As far as housing for industrial labour is concerned, item 24 of list III may be said to cover

because it, dealing, as the item does, comprehensively with the welfare of labour. That

would bring into the issue the concurrent list which both the union and the state

governments are concerned with. The residual powers in relation to subjects not mentioned

in the concurrent list or state list. These vest in the Union parliament. Thus the centre may

be said to be directly concerned with the subject of housing in general. In view of the

gravity and vastness of the problem and the financial conditions of the states, the central

government has to accept a large measure of responsibility for financing programmes in the

urban centres, where congestion and shortage of housing have become very acute in recent

years. Provision should also be made to find funds for middle-class housing schemes

through building cooperative societies. However, it has been suggested that state

10

governments, which are being relieved to a large extent of the responsibility for industrial

housing, should concentrate on ameliorating poor conditions of housing in rural areas.

The Year 1987 was declared as the ‘International Year of Shelter for the Homeless’ (IYSH)

This period was one of relatively rapid economic growth and also one, which gave more

attention to poverty eradication and rural development. With the flood of changes

introduced in economic policy by Rajiv Gandhi Government, the Ministry of Works and

Housing was re-designated as the Urban Development Ministry with a near total change in

its structure and functions. One can observe the changing role of government from one of

'implementation' to one of 'facilitation’. A National Commission on Urbanization was set

up. In the case of urban slums, environmental and community improvement programmes,

with particular importance to the role of NGO's, were given priority. A number of large-

scale rural housing programmes have been taken up by some states using voluntary agency

support. In the second phase, certain special groups such as the economically weaker

sections, industrial, dock and plantation workers were more clearly identified as requiring

public sector support. The first two phases, therefore, saw the establishment of state housing

boards with the explicit objective of constructing houses, especially for low and middle-

income groups in urban areas and certain identified target groups.

National Housing Policy (NHP) In view of various problems faced in relation to housing in

independent India, it became necessary for the Government to come out with a

comprehensive national policy that clearly spelt out priorities for promoting a sustained

development of housing. The National Housing and Habitat Policy (1988) emphasised in its

preamble that housing is not only a commodity but also a productive investment. It

promotes economic activities as well as creates the base for attaining several national policy

goals The policy laid special emphasis on rural housing and recognised the complexities

and intricacies of the situation. Accordingly, the policy put forth the following as the action

plans. (1) Provision of house sites to Scheduled Castes, Scheduled Tribes, freed bonded

labouers and landless labour, including artisans (2) Provision of financial assistance for

house construction to them on suitable loan-cum-subsidy bases14 . Later, after about four

years, the National Housing Policy was formulated in 1992 and was approved by the

Parliament in August 1994. The National Housing Policy recognised that rural housing is

qualitatively different from urban housing. National Housing Policy (1994) has the

following features: (1) Providing the necessary back up to support the construction of new

and additional units and upgradation of the existing ones: (2) Ensuring availability of land

11

and conferring homestead rights; (3) Minimising displacement of rural households by

developmental projects; (4) Undertaking adequate rehabilitation measures for those affected

by natural calamities; (5) Promoting the use of locally available materials and construction

practices; (6) Providing basic infrastructure services including water, sanitation and roads;

(7) Offering protective discrimination to the weaker sections of society.

Housing Finance in India: The Housing Act 1949 was a British Act of Parliament which

enabled local authorities to acquire homes for improvement or conversion with 75 percent

of the Exchequer grants.  It also bestowed upon local authorities a wide range of useful

powers, such as to provide restaurants or canteens and laundry facilities for tenants of

municipal flats and housing estates, and to sell furniture to them. The legislation also

removed the restriction imposed upon local authorities by previous pieces of housing

legislation which limited them to providing housing for working-class people only. The aim

of this change was to allow local authorities to develop mixed estates of houses of more

varied types and sizes, thereby attracting all income groups.  In addition, housing

improvement grants for private landlords and owner occupiers were introduced under the

Act. According to Norman Ginsburg, this piece of legislation was the first example of a

“welfarist” policy in respect of owner occupiers, as local authorities were to direct these

grants towards bringing properties up to a sixteen-point standard.

At present, India spends about two to three percent of its GNP on housing, which is a very

low level of investment compared to that of other developing countries. In the late seventies

and early eighties, the newly industrialised Asian countries invested more than eight percent

of their GNP on housing. According to a UN estimate, the least developed countries will

have to construct 10 houses per 1.000 people to solve the shelter problem by the end of the

century, but in India hardly two houses are constructed per 1.000 people each year. Our

investment on housing in proportion to gross capital formation shows a decline. Generally,

the existing housing finance system in India consists of two components, one is formal

sector, and another the informal sector. The formal sector includes the budgetary allocations

of central and state governments, assistance from financial institutions like the Life

Insurance Corporation (LIC), GIC, UTI, NHB, Housing Development Finance Corporation,

(HDFC), commercial Banks, cooperative housing finance societies, and so on. The informal

sector, on the other hand, contributes to the housing finance system through various sources.

These include liquidation of personal assets such as savings in cash and kind, land and

agricultural property, borrowings from friends, relatives and from informal money lenders

12

or credit unions. Housing in rural areas has been mainly through private efforts as per the

study of National Sample Survey (NSS). The 44th Round of NSS (1988-89) reveals that

only 5.18 percent of the total finance for rural housing comes from formal agencies. The

bulk of the funding for rural housing comes from savings, i.e., 42.75 percent, borrowing

from friends and relatives, 9.36 percent and other resources 22.93 percent. Regarding

housing finance from the banking sector, only about 11.5 percent of the incremental

deposits are allocated for housing and out of that the rural areas get hardly anything. The

LIC and GIC and other two financing institutions are offering home loans to the rural

housing needs. The National Co-operative Agriculture and Rural Development Bank's

Federation Limited has planned to earmark Rs. 500 crore lending through agriculture and

rural development banks for rural housing during the eighth plan. The Rural Housing co-

operatives could play an important role in mobilizing savings and channelizing community

action for construction of houses. The Maharastra Co-operative Housing Finance Society

provides long-term credit to prospective builders on a priority basis. Similarly, in Andhra

Pradesh, the Scheduled Castes and Scheduled Tribes Co-operative Housing Federation has

provided a large number of houses to the rural poor.

Housing Finance Agencies:

There are many agencies catering to the needs of housing finance. The notable among them

are Housing and Urban Development Corporation, National Housing Bank, Housing

Development Finance Corporation, State Housing Boards, Life Insurance Corporation, GIC,

Commercial Banks and many private agencies. The role of HUDCO as a major public

sector agency is channelizing funds to the State Housing Boards, development authorities,

Improvement Trusts, and Co-operative societies, etc., has been quite significant. The

HUDCO earmarks 55 percent of its sanctions for the economically weaker sections and LIG

housing projects and the remaining 45 percent for MIG, HIG, rental and commercial

projects. The rate of interest is charged from EWS and LIG categories (8 & 10%

respectively) with some cross subsidization and equity support share. In terms of number of

dwellings, the share of EWS and LIG categories works out to over 90 percent of total

houses financed by HUDCO. The resources of HUDCO include equity support from the

Government of India, loans from LIC, GIC, UTI, NHB and market borrowing. It is also a

key financing institution catering to the needs of the rural population. The HDFC gives

loans under various schemes to individuals, associations of individuals, groups of

13

individuals and individual members of co-operative societies peoples access to funds

especially for housing purposes, HDFC hopes to promote home ownership in general.

Banking System and Rural Housing Finance:

The commercial banks' entry into the housing sector started with their involvement in the 20

point programme of the Government. In 1975, the commercial banks were asked to extend

financial assistance for allotment of house sites to the landless and schemes for creation of

integrated settlements in the rural and urban areas. The banking system, till the year 1998-

99 was required to earmark 1.5 percent of its incremental deposits for housing finance. With

effect from the financial year 1999-2000. Commercial banks are required to earmark

3 percent of their incremental deposits for housing finance. The commercial banks are well

equipped to lend for housing in rural areas because of their vast branch network.

Housing Schemes in India:

Social housing for special groups and for various income categories has been operational

from 1952 onwards. Initially the central government provided loans and subsides to the

states to induce them to take up the schemes. Social housing schemes were designed to

uplift the low middle-income groups and economically weaker sections of society both in

rural and urban areas. The following are the various types of schemes introduced by

government.

HOUSING SCHEMES IN INDIA:

1. Integrated subsidized housing scheme for industrial workers and economically

weaker sections (EWS): This scheme was introduced in 1952 for eligible industrial

workers having an income of up to RS.500. In April 1966, the housing programme for EWS

or persons having an income of up to Rs: 4,200 per annum was integrated with the scheme.

2. Low Income Group housing (LIG) scheme: This scheme was started in 1954 to assist

whose monthly income ranges between Rs.70/- to rs.1500/- per month and cost of

construction not exceeding Rs.30000/-. The loan assistance granted by the Government was

80 percent of the cost of construction which was Rs.23500/-.

14

Table No.1.5List of Housing Programmes

Sl.No

.

Name of the programme Year of Launch

1 Integrated subsidized housing scheme for industrial workers and

economically weaker sections (EWS)

1952

2 . Low Income Group housing (LIG) scheme 1954

3 Subsidized housing scheme for plantation workers 1956

4 Village housing project scheme 1957

5 Land Acquisition and development scheme (1959 1959

6 Schemes for provision of house sites to landless workers in rural

areas

1971

7 Minimum needs programme 1993

8 Housing schemes for the weavers / basket makers 1975

9 Housing schemes for Beedi workers 2007

10 Housing scheme for coolies 1991

11 Housing schemes for fishermen 1977

12 One lakh housing scheme 1972

13 Subsidized aided self-help housing scheme 1983

14 Indira Awaz Yozana 1983

15 Credit-cum-Subsidy Scheme 1999

16 . Samgra Awas Yojana 2002

17 Two million housing programme 1998

18 Cluster Housing Programme 1999

19 Valmiki Ambedkar Awas Yojana 2001

20 Jawaharlal Nehru National Urban Renewal Mission 2005

21 Basic Services for Urban Poor 2006

22 Housing And Slum Development Progremme 2006

23 Rajiv Awas Yojana 2013

24 . Pradhan Mantri Awas Yojana 1996

(Source: Various reports of Government of India, Ministry of Housing, Ministry of Urban development and Poverty alleviation)

15

3. Subsidized housing scheme for plantation workers, 1956 and 1967: The Plantation

Labour Act 1951 enforces that every planter should provide rent free houses to the resident

workers. Since all plants are not in a position to extend this facility, a scheme knows as

plantation Labour housing scheme was introduced in 1956. This was revised in 1966 and

renamed as subsidized housing scheme for plantation workers. The central government

provides financial assistance to the states directly outside the plan allocations. About 45,000

houses have been constructed so far. The main features of this scheme are: 1. It put a ceiling

on the cost of the house at Rs.3, 200/-. 2. The planters are given 37.5 per cent subsidy and

50 per cent loans of the ceiling cost. 3. It provided a subsidy of 25 per cent loan up to 65 per

cent for co-operative housing colonies.

4. Village housing project scheme (1957): The first housing programme for rural areas,

namely, the village housing projects scheme was initiated in 1958 by the central

government. It was introduced as a part of the total rural reconstruction programmes. In this

scheme, the landless agriculture labourers are given house sites either free of cost or at a

nominal price. Under this scheme they were also given loans to construct houses through

self-help process and expected to use locally available materials to build their houses.

Monetary assistance is given to the extent of 80 percent of the construction cost subject to a

maximum of Rs.4000/- per house over 11 million workers were provided sites under this

programme.

5. Land Acquisition and development scheme (1959): This scheme was introduced in

1959 to encourage the large-scale acquisition and distribution of plots to various income

groups, this was primarily taken up by state housing boards and local development

authorities and often the agencies themselves so constructed houses on the acquired land.

6. Schemes for provision of house sites to landless workers in rural areas(1971): The

allotment of house sites cum construction assistance scheme was introduced in the central

sector to provide house sites to landless agriculture workers including SCs and STs free of

cost in October 1971. The objectives of the scheme is to provide free house sites of 60

100sq.yards to eligible agriculture landless workers in rural area and assistance of Rs 250

per site, which has been later increased to Rs 500 for development of houses sites per

family and construction assistance of Rs 2000 per family.

7. Minimum needs programme (1993-94): The Minimum needs programme give high

priority to the rural house sites and construction assistance to rural landless workers and

16

artisans including schedule cast, schedule tribe. The scheme was earlier part of central

sector scheme and was later transferred to state sector in 1974. The minimum facilities to

the same time disperse economic activities and make the benefits of development reaches as

large section of the rural sector as possible. The maximum size of house site allotted is to be

100sq.yards.

8. Housing schemes for the weavers / basket makers: The ministry of textiles launches

centrally sponsored work-shed-cum-housing scheme for various categories of artisans and

handloom weavers in 1974-75. The scheme is continuing till date.

9. Housing schemes for Beedi workers: The ministry of labour launched a housing scheme

for the economically weaker sections and the total cost of the house was initially fixed at

Rs.2500 of which, the subsidy amount was Rs.9000 inclusive of implementation in eight

states and major beneficiary states are Andhra Pradesh, Maharashtra, Karnataka, Tamil

Nadu, Madhya Pradesh and Kerala.

10. Housing scheme for coolies: Housing Scheme for the Coolies Another centrally

sponsored scheme launched by the ministry of labor for housing the HAMALS (persons

engages in carrying head-load at public places such as Railway station, bust terminal,

market yard, etc for piece rate remuneration) had taken up in 1991.

11. Housing schemes for fishermen: The socio-economic conditions of fisherman in India

are very poor. It is evident from the saying that the fisherman born in debt and die in debt.

Therefore, the central ministry of agriculture promoted the fisher man housing scheme in

1985-86 to encourage construction of houses both in rural and urban areas for the low

income community among the fisherman.

12. One lakh housing scheme: (OLHS) one of the most important efforts in serving the

rural poor has been the -one lakh housing schemes (OLHS), which was implemented during

1972-76. This scheme essentially to support the central schemes of provision of house site

of landless workers in rural areas..

13. Subsidized aided self-help housing scheme: Subsidies Aimed at Self Help Housing

Schemes (SASH) This scheme was based on the feedback on a few schemes implemented

earlier by reputed voluntary agencies. These results led to the introduction of a totally new

and path breaking scheme popularly referred to as SASH, towards the end of 1983.

17

14. Indira Awaz Yozana: Indira Awas Yojana (IAY) Indira Awas Yojana is the new

scheme of construction of low cost houses for the poorest of the poor belonging to the

scheduled castes and scheduled tribes and indentured labourers in rural areas. This is fully

funded by the central government the genesis on this programme can be traced to the

programmes of rural employment which began in the early 1980‘s construction of houses

was one of the major activities under the National Rural Employment Programme (NREP)

which was launched in 1980 and Rural Landless Employment guarantee programme which

was launched in 1983. The scheme operates as 100% subsidized centrally sponsored

independent programme with the resources being shared on 80: 20 basis by the central and

state. In the case of union territories, the entire resources under the schemes are provided by

the government of India, funds under the scheme allocated to the state are further

distributed to the districts in corporations.

15. Credit-cum-Subsidy Scheme (CCSS) for Rural Housing: The credit-cum-subsidy

scheme for rural housing was launched with effect from April 1, 1999. The scheme

targets rural families having annual income up to Rs.32, 000. This scheme envisages only

Rs.12, 500 as subsidy and remaining amount as loan. The subsidy portion is shared by the

centre and the state in the ratio of 75:25.

16. Samgra Awas Yojana (SAY): Samagra Awas Yojana is a comprehensive housing

scheme launched recently with a view to ensuring integrated provision of shelter, sanitation

and drinking water. It has been decided to take up Samagra Awas Yojana on pilot basis in

one block each of 25 districts of 24 states and one up on territory which have been identities

for implementation the participatory approach under the accelerated rural water supply

programme.

17. Two million housing programme: In line with the National agenda for Governance‘

identifying housing as a priority areas, the government launched the 2 million Housing

Programme in 1998.The programme 85 envisages provision of 20 lakh houses every year 13

lakh houses in the rural areas and 7 lakh houses in the urban areas ,with special emphasis on

the low-income group and the economically weaker sections of this ,HUDCO, the premier

public sector techno-financing institutions in the country ,has been assigned an annual target

of facilitating 10 lakh units in rural areas.

18. Cluster Housing Programme: This programme was taken up by the regional rural

housing wings for construction of over 91 clusters of demonstration houses in different

18

parts of the country. The houses have been designed for improved durability and livability

employing maximum use of local materials and skill.

19. Valmiki Ambedkar Awas Yojana(VAMBAY): With a view to ameliorate the shelter

conditions of urban slum dwellers living below poverty line, the Government of India

launched a new scheme called Valmiki Ambedkar 86 Awas Yojana (VAMBAY) in

December 2001.

20. Jawaharlal Nehru National Urban Renewal Mission (JNNURM): JNNURM was

launched in December 2005 with an aim to encourage and expedite urban reforms in India.

For the housing sector in particular, its main aim was construction of 1.5 million houses for

the urban poor during the mission period (2005-2012) in 65 mission cities.

Table 1.6Financing of Projects under JNNURM

Category of cities Grant

Central

Share

State/

ULB /

Parastatal

Share

Cities with above 4 million population as per 2001 census 50% 50%

Cities with above 1 million population but less than 4 million

population as per 2001 census

50% 50%

Cities / towns in north-eastern states and Jammu and Kashmir 90% 10%

Other cities 80% 20%

Source : Modified Guidelines for Submission on BSUP, Feb, 2009, MHUPA.

21. Basic Services for Urban Poor (BSUP) : The scheme is managed by the Ministry of

Urban Development. Integrated Housing and Slum Development Programm (IHSDP) –

Integrated Housing and Slum Development Programme aims to combine the existing

schemes of Valmiki Ambedkar Awas Yojana (VAMBAY) and National Slum Development

Programme (NSDP) for having and integrated approach in ameliorating the conditions of

the urban slum dwellers who do not possess adequate shelter and reside in dilapidated

conditions. 22. Housing And Slum Development Progremme (IHSDP): Modification in

the guidelines of JNNURM (BSUP) to facilitate and incentivize land assembly for

affordable housing,. Central assistance of 25% for the cost of the provision of civic services

at an approximate cost of INR 5,000 crores.

19

23. Rajiv Awas Yojana (RAY): Rajiv Awas Yojana (RAY) for the slum dwellers and the

urban poor envisages a ‗Slum-free India‘ by encouraging states and union territories to

tackle the problem of slums in definitive manner. 89 RAY will provide the support to

enable states to redevelop all existing slums in a holistic and integrated way and create new

affordable housing stock.

24. Pradhan Mantri Awas Yojana (PMAY): The PMAY is an initiative by Government

of India in which affordable housing will be provided to the urban poor with a target of

building 20 million affordable houses by 31 March 2022.  It has two components: Pradhan

Mantri Awas Yojana (Urban) (PMAY-U) for the urban poor and Pradhan Mantri Awaas

Yojana (Gramin) (PMAY-G and also PMAY-R) for the rural poor. This scheme is

converged with other schemes to ensure houses have a toilet, Saubhagya Yojana electricity

connection, Ujjwala Yojana LPG gas connection, access to drinking water and Jan

Dhan banking facilities, etc.

National Housing Bank (NHB), National Bank for Agriculture and Rural Development

(NABARD) and Housing and Urban Development Corporation (HUDCO) also provide

support for rural housing. The NHB is the apex financial institution for housing in the

country. It runs schemes such as the Rural Housing Fund (RHF), Golden Jubilee Rural

Housing Refinance Scheme (GJRHFS) and Productive Housing in Rural Areas (PHIRA).

Under the Rural Housing Scheme, NABARD extends refinance to banks for provision of

loans to individuals/cooperative housing societies. HUDCO has been supporting Housing

Boards, Panchayati Raj Institutions (PRIs), Development Authorities and other para-statals

by extending loan assistance for weaker sections at 8 per cent to 8.5 per cent against its

borrowing rate of 10.25 per cent. Of the total 1.5 crore housing units supported by HUDCO

till date, over 89 lakh units (60 per cent) have been constructed in rural areas.

PROVISION OF URBAN AMENITIES IN RURAL AREAS (PURA): PURA aims to

provide urban amenities and livelihood opportunities in rural areas to bridge the rural–urban

divide in the Indian society. The pilot phase of PURA was implemented from 2004–05 to

2006–07, with a total budget of Rs. 30 crore. There were seven clusters selected in seven

States, with budgets of Rs.4–5 crore per cluster. The implementation of the pilot phase did

not yield the desired results as it faced the following issues:

• The pilot projects lacked a detailed business plan and there was limited participation by

the private sector.

20

• The pilot projects were predominantly infrastructure-oriented projects, with limited

attention being given to the implementation of economic activities.

• The criteria for selection of the clusters did not factor the growth potential for that area.

• There was no ownership at the State Government level and the entire implementation

lacked an appropriate institutional structure with dedicated professional support.

• There was no convergence with other schemes of rural development or other departments.

Role of Government in Housing Finance:

The Indian constitution lays down that "the state shall strive to promote the welfare of the

people, protecting as effectively as it may a social order in which justice, social, economic

and political. It is on these basic principles that India continues to strive to provide its

people basic socio-economic necessities such as food, clothing, shelter and so on". The

subject of housing, however, is not specifically mentioned in the seventh schedule of the

constitution of India, which deals with matters coming within the purview of the union and

state legislatures. In the Federal structure of the Indian polity, the matters pertaining to the

housing and urban development have been assigned by the Constitution of India to the State

Governments. However, the Union government is responsible for formulation and

implementation of social housing schemes. In the initial days the Government directly

provided housing finance. Later the Government changed its role from provider to

facilitator and implementor.

Since independence of India, the Government is taking initiatives in increasing housing

stock. As the importance of housing is increasing as it has multiple benefits, the

Government has speeded up the housing activities in India. The Reserve Bank of India,

established the Housing and Urban Development Corporation (HUDCO), National

Housing Bank (NHB), National Building Organisation (NBO), National Bank for

Agriculture and Rural Development (NABARD), etc. for financing housing sector. Some

regulatory laws are also framed such as Urban Ceiling Act 1976, Securitisation and

Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

(SARFAESI Act), Real Estate (Regulation and Development) Act, 2016, etc. The

Government is also encouraging to set up housing finance companies in private sector, such

as Housing Development Finance Corporation Limited (HDFC), Dewan Housing Finance

Limited (DHFL), REPCO Home finance Limited, etc. There are 71 private housing finance

21

companies listed as per National Housing Bank (NHB). The Government is also

encouraging public sector banks to set up subsidiary housing finance companies, such as

PHB Housing Ltd., SBI Home Finanance Ltd., CanFin Homes Ltd.,etc. The Life Insurance

Corporation of India, has also set up a separate company for housing fiannce purpose, called

LIC Housing Finance Limited (LICHFL). Along with 85 housing finance companies,

through its 3512 branches State cooperatives are also offering housing home loans through

cooperative societies and 92 the commercial banks through its 99462 branches, are also

directly offering home loans.

In view of the increasing importance of housing fianance sector in India, it is necessary

study the problems and risks faced by the housing finance sector and its participants. For

this purpose, the two gaint organisations, one from private sector and other from public

sector are selected. Housing Development Finance Corporation Limited (HDFC) from

private sector and Life Insurance Corporation Housing Finance Limited (LICHFL).

Review of Literature:

Housing finance all over the world is undergoing tremendous changes and has

acquired great significance in the present day context of liberalization, globalization and

modernization of the society. A good number of research works have been undertaken by

individual researchers and institutions invariably dealing with different aspects of housing

finance. The issue of housing and housing finance has been receiving increasing attention

over the recent decade in the extant literature. There have been many studies revised on

various observations on this area. A brief review of the major studies which are particularly

pertinent for the present study is attempted here.

Ananda Bose, C.V (1996) emphasized the need for propagating cost-effective and

environment friendly building technology. He also underlined the need for bringing out a

new design and construction culture, avoiding costs and eliminating wrong notions.

Kurana, M.L (1998) analysed the magnitude of the housing problem, housing finance

companies, legal aspects of housing cooperatives and procedural simplification of housing

loans. He suggested the necessity for education and training for the members of the housing

co-operatives and also the legal aspects including the adoption of model law formed by the

Central Government.

22

Krishna, R.R and V.V.Ganesh Murthy (1998) observed the views that there is a vast

scope for housing promotion in India and the banks and housing finance companies can

play a vital role in the promotion of housing. They suggested that reduction in the housing

loan interest and simplified procedure for sanctioning housing loan will boost the

construction of houses.

Leelamma Kuruvilla (1999) throws light on National Housing Policy and new

initiatives in housing finance. She suggested that the change in the legal frame-work,

simplifying the procedure for housing finance and the active involvements of the

Government in the housing sector will definitely mitigate the housing problem.

Mohinder Singh (1999) states the magnitude of the housing problem in the country

and various national housing policies of the Government. He reviewed the detailed

statistical data and suggested the following: a) sufficient loan amount free from corruption

and a low rate of interest, b) a country-wide survey to find out the real housing storage, c)

standardization for low cost housing and d) regular monitoring and follow-up action.

Parimal.H.Vyas and Sandip.K.Bhat (1999) who analyse the major housing finance

institutions, critical issues of housing finance, interest rates and the repayment techniques

observed that the restructuring of housing finance institutions by developing appropriate

marketing orientation programmes are necessary to face the challenges in the present day

world of liberalisation and globalisation.

Sharma,A.K.(1996) highlights the fact that the challenges of homelessness and urban

slums are largely the spill over problems of inadequate rural habitat. He stated that the

housing is closely connected with growth of population, modernisation, poverty,

development and information and the poor people of India, lack all basic facilities as they

are incapable of meeting the rising cost of building materials. He also opined that Indians

cannot solve the housing problem without a strong political will and properly designed

strategies.

Nair,K.N.S and S.G. Jayachandra Raj (1994) observed that Kerala stands unique in

the realm of growth and development. But, even in the wake of state’s rapid expansion in

the social sector, it is to be observed that Kerala projects a dichotomy picture of

development comprising of feeble economic structure along with developed social culture.

23

Mathurn (1993) opined that the financial burden of investment in housing is generally

very heavy when the owner does not have sufficient funds available to pay for the site and

the entire cost of construction. Hence, he must make arrangements to obtain funds from

some other sources.

According to Harichandran (1989), the objective of the National Housing Policy

include motivation to help people particularly the houseless to secure for themselves

affordable shelter and to promote investment in housing in order to achieve a sustained

growth of nation’s housing stock.

Parekh (1988) reported that the future of housing finance is to enhance the loan

origination process for housing throughout the country to develop an institutional network

that would facilitate the origination process, to identify the potential resource base for the

system as a whole and to simplify the legal system with respect to risk management of

housing finance institutions.

Usha Patel (1996) explained that at present housing through bank finance was a part

of bank’s priority sector lending. Besides, every nationalized bank is expected to allocate

every year a specified percentage of deposits and plan for its deployment for financing

direct as well as indirect housing programmes.

Thomas Paulose (1988) in his study narrated a true picture of housing policies and

programmes in Kerala. Deepak.Razdam (1990) reported that the sources of informal

savings are seen to be cash and bank deposits, assets like jewellery, loans from friends and

relatives and to a small portion of funds from money lenders. The Government plan to bring

about appropriate changes in the approaches of the existing financial institutions so as to

make them more responsible and accessible to households.

Keith and John (1980) brought out a new picture of housing problems. They said that

public housing policy of one sort or another is obviously of great importance in advanced

capitalist systems.

Holmans (1987) stated that most people cannot afford to pay the full cost of suitable

accommodation from income or savings, but neither have they postponed their consumption

even if they cannot afford to buy outright.

Paul Diamond, T (1998) observed the housing shortage in the country and highlighted

the role of the HFIs in national housing. His observations include introducing flexibility in

24

designing products and systems, development of mortgage market and development of

suitable products to satisfy wide range needs of borrowers.

According to J.P. Sah (2011), "housing is not a static but a growing problem and it

was cited in Manorama Year Book (1997)as the modern concept of housing does not limit

the idea of housing merely to the provision of shelter and it is an in an integral part of

overall policy improvements of human settlements and economic development.

Krishnamachari (1980), has stated in the preamble of the National Housing Policy,

shelter is a basic human need and as an intrinsic part of human settlement, is closely linked

with the process of overall socioeconomic development.

In this view Some empirical exercises made on importance of housing among others

Satyanarayana (1987), India year Book (1988), Andra C. Ghent and Michael T. Owyang

(2010), Despande (1975) ,Dr. C. Harichandran (1989) , Solanki (1989), highlighted the

magnitude of the housing problem in our country is so heavy, that it will require

considerable passage of time for the country to offer a sweet home to every family in our

nation.

Chacko (1989) was of the opinion that housing shortage in India in 1981 was 21

million units. In the beginning of the 7th five year plan in 1985, it was put as 24.7 million

units.

Erwin Mlecnik etal. (2010) studied about the barriers and opportunities for the further

diffusion of labels for highly energy efficient houses. The Major subsidised housing

projects in developing countries specified by Gonzalo Lizarralde(2011) Richard Harris and

Ceinwen Giles (2003) have done tremendous work on identified three phases in the

evolution of international housing policy since 1945: public housing (1945– 1960s), sites-

and-services (1972–1980s), and market enabling (1980s–present). As cited by Tiwari

(2013), Housing finance in India has grown at a rapid pace during the last two decades.

Ashwani Kumar Bhalla, Dr. Pushpinder Singh Gill and Dr. Parvinder Arora in

Housing ‘Finance in India: Development, Growth and Policy implications (2008)’ opined

that the industry is facing NPA problem.

Helen, A.P (2006), in her study, has made a comparative analysis of the schemes of

HDFC and KSHB and tried to see how far the economically weaker section in the three

metro cities in Kerala (Trivandrum, Kochi, Kozhikode) benefited the services rendered by 25

these two institutions. She also made an evaluation of the cost effective and conventional

housing examined the awareness of the low cost housing technology and recommended the

need for cost effective eco-friendly housing.

Hasanbanu, S and Jeya Shree (2006) studied the various factors which influence the

people for availing housing loan from public and private sector banks. They concluded that

there is vital scope for housing promotion in India, and banks can play a vital role in

promoting house building activities in villages by introducing more dynamic and innovative

housing loan schemes.

Dangwal,R.C (1999) assessed the performance of various financial institutions and

their different housing finance schemes. He also assessed the further need of finance in

order to fill up the gap between the demand and supply of housing finance in India.

Sivalingam,T (1999) in his study titled “A Study of the Performance of Multi-Agency

Housing Finance Institutions with 26 Particular Reference to HDFC, LIC and Housing Co-

operatives” analysed the different loan schemes of HDFC, LIC and Housing co-operatives.

He observed that the proportion of investment in public sector housing has declined while

the same in the private sector has increased. He also observed that the borrowers of all the

three housing finance institutions were not satisfied with regard to the rate of interest

charged by them.

Mistry,K.M (2002) Managing Director, HDFC, in his article, “Future Perfect”,

emphasizes the importance of housing sector in the economy by stating that it has backward

and forward linkages with as many as 269 industries and is the second largest employment

generator in the country. He affirmed that HDFC is superior to Banks in terms of its ability

to render expert counseling and legal advisory services.

Dr.K.Vidyavathi, in her ‘Role of Urban Housing Finance Institutions in Karnataka –

A case study of selected housing finance companies in Banglore city (2001) article, opined

that the rate of interest interest charged by the companies is very high and should be

reduced.

Prof.Badiuddin Ahmed in his ‘Housing Finance in Andhra Pradesh – A comparative

study of the LICHFL and HDFC’ opined that housing is the most favourite and priority

concept in human life. Present community is preferring good quality home to other needs.

26

In the article “Bank funds flow to rural housing”, Gupta,P.K (2005) made an estimate

of housing requirement in rural areas as 24 million units as compared to 7.1 million units in

urban areas (taking into account replacement, new units and damages of houses due to

vagaries of nature).

Jasmindeep Kaur Brar and J.S Pasricha, (2005) conducted a study to examine the

opinion of the customers regarding housing loan offered by five main institutions (HDFC,

LICHFL, SBHF, PNBHF and House Fed) in the state of Punjab. The study revealed that the

customers of 3 out of 5 institutions were indifferent with regard to the services provided by

the institution but the customers of other institutions were indifferent with regard to the

services rendered by the institution.

Srinivas Subbarao,P (2006) explained the factors influencing the housing finance,

advantages of housing finance to banks and the drawbacks in housing loans. He highlighted

the fact that Non-Performing loans in the Indian housing finance sector are much higher

than those experienced in a developed market such as the U.S.

M.Karunakar & S.Suresh,(2007) in his ‘Risk Management in the Financial Services

Industry, An overview’ opined that the risk itself is not bad, but the risk misplaced,

mismanaged, misunderstood or unintended is bad.

Dr.M.Kamala Rani, (2007), in her ‘Risk Management in Banking Sector – Basel – II’

said that every financial institution should develop appropriate risk management

environment with frequent and effective audit.

Bunnarith (2004) in discussing national housing policy in Cambodia asserts that

“housing is needed so that people can have a safe and secure environment.” There is no

discussion in his policy paper of the true economic impact of housing construction or

finance on economic growth or poverty reduction.

Leung (2004). Even if where there is analysis of housing finance in developed

countries, it may be difficult to make direct inferences about relationships between housing

and economic growth in developing countries using those results because so many other

27

factors are at work including financial sector development, government involvement and

types of housing.

Dubel (2007) proposes a model where housing prices are determined by rents, R,

growth, g, and the opportunity cost of capital, k, where

P = R/(k - g).

The role of housing finance in this model is to reduce the cost of capital. As that cost is

lowered, housing prices fall and affordability of housing increases.

Buckley (1996) cites the availability of affordable housing finance may lead to

increased savings as potential homeowners save to make the required down payment and to

maintain their asset

Quigley (2008) suggests that results on the relationships between investment and

economic growth may be dependent on whether that investment is rural or urban. The

author finds that urbanization promotes productivity due to increases in specialization,

centralization of knowledge, complementarities in production and economies of scale and

scope. If this is true, an investment in an urban centre may produce greater economic

growth than that same investment in a rural area. This will be an important factor in

directing housing policy and finance.

In Argentina, Freire, Hassler, et. al (2006) estimate that a 1,000,000 peso investment

in construction creates some 40 jobs directly and 20 jobs indirectly from services and

related industries. Tipple (1994) cites numerous studies that find multiplier effects from

housing investment. For example, the National Building Organization in India estimates

that a $1,000,000 investment in building construction leads to 600 on-site jobs and 1,000

indirect jobs.

28

Buckley and Madhusudhan (1984) test a model of the relationship between housing

investment and GDP, anticipated inflation, changes in inflation and the extent of capital

In addition to immediate fiscal benefits, housing construction also provides on-going

benefits to the locality.

Research Gap:

As the housing finance business is dynamic and long term in nature, there is more chance to

prone risk. The risks may come from internal sources or external sources. In modern days

business organisations are responsible to the society, share holders, employees, creditors,

Government and customers. The public money is invested in the business. Hence every

business should be ready to face any type of risk. They should be ready face the adverse

situations and prove the efficiency. In housing finance business monetary policies, Sub-

prime crisis, Demonetization and GST, introduction of RERA and REIT and interest rates

are some of the visible risks. Hence, the present topic ‘Risk Management in Housing

Finance Companies – A Comparative study of HDFC & LICHFL’ is selected.

Objectives of the study: The important objectives of the study are;

1. To study the role of housing fiancé sector in economic development of the country.

2. To study about various, organisations which are offering housing finance.

3. To study about the opportunities in the housing finance sector.

4. To study about the housing schemes and housing scenario in India.

5. To study the problems faced by housing sector and housing finance companies.

6. To study various types of risks in housing finance industry, particularly the selected

two companies.

7. To study about the procedures and processes of loaning.

8. To study opinions of the customers, i.e. loanees of the two companies.

9. To suggest some risk avoiding methods.

10. To give some suggestions, for the betterment of the performance.

Scope of the study:

The present study is confined to examine the Risk Management Methods and policies and

tools in housing finance sector in general, especially regarding HDFC and LICHFL.

However the performance of the two companies is also discussed in some aspects in light of

29

the risk management aspects. The period of study is taken for a period of ten years, i.e.

financial year ending 2008 to 2017.

Research Methodology & Sample Design:

The data for the purpose of the study is collected from both the primary data sources and the

secondary sources. The primary data sources include the office records, the interviews with the

officials of the respective organisations, opinions of the loanees and other stake holders. A

structured questioner is also prepared and opinions of 300 loanees, 150 from each organisation,

and the responses are tabled and analysed. The secondary sources include the annual reports of

the respective organisations, publications of the statutory bodies like the RBI, NHB, Planning

commission reports and other reports. Average, percentage, CAGR, multiple bar diagrams,

line graphs, trend lines t-test and chi-square tests, Correlation, etc. statistical tools were used for

analysing and interpreting the data.

Limitations of the study: The following are the limitations of the study.

1. Even though the selected organisations, HDFC & LICHFL, are very large

companies, they may not represent the entire housing finance business.

2. Main focus of the study is on the ‘risks and risk management methods’ and hence

the other aspects may not be given due importance.

3. During the primary data collection, people may not reveal the fact or the original

data, which may lead to insufficient source.

4. The secondary data taken from the published sources may sometimes contain

inherited errors.

5. Since the data was collected from more than one source, there may be discrepancies

between one source and another about the same variable.

6. The period of study is taken 10 years, in which there may be vast changes in housing

finance industry.

7. In analysis of data, while calculating the percentages, averages and other statistical

measures, the resultant figures are approximated. Even though proper care is taken

in approximation, they may not tally.

8. While studying the opinions of the respondents, certain aspects of investigation had

to be dropped as the loanees did not respond. Therefore the study of respondents

(loanees) is limited to items which received enough response from them.

30

Chapterisation:

1.Introduction: Importance of Housing, slum population, Housing shortage in

India, reasons for housing shortage in India, Housing policy in India, Housing

finance in India, Housing finance organisations.

2.Housing Finance Industry: Development of Housing Finance market in India,

National Housing & Habitat Policy, Problems of Housing Finance, characteristics of

housing finance, profile of HDFC & LICHFL.

3.Risk Management in HDFC & LICHFL: Risk Management, Risk Analysis,

Financial Risk, Liquidity Risk, Regulatory functions of NHB, Process of Risk

Management, Risk Management in HDFC & LICHFL.

4.Performance Analysis of HDFC & LICHFL: Analysis of some parameters like

Total Income, loan sanctions, loan disbursements, profit before tax, net profit,

dividend, NPA, loan percentage, CAR, Human Resources, Asset per employee,

Profit per employee.

5. Performance Appraisal – Loanees’ Views: Loanees views are collected on

age, annual income, loan amount applied, value of asset, tax incentives, single

or joint applicant, opinion company, prepayment, rating of organisation.

6. Findings & Suggestions.

*****

31

Chapter - IIHOUSING FINANCE INDUSTRY

The home is basic unit of society, but the capital required per dwelling is so large that few

individuals can raise it from their own savings. So there is a great need and scope for the

purpose of construction of house. Housing Finance may be defined as lending money for

the purchase of house / flat or repair or upgrading home. According to Wallace F. Smith

“Housing finance is a factor of production quite distinct from labour, materials and risk-

taking.” The price of other factors involved in housing construction need to be paid mostly

in cash at time they are used. In housing sector finance serves the following vital purposes.

Finance is needed for:

(a) Purchase and development of house-sites, purchase of building materials and actual

building a house;

(b) Meeting the annual charges consisting of the upkeep and maintenance expenses

including rehabilitation of kutcha houses, taxes, interest and amortization charges on

capital; and

(c) Covering risks involved in long term housing investment.

The terms “Housing Finance” or “Home Loan” means finance for buying or modifying a

property. The different housing loan products could be classified as:- (a) Home Loans (b)

Home Extension Loans (c) Home Improvement Loans (d) Land Loans (e) NRI Loans (f)

Home Equity Loans (g) Short Term bridging Loans (h) Converting high interest housing

loan to low interest housing loan.

The important features of the housing loan are;

1. Large amount of money.

2. Long term repayment period, usually paid in EMI.

3. Lower rate of interest, namely variable rate of interest and fixed rate of interest.

4. Loans are normally secured by an equitable mortgage of the property and insurance.

5. Loans are offered upto 85 percent of the asset value.

Housing Finance in India:

In the first 25 years of post independence, India has concentrated on agricultural

development only after the industrial revolution and the continuous shifting of rural

population to the urban areas, the need for development of housing sector has been

32

emphasized. It is always a dream to own a house however a majority of the population does

not have the required financial assistance to own a house. Eyeing this as an opportunity,

many firms have opted for extending housing loans not only to boost their bottom lines but

also to reduce the prevailing demand and supply gap. The genuine demand arising out of the

individual need for housing, together with the present boom in the housing sector it is all set

to provide a platform for the housing finance companies to crave out a piece of fortune.

What remained as a very low-profile sector in India is suddenly witnessing activity that is

promising a bright future. Out of India’s new housing units, 20 percent are financed through

the housing financing institutions. With the gap between the required number of houses and

the actual, government identified housing sector as a core and it is only with the timely in

intervention of the government that housing finance has become a major industry in India.

With the establishment of National Housing Bank, the government has provided the much-

needed boost to this sector. At present out of 380 odd HFIs in India, 42 housing finance

companies are registered with the National Housing Bank out of them 20 are valid for

acceptance of public deposits and remains are not. This number is going to increase in the

near future with the industrial growth. Throughout the second part of the last decade, this

sector has witnessed a growth of over 30 percent and promises to grow the same rate in the

next couple of years. Recognizing the growing need of housing finance in India, the

government has emphasized on housing and housing finance in the ninth five year plan to

know that there is a short fall of more than 20 mission house units. This is the first time that

India has emphasized on the housing sector.

Even the Asian development Bank has embarked on a two-fold strategy for India’s housing

sector. One is focusing on providing funds to financial intermediaries who in turn, lend to

individual borrowers at the household level. The second objective is combining slum

upgrading and micro credit schemes for lower income groups in its state level specific

integrated urban development projects. These latest development in the housing sector has

made housing finance one of the growth drivers for the Indian economy in the last decade

what earlier remained as an isolated segment has now transformed itself into a core sector.

Housing finance in India is getting recognition as a specialized finance product, thanks to

the efforts of housing finance companies and the subsidiary outfits of banks, specializing in

this area.

To regularize the housing finance sector in India, the government has set up HUDCO in

0970. It was soon followed by setting up of the Housing Development Finance Corporation

33

(HDFC) in 1978 in the private housing finance sector with the support of ICICI, the

International Finance Corporation and the Aga Khan Fund. The major objective behind

setting up of HDFC and HUDCO has been to enhance the residential housing stock by

providing an avenue for housing on a systematic and professional basis. Another inherent

objective was to increase the flow of resources to this sector by integrating the domestic

housing sector with the capital markets. Till 1988, HDFC was the only formal housing

finance company operating in India and it is after 1988, the Banks and insurance companies

forayed into this sector. With the entry of insurance giants like Life Insurance Corporation

of India (LIC) in 1989 and the General Insurance Corporation (GIC) in 1990. The sector

witnessed a three-fold increase in activity. Almost a similar point of time, public sector

banks also forayed into this sector Canara Bank’s Can fin homes, State Bank Of India’s SBI

Home Finance. No doubt, the market has immense untapped potential as well as growth. In

the last five years, the housing finance market in India has been witnessing a growth of over

30 percent and it is expected that this will continue in the next couple of years. According to

an independent survey, about 60 percent of the Indian households approach informal

sources of finances to borrow funds. It is estimated that if the present rate of growth of

population continues, then by 2010 India would require of an average 2.5 million to 3

million additional houses annually. At present only 20 percent of the new houses are

constructed by the finance of formal housing finance companies. If, at least 50 percent of

this informal market turns into formal market then it means a huge fortune for the housing

finance institutions.

Housing finance industry did not has much formal introduction because traditionally, as far

as the builders are concerned, financing of construction is largely done through advances

from customers which in turn will affect the demand for housing. In early eighties salaried

individuals who wanted to buy flats did not have many institutions to approach for finance.

Raising finance for acquiring a house was a painful process, as the house hunt itself. Only a

few institutions in the market were there to help individuals to acquire finance, and that too

at exorbitant rated of interest. The few housing finance institutions in the market were

HDFC and a few back, and small number of non-banking companies. Moreover their reach

was largely restricted to the major cities and they were known to a select few. The rates of

interest ranged between12 percent to18 percent and it was basically a seller’s market but

now if we see the present situation of the housing market, there is sea change in the recent

years specially, last two decades. The development of Housing Finance System in India in

34

Specialized Lenders Housing Finance Companies (HFCs)

Bank/Insurance Co sponsored HFCs

Builders promoted HFCs

Company promoted HFCs

Aggressive entry of Banks HFCs loose market share

Irrational competition

Rapid disbursement

Credit quality issue

Oligopolistic market structure

Top 3 key players have over 80% of incremental

More rational market

Sustained mortgage growth at 25%

PHASE-I PHASE-II PHASE-III

the form of institutionalised and formal housing finance super structure is relatively of a

recent origin.

In present picture, Housing Finance System in the country represents a few players like

Government and its Housing agencies, General financial Institutions, Insurance Sector,

Banks and specialized Housing finance Companies, Private sector extending housing

finance and staff quarter facilities to their employers. In addition there is a large informal

sector, which meets over two-third of the housing finance in the country. This segment

represents mainly self-help resources for housing financing (Consisting of money-lenders,

extended family members, relatives, friends, employers, business associates, the person’s

own accumulated savings and resources obtained through sale of property etc.) The

specialized HFI’s play very marginal role in terms of deposit mobilization at present on

account of various discriminations faced by them vis-à-vis the competing institutions in the

form of TDS, etc. and also due to their limited geographical spread. In addition to the

Specialised Housing Finance Institution, the cooperative housing finance societies which

act as conduits for the allocated credit are significant in the Housing Finance System of the

country.

Development of Housing Finance Market in India

Up to late 1990 1998-2003 2003 onwards

35

GROUP Sub GROUP CHANNEL

Financial Institutions

Development Financial Institutions

Apex Co-operative Housing Societies

Non-Banking Finance Companies

Scheduled Commercial Banks

Agricultural and Rural Development Banks

Co-operative Banks

Banks

NHB

Primary Land Development Banks

Housing Societies

Scheduled State Co-operative Banks

Scheduled Urban Co-operative Banks

District co-operative Bank

Private Sector Banks

Other NBFCs

Housing Finance Companies

NABARD

Other Institutions

Public Sector Banks

PUBL

I

C

ORGANIZED HOUSING FINANCE SYSTEM IN INDIA

HUDCO (The Housing and Urban Development Corporation): Specialised housing

finance institutions have been set up with the sole purpose of financing house

construction/purchasing activities. HUDCO was established on 25th April 1970, as a wholly

owned subsidiary and government owned enterprise with a view to ameliorate the housing

conditions in the urban and rural areas of the country, build new satellite towns, finance

building material industries, undertake consultancy in the areas of housing and urban

development, conduct research in low-cost and assist various agencies dealing with housing

and urban development in a positive manner. In brief, the principal mandate of HUDCO is

to ameliorate the housing conditions of low-income group and the Economically Weaker

36

Sections. With the expansion of HUDCO’s authorized capital form Rs. 2 crore to Rs. 2500

crore in March 2002. Today, HUDCO is financially a strong company with a paid up capital

of Rs. 2001.90 crore and net worth Rs. 3588.55 crore, equity infusion projected during the

9th period from Ministry of Urban Development and Poverty Alleviation related to housing

and urban development activities, and the Ministry of Rural Development for rural human

settlement activities, HUDCO has geared to increase its resource mobilization in a

substantial manner during the 10th plan period. Over the years, the equity base has been

expanded by the government. It has further been able to mobilized additional resources

from institutional agencies like LIC, GIC, UTI, banks International assistance, USAID as

well as through public deposits. The cumulative resource base of HUDCO is Rs. 5056

crore, comprising of equity of Rs. 298 crore, reserves of Rs. 367 crore and borrowing of Rs.

4400 crore. Overall sanctions and released since the establishment of HUDCO by the end of

9th plan amount were Rs. 42012 crore and Rs. 29334 crore respectively.

Despite various limitations imposed on account of its operations, HUDCO has been

able to respond positively to meet the housing needs in emergency situations of natural

calamities such as earthquake, cyclone, floods, sea-erosion, etc. HUDCO has extended

assistance for rehabilitation for the victims of earthquake in different States. Similarly, for

flood affected and the recent Tsunami affected persons in the coastal regions of the country,

assistance has been extended in collaboration with State Governments and special Central

assistance.

During the 11th Plan period, HUDCO proposes to extend a larger quantum of

assistance for supporting the housing and urban development requirements both in urban

and rural areas. The proposals envisage a total sanction of Rs 74,596 crore during the 11 th

Plan period for both its housing and urban development programmes. Of the same an

amount of Rs 14,919 crore have been tentatively identified for its housing operations.

Similarly, of the total amount of Rs 27,820 crore had been proposed to disbursed during the

11th Plan, an amount of Rs 5,564 crore (releases/disbursements) was anticipated for its

housing programme. As part of its objective to reach its beneficiaries directly, HUDCO

launched its individual Housing Loan Scheme, i.e. HUDCO NIWAS in March 1999 and

offered financial assistance to individual families to enable them to acquire a home of their

own.

National Housing Bank (NHB): The Reserve Bank of India (RBI) is the regulatory

authority of the financial activities in India, in all the fields. Due to the increasing

37

importance of housing, the RBI established a separate wing to look after the housing

finance activities in India. The Sub-Group on Housing Finance for the Seventh Five Year

Plan (1985-90) identified the non-availability of long-term finance to individual households

on any significant scale as a major lacuna impeding progress of the housing sector and

recommended the setting up of a national level institution. The Hon’ble Prime Minister of

India, while presenting the Union Budget for 1987-88 on February 28, 1987 announced the

decision to establish the National Housing Bank (NHB) as an apex level institution for

housing finance. Following that, the National Housing Bank Bill (91 of 1987) providing the

legislative framework for the establishment of NHB was passed by Parliament in the winter

session of 1987 and with the assent of the Hon’ble President of India on December 23,

1987, became an Act of Parliament. In pursuance of the above, NHB was set up on July 9,

1988 under the National Housing Bank Act, 1987, with a vision of “Promoting inclusive

expansion with stability in housing finance market” and the Mission as “To harness and

promote the market potentials to serve the housing needs of all segments of the population

with the focus on low and moderate income housing. NHB as a refinancing institution and

a Central Nodal Agency for the implementation of the Government housing finance

schemes. Presently 85 housing finance companies of which 19 from public sector, 17 from

private sector and 78 primary lending institutions, along with more than 3512 branches are

engaging in housing finance activities in the country. The banking sector is also competing

with housing finance companies in providing housing finance.

National Housing & Habitat Policy (1998):

The Global Shelter Strategy for the year 2000 adopted by the United Nations in 1988 called

upon member countries to take appropriate steps to ensure a roof over every head by the

turn of the century. India is a signatory to the UN document. In tune with Global Shelter

Strategy of the UN, the National Housing Policy (NHP) was formulated and tabled in

parliament in July 1992 and was finally approved in August 1994.The policy admitted that

despite considerable public investment and efforts, the housing problem remained

unresolved for long. The National Housing Policy, 1994 has recognised that rural housing is

qualitatively different from urban housing. The housing policy aims at reducing

homelessness, improving the housing conditions of the poorly housed and providing a

minimum level of basic services and amenities to all. It envisaged a paradigm shift in the

role of the government from that of a builder of houses to a facilitator of housing activities.

The policy recognised the role of co-operatives and Non-Governmental Organizations

38

(NGO’s) in assisting the economically weaker sections to secure adequate shelter.

Subsequently, in pursuance of the National Agenda for Governance a new National

Housing and Habitat Policy was laid before the parliament in July 1998. The thrust of

National Housing and Habitat Policy (NHHP) is in consonance with the macro-economic

policy in advocating a supportive and facilitative role of government in housing. The

envisaged roles of governments at various levels and other public agencies for the

implementation of this policy are to act as a facilitator, provider, catalyst, to reorient and

promote the various housing activities. The policy, undoubtedly, envisages that the direct

role of government in the construction of houses should be specifically reduced and focused

on the poorer and other vulnerable sections of the society. The new National Housing and

Habitat Policy, 1998 has clearly defined the roles of various stakeholders including the state

and central governments. The need to protect the interests of women, particularly women

headed households has been recognised. The NHHP, 1998 identified ‘Housing for All’ as a

priority area and emphasised more on the needs of the poor (vulnerable groups). The policy

document promised to treat housing along with supporting services as a priority sector at

par with the infrastructure. The central theme of the Habitat policy is to build up a strong

public-private partnership for tackling housing and infrastructure problems.

The National Housing Policy recognises that provision of shelter is important in the

following terms:

1. Improves the quality of life of the poor,

2. Creates conditions for the attainment of better health, hygiene and education,

3. Stimulates economic activity,

4. Enhances productivity,

5. Creates employment opportunities,

6. Motivates savings,

7. Promotes social justice.

8. Improves priority sector activities.

9. Fixes the role of the Governments as the facilicitator, provider, implementer

and catalyst, etc. and

10. Housing is recognised as infrastrure segment and priority sector.

The National Housing and Habitat Policy also seeks to impose a social mandate on the

private sector, advising them to provide a specified percentage reservation for the poor, in

39

their projects. These units will be cross-subsidised to make them affordable to the poor.

However, the onus of the major percentage of the shelter delivery for the poor will rest with

government. To make such shelter affordable and accessible to the poor, the government on

one hand seeks to make cost-effective houses for them and on the other hand seeks to

increase the purchasing power of the poor, by linking economic growth to employment for

the poor.

Objectives of National Housing & Habitat Policy (NHHP):

The UN General Assesmbly is celebrating ‘World Habitat Day’ on the first Monday of

October, since inception in 1985. The Global observance of 2004 was celebration in

Nairobi, Kenya on October 4, with the focus on the theme “Cities-engines of rural

development”. The main aims of the NHHP 1998 are;

1. Creation of surpluses in housing stock either on rental or ownership basis.

2. Providing quality and cost effective shelter options, especially to the vulnerable

groups and the poor.

3. Ensuring that housing, along with the supporting services, it treated as a priority and

at par with infrastructure sector.

4. Removing legal, financial, administration barriers for facilitating access to land,

finance and technology.

5. Forging strong partnership between private, public and cooperative sectors to

enhance the capacity of the construction industry to participate in every spear of

housing and habitat.

6. Using technology for modernizing the housing sector to increase efficiency,

productivity, energy efficiency and quality.

7. Empowering the panchayath raj institutions and village cooperatives to mobilize

credit for adding to the housing.

8. To motivate and help all people and in particular the houseless and the inadequately

housed, to secure for themselves affordable shelter through access to land, materials,

technology and finance.

9. To improve the environment of human settlements with a view to raise the quality of

life through the provision of drinking water, sanitation and other basic services.

10. The policy envisages priority for promoting access to shelter for the houseless and

disadvantaged groups such as Scheduled Castes. Scheduled Tribes and freed bonded

labourers, rural landless labourers and economically weaker sections.

40

Importance of Housing Finance in India: The housing finance in India is attracting

significance in recent years due to the following reasons.

1.Increasing Urban Population: India’s Urban Population has grown over the past 4

decades from 109 million in 1971 to 377 million in 2011 and is expected to grow to almost

600 million by 2030 India is expected to emerge as the third largest economy in the world

by 2030 with an estimated 600 million people inhabiting in cities.

2.Interlinkages with Industries: Housing is an important sector for any economy as it has

interlinkages with nearly 600 other industries. The development of housing sector can have

direct impact on employment generation, GDP growth and consumption pattern in the

economy. To help develop housing in the country, there is need to have a well-developed

housing finance market. In India, housing finance market is still in its nascent stage

compared to other countries. The outstanding amount of housing finance from all sources

accounts for less than 8 per cent of GDP when compared with 12 per cent in China, 29 per

cent in Malaysia, 46 per cent in Spain and 80 per cent in the US.

3.Increasing Demand: There is a huge unmet demand for affordable housing in India.

The demand for housing is increasingly being made by individuals and households given

the increasing level of income and prosperity.

4.Infra Status: The infrastructure status granted to the affordable housing sector will enable

developers operating in this segment, to raise loans at a cheaper rate through ECB route and

from banks as a priority sector lending, with banks now also being able to fund purchase of

land as well. Profits from affordable housing have been exempted from income tax and 20

incentives have been announced by the government for affordable housing alone.

5.Extension/Revision of EWS Rules: For the middle income population, an extension of

the credit linked subsidy scheme was also announced. Here, people with an annual income

of 6-12 lakh will be assisted with an interest subsidy of 4 percent for a 20 year loan of 9

lakh and those with an income of 12-18 lakh will get an interest subsidy of 3 percent. In the

evaluation of sustainability of the housing market, the absorption of office space is the

prime indicator across the world.

6.Income Tax Exemptions: Announcing IT exemptions, tax benefits, allowing FDI flow

into the real estate sector; giving affordable housing, the infrastructure status and most

importantly, RERA (The Real Estate (Regulation and Development)) Act, 2016 slated to

41

come in force in May 2017 is set to regulate and revolutionize the real estate sector.

Ensuring a decent house for all the people by 2022 is one of the key initiatives of today. It is

the most fundamental aspiration of our country and under the Pradhan Mantri Awas Yojana

(PMAY), it forms the cornerstone for inclusive housing and rapid economic development.

Under the PMAY, the ministry has approved the construction of 1.17 lakh houses for the

urban poor.

a) There is no provision for imputing income for owner occupied houses. This provides an

edge to owner occupied houses over rented accommodation.

b) Section 80C currently allows for a deduction of any costs of repayment of a loan or

payment of instalment or part payment of the amount due in a self financing or in a

cooperative scheme, as well as for payment of stamp duties and registration fees for the

purposes of transfer of house property.

c) Apart from the above which relate to individual households investing in a house

property, the law also has provisions for providing incentives to the real estate developers.

Section 80 IB provides 100 percent tax free income from projects involving “small flats”,

provided the investor obtains approval for the project on or before March 31, 2008, and

completes the project with four years of the date of approval.

d) As a part of the overall scheme of special economic zones, 80 IAB currently provides

incentives for construction of social and economic infrastructure related to the primary

activity of the zone. While these incentives are not directly related to housing, as a part of

the social infrastructure, the promoter is allowed to develop a pre-determined number of

residential units. The incentives applicable to productive investments in infrastructure in the

zone would apply these investments as well.

e) Direct Beneficiaries of the incentive regimes: From the above discussion of the

incentives available to the housing sector, the explicit incentives that need evaluation relate

to loan financed investments by individual households, where the loan is contracted from

formal sector financial and non-financial. Prior to 2006, these provisions were governed by

section 88, with the benefits limited to 20 percent of the aggregate amount, deductible from

income tax payable.

42

f) The amount paid as Repayment of Principal Amount of Home Loan is allowed as tax

deduction under Section 80C of the Income Tax Act, as one of the components.

The maximum tax deduction allowed under Section 80C is Rs. 1,50,000.

g) Tax Benefit on Home Loan for payment of Interest is allowed as a deduction under

Section 24 of the Income Tax Act. As per Section 24, the Income from House Property shall

be reduced by the amount of Interest paid on Loan where the loan has been taken for the

purpose of Purchase/ Construction/ Repair/ Renewal/ Reconstruction of Property. The

maximum tax deduction allowed under Section 24 of a self-occupied property is subject to a

maximum limit of Rs. 2 Lakhs. In case the property for which the Home Loan has been

taken is not self-occupied, no maximum limit has been prescribed.

h) This Deduction of Section 80EE would be applicable only in the following cases: This

deduction would be allowed only if the value of the property purchased is less than Rs. 50

Lakhs and the value of loan taken is less than Rs. 35 Lakhs. The loan should be sanctioned

between 1st April 2016 and 31st March 2017. The benefit of this deduction would be

available till the time the repayment of the loan continues. This Deduction would be

available from Financial Year 2016-17 onwards. The deduction under this section is

additional Rs.50,000/-.

i) Interest rate subvention to the customers of housing loans.

j) Modified Credit Linked Subsidy Scheme (CLSS) which is useful to middle class

borrowers to avail the benefits.

k) Service tax exemption for infrastructure companies engaged and tax holiday for ten

years.

l) 100 percent tax benefits for developers of affordable housing projects.

m) The subscribers of Employees Provident Fund (EPF) can now withdraw the 90 percent

of their accumulated funds for down payment on purchasing a home or for payment as EMI.

43

Housing Finance Market in India:

In India, housing finance market is very complex. The government, both at centre and

states, is a facilitator and assisted by two regulators, Reserve Bank of India (RBI) and

National Housing Bank (NHB). The housing finance market is dominated by commercial

banks, both domestic and foreign. In addition, there are cooperative banks and housing

finance companies, self-help groups, micro-finance institutions, non-banking finance

finance companies and NGOs. The need of long term finance for the housing sector in India

is catered by scheduled commercial banks (SCBs), financial institutions, cooperative banks,

Housing finance companies (HFCs), agriculture and rural development banks, non-banking

finance companies (NBFCs), micro finance institutions (MFIs), and self -help groups

(SHGs). The largest contributor to housing loans by virtue of their strong branch network

and customer base are SCBs, accounting for the major share of housing loan portfolio in the

market followed by HFCs. The Indian mortgage market is expected to grow at around 15

percent in the next five years. Housing will continue to be the major driver for banks under

the retail loan segment. The SCBs had the maximum share among institutional players,

which is nearly 60 percent of the total formal outstanding housing loans. However, the share

of HFCs is also growing and is indicative of the strength of their focused approach,

targeting of special customer segments, relatively superior customer service, and significant

growth plans. Banks and HFCs are the dominant market players engaged in providing

housing finance to households. They cater to all segments of the population, apart from the

Government’s direct support to specified household segments. Homebuyers may have felt

the pinch of demonetisation after effects during the period January-March 2017 but that did

not deter them from buying their dream home. The mission of the government is to speed

up the development and transformation progress of the country and the only mantra to

achieve this is – Reform, Perform and Transform.

Problems of Housing Finance:

When we consider over the problems of housing finance sector of India, then it is cleared

that these are some natural or general problems which create hurdles in the path of smooth

growth of this sector such as insufficient infra-structural development, unequal distribution

of national capital, cost of acquisition of land, Government housing policies etc. These

problems are of typical nature and require a long-term continuous attention and strong will-

power to be rooted out from the side of Government of India as well as the society. Besides,

44

a number of problems are faced by the housing loan customers and housing financing

agencies in Indian housing finance market. Hence for the convenience of the study the

problems of housing finance sector of India are being discussed.

I. GENERAL PROBLEMS OF HOUSING FIANANCE SECTOR IN INDIA: Housing

finance is comparatively a new concept in the finance sector of India. It is developed rapidly

during the last two decades due to the enthusiastic interest of Government of India to cut-

down the housing problem of the country. There are few general problems, which create

149 obstacles either directly or indirectly. A brief study of these problems can be made with

the help of following headings

1.Government policies for Housing Finance Sector: Fortunately, in India the housing

shortage has considered as a significant problem by the Government since last two decade

i.e. from 1991. Giving the weightage to this aspect Government has developed a series of

housing policies and programmes especially for the weaker segment of the population. The

Government of India is trying to play the role of facilitator by offering a number of housing

schemes for different sections of the society, but due to poor administrative control and lack

of strong will-power most of the schemes are squeezed only upto the primarily levels and

are never attained its ultimate objectives. Even the budgetary sanctions are available, they

are not being implemented.

2.Financial Resources: The housing finance sector in the country is suffering from

considerable financial resources and due to the low paying capacity of most of the Indian

population, it finds itself handicapped to provide the financial assistance for dwellings to

these people. In the present circumstances.

3.Role of Government: Besides, the role of Government of India to boost up housing

finance sector is limited up to the formation of National Housing Board (NHB). Neither

NHB has sufficient powers to regulate the housing finance sector of India nor sufficient

funds to handle the problem of shortage of funds in this sector. This is the reason why only

few housing finance agencies are getting the benefits of NHB's schemes.

4.Role of Housing Finance Regulatory Authority: The word 'Regulation refers to the

specific constraints in the natural growth of a sector and 'the Regulatory Body' is considered

as a group of people who always indulge in search of the ways which could create checks

and balances to hinder the unplanned and improper growth of related area. The regulatory

body of housing finance sector of India is National Housing Bank, which came into

existence in 1988. The origin of National Housing Bank (NHB) was basically as the apex

institution of housing finance sector of the country to facilitate the development of a sound, 45

healthy and sustainable housing finance system. During the period of study, it was

observed that NHB has limited power and network to regulate entire housing finance sector

of country and it did not has sufficient funds to support the needy housing finance the

registered housing companies under NHB. Even most of employees associated with

housing finance sector do not know about NHB. One of the major lacunas of NHB's

functioning is that it never took any direct step to protect the interest of housing loan

customers and limits itself as a refinancing agency only. Hence, the housing finance sector

is not taking any significant advantage of NHB and is keeping itself separated from it.

II. INFRASTRUCTURE FOR HOUSING AND TECHNOLOGICAL

INNOVATIONS: . 1. Housing is primarily a urban phenomena. It needs some basic

infrastructural facilities like roads, railways, development of multimodel transportation

models, metro rails, uninterrupted power supply and water supply, proper drainage system

etc. Most of these facilities depend upon Government efforts and interest.

2. The technological innovations in the area of housing construction also support and

promote housing market in the country through cut down the cost of construction up to a

reasonable level. Both of these factors affect the housing finance market of the country

directly.

3. Due to unstable political environment and red-tapism, most of the housing schemes are

limited up to paper work or within its primary stage. The basic infra-structural facilities for

housing development are not available in most of the areas of the country.

4.Even though, continuous efforts are made by the Indian Government by providing the

financial support, it is not enough to cater the needs of housing finance industry. The higher

income group of society is depending upon the private developers for infra-structural

development of residential areas by paying more amounts. The middle income group are

forced to live in unauthorized and undeveloped areas where housing finance facilities are

generally not provided by housing finance companies.

5.As far as the question of technological innovations in the area of housing in India is

concerned, it has been observed remarkable during last two decades. The multi-storied and

colony culture have reached even in the town areas and efforts for reducing the cost of

houses to made it available to a middle class person are showing fruitful results. The private

builders and colonizer’s contribution in this particular area is praise worthy. But it not

sufficient to meet the increasing rate of the demand for housing.46

III.DISTRIBUTION OF NATIONAL INCOME:

1. National Income: Unfortunately in India, the distribution of national income among

population is not justified even after all the efforts of Government of India. The report of

National sample survey, India clarifies that about 36% of country's population lives below

poverty line and the further 52% can be categorized as middle-income segment. As a result,

the housing finance agencies of India get a limited clientele of sound repayment capacity.

About 15 years before the housing finance companies of India approached only to higher or

higher-middle income group of the country. Now due to the efforts and initiatives of

Government, the housing finance agencies of country are taking interest in middle-income

group. The repayment capacity of major portion of middle income group remains in doubt

and legislative structure of recovery of dues from defaulting borrowers is not very much

effective in the country. Hence the housing finance agencies are facing a problem of

increasing non-procuring assets (NPA).

2. Non-Availability of Funds: Even though housing is productive industry in nature, the

availablility of funds is insufficient to this sector. Financing in any area depends upon the

availability of funds for the purpose. Housing finance is a long-term investment, which

requires a great amount of funds. As per the top official, ‘even the entire funds in the world

put in housing finance, it is not sufficient’. It is true because, the large amount of funds and

long term oriented. One of the main problems of housing finance sector of India is non-

availability of long-term capital for investment. Traditionally, the funds for the housing

sector have come from the individuals themselves by way of their own savings or from the

financial institutions that are primarily engaged in the intermediation process of

channelizing funds from the savers to the borrowers. However, the funds so mobilized

through the formal sector financial institutions remain much lower than what is required to

tackle the problems of housing finance in India. In the absence of sufficient resources for

long-term capital, the housing finance sector of India depends upon the Government of

India's policies for its survival and the Government plays a significant role in making long-

term funds resources available either directly or indirectly. Sometimes the Government

provides substantial funds for housing at subsidized rates.

3. Higher Cost of Acquisition of Land: The supply of useful land is perfectly inelastic in

the country. The availability of land in adequate quantity at the right place and at an

affordable price by the individual is more important for housing finance sector. The

inelastic supply of suitable land results in a spurious increase in the cost of real estate. 47

Besides, the very high stamp duty payable at the time of purchase of property is also cause

an increase in the cost of land significantly. It get priced out many potential housing finance

customers in owning a house.

4. Transparency in transactions: On the other face, the high cost of stamp duty and GST

also results to show the value of land quite less than its real value. Housing Finance

Companies extend loans on the mortgage of the property and the borrowers are required to

execute document for creation of mortgage in favour of HFCs. If the property is

undervalued, the HFCs will sanction the loan up to the paper value of property and it will

reduce the borrowing power of individual. It is also a major problem for housing finance

sector of the country.

5. Static Culture of the Society: Among Indian society, housing is a life-time dream of an

individual and a newly employed person cannot even image for his own house due to his

social and cultural backgrounds. Although this attitude of society is changing from last

decade due to development of nuclear families tax rebate on housing loans. Secondly, the

debt is considered as an evil in Indian society and the concept of 'Deficit Financing' is not

appreciated by the masses. This type of thinking discourages a person to avail the facility of

housing finance and ultimately hurts the housing finance market of country remarkably.

6. Slow progress of housing co-operative movement in India: Housing financing

agencies feel themselves more safe and comfortable to deal with a co-operative housing

society. In India, the National Co-operative Housing Federation of India (NCHF),

established in 1969, is functioning under the administrative control of the Ministry of Urban

Development and Poverty Alleviation. The primary objective of NCHF is to promote,

develop, coordinate and guide the activities of housing co-operative societies in the country.

It also strives to provide a common forum for dealing with technical, financial and other

practical problems relating to housing cooperatives and to devise ways and means of

solving them. Promotion of apex federations in those states where such organisations do not

exist, promotion of co-operative housing through publications, periodicals and exchange of

information etc. are other objectives of NCHF. Although the number of housing co-

operatives in the country seems very large but when we consider over the total transactions

of housing finance made by these societies since their inception, it shows an unsatisfactory

growth of this movement in India. During the personal survey, this fact was revealed that

due to the culture of combined families and Hindu undivided families in India, the co-

operative concept is not very much appreciated by the society. 48

IV.PROBLEMS FACED BY THE HOUSING FINANCE COMPANIES: Housing finance

is the most crucial element of the housing market. The Indian housing finance market is in

its developing stage and is facing a number of problems. A brief study of major problems of

housing finance companies of India can be made under following

Mushroom Growth of Housing Finance Agencies: For last two decades, a big number of

financial institutions, banks and co-operative societies are continuously entering in the

housing finance market of India due to the following reasons-

a) The Indian Government is promoting housing development activities and willing to

provide all possible aid to the financers, developers and customers.

b) Housing finance is recognized as almost 100 percent secured investment. Although it

shows the increasing importance of housing finance sector but creating a disturbed

environment in the housing finance market. The main reason of this is that most of

the new entrants of housing finance sector do not have required experience, sufficient

infrastructure and adequate funds. It is sure that after a certain period all the

inefficient players will be vanished from the market.

c) Cut throat competition among the HFLs: Since the housing loan is considered as the

safe investment by Financial Institutions and every Housing Finance Company wants

to capture more and more share of this segment. Hence a fierce competition is exists

in housing finance market. The competition affects positively to the housing finance

sector up to a reasonable level, but after that, when lenders have to provide loans

below their cost of funds, it converts into a threat for the entire housing finance

industry. As far as Indian housing financing industry is concerned, there is a fierce

competition at present. All housing finance companies are using all possible means to

attract home buyers. Alternative choices between floating and fixed rates are being

offered. The housing loan amount has gone up to 110 percent of property value to

meet out the cost of legal expenses. Most of the Housing Finance Agencies are

exempting processing charges to survive in the market. This scenario of housing

finance market is not good for the housing finance industry. Even Reserve Bank of

India has recently voiced concern over competition in home loan financing and is

thinking of making it mandatory for all Housing Finance Agencies to insist on a

security margin.

d) Non-availability of long term fund: Housing finance is a long-term investment. It is

not easy for a housing company to arrange a huge amount of funds for long-term

49

investment. As a result most of the housing finance companies generate their funds

from short-term savings and current accounts of individuals and deploy these funds is

long-term housing loans. It creates an assets liabilities mismatch. Hence it is essential

to provide subsidized funding through the Government for their survival. In India,

the financial condition of housing finance companies is not treated as sound as it

should be. The Reserve Bank of India has warned these Housing Finance Agencies

specially banks about the danger of borrowing short and lending more. For the

arrangement of long-term funds, the Indian Housing Finance Agencies are

considering over the following resources- Having raised a demand to allow pension

and provident funds to invest in housing finance, because these funds are the

supplies of long-term capital. To revise the rulings of National Housing Bank in a

liberal way for refinancing of Housing Finance Agencies of India. To effort for

developing a secondary mortgage market which is also known as 'Securitisation'. It

will ensure recycling of funds, but it requires a proper legislative support by making

desired amendments in present Mortgage Act.

e) Traditional market network: The housing loan is inherently different from any other

retail loan. This is because a house is probably the life time investment made by an

individual. Hence, when an individual plans to purchase a house, he not only requires

financial assistance but also seeks technical consultancy and moral supports. Under

all these circumstances, a customer-friendly marketing network is essential for the

rapid growth of housing finance sector. Unfortunately, the banking and co-operative

sector of housing finance sector are not trying to understand the importance of this

fact and are going on with their traditional loaning marketing network. Although the

private sector's housing financing agencies are serious about their marketing process,

but these agencies do not have a wide branch network and are limited to metropolitan

cities only. In the long run, the banking and co-operative sector have to accept the

fact that loaning is a bare business which needs professional approach.

f) Typical process for foreclosure: One of the prime problems of housing financing

agencies of the country is the cumbersome and time taking process of enforcing a

mortgage in the event of default in payment of loan instalment made by the

borrowers. The mortgage and foreclosure laws of the country are not well defined

and the Indian courts always have a lenient attitude in favour of borrower on

sympathetic grounds. This is resulted in highly conservative lending practices and

underwriting norms adopted by the agencies extending financial assistance for

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housing. Government of India is taking this problem of housing finance sector

seriously and has been advised to National Housing Bank (NHB) to amend its own

Act in such a way that default lending could place in special category to be treated on

priority bases for the purpose of recovery. In practice, such types of amendments of

Acts take its own time in practical execution and till then housing financing agencies

have to tackle this problem in their own ways.

g) Unclear property rights: Unclear property rights for rural and urban lands are also a

major problem for housing finance sector of India. It is a complex and knotty

problem and is survived because of a number of reasons i.e. a cumbersome land

registration procedure, a high stamp duty, the existence of complex tenancy law,

urban land ceiling Act etc. The unclear property titles severely reduce the housing

finance market, because housing finance companies do not like to play game after

financing such type of disputed properties. At the most these properties are used as

collateral securities and limit housing financing to those property owners who have

proper title. This problem can be minimized only when the Central and States

Government of India take serious steps to amend the related legislative laws and

procedures.

V. PROBLEMS FACED BY THE HOUSING FINANCE CUSTOMERS: The present

time is considered as the best period for housing finance seekers, but it doesn't mean that

they are not facing any problem in availing the housing finance. In fact they have to face a

number of problems. A brief study of some major problems are as under:-

1. Cumbersome nature of documentation: A housing loan deal is entirely different from

the other types of loans. It has been noticed that the housing loan customers do not just

require finance, they also need ancillary services like loan counselling or legal advice to

ensure that the title of property is clear or technical advice to ensure that the structural

aspects and valuation of the property are in proper order. During survey this fact was

revealed that a general housing loan borrower of study area belongs to the upper or middle

class, is of an average age of 40 years, typically a first time home buyer and by and large a

salaried person. Naturally he gets confused when he decides to avail housing finance

facility, because most of the housing loan products are fairly standardised and having its

own technical details. The housing finance is available at fixed or floating rates. A number

of offers and promises are announced by different housing finance companies. At this stage,

51

a general housing loan customer finds himself helpless to reach at some fruitful conclusion

and is governed by the manipulated advises and approaches

2. Lack of reliable information regarding housing finance: It is a surprising fact that in

the present days everybody talks about the housing finance, but does not find him able to

make comparative analysis among different housing financing agencies. Generally his

discussion limits up to the interest rates of housing finance and monthly instalment only, he

does not know about the technical details of the housing loan. Amazingly like other sectors

of finance i.e. banking, insurance, stock market,etc., there is no specific magazine of

housing finance available in the market through which statistical data and facts of housing

finance market could be revealed in a systematic way. The magazine of other financial

sectors covers this topic only in its regular features. It's not only a big problem for housing

finance seekers, but also shows the disability of housing finance companies in launching

customer's awareness programmes properly.

3. Hidden costs and terms and conditions: As discussed in earlier point, a general

housing loan customer does not has sufficient knowledge of housing loan and selects a

housing finance company randomly. But after taking housing loans when a borrower

encounters with the other hidden costs of housing loan such as processing fees and file

charges, heavy penalty at any delay in payment of loan instalment, penalty on premature

payment of loan etc. he finds himself embarrassed and helpless at that stage. Generally the

friendly services of marketing executives of housing finance company remain available up

to the sanction of housing loan only. No concept of post-sales-service is found in housing

finance sector like the insurance sector.

4. Lack of flexibility in payment of loan: The business class customers of housing loan

feel some problem with the strict term of payment of equal monthly instalment (EMI) of

housing loan on due time, otherwise they have to pay abnormal and heavy late payment

penalties. A business class person also lives in uncertainty and among the seasonal

fluctuations. Due to the reason he does not like to trap himself with a long time strict regular

payment liability. Generally he wants relaxations to make the payments of EMI according

to his convenience in housing finance companies at present. This is the prime reason that

housing finance schemes are more popular in service class sector in comparison to

businessmen.

52

5. Shortage of professionalism in builders and developers: In India, the culture of

professional builders and developers is not very much popular in the small cities. In big

cities, there are only organized professional colonizer's firms. Although, a number of

builders of India level are now functioning for the development of city but they are much

more interested in development of market complexes rather than residential colonies. The

unauthorized and small builders have ruined the housing market of small cities by adopting

several types of malpractices. The housing finance customers feel the shortage of genuine

and professional builders in their areas, on which they can depend upon.

6. Technical paper formalities: The approval of a housing loan depends upon the proper

compliance of the all tiresome and technical paper formalities such as income proof, to

prove the genuineness of property purchased, approval of local development authority,

mortgage documentation etc. Generally a housing loan customer becomes hopeless to fulfil

all these paper formalities several times during the processing period. Moreover, in spite of

all positive attitudes, the housing financing agencies remain strict on compliance of these

formalities, are aware of the complexity of legal documentation system of the country and

want to ensure themselves by all means. This is one of the prime reasons due to which a

general person avoids arranging housing finance through authorized housing finance

agencies and explores his personal resources to meet out the requirement of housing

finance.

7. Fluctuating rates of interest: The day to day changes in home loan interest rates also

creates confusion in the mind of prospective home loan customers. Besides, the home loan

interest rates offered by different Housing Finance Agencies vary from customer to

customer and company to company. The customers always try to search the most attractive

housing finance sector to avail but it proves a tiresome and depressive job. Although the

Housing Finance Companies offer the fixed or floating rates option for the customers, but it

proves to hard to a general customers to opt a suitable option. If a customer finds his

decision wrong, he has to bear the switching cost i.e. cost of converting fixed loan rates to

floating loan rates or vice-versa. For the smooth growth of housing finance market the

stability of interest rates is essential.

8. Insufficient amount of housing finance: When an individual plans to purchase a house

with the help of housing finance available in the market, he has to face the problem of

inadequate financial support from the side of loaning agencies. First of all, most of

commercial banks and co-operative societies have a margin clause in its loan schemes. 53

Margin clause refers to the proportion of the loan amount to be brought in by the borrower

from his personal resources. It means, the cost of the house purchased is not entirely

financed by the banks or co-operative societies. These institutions generally finance 75 to

90 percent of the cost of the property (the registered value of the property). The balance

amount is to be arranged by the borrower from his own resources either from his savings or

personal borrowings from other sources. Further, the home loan buyers also require funds

for stamps and registration charges, etc., which remain approximately 20 percent of the cost

of property.

In the end, it may be concluded that the major problems of housing finance sector of

India are shortage of funds, inadequate mortgage and securitisation laws, unhealthy

competition among housing finance agencies and traditional thinking of Indians etc.

Housing finance is a market with infinite growth potential. The Government as well as the

housing financing agencies should effort more to improve the creditability and functioning

of housing finance system in India.

Characteristics of housing finance: The housing finance business is a peculiar in nature

and differ in some aspects, as follows;

1. Housing Finance has a long term character: Housing requires special kind of finance

mostly and preferably long term finance for more than one reason. The product involved is

not readily saleable and does not yield monetary return as in agriculture or industry. In

addition, personal savings or contribution can cover only a very small fraction of the total

cost of housing and the balance has to be necessarily covered by long-term credit.

2. Mortgage-orientation: Mortgage finance is the life-blood of housing finance. Housing

is the most costly commodity and hence it needs a huge capital investment in the initial

stage itself. This initial capital expenditure will be much more than the life time earnings of

most of the families. So, most of the house builders either for use of income, have to resort

to debt.

3. Imbalance between its supply and Need: The problem of housing finance emanates

from the limitations of means compared to huge investment needs of housing. Always

financial needs of housing fall short of the provision of finance. This universal phenomenon

of housing finance is the probable reason for the World Bank to maintain a feeling that

“housing is a bottomless pit.”

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4. Housing Finance is not as Self Liquidating as Agricultural Finance of Industrial

Finance: This peculiar feature poses a big problem in housing finance. An investor, either

in agriculture or in industry, can look for a further income stream as the source of

repayment. That is to say, agricultural or industrial investment usually yields quick return.

But housing investment is not so. It is true that house, after the completion, can be rented

out which will start yielding a return, but this will be a very insignificant amount in relation

to the huge investment, and also will come month by month very slowly and leisurely. That

is why the lenders are reluctant to lend to house builders. Therefore, while in agriculture, or

in industry interest forms only a small proportion to total annual cost, in the case of housing

it is the largest recurring cost factor. Hence, housing finance is much more sensitive to the

level of interest rates than agricultural and industrial finance.

5. Retail lending: Housing finance business is a retail lending business. This means it has

all features of retail lending business. The customers are individuals and mostly take long

term home loans. Even it the HFC lends to a builder, again it can lead to individual loans at

end as the home buyers are individuals. Now it is proved that the retail loans are more safe

than corporate loans, regarding NPAs. There is lesser scope of turning the retail home loan

turning NPA than that of a corporate loan.

Profile of Housing Development Finance Corporation (HDFC):

Extraordinary achievements start with unconventional thoughts. He was a man who dared to

question, “Why can’t Indians have a home of their own with housing finance in the earlier

years of their lives? Why should they have to wait till the end of their working careers?”

Though the question was simple, the answer was not so. The uphill task notwithstanding, at

an age of 66, when most people think of retirement, Mr. Parekh was determined to set up

his most ambitious enterprise. His lifelong dream of helping Indians own their home, as he

had seen abroad during his student days, led to the formation of the Housing Development

Finance Corporation Limited (HDFC) in 1977 and as they say, the rest is history. Housing

Development Finance Corporation (HDFC) is the brain child of our Founder Chairman, the

late Mr. H. T. Parekh. HDFC has come a long way since its inception in 1977, overcoming

numerous obstacles in the evolution from a fledging start-up to India’s leading provider of

Housing Finance. The HDFC is a model private Housing Finance Company for developing

countries with nascent Housing Finance markets. It was the first of its kind in the country.

His setting up of HDFC, without any financial assistance from the Government of India was

55

a milestone in the Indian financial history. HDFC Undertaken several consultancy

assignments in housing finance in various countries across Asia, Africa and East Europe.

The HDFC’s primary objective is to enhance the residential housing stock in the country

through the provision of Housing Finance in a systematic and professional manner, and to

promote home ownership. It has extensive distribution network of 474 interconnected

offices (including 148 offices of HDFC Sales) with outreach programs to several towns and

cities all over India. 3 representative offices in Dubai, London and Singapore offering

Home Loan products to Non-Resident Indians and Persons of Indian Origin. .

He also set up Gujarat Rural Housing Finance Corporation Limited (GRUH) in 1986, an

institutional structure for providing rural housing finance in villages and small towns.

HDFC invests in a new Housing Finance Company in Sri Lanka. HDFC is the first

Housing Finance Company to introduce the ‘Adjustable Rate Home Loans’ in India.  The

HDFC started with Rs.10 crore paid up capital in 1977 and increased to Rs.20 crore in 1986

and went on increasing the paid up capital to Rs.335.15 by the year 2017. The company is

focussed on meeting core objective of housing needs of the customers. The company is

serving for forty years (40) with the mission, “ALL FOR HOUSING”. Now these three

crucial words flipped around to “HOUSING FOR ALL” by the government of India. This

shows the visionary of the company in the particular field of housing finance. The company

has realized the dreams of the 5.8 millions customers till the financial year ending March,

2017. A rapidly growing country like India with a large young population needs more

homes at affordable price which in turn would enable more households become house

owners.

Profile of LIC Housing Finance Limited (LICHFL):

In the year 1956, 245 Indian and foreign insurance companies were nationalized, and today

the three letters, LIC, stand as a synonym for insurance services and for excellence in

strengthening the economic fibre in this country. The year 2005 is celebrated the golden

jubilee year of the LIC.

The LIC Housing Finance Limited (LICHFL) was promoted by the India’s largest insurance

provider(LIC), with an objective of providing long term housing finance to individuals and

corporate for the purchase , construction, repair and renovation of new and existing flat /

homes. The company was incorporated in 1989 and went to public in 1994. Today the

company has emerged as the second largest housing finance company in India.

********

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Chapter – IIIRISK MANAGEMENT IN HDFC & LICHFL

Risk is one of the important features of the business. There is no business in the world

without risk. There may be variation in the degree of risk depending on the nature of the

business. Overview Housing Finance Companies (HFCs) play an important role in the

Indian financial market. They compete with banks in offering home loans and other related

products. Apart from traditional home loans, other products offered by HFCs include,

among others, loans against property, builder loans, and lease rental discounting. HFCs are

regulated by the National Housing Bank (NHB) while banks are regulated by the Reserve

Bank of India (RBI). There are some significant differences in the regulatory treatment of

banks versus HFCs, with HFCs being given greater flexibility in matters relating to

governance structure and operations, the freedom to lend independent of priority-sector

targets, and lower statutory reserve requirements. However, at the same time, there are

regulatory restrictions on services that HFCs can offer and their funding options. For

instance, HFCs cannot mobilise savings or current deposits, while some HFCs can mobilize

term deposits, subject to a maximum of five times their net worth. Although HFCs primarily

lend home loans, they also offer the following products:

Loans against property (residential, commercial)

Builder and project loans

Lease rental discounting

Other, including personal, loans

Risk management is the identification, assessment, and prioritization of risks (defined in

ISO 31000 as the effect of uncertainty on objectives) followed by coordinated and

economical application of resources to minimize, monitor, and control the probability or

impact of unfortunate event or to maximize the realization of opportunities. Risk

management’s objective is to assure uncertainty does not deflect the endeavour from the

business goals.

According to the definition to the risk, the risk is the possibility that an event will occur and

adversely affect the achievement of an objective. Therefore, risk itself has the uncertainty.

Each company may have different internal control components, which leads to different

outcomes. For example, the framework for ERM components includes Internal

57

Environment, Objective Setting, Event Identification, Risk Assessment, Risk Response,

Control Activities, Information Risks can come from various sources including uncertainty

in financial markets, threats from project failures (at any phase in design, development,

production, or sustainment life-cycles), legal liabilities, credit risk, accidents, natural causes

and disasters, deliberate attack from an adversary, or events of uncertain or

unpredictable root-cause. There are two types of events i.e. negative events can be classified

as risks while positive events are classified as opportunities.

Risk management also faces difficulties in allocating resources. This is the idea of

opportunity cost. Resources spent on risk management could have been spent on more

profitable activities. Again, ideal risk management minimizes spending (or manpower or

other resources) and also minimizes the negative effects of risks. Strategies to manage

threats (uncertainties with negative consequences) typically include avoiding the threat,

reducing the negative effect or probability of the threat, transferring all or part of the threat

to another party, and even retaining some or all of the potential or actual consequences of a

particular threat, and the opposites for opportunities (uncertain future states with benefits).

In ideal risk management, a prioritization process is followed whereby the risks with the

greatest loss (or impact) and the greatest probability of occurring are handled first, and risks

with lower probability of occurrence and lower loss are handled in descending order. In

practice the process of assessing overall risk can be difficult, and balancing resources used

to mitigate between risks with a high probability of occurrence but lower loss versus a risk

with high loss but lower probability of occurrence can often be mishandled.

Intangible risk management identifies a new type of a risk that has a hundred percent

probability of occurring but is ignored by the organization due to a lack of identification

ability. For example, when deficient knowledge is applied to a situation, a knowledge risk

materializes. Relationship risk appears when ineffective collaboration occurs. Process-

engagement risk may be an issue when ineffective operational procedures are applied.

These risks directly reduce the productivity of knowledge workers, decrease cost-

effectiveness, profitability, service, quality, reputation, brand value, and earnings quality.

Intangible risk management allows risk management to create immediate value from the

identification and reduction of risks that reduce productivity.

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Now, it is necessary to look into the views of some rating agencies like ICRA and CARE

and supervisory agency NHB on risk management in HFCs.

ICRA’S RISK ANALYSIS FRAMEWORK FOR HFC: In rating an HFC, ICRA

evaluates the company’s business and financial risks, and uses this evaluation to project the

level and stability of its future financial performance in various likely scenarios. The ratings

are determined on a “going concern” basis rather than on a mere assessment of the

company’s assets and debt levels as on a particular date. The broad parameters for assessing

the business and financial risks of an HFC are discussed at length. This methodology note

does not purport to be an exhaustive discussion on all the rating parameters involved in

assigning credit ratings to HFCs, but presents a broad framework for the exercise.

1. Business Risk Profile

2. Operating Environment

3. Business Mix

4. Ownership Structure, Management & Systems, Governance Structure

5. Financial Risk Profile

6. Asset Quality

7. Liquidity

8. Profitability

9. Capital Adequacy

While several parameters are used to assess an HFC’s business and financial risks, the relative

importance of each of these parameters can vary across companies, depending on its

potential to change the overall risk profile of the company concerned. Further, an HFC with

a relatively safer salaried home loan portfolio and stable financial performance would be

viewed more favourably than another with comparable or better financial numbers, but with

riskier assets.

I.BUSINESS RISK PROFILE

1. Business Risk Profile: Business risk profile makes an assessment of an HFC’s business

risk by analysing, among other factors, the company’s product mix, competitive position,

operating environment, franchise, and management and systems. As many of these

parameters are qualitative, ICRA tries to remove the subjectivity in its analysis by

capturing and assessing information on defined sub-parameters, and using these to make 59

a comparison across various companies. This analysis also incorporates ICRA’s

assessment of the performance of various sectors, its outlook on the economy and real

estate demand, and its views on issues related to the operating environment.

2. Operating Environment: The operating environment has a significant bearing on an

HFC’s credit rating as it can impact its growth prospects and asset quality quite

considerably. Further, regulatory changes could impact its earnings, regulatory capital

requirements or competitive environment. In assessing the operating environment, ICRA

looks at the overall economic conditions, the outlook on the real estate sector, trends in

demand and price movements in real estate, and the regulatory environment. For an

HFC, regulatory changes can significantly impact (either positively or negatively) credit

losses. For instance, the establishment of the credit information bureau has helped

lenders take informed credit decisions, while coverage under the Securitisation and

Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002,

(SARFAESI) makes recovery of real estate backed loans more efficient. Thus, coverage

of HFCs under SARFAESI is considered a credit positive. On the other hand, changes in

regulations with respect to making a deferred tax liability (DTL) provision on special

reserves created under Section 36(1) (viii) of the Income Tax Act, 1961, has pushed up

the incremental tax expenses for HFCs .Similarly, nil prepayment penalties in the case of

floating-rate loans to individual borrowers have encouraged balance transfers and

reduced the profitability of HFCs.

3. Business Mix and the Product Mix: The risk profile of an HFC is determined by the

interplay of its borrower profile and its product profile. The borrower profiles that an

HFC typically deals with are prime salaried segment, self-employed segment, and low

income segment. HFCs compete with banks in the housing finance space. Although some

of the larger HFCs are able to compete with banks focused primarily on the salaried

home loan segment, most other HFCs target special customer segments, such as self-

employed and affordable housing to optimize yields and capitalize on the higher growth

potential that the special customer segments offer. In addition to borrower profile,

product mix is the other key determinant of the riskiness associated with an HFC. The

following charts depict the various borrower segments catered for by HFCs and the

various products offered across the risk spectrum. Various Borrower, Product Segments

served by HFCs LRD-Lease Rental Discounting Intensity of competition has a

significant bearing on the credit profile of an HFC, given that the prevailing or

60

anticipated competitive intensity would influence the company’s growth prospects,

earnings and management strategy. If any leading market player initiates certain

promotional schemes, they could impact the competitive position of the other players

(e.g. teaser rate loans). Therefore, ICRA’s evaluation focuses on the current level of

competition as well as the attractiveness of the segment for potential competition by

assessing several factors including growth potential, entry barriers and risk-adjusted

returns.

4. Track Record: As for track record, this is evaluated in relation to completed business

cycles. Therefore, while a five-to-six year-old car finance company is considered to have

a reasonable track record (the typical loan tenure being three to four years), an HFC of

the same vintage would be considered to have an average track record (the typical loan

tenure being 15 to 20 years). Further, if an HFC is expanding into new products and

geographies, its track record and management experience may not provide the same level

of comfort as the same of another HFC with a stable growth rate and growing within

existing geographies with the same loan mix.

5. Competitive Position: ICRA assesses an HFC’s competitive position (ability to change

lending norms and/or yields), reliance on outsourcing, pace of growth and

responsiveness to market changes, track record, and management experience (in relation

to growth plans and the lifecycle of the loans extended), besides the extent of

diversification of its loan book.

6. Ownership Structure: Ownership structure could have a key influence on an HFC’s

credit profile as a strong promoter and a strategic fit with the parent can benefit an HFC’s

earnings, liquidity and capitalisation, and hence its credit profile. In assessing an HFC’s

ownership structure, the parameters examined include, among others: the credit profile of

the promoter/investor, shareholding pattern of the HFC, operational synergies of the

HFC with its promoter/investor, level of involvement of promoter/investor in the HFC

and their level of commitment, and track record of the promoter/investor in providing

capital and debt fund support. The assessment also factors in shareholders’ expectations

and the strategy followed to manage these expectations. ICRA also evaluates the strategy

and business plans of the HFC, along with the shareholders’ expectations from the

company. Although ICRA-assigned ratings are for debt holders, meeting shareholders’

expectations is imperative as otherwise the HFC’s strategy itself could undergo a change

(to meet shareholders’ expectations), which in turn could alter its credit profile.

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7. Governance Structure: ICRA believes that an appropriate governance structure is

important to ensure that the powers given to line managers at an HFC are exercised in

accordance with the established procedures, and that these procedures are in harmony

with the broad policy guidelines and strategic objectives of the HFC. ICRA’s evaluation

of an HFC’s governance structure involves an assessment of the structural aspects of the

Board and Board level committees, the functioning of the various Board committees, and

the involvement of key shareholders in strategic decision making.

8. Management: The quality of the top management, extent of reliance on

promoter/keyman for making strategic decisions, presence of second line of

management, quality of auditors, systems and policies, shareholder expectations, the

strategy followed to manage these expectations, and accounting quality are the key

variables judged while measuring the management quality of an HFC. The importance of

these factors is even higher for a new HFC, one with a shorter track record, or one with a

changing business profile. Although this part of the exercise is mostly subjective, the

actual track record of the management is a supporting factor. Usually, a detailed

discussion is held with the management of the issuer HFC to understand its business

objectives, plans and strategies, and views on past performance, besides the outlook on

the industry. All credit ratings, including those in the HFC sector, necessarily incorporate

the strengths/weaknesses arising from the HFC being a part of a “group”. Some of the

other factors assessed are:

a. Experience and commitment of the promoter/management in the HFC’s line of

business.

b. Attitude of the promoter/management to risk taking and containment.

c. The HFC’s risk management policies (credit risk and market risk).

d. Strength of the other companies belonging to the same group as the HFC.

e. The ability and willingness of the group to support the HFC concerned through

measures such as capital infusion and liquidity support, if required.

9. Underwriting Process and Lending Norms: A careful evaluation of the risk

management policies of the HFC provides important guidance for assessing the impact of

stress events on the liquidity, profitability, and capitalisation of the company concerned.

The process of risk profiling also involves evaluating the HFC’s business sourcing

practices (in-house vs. outsourced). ICRA compares the underwriting policies of the

HFC with the best practices in the industry to make an assessment of the company’s risk

62

profile. Some of the key underwriting norms such as loan to value ratio, fixed obligation

to income ratio, and proportion of portfolio at relatively higher residual tenures are also

evaluated and compared across HFCs. For the assessed income segment, ICRA also goes

through the credit appraisal process followed by the HFC concerned.

10.Controls and Risk Management Systems: ICRA compares the origination process,

internal audit process, quality of the management information systems and collection

mechanisms across HFCs.

11. Accounting Quality: Consistent and fair accounting policies are a prerequisite for

financial evaluation and peer group comparisons. By virtue of being incorporated under the

Companies Act, HFCs are required to follow the Accounting Standards prescribed by the

Institute of Chartered Accountants of India. Further, the NHB has also issued prudential

norms for HFCs specifying the accounting methods to be used for income recognition,

provisioning for bad and doubtful advances, and valuation of investments. In evaluating an

HFC’s accounting quality, ICRA reviews the company’s accounting policies, notes to the

accounts, and auditors’ comments in detail. Deviations from the Generally Accepted

Accounting Practices are noted and the financial statements of the HFC are adjusted to

reflect the impact of such deviations.

II. FINANCIAL RISK PROFILE:

a.Asset Quality: Asset quality plays an important role in indicating the future financial

performance of an HFC. The focus of asset quality evaluation is on lifetime losses,

variability in losses under various scenarios, the impact of likely credit costs on

profitability, and the cushions available (in the form of capital or provisions) to protect the

debt holders from unexpected deterioration in asset quality. In evaluating an HFC’s asset

quality, ICRA assesses the quality of the company’s credit appraisal process and lending

norms, the riskiness of its loan mix1 , its risk appetite, the availability of data to facilitate

credit decision making, and its track record in managing its loan book through lifecycles.

Assessment is also made of credit risk concentration, trend in delinquencies (adjusted for

vintage of the book), Gross NPA† percentage, Net NPA percentage, and Net NPAs in

relation to Net Worth. Further, the extent of diversification is also an important indicator of

an HFC’s asset quality. In assessing diversification, the factors generally looked at include

loan mix, credit risk, portfolio granularity, geographical diversification, and borrower

63

profile. High levels of diversification can shield an HFC from the impact of downturn in

any one segment. At the same time, diversification into riskier segments may not improve

resilience and therefore may not translate into superior ratings. However, an HFC’s ability

to manage diversification, especially in new geographies, is a very important issue, just as

management depth and the ability to adopt the skills and techniques needed to run different

businesses are. As asset quality indicators can vary depending on the accounting policy on

write-offs, comparing these indicators across HFCs may not yield meaningful results. ICRA

therefore makes a comparison of the delinquency levels (at 30 days+, 60 days+, 90 days+)

for the same asset class and borrower profile across players after adjusting for write-offs.

When available, static pool analysis is done as this gives a meaningful estimate of the losses

at various stages in the loan cycle as well as of the overall lifetime losses, and is free from

the distortions caused by a high growth rate.

b. Liquidity: Asset-liability mismatch is common in HFCs as the average tenure of assets

(home loan tenure varying from 15 to 20 years) is longer than that of its liabilities. However

the gaps vary depending on the funding mix and liquidity policy of the company. In

assessing an HFC’s liquidity profile, ICRA evaluates the company’s policy on liquidity, the

maturity profile of its assets and liabilities, the asset-liability maturity gaps, and the backups

available to plug such gaps. The evaluation also focuses on the diversity of the HFC’s

funding sources and their quality (i.e. availability of these sources in a stress situation). It is

important for HFCs to maintain an adequate liquidity profile for the smooth functioning of

its funding activity (fresh asset creation) and to honour its debt commitments in a timely

manner. ICRA also analyses the gaps over the short term and the backup lines an HFC has

to maintain disbursements over short term. It is also important that an HFC manage its

interest rate risk since the same could impact its interest spreads and future profitability. In

most cases however, the interest rate risk is relatively low for HFCs, given that most loans

are variable and linked to the prime lending rates (PLRs) of HFCs, which gives HFCs the

flexibility to pass on increases in their cost of funds to borrowers.

c) Capitalisation: An HFC’s capital provides the second level of protection to debt holders

(earnings being the first) and therefore its adequacy (in relation to the embedded credit,

market, and operational risk) is an important consideration for ratings. Riskiness of the

product and granularity of the portfolio are factors that have a significant bearing on the

amount of capital required to provide the desired degree of protection to an HFC’s debt

holders. The requirement of risk capital varies with the concentration and the riskiness of 64

the product mix. Risk Capital Requirement Matrix Expected credit losses and variability

Low High Portfolio Concentration High Moderate High Low Low Moderately high Besides

evaluating an HFC’s ability to meet regulatory capital adequacy, ICRA also assess the

adjusted capital of the HFC (in relation to managed portfolio) and considers the internal

capital generation and possible support from a strong parent/group company while

evaluating the adequacy of its risk capital for a particular rating category. Typically, capital

adequacy analysis is done for the individual business lines (including off-balance sheet

portfolios) of the HFC and the “aggregated capital required” compared with the actual

capital available as well as with the minimum capital that the company is expected to

maintain. ICRA also evaluates the HFC’s net worth in relation to total managed advances,

as regulatory risk weights for certain loans are lower and regulatory requirements keep

changing. A higher percentage of Net Worth is viewed more favourably; however this ratio

needs to be assessed in relation to the riskiness of the product mix of the HFC.

d) Profitability: An HFC’s ability to generate adequate returns is important from the

perspective of both its shareholders and debt holders. The purpose of ICRA’s evaluation

here is to assess the level of future earnings and the quality of earnings of the HFC

concerned, which is carried out by looking closely at the building blocks: interest spreads,

fee income, operating expenses, and credit costs. The evaluation of an HFC’s profitability

starts with the interest spreads (yields minus cost of funds) and the likely trajectory of the

same in the light of the changes in the operating environment, and its asset and product mix

strategy. The ability of the HFC to complement its interest income with fee income is also

assessed. Fee income allows for some diversification, which in turn can improve the

resilience of earnings, thereby improving the HFC’s risk profile. After assessing the income

stream, ICRA evaluates the HFC’s operating efficiency (operating expenses in relation to

total assets, and cost to income ratio) and compares the same with that of its peers. Finally,

the credit costs are estimated on the basis of the company’s assesses quality profile, and the

profitability indicators compared across peers. Importantly, a high return on equity may not

necessarily translate into a high credit rating, given that the underlying risk could be high or

capitalisation could be weaker and being so it could be more volatile or difficult to predict.

e) Franchise and Size: For an HFC, its franchise strength determines its capacity to grow

while maintaining reasonable risk-adjusted returns, and to maintain resilience of earnings,

thereby facilitating predictability of its future financial performance. It may be noted that an

HFC with a significant market share and another being a niche player can both have a 65

defensible franchise, which could in turn benefit its credit profile. As for size, typically it is

in relation to an HFC’s loan mix; size has a bearing on the company’s competitive position,

diversity, credit risk concentration, stability of earnings, and financial flexibility.

Summing up The credit ratings assigned by ICRA are a symbolic representation of its

current opinion on the relative credit risk associated with the instruments rated. This opinion

is arrived at following a detailed evaluation of the issuer’s business and financial risks and

on using such evaluation to project the level and stability of its future financial performance

in various likely scenarios. While several parameters are used to assess an HFC’s risk

profile, the relative importance of each of these parameters (qualitative as well quantitative)

can vary across companies, depending on its potential to change the overall risk profile of

the company concerned.

CARE’S RISK ANALYSIS FRAMEWORK FOR HFC: CARE’s ratings are an opinion

on the relative ability and willingness of an issuer to make timely payments on the specific

debt obligations over the life of the instrument. CARE has developed a comprehensive

methodology for credit rating of debt instruments issued by HFCs.

Overview Housing is a significant engine for growth and development of the economy.

Housing and housing finance activities in India have witnessed tremendous growth over the

years.

QUANTITATIVE FACTORS: The starting point of analysis is a detailed review of key

measures of financial performance and stability:

a) Capital Adequacy ratio (CAR) is a measure of the degree to which the company’s

capital is available to absorb possible losses. Higher CAR indicates the ability of the

company to undertake additional business.

b) Debt equity ratio is also examined as a measure of gearing. CARE examines the

conformity of the company to the regulatory guidelines on capital adequacy norms

and further examines the capital adequacy on the basis of expected erosion of capital

arising as a result of factors such as:

c) Additional provisioning for NPAs Possible losses from other weak assets CARE

also examines the trends and pattern of growth in the last three years in both Tier I

& Tier II capital. Ability of the HFC to raise additional capital commensurate with

the projected growth in assets is critically evaluated. 66

d) Asset Quality review begins with the examination of the company’s credit risk

management framework. Sound credit appraisal system & rigorous post sanction

follow up mitigate credit risk. CARE studies robustness of the HFC’s credit

appraisal process by examining the quantitative and qualitative parameters used in

selecting the borrower. Loan portfolio is examined in terms of LTV (Loan to Value)

ratios, IIRs (Instalment to Income ratios), age profile of the borrowers, tenure of the

loans and class of the borrowers like salaried, self employed etc. CARE also

considers diversification of the portfolio into project financing, builder loans,

reverse mortgages etc. The historical collection efficiency and the company’s

experience of loan losses and write-offs/provisions are studied. The proportion of

assets classified into standard, substandard, doubtful or loss and the track record of

recoveries of the company is examined closely.

e) Resources Resource base of the company is analyzed in terms of cost and

composition. Various options available to HFCs to raise resources include

borrowings from banks/Financial institutions, market borrowings, refinance from

NHB etc. Average as well as incremental cost of funds is examined in the context of

prevailing interest rate regime. Ability of the company to raise additional resources

at competitive rates is examined critically. Ability of the promoters to bring in funds

and access to equity/debt markets in India or abroad are also taken into account.

f) Lack of liquidity can lead an HFC towards failure, while, strong liquidity can help

even an otherwise weak company to remain adequately funded during difficult

times. CARE 3 evaluates the internal and external sources of funds to meet the

company’s requirements. Generally, HFCs in India finance their loan advances that

have longer maturity with borrowings of lower maturity. The liquidity risk is

evaluated by examining the assets liability maturity (ALM) profile, collection

efficiency and proportion of liquid assets to total assets. CARE also evaluates the

steps taken by HFCs such as securitization of mortgages to manage their ALM

profile. Short term external funding sources in the form of unutilized lines of credit

available from banks etc. along with other investments if any are important sources

of reserve liquidity.

g) Earnings Quality: Profitable operations are essential for HFC to operate as an going

concern. Each business area that contributes to the core earnings is assessed for risks

as well as for its earnings prospects and growth rate. Yield on business assets and

investments are viewed in conjunction with cost of funds to arrive at the spreads

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earned by the company. Interest cover is also a useful indicator of the extent of

cover over the interest paid by the company.

h) Operating efficiency is examined in terms of expense ratios. Quality of company’s

earnings is also influenced by the level of interest rate and foreign exchange rate

risks that the company is exposed to. Finally, the overall profitability is examined in

terms of, return on capital employed, return on assets and return on shareholders

funds. Evaluation of quantitative factors is done, not only of the absolute numbers

and ratios, but their volatility and trends as well. The attempt is to determine core

measures of performance. CARE also compares the company’s performance on each

of the above parameters, with its peers. Detailed inter-company analysis is done to

determine the relative strengths and weaknesses of the company in its present

operating environment and its prospects.

QUALITATIVE FACTORS: Some of the qualitative factors that are deemed critical in

the rating process are:

a) Ownership Ownership pattern and track record of the promoters/group companies is

examined. Strong promoters are more likely to provide support to the company in times

of crisis.

b) Management quality The composition of the Board, credentials of the CEO and the

organisational structure of the company are considered. The company’s strategic

objectives and initiatives in the context of resources available, its ability to identify

opportunities and track record in managing stress situations are taken as indicators of

managerial competence. Adequacy of the information systems used by the management

is evaluated. CARE focuses on modern practices and systems, degree of computerisation,

capabilities of senior management, personnel policies and extent of delegation of powers.

c) Risk Management The management stance on risk and risk management framework is

examined. Credit risk management is evaluated by examining the appraisal, monitoring

and recovery systems and prudential lending norms of the company. The company’s

policy and exposure to interest rate and foreign currency risk is examined. Interest rate

risk arises due to differing maturity of assets and liabilities and mismatch between the

floating and fixed rate assets and liabilities. Pre-payments of fixed rate housing loans

tend to rise when interest rates decline and increase the interest rate risk of HFCs.

68

c) Foreign currency risk arises due to difference in currency denomination of assets and

liabilities. The derivatives and other risk management products used in the past and

implication of these deals are also analysed.

d) Compliance with statutory requirements CARE examines track record of the company in

complying with regulatory requirements of NHB.

e) Accounting Quality Rating relies heavily on audited data. Policies for income

recognition, provisioning and valuation of investments are examined. Suitable

adjustments to reported figures are made for consistency of evaluation and meaningful

interpretation.

f) Size and Market Presence The fund base and branch network of the company may have a

bearing on the company’s competitive position. While both large and small companies

have successfully co-existed in India, in the rapidly changing competitive environment,

the niche strategy of smaller companies against the scale advantages of larger

players/banks would be carefully examined to understand the business model of each

company. All relevant quantitative and qualitative factors are considered together, as

relative weakness in one area of the company’s performance may be more than

adequately compensated for by strengths elsewhere. However, the weightage assigned to

factors are different for short term ratings and long term ratings. The intention of long

term ratings is to look over a business cycle and not adjust ratings frequently for what

appear to be short term performance aberrations. The quality of the management and the

competitiveness of the company are of greater importance in long term rating decisions.

The rating process is ultimately a search for the fundamentals and the probabilities for

change in the fundamentals. The assessment of management quality, the company’s

operating environment and its role in the nation’s financial system is used to interpret

current data and to forecast how well the company is positioned for the future. The final

rating decision is made by the Rating Committee after a thorough deliberation on the

rating report on the company.

f) CARE’s ratings are opinions on credit quality and are not recommendations to sanction,

renew, disburse or recall the concerned bank facilities or to buy, sell or hold any security.

CARE has based its ratings on information obtained from sources believed by it to be

accurate and reliable. CARE does not, however, guarantee the accuracy, adequacy or

completeness of any information and is not responsible for any errors or omissions or for

the results obtained from the use of such information. Most entities whose bank 69

facilities/instruments are rated by CARE have paid a credit rating fee, based on the

amount and type of bank facilities/instruments.

REGULATORY AND SUPERVISORY FUNCTIONS NHB:

NHB is an apex level financial institution catering to the needs of housing sector in the

country. It was established on July 9, 1988. It works as a facilitator in promoting housing

finance institutions or providing assistance to other institutions of such type. NHB has 9

departments which are NHB Residex Cell, Regulation and Supervision, Refinancing

operations, Direct finance Operations, Enabling Processes, Information Technology,

Resource Mobilization and Management, Development and Risk Management, Board and

CMD Secretariat. Headquatered in Delhi, the organization has its office in all the major

cities such as Mumbai, Hyderabad, Bangalore, Chennai, Kolkata, Lucknow, Ahmedabad

and Bhopal. With trained professionals and proficient experts working at different levels,

NHB is dedicated in quest of excellence through modernism, doer work culture and

contemporary work practices assisted by technology intervention As per the National

Housing Bank Act of 1987, the NHB is expected to control the housing finance system of

the country, eliminating anything that hampers the interest of depositors or is detrimental to

the interest of the housing finance institutions, in general. It also extends finances to

different primary lenders with respect to eligible housing loans and project loans. The NHB

provides loans and financial assistance to scheduled banks and housing finance institutions

or to any authority established by or under any Central, State or Provincial Act. Apart from

this, NHB has been playing the promotional role issuing guidelines for participating in the

equity of housing finance companies and guaranteeing the bonds to be issued by the

housing finance companies. Besides the lending operations, NHB's dedicated Training

Division conducts regular training programs in areas relating to housing and housing

finance for development of management capabilities of officials working in the financial

sector. The main objectives of NHB are as follows:

a. To promote a sound, healthy, viable and cost effective housing finance system to cater to

all segments of the population and to integrate the housing finance system with the overall

financial system.

b. To promote a network of dedicated housing finance institutions to adequately serve

various regions and different income groups.

70

c. To augment resources for the sector and channelize them for housing.

d. To make housing credit more affordable.

e. To regulate the activities of housing finance companies based on regulatory and

supervisory authority derived under the Act.

f. To encourage augmentation of supply of buildable land and also building materials for

housing and to upgrade the housing stock in the country.

g. To encourage public agencies to emerge as facilitators and suppliers of serviced land, for

housing.

A. Promotion and Development Function: The institution had been set up when regional

and local level housing finance institution were nearly absent and the banking sector was

not willing to do housing finance on any significant level. As a result the sector was grossly

capital deficient and the housing shortage in the country was growing at an alarming level.

There was a need to set up local and regional level financial institutions for supply of

housing credit. The households above the average income could be well served by an

institution which raises resources through the open market and deliver credit with minimum

necessary prudential regulations by the regulator. For households below the poverty line,

the institutional credit will have to take into account the employment and poverty

alleviation programmes having an element of subsidy. It is the middle group which

constitutes nearly half of the total number of households in the country that needs to be

taken care of. NHB is encouraging the financial institutions to lend to this segment through

its refinance programmes. There has been a sustained effort at creating and supporting new

set of specialised institutions to serve as dedicated centres for housing credit. NHB also

participates in the equity of HFCs. NHB is of the opinion that intervention through

institutional credit can be made more effective by adoption of different approaches to cater

to the needs of different income groups. With the setting up of NHB in 1988, there has been

sustained efforts at creating and supporting new set of specialized institutions to serve as

dedicated centres for housing credit. NHB’s role in this regard can be measured from the

fact that from about 90 companies that were acting as dedicated housing finance institutions

when NHB came into existence, there are now more than 53 such specialized institutions1

spread over the vast span of the country. NHB has been participating in the equity of the

housing finance companies which are financing for the rural and low cost housing for the 71

weaker section of the society. NHB has been imparting training to the banking sector and

housing finance companies in particular for developing housing finance skill. It has so far

organized more than 200 such trainings for more than 2000 officials.

B. Regulatory and Supervisory Function: The second most important function of NHB is

the regulatory role assigned to it. This role assumes more importance as the housing finance

system in India enters a secondary phase of development in terms of integration with the

debt and capital markets. The case for regulation also emanates from the need for credible

and stable housing finance system in the country. Without in any manner against the free

market approach, NHB has attempted to put in place an effective system of responsive

regulation. The housing finance system as such is still developing in the country and thus

there needs to be a great amount of stability in terms of resource development, policy

development and institution building. NHB has come up with guidelines for recognising

Housing Finance companies (HFCs) for its financial assistance, guidelines for financial

assistance. Besides it has also issued guidelines for prudential norms for income

recognition, asset classification etc. NHB also regulate deposits taking activity of the

housing finance companies. In terms of section 29A of the National Housing Bank Act,

1987 it is necessary for each of the housing finance companies to obtain registration

certificate from NHB before commencement of business of housing finance.

C. Financial Function: The third important role of NHB is to provide financial assistance

to the various banks and housing finance institutions. As an apex refinance institution, the

principal focus is to generate large scale involvement of primary lending institutions falling

in various categories to serve as dedicated outlets for assistance to the housing sector. It

supports housing finance sector by extending refinance to different lenders in respect of

eligible housing loans extended by them to individual beneficiaries and for project loans

extended by them to various implementing agencies. It also supports by lending directly in

respect of projects undertaken by public housing agencies for housing construction and

development of housing related infrastructure. Other institutions include scheduled banks

(both commercial and cooperative), regional rural banks, specialized housing finance

institutions, Agriculture and Rural Development Banks and the Apex co-operative housing

finance societies. It helps by guaranteeing the repayment of principal and payment of

interest on bonds issued by housing finance companies. Real Estate and Stock Market

fluctuations also are monitored. Finally it acts as a special purpose vehicle for securitising

the housing loan receivable. So the major things under the financial role that NHB plays are 72

refinance operations, project finance, guarantee and securitisation. Future Strategies- It has

been estimated that the housing requirements till 2012 in India is around 74 million units

out of which nearly 90% of the total housing units in both the rural and urban areas are for

the poor and low income segment households. Though the growth of housing finance is

about 30% in the last few years it has not been able to satisfy the requirements of the poor

sections of the society. So the NHB not only needs to develop a new financial architecture

but also policy and regulatory framework for affordable housing on sustainable lines for the

weaker sections of the society. The recent initiatives taken in this direction include interest

subsidy scheme for urban poor, top up loan scheme, emphasis on public private partnership

focussing on housing for poor, JNNURM for bringing appropriate policy and legal reforms

for providing affordable housing to poor. So for all these to materialize synchronization is

needed in the working of Government, Reserve bank of India (RBI) and NHB. Also public

agencies, financial institutions and builders need to be incentivised so that NHB can achieve

the goals that it has embarked on. NHB is also involved in Jawaharlal Nehru National

Urban Renewal Mission, Government of India implementing housing relief schemes of the

Government of India. NHB also raises resources for the housing sector towards increasing

new housing stock and provides refinance to a large set of retail lending institutions. These

include scheduled commercial banks, scheduled state cooperative banks, scheduled urban

cooperative banks, specialized housing finance institutions, apex co-operative housing

finance societies and agriculture and rural development banks. Guaranteeing Bonds of

HFCs Housing Finance companies depend to a great extent on refinance assistance from

NHB. However, the extension of refinance assistance by NHB is constrained by various

factors like NHB's own Net Owned Fund (NOF), 3HFCs' borrowing power etc. In addition,

in the present liberalized environment, the HFCs prefer to raise resources directly from

market in order to eliminate the cost of intermediation. Besides NHB refinance, HFCs

mainly depend upon term loans from banks and public deposits. Of late, the maturity profile

of public deposits has been shortening leading to asset liability mismatches for HFCs. One

way to overcome this problem is floatation of bonds/debentures having a longer maturity

period of say five to seven years. To attract the investors at competitively low rates, such

bonds/debentures should have sufficiently high rating. Many of the HFCs have not been

able to float bonds/debentures because of the lower credit rating from the rating agencies for

various reasons including the inherent mismatch between assets and liabilities. NHB's

intervention in this area was considered critical and accordingly a scheme was introduced to

extend guarantee to the bonds/ debentures to be floated by HFCs meeting certain laid down

73

criteria. Under the scheme, NHB will provide top ended guarantee relating to the repayment

of principal and interest which will provide necessary credit enhancement and will enable

HFCs to acquire higher credit rating leading to competitive pricing of these instruments.

The salient features of the scheme are as under: Scope: The Scheme envisages provision of

guarantee by NHB to the investors regarding repayment of principal and interest during the

top end (say last two years) NOF means Paid up capital + Reserve and Surplus (excluding

revaluation reserve)+Long term liabilities (to be paid after one year), Deduct the following

-- Trading investment-Fictitious assets (like preliminary exp., debit bal of Profit & Loss).

364 irrespective of the repayment schedule fixed by the HFC and the guarantee shall not

exceed 67% of the total amount to be raised and the interest thereof. Terms and Conditions

for Guarantee The HFC desirous of availing the guarantee from NHB has to comply with

the following terms and conditions:

(i) The bond issue shall carry at least a rating of “AA-” from an approved rating agency.

However, the Bank can consider providing the guarantee in the case of an instrument being

rated 'A‘ subject to the HFC meeting the following requirements:

a. NOF should be Rs.30 crore or more

b. Net NPA should be less than 2%

c. The HFC should have earned profit during the last three years or since its inception if it is

in existence for less than 3 years

d. The overdue for more than 3 months should not exceed 10% of the aggregate demand for

the year, and

e. The HFC shall have complied with all the provisions of the Housing Finance Companies

(NHB) Directions, 1989 as amended from time to time and all the provisions of the

Guidelines on prudential norms.

(ii) The maturity of the bonds/debentures should be for a period of five years to begin with.

(iii) The market should determine the coupon rate. Exposure Norms: For the purpose of

extending guarantee to the HFCs, exposure limits is fixed by NHB along with the annual

refinance limit. The aggregate amount of the guarantee in a year can be maximum up to the

actual amount of the bond to be floated at a time or the annual refinance limit provided in a

74

particular year, whichever is less. The overall borrowing including the amount to be

mobilized through the bond/debenture issue should not be more than 7 times the NOF of the

company. Minimum Size of Each Issue: The minimum size for each issue should be Rs.10

crore and subjected to the overall borrowing powers fixed under the Housing Finance

Companies (NHB) Directions, 1989, as amended from time to time. Security: The HFCs

desirous of availing the guarantee has to create a floating charge on the assets equivalent to

125% of the principal amount in favour of NHB. In case the HFC offers any other security

in addition to a floating charge for its existing borrowing or is in a position to provide

further security, the same also to be asked for. In case of the HFCs, where personal or

corporate guarantee has been obtained, the same should be extended to cover the guarantee

for the bonds/debentures. Guarantee Fee: For extending the guarantee, the HFCs is charged

75 basis points per year of the amount to be floated as guarantee commission and this is to

be payable upfront.

Creation of Reserves: The HFC has to create appropriate bond/debenture redemption

reserves as may be laid down under the Companies Act, 1956 from time to time. Returns:

The HFC has to furnish such returns/information as laid down from time to time for the

purpose of availing refinance.

D. Training and Capacity Building: Among the multiple responsibilities entrusted to

NHB under Chapter IV4 of the NHB Act, 1987, the development of human resources in the

sector is a major agenda of the Bank. This is sought to be addressed partially through

training programmes, seminars and symposia on matters related to housing for the officials

of the Housing Finance Companies (HFCs), Commercial Banks and Public Housing

Agencies. The growth in the housing sector has resulted in a need for human resources

development and training in the sector. These needs are highly specialized as mortgage

finance is different from extending financial assistance to other activities. The last quarter of

the 20th Century has been witnessing radical changes in technology, consumer markets,

organisational structure, social values and the world order at large. Training and learning

assume an all-time importance in the scenario of the swiftly changing environment.

Organisation has to become "learning institutions" whose members endeavour to help their

organisations to cope with the dynamics of change in technology, organisational systems

and social values of the modern world. NHB endeavours seem to address this through, inter

alia, conducting training programmes, seminars and symposia on matters related to housing

Providing 4 Section 14. design and faculty support to various categories of institutions 75

dealing in housing and related activities. The training programmes conducted by NHB are

on a wide spectrum of topics and for different targets groups. Orientation programmes are

targeted at the entry level employees of the sector whereas, specialized programmes are

designed and conducted for personnel working in specialized areas such as legal, regulatory

and supervisory, risk management, securitization etc. Besides in-house faculty, experts in

the respective fields are also invited to share their experiences with the participants.

The following categories of institutions are eligible to take refinance from NHB:

a. Housing Finance Company

b. Scheduled Commercial Banks

c. Scheduled Urban Cooperative Banks

d. Regional Rural Banks

e. State Level Apex Co-operative Housing Finance Societies

f. Agriculture and Rural Development Banks

g. New Schemes

E. Project Lending from NHB: The National Housing Bank provides financial assistance

for project lending to a range of borrowers both in the public and private sector. The eligible

agencies for project lending are:

Eligible Borrowers

1. Public Agencies Agencies incorporated under the enactments of the Central or State

Legislatures or under the Companies Act, 1956 such as:

1. State Housing Boards/Improvement Trusts

2. State Slum Clearance Boards/Authorities

3. Housing Development Authorities

4. Municipal Corporations/Councils

5. New Town Development Agencies /Authorities

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6. Local Authorities for Housing & Urban Development

7. Public Sector Companies for employee housing projects

8. Agencies set up or notified by Government for Specific Housing Programmes (e.g.

Earthquake rehabilitation etc.)

II. General Projects

1. Township cum housing development projects.

2. Construction of houses on individual plots or group housing.

3. Land acquisition for the purpose of township and housing development.

4. Land development for housing including provision of facilities like roads, water supply,

storm water drains, sewerage system etc.

5. Development of land into buildable plots.

6. Employee Housing.

7. Special housing projects for people affected by natural calamities.

8. Water & Sanitation: The Bank can also extend financial assistance for Water and

Sanitation Programmes being undertaken by Micro Finance. Institutions (MFIs)/Non

Government Organizations (NGOs)/Urban Local Bodies (ULBs) as a part of their Housing

finance programme

III. Short Term Facility: Short term finance facility up to a maximum period of 2 years to

public agencies engaged in housing projects is available from National Housing Bank.

IV. Takeover of Term Loan: Liabilities of Public Housing and Development Agencies

Interest Rates The option of availing fixed or floating interest rates is available. The interest

rates are determined based on the Prime Lending Rate of the Bank. NHB reviews and resets

the interest rates from time to time, depending upon the market conditions, commercial

interest etc. Such changes in the rate of interest are applicable on the outstanding balances

in the loan accounts under the floating rate option. In respect of fixed interest rates, NHB

77

has the option to review and reset the rates on outstanding loans on completion of 3 years.

The cut-off date for this purpose remains June 30/December 31 following the completion of

3 years. Borrowers are having option to either accept the revised rates or to prepay the

outstanding amount without any prepayment levy if they find the revised rates

unacceptable. Prepayment Charges Prepayment of loans is permissible with payment of

prepayment levy as under:

1. On floating rate loans: 0.50% of amount to be repaid.

2. On Fixed rate loans: 0.50 to 1.50%, according to residual maturity. It is surprising to note

that NHB is levying prepayment charges on the institutions repaying outstanding loan

amount before due date whereas it does not allow housing finance companies to levy pre-

payment charges on their borrowers who intend to repay the outstanding loan amount

before due date. Extent of Financing and Period of Loans The extent of financing is based

on the type of project and also the rating assigned by National Housing Bank. It varies

between 65 to 100% of the project cost. The maximum period of loan is 15 years. Security

The project finance shall be secured through one or more of the following depending on the

Agency/project:

1. Mortgage/charge over immovable property acceptable to NHB

2. Charge over receivables

3. Bank Guarantee

4. Government Guarantee

5. Corporate Guarantee

6. Charge on Book Debts

7. Fixed Deposit Receipts

8. Hypothecation of property

9. Any other security acceptable to NHB

10. Interim Security ( in some cases interim security may be required till the main security

is lodged with the Bank) Customer Service NHB provides excellent customer service by

quick disposal of project proposals and individual attention. It will also provide requisite

financial and technical expertise and guidance in project formulation, if so required by the

borrowers.

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Procedure for Availing Financial Assistance: The agencies desirous of availing financial

assistance from NHB are required to fulfil certain criteria and conditions and procedure for

availing the assistance. Preamble of NHB Act, 1987. This is an Act to establish a bank to

be known as the National Housing Bank to operate as a principal agency to promote

housing finance institutions both at local and regional levels and to provide financial and

other support to such institutions and for matters connected therewith or incidental thereto.

It extends to the whole of India including the State of Jammu and Kashmir.

NHB Residential Property Index (RESIDEX): Keeping in view the prominence of

housing and real estate as a major area for creation of both physical and financial assets and

its contribution in overall National wealth, a need was felt for setting up of a mechanism,

which could track the movement of prices in the residential housing segment. Regular

monitoring of the house prices can be useful inputs for the different interest groups.

Accordingly, National Housing Bank, at the behest of the Ministry of Finance, undertook a

pilot study to examine the feasibility of preparing such an index at the National level. The

pilot study covered 5 cities viz. Bangalore, Bhopal, Delhi, Kolkata and Mumbai. Besides, a

Technical Advisory Group (TAG), with Adviser, Ministry of Finance, as its Chairman and

comprising of experts members from RBI, National Sample survey Organization (NSSO),

Central Statistical Organization (CSO), Labour Bureau, NHB and other market players, was

constituted to deal with all the issues relating to methodology, collection of data and also to

guide the process of construction of an appropriate index. Based on the results of the study

and recommendations of the TAG, NHB launched RESIDEX for tracking prices of

residential properties in India, in July 2007 by Shri P. Chidambram (Hon’ble Finance

Minister). It has been updated up to quarter ended September, 2012. In order to guide and

oversee the construction of NHB RESIDEX and extension of its coverage, to include all the

63 cities under Jawaharlal Nehru National Urban Renewal Mission (JNNURM); a Standing

Committee of technical experts has been constituted Preamble of National Housing Bank

Act, 1987. under the Chairmanship of CMD, NHB with representations from the

Government of India, (Ministry of Finance, NSSO, CSO, Labour Bureau), RBI, and other

prominent market players. At present, index is being developed only for residential housing

sector. However, at a later stage, based on experience of constructing this index for a wider

geographical spread, the scope of the index could be expanded to develop separate indices

for commercial property and land, which could be combined to arrive at the real estate price

index.

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NHB - RESIDEX: Salient Features

1. Pilot study covered 5 cities viz. Delhi, Mumbai, Kolkata, Bangalore and Bhopal

representing the various regions of the country.

2. Actual transactions prices considered for the study in order to arrive at an Index which

will reflect the market trends.

3. 2001 was taken as the base year for the study to be comparable with the WPI and CPI.

Year to year price movement during the period 2001-2005 has been captured in the study,

and subsequently updated for two more years i.e. up to 2007.

4. Thereafter, NHB RESIDEX was expanded to cover ten more cities, viz, Ahmedabad,

Faridabad, Chennai, Kochi, Hyderabad, Jaipur, Patna, Lucknow, Pune and Surat.

5. At the time of last updation and expansion of coverage of NHB RESIDEX to 10 more

cities, the base year has been shifted from 2001 to 2007.

6. From quarter January-March, 2012, NHB RESIDEX has been further expanded to cover

5 more cities viz Bhubneshwar, Guwahati, Ludhiana, Vijayawada & Indore.

7. The Index for Delhi has been expanded to cover Gurgaon, Noida, Greater Noida and

Ghaziabad thereby expanding its coverage to National Capital Region (NCR). Thus, from

April-June, 2012 onwards the Index of Delhi would cover National Capital Region (NCR).

8. Further, with 2007 as base, NHB RESIDEX has been updated up to quarter ended

September, 2012 with quarterly update (July-September, 2012).

9. At the time of last updation and expansion of coverage of NHB RESIDEX to 10 more

cities, the base year has been shifted from 2001 to 2007.

10. NHB RESIDEX is now being up dated on quarterly basis. In the first phase NHB

RESIDEX will be expanded to cover 35 cities having million plus population.

11. The proposal is to expand NHB RESIDEX to 63 cities which are covered under the

Jawahar Lal Nehru National Urban Renewal Mission to make it a truly national index.

80

12. Prices have been studied for various administrative zones/property tax zones

constituting each city.

13. The index has been constructed using the weighted average methodology with Price

Relative Method (Modified Laspeyre’s approach).

14. Primary data on housing prices is being collected from real estate agents by

commissioning the services of private consultancy/research organisations of national repute;

in addition data on housing prices is also being collected from the housing finance

companies and bank, which is based on housing loans contracted by these institutions. At

present, NHB RESIDEX has covered 20 cities in the first phase, it is proposed to cover 35

cities having million plus population. The proposal is to expand NHB RESIDEX to 63

cities, which are covered under the Jawaharlal Nehru National Urban Renewal Mission

(JNNURM), to make it a truly national index, in a phased manner. It is envisaged to

develop a residential property price index for select cities and subsequently an all India

composite index by suitably combining these city level indices to capture the relative

temporal change in the prices of houses at different levels.

Risk Management

Method: For the most part, these methods consist of the following elements, performed,

more or less, in the following order.

1. Risk identify, characterize threats

2. Risk assess the vulnerability of critical assets to specific threats

3. determine the risk (i.e. the expected likelihood and consequences of specific types of

attacks on specific assets)

4. identify ways to reduce those risks

5. prioritize risk reduction measures

Principles of Risk Management: The International Organization for Standardization (ISO)

identifies the following principles of risk management:

Risk management should:

create value – resources expended to mitigate risk should be less than the consequence

of inaction81

be an integral part of organizational processes

be part of decision making process

explicitly address uncertainty and assumptions

be a systematic and structured process

be based on the best available information

be tailorable

take human factors into account

be transparent and inclusive

be dynamic, iterative and responsive to change

be capable of continual improvement and enhancement

be continually or periodically re-assessed

PROCESS OF RISK MANAGEMENT:

According to the standard ISO 31000 "Risk management – Principles and guidelines on

implementation," the process of risk management consists of several steps as follows:

This involves:

1. identification of risk in a selected domain of interest

2. planning the remainder of the process

3. mapping out the following:

the social scope of risk management

the identity and objectives of stakeholders

the basis upon which risks will be evaluated, constraints.

4. defining a framework for the activity and an agenda for identification

5. developing an analysis of risks involved in the process

6. mitigation or solution of risks using available technological, human and

organizational resources

Risk Identification: After establishing the context, the next step in the process of

managing risk is to identify potential risks. Risks are about events that, when triggered,

cause problems or benefits. Hence, risk identification can start with the source of our

problems and those of our competitors (benefit), or with the problem itself.

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Source analysis: Risk sources may be internal or external to the system that is the target

of risk management (use mitigation instead of management since by its own definition

risk deals with factors of decision-making that cannot be managed).

Examples of risk sources are: stakeholders of a project, employees of a company or the

weather over an airport.

Problem analysis: Risks are related to identified threats. For example: the threat of

losing money, the threat of abuse of confidential information or the threat of human

errors, accidents and casualties. The threats may exist with various entities, most

important with shareholders, customers and legislative bodies such as the government.

When either source or problem is known, the events that a source may trigger or the events

that can lead to a problem can be investigated. For example: stakeholders withdrawing

during a project may endanger funding of the project; confidential information may be

stolen by employees even within a closed network; lightning striking an aircraft during

takeoff may make all people on board immediate casualties.

The chosen method of identifying risks may depend on culture, industry practice and

compliance. The identification methods are formed by templates or the development of

templates for identifying source, problem or event. Common risk identification methods

are:

Objectives-based risk identification – Organizations and project teams have objectives.

Any event that may endanger achieving an objective partly or completely is identified

as risk.

Scenario-based risk identification – In scenario analysis different scenarios are created.

The scenarios may be the alternative ways to achieve an objective, or an analysis of the

interaction of forces in, for example, a market or battle. Any event that triggers an

undesired scenario alternative is identified as risk.

Taxonomy-based risk identification –The taxonomy in taxonomy-based risk

identification is a breakdown of possible risk sources. Based on the taxonomy and

knowledge of best practices, a questionnaire is compiled. The answers to the questions

reveal risks.

Common-risk checking – In several industries, lists with known risks are available.

Each risk in the list can be checked for application to a particular situation.83

Risk charting  – This method combines the above approaches by listing resources at

risk, threats to those resources, modifying factors which may increase or decrease the

risk and consequences it is wished to avoid. Creating a matrix under these headings

enables a variety of approaches. One can begin with resources and consider the threats

they are exposed to and the consequences of each. Alternatively one can start with the

threats and examine which resources they would affect, or one can begin with the

consequences and determine which combination of threats and resources would be

involved to bring them about.

Risk Assessment: Once risks have been identified, they must then be assessed as to their

potential severity of impact (generally a negative impact, such as damage or loss) and to the

probability of occurrence. These quantities can be either simple to measure, in the case of

the value of a lost building, or impossible to know for sure in the case of an unlikely event,

the probability of occurrence of which is unknown. Therefore, in the assessment process it

is critical to make the best educated decisions in order to properly prioritize the

implementation of the risk management plan. Even a short-term positive improvement can

have long-term negative impacts. The fundamental difficulty in risk assessment is

determining the rate of occurrence since statistical information is not available on all kinds

of past incidents and is particularly scanty in the case of catastrophic events, simply because

of their infrequency. Furthermore, evaluating the severity of the consequences (impact) is

often quite difficult for intangible assets. Asset valuation is another question that needs to

be addressed. Thus, best educated opinions and available statistics are the primary sources

of information. Nevertheless, risk assessment should produce such information for senior

executives of the organization that the primary risks are easy to understand and that the risk

management decisions may be prioritized within overall company goals.

RISK OPTIONS: Risk mitigation measures are usually formulated according to one or

more of the following major risk options, which are:

1. Design a new business process with adequate built-in risk control and containment

measures from the start.

2. Periodically re-assess risks that are accepted in ongoing processes as a normal

feature of business operations and modify mitigation measures.

3. Transfer risks to an external agency (e.g. an insurance company)

4. Avoid risks altogether (e.g. by closing down a particular high-risk business area)

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In business it is imperative to be able to present the findings of risk assessments in financial,

market, or schedule terms. Robert Courtney Jr. (IBM, 1970) proposed a formula for

presenting risks in financial terms. The Courtney formula was accepted as the official risk

analysis method for the US governmental agencies. The formula proposes calculation of

ALE (annualized loss expectancy) and compares the expected loss value to the security

control implementation costs (cost-benefit analysis).

Potential risk treatments: Once risks have been identified and assessed, all techniques to

manage the risk fall into one or more of these four major categories.

Avoidance (eliminate, withdraw from or not become involved)

Reduction (optimize – mitigate)

Sharing (transfer – outsource or insure)

Retention (accept and budget)

Ideal use of these risk control strategies may not be possible. Some of them may involve

trade-offs that are not acceptable to the organization or person making the risk management

decisions.

Risk Avoidance: This includes not performing an activity that could carry risk. An

example would be not buying a property or business in order to not take on the legal

liability that comes with it.

Risk Reduction: Risk reduction or "optimization" involves reducing the severity of the

loss or the likelihood of the loss from occurring. Acknowledging that risks can be positive

or negative, optimizing risks means finding a balance between negative risk and the benefit

of the operation or activity; and between risk reduction and effort applied.

Outsourcing could be an example of risk reduction if the outsourcer can demonstrate higher

capability at managing or reducing risks.[13] For example, a company may outsource only its

software development, the manufacturing of hard goods, or customer support needs to

another company, while handling the business management itself. This way, the company

can concentrate more on business development without having to worry as much about the

manufacturing process, managing the development team, or finding a physical location for a

call center.

85

Risk Sharing / Transfer: Briefly defined as "sharing with another party the burden of loss

or the benefit of gain, from a risk, and the measures to reduce a risk."

The term of 'risk transfer' is often used in place of risk sharing in the mistaken belief that

you can transfer a risk to a third party through insurance or outsourcing. In practice if the

insurance company or contractor go bankrupt or end up in court, the original risk is likely to

still revert to the first party. As such in the terminology of practitioners and scholars alike,

the purchase of an insurance contract is often described as a "transfer of risk." However,

technically speaking, the buyer of the contract generally retains legal responsibility for the

losses "transferred", meaning that insurance may be described more accurately as a post-

event compensatory mechanism.

Risk Retention: Involves accepting the loss, or benefit of gain, from a risk when it occurs.

True self-insurance falls in this category. Risk retention is a viable strategy for small risks

where the cost of insuring against the risk would be greater over time than the total losses

sustained. All risks that are not avoided or transferred are retained by default. This includes

risks that are so large or catastrophic that either they cannot be insured against or the

premiums would be infeasible. War is an example since most property and risks are not

insured against war, so the loss attributed by war is retained by the insured. Also any

amounts of potential loss (risk) over the amount insured is retained risk. This may also be

acceptable if the chance of a very large loss is small or if the cost to insure for greater

coverage amounts is so great that it would hinder the goals of the organization too much.

Risk Management Plan: Select appropriate controls or counter measures to measure each

risk. Risk mitigation needs to be approved by the appropriate level of management. The risk

management plan should propose applicable and effective security controls for managing

the risks. For example, an observed high risk of computer viruses could be mitigated by

acquiring and implementing antivirus software. A good risk management plan should

contain a schedule for control implementation and responsible persons for those actions.

Implementation: Implementation follows all of the planned methods for mitigating the

effect of the risks. Purchase insurance policies for the risks that it has been decided to

transferred to an insurer, avoid all risks that can be avoided without sacrificing the entity's

goals, reduce others, and retain the rest.

86

Review and evaluation of the plan: Initial risk management plans will never be perfect.

Practice, experience, and actual loss results will necessitate changes in the plan and

contribute information to allow possible different decisions to be made in dealing with the

risks being faced.

Risk analysis results and management plans should be updated periodically. There are two

primary reasons for this:

1. to evaluate whether the previously selected security controls are still applicable and

effective

2. to evaluate the possible risk level changes in the business environment. For example,

information risks are a good example of rapidly changing business environment.

As applied to corporate finance, risk management is the technique for measuring,

monitoring and controlling the financial or operational risk on a firm's balance sheet, a

traditional measure is the value at risk (VaR), but there also other measures like profit at

risk (PaR) or margin at risk. The Basel II framework breaks risks into market risk (price

risk), credit risk and operational risk and also specifies methods for calculating capital

requirements for each of these components.

In a financial institution, enterprise risk management is normally thought of as the

combination of credit risk, interest rate risk or asset liability management, liquidity risk,

market risk, and operational risk.

An example of the Risk Register for a project that includes 4 steps; Identify, Analyze, Plan

Response, Monitor and Control.

Planning how risk will be managed in the particular project. Plans should include risk

management tasks, responsibilities, activities and budget.

Assigning a risk officer – a team member other than a project manager who is

responsible for foreseeing potential project problems. Typical characteristic of risk

officer is a healthy skepticism.

Maintaining live project risk database. Each risk should have the following attributes:

opening date, title, short description, probability and importance. Optionally a risk may

have an assigned person responsible for its resolution and a date by which the risk must

be resolved.

87

Creating anonymous risk reporting channel. Each team member should have the

possibility to report risks that he/she foresees in the project.

Preparing mitigation plans for risks that are chosen to be mitigated. The purpose of the

mitigation plan is to describe how this particular risk will be handled – what, when, by

whom and how will it be done to avoid it or minimize consequences if it becomes a

liability.

Summarizing planned and faced risks, effectiveness of mitigation activities, and effort

spent for the risk management.

Risk Communication: Risk communication is a complex cross-disciplinary academic field

related to core values of the targeted audiences. Problems for risk communicators involve

how to reach the intended audience, how to make the risk comprehensible and relatable to

other risks, how to pay appropriate respect to the audience's values related to the risk, how

to predict the audience's response to the communication, etc. A main goal of risk

communication is to improve collective and individual decision making. Risk

communication is somewhat related to crisis communication.

Risk Management in Housing Finance Companies:

Risk Management Committee With the objective of ensuring that the risks impacting the

business of the companies are identified and appropriate measures are taken to mitigate the

same, the Companies have formulated and adopted an integrated risk management

framework.

In the course of their operations, HFCs are invariably faced with different types

of risks that may have a potentially adverse effect on their business. HFCs are

obliged to establish a comprehensive and reliable risk management system,

integrated in all business activities and providing for the HFC risk profile to be

always in line with the established risk propensity.  

Risk management system comprises :

Risk management strategy and policies, as well as procedures for risk identification

and measurement, i.e. for risk assessment and risk management;

Appropriate internal organisation, i.e. HFC’s organizational structure;

Effective and efficient risk management process covering all risks the HFC is

exposed to or may potentially be exposed to in its operations;88

Adequate internal controls system;

Appropriate information system;

Adequate process of internal capital adequacy assessment. 

In their operations HFCs are particularly exposed to or may potentially be

exposed to the following risks: liquidity risk, credit risk (including residual

risk, dilution risk, settlement/ delivery risk, and counterparty risk); interest

rate risk; foreign exchange risk and other market risks; concentration risk,

particularly including risks of exposure of the HFC to one person or a group of

related persons; investment risks; risks relating to the country of origin of the

entity to which an HFC is exposed (country risk); operational risk particularly

including legal risk; risk of compliance of the HFC’s operations; risk of money

laundering and terrorist financing; and strategic risk.

Liquidity risk is the risk of potential occurrence of adverse effects on the bank’s

financial result and capital due to the HFC’s inability to meet the due liabilities

caused by the withdrawal of the current sources of funding, that is, the inability to

raise new funds (funding liquidity risk), aggravated conversion of property into

liquid assets due to market disruption (market liquidity risk);

Credit risk is the risk of potential occurrence of adverse effects on the HFC’s

financial result and capital due to debtor’s default to meet its obligations to the

HFC.

Residual risk is the possibility of occurrence of adverse effects on the HFC’s

financial result and capital due to the fact that credit risk mitigation techniques are

less efficient than expected or their application does not have sufficient influence on

the mitigation of risks to which the HFC is exposed;

Dilution risk is the possibility of occurrence of adverse effects on the HFC’s

financial result and capital due to the reduced value of purchased receivables as a

result of cash or non-cash liabilities of the former creditor to the borrower;

Settlement/Delivery risk is the possibility of occurrence of adverse effects on the

HFC’s financial result and capital arising from unsettled transactions or

counterparty’s failure to deliver in free delivery transactions on the due delivery

date;

Counterparty credit risk is the possibility of occurrence of adverse effects on the

HFC’s financial result and capital arising from counterparty’s failure to settle their 89

liabilities in a transaction before final settlement of transaction cash flows, or,

settlement of monetary liabilities in the transaction in question;

Market risks entail foreign exchange risk, price risk on debt securities, price risk on

equity securities, and commodity risk;

Interest rate risk is the risk of possible occurrence of adverse effects on the HFC’s

financial result and capital on account of lending book items caused by changes in

interest rates;

Foreign exchange risk is the risk of possible occurrence of adverse effects on the

HFC’s financial result and capital on account of changes in foreign exchange rates;

Concentration risk is the risk which arises directly or indirectly from the HFC’s

exposure to the same or similar source of risk, or, same or similar type of risk;

Exposure risks comprise risks of HFC’s exposure towards a single person or a

group of related persons.

Investment risks comprise risks of its investments into non-financial sector entities

and in fixed assets and investment property.

Country risk is a risk relating to the country of origin of the person to which the

HFC is exposed, that is, the risk of negative effects on the HFC’s financial result

and capital due to the HFC’s inability to collect receivables from such person for

reasons arising from political, economic or social circumstances in such person’s

country of origin.

Operational risk is the risk of possible adverse effects on the HFC’s financial result

and capital caused by omissions (unintentional and intentional) in employees’ work,

inadequate internal procedures and processes, inadequate management of

information and other systems, as well as by unforeseeable external events.

Operational risk also includes legal risk.

Legal risk is the risk of loss caused by penalties and sanctions originating from

court disputes due to breach of contractual and legal obligations, and penalties and

sanctions pronounced by a regulatory body.

Risk of compliance is the possibility of occurrence of adverse effects on the HFC’s

financial result and capital as a consequence of failure to comply its operations with

the law and other regulations, standards of operations, anti-money laundering and

counter-terrorist financing procedures, and other procedures as well as other acts

governing the organization’s operations, particularly encompassing the risk of

sanctions by the regulatory authority, risk of financial losses and reputational risk.

90

Reputational risk relates to the possibility of the occurrence of losses due to

adverse effects on the HFC’s market positioning.

Strategic risk is the possibility of occurrence of adverse effects on the HFC’s

financial result and capital due to the absence of appropriate policies and strategies,

their inadequate implementation, as well as changes in the environment where the

HFC operates or absence of appropriate response of a to those changes.

Also, businesses will need to train their employees in GST compliance, further increasing

their overhead expenses.

Risk Management in HDFC

Risk Management Committee With the objective of ensuring that the risks impacting the

business of the Corporation are identified and appropriate measures are taken to mitigate the

same, the Corporation has formulated and adopted an integrated risk management

framework. The framework lays down the procedures for identification of risks, assessment

of its impact on the business of the Corporation and the efficacy of the measures taken to

mitigate the same. The risks are evaluated at an inherent and residual level, based on the

impact of such risks and the likelihood of its occurrence. The regional managers and the

functional heads of the Corporation are responsible for identifying, monitoring and

periodically review the risk profile of their respective region/function, which is reviewed by

the internal Risk Management Committee (RMC). The RMC executive directors and

members of senior management meet periodically. The committee is responsible to ensure

that an appropriate methodology, processes and systems are in place to monitor, identify

and review risks associated with the business of the Corporation. The RMC consists of a

majority of directors, including an independent director, in accordance with the Listing

Regulations. The internal risk management committee appraises the key risks associated

with the business, its root causes and measures taken to mitigate the same. The RMC in turn

apprises by the audit committee and the board which endorses and approves the overall

integrated risk

1. LIQUIDITY RISK: The liquidity risk is also expressed in terms of funding liquidity, or

a situation of shortage of funds, or if the funds are available at higher rate of interest. Hence

the liquidity risk leads to pay the higher rate of interest.

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Reduce potential costs of financial distress by making the Housing Finance companies less

vulnerable to adverse movements in liquidity, interest rates, exchange rates (wherever

applicable). HDFC is having goodwill to get cheaper funds from the economy.

Create a stable planning environment by ensuring that the business plan is not adversely

affected during the financial year due to any adverse liquidity situations, interest rate and

currency fluctuations by using various tools such as time-bucket analysis, liquidity

statements, duration gap and forex exposure reports.

Table 3.1Repo Rate,Reverse Repo Rate, Cash Reserve Ratio, Statutory Liquidity Ratio,

Bank Rate, InflationSl.No. Date R R RRR CRR SLR B R Infl.1 01-07-2008 9.00 6.00 9.00 24.00 6.00 8.332 19-03-2009 5.00 3.50 5.75 24.00 6.00 8.033 30-09-2010 6.00 5.00 6.00 24.00 6.00 9.004 30-09-2011 8.50 7.25 6.00 24.00 6.00 7.605 05-09-2012 8.00 7.00 4.25 23.00 9.00 7.506 04-09-2013 7.75 6.75 4.00 23.00 10.25 6.757 21-09-2014 8.00 7.00 4.00 22.00 9.00 8.008 20-09-2015 6.75 6.40 4.00 21.50 8.25 3.709 04-09-2016 6.50 6.00 4.00 23.00 7.00 4.1410 08-04-2017 6.25 6.00 4.00 23.00 6.50 3.65Source:www.m.rbi.org.in/Scripts.

2. INTEREST RATE RISK: The Reserve Bank of India (RBI), through its Monetary

Policy Committee (MPC), declares the interests policy. Based on the Bank rate, PLR,

REPO Rate, Reverse Repo Rate, Cash Reserve Ratio (CRR). Most of the financial

institutions’ money is invested in bonds. The rate of interest on bonds will also fluctuate to

the above MPC decisions. Interest rate risk is the Risk that arises for Bond owners from

fluctuating rates of interest. How much interest rate risk a bond has depends on how

sensitive its price is to interest rate changes in the market. The sensitivity depends on two

things, the bond's time to maturity, and the coupon rate of the bond. Purchasing high rate of

interest yielding bonds and derivatives for rate of interest are best tools for fighting this

interest rate risk.

Cash Reserve Ratio (CRR) is the share of an HFC’s total deposit that is mandated by the

Reserve Bank of India (RBI) to be maintained with the latter in the form liquid cash.

In order to determine the base rate,  the Cash Reserve Ratio acts as one of the reference

rates. Base rate means the minimum lending rate which is determined by the Reserve Bank

of India (RBI) and no HFC is allowed to lend funds below this rate. This rate is fixed to 92

ensure transparency with respect to borrowing and lending in the credit market. The Base

Rate also helps the banks to cut down on their cost of lending so as to be able to extend

affordable loans.

Apart from this, there is two main objective existence of cash reserve ratio:

1. Cash reserve ratio ensures that a part of the HFC’s deposit is with the Central Bank and is

hence, safe

2. The second and a very important reason is for the purpose of combating inflation. To

keep the liquidity in check, the RBI resorts to increasing and decreasing the Cash Reserve

Ratio.

Chart 3.1.1Cash Reserve Ratio

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When the RBI decides to increase the Cash Reserve Ratio, the amount of money that is

available with the HFCs reduces. This is the RBI’s way of controlling the excess supply of

money. The cash balance that is to be maintained by scheduled banks and HFCs with the

RBI should not be less than 4% of the total NDTL, which is the Net Demand and Time

Liabilities. This is done on a fortnightly basis. NDTL refers to the total demand and time

liabilities (deposits) that is held by the banks of public and with other banks. Demand

deposits consist of all liabilities which the bank needs to pay on demand like current

deposits, demand drafts, balances in overdue fixed deposits and demand liabilities portion

of savings bank deposits. Time deposits consist of deposits that need to repay on

maturity and where the depositor can’t withdraw money immediately; instead, he is

required to wait a certain time period to access the funds. It includes fixed deposits, time

liabilities portion of savings bank deposits and staff security deposits. Usually the HFCs

take mostly time deposits.

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The liabilities of a HFC include call money market borrowings; certificate of deposits and

investment in deposits other banks. In short, higher the Cash Reserve Ratio, lesser is the

amount of money available to HFCs for lending and investing, leads to lower lending and

lower profits. Cash Reserve Ratio (CRR) is one of the components of the monetary

policy of the RBI which is used to regulate the money supply, level of inflation

and liquidity in the country. The higher the CRR, the lower is the liquidity with the HFCs

and vice-versa.

During high levels of inflation, attempts are made to reduce the money supply in the

economy. For this, RBI increases the CRR, sucking the loanable funds available with the

banks. This, in turn, slows down investment and reduces the supply of money in the

economy. As a result, the growth of the economy is negatively impacted. However, this also

helps bring down inflation.

On the other hand, when the RBI needs to pump funds into the system, it lowers CRR

which increases the loanable funds with the HFCs. The HFCs thus extend a large number of

loans to the businesses and industry for different investment purposes. It also increases the

overall supply of money in the economy. This ultimately boosts the growth rate of the

economy. The CRR for this study of ten years is continuously decreasing from nine percent

to four percent.

The Statutory Liquidity Ratio (SLR): The SLR is commonly used to

control inflation and fuel growth, by increasing or decreasing it respectively. This counter

acts by decreasing or increasing the money supply in the system respectively. Indian banks’

holdings of Government securities are now close to the statutory minimum that banks are

required to hold to comply with existing regulation. SLR is used by Financial Institutions

and indicates the minimum percentage of deposits that the HFC has to maintain in form of

gold, cash or other approved securities. Thus, we can say that it is ratio of cash and some

other approved liability (deposits). It regulates the credit growth in India. The SLR is

determined by a percentage of total demand and time liabilities. Time liabilities refer to the

liabilities which the commercial banks are liable to pay to the customers after a certain

period mutually agreed upon, and demand liabilities are such deposits of the customers

which are payable on demand. An example of time liability is a six month fixed deposit

which is not payable on demand but only after six months. An example of demand liability

is a deposit maintained in a saving account or current account that is payable on demand

through a withdrawal form such as a cheque.

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Chart 3.1.2Statutory Liquidity Ratio

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The liabilities that the banks are liable to pay within one month's time, due to completion of

maturity period, are also considered as time liabilities. The maximum limit of SLR is 40%

and minimum limit of SLR is 0 In India, Reserve Bank of India always determines the

percentage of SLR. There are some statutory requirements for temporarily placing the

money in government bonds. Following this requirement, Reserve Bank of India fixes the

level of SLR. However, as most banks currently keep an SLR higher than required (>26%)

due to lack of credible lending options, near term reductions are unlikely to increase

liquidity and are more symbolic.

The SLR is fixed for a number of reasons. The chief driving force is increasing or

decreasing liquidity which can result in a desired outcome. A few uses of mandating SLR

are:

Controlling the expansion of credit. By changing the level of SLR, the Reserve Bank of

India can increase or decrease credit expansion.

Ensuring the solvency of HFCs.

By reducing the level of SLR, the RBI can increase liquidity with the HFCs, resulting in

increased investment. This is done to fuel growth and demand.

Compelling the HFCs to invest in government securities like government bonds

The RBI can increase the SLR to control inflation, suck liquidity in the market, to tighten

the measure to safeguard the customers' money. Decrease in SLR rate is done to encourage

growth. In a growing economy banks would like to invest in stock market, not in

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government securities or gold as the latter would yield less returns. One more reason is long

term government securities (or any bond) are sensitive to interest rate changes. However, in

an emerging economy, interest rate change is a common activity.

SLR rate = (liquid assets / (demand + time liabilities)) × 100%

This percentage is fixed by the Reserve Bank of India. The SLR for the study period is

decreasing from 24 percent to 23 percent.

Repo rate: The rate of interest at which the HFCs can borrow money from the RBI. It is

also known as the short term interest rate. The Repo rate is of one day maturity. The RR is

also decreasing for the study period from 9 percent to 6.25 percent.

Chart 3.1.3Repo Rate

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R R

The reverse repo rate: The rate of interest that HFCs receive from the RBI, if they deposit

money with the central bank. This reverse repo rate is always lower than the repo rate.

Increases or decreases in the repo and reverse repo rate has an effect on the interest rate on

banking products such as loans, mortgages and savings. The following table and charts

explain the relationship among them.

96

Chart 3.1.4Reverse Repo Rate

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Chart 3.1.5Bank Rate

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The RRR and BR did not changed over the period. But the rate of inflation come down from 9 percent to 6.50 percent. The ultimate master scale for interest rate is inflation. Hence the Government and the RBI should see for a lower rate of inflation.

Chart 3.1.6

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Inflation

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00

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3.70 4.

14

3.65

Infl.

Infl.

As a part of asset liability management and on account of the predominance of HDFC’s

Adjustable Rate Home Loan product as well as to reduce the overall cost of borrowings, the

Corporation has entered into interest rate swaps wherein it has converted its fixed rate rupee

liabilities of a notional amount of ` 30,655 crore as at March 31, 2017 for varying maturities

into floating rate liabilities linked to various benchmarks.

3.FOREX RISK: A common definition of foreign exchange rate risk relates to the effect

of unexpected exchange rate changes on the value of the firm. Hedging through foreign

currency futures and derivatives is the best way to come out of the forex risk.

Foreign exchange risk (also known as FX risk, exchange rate risk or currency risk) is

a financial risk that exists when a financial transaction is denominated in a currency other

than that of the base currency of the company. The risk is that there may be an adverse

movement in the exchange rate of the denomination currency in relation to the base

currency before the date when the transaction is completed.  Investors and businesses

exporting or importing goods and services or making foreign investments have an exchange

rate risk which can have severe financial consequences.

Transaction risk: A firm has transaction risk whenever it has contractual cash flows

(receivables and payables) whose values are subject to unanticipated changes in exchange

rates due to a contract being denominated in a foreign currency. To realize the domestic

value of its foreign-denominated cash flows, the firm must exchange foreign currency for

domestic currency. As firms negotiate contracts with set prices and delivery dates in the face

of a volatile foreign exchange market with exchange rates constantly fluctuating, the firms

98

face a risk of changes in the exchange rate between the foreign and domestic currency. It

refers to the risk associated with the change in the exchange rate between the time an

enterprise initiates a transaction and settles it.

Economic risk: A firm has economic risk (also known as forecast risk) to the degree that

its market value is influenced by unexpected exchange rate fluctuations. Such exchange rate

adjustments can severely affect the firm's market share position with regards to its

competitors, the firm's future cash flows, and ultimately the firm's value. Economic risk can

affect the present value of future cash flows. Any transaction that exposes the firm to

foreign exchange risk also exposes the firm economically, but economic risks can be caused

by other business activities and investments which may not be mere international

transactions, such as future cash flows from fixed assets. Financial risk is most commonly

measured in terms of the variance or standard deviation of a variable such as

percentage returns or rates of change. In foreign exchange, a relevant factor would be the

rate of change of the spot exchange rate between currencies. Variance represents exchange

rate risk by the spread of exchange rates, whereas standard deviation represents exchange

rate risk by the amount exchange rates deviate, on average, from the mean exchange rate in

a probability distribution. A higher standard deviation would signal a greater currency risk.

Economists have criticized the accuracy of standard deviation as a risk indicator for its

uniform treatment of deviations, be they positive or negative, and for automatically squaring

deviation values. Alternatives such as average absolute deviation and semi-variance have

been advanced for measuring financial risk.

Value at risk: Practitioners have advanced and regulators have accepted a financial risk

management technique called value at risk (VaR), which examines the tail end of a

distribution of returns for changes in exchange rates to highlight the outcomes with the

worst returns. Banks in Europe have been authorized by the Bank for International

Settlements to employ VaR models of their own design in establishing capital

requirements for given levels of market risk. Using the VaR model helps risk managers

determine the amount that could be lost on an investment portfolio over a certain period of

time with a given probability of changes in exchange rate.

reduced either with the use of the money markets, foreign exchange such as forward

cpmtracts, futures contracts, options, and swapts, or with operational techniques such as

99

currency invoicing, leading and lagging of receipts and payments, and exposure netting.

Firms may adopt alternative strategies to financial hedging for managing their economic or

operating exposure, by carefully selecting production sites with a mind for lowering costs,

using a policy of flexible sourcing in its supply chain management, diversifying its export

market across a greater number of countries, or by implementing strong research and

development activities and differentiating its products in pursuit of greater inelasticity and

less foreign exchange risk exposure.

4.CREDIT RISK:

A credit risk is the risk of default on a debt that may arise from a borrower failing to make

required payments.  In the first resort, the risk is that of the lender and includes

lost principal and interest, disruption to cash flows, and increased collection costs. The loss

may be complete or partial. In an efficient market, higher levels of credit risk will be

associated with higher borrowing costs.

 Because of this, measures of borrowing costs such as yield spreads can be used to infer

credit risk levels based on assessments by market participants.

Losses can arise in a number of circumstances, for example:

A consumer may fail to make a payment due on a mortgage housing loan and  line of

credit, or other loan.

A company is unable to repay asset-secured fixed or floating charge debt.

A business or consumer does not pay a trade invoice when due.

A business does not pay an employee's earned wages when due.

A business or government bond issuer does not make a payment on a coupon or

principal payment when due.

An insolvent insurance company does not pay a policy obligation.

An insolvent HFC won't return funds to a depositor.

To reduce the lender's credit risk, the lender may perform a credit check on the prospective

borrower, may require the borrower to take out appropriate insurance, such as morgage

insurance, or seek security over some assets of the borrower or a guarantee from a third

party. The lender can also take out insurance against the risk or on-sell the debt to another

company. In general, the higher the risk, the higher will be the interest rate that the debtor

100

will be asked to pay on the debt. Credit risk mainly arises when borrowers are unable to pay

due willingly or unwillingly.

Types of Credit Risk:

A credit risk can be of the following types:

Credit default risk: The risk of loss arising from a debtor being unlikely to pay its loan

obligations in full or the debtor is more than 90 days past due on any material credit

obligation; default risk may impact all credit-sensitive transactions, including loans,

securities and derivatives.

Contration risk: The risk associated with any single exposure or group of exposures with

the potential to produce large enough losses to threaten anHFC's core operations. It may

arise in the form of single name concentration or industry concentration.

Country risk: The risk of loss arising from a sovereign state freezing foreign currency

payments (transfer/conversion risk) or when it defaults on its obligations (sovereign

risk); this type of risk is prominently associated with the country's macroeconomic

performance and its political stability.

Credit Risk Assessment: Significant resources and sophisticated programs are used to

analyze and manage risk.  Some companies run a credit risk department whose job is to

assess the financial health of their customers, and extend credit (or not) accordingly. They

may use in-house programs to advise on avoiding, reducing and transferring risk. They also

use third party provided intelligence. Companies like Standard &

Poor’s, Moody’s, Fitch, DBRS, Dun and Bradshtreet, Burean van Dijk and Rapid Ratings

International provide such information for a fee.

For large companies with liquidly traded corporate bonds or Credit Default Swaps, bond

yield spreads and credit default swap spreads indicate market participants assessments of

credit risk and may be used as a reference point to price loans or trigger collateral calls.

Most lenders employ their own models (credit score cards) to rank potential and existing

customers according to risk, and then apply appropriate strategies. With products such as

unsecured personal loans or mortgages, lenders charge a higher price for higher risk

customers and vice versa. With revolving products such as credit cards and overdrafts, risk

is controlled through the setting of credit limits. Some products also require collateral,

usually an asset that is pledged to secure the repayment of the loan.

101

Credit scoring models also form part of the framework used by lending institutions to grant

credit to clients. For corporate and commercial borrowers, these models generally have

qualitative and quantitative sections outlining various aspects of the risk including, but not

limited to, operating experience, management expertise, asset quality, and leverage

and liquidity ratios, respectively. Once this information has been fully reviewed by credit

officers and credit committees, the lender provides the funds subject to the terms and

conditions presented within the contract (as outlined above).

The common tools used by the HDFC to assess the credit risk are;

1.Credit Score of the borrower, in which all the information about the loan / credit taking

history of the borrower and his sources of income and the amount of earnings per year and

probable compulsory expenses and the disposable income, fixed assets and insurance

policies and owned vehicles, etc.

2.CIBIL score is the compulsory score for any loan in the modern period. The technology,

internet and world wide web (www) made everything transparent and compulsory linking

ADAR CARD and PAN card to bank account and loan account and other identity cards are

also linked ``--to the loans. By using PAN, one can know the loan information and loan

payment history, etc. This process of assessing a borrower clears the eligibility and

payment capacity of the borrower.

Counterparty risk: A counterparty risk, also known as a default risk, is a risk that

a counterparty will not pay as obligated on a bond, derivative, insurance policy, or other

contract.  Financial institutions or other transaction counterparties may hedge or take

out credit insurance or, particularly in the context of derivatives, require the posting of

collateral. Offsetting counterparty risk is not always possible, e.g. because of

temporary liquidity issues or longer term systemic reasons. Counterparty risk increases due

to positively correlated risk factors. Accounting for correlation between portfolio risk

factors and counterparty default in risk management methodology is not trivial.

Mitigation of Credit Risk: Lenders mitigate credit risk in a number of ways, including:

Risk-based interest – Lenders may charge a higher interest rate to borrowers who are

more likely to default, a practice called risk based pricing. Lenders consider factors

relating to the loan such as loan purpose, credit rating, , and loan-to-value and estimates

the effect on yield (credit spread).

102

Covenants-Lenders may write stipulations on the borrower, called covenants, into loan

agreements, such as:

Periodically report its financial condition,

Refrain from paying dividends, repurchasing shares, borrowing further, or other

specific, voluntary actions that negatively affect the company's financial position,

and

Repay the loan in full, at the lender's request, in certain events such as changes in

the borrower's debt-to-equity ratio or interest coverage ratio.

Credit insurance and credit derivatives – The HDFC may hedge their credit risk by

purchasing credit insurance. The company imposes the loanee to take an insurance

policy equal to loan amount. These contracts transfer the risk from the lender to the

seller (insurer) in exchange for payment.

Tightening – The HDFC can reduce credit risk by reducing the amount of credit

extended, either in total or to certain borrowers.

Diversification – The HDFC diversified the loan portfolio as it is offering other type of

loans along with home loans. It lends to individuals, societies, corporate, builders, etc.

to reduce the concentration risk.

Managing Credit Risk: Minimise the credit risk by adopting scientific techniques for

credit evaluation, prescribing exposure limits, portfolio composition and periodic review of

the portfolio. Both the companies operate in the mid-market end-user segment where the

delinquency rates have been lower.

1.A large chunk of borrowers are in the salary group. The salaried group of loanees do not

undergo major risks effecting the EMIs. The HDFC is having a loan portfolio of

employees to the extent of 75 percent.

2.The Company has been following stringent credit assessment processes like adoption of

the application scoring system (score card), compulsory CIBIL checks, field checks, legal

opinion, enquiry with friends and colleagues and technical due diligence, etc. which have

helped to reduce incremental delinquencies. This shows the precautionary measures reduce

the future risks of becoming NPAs.

3.The average loan to value is in the range of 50-60% (as against the regulatory limit of

90% for loans upto Rs.20 lakh and 80% for loans above Rs.20 lakh. It means the buyer or

the loanee is also investing, 40 to 50 percent of value of the house from his own funds.

With this the loanee would not be ready to forgo the house due to inability in repayment of

the EMIs. He pays the total loan by all means to save the asset. 103

4.The low average ticket size of ` 15-16 lakh and pan India spread of Business adequately

disperses the Risk.

5.The Company have the best recovery machineries in its category, which has addressed

NPAs, supported by legislations such as SARFAESI Act, 2002. It includes measures

initiated by RBI such as setting up Asset Reconstruction Companies (ARCs), Debt

Recovery Tribunals (DRTs), Securitization Act, Compromise Settlement Schemes, One

time settlement schemes, etc.

5.OPERATIONAL RISK: Operational risk is related routine operations, like lending

operations, gross profit, net profit, operating expenses, NPAs, etc.

Operational risk is "the risk of a change in value caused by the fact that actual losses,

incurred for inadequate or failed internal processes, people and systems, or from external

events (including legal risk), differ from the expected losses". This definition, adopted by

the European union Solvency II Directive for insurers, is a variation from that adopted in

the Basel II regulations for financial institution.  In October 2014, the Basel Committee on

Banking Supervision proposed a revision to its operational risk capital framework that sets

out a new standardized approach to replace the basic indicator approach and the

standardized approach for calculating operational risk capital. Minimise the operational risk

by strengthening the internal control procedures and making systemic corrections to address

the deficiencies reported by the Internal Auditors.

Some external factors, like high inflation, reduction in employment, incidents like subprime

crisis, demonetization, introduction of GST, etc. factors lead the housing finance companies

into troubles, like non-payment of EMI and postponement of payment of EMI, no demand

or low demand for housing loans, etc. Non-payment of EMI leads to accumulation of Non-

Performing Assets(NPAs). The asset quality is a prime concern and impacts various

performance indicators, i.e., profitability, intermediation costs, liquidity, credibility, income

generating capacity and overall functioning of HFCs.. The reduction in asset quality results

in Non-Performing Assets (NPAs).

The Narsimham Committee Report opines that An advance/loan is treated as non-

performing when it fails to satisfy its repayment obligations. If the borrower fails to pay the

interest or the principal for 180 days, the loan is treated as NPA. Later the period was

reduced to 90 days. Thus, non-performing assets are loans in jeopardy of default. The level

of NPAs is an indicator of the efficiency of HFCs credit risk management and efficiency of

resource allocation to productive sectors.104

The Basel Committee on Banking Supervision defines credit risk as “potential default of a

borrower to meet the obligation in accordance with the agreed terms” (BIS, 2005). Higher

non-performing assets resulted in many financial institutions’ failures. NPAs represent a

real economic cost in modern days as they reflect the application of scarce capital and credit

funds to unproductive use.

Risk Management activities in HDFC: Risk management is the practice of economic

value in a firm by using financial instruments to manage exposure to risk: operational

risk, credit risk and market risk, foreign exchange risk, shape risk, volatility risk, liquidity

risk, inflation risk, business risk, legal risk, reputational risk, sector risk etc. Similar to

general risk management, financial risk management requires identifying its sources,

measuring it, and plans to address them. Financial risk management can be qualitative and

quantitative. As a specialization of risk management, financial risk management focuses on

when and how to hedge using financial instruments to manage costly exposures to risk. In

the banking sector worldwide, the Basel Accords are generally adopted by internationally

active banks for tracking, reporting and exposing operational, credit and market risks.

Finance theory (i.e., financial economics) prescribes that a firm should take on a project if it

increases shareholder value. Finance theory also shows that firm managers cannot create

value for shareholders, also called its investors, by taking on projects that shareholders

could do for themselves at the same cost. When applied to financial risk management, this

implies that firm managers should not hedge risks that investors can hedge for themselves at

the same cost. This notion was captured by the so-called "hedging irrelevance proposition".

In a perfect market, the firm cannot create value by hedging a risk when the price of bearing

that risk within the firm is the same as the price of bearing it outside of the firm. In practice,

financial markets are not likely to be perfect markets.

This suggests that firm managers likely have many opportunities to create value for

shareholders using financial risk management, wherein they have to determine which risks

are cheaper for the firm to manage than the shareholders. Market risks that result in unique

risks for the firm are commonly the best candidates for financial risk management.

The concepts of financial risk management change dramatically in the international

realm. Multinational Corporations are faced with many different obstacles in overcoming

these challenges. There has been some research on the risks firms must consider when

operating in many countries, such as the three kinds of foreign exchange exposure for

105

various future time horizons: transactions exposure, accounting exposure, and economic

exposure.

The Financial Risk Management and Hedging Policy as approved by the Audit Committee

sets limits for exposures on currency and other parameters. The Corporation manages its

interest rate and currency risk in accordance with the guidelines prescribed. The risk

management strategy has been to protect against foreign exchange risk, whilst at the same

time exploring any opportunities for an upside, so as to keep the maximum all-in cost on the

borrowing in line with or lower than the cost of a borrowing in the domestic market for a

similar maturity. The Corporation has to manage various risks associated with the lending

business. These risks include credit risk, liquidity risk, foreign exchange 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. The Corporation has from time to time

entered into risk management arrangements in order to hedge its exposure to foreign

exchange and interest rate risks. The currency risk on the borrowings is actively hedged

through a combination of dollar denominated assets, long term forward contracts, principal

only swaps and currency options.

As at March 31, 2017, the Corporation had foreign currency borrowings of USD 2,944

million equivalent. twice during the year under review on December 12, 2016 and March 3,

2017. The entire principal on the foreign currency borrowings has been fully hedged

through the above-mentioned instruments. Hence as at March 31, 2017, the Corporation’s

foreign currency exposure on borrowings net of risk management arrangements is nil. In

addition, the Corporation has entered into cross currency swaps of a notional amount of

USD 49 million equivalant wherein it has converted its rupee liabilities into foreign

currency liabilities and the interest rate is linked to benchmarks of the respective currencies.

The total net foreign currency exposure on cross currency swaps is USD 37 million. The

open position is at 0.09% of the total borrowings of the Corporation. As a part of asset

liability management and on account of the predominance of HDFC’s Adjustable Rate

Home Loan product as well as to reduce the overall cost of borrowings, the Corporation has

entered into interest rate swaps wherein it has converted its fixed rate rupee liabilities of a

notional amount of ` 30,655 crore as at March 31, 2017 for varying maturities into floating

rate liabilities linked to various benchmarks.

106

Revaluation of Foreign Currency Assets and Liabilities Assets and liabilities in foreign

currencies net of risk management arrangements are converted at the rates of exchange

prevailing at the year end, where not covered by forward contracts. Wherever the

Corporation has entered into a forward contract or an instrument that is, in substance, a

forward exchange contract, the exchange difference is being amortised over the life of the

contract. Cross currency interest rate swaps are recorded by marking the foreign currency

component to spot rate. The net loss/gain on translation of long-term monetary assets and

liabilities in foreign currencies is amortised over the maturity period of monetary assets and

liabilities and charged to the statement of profit and loss. The unamortised exchange

difference is carried in the balance sheet as ‘foreign currency monetary item translation

difference account’. The net loss/gain on translation of short-term monetary assets and

liabilities in foreign currencies is recorded in the statement of profit and loss. As on March

31, 2017, an amount of ` 172 crore (net of future tax benefit of ` 59 crore) is carried forward

in the foreign currency monetary item translation difference account. This amount is to be

amortised over the period of the monetary assets/ liabilities. Consequent to the Guidance

Note on Accounting for Derivative Contracts issued by the Institute of Chartered

Accountants of India, becoming effective from April 1, 2016, the Corporation has changed

its accounting policy relating to derivative contracts from the aforesaid date. On and from

that date, all derivative contracts are recognised on the balance sheet and measured at fair

value. The fair value changes are recognised in the statement of profit and loss unless hedge

accounting is used. Where hedge accounting is used, fair value changes of the derivative

contracts are recognised through the statement of profit and loss in the same period as the

offsetting losses and gains on the hedged item. The long-term monetary items other than

derivatives continue to be amortised, through the statement of profit and loss over the

balance period of such long term asset or liability. There is no material impact on the results

of the Corporation for the year ended

March 31, 2017. Asset-Liability Management (ALM) Under Schedule III of the Companies

Act, 2013, the classification of assets and liabilities into current and non-current is based on

their contracted maturities. However, the estimates based on past trends in respect of

prepayment of loans and renewal of liabilities which are in accordance with the ALM

guidelines issued by NHB have not been taken into consideration while classifying the

assets and liabilities under the Schedule III. The ALM position of the Corporation is based

on the maturity buckets as per the guidelines issued by NHB. In computing the information,

107

certain estimates, assumptions and adjustments have been made by the management. The

ALM position is as under: As at March 31, 2017, assets and liabilities with maturity up to 1

year amounted to ` 73,634 crore and ` 64,915 crore respectively. Assets and liabilities with

maturity of greater than 1 year and up to 5 years amounted to ` 1,50,992 crore and `

1,78,377 crore respectively and assets and liabilities with maturity beyond 5 years amounted

to ` 1,11,732 crore and ` 93,066 crore respectively. The Corporation’s loan book is

predominantly floating rates, whereas liabilities especially deposits and nonconvertible

debentures are fixed rates. In normal economic conditions, the fixed rate liabilities are

converted into floating rate denominated liabilities by way of interest rate swaps. However,

during the year due the uncertain interest rate environment, short term rates continued to

remain volatile and this was accentuated during the demonetisation period. This resulted in

the cost of floating rate liabilities post the interest rate swap being higher than fixed rate

liabilities. Hence, the Corporation did not convert a part of its liabilities to a floating rate

basis to avoid the negative carry. The Corporation is monitoring the money market

conditions and shall enter into interest rate swaps at an appropriate time to minimise the

interest rate gap. As at March 31, 2017, 88% of the assets and 70% of the liabilities were on

a floating rate basis. Further, the Corporation has a fixed rate home loan scheme and has

kept some liabilities on a fixed rate basis to match out the expected disbursals under the

fixed rate product. Capital Adequacy Ratio As at March 31, 2017, the risk weighted assets

stood at around ` 2,54,000 crore. The Corporation’s capital adequacy ratio (CAR) stood at

14.5%, of which Tier I capital was 11.8% and Tier II capital was 2.7%. Deferred tax

liability on Special Reserve and the investment in HDFC Bank has been considered as a

deduction in the computation of Tier I capital. Further, the proposed final dividend and tax

thereon for the year ended March 31, 2017 has been reckoned in determining the net owned

funds in the computation of the capital adequacy ratio. As per regulatory norms, the

minimum requirement for the capital adequacy ratio and Tier I capital is 12% and 6%

respectively.

RISK MANAGEMENT IN LICHFL:

Risk is inherent part of the Company’s business. Effective Risk management is critical to

any Housing Finance Company for achieving financial soundness. In view of this, aligning

Risk management to Company’s organizational Structure and business strategy has become

an integral part in Company’s business. The management has to base their business

decisions on a dynamic and integrated risk management system and process, driven by 108

corporate strategy. The company is exposed to risks in the course of their business such as

credit risk, interest rate & market risk, liquidity risk and operational risk. LICHFL’s strategy

in optimizing business opportunities within the aforesaid constraints is assisted by a robust

asset liability management. The objective can be summarized as below: Reduce potential

costs of financial distress by making LICHousing Finance less vulnerable to adverse

movements in liquidity, interest rates, exchange rates (wherever applicable). Create a stable

planning environment, by ensuring that the business plan is not adversely impacted during

the financial year due to any adverse liquidity situations, interest rate and currency

fluctuations by using tools such as time-bucket wise liquidity statements, duration gap and

Forex exposure reports. In other words, it is aimed at ensuring that the Net Interest Income

(NII) is not adversely affected irrespective of adverse changes in the above risks as far as

possible.

1.Credit Risk: Credit risk is the risk associated with the borrower defaulting on its

obligation as and when it is due. A default by the customer is recorded as Non-Performing

Asset (NPA) in the Company’s is books if the customer is not able to settle the dues within

90 days of due date. Also referred to as Default Risk, this risk is usually borne by the lender

and is one of the most critical which can impact a financial institute whose main business is

lending. In case of LICHFL, the Company advances money in the lumpsum to collect it

over the forthcoming years by the way of Equated Monthly Instalments (EMIs).Selection of

right borrowers is the first and the most crucial step of this process. The company follows a

rigorous methodology

while selecting the borrowers. The Company scrutinizes the documents carefully and the

decision making is based on several parameters. After sanctioning the loan, monitoring of

the accounts is done. If any irregularities are found, prompt action is initiated. As Credit

Risk is one of the major risk faced by the Company, the Standard Operating Procedures

(SOP) document, clearly delineates the guidelines on credit appraisal, legal appraisal,

technical appraisal, verification, valuation, documentation, etc. The same is reviewed

periodically and, if need be, is revised in order to keep the procedures up-to-date.

2.Market Risk: Market risk is the risk of losses in positions taken by the company which

arises from movements in market prices. Any item in the balance sheet which needs re-

pricing at frequent intervals and whose pricing is decided by the market forces will be a

component of market risk. There are items in the Company’s balance sheet which exposes

109

it to market risk like Housing loans at floating rate, loans to developers at floating rate,

Non-Convertible Debenture s(NCDs)with options, bank loans with option, Foreign

Currency Bank Loans, Coupon Swaps, etc. This risk can be divided into following two

types-:

3.Interest Rate Risk: Interest Rate Risk refers to the risk associated with the adverse

movement in the interest rates .Adverse movement for LIC Housing Finance Limited would

imply rising interest rates on liabilities and falling interest yields on the assets. This is the

biggest market risk which the company faces. It arises because of maturity and re-pricing

mismatches of assets and liabilities. In order to mitigate the impact of this risk, the

Company tracks the composition and pricing of assets and liabilities on a continuous basis.

For the

same purpose, the Company has constituted an ALCO Committee which actively monitors

the ALM position and take appropriate action to avoid risk.

4.Foreign Exchange Risk: Foreign exchange risk (also known as FX risk, exchange rate

risk or currency risk) is a financial risk that exists when a financial transaction is

denominated

in a currency other than that of the base currency of the company. It arises because of an

unfavorable movement in the exchange rate of the denomination currency with respect to

the base currency. Depending upon the magnitude of the movement, the cash flows of the

Company can be impacted. In our case, the amount of foreign currency liabilities forms a

minor part of overall liabilities and is suitably monitored.

5.Liquidity Risk: Liquidity Risk implies the risk of not having sufficient funds to make

good the liabilities. This very risk has been the cause behind closure of number of banks in

the international markets in the past. Various situations in which liquidity risk may arise

include higher than estimated disbursements, stress on systemic liquidity due to CRR hikes,

higher government borrowing program, advance tax outflows, etc. Therefore it is imperative

to anticipate the net cash outflows correctly, as well as have a contingency plan in case of

any unforeseen outgo of funds. Another aspect of liquidity management is avoiding

hoarding excess money than what may be required as the same would result in sub- optimal

returns on the money available to invest. So every institution has to strike a balance between

the two positions and manage the liquidity position actively. In case of LIC Housing

Finance Limited, the Company has to continuously borrow money from the market in order

to carry on the business operations. This borrowing depends on the market liquidity

conditions and as the liquidity conditions change in the market very rapidly, the Company

110

may not get required funds at times. In order to avoid that situation, a thorough analysis of

expected cash outflow is done and funds are raised in advance to make sure that net cash

outflows remain less than cash inflows. The buffer is appropriately deployed in suitable

investments.

6.Operations Risk: Operational risk is "the risk of a change in value caused by the fact

that actual losses, incurred for inadequate or failed internal processes, people and systems,

or from external events (including legal risk), differ from the expected losses". It can be sub

divided into the following categories: ‹. Compliance risk is defined as the risk of legal

sanctions, material financial loss, or loss to reputation, the Company may suffer as a

result of its failure to comply with laws, its own regulations, code of conduct, and standards

of best /good practice. In case of LICHFL, the Company is regulated by NHB, registered

with ROC and its equity shares are listed on the Bombay Stock Exchange Limited (BSE)

and National Stock Exchange of India Limited (NSE) and the Luxembourg Stock

Exchange, making it imperative that the Company follows all the applicable laws. In order

to deal with the same, the Company has a designated Compliance Officer whose role entails

complying with the statutory requirements of the Company. Legal risk is the cost of

litigation due to cases arising out of lack of legal due diligence. Litigation can also arise out

of failure or frauds in project delivery. For LIC Housing Finance Limited, the main business

is of lending money for/against mortgage loans and is therefore exposed to legal risk. For

handling the same, there are robust legal systems for title verification and legal appraisal of

related documents. The Company also has standards of customer delivery and the

operational mechanism to adhere to such standards aimed at minimum instances of

customers’ grievances. Accounting risk is the risk that an error in accounting practice will

necessitate are statement of earnings, which adversely affects the investors or customers

’perception of the firm. The accounting transactions are consolidated through IT system to

prevent errors and omission. Company presents a fair and transparent view through its

financial statements and should disclose the opinion of statutory auditors in the Annual

Report as per the prescribed format by SEBI. The Company is aware that Operational risk

events may affect client satisfaction, reputation of the company and shareholder value and

therefore considers imperative to manage the same through appropriate mechanism.

7.Regulatory Risk: Regulatory risk is the risk that a change in laws and regulations will

materially impact the company. Changes in law or regulations made by the government or a

regulatory body can increase the costs of operating the business, and/or change the

competitive landscape. The regulatory risk can arise due to change in prudential rules/norms

111

by the regulators viz; NHB, SEBI, RBI etc. The Company is able to mitigate the same by

anticipating the likely regulatory changes that may come in the short and medium term and

is able to quickly change its systems and practice store align itself with the changed

regulatory framework from time to time as required.

8.Competition Risk: Competition Risk is the risk to the market share and profitability

arising due to competition. It is present across all the businesses and across all the economic

cycle with the intensity of competition risk varying due to several factors, like, barriers to

entry, industry growth potential, degree of competition, etc. Housing Finance business is on

an upward trajectory, perhaps due to growing economy, increased urbanization, government

incentives, acceptability of credit in society and rise in nuclear families. With the result, the

Housing Finance industry has seen a higher growth rate than overall economy and several

other industries since past several years. This has attracted lot of Companies in the market

thereby increasing competition among the existing Companies to maintain/grow market

share and profitability. The Company is able to mitigate this risk by addressing to the

customer needs with state of art infrastructure including IT interface aligning its practices

with the market in order to attract customers and at the same time retain the existing ones.

The Company has also been able to sense pulse of peer group in terms of their product

offerings, pricing and other schemes and is better poised to meet the challenges through

improved product offerings, prices and customer service.

Both the organisations, HDFC and LICHFL are struggling in a better way to drive away the

negative effect of risks.

***

112

Chapter IVPERFORMANCE ANALYSIS OF HDFC & LICHFL

The efficiency or the performance of the two Housing Finance Companies (HFC) is

analysed in some parameters in the following pages for comparison. Before going to

analyse the performance, it is clear that the HDFC is almost 2.5 times larger organisation

than the LICHFL. Some aspects like total income, gross profit, net profit, etc. are totally

depend upon the size of the organisation. The efficiency depends on advanced technology,

trained human resources, cheaper financial resources, better customer / product mix and

some external factors like inflation, rate of interest, job market and overall GDP. In the

following pages, some of the important aspects are analysed which reveal the performance

of the respective organisation.

1.TOTAL INCOME: The tendency of the Total Income of both the companies is also

studied for the study period. The total income of HDFC increased from Rs.8196 crore in

2008 to Rs.33160 crore by 2017 with a Compound Annual Growth Rate (CAGR) of 17

percent. The total income of LICHFL increased from Rs.2165 crore in the year 2008 to

Rs.14080 crore by the year 2017, with CAGR 23 percent. In view of CAGR, the LICHFL

is performing better than HDFC. The trend lines are also showing the increase in the total

income.

Table 4.1TOTAL INCOME

(Rs.Crore)

YEARHDFC LICHFL

TOTAL INCOME

Y-0-Y GROWTH%

TOTAL INCOME Y-0-Y GROWTH%

2008 8196 21652009 11018 34 2880 332010 11361 3 3470 202011 12878 13 4869 402012 17354 35 6215 282013 21147 22 7959 282014 24197 14 9335 172015 27471 13 10799 162016 30957 13 12485 162017 33160 7 14080 13

TOTAL 197739 154 74257 211CAGR 17 23

Source: Compiled from the Annual Reports of HDFC & LICHFL.

113

Chart 4.1Total Income

2008 2009 2010 2011 2012 2013 2014 2015 2016 20170

5000

10000

15000

20000

25000

30000

35000

8196 11

018

1136

1

1287

8 1735

4 2114

7 2419

7 2747

1 3095

7

3316

0

2165

2880

3470 48

69 6215 79

59 9335 10

799

1248

5

1408

0

HDFC TOTAL INCOME(Rs.Crore)Linear (HDFC TOTAL INCOME(Rs.Crore))LICHFL TOTAL INCOME(Rs.Crore)Linear (LICHFL TOTAL INCOME(Rs.Crore))

T-Test

H0: There is no significant mean difference between total income of HDFC & LICHFL

over the study period 2008-2017.

Group StatisticsName of the HFC

N Mean Std. Deviation Std. Error Mean

Total income

HDFC 10 19773.90 8943.301 2828.120LICHFL 10 7425.70 4178.964 1321.504

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

From the following table t-value is significant (t-sig. Value is 0.001 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between total income of

HDFC & LICHFL over the study period 2008-2017. Since the HDFC is almost 2.5 times

larger organisation than the LICHFL, the total income of HDFC is almost larger than that of

the LICHFL

.

114

Independent Samples TestLevene's Test for

Equality of Variances

t-test for Equality of Means

F Sig. t df Sig. (2-

tailed)

Mean Difference

Std. Error Differenc

e

95% Confidence

Interval of the Difference

Lower Upper

Total income

Equal variances assumed

8.693 .009 3.956 18 .001 12348.

200 3121.640 5789.877

18906.523

Equal variances not assumed

3.956 12.751 .002 12348.

200 3121.640 5590.914

19105.486

Table 4.2

LOAN SANCTIONS OF HDFC & LICHFL

(Rs.Crore)

YEAR HDFC Y-O-Y GROWTH% LICHFL Y-O-Y GROWTH%

2008 42520 8618

2009 49166 15.63 10899 20.93

2010 60611 23.28 18043 65.55

2011 75185 24.05 22603 25.27

2012 90154 19.91 22035 -0.03

2013 103260 14.54 26477 20.16

2914 115212 11.57 26706 0.87

2015 147247 27.81 31713 18.75

2016 191874 30.31 39100 23.29

2017 234296 22.11 43575 11.45

TOTAL   189.21 186.24

CAGR   21.02 20.69 Source: Compiled from Annual Reports of HDFC & LICHFL.

2.LOAN SANCTIONS: The loan sanctioning procedure is a multistage process. The

customer enquires and applies for the home loan in a prescribed form. The loan verification 115

and sanction process involve technical and legal verifications, such as building permission

from the local Government, value of the asset, annual income of the applicant along with

co-applicant, guarantor particulars, introducer particulars, legal opinion from the expert,

previous loan history of the customer, etc. The power of loan sanctioning to the different

loan amount limits is also vested with different level officers.

Chart 4.2

Loan Sanctions of HDFC & LICHFL.

2008 2009 2010 2011 2012 2013 2914 2015 2016 20170

50000

100000

150000

200000

250000

4252

0

4916

6

6061

1

7518

5

9015

4

1032

60

1152

12

1472

47

1918

74

2342

96

8618

1089

9

1804

3

2260

3

2203

5

2647

7

2670

6

3171

3

3910

0

4357

5

LOAN SANCTIONS HDFCLinear (LOAN SANCTIONS HDFC)LOAN SANCTIONS LICHFLLinear (LOAN SANCTIONS LICHFL)

After the loan application is verified in terms of feasibility, repayment capacity,

convenience of the loanee, the concerned authority will approve the loan in principle.

Usually the loan amount sanctioned will be 80 to 90 percent of the asset value.

The loan sanctions of both the companies were studied for the study period. The loan

approvals or sanctions of the HDFC in the year 2008 Rs.42520 crore increased to

Rs.234296 crore by the year 2017. The year on year growth rate is ranging from 11.57

percent in 2014 to 30.11 percent in 2014. The Compound Annual Growth Rate (CAGR) for

the study period is 21.02 percent. The loan sanctions / approvals of the LICHFL were also

observed for the same period. The loan sanctions of LICHFL Rs.8618 crore in the year

2018 increased to Rs.43575 crore by the year 2017. The year on year growth rate is ranging

between -0.03 percent in 2012 and 65.55 percent in 2010. It is also observer that in the

uufavourable conditions the growth is negative and in favourable conditions the rate is 116

65.55 percent. The CAGR of LICHFL for the period is 20.69 percent. Therefore, on the

basis of the CAGR, both the companies are running shoulder to shoulder, the HDFC is

better performed to some extent. The trend lines are explaining that the loan sanctions in

HDFC are increasing at higher rate than that of LICHFL during the study period.

T-Test

H0: There is no significant mean difference between loan sanctions of HDFC & LICHFL

over the study period 2008-2017.

Group Statistics

Name of HFC

N Mean Std. Deviation Std. Error Mean

L O A N

S A N C T I O N S

HDFC 10 110952.50 63160.513 19973.108

LICHFL 10 24976.90 11176.048 3534.177

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

Independent Samples Test

Levene's Test for Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig. (2-

tailed)

Mean

Difference

Std. Error

Difference

95% Confidence Interval of the

Difference

Lower Upper

Loan sanctions

Equal variances assumed

11.935 .003 4.239 18 .00085975.6

00

20283.379

43361.803

128589.397

117

Equal variances not assumed

4.2399.56

3.002

85975.6

00

20283.379

40499.927

131451.273

From the above table t-value is significant (t-sig. Value is 0.00 < 0.05), reject null hypothesis. It

means that there is a significant mean difference between loan sanctions of HDFC & LICHFL

over the study period 2008-2017.

Table 4.3

LOAN DISBURSEMENTS OF HDFC & LICHFL

(Rs.Crore)

YEARL O A N D I S B U RS E M E N T S

% OF DISBU. TO

SANC.

HDFCY-O-Y

GROWTH%LICHFL

Y-O-Y

GROWTH%HDFC LICHFL

2008 32875 7071 77.31 82.05

2009 39650 20.61 8672 22.64 80.65 87.55

2010 50413 27.15 14853 71.28 83.17 82.32

2011 60314 19.64 19912 34.06 80.22 88.09

2012 71113 17.90 20027 0.58 78.88 90.89

2013 82452 15.95 24358 21.63 79.85 92,00

2914 92455 12.13 25271 3.75 80.25 94.62

2015 124807 34.99 30327 20.01 84.76 95.63

2016 170614 36.70 36151 19.20 88.92 95.85

2017 203861 19.49 41541 14.91 87.01 95.33

118

TOTAL 204.56 208.06

CAGR 22.73 23.12

Source: Annual Reports of HDFC & LICHFL.

3.LOAN DISBURSEMENTS: After the loan is sanctioned, it has to be disbursed to the

loanee. The loan sanctioned amount is usually maximum 80 to 90 percent of the disclosed

value of the home. The remaining part of the money has to provided by the loanee from his

own funds as margin money, normally 10 to 20 percent of the disclosed value of the home.

The loan sanctioned amount is disbursed to the loanee / seller of the home after proper

documentation. In case the house is to constructed by the loan amount, the sanctioned loan

amount is disbursed in three or four installements, as per work in progress of construction,

in order to proper utilization of the home loan.

Chart 4.3

Loan Disbursements of HDFC & LICHFL

2008 2009 2010 2011 2012 2013 2914 2015 2016 20170

50000

100000

150000

200000

250000

3287

5

3965

0

5041

3

6031

4

7111

3

8245

2

9245

5 1248

07

1706

14 2038

61

7071

8672

1485

3

1991

2

2002

7

2435

8

2527

1

3032

7

3615

1

4154

1

L O A N D I S B U RS E M E N T S HDFCLinear (L O A N D I S B U RS E M E N T S HDFC)L O A N D I S B U RS E M E N T S LICHFLLinear (L O A N D I S B U RS E M E N T S LICHFL)

The loan disbursements of the two companies were studied for the study period. The loan

disbursal of HDFC Rs.32875 crore in 2008 increased to Rs.203861 crore by the year 2017.

The year on year growth rate is also encouraging, ranging between 12.13 percent in the year

2014 and 34.99 in 2015. The CAGR of HDFC loan disbursements for the study period is

22.73 percent. The loan disbursement are increasing at an average rate of 22.73 percent per,

for the study period. The loan disbursals of the LICHFL were also observed. The 119

disbursals of LICHFL Rs.7071 crore in the year 2008 increased to Rs.41541 crore by the

year 2017. The year on year (yoy) growth is the least 0.58 percent in the year 2012 and the

highest 34.06 percent in the year 2011. The CAGR of the loan disbursements of LICHFL

for the study period is 23.12 percent, which means the company has average disbursals

23.12 percent per year for ten years. In terms of CAGR of loan disbursements, even though

there is volatility in disbursements of LICHFL, the company performed well when

compared to HDFC. The percentage of loan disbursals to loan sanctions is also studied. By

observation, in most of the years the percentage of disbursals of LICHFL is higher than that

of HDFC. The average percentage of disbursal to loan sanctions of HDFC is 82.1 where as

of the LICHFL is 90.42. Hence the LICHFL is taking more care while sanctioning loan.

The trend lines are showing an increase in disbursements in both the companies.

T-Test

H0: There is no significant mean difference between loan disbursements of HDFC &

LICHFL over the study period 2008-2017.

Group Statistics

Name of HFC N Mean Std.

Deviation

Std. Error

Mean

LOAN

DISBURSEME

NTS

HDFC 1092855.4

057017.964 18030.663

LICHFL 1022818.3

011159.682 3529.001

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

120

Independent Samples TestLevene's Test for Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig. (2-

tailed)

Mean Differe

nce

Std. Error Difference

95% Confidence

Interval of the Difference

Lower Upper

LOAN DISBURSEMENTS

Equal variances assumed

11.148 .004 3.812 18 .001 70037.

10018372.770

31437.343

108636.85

7Equal variances not assumed

3.812

9.689 .004 70037.

10018372.770

28920.918

111153.28

2

From the above table t-value is significant (t-sig. Value is 0.001 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between loan disbursements

of HDFC & LICHFL over the study period 2008-2017.

Table 4.4CAPITAL ADEQUACY RATIO (%)

YEAR HDFC LICHFL2008 14.60 13.472009 15.10 13.502010 14.60 14.892011 14.40 14.882012 14.60 16.692013 16.40 16.542914 15.20 16.382015 15.00 13.302016 16.55 17.042017 14.50 15.64

TOTAL 150.95 152.33AVERAGE 15.06 15.23

121

Source: Annual Reports of HDFC & LICHFL

4.CAPITAL TO RISK ASSETS RATIO (CRAR)%: Capital to Risk Assets Ratio is also

called Capital Adequacy Ratio (CAR). Housing Financial Institutions are required to hold

regulatory capital to protect retail depositors from unexpected losses they may incur in the

course of their business. This takes the form of capital adequacy ratio or the ratio of capital

held by an institution to its risk-exposure which is measured by its risk-weighted assets.

Among other capital requirements, the Reserve Bank of India (RBI) and National Housing

Bank (NHB) prescribe a minimum capital of 12 percent of risk-weighted assets. The Tier -I

CAR is 12 percent and Tier-2 CAR is 6 percent. The risk weightage increases as the loan

sanctioned amount to a loanee increases. If the HFC gives higher amount of housing loan,

it has to face higher risk and it has to provide a higher CAR.

The average CAR of the HDFC for the study period is 15.06 and LICHFL is 15.23, which

means the LICHFL is maintaining good CAR. The higher is also an indicator for the idle

capital, which doesnot earn any yield. The higher CAR means, lower profits. Hence the

HFCs have to maintain a balance between risk and return. The trend lines are explaining

that the CRAR of HDFC has been decreasing but the trend line of LICHFL is showing an

increase in CRAR.

Chart 4.4CAR of HDFC & LICHFL

2008 2009 2010 2011 2012 2013 2914 2015 2016 20170.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

14.6

0

15.1

0

14.6

0

14.4

0

14.6

0 16.4

0

15.2

0

15.0

0 16.5

5

14.5

0

13.4

7

13.5

0 14.8

9

14.8

8 16.6

9

16.5

4

16.3

8

13.3

0

17.0

4

15.6

4

HDFCLinear (HDFC)LICHFLLinear (LICHFL)

122

.T-Test

H0: There is no significant mean difference between capital adequacy ratios of HDFC &

LICHFL over the study period 2008-2017.

Group Statistics

Name of

HFC

N Mean Std.

Deviation

Std. Error

Mean

CAPITAL

ADEQUACY

RATIO (%)

HDFC 1015.09500

0.7754748 .2452267

LICHFL 1015.23300

01.4402087 .4554340

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

From the following table t-value is not significant (t-sig. Value is 0.793), no evidence to

reject null hypothesis. It means that there is no significant mean difference between capital

adequacy ratios of HDFC & LICHFL over the study period 2008-2017.

Independent Samples TestLevene's Test for Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig. (2-

tailed)

Mean Differe

nce

Std. Error

Difference

95% Confidence Interval of

the Difference

Lower Upper

CAPITAL ADEQUACY RATIO (%)

Equal variances assumed

6.600 .019 -.267 18 .793 -.1380

000.51725

84

-1.2247

195

.948719

5Equal variances not assumed

-.267

13.814 .794 -.1380

000.51725

84

-1.2488

120

.972812

0123

Table 4.5

HUMAN RESOURCES

YEARHUMAN RESOURCES

HDFC YOY GROWTH% LICHFL YOY GROWTH%

2008 1445   985  

2009 1490 3.1 1013 2.8

2010 1505 1.5 1160 14.5

2011 1607 6.5 1190 2.6

2012 1719 7.1 1217 2.3

2013 1833 6.6 1451 19.2

2914 1956 6.7 1514 4.3

2015 2081 6.4 1621 7.1

2016 2196 5.6 1726 6.5

2017 2305 5.1 1833 6.2

TOTAL 18137 48.6 13710 65.5

CAGR   5.40   7.28

Source: Compiled from Annual Reports of HDFC & LICHFL.

5.HUMAN RESOURCES: The marketing of housing loans is sourced by the agents, Direct

Selling Agents (DSA), subsidiary / parent companies and direct enquiries of the customers.

Apart from these members, there are some regular staff to look after all the front office and

the back office activities. The human resource departments of both the companies are giving

traing to develop their human resources.

124

Chart 4.5

Human Resources of HDFC & LICHFL.

2008 2009 2010 2011 2012 2013 2914 2015 2016 20170

500

1000

1500

2000

2500

1445

1490

1505 16

07 1719 18

33 1956 20

81 2196 23

05

985

1013 11

60

1190

1217

1451

1514 16

21 1726 18

33

HUMAN RESOURCES HDFCLinear (HUMAN RESOURCES HDFC)HUMAN RESOURCES LICHFLLinear (HUMAN RESOURCES LICHFL)

T-Test

H0: There is no significant mean difference between human resources of HDFC & LICHFL

over the study period 2008-2017.

Group Statistics

Name of HFC N Mean Std.

Deviation

Std. Error

Mean

HUMAN

RESOURCES

HDFC 10 1813.70 310.432 98.167

LICHFL 10 1371.00 299.439 94.691

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

125

From the following table t-value is significant (t-sig. Value is 0.004 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between human resources of

HDFC & LICHFL over the study period 2008-2017.

Independent Samples TestLevene's Test for

Equality of Variances

t-test for Equality of Means

F Sig. t df Sig. (2-

tailed)

Mean Differe

nce

Std. Error

Difference

95% Confidence

Interval of the Difference

Lower Upper

HUMAN RESOURCES

Equal variances assumed

.002 .968 3.246 18 .004 442.70

0136.39

3 156.148 729.252

Equal variances not assumed

3.246

17.977 .004 442.70

0136.39

3 156.121 729.279

Table 4.5.1CORRELATION BETWEEN HR & DPS

YEARHDFC LICHFL

HR DPS(%) HR DPS(%)2008 1445 5.00 985 2.002009 1490 6.00 1013 2.602010 1505 7.20 1160 3.002011 1607 9.00 1190 3.502012 1719 11.00 1217 3.602013 1833 12.50 1451 3.802914 1956 14.00 1514 4.502015 2081 15.00 1621 5.002016 2196 17.00 1726 5.502017 2305 18.00 1833 6.20

 CORRELATION 0.988739082 0.979413435

Source: Compiled from the annual reports of HDFC & LICHFL.

An attempt is made to study that there is any correlation between human resources and

dividend per share in both the companies. The correlation in HDFC and LICHFL is 0.988 126

and 0.979 respectively. An increase in human resources is leading in increase in dividend

per share.

Table 4.6

ASSETS PER EMPLOYEE & PROFIT PER EMPLOYEE

YEAR

ASSETS PER EMPLOYEE(Rs.Cr)

PROFIT PER EMPLOYEE(Rs.Lakh)

HDFC LICHFL HDFC LICHFL

2008 56.00 24.03 134.00 52.96

2009 65.00 29.65 153.00 60.18

2010 74.00 33.51 188.00 65.30

2011 83.00 39.67 220.00 81.80

2012 92.00 49.21 240.00 75.10

2013 100.00 53.63 265.00 70.76

2914 109.00 60.33 275.00 87.00

2015 115.00 68.24 288.00 87.29

2016 127.00 72.52 323.00 96.23

2017 140.00 84.62 323.00 105.34

AVERAGE 96.10 51.54 240.90 78.19

Source: Compiled from Annual Reports of HDFC & LICHFL.

6.ASSETS PER EMPLOYEE: Assets are the resources which increase the earnings

capacity of the company. Assets Per Employee (APE) indicate the earning capacity of the

company. The APE of HDFC Rs.56 crore in the year 2008 continuously increased to

Rs.140 crore by the year 2017. For the same period, the APE of LICHFL Rs.24.03 crore in

the year 2008 continuouly increased to Rs.84.62 crore by the year 2017. We can conclude

that the HDFC is leading in performance in view of APE.

127

Table 4.6.1

CORRELATION BETWEEN ASSETS PER EMPLOYEE & PROFIT PER EMPLOYEE

YEARHDFC LICHFL

APE PPE APE PPE

2008 56.00 134.00 24.03 52.96

2009 65.00 153.00 29.65 60.18

2010 74.00 188.00 33.51 65.30

2011 83.00 220.00 39.67 81.80

2012 92.00 240.00 49.21 75.10

2013 100.00 265.00 53.63 70.76

2914 109.00 275.00 60.33 87.00

2015 115.00 288.00 68.24 87.29

2016 127.00 323.00 72.52 96.23

2017 140.00 323.00 84.62 105.34

0.983359102 0.938527188

Source: Compiled from the Annual Reports of HDFC & LICHFL.

An attempt is made to establish correlation between assets per employee (APE) and profit

per employee (PPE). Correlation of HDFC between APE and PPE is 0.983 and that of

LICHFL is 0.938, which means a good correlation between the two variables. As the

increase in APE, there is an increase in PPE in both the companies.

128

Chart 4.6.1

Assets Per Employee of HDFC & LICHFL.

2008 2009 2010 2011 2012 2013 2914 2015 2016 20170.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

56

.00

65

.00

74

.00

83

.00

92

.00

10

0.0

0

10

9.0

0

11

5.0

0

12

7.0

0

14

0.0

0

24

.03

29

.65

33

.51

39

.67

49

.21

53

.63

60

.33

68

.24

72

.52

84

.62 ASSETS PER EMPLOYEE(Rs.Cr)

HDFCLinear (ASSETS PER EM-PLOYEE(Rs.Cr) HDFC)ASSETS PER EMPLOYEE(Rs.Cr) LICHFLLinear (ASSETS PER EM-PLOYEE(Rs.Cr) LICHFL)

T-Test

H0: There is no significant mean difference between assets per employee of HDFC &

LICHFL over the study period 2008-2017.

Group Statistics

Name of HFC N Mean Std.

Deviation

Std. Error

Mean

ASSETS PER

EMPLOYEE(Crore)

HDFC 10 96.10 27.229 8.611

LICHFL 10 51.70 19.995 6.323

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

129

Independent Samples Test

Levene's

Test for

Equality

of

Variances

t-test for Equality of Means

F Sig. t df Sig.

(2-

tailed

)

Mean

Differen

ce

Std.

Error

Differen

ce

95%

Confidence

Interval of the

Difference

Lower Upper

ASSETS

PER

EMPLOY

EE(Crore)

Equal

variances

assumed

1.

10

9

.306 4.156 18 .001 44.400 10.683 21.956 66.844

Equal

variances not

assumed

4.156 16.520 .001 44.400 10.683 21.811 66.989

From the above table t-value is significant (t-sig. Value is 0.001 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between assets per employee

of HDFC & LICHFL over the study period 2008-2017.

7.PROFIT PER EMPLOYEE: The profit per employee is also observed for the

comparison purpose. The Profit per employee of HDFC Rs.134.00 lakhs in the year 2008

continuously increasing to Rs.323.00 Lakhs. The average profit per employee of HDFC for

the study period is Rs.249.90 Lakh per year. The profit per employee of LICHFL Rs.52.96

lakh in the year 2008 continuously increased to Rs. 105.34 by the year 2017. The average

profit per employee of LICHFL for the study period is Rs.78.19 lakhs. The average profit

per employee is much more in HDFC than LICHFL. Hence HDFC is performing better.

The increasing gap in trend lines is explaining that the Profit per Employee of HDFC is

increasing faster than that of the LICHFL.

130

Chart 4.6.2

Profit Per Employee of HDFC & LICHFL.

2008 2009 2010 2011 2012 2013 2914 2015 2016 20170.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

134.

00

153.

00 188.

00 220.

00

240.

00 265.

00

275.

00

288.

00 323.

00

323.

00

52.9

6

60.1

8

65.3

0

81.8

0

75.1

0

70.7

6

87.0

0

87.2

9

96.2

3

105.

34

PROFIT PER EMPLOYEE(Rs.Lakh) HDFCLinear (PROFIT PER EM-PLOYEE(Rs.Lakh) HDFC)PROFIT PER EMPLOYEE(Rs.Lakh) LICHFLLinear (PROFIT PER EM-PLOYEE(Rs.Lakh) LICHFL)

T-Test

H0: There is no significant mean difference between profit per employee of HDFC &

LICHFL over the study period 2008-2017.

Group Statistics

Name of HFC N Mean Std.

Deviation

Std. Error

Mean

PROFIT PER

EMPLOYEE(Rs.Lakhs)

HDFC 10 78.10 16.353 5.171

LICHFL 10 2.40 .699 .221

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

131

Independent Samples Test

Levene's Test

for Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig.

(2-

tailed

)

Mean

Differ

ence

Std.

Error

Differ

ence

95%

Confidence

Interval of the

Difference

Lower Upper

PROFIT

PER

EMPLOYE

E(Rs.Lakhs

)

Equal

variances

assumed

22.72

4.000

14.

62518 .000

75.70

05.176

64.82

5

86.57

5

Equal

variances

not

assumed

14.

625

9.0

33.000

75.70

05.176

63.99

7

87.40

3

From the above table t-value is significant (t-sig. Value is 0.000 < 0.05), reject null hypothesis. It

means that there is a significant mean difference between profits per employee of HDFC &

LICHFL over the study period 2008-2017.

132

Table 4.7

DIVIDENDS

YEARDIVIDENDS(PER SHARE) (Rs.) DIVIDEND %

HDFC LICHFL HDFC LICHFL

2008 5.00 2.00 250 100

2009 6.00 2.60 300 130

2010 7.20 3.00 360 150

2011 9.00 3.50 450 175

2012 11.00 3.60 550 180

2013 12.50 3.80 625 190

2914 14.00 4.50 700 225

2015 15.00 5.00 750 250

2016 17.00 5.50 850 275

2017 18.00 6.20 900 319

AVERAGE 11.47 3.97 573.5 199.4

Source: Compiled from Annual Reports of HDFC & LICHFL

8.DIVIDENDS PER SHARE: The face value of equity share of both HDFC & LICHFL is

Rs.2.00. The dividends per share of the two companies are observed for the study period of

ten years. The dividends per share of HDFC Rs.5.00 in 2008 increased to Rs.18.00 by the year

2017, with an average dividend per share of Rs.11.47 for the study period of ten years. The

dividends per share of LICHFL Rs.2.00 in the year 2008 increased to Rs.6.20 by the year 2017,

with an average dividends per share of Rs.3.97 for ten years. The trend lines are explaining

that the dividends of both the companies are continuously increasing year after year.

133

Chart 4.7

Dividends Per Share of HDFC & LICHFL.

2008 2009 2010 2011 2012 2013 2914 2015 2016 20170.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.005

.00

6.0

0

7.2

0 9.0

0 11

.00

12

.50

14

.00

15

.00

17

.00

18

.00

2.0

0

2.6

0

3.0

0

3.5

0

3.6

0

3.8

0

4.5

0

5.0

0

5.5

0

6.2

0

DIVIDENDS(PER SHARE) (Rs.) HDFC

Linear (DIVIDENDS(PER SHARE) (Rs.) HDFC)

DIVIDENDS(PER SHARE) (Rs.) LICHFL

Linear (DIVIDENDS(PER SHARE) (Rs.) LICHFL)

9.DIVIDEND PERCENTAGE: The pattern of dividend percentage is also studied for the

study period. The Percentage of dividend of HDFC 250 in the year 2008 increased to 900

by the year, with an average of 573.50 percent per year. The dividend percentage of

LICHFL 100 in the year 2008 increased to 319 by the year 2017, with an average of 199.40

percent per year for the entire ten years. It is also observed that the dividends per share and

the percentage of dividends are depended on the overall efficiency of the management,

capital, reserves, low cost debt and the proper utilization of the entire resources. The HDFC

is in the better position than LICHFL, in view of the dividends per share and the percentage

of dividends.

T-Test

H0: There is no significant mean difference between dividends per share of HDFC &

LICHFL over the study period 2008-2017.

Group StatisticsName of HFC N Mean Std. Deviation Std. Error

MeanDIVIDENDS(PER SHARE) (Rs.)

HDFC 10 11.470 4.5884 1.4510

LICHFL 10 3.970 1.3225 .4182

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

134

Independent Samples Test

Levene's Test

for Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig.

(2-

tailed

)

Mean

Differ

ence

Std.

Error

Differ

ence

95%

Confidence

Interval of the

Difference

Lower Upper

DIVIDEND

S

(PER

SHARE)

(Rs.)

Equal

variances

assumed

14.58

5.001

4.9

6718 .000

7.500

0

1.510

0

4.327

5

10.67

25

Equal

variances

not

assumed

4.9

67

10.

485.000

7.500

0

1.510

0

4.156

4

10.84

36

From the above table t-value is significant (t-sig. Value is 0.000 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between dividends of HDFC

& LICHFL over the study period 2008-2017.

135

T-Test

H0: There is no significant mean difference between dividends% of HDFC & LICHFL over

the study period 2008-2017.

Group Statistics

Name of HFC N Mean Std. Deviation Std. Error

Mean

DIVIDEN

D %

HDFC 10 573.50 229.420 72.549

LICHFL 10 199.40 67.850 21.456

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

Independent Samples Test

Levene's Test

for Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig.

(2-

tailed)

Mean

Differe

nce

Std.

Error

Differe

nce

95%

Confidence

Interval of the

Difference

Lower Upper

DIVI

DEN

D %

Equal

variances

assumed

14.247 .0014.94

518 .000

374.10

075.655

215.15

4

533.04

6

Equal

variances

not

assumed

4.94

5

10.5

62.000

374.10

075.655

206.73

8

541.46

2

136

From the above table t-value is significant (t-sig. Value is 0.000 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between dividends% of

HDFC & LICHFL over the study period 2008-2017.

Table 4.8

BOOK VALUE PER SHARE & EARNINGS PER SHARE

YEARBOOK VALUE PER SHARE(Rs.) EPS(Rs.)

HDFC LICHFL HDFC LICHFL

2008 84.00 43.00 13.00 12.52

2009 92.00 53.00 16.00 13.90

2010 106.00 72.00 20.00 14.69

2011 118.00 88.00 24.00 20.59

2012 129.00 113.00 28.00 19.20

2013 162.00 128.00 32.00 20.28

2914 179.00 181.00 35.00 26.10

2015 197.00 220.00 38.00 27.47

2016 216.00 275.00 44.00 32.71

2017 250.00 310.00 46.00 38.26

AVERAGE 153.30 148.30

Source: Compiled from Annual Reports of HDFC & LICHFL

Chart 4.8:Book Value Per & EPS.

2008 2009 2010 2011 2012 2013 2914 2015 2016 20170.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

84

.00

92

.00

10

6.0

0

11

8.0

0

12

9.0

0

16

2.0

0

17

9.0

0

19

7.0

0

21

6.0

0

25

0.0

0

43

.00

53

.00

72

.00

88

.00

11

3.0

0

12

8.0

0 18

1.0

0

22

0.0

0 27

5.0

0

31

0.0

0

BOOK VALUE PER SHARE(Rs.) HDFCLinear (BOOK VALUE PER SHARE(Rs.) HDFC)BOOK VALUE PER SHARE(Rs.) LICHFLLinear (BOOK VALUE PER SHARE(Rs.) LICHFL)

.

137

10.BOOK VALUE PER SHARE: Book value per share is derived from dividing the

shareholders funds or the networth by the number of equity shares. The face value equity

share of both the companies is Rs.2.00 each. The book value per share indirectly explains

the earning capacity of the company. The book value per share of the HDFC was Rs.84.00

in the year 2008 increased to Rs.250.00 by the year 2017. It was increasing continuously

and constantly. The average book value per share of the company for the study period of

ten years was Rs.153.30. The book value of LICHFL was Rs.43.00 in the year 2008

increased to Rs.310.00 by the year 2017, with an average of Rs.148.30. From the book

value point of view, the HDFC is performing better and constantly than LICHFL. The trend

line of the Book value of both the companies reveal that the HDFC’s book value is not

increasing on par with the LICHFL.

11.EARNINGS PER SHARE (EPS): The trend of EPS of both the companies is studied

for period. The EPS of HDFC Rs.13.00 in the year 2008 increased to Rs.46.00 by the year

2017, with an average of Rs.29.60. The EPS of LICHFL Rs.12.52 in the year 2008

increased to Rs.38.26 by the year 2017, with an average of Rs.22.57. The EPS of HDFC is

not depicting its size when compared to LICHFL. From the trend lines, it can be concluded

that both companies are showing positive trend in EPS.

Chart 4.8.1

EPS of HDFC & LICHFL.

2008 2009 2010 2011 2012 2013 2914 2015 2016 20170.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

50.00

13.0

0

16.0

0 20.0

0 24.0

0 28.0

0 32.0

0

35.0

0

38.0

0 44.0

0

46.0

0

12.5

2

13.9

0

14.6

9 20.5

9

19.2

0

20.2

8 26.1

0

27.4

7 32.7

1 38.2

6

EPS(Rs.) HDFCLinear (EPS(Rs.) HDFC)EPS(Rs.) LICHFLLinear (EPS(Rs.) LICHFL)

138

T-Test

H0: There is no significant mean difference between book value per share of HDFC &

LICHFL over the study period 2008-2017.

The following table describes the mean, standard deviation of each housing finance

company along with Std. Error.

Group StatisticsName of HFC N Mean Std.

DeviationStd. Error

MeanBOOK VALUE PER SHARE(Rs.)

HDFC 10 153.30 56.334 17.815LICHFL 10 148.30 94.102 29.758

Independent Samples TestLevene's Test for Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig. (2-

tailed)

Mean Difference

Std. Error Difference

95% Confidence

Interval of the Difference

Lower Upper

BOOK VALUE PER SHARE(Rs.)

Equal variances assumed

3.621 .073 .144 18 .887 5.000 34.68

2

-67.86

5

77.865

Equal variances not assumed

.144

14.717 .887 5.000 34.68

2

-69.04

8

79.048

From the above table t-value is not significant (t-sig. Value is 0.887 > 0.05), no evidence to

reject null hypothesis. It means that there is no significant mean difference between book

value per share of HDFC & LICHFL over the study period 2008-2017.

139

T-Test

H0: There is no significant mean difference between EPS of HDFC & LICHFL over the

study period 2008-2017.

Group Statistics

Name of HFC N Mean Std. Deviation Std. Error

Mean

EPS(R

s.)

HDFC 10 29.6000 11.39396 3.60309

LICHFL 10 22.5720 8.46072 2.67551

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

Independent Samples Test

Levene's Test

for Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig.

(2-

tailed)

Mean

Differe

nce

Std.

Error

Differe

nce

95%

Confidence

Interval of the

Difference

Lower Upper

EP

S(

Rs

.)

Equal

variances

assumed

1.272 .2741.56

618 .135

7.0280

0

4.4878

3

-

2.4005

8

16.456

58

Equal

variances not

assumed

1.56

6

16.6

11.136

7.0280

0

4.4878

3

-

2.4574

0

16.513

40

140

From the above table t-value is not significant (t-sig. Value is 0.135 > 0.05), no evidence to

reject null hypothesis. It means that there is no significant mean difference between EPS of

HDFC & LICHFL over the study period 2008-2017.

12. NET INTEREST MARGIN (NIM): NIM is the difference of interest earned on

the housing loans and investments and interest paid on borrowings, loans, NCDs,

deposits, etc. The NIM in the HDFC 4.20 percent in the year 2008 decreased to 4.10

percent by the 2017. The average NIM of HDFC for the study period of ten years is 4.25

Percent. The NIM of LICHFL 2.85 percent in the year 2008 decreased to 2.70 percent

by the year 2017. The average NIM of LICHFL for the study period is 2.59 percent.

NIM in both HDFC and LICHFL is ranging between 3.90 percent to 4.80 percent and

2.18 percent to 3.06 percent respectively. The higher NIM, the better the company.

Hence the HDFC is performing better than LICHFL in this angle. The trend lines

reveals that the NIM in both the companies is declining for the study period.

Table 4.9

NET INTEREST MARGIN (NIM)%

YEARNET INTEREST MARGIN INDIVIDUAL LOAN %

HDFC LICHFL HDFC LICHFL

2008 4.20 2.85 66.00 83.22

2009 4.50 2.95 66.00 83.94

2010 4.30 2.75 65.00 83.81

2011 4.80 3.06 66.00 87.95

2012 4.40 2.44 66.00 94.17

2013 4.21 2.18 69.00 95.36

2914 4.10 2.25 71.00 96.12

2015 4.00 2.24 71.00 96.46

2016 3.90 2.52 73.00 95.51

2017 4.10 2.70 73.00 92.28

Source – Compiled from Annual reports of HDFC & LICHFL

141

Chart 4.9

Net Interest Margin of HDFC & LICHFL.

2008 2009 2010 2011 2012 2013 2914 2015 2016 20170.00

1.00

2.00

3.00

4.00

5.00

6.004

.20

4.5

0

4.3

0 4.8

0

4.4

0

4.2

1

4.1

0

4.0

0

3.9

0

4.1

0

2.8

5

2.9

5

2.7

5

3.0

6

2.4

4

2.1

8

2.2

5

2.2

4

2.5

2

2.7

0

NET INTEREST MARGIN HDFCLinear (NET INTEREST MARGIN HDFC)NET INTEREST MARGIN LICHFLLinear (NET INTEREST MARGIN LICHFL)

Table 4.10

AVERAGE LOAN SIZE(Rs.Lakhs)

YEAR HDFC LICHFL

2008 14.00 10.66

2009 15.40 12.66

2010 16.90 13.89

2011 18.60 12.33

2012 19.50 14.87

2013 21.60 15.16

2914 22.10 18.00

2015 23.30 19.00

2016 25.00 20.00

2017 25.60 20.00

TOTAL 202.00 156.57

AVERAGE 20.20 15.65

Source: Annual Reports of HDFC & LICHFL

13. AVAVERAGE LOAN SIZE: The average loan size of both the companies is studied for the period

142

of ten years. The loan size of HDFC is continuously increasing from Rs.14.00 lakh in 2008 to Rs.25.60

lakh by the year 2017. The average loan size of LICHFL is also continuously increasing from Rs.10.66

lakh in the year to Rs.20.00 lakh by the year 2017. The average of average size of home loans of HDFC

and LICHFL is Rs.20.20 lakh and Rs.15.65 lakhs respectively. The higher the loan size, the higher the

risk of becoming NPA, which mean the HDFC may face more risk than the LICHFL. The trend in

average loan size in both the companies is increasing.

Chart 4.10

Average loan size of HDFC & LICHFL.

2008 2009 2010 2011 2012 2013 2914 2015 2016 20170.00

5.00

10.00

15.00

20.00

25.00

30.00

14.0

0 15.4

0 16.9

0 18.6

0

19.5

0 21.6

0

22.1

0

23.3

0 25.0

0

25.6

0

10.6

6 12.6

6

13.8

9

12.3

3 14.8

7

15.1

6 18.0

0

19.0

0

20.0

0

20.0

0AVERATE LOAN SIZE(Rs.Lakhs) HDFCLinear (AVERATE LOAN SIZE(Rs.Lakhs) HDFC)AVERATE LOAN SIZE(Rs.Lakhs) LICHFLLinear (AVERATE LOAN SIZE(Rs.Lakhs) LICHFL)

T-Test

H0: There is no significant mean difference between average loan sizes of HDFC &

LICHFL over the study period 2008-2017.

Group Statistics

143

Name of HFC N Mean Std. Deviation

Std. Error Mean

AVERAGE LOAN SIZE(Rs.Lakhs)

HDFC 10 20.200000 3.9832985 1.2596296

LICHFL 10 15.657000 3.3894970 1.0718531

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

From the following table t-value is significant (t-sig. Value is 0.013 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between average loan sizes

of HDFC & LICHFL over the study period 2008-2017.

Independent Samples TestLevene's Test for Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig. (2-

tailed)

Mean Difference

Std. Error Difference

95% Confidence

Interval of the Difference

Lower Upper

AVERAGE LOAN SIZE(Rs.Lakhs)

Equal variances assumed

.335 .570 2.747 18 .013 4.543

00001.6539455

1.0681895

8.0178105

Equal variances not assumed

2.747

17.550 .013 4.543

00001.6539455

1.0617990

8.0242010

14. INDIVIDUAL LOANS: The patter of individual loans is also studied for the study

period. The two companies lend home loans to the individuals and non-individuals, like

corporates, societies, etc. It is clear from the table, that the average individual loans of the

HDFC is 68.60 percent and of the LICHFL is 90.88 percent. The percentage of individual

loans indicate the level of NPA and profits,etc. The lower Individual loans in HDFC

indicate the higher NPAs and higher profits, because, usually, the non-individual loans are

charged higher rate of interest which are more risky. Higher individual loans in LICHFL

indicate, low NPAs, lower profits, because individual loans are long term oriented and

charged with lower rate of interest. The trend in individual loans in both the companies is

increasing.

144

Table 4.10.1

Individual loan Percentage of HDFC & LICHFL ( % )

YEAR HDFC LICHFL

2008 66.00 83.22

2009 66.00 83.94

2010 65.00 83.81

2011 66.00 87.95

2012 66.00 94.17

2013 69.00 95.36

2914 71.00 96.12

2015 71.00 96.46

2016 73.00 95.51

2017 73.00 92.28

TOTAL 686.00 908.82

AVERAGE 68.60 90.88

Source: Annual Reports of HDFC & LICHFL

Chart 4.10.1

145

Individual loan Percentage of HDFC & LICHFL.

2008 2009 2010 2011 2012 2013 2914 2015 2016 20170.00

20.00

40.00

60.00

80.00

100.00

120.00

66.0

0

66.0

0

65.0

0

66.0

0

66.0

0

69.0

0

71.0

0

71.0

0

73.0

0

73.0

083.2

2

83.9

4

83.8

1

87.9

5

94.1

7

95.3

6

96.1

2

96.4

6

95.5

1

92.2

8

INDIVIDUAL LOAN % HDFCLinear (INDIVIDUAL LOAN % HDFC)INDIVIDUAL LOAN % LICHFLLinear (INDIVIDUAL LOAN % LICHFL)

T-Test

H0: There is no significant mean difference between net interest margins of HDFC &

LICHFL over the study period 2008-2017.

Group Statistics

Name of HFC N Mean Std. Deviation Std. Error

Mean

NET

INTEREST

MARGIN

HDFC 10 4.251000 .2633312 .0832726

LICHFL 10 2.594000 .3143317 .0994004

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

From the following table t-value is significant (t-sig. Value is 0.000 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between net interest margins

of HDFC & LICHFL over the study period 2008-2017.

146

Independent Samples Test

Levene's Test

for Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig.

(2-

tailed)

Mean

Differe

nce

Std.

Error

Differe

nce

95%

Confidence

Interval of the

Difference

Lower Upper

NET

INTE

REST

MAR

GIN

Equal

variances

assumed

1.070 .31512.7

7818 .000

1.6570

000

.12967

18

1.3845

696

1.9294

304

Equal

variances

not assumed

12.7

78

17.4

64.000

1.6570

000

.12967

18

1.3839

689

1.9300

311

T-Test

H0: There is no significant mean difference between individual loan percent of HDFC &

LICHFL over the study period 2008-2017.

Group Statistics

Name of HFC N Mean Std. Deviation Std. Error

Mean

INDIVIDUAL

LOAN %

HDFC 10 68.6000 3.16930 1.00222

LICHFL 10 90.8820 5.56072 1.75845

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

147

From the following table t-value is significant (t-sig. Value is 0.000 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between individual loan

percent of HDFC & LICHFL over the study period 2008-2017.

Independent Samples Test

Levene's Test

for Equality

of Variances

t-test for Equality of Means

F Sig. t df Sig.

(2-

tailed)

Mean

Differ

ence

Std.

Error

Differ

ence

95%

Confidence

Interval of the

Difference

Lower Upper

INDIVI

DUAL

LOAN

%

Equal

variances

assumed

8.427 .009-

11.00918 .000

-

22.282

00

2.0240

1

-

26.534

28

-

18.029

72

Equal

variances

not

assumed

-

11.009

14.2

89.000

-

22.282

00

2.0240

1

-

26.614

84

-

17.949

16

Table 4.11

ADMINISTRATIVE EXPENSES TO AVERAGE LOAN ASSETS

YEAR HDFC(%) LICHFL(%)

2008 0.37 0.55

148

2009 0.35 0.54

2010 0.29 0.48

2011 0.30 0.45

2012 0.30 0.38

2013 0.30 0.36

2914 0.30 0.34

2015 0.29 0.37

2016 0.27 0.34

2017 0.26 0.37

TOTAL 3.03 4.18

AVERAGE 0.30 0.41

Source: Compiled from Annual Reports of HDFC & LICHFL.

15.ADMINISTRATION EXPENSES TO AVERAGE LOAN ASSETS: The

administrative expenses to average loan assets of both the companies is continuously

decreasing. The administration expenses to average loan assets of HDFC 0.37 percent in

2008 decreased to 0.26 percent by the year 2017. The administrative expenses to average

loan assets of LICHFL 0,55 percent in 2008 decreased to 0.37 by the year 2017. The

average of HDFC and LICHFL for the ten years period stood at 0.30 and 0.41 respectively.

Hence the HDFC is performing well in this point of view. The trend in administrative

expenses in both the companies is decreasing.

Chart 4.11

% of Admn.Expenses to Average loan assets of HDFC & LICHFL.

149

2008 2009 2010 2011 2012 2013 2914 2015 2016 20170.00

0.10

0.20

0.30

0.40

0.50

0.60

0.37

0.35

0.29 0.30

0.30

0.30

0.30

0.29

0.27

0.26

0.55

0.54

0.48

0.45

0.38

0.36

0.34 0.

37

0.34 0.

37

ADMN. EXP. TO AVERAGE LOAN ASSETS HDFCLinear (ADMN. EXP. TO AVERAGE LOAN ASSETS HDFC)ADMN. EXP. TO AVERAGE LOAN ASSETS LICHFLLinear (ADMN. EXP. TO AVERAGE LOAN ASSETS LICHFL)

T-Test

H0: There is no significant mean difference between administrative expenses to average

loan assets of HDFC & LICHFL over the study period 2008-2017.

Group Statistics

Type of

Housing

N Mean Std.

Deviation

Std. Error

Mean

ADMINISTRATIVE

EXPENSES TO AVERAGE

LOAN ASSETS

HDFC 10 .303000 .0333500 .0105462

LICHFL 10 .418000 .0808015 .0255517

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

Independent Samples Test

150

Levene's

Test for

Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig.

(2-

taile

d)

Mean

Differ

ence

Std.

Error

Differ

ence

95%

Confidence

Interval of the

Difference

Lower Upper

ADMINIS

TRATIVE

EXPENSE

S TO

AVERAGE

LOAN

ASSETS

Equal

variances

assumed

13.02

9.002

-

4.16018 .001

-.1150

000

.0276

426

-.1730

749

-.0569

251

Equal

variances

not

assumed

-

4.160

11.98

0.001

-.1150

000

.0276

426

-.1752

392

-.0547

608

From the above table t-value is significant (t-sig. Value is 0.001 < 0.05), reject null hypothesis.

It means that there is a significant mean difference between administrative expenses to average

loan assets of HDFC & LICHFL over the study period 2008-2017.

151

Table 4.12

GROSS NON-PERFORMING ASSETS(GNPA)

(Rs.Crore)

YEARHDFC LICHFL

NPA % NPA %

2008 613.18 0.84 372.91 1.70

2009 701.55 0.81 297.00 1.07

2010 782.85 0.79 263.15 0.60

2011 903.85 0.77 241.96 0.47

2012 1069.00 0.74 265.02 0.42

2013 1199.00 0.70 471.22 0.61

2914 1357.00 0.69 609.00 0.67

2015 1542.00 0.79 494.68 0.46

2016 1833.00 0.70 567.81 0.45

2017 2378.00 0.79 627.82 0.43

TOTAL   7.62   6.88

AVERAGE   0.76   0.68

Source: Annual Reports of HDFC & LICHFL.

16.A Non-performing asset (NPA) is defined as a credit facility in respect of which the

interest and/or instalment of loan finance principal has remained ‘past due’ for a specified

period of time. The period was 180 days, but now it is reduced to 90 days. With a view to

moving towards international best practices and to ensure greater transparency, it has been

decided to adopt the ‘90 days’ ‘overdue’ norm for identification of NPA, from the year

ending March 31, 2004. The alarming level of NPAs is recognized as one of the major

explanations for implementing structural changes and reform measures in the banking

sector during this period. Non-performing assets indicate an advance for which interest or

repayment of principal or both remains overdue for a period of 90 days or more. Once the

borrower has failed to make interest or principal payments for 90 days the loan is

152

considered to be a non-performing asset. An advance/loan is treated as non-performing

when it fails to satisfy its repayment obligations. Keeping in view the inefficiencies in the

banking and finance sector and the presence of non-performing assets, the Committee on

Financial System (Narasimham Committee – I) was set up. The banking sector reforms in

India during the post-liberalization period mostly focused on improving the efficiency of the

banking and finance sector by incorporating prudential norms for income recognition, asset

classification and provisioning and through integrating international standards.

NPA is used by financial institutions that refer to loans that are in jeopardy of default the so

called NPL. Non-performing assets are problematic for housing finance institutions(HFIs)

since they depend on interest payments for income. Troublesome pressure from the

economy can lead to a sharp increase in NPLs and often results in massive write-downs.

The level of NPAs is an indicator of the efficiency of HFI’s credit risk management and

efficiency of resource allocation to productive sectors. NPA is expressed as percentage to

outstanding loans.

The Basel Committee on Banking Supervision defines credit risk as “potential default of a

borrower to meet the obligation in accordance with the agreed terms” (BIS, 2005). Higher

non-performing assets resulted in many financial institutions (FIs) failures. NPAs represent

a real economic cost in modern days as they reflect the application of scarce capital and

credit funds to unproductive use. It also affects the lending capacity since funds are blocked

and repayment is disturbed and has also resulted in additional cost for intermediation and

realizing the NPAs.

Further classify non-performing assets further into the following three categories based on

the period for which the asset has remained non-performing and the realisability of the dues:

1. Sub-standard assets: a sub standard asset is one which has been classified as NPA for a

period not exceeding 12 months.

2. Doubtful Assets: a doubtful asset is one which has remained NPA for a period exceeding

12 months.

3. Loss assets: where loss has been identified by the FIs, internal or external auditor or

central bank inspectors. But the amount has not been written off, wholly or partly.

Usual lending operations /bad lending practices, a banking crisis (as happened in USA, Sub-

Prime crisis), Overhang component (due to environmental reasons, natural calamities,

business cycle, Disease Occurrence, etc.) Incremental component (due to internal

153

management, like credit policy, terms of credit, Demonetisation, etc...) and inflationary

conditions may be the reasons for the accumulating NPAs.

Following are some of the repercussions of NPAs:

Depositors do not get rightful returns and many times may lose uninsured deposits.

HFIs may begin charging higher interest rates on some products to compensate NPL

losses.

Shareholders are adversely affected by reduction in share price and reducing in

dividends. .

Bad loans imply redirecting of funds from good projects to bad ones. Hence, the

economy suffers due to loss of good projects and failure of bad investments.

When HFIs do not get loan repayment or interest payments, liquidity problems may

ensue.

Many researches on NPA illustrated the relationship between asset quality and financial

distress and considered management of NPA as a major prerequisite to counter the

recessionary pressures and foster economic development.

The NPAs condition of HDFC and LICHFL was studied for the period of ten financial

years, from 2008 to 2017. The NPL of HDFC increased from Rs.613 crore in 2008 to

Rs.2378 by 2017. But the percentage of NPL decreased from 0.84 in year 2008 to 0.79 by

the year 2017. An extended observation is also made that in terms of NPL for six months.

The six month NPL is also decreased from 0.62 percent in 2008 to 0.54 by 2017. The trend

in NPL in both the three month based and six month based is decreasing in HDFC, which is

symbol for efficient management.

Chart 4.12

GNPL of HDFC & LICHFL.

154

2008 2009 2010 2011 2012 2013 2014 2015 2016 20170.00

0.50

1.00

1.50

2.00

2.50

3.00

0.8

4

0.8

1

0.7

9

0.7

7

0.7

4

0.7

0

0.6

9

0.7

9

0.7

0

0.7

9

1.7

0

1.0

7

0.6

9

0.4

7

0.4

2

0.6

1

0.6

7

0.4

6

0.4

5

0.4

3

LICHFL NPL%HDFC NPL%

The NPL position of LICHFL was also studied for the same period for comparison. The

NPL of LICHFL were Rs.373 crore in the year 2008 increased to Rs.627 crore by the year

2017. The percentage of NPL was 1.70 in 2008 decreased to 0.43 by 2017. The six month

NPL for the same period was 0.64 percent in 2008 decreased significantly to 0.14 percent.

The LICHFL managed NPLs efficiently than HDFC. The trend in NPL in both companies

is declining.

T-Test

H0: There is no significant mean difference between GNPA of HDFC & LICHFL over the

study period 2008-2017.

Group Statistics

Name of HFC N Mean Std. Deviation Std. Error Mean

GNP

A

HDFC 10 1237.943000 556.5050012 175.9823333

LICHFL 10 421.057000 151.5156022 47.9134404

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

155

From the following table t-value is significant (t-sig. Value is 0.000 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between GNPA of HDFC &

LICHFL over the study period 2008-2017.

Independent Samples TestLevene's Test for Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig. (2-

tailed)

Mean Differe

nce

Std. Error

Difference

95% Confidence Interval of the

DifferenceLower Upper

GNPA

Equal variances assumed

8.414 .010 4.479 18 .000 816.88

60000182.3882655

433.7024730

1200.0695270

Equal variances not assumed

4.479

10.327 .001 816.88

60000182.3882655

412.2371034

1221.5348966

Table 4.13

MARKETING OUTLETS

EAR MARKETING OUTLETS

HDFC YoY Growth% LICHFL YoY Growth%

2008 250   132  

2009 267 1.73 150 1.83

2010 279 1.18 158 0.79

2011 289 0.09 181 1.98

2012 311 1.85 188 0.59

2013 331 1.64 194 0.49

2914 354 1.52 204 0.69

2015 378 1.59 219 0.99

2016 401 1.42 234 0.93

2017 427 1.51 262 1.62

CAGR%   1.39   1.10Source: Annual Reports of HDFC & LICHFL.

156

Chart 4.13Marketing outlets of HDFC & LICHFL.

2008 2009 2010 2011 2012 2013 2914 2015 2016 20170

50

100

150

200

250

300

350

400

450

25

0 26

7

27

9

28

9 31

1 33

1 35

4 37

8 40

1 42

7

13

2 15

0

15

8 18

1

18

8

19

4

20

4 21

9 23

4 26

2

MARKETING OUTLETS HDFCLinear (MARKETING OUTLETS HDFC)MARKETING OUTLETS LICHFLLinear (MARKETING OUTLETS LICHFL)

17.MARKETING OUTLETS: The loan sourcing activity being done through agents /

HLAs/ front offices / corporate offices / subsidiaries. The parent / subsidiary organisations

of these two companies are very familiar to general public. The subsidiary company of

HDFC is the HDFC Bank and the parent organisation of the LICHFL is the Life Insurance

Corporation of India. The table explains marketing network and distribution of offices of

the respective companies. The number of offices of HDFC were 250 in the year 2008

increased to 427 by the year showing a CAGR of 1.39 percent for the study period of ten

years. The marketing offices of the LICHFL 132 in the year 2008 increased to 262,

showing a CAGR 1.10 percent. Hence it is concluded the marketing network of HDFC is

increasing at a higher speed than that of the LICHFL. The trend in marketing outlets in

both the companies is continuously increasing.

T-Test

H0: There is no significant mean difference between marketing outlets of HDFC &

LICHFL over the study period 2008-2017.

Group Statistics

Type of Housing

N Mean Std. Deviation

Std. Error Mean

MARKETING OUTLETS

HDFC 10 328.70 59.932 18.952

LICHFL 10 192.20 39.718 12.560

157

The above table describes the mean, standard deviation of each housing finance company

marketing outlets along with Std. Error.

Independent Samples TestLevene's Test for

Equality of Variances

t-test for Equality of Means

F Sig. t df Sig. (2-

tailed)

Mean Differen

ce

Std. Error Difference

95% Confidence Interval of the

DifferenceLower Upper

MARKETING OUTLETS

Equal variances assumed

2.569 .126 6.004 18 .000 136.500 22.736 88.733 184.267

Equal variances not assumed

6.004 15.627 .000 136.500 22.736 88.208 184.792

From the above table t-value is significant (t-sig. Value is 0.000 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between marketing outlets of

HDFC & LICHFL over the study period 2008-2017.

158

Table 4.14

FUNDS EMPLOYED

(Rs.Crore)

YEAR

HDFC LICHFL

NET WORTH

TOTAL BORROWINGS

TOTAL FUNDS EMPLOYED

NET WORTH

TOTAL BORROWINGS

TOTAL FUNDS EMPLOYED

2008 11941 69151 81092 1832 20344 22176

2009 13137 84857 97994 2234 25422 27656

2010 15198 96565 111763 3388 34758 38146

2011 17317 115113 132430 4169 37946 42115

2012 19018 139128 158146 5682 47870 53552

2013 24830 158828 183658 6481 58705 65186

2914 27955 183973 211928 7533 70450 77983

2015 30970 209217 240187 7818 83217 91035

2016 34121 238317 272438 9146 96098 105244

2017 39645 280534 320179 11077 111326 122403

AVERAGE 23413 157568 180981 5936 58613 64549

% 12.38 87.62 100.00 9.05 90.95 100.00

Source: Annual Reports of HDFC & LICHFL.

159

Chart 4.14

Net worth and total borrowings of HDFC & LICHFL.

2008 2009 2010 2011 2012 2013 2914 2015 2016 20170

50000

100000

150000

200000

250000

30000011

941

1313

7

1519

8

1731

7

1901

8

2483

0

2795

5

3097

0

3412

1

3964

56915

1

8485

7

9656

5 1151

13 1391

28 1588

28 1839

73 2092

17 2383

17

2805

34

1832

2234

3388

4169

5682

6481

7533

7818

9146

1107

7

2034

4

2542

2

3475

8

3794

6

4787

0

5870

5

7045

0

8321

7

9609

8

1113

26

HDFC NET WORTHHDFC TOTAL BORROWINGSLICHFL NET WORTHLICHFL TOTAL BORROWINGS

13.FUNDS EMPLOYED: The net worth of HDFC Rs.11941 crore in the year 2008

increased to Rs.39645 crore by the year 2017. The average of the net worth of HDFC is

Rs.23413 crore for the ten years of study period. The borrowings of HDFC Rs.69151 crore

in 2008 increased to Rs.280534 crore by the year 2017, with an average of Rs.157568 crore.

The total funds of HDFC Rs.81092 crore increased to Rs.320179 crore by the 2017. In

these total funds of HDFC, net worth comprises of 12.38 percent and borrowings 87.62

percent.

The net worth of LICHFL Rs.1832 crore in 2008 increased to Rs.11077 by the year

2017, with an average of Rs.5936 crore. The borrowings of LICHFL Rs.20344 crore in the

year 2008 increased to Rs.111326 by the year 2017, with an average of Rs.58613 crore.

The total funds employed of LICHFL Rs.22176 crore in the year 2008 increased to

Rs.122403 crore by the year 2017, with an average of Rs.64549 crore per year. The total

funds in LICHFL comprises of 9.05 percent of net worth and 90.95 percent of borrowings.

It is clear from the table, that both the companies are employed more borrowings, due to

cheaper rate of interest.

160

T-Test

H0: There is no significant mean difference between net worth of HDFC & LICHFL over

the study period 2008-2017.

Group Statistics

Type of Housing Finance

N Mean Std. Deviation Std. Error Mean

NET WORTHHDFC 10 23413.20 9539.691 3016.715

LIC HFL 10 5936.00 3043.209 962.347

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

Independent Samples Test

Levene's Test for Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig. (2-

tailed)

Mean Differe

nce

Std. Error

Difference

95% Confidence

Interval of the Difference

Lower Upper

NET WORTH

Equal variances assumed

15.220 .0015.51

918 .000

17477.200

3166.494

10824.643

24129.757

Equal variances not assumed

5.519

10.813

.00017477.

2003166.4

9410493.

05924461.

341

From the above table t-value is significant (t-sig. Value is 0.000 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between net worth of HDFC

& LICHFL over the study period 2008-2017.161

T-Test

H0: There is no significant mean difference between total borrowings of HDFC & LICHFL

over the study period 2008-2017.

Group Statistics

Type of Housing

Finance

N Mean Std.

Deviation

Std. Error

Mean

TOTAL

BORROWINGS

HDFC 10157568.3

069901.320 22104.738

LIC HFL 10 58613.60 30924.680 9779.242

The above table describes the mean, standard deviation of each housing finance company along with Std. Error.

Independent Samples TestLevene's Test for Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig. (2-

tailed)

Mean Difference

Std. Error Difference

95% Confidence

Interval of the Difference

Lower Upper

TOTAL BORROWINGS

Equal variances assumed

6.230 .022 4.094 18 .001 98954.

70024171.

32748172.

627149736.773

Equal variances not assumed

4.094

12.393 .001 98954.

70024171.

32746474.

544151434.856

From the above table t-value is significant (t-sig. Value is 0.001 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between total borrowings of

HDFC & LICHFL over the study period 2008-2017.

T-Test

H0: There is no significant mean difference between total funds employed of HDFC &

LICHFL over the study period 2008-2017.

162

Group Statistics

Type of Housing

Finance

N Mean Std. Deviation Std. Error

Mean

TOTAL

FUNDS

EMPLOYED

HDFC 10 157568.30 69901.320 22104.738

LIC HFL 10 58613.60 30924.680 9779.242

H0: There is no significant mean difference between net worth of HDFC & LICHFL over

the study period 2008-2017.

Independent Samples TestLevene's Test for Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig. (2-

tailed)

Mean Differe

nce

Std. Error

Difference

95% Confidence

Interval of the Difference

Lower UpperTOTAL FUNDS EMPLOYED

Equal variances assumed

6.230 .022 4.094 18 .001 98954.700

24171.327

48172.627

149736.773

Equal variances not assumed

4.094 12.393 .001 98954.

70024171.

32746474.

544151434.856

From the above table t-value is significant (t-sig. Value is 0.000 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between total funds

employed of HDFC & LICHFL over the study period 2008-2017.

14.Profit Before Tax: The trend of Gross Profit (GP) or Profit Before Tax (PBT) of both the

companies was also studied. The PBT of HDFC increased from Rs.2737 crore in 2008 to

Rs.10727 crore by the year 2017, showing CAGR of 19 percent. The year on

year(YOY)growth percent is the highest in the year 2015 with 36 percent and the lowest in

the year 2017, i.e.8 percent. The GP of LICHFL increased from Rs.532 crore in 2008 to

163

Rs.2956 by the year 2018, showing CAGR of 23 percent. The YOY growth rate 5 percent

is the lowest in the year 2012 and the highest 42 percent in 2011. When compared, the

LICHFL is showing the better performance in PBT with 23 percent CAGR, than HDFC

with 19 percent CAGR.

Table No.4.15PROFIT BEFORE TAX

(Rs.Crore)

YEAR

PROFIT BEFORE TAX

HDFC LICHFL

PBTY-0-Y

GROWTH %PBT

Y-0-Y GROWTH %

2008 2737   532  

2009 3219 18 727 37

2010 3916 22 911 25

2011 4861 24 1294 42

2012 5666 16 1231 5

2013 6573 16 1374 12

2014 7440 13 1825 33

2015 10117 36 2102 15

2016 11613 15 2564 22

2017 10727 8 2956 15

TOTAL 66869 168 15516 206

CAGR%   19   23

Source: Compiled from the Annual Reports of the HDFC & LICHFL.

164

Chart 4.15

Profit Before Tax of HDFC & LIVHFL.

2010 2011 2012 2013 2014 2015 2016 20170

2000

4000

6000

8000

10000

12000

1400039

16 4861 56

66 6573 74

40

1011

7 1161

3

1072

7

911 12

94

1231

1374 18

25

2102 25

64 2956

PROFIT BEFORE TAX HDFCLinear (PROFIT BEFORE TAX HDFC)PROFIT BEFORE TAX LICHFLLinear (PROFIT BEFORE TAX LICHFL)

T-Test

H0: There is no significant mean difference between profits before tax of HDFC & LICHFL

over the study period 2008-2017.

Group Statistics

Type of Housing

Finance

N Mean Std.

Deviation

Std. Error

Mean

PROFIT BEFORE

TAX

HDFC 106686.9

03207.918 1014.433

LIC HFL 101551.6

0796.212 251.784

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

165

Independent Samples Test

Levene's Test for Equality of Variances

t-test for Equality of Means

F Sig. t df Sig. (2-

tailed)

Mean Difference

Std. Error Difference

95% Confidence

Interval of the Difference

Lower

Upper

PROFIT BEFORE TAX

Equal variances assumed

14.162

.0014.913

18 .0005135.

3001045.

2132939.

3907331.

210

Equal variances not assumed

4.913

10.105

.0015135.

3001045.

2132809.

6877460.

913

From the above table t-value is significant (t-sig. Value is 0.000 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between profits before tax of

HDFC & LICHFL over the study period 2008-2017.

166

Table 4.16

NET PROFIT

(Rs.Crore)

YEAR

HDFC LICHFL

NET PROFIT

Y-0-Y GROWTH

%

NET PROFIT

Y-0-Y GROWTH%

2008 1943   387  

2009 2283 17 531 37

2010 2827 24 662 25

2011 3535 25 975 47

2012 4123 17 914 -6

2013 4848 18 1023 12

2014 5440 12 1317 29

2015 5990 10 1380 5

2016 7093 18 1661 20

2017 7443 5 1931 16

TOTAL 45525 146 10781 185

CAGR%   16   21

Source: Compiled from the Annual Reports of the HDFC &

LICHFL.

167

Chart 4.16

NP of HDFC & LICHCL

2008 2009 2010 2011 2012 2013 2014 2015 2016 20170

1000

2000

3000

4000

5000

6000

7000

8000

1943 22

83 2827

3535 41

23

4848 54

40 5990

7093 74

43

387

531

662 97

5

914

1023 13

17

1380 16

61 1931

HDFC NET PROFIT(Rs.Crore)Linear (HDFC NET PROFIT(Rs.Crore))LICHFL NET PROFIT(Rs.Crore)Linear (LICHFL NET PROFIT(Rs.Crore))

4.15.NET PROFIT: Profit analysis of both the companies is also done for the study

period. The Net Profit (NP) of HDFC Rs.1943 crore in the year 2008 increased to Rs.7443

crore by 2017. The YOY growth percentage for the period ranges between 5 to 25, the

highest 25 percent in the year 2011 and the least in 2017. The CAGR of HDFC in NP for

the period is 16 percent. The NP of LICHFL Rs.387 crore in the year 2008 increased to

Rs.1931 crore by 2017. The YOY growth for the study period ranges between 5 to 37

percent, the lowest in the year 2015 and the highest in the year 2009, showing the CAGR of

21 percent for the study period. Based on the CAGR percentage, LICHFL with 21 percent

is better performed than HDFC with 16 percent.

168

T-Test

H0: There is no significant mean difference between net profit of HDFC & LICHFL over

the study period 2008-2017.

Group Statistics

Type of Housing

Finance

N Mean Std. Deviation Std. Error

Mean

NET PROFITHDFC 10 4552.50 1941.012 613.802

LIC HFL 10 1078.10 495.098 156.564

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

Independent Samples Test

Levene's Test

for Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig.

(2-

tailed

)

Mean

Differe

nce

Std.

Error

Diffe

rence

95% Confidence

Interval of the

Difference

Lower Upper

NET

PROFI

T

Equal

variances

assumed

15.412 .001 5.485 18 .0003474.4

00

633.4

55

2143.5

61

4805.23

9

Equal

variances not

assumed

5.48510.16

6.000

3474.4

00

633.4

55

2066.0

96

4882.70

4

169

From the above table t-value is significant (t-sig. Value is 0.000 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between net profits of HDFC

& LICHFL over the study period 2008-2017.

Table 4.17

RETURN ON EQUITY (%)

YEAR HDFC LICHFL

2008 20.39 21.33

2009 17.47 23.79

2010 18.69 19.54

2011 20.41 23.37

2012 21.27 16.08

2013 19.52 15.78

2014 19.48 17.48

2015 19.34 17.72

2016 20.81 18.15

2017 18.79 17.43

AVERAGE 19.61 19.06

Source: Compiled from the Annual reports of HDFC & LICHFL.

170

Chart 4.17

ROE of HDFC & LICHFL

4.16. RETURN ON EQUITY: In corporate finance the return on equity (ROE) is a

measure of the profitability of a business in relation to the equity. ROE is a measure of how

well a company uses investments to generate earnings growth. ROE is especially used for

comparing the performance of companies in the same industry. As with return on capital, a

ROE is a measure of management's ability to generate income from the equity available to

it. ROEs of 15-20% are generally considered good. The ROE of HDFC is ranging from

17.47 percent to 21.27 percent for the study period. The average ROE of HDFC for the

study period is 19.61 percent. The ROE of LICHFL is ranging from 15.78 percent to 23.79

percent. The average ROE of LICHFL for the study period is 19.06 percent. The HDFC is

performing better than LICHFL in view of ROE.

T-Test

H0: There is no significant mean difference between return of equity of HDFC & LICHFL

over the study period 2008-2017.

171

2008 2009 2010 2011 2012 2013 2014 2015 2016 20170.00

5.00

10.00

15.00

20.00

25.00

20.3

9

17.4

7

18.6

9 20.4

1

21.2

7

19.5

2

19.4

8

19.3

4

20.8

1

18.7

921.3

3 23.7

9

19.5

4

23.3

7

16.0

8

15.7

8 17.4

8

17.7

2

18.1

5

17.4

3

ROE HDFCLinear (ROE HDFC)ROE LICHFLLinear (ROE LICHFL)

Group Statistics

Type of Housing Finance

N Mean Std. Deviation

Std. Error Mean

RETURN ON EQUITY (%)

HDFC 1019.61700

01.1372389 .3596265

LIC HFL 1019.06700

02.8625476 .9052170

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

Independent Samples Test

Levene's Test for Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig. (2-

tailed)

Mean Difference

Std. Error Difference

95% Confidence

Interval of the Difference

Lower Upper

RETURN ON EQUITY (%)

Equal variances assumed

8.736 .008.56

518 .579

.5500000

.9740375

-1.4963769

2.5963769

Equal variances not assumed

.565

11.772

.583.5500

000.9740

375

-1.5768144

2.6768144

From the above table t-value is significant (t-sig. Value is 0.579 > 0.05), no evidence to

reject null hypothesis. It means that there is no significant mean difference between return

of equity of HDFC & LICHFL over the study period 2008-2017.

172

Table 4.18

LOAN PORTFOLIO

YEAR

HDFC LICHFL

% of Individual Loans to Total Loans

Disbursed

% of Other Loans to Total

Loans Disbursed

% of Individual Loans to

Total Loans Disbursed

% of Other Loans to Total

Loans Disbursed

2008 67.24 32.76 83.47 16.53

2009 65.48 34.52 83.90 16.10

2010 66.67 33.33 83.81 16.10

2011 67.24 32.75 87.95 12.05

2012 67.17 32.83 95.46 4.54

2013 68.00 32.00 95.00 5.00

2014 71.00 29.00 96.00 4.00

2015 71.00 29.00 97.00 5.00

2016 73.00 27.00 96.00 4.00

2017 73.00 27.00 92.00 8.00

Average 68.99 31.01 91.05 9.13

Source: Compiled from the Annual reports of HDFC & LICHFL.

173

Chart 4.18

% of individual loans & other loans of HDFC & LICHFL

2008 2009 2010 2011 2012 2013 2014 2015 2016 20170.00

20.00

40.00

60.00

80.00

100.00

120.0067

.24

65.4

8

66.6

7

67.2

4

67.1

7

68.0

0

71.0

0

71.0

0

73.0

0

73.0

0

32.7

6

34.5

2

33.3

3

32.7

5

32.8

3

32.0

0

29.0

0

29.0

0

27.0

0

27.0

0

83.4

7

83.9

0

83.8

1

87.9

5

95.4

6

95.0

0

96.0

0

97.0

0

96.0

0

92.0

0

16.5

3

16.1

0

16.1

0

12.0

5

4.5

4

5.0

0

4.0

0

5.0

0

4.00 8.

00

HDFC % of Individual Loans to Total Loans DisbursedHDFC % of Other Loans to Total Loans DisbursedLICHFL % of Individual Loans to Total Loans DisbursedLICHFL % of Other Loans to Total Loans Disbursed

.

4.17 LOAN PORTFOLIO: The HDFC and LICHFL are disbursing home loans to

individuals as well as non-individuals, like corporate, societies, etc. The pattern of the

percentage of individual loans and non-individual loans is also studied. The HDFC

disbursements to individuals in the year 2008, 67.24 percent increased continuously to 73

percent. The average disbursements to individuals is 68.98 percent. The percentage of non-

individual loans is continuously decreasing from 32.76 percent in the year 2008 to 27

percent by the 2017. The average percentage of non-individual loans of HDFC is 31.01.

The LICHFL disbursements to individuals continuously increasing from 83.47 percent in

the year to 92 percent by the year 29=017. The average percentage of individual loans of

LICHFL for the study period is 91.05. The non-individual loans of LICHFL is decreasing

from 16.53 percent in the year 2008 to 8 percent by the year 2017, with an average of 9.13

percent. The increase in individual loans indicate low profits and low NPAs, because non-

individual loans are of shorter term with higher rate of interest. Both the companies are

preferring individual loans to corporate loans.

174

T-Test

H0: There is no significant mean difference between percent of Individual loans to total

loans disbursed of HDFC & LICHFL over the study period 2008-2017.

Group Statistics

Type of

Housing

Finance

N Mean Std. Deviation Std. Error

Mean

% of Individual

Loans

to Total Loans

Disbursed

HDFC 10 68.980000 2.7559915 .8715210

LIC HFL 10 91.059000 5.6859113 1.7980430

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

From the following table t-value is significant (t-sig. Value is 0.000 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between percent of

Individual loans to total loans disbursed of HDFC & LICHFL over the study period 2008-

2017.

175

Independent Samples Test

Levene's Test

for Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig.

(2-

tailed)

Mean

Differ

ence

Std.

Error

Differ

ence

95%

Confidence

Interval of the

Difference

Lower Upper

% of

Individual

Loans to

Total Loans

Disbursed

Equal

variances

assumed

12.509 .002

-

11.

050

18 .000

-

22.07

90000

1.998

1260

-

26.276

9070

-

17.881

0930

Equal

variances

not

assumed

-

11.

050

13.

008.000

-

22.07

90000

1.998

1260

-

26.395

4293

-

17.762

5707

T-Test

H0: There is no significant mean difference between percent of Other Loans to Total

Loans Disbursed of HDFC & LICHFL over the study period 2008-2017.

Group StatisticsType of Housing Finance

N Mean Std. Deviation Std. Error Mean

% of Other Loans to Total Loans Disbursed

HDFC 10 31.019000 2.7552917 .8712997

LIC HFL 10 9.132000 5.4725655 1.7305772

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

176

Independent Samples TestLevene's Test for

Equality of Variances

t-test for Equality of Means

F Sig. t df Sig. (2-

tailed)

Mean Difference

Std. Error Differenc

e

95% Confidence

Interval of the Difference

Lower Upper

% of Other Loans to Total Loans Disbursed

Equal variances assumed

12.056 .003 11.2

96 18 .00021.887000

0

1.9375398

17.8163799

25.957620

1Equal variances not assumed

11.296

13.287 .000

21.887000

0

1.9375398

17.7103802

26.063619

8

From the above table t-value is significant (t-sig. Value is 0.000 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between percent of Other

Loans to Total Loans Disbursed of HDFC & LICHFL over the study period 2008-2017.

4.18. CURRENT RATIO: The Current Ratio (CR) is a liquidity ratio that measures whether or

not a firm has enough resources to meet its short-term obligations. It compares a firm's current

assets to its current liabilities. The current ratio is an indication of a firm's liquidity. In many cases

a creditor would consider a high current ratio to be better than a low current ratio, because a high

current ratio indicates that the company is more likely to pay the creditor back. Large current ratios

are not always a good sign for investors. If the company's current ratio is too high it may indicate

that the company is not efficiently using its current assets or its short-term financing facilities. If

current liabilities exceed current assets the current ratio will be less than 1. A current ratio of less

than 1 indicates that the company may have problems meeting its short-term obligations. The

current ratio of HDFC is continuously decreasing from 2.29 in the year 2008 to 0.11 by the year

2017, with an average of 0.98. The current ratio of LICHFL is 1.91 in the year 2008, continuously

decreasing to 0.44 by the year 2017, with an average of 1.04. Since the CR of LICHFL is better

than that of the HDFC, LICHFL is performing better.

177

Table 4.19

CURRENT RATIO (%)

YEAR HDFC LICHFL

2008 2.29 1.91

2009 1.93 1.63

2010 2.16 1.84

2011 1.86 1.21

2012 0.29 1.59

2013 0.36 0.39

2014 0.30 0.47

2015 0.27 0.46

2016 0.26 0.44

2017 0.11 0.44

Total 9.83 10.38

Average 0.98 1.04

Source: Annual Reports of HDFC & LICHFL

Chart 4.19

Current ratio of HDFC & LICHFL

2008 2009 2010 2011 2012 2013 2014 2015 2016 20170.00

0.50

1.00

1.50

2.00

2.50

2.2

9

1.9

3 2.16

1.86

0.2

9

0.3

6

0.30

0.27

0.26

0.11

1.9

1

1.63

1.84

1.21

1.5

9

0.39 0.

47

0.4

6

0.4

4

0.4

4

CURRENT RATIO(%) HDFCLinear (CURRENT RATIO(%) HDFC)CURRENT RATIO(%) LICHFLLinear (CURRENT RATIO(%) LICHFL)

178

T-Test

H0: There is no significant mean difference between current ratio percent of HDFC &

LICHFL over the study period 2008-2017.

Group Statistics

Type of Housing

Finance

N Mean Std. Deviation Std. Error Mean

CURRENT RATIO(%)

HDFC 10 .983000 .9361630 .2960407

LIC HFL 10 1.038000 .6566041 .2076364

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

Independent Samples Test

Levene's Test for

Equality of Variances

t-test for Equality of Means

F Sig. t df Sig. (2-

tailed)

Mean Differe

nce

Std. Error

Difference

95% Confidence Interval of the

Difference

Lower Upper

CURRENT RATIO(%)

Equal variances assumed

8.141 .011-.15

218 .881

-.0550000

.3615978

-.8146889

.7046889

Equal variances not assumed

-.152

16.129

.881-.05500

00.36159

78-.82105

35.71105

35

From the above table t-value is significant (t-sig. Value is 0.000 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between current ratio percent

of HDFC & LICHFL over the study period 2008-2017.

4.19.1 DIVIDENDS PAYOUT RATIO: No company distributes its entire profits to share

holders, but retains some part of its profits for future needs. The dividends pay out

179

increases confidence of share holders on company but retention of dividends in the

company increases internal financial strength of the company. The dividends pay out

pattern of both the companies is studied. The dividends payout ratio (DPR) of HDFC is

ranging from 6.44 percent in the year 2017 to 40.15 percent in the year 2014, with an

average of 34.31 percent. The DPR of LICHFL is ranging from 0.00 percent in the year

2017 to 21.93 percent in the year 2008, with an average of 16.70 percent. The

demonetisation effect is clearly visible in the year 2017. The HDFC is paying better

dividends to its shareholders and winning their confidence.

Table 4.20

DIVIDEND PAYOUT RATIO & EARNING RETENTION RATIO

YEARHDFC LICHFL HDFC LICHFL

DPR% DPR%RETENTION

% RETENTION%

2008 29.14 21.93 70.86 78.07

2009 37.16 20.76 62.84 79.24

2010 36.37 21.50 63.63 78.50

2011 37.24 17.04 62.66 82.96

2012 39.40 19.87 60.60 80.13

2013 39.88 13.74 60.14 81.26

2014 40.15 17.24 59.85 82.76

2015 39.43 18.20 60.57 81.80

2016 37.86 16.71 62.14 83.29

2017 6.44 0.00 93.56 100.00

AVERAGE 34.31 16.70 65.69 82.80

Source: Compiled from Annual Reports of HDFC & LICHFL

180

4.19.2 EARNINGS RETENTION RATIO: The retention ratio of HDFC is 70.86 percent

in the year 2008 increasing to 93.56 percent by the 2017, with an average of 65.69 percent.

The retention ration of LICHFL in the year 2008 is 78.07 increased to 100 percent by the

year 2017, with an average of 82.80 percent. The LICHFL is retaining more earnings and

making the company more strong internally.

Chart 4.20

Dividend pay out ratio and dividend retention ration of HDFC & LICHFL.

2008 2009 2010 2011 2012 2013 2014 2015 2016 20170.00

20.00

40.00

60.00

80.00

100.00

120.00

29

.14

37

.16

36

.37

37

.24

39

.40

39

.88

40

.15

39

.43

37

.86

6.4

4

21

.93

20

.76

21

.50

17

.04

19

.87

13

.74

17

.24

18

.20

16

.71

0.0

0

70

.86

62

.84

63

.63

62

.66

60

.60

60

.14

59

.85

60

.57

62

.14

93

.56

78

.07

79

.24

78

.50

82

.96

80

.13

81

.26

82

.76

81

.80

83

.29

10

0.0

0

HDFC DPR%LICHFL DPR%HDFC RETENTION%LICHFL RETENTION%

T-Test

H0: There is no significant mean difference between dividend payout ratio of HDFC &

LICHFL over the study period 2008-2017.

Group Statistics

Type of Housing

Finance

N Mean Std. Deviation Std. Error Mean

DIVIDEND

PAYOUT RATIO

HDFC 10 34.307000 10.2970989 3.2562286

LIC HFL 10 16.699000 6.3877860 2.0199953

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

181

Independent Samples Test

Levene's Test for Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig. (2-

tailed)

Mean Difference

Std. Error Difference

95% Confidence

Interval of the Difference

Lower Upper

DIVIDEND PAYOUT RATIO

Equal variances assumed

.882 .3604.595

18 .00017.6080000

3.8318932

9.5574911

25.6585089

Equal variances not assumed

4.595

15.033

.00017.6080000

3.8318932

9.4420953

25.7739047

From the above table t-value is significant (t-sig. Value is 0.000 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between dividend payout

ratios of HDFC & LICHFL over the study period 2008-2017.

T-Test

H0: There is no significant mean difference between earning retention ratio of HDFC &

LICHFL over the study period 2008-2017.

Group Statistics

Type of Housing

Finance

N Mean Std.

Deviation

Std. Error

Mean

EARNING

RETENTION

HDFC 10 65.68500

0

10.2991135 3.2568657

182

RATIO LIC HFL 1082.80100

06.3258227 2.0004008

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

Independent Samples Test

Levene's Test

for Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig.

(2-

tailed)

Mean

Differ

ence

Std.

Error

Differ

ence

95%

Confidence

Interval of the

Difference

Lower Upper

EARNI

NG

RETEN

TION

RATIO

Equal

variances

assumed

1.109 .306

-

4.47

8

18 .000

-

17.116

0000

3.8221

430

-

25.146

0245

-

9.0859

755

Equal

variances

not assumed

-

4.47

8

14.9

45.000

-

17.116

0000

3.8221

430

-

25.265

3386

-

8.9666

614

From the above table t-value is significant (t-sig. Value is 0.000 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between earning retention

ratio of HDFC & LICHFL over the study period 2008-2017.

183

Table 4.21

ASSETS PROFILE OF HDFC & LICHFL

(Rs.Crore)

YEARINVESTMENTS HOUSING LOANS

HDFC LICHFL HDFC LICHFL

2008 6915 774 72998 21936

2009 10469 1129 85198 27679

2010 10727 1388 97967 38081

2011 11832 1403 101488 51089

2012 12207 1639 125986 63080

2013 13613 1846 152106 77813

2014 13913 1991 176292 91340

2015 14294 2373 202161 108361

2016 15345 2768 233437 125173

2017 20410 5269 264679 144534

AVERAGE 12973 2058 151231 74909

Source: Compiled from the annual reports of HDFC & LICHFL.

184

Chart 4.21

Investment and housing loans of HDFC & LICHFL

2008 2009 2010 2011 2012 2013 2014 2015 2016 20170

50000

100000

150000

200000

250000

300000

6915

1046

9

1072

7

1183

2

1220

7

1361

3

1391

3

1429

4

1534

5

2041

0

774

1129

1388

1403

1639

1846

1991

2373

2768

5269

7299

8

8519

8

9796

7

1014

88 1259

86 1521

06 1762

92 2021

61 2334

37 2646

79

2193

6

2767

9

3808

1

5108

9

6308

0

7781

3

9134

0

1083

61

1251

73 1445

34

INVESTMENTS HDFC(Rs.Crores)INVESTMENTS LICHFL(Rs.Crore)HOUSING LOANS HDFC(Rs.Crore)HOUSING LOANS HDFC(Rs.Crores)

4.20. ASSETS PROFILE: All the financial institutions invest their resources in the best

yielding options. The housing finance companies invest its resources in statutory

investments and housing loans. The HDFC invested Rs.6915 crore in the year 2008. It is

continuously increased investments by investing Rs.20410 in the year 2017, with an average

of Rs.12973 crore per year. The LICHFL is also increasing its investments Rs.774 crore

from 2008 to 5269 crore by the year 2017, with an average of Rs.2058 crore per year. It is

clear from the table that the investments of HDFC are six times larger than that of the

LICHFL.

The main business of both the companies is housing finance. The pattern of housing loans

is also studied for the study period. The HDFC investments in home loans Rs.72998 crore

in the year 2008 increased to Rs.264679 crore by the year 2017, with an average of

Rs.151231 crore per year. The LICHFL is also increasing its investments in home loans

Rs.21936 crore in the year 2008 to Rs.144534 crore by the year 2017, with an average of

185

Rs.74909 crore per year. Hence it is concluded that the HDFC is investing more funds in

investments as well as in home loans.

T-Test

H0: There is no significant mean difference between assets profile of investments of HDFC

& LICHFL over the study period 2008-2017.

Group Statistics

Type of Housing

Finance

N Mean Std.

Deviation

Std. Error

Mean

ASSETS PROFILE

OF INVESTMENTS

HDFC 1012972.5

03557.092 1124.851

LIC HFL 10 2058.00 1270.541 401.780

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

Independent Samples Test

Levene's Test

for Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig.

(2-

tailed)

Mean

Differe

nce

Std.

Error

Differe

nce

95%

Confidence

Interval of the

Difference

Lower Upper

ASSETS

PROFILE

OF

Equal

variances

assumed

4.571 .046 9.13

8

18 .000 10914.

500

1194.4

53

8405.0

48

13423.

952

186

INVESTME

NTS

Equal

variances

not assumed

9.13

8

11.2

60.000

10914.

500

1194.4

53

8292.9

06

13536.

094

From the above table t-value is significant (t-sig. Value is 0.000 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between assets profile of

investments of HDFC & LICHFL over the study period 2008-2017.

T-Test

H0: There is no significant mean difference between assets profile of housing loans of

HDFC & LICHFL over the study period 2008-2017.

Group Statistics

Type of Housing

Finance

N Mean Std.

Deviation

Std. Error

Mean

ASSETS PROFILE

OF HOUSING

LOANS

HDFC 10151231.2

066064.319 20891.372

LIC HFL 10 74908.60 41994.693 13279.888

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

187

Independent Samples Test

Levene's Test

for Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig.

(2-

tailed

)

Mean

Differ

ence

Std.

Error

Differ

ence

95%

Confidence

Interval of the

Difference

Lower Upper

ASSETS

PROFILE

OF

HOUSING

LOANS

Equal

variances

assumed

2.655 .1213.0

8318 .006

76322

.600

24754

.896

24314

.494

12833

0.706

Equal

variances

not

assumed

3.0

83

15.

252.007

76322

.600

24754

.896

23634

.734

12901

0.466

From the above table t-value is significant (t-sig. Value is 0.000 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between assets profile of

housing loans of HDFC & LICHFL over the study period 2008-2017.

188

Table 4.22

YIELD ON LOANS %

YEARHDFC LICHFL

SPREAD ON LONAS SPREAD ON LONAS

2008 2.32 2.20

2009 2.21 2.11

2010 2.31 2.09

2011 2.33 2.18

2012 2.27 1.60

2013 2.30 1.45

2014 2.29 1.56

2015 2.32 1.39

2016 2.29 1.44

2017 2.33 1.43

AVERAGE 2.29 1.75

Source: Compiled from Annual Repors of HDFC & LICHFL

4.21.YIELD ON LOANS: Spread on loans is the difference between the interest earned on

investments and interest paid out on borrowings. The spread on loans of HDFC is ranging

between 2.33 percent and 2.21 percent. The average spread on loans of HDFC is 2.29 percent.

The spread on loans of LICHFL is ranging between 2.20 percent and 1.39 percent, with an

average of 1.75 percent. Therefore it is concluded that the HDFC is having better yields than

that of LICHFL.

189

Chart 4.22

Spread on loans of HDFC & LICHFL.

2008 2009 2010 2011 2012 2013 2014 2015 2016 20170.00

0.50

1.00

1.50

2.00

2.502.

32

2.21 2.

31

2.33

2.27 2.30

2.29 2.32

2.29 2.33

2.20

2.11

2.09 2.

18

1.60

1.45 1.

56

1.39 1.44

1.43

HDFC SPREAD ON LONASLinear (HDFC SPREAD ON LONAS)LICHFL SPREAD ON LONASLinear (LICHFL SPREAD ON LONAS)

T-Test

H0: There is no significant mean difference between yields on loans % of HDFC &

LICHFL over the study period 2008-2017.

Group Statistics

Type of

Housing

Finance

N Mean Std. Deviation Std. Error

Mean

YIELD ON

LOANS %

HDFC 10 2.297000 .0362246 .0114552

LIC HFL 10 1.745000 .3510381 .1110080

The above table describes the mean, standard deviation of each housing finance company

along with Std. Error.

190

Independent Samples Test

Levene's Test

for Equality of

Variances

t-test for Equality of Means

F Sig. t df Sig.

(2-

tailed)

Mean

Differ

ence

Std.

Error

Differ

ence

95%

Confidence

Interval of the

Difference

Lower Upper

YIELD

ON

LOANS

%

Equal

variances

assumed

86.377 .0004.94

618 .000

.55200

00

.11159

75

.31754

24

.78645

76

Equal

variances

not assumed

4.94

6

9.19

2.001

.55200

00

.11159

75

.30034

91

.80365

09

From the above table t-value is significant (t-sig. Value is 0.000 < 0.05), reject null

hypothesis. It means that there is a significant mean difference between yields on loans% of

HDFC & LICHFL over the study period 2008-2017.

****

191

Chapter V

PERFORMANCE APPRAISAL - LOANEES’ VIEWS

The opinion of loanees, 150 from each company, from both the companies, i.e. HDFC and

LICHFL, are collected, analysed and tabled in the following pages. A structured

questionnaire with thirty questions is served to the loanees and their responses are collected

and tabled and analysed. Some questions are for personal information and some other

questions for financial and performance oriented.

5.2. Age of Lanees: A question is asked about the age of the loanees and their responses

are grouped into four categories. From the respondents of HDFC, 18 percent are below 30

years, 36.67 percent are from 30 years to 40 years, 28 percent are from 40 years to 50 years

and 17.33 percent from the age above 50 years. From the respondents of LICHFL , 12.67

percent are from below 30 years, 44.67 percent are from 30 years to 40 years, 32 percent are

between 40 years to 50 years and 10.66 percent are from above 50 years age. In both the

companies 30 years to 50 years comprises 65 percent. The number of respondents is clearly

shown in the multiple bar diagram.

Table 5.2 AGE OF LOANEES

Sl. No.

Age (years)HDFC LICHFL

No.of Respondents % No.of Respondents %1 Below 30 27 18.00 19 12.672 30-40 55 36.67 67 44.673 40-50 42 28.00 48 32.004 Above 50 26 17.33 16 10.66

  TOTAL 150100.0

0 150100.0

0Source: Compiled from the Questionnaires.

Chart 5.2Age of Loanees

192

Below 30 30-40 40-50 Above 500

10

20

30

40

50

60

70

80

27

55

42

26

19

67

48

16

HDFC No.of RespondentsLICHFL No.of Respondents

As the age of the loanee increases, the EMI increases and hence the risk of a loan becoming

NPA increases. It means the lower the age of the loanee, the lesser the risk to housing

finance business. It is also more clearly shown in the multiple bar diagram.

5.3. Gender of Loanees: Information regarding gender is also collected and tabled. From

the respondents of HDFC, 60.67 percent are male and 39.13 percent are female. From the

respondents of LICHFL, 54.67 percent are male and 33 percent are female. It is observed

that male percentage is higher from both companies. The number of respondents is clearly

shown in the multiple bar diagram.

Table 5.3 GENDER OF LOANEES

Sl. No.

GemderHDFC LICHFL

No.of Respondents % No.of Respondents %1 Male 91 60.67 82 54.672 Female 59 39.33 68 45.33  TOTAL 150 100.00 150 100.00

Source: Compiled from the Questionnaires.

Chart 5.3Gender of Loanees.

No.of Respondents No.of RespondentsHDFC LICHFL

0

10

20

30

40

50

60

70

80

90

10091

82

59

68

MaleFemale

193

5.4. Educational Qualifications of Loanees: Information regarding educational

qualifications of loanees is also collected. From the respondents of HDFC, 14 percent are

below graduation category, 24 percent are graduates, 26 percent are post graduates and 36

percent belong to above PG.

Table 5.4 EDUCATIONAL QUALIFICATIONS OF LOANEES

Sl. No.

GemderHDFC LICHFL

No.of Respondents % No.of Respondents %

1Below Graduation 21 14.00 19 12.67

2 Graduation 36 24.00 29 19.333 Post Graduation 39 26.00 47 31.33

4 Above PG 54 36.00 55 36.67

TOTAL 150100.0

0 150100.0

0Source: Compiled from the Questionnaires.

From the respondents of LICHFL, 12.67 percent are below graduation, 19.33 percent are

graduates, 31.33 percent are PGs and 36.67 percent are above PG. It is clear that most of

the loanees are well educated in both the companies. The number of respondents is clearly

shown in the multiple bar diagram.

Chart 5.4Educational Qualifications of Loanees.

-

Below Graduation

Graduation Post Graduation Above PG0

10

20

30

40

50

60

21

3639

54

19

29

47

55

HDFC No.of RespondentsLICHFL No.of Respondents

194

5.5.Occupation of the Loanees: A question is asked about the occupation of the loanees.

From the respondents of HDFC, 86 percent are Governement employees, 9.34 percent are

non-government employees,3.33 percent are businessmen and 1.33 percent belong other

professions. From the respondents of LICHFL, 81.33 percent are Government employees,

12 percent non-governent employees,4.67 percent businessmen and 2 percent are from other

professions. In both the companies, Government employees form major percentage. It

means the companies are preferring to give home loans to employees, because regular and

uninterrupted income in the form of monthly salary to repay the loans. It is clear that there

is no risk in giving loans to Government employees. The number of respondents is clearly

shown in the multiple bar diagram.

Table 5.5 OCCUPATION OF LOANEES

Sl. No.

Gemder HDFC LICHFLNo.of Respondents % No.of Respondents %

1 Govt.Employee 129 86.00 122 81.33

2 Non-Govt.Emp. 14 9.34 18 12.00

3 Business 5 3.33 7 4.674 Others 2 1.33 3 2.00

Total 150 100.00 150 100.00Source: Compiled from the Questionnaires.

Chart 5.5Occupations of Loanees.

Govt.Employee Non-Govt.Emp. Business Others0

20

40

60

80

100

120

140129

145 2

122

18

73

HDFC No.of RespondentsLICHFL No.of Respondents

5.6. Annual Income: The pattern of the annual income of the loanees is also studied and

analysed. From the respondents of HDFC, 28 percent are from Rs.5lakhs to Rs.10 lakhs

range, 37.33 percent are from Rs.10 lakh to Rs.15 lakh range, 20.67 belong to Rs.15 lakh to

Rs.20 lakh range and 14 percent belong to above Rs.20 lakh category.

Table 5.6ANNUAL INCOME

195

INCOME HDFC LICHFLNo.of Respondents % No.of Respondents %

1.Rs.5-10 lakhs 42 28.00 49 32.672.Rs.10-15lakhs 56 37.33 60 40.003.Rs.15-20lakhs 31 20.67 29 19.334.Above Rs.20lakhs 21 14.00 12 8.00

Total 150 100.00 150 100.00

Source: Compiled from the Questionaires.

Chart 5.6Income of Loanees.

1.Rs.5-10 lakhs 2.Rs.10-15lakhs 3.Rs.15-20lakhs 4.Above Rs.20lakhs0

10

20

30

40

50

60

70

42

56

31

21

49

60

29

12

HDFCLICHFL

From the respondents of LICHFL, 32.67 percent are from Rs.5lakh to Rs.10 lakh range, 40

percent are from Rs.10 lakh to Rs.15 lakh range, 19.33 percent belong to Rs.15 lakh to

Rs.20 lakh range and 8 percent belong to above Rs.20 lakh category. It is observed that 50

percent of the loanees from the both the companies belong to Rs.10 to 20 lakh category.

The higher income categories of loanees may not be risky to the HFCs. The number of

respondents is clearly shown in the multiple bar diagram.

5.7. Size of Family: Size of the family of the respondents is also studied. Size of the family,

consists of adults and children of the family. From the respondents of HDFC, 6 percent of

families are having only 2 members, 17.33 percent have 3 members, 60.67 percent of families

have 4 members and 16 percent have 5 and above family members. From the respondents of

LICHFL, 14 percent of families have 2 members, 12.67 percent have 3members, 58.67 percent

196

have 4 members and 14.66 percent have 5 and above members. The larger the size of the

family, the higher the risk to the HFCs.

Table 5.7

SIZE OF FAMILYNo. of

MembersHDFC

%LICHFL

%No.of Respondents No.of Respondents2 9 6.00 21 14.003 26 17.33 19 12.674 91 60.67 88 58.67

5 & Above 24 16.00 22 14.66  150 100.00 150 100.00

Source: Compiled from the Questionaires.

Chart 5.7Size of Family of Loanees.

2 Members 3 Members 4 Members 5 Members & Above

0

10

20

30

40

50

60

70

80

90

100

9

26

91

2421 19

88

22

HDFC No.of RespondentsLICHFL No.of Respondents

5.8 Social Status: Information regarding the social status of the loanees is also collected.

From the respondents of HDFC, 46 percent are OC, 24 percent are BC, 19.33 percent are

SC and 10.67 percent are ST. From the respondent of LICHFL, 50.67 percent belong to

OC,24 percent BC,19.33 percent SC and 10.67 percent belong to ST. It is observed that the

OC is the largest group in taking homeloans. The number of respondents is clearly shown in

the multiple bar diagram.

Table No.5.8SOCIAL STATUS

Social Status HDFC LICHFLNo.of Respondents % No.of Respondents %

OC 69 46.00 76 50.67BC 36 24.00 34 22.67SC 29 19.33 22 14.66ST 16 10.67 18 12.00

TOTAL 150 100.00 150 100.00197

Source: Compiled from the Questionaires.

Chart 5.8Social Status of Loanees.

OC BC SC ST0

10

20

30

40

50

60

70

80

69

36

29

16

76

34

2218

HDFC No.of RespondentsLICHFL No.of Respondents

5.9.Age of Loan: Age of loan refers to how long back did the loan was disbursed. It

influences the quantum of loan because the then rates of asset is certainly is lower than that of

today. Hence indirectly it leads to lower EMI and lower risk. From the respondents of HDFC,

27.33 percent belongs to below 2 years age of loan category, 35.33 percent are between 2 years

to 4 years, 26 percent are between 4year to 6 years and 11.33 percent are above 6 years

category.

Table 5.9

AGE OF LOAN

AGE OF LOAN

HDFC LICHFLNo.of Respondents % No.of Respondents %

Below 2 years 41 27.33 52 34.672-4 years 53 35.33 48 32.004-6 years 39 26.00 31 20.67

Above 6years 17 11.33 19 12.66Total 150 100.00 150 100.00

Source: Compiled from Questionaires.

Chart 5.9Age of the Loan.

198

Below 2 years 2-4 years 4-6 years Above 6years0

10

20

30

40

50

60

41

53

39

17

5248

31

19

HDFC No.of RespondentsLICHFL No.of Respondents

From the respondents of LICHFL, 34.67 percent belongs to below 2 years age of loan

category, 32 percent are between 2 years to 4 years, 20.67 percent are between 4year to 6

years and 12.66 percent are above 6 years category. The higher the age of the loan, the

lesser the risk to HFCs. The number of respondents is clearly shown in the multiple bar

diagram.

5.10. Awareness of Organization: A question is asked about the awareness of the loaning

organisation. From the respondents of HDFC, 5.3 percent revealed that they got awareness

through newspapers, 18.73 percent said that the electronic media, 57.30 percent expressed

agents and 18.70 percent came directly themselves to the housing finance company. From

the respondents of LICHFL, 6.7 percent revealed that they got awareness through

newspapers, 10.70 percent said that the electronic media, 52.00 percent expressed agents

and 30.70 percent came directly themselves to the housing finance company. It is clear that

most of the loanees are coming through agents. So the companies should appoint sufficient

agents to attract the customers.

H01: There is no significant association between name of housing finance and their

opinions on awareness of organisation.

1. Name of Housing Finance *5. 10. Awareness of organization Crosstabulation

10. Awareness of organization Total

News

paper

Electronic

Media

Agents Direct

walk

ins

Name of

Housing

HDFC Count 8 28 86 28 150

% within 1. Name of

Housing Finance

5.3% 18.7% 57.3% 18.7% 100.0%

199

Finance

LICHF

L

Count 10 16 78 46 150

% within 1. Name of

Housing Finance6.7% 10.7% 52.0% 30.7% 100.0%

Total

Count 18 44 164 74 300

% within 1. Name of

Housing Finance6.0% 14.7% 54.7% 24.7% 100.0%

Chi-Square Tests

Value df Asymp. Sig. (2-sided)

Pearson Chi-Square 8.264a 3 .041

Likelihood Ratio 8.350 3 .039

Linear-by-Linear Association 3.548 1 .060

N of Valid Cases 300

a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 9.00.

From the above table chi square is significant (sig. Value is 0.041 < 0.05), reject null

hypothesis. It means that there is a significant association between name of housing finance

and their opinions on awareness of organisation. It means that awareness of organisation is

dependent of name of housing finance. The number of respondents is clearly shown in the

multiple bar diagram.

Chart 5.10Awareness of organization.

1.NEWS PAPER 2.ELECTRONIC MEDIA 3.AGENTS 4.DIRECT WALK INS0

10

20

30

40

50

60

70

80

90

100

8

28

86

28

1016

78

46 HDFCLICHFL

200

The above multiple bar diagram describes the awareness of organisation with respect to

name of housing finance.

5.11. Purpose of Loan: The HFCs are offering home loans for purchase of house,

apartments and home modifications, etc. The purpose of taking loan is also gathered from

the loanees. From the respondents of HDFC, 10.70 percent purchased individual homes,

67.30 percent bought new apartment, 10.70 percent bought old apartments and 11.30

percent took loans for home modifications. From the respondents of LICHFL, 18.70 percent

purchased individual homes, 59.30 percent bought new apartment, 40.70 percent bought old

apartments and 7.30 percent took loans for home modifications. It is also clear on the

whole 63.30 percent of the loanees took loans for purchase of new apartments. The builders

are directly arranging financing facilities to the loanees from the HFCs. This easy

processing of loan is making loanees to buy the apartments.

H02: There is no significant association between name of housing finance and their

opinions on purpose of loan.

1. Name of Housing Finance * 5.11. Purpose of Loan Cross tabulation11. Purpose of Loan Total

purchase of a home

purchase of new apart

purchase of old apatt

modification

of home

Name of Housing Finance

HDFC

Count 16 101 16 17 150% within 1. Name of Housing Finance

10.7% 67.3% 10.7% 11.3% 100.0%

LICHFL

Count 28 89 22 11 150% within 1. Name of Housing Finance

18.7% 59.3% 14.7% 7.3% 100.0%

Total

Count 44 190 38 28 300% within 1. Name of Housing Finance

14.7% 63.3% 12.7% 9.3% 100.0%

Chi-Square TestsValue df Asymp. Sig. (2-

sided)Pearson Chi-Square 6.264a 3 .099Likelihood Ratio 6.320 3 .097

201

Linear-by-Linear Association 1.739 1 .187N of Valid Cases 300a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 14.00.

From the above table chi square is not significant (sig. Value is 0.999 > 0.05), no evidence

to reject null hypothesis. It means that there is no significant association between name of

housing finance and their opinions on purpose of loan. It means that purpose of loan is

independent of name of housing finance.

Chart 5.11Purpose of Loan.

1.Purchase of Home 2.Purchase of New Apartment

3.Purchase of Old Apartment

4.Modification of Home

0

20

40

60

80

100

120

16

101

16 17

28

89

22

11

HDFCLICHFL

The above multiple bar diagram describes the purpose of loan with respect to name of

housing finance.

5.12. Opinion about loan processing: Opinion about the loan processing is the feeling of

the loanee on the entire loan processing is also gathered. From the respondents of HDFC,

8.70 percent felt that the loan processing was very cumbersome, 60.70 percent felt

cumbersome, 28 percent revealed least cumbersome and 2.70 percent replied that it is not

cumbersome. From the respondents of LICHFL, 15.30 percent felt that the loan processing

was very cumbersome, 54.70 percent felt cumbersome, 20 percent revealed least

cumbersome and 10 percent replied that it is not cumbersome. On the whole, 57.70 percent

revealed that the loan processing is cumbersome. The loan processing should be done

carefully. All aspects such valuation, technical feasibility, legal problems and repayment

capacity of the loanee, etc. should be verified before sanctioning the loan.

202

H01: There is no significant association between name of housing finance and their

opinions on loan processing.

1. Name of Housing Finance *5.12. Opinion about loan processing Crosstabulation

12. Opinion about loan processing Total

Very

cumbersome

cumberso

me

Least

cumberso

me

Not

cumberso

me

Name

of

HFC

HDF

C

Count 13 91 42 4 150

% within Name

of HFC8.7% 60.7% 28.0% 2.7%

100.0

%

LICH

FL

Count 23 82 30 15 150

% within Name

of HFC15.3% 54.7% 20.0% 10.0%

100.0

%

Total

Count 36 173 72 19 300

% within Name

of HFC12.0% 57.7% 24.0% 6.3%

100.0

%

Chi-Square Tests

Value df Asymp. Sig. (2-

sided)

Pearson Chi-Square 11.614a 3 .009

Likelihood Ratio 12.075 3 .007

Linear-by-Linear Association .000 1 1.000

N of Valid Cases 300

a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 9.50.

From the above table chi square is significant (sig. Value is 0.009 < 0.05), reject null

hypothesis. It means that there is a significant association between name of housing finance

and their opinions on loan processing. It means that loan processing is dependent of name of

housing finance.

203

Chart. 5.12Opinion about Loan Processing.

1.Very Cumbersome 2.Cumbersome 3.Lease Combursome 4.Not Cumbersome0

10

20

30

40

50

60

70

80

90

100

13

91

42

4

23

82

30

15

HDFCLICHFL

The above multiple bar diagram describes the loan processing with respect to name of

housing finance.

5.13. Amount of loan applied for: A question was asked about the quantum of loan

applied for. From the respondents of HDFC,5.30 percent said below Rs.10 lakh, 50 percent

replied Rs.10 lakh to Rs.20 lakh,38.70 percent revealed Rs.20lakk to Rs.30lakh and 6

percent told above Rs.30 lakh. From the respondents of LICHFL,,5.30 percent said below

Rs.10 lakh, 62 percent replied Rs.10 lakh to Rs.20 lakh,29.30 percent revealed Rs.20lakk to

Rs.30lakh and 3.30 percent told above Rs.30 lakh. On the whole 56 percent applied for

Rs.10 lakh to Rs.20 lakh and 34 percent applied for Rs.20 lakh to Rs.30 lakh. Both the

companies are following rules strictly in processing and sanctioning the loan to reduce the

risk in later stages.

H01: There is no significant association between name of housing finance and amount of

loan applied.

Name of HFC *5.13. Amount of loan applied for Crosstabulation

13. Amount of loan applied for Total

.<10

lakhs

10-

20lakh

s

20-

30lakhs

above 30

lakhs

204

Name

of

Housin

g

Finance

HDFC

Count 8 75 58 9 150

% within Name of

HFC5.3% 50.0% 38.7% 6.0% 100.0%

LICHF

L

Count 8 93 44 5 150

% within Name of

HFC5.3% 62.0% 29.3% 3.3% 100.0%

Total

Count 16 168 102 14 300

% within Name of

HFC5.3% 56.0% 34.0% 4.7% 100.0%

Chi-Square Tests

Value df Asymp. Sig. (2-sided)

Pearson Chi-Square 4.993a 3 .172

Likelihood Ratio 5.019 3 .170

Linear-by-Linear Association 3.691 1 .055

N of Valid Cases 300

a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is

7.00.

From the above table chi square is not significant (sig. Value is 0.172 > 0.05), no evidence

to reject null hypothesis. It means that there is no significant association between name of

housing finance and amount of loan applied. It means that amount of loan applied is

independent of name of housing finance.

Chart.5.13Amount of Loan Applied

205

1.Rs.<10 lakh 2.Rs.10-20 lakh 3.Rs.20 - 30 lakh 4.Rs.>30 lakh0

10

20

30

40

50

60

70

80

90

100

8

75

58

98

93

44

5

HDFCLICHFL

.The above multiple bar diagram describes the amount of loan applied with respect to name

of housing finance.

5.14. Loan to value(LTV): The ratio of Loan amount sanctioned to the value of the asset

is called loan to value. Usually the document value of the property is mostly lesser than the

real value of the asset. It is a fascinating aspect in the point of view of the HFC. Higher the

value of the asset, the lower the risk of the loan, because, if the loan becomes NPA in

future, the most valuable asset could easily be sold. The loan to value aspect is also studied

from both the companies. From the respondents of HDFC, 3.3 percent said that the LTV is

50 percent, 59.30 percent said between 50 to 60 percent, 34.70 percent said 60 to 70 percent

and 2.70 percent said above 70 percent. . From the respondents of LICHFL, 6 percent said

that the LTV is 50 percent, 53.30 percent said between 50 to 60 percent, 38 percent said 60

to 70 percent and 2.70 percent said above 70 percent. On the whole 53.30 percent said 50

to 60 percent and 38 percent said 60 to 70 percent was the LTV.

H01: There is no significant association between name of housing finance and loan amount

to value of the asset bought.

1. Name of HFC *5.14. Loan amount to value of the asset bought. Crosstabulation14. Loan amount to value of the

asset bought.Total

50% 50-60%

60-70%

>70%

1. Name of HFC

HDFC

Count 5 89 52 4 150% within 1. Name of HFC 3.3% 59.3% 34.7% 2.7% 100.0%

LICHFL

Count 9 80 57 4 150% within 1. Name of HFC 6.0% 53.3% 38.0% 2.7% 100.0%

206

TotalCount 14 169 109 8 300% within 1. Name of HFC 4.7% 56.3% 36.3% 2.7% 100.0%

Chi-Square TestsValue df Asymp. Sig. (2-sided)

Pearson Chi-Square 1.852a 3 .604Likelihood Ratio 1.868 3 .600Linear-by-Linear Association .009 1 .925N of Valid Cases 300a. 2 cells (25.0%) have expected count less than 5. The minimum expected count is 4.00.

From the above table chi square is not significant (sig. Value is 0.604 > 0.05), no evidence

to reject null hypothesis. It means that there is no significant association between name of

housing finance and loan amount to value of the asset bought. It means that loan amount to

value of the asset bought is independent of name of housing finance.

Chart.5. 14Loan amount to Value of Asset.

1.<50% 2.50%-60% 3.60%-70% 4.>70%0

10

20

30

40

50

60

70

80

90

100

5

89

52

49

80

57

4

HDFCLICHFL

The above multiple bar diagram describes the loan amount to value of the asset bought with

respect to name of housing finance.

5.15. Time lag between loan application and sanction: Time lag between loan

application and sanction is the time taken for loan sanction after loan application. From the

respondents of HDFC, 6.70 percent said below 10 days, 68.70 percent revealed 10 to 20

days, 21.30 percent opined 20 to 30 days and 3.30 percent expressed above 30 days. From

the respondents of LICHFL, 10 percent said below 10 days, 64.70 percent revealed 10 to 20

days, 22 percent opined 20 to 30 days and 3.30 percent expressed above 30 days. On the

whole 66.70 percent revealed 10 to 20 days. It is clarified from the management of HFCs

207

that it is easier, if the loanee enquires the entire process of loaning and ready with all the

necessary documents, before coming for loan.

H01: There is no significant association between name of housing finance and time lag

between loan application and sanction.

1. Name of HFC *5.15. Time lag between loan application and sanction. Crosstabulation

15. Time lag between loan application and sanction.

Total

Below 10 days

10-20 days

20-30 days

above 30

days

Name of HFC

HDFCCount 10 103 32 5 150% within 1. Name of HFC 6.7% 68.7% 21.3% 3.3% 100.0%

LICHFL

Count 15 97 33 5 150% within 1. Name of HFC 10.0% 64.7% 22.0% 3.3% 100.0%

TotalCount 25 200 65 10 300% within 1. Name of HFC 8.3% 66.7% 21.7% 3.3% 100.0%

Chi-Square Tests

Value df Asymp. Sig. (2-sided)

Pearson Chi-Square 1.195a 3 .754

Likelihood Ratio 1.202 3 .752

Linear-by-Linear Association .135 1 .713

N of Valid Cases 300

a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 5.00.

From the above table chi square is not significant (sig. Value is 0.754 > 0.05), no evidence

to reject null hypothesis. It means that there is no significant association between name of

housing finance and time lag between loan application and sanction. It means that time lag

between loan application and sanction is independent of name of housing finance.

Chart 5.15Time lag between loan application and loan sanction

208

1.<10days 2.10-20says 3.20-30days 4.>30days0

20

40

60

80

100

120

10

103

32

5

15

97

33

5

HDFCLICHFL

.The above multiple bar diagram describes the time lag between loan application and

sanction with respect to name of housing finance.

5.16. Time lag between loan sanction and distribution: It is the time taken to disburse

the loan amount to the loanee, after the loan is sanctioned. If a home loan is sanctioned for

house construction, the loan amount is disbursed in instalments as the work in progress,

usually three or four instalments. If a home loan is sanctioned to buy a house, the total

amount is paid to the seller of the property after completion of documentation process, to

minimize the misuse / diversification of the funds. From the respondents of HDFC, 35.30

percent said that time lag (TL) is below 10 days, 41.30 percent said 10 to 20 days, 20

percent said 20 to 30 days and 3.30 percent replied above 30 days. . From the respondents

of LICHFL, 41.30 percent said that time lag (TL) is below 10 days, 35.30 percent said 10

to 20 days, 20 percent said 20 to 30 days and 3.30 percent replied above 30 days. It seems

both the companies are following faster disbursement norms.

H01: There is no significant association between name of housing finance and time lag

between loan sanction and distribution.

1. Name of HFC *5.16. Time lag between loan sanction and distribution. Crosstabulation

16. Time lag between loan sanction and distribution.

Total

Below 10 days

10-20 days

20-30 days

above 30 days

209

Name of HFC

HDFCCount 53 62 30 5 150% within 1. Name of HFC 35.3% 41.3% 20.0% 3.3% 100.0

%

LICHFL

Count 62 53 30 5 150% within 1. Name of HFC 41.3% 35.3% 20.0% 3.3% 100.0

%

TotalCount 115 115 60 10 300% within 1. Name of HFC 38.3% 38.3% 20.0% 3.3% 100.0

%

Chi-Square TestsValue df Asymp. Sig. (2-sided)

Pearson Chi-Square 1.409a 3 .703Likelihood Ratio 1.410 3 .703Linear-by-Linear Association .383 1 .536N of Valid Cases 300a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 5.00.

From the above table chi square is not significant (sig. Value is 0.703 > 0.05), no evidence

to reject null hypothesis. It means that there is no significant association between name of

housing finance and time lag between loan sanction and distribution. It means that time lag

between loan sanction and distribution is independent of name of housing finance.

Chart 5.16Time lag between loan sanction and loan disbursement.

1.<10days 2.10-20says 3.20-30days 4.>30days0

10

20

30

40

50

60

70

53

62

30

5

62

53

30

5

HDFCLICHFL

The above multiple bar diagram describes the time lag between loan sanction and

distribution with respect to name of housing finance.

5.17. How do feel about the rate of interest: A question was asked about the rate of

interest charged by the HFCs on the housing loan. From the respondents of the HDFC, 7.30

percent felt very high, 60 percent expressed it as high, 30.70 percent revealed as reasonable

and 2 percent said that it is low. From the respondents of the LICHFL, 13.30 percent felt

210

very high, 54.70 percent expressed it as high, 26.70 percent revealed as reasonable and 5.30

percent said that it is low. On the whole, 57.30 opined that the rate of interest is high.

H01: There is no significant association between name of housing finance and their

opinions on rate of interest.

Crosstab5.17. How do feel about the rate of

interestTotal

Very High

High Reasonable

Low

Name of HFC

HDFCCount 11 90 46 3 150% within Name of HFC 7.3% 60.0

% 30.7% 2.0% 100.0%

LICHFL

Count 20 82 40 8 150% within Name of HFC 13.3% 54.7

% 26.7% 5.3% 100.0%

TotalCount 31 172 86 11 300% within Name of HFC 10.3% 57.3

% 28.7% 3.7% 100.0%

Chi-Square TestsValue df Asymp. Sig. (2-

sided)Pearson Chi-Square 5.676a 3 .128Likelihood Ratio 5.800 3 .122Linear-by-Linear Association .176 1 .674N of Valid Cases 300a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 5.50.

From the above table chi square is not significant (sig. Value is 0.128 > 0.05), no evidence

to reject null hypothesis. It means that there is no significant association between name of

housing finance and their opinions on rate of interest. It means that rate of interest is

independent of name of housing finance.

Chart 5.17How do you feel about Rate of Interest?

211

1.Very High 2.High 3.Reasonable 4.Low0

10

20

30

40

50

60

70

80

90

100

11

90

46

3

20

82

40

8

HDFCLICHFL

The above multiple bar diagram describes the rate of interest with respect to name of

housing finance.

5.18. What is the cost of loan: Cost of loan is the amount paid towards the application fee,

loan processing charges, legal expenses and agreements charges, etc. From the respondents

of HDFC, 3.30 percent expended below Rs.10000/-, 75.30 percent Rs.10000/- to

Rs.15000/-, 16.70 percent said Rs.15000/- to Rs.20000/- and 4.70 percent revealed above

Rs.20000/-. From the respondents of LICHFL, 15.30 percent expended below Rs.10000/-,

56.70 percent Rs.10000/- to Rs.15000/-, 23.30 percent said Rs.15000/- to Rs.20000/- and

4.70 percent revealed above Rs.20000/-. On the whole 66 percent of respondents expended

Rs.10000/- to Rs.15000/-.

H01: There is no significant association between name of housing finance and cost of loan.

Crosstab5.18. What is the cost of loan Total

Below 10000/

10000/--15000/-

15000/--20000/-

Above 20000/-

Name of HFC

HDFCCount 5 113 25 7 150% within Name of HFC 3.3% 75.3% 16.7% 4.7% 100.0

%

LICHFL

Count 23 85 35 7 150% within Name of HFC 15.3% 56.7% 23.3% 4.7% 100.0

%

TotalCount 28 198 60 14 300% within Name of HFC 9.3% 66.0% 20.0% 4.7% 100.0

%

212

Chi-Square TestsValue df Asymp. Sig. (2-sided)

Pearson Chi-Square 17.198a 3 .001Likelihood Ratio 18.187 3 .000Linear-by-Linear Association .483 1 .487N of Valid Cases 300a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 7.00.

From the above table chi square is significant (sig. Value is 0.001 < 0.05), reject null

hypothesis. It means that there is a significant association between name of housing finance

and cost of loan. It means that cost of loan is independent of name of housing finance.

Chart 5.18What is the cost of loan.

1.Below Rs.10000/ 2.Rs.10000/to Rs.15000/

3.Rs.15000/ to 20000

4.Above Rs.20000/0

20

40

60

80

100

120

5

113

25

7

23

85

35

7

HDFCLICHFL

The above multiple bar diagram describes the cost of loan with respect to name of housing

finance.

5.19. Attitude of loanees: The overall feeling of loanees on the HFC on the financial and

non-financial services. The satisfactory levels are obtained through the questionnaires.

From the respondents of HDFC, 20 percent felt excellent, 56 percent expressed as good,

19.30 percent said satisfied and 4.70 percent opined not satisfied. From the respondents of

LICHFL,13.30 percent felt excellent, 60 percent expressed as good, 23.30 percent said

satisfied and 3.30 percent opined not satisfied. On the whole, 58 percent felt good.

H01: There is no significant association between name of housing finance and their

opinions on attitude of loaners

Crosstab5.19. Attitude of loaneees Total

213

Excellent

Good Satisfactory

Not satisfi

ed

Name of HFC

HDFCCount 30 84 29 7 150% within Name of HFC 20.0% 56.0

% 19.3% 4.7% 100.0%

LICHFL

Count 20 90 35 5 150% within Name of HFC 13.3% 60.0

% 23.3% 3.3% 100.0%

TotalCount 50 174 64 12 300% within Name of HFC 16.7% 58.0

% 21.3% 4.0% 100.0%

Chi-Square TestsValue df Asymp. Sig. (2-sided)

Pearson Chi-Square 3.103a 3 .376Likelihood Ratio 3.119 3 .374Linear-by-Linear Association .913 1 .339N of Valid Cases 300a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 6.00.

From the above table chi square is not significant (sig. Value is 0.376 > 0.05), no evidence

to reject null hypothesis. It means that there is no significant association between name of

housing finance and their opinions on attitude of loaners. It means that attitude of loaners is

independent of name of housing finance.

Chart 5. 19Attitude of Loanees.

1.Excellent 2.Good 3.Satisfactory 4.Not Satisfied0

10

20

30

40

50

60

70

80

90

100

30

84

29

7

20

90

35

5

HDFCLICHFL

The above multiple bar diagram describes the attitude of loaners with respect to name of

housing finance.

214

6.20. Term of Repayment of Loan: Generally housing loan is a long term loan and repaid

in instalments, called EMI. A question was asked about the term of the loan repayment.

From the respondents of HDFC, 12.70 percent said below 5 years, 64 percent felt 5 to 10

years, 17.30 percent opined 10 to 15 years and 6 percent said above 15 years. From the

respondents of LICHFL, 6.70 percent said below 5 years, 54percent felt 5 to 10 years, 30.75

percent opined 10 to 15 years and 8.70 percent said above 15 years. On the whole 54

percent said 5 to 10 years and 24 percent said 10 to 15 years.

H01: There is no significant association between name of housing finance and term of

repayment of loan.

Crosstab5.20. Term of Repayment of Loan TotalBelow 5 years

5-10year

s

10-15year

s

Above 15 years

Name of HFC

HDFC

Count 19 96 26 9 150% within Name of HFC 12.7% 64.0% 17.3% 6.0% 100.0%

LICHFL

Count 10 81 46 13 150% within Name of HFC 6.7% 54.0% 30.7% 8.7% 100.0%

TotalCount 29 177 72 22 300% within Name of HFC 9.7% 59.0% 24.0% 7.3% 100.0%

Chi-Square TestsValue df Asymp. Sig. (2-

sided)Pearson Chi-Square 10.347a 3 .016Likelihood Ratio 10.473 3 .015Linear-by-Linear Association 8.331 1 .004N of Valid Cases 300a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 11.00.

From the above table chi square is significant (sig. Value is 0.016 < 0.05), reject null

hypothesis. It means that there is a significant association between name of housing finance

and term of repayment of loan. It means that term of repayment of loan is dependent on

name of housing finance.

Chart 5.20Term of Repayment of Loan.

215

1.<5Years 2.5-10Years 3.10-15Years 4.Above15 Years0

20

40

60

80

100

120

19

96

26

910

81

46

13

HDFCLICHFL

The above multiple bar diagram describes the term of repayment of loan with respect to

name of housing finance.

5.21. Mode of repayment of loan: Usually the home loans are repaid in instalments as

EMIs, principal and interest together, throughout the loan term. The EMI may be

automatically deducted from the bank account where salary is credited. Sometimes the

loanee pays the EMI in the form of cash and some times large amount in the event of sale

proceeds of other assets. From the respondents of HDFC, 71.30 percent said EMI auto

deduction, 27.30 percent EMI cash payment and 1.30 percent opined other methods of

payments. From the respondents of LICHFL, 64 percent said EMI auto deduction, 32.70

percent EMI cash payment and 3.30 percent opined other methods of payments. On the

whole 67.70 percent are preferring to EMI auto deduction method, as it is easier for both the

loanee and the HFC.

H01: There is no significant association between name of housing finance and mode of

repayment of loan.

216

Crosstab5.21. Mode of repayment of

loanTotal

EMI-auto deduction

EMI cash

Payment

Others

Name of HFC

HDFC Count 107 41 2 150% within Name of HFC 71.3% 27.3% 1.3% 100.0%

LICHFL

Count 96 49 5 150% within Name of HFC 64.0% 32.7% 3.3% 100.0%

Total Count 203 90 7 300% within Name of HFC 67.7% 30.0% 2.3% 100.0%

Chi-Square TestsValue df Asymp. Sig. (2-sided)

Pearson Chi-Square 2.593a 2 .274

Likelihood Ratio 2.637 2 .268

Linear-by-Linear Association 2.384 1 .123

N of Valid Cases 300a. 2 cells (33.3%) have expected count less than 5. The minimum expected count is 3.50.

From the above table chi square is not significant (sig. Value is 0.274 > 0.05), no evidence

to reject null hypothesis. It means that there is no significant association between name of

housing finance and mode of repayment of loan. It means that mode of repayment of loan is

independent of name of housing finance.

Chart 5. 21Mode of Repayment of Loan.

1.EMI Auto Deduction 2.EMI Cash Payment 3.Others0

20

40

60

80

100

120

107

41

2

96

49

5

HDFCLICHFL

The above multiple bar diagram describes the mode of repayment of loan with respect to

name of housing finance.

217

5.22. Opinion on loan recovery system: The feeling of loanees on the loan recovering

system of HFC is also considered. From the respondents of HDFC, 64.70 percent said

More convenient, 32.70 percent opined convenient and 2.70 percent felt inconvenient. From

the respondents of LICHFL,52.70 percent said More convenient, 40.70 percent opined

convenient and 6.70 percent felt inconvenient. On the whole more than 50 percent said

more convenient.

H01: There is no significant association between name of housing finance and their

opinions on loan recovery system.

Crosstab5.22. Opinion on loan recovery system. Total

More convenient

Convenient Inconvenient

Name of HFC

HDFCCount 97 49 4 150% within Name of HFC 64.7% 32.7% 2.7% 100.0%

LICHFL

Count 79 61 10 150% within Name of HFC 52.7% 40.7% 6.7% 100.0%

TotalCount 176 110 14 300% within Name of HFC 58.7% 36.7% 4.7% 100.0%

Chi-Square TestsValue df Asymp. Sig. (2-sided)

Pearson Chi-Square 5.721a 2 .057Likelihood Ratio 5.812 2 .055Linear-by-Linear Association 5.600 1 .018N of Valid Cases 300a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 7.00.

From the above table chi square is significant (sig. Value is 0.057 <= 0.05), reject null

hypothesis. It means that there is a significant association between name of housing finance

and their opinions on loan recovery system. It means that opinion on loan recovery system

is dependent of name of housing finance.

218

Chart. 5.22Opinion on Loan Recovery System.

1.More Convenient 2.Convenient 3.Inconvenient0

20

40

60

80

100

120

97

49

4

79

61

10

HDFCLICHFL

The above multiple bar diagram describes the opinions on loan recovery system with

respect to name of housing finance.

6.23. Repayment ahead of schedule: A question was asked that how many of the loanees

repaid their loans ahead of schedule, i.e. repaying before the schedule time. From the

respondents of HDFC, 38 percent said Yes and the remaining 62 percent said No. From the

respondents of LICHFL, 22 percent said Yes and the remaining 78 percent said No. On the

whole 30 percent said Yes and the remaining 70 percent said No.

H01: There is no significant association between name of housing finance and repayment

ahead of schedule.

Crosstab5.23. Repayment ahead of

scheduleTotal

Yes No

Name of HFC

HDFC Count 57 93 150% within Name of HFC 38.0% 62.0% 100.0%

LICHFL Count 33 117 150% within Name of HFC 22.0% 78.0% 100.0%

Total Count 90 210 300% within Name of HFC 30.0% 70.0% 100.0%

Chi-Square TestsValue df Asymp. Sig. (2-sided)

Pearson Chi-Square 9.143a 1 .002Likelihood Ratio 9.227 1 .002Fisher's Exact TestLinear-by-Linear Association 9.112 1 .003N of Valid Cases 300a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 45.00.b. Computed only for a 2x2 table

219

From the above table chi square is significant (sig. Value is 0.002 < 0.05), reject null

hypothesis. It means that there is a significant association between name of housing finance

and repayment ahead of schedule. It means that repayment ahead of schedule is dependent

of name of housing finance.

Chart 5.23Repayment of Ahead of Schedule.

HDFC LICHFL0

20

40

60

80

100

120

140

57

33

93

117

1.Yes2.No

The above multiple bar diagram describes the repayment ahead of schedule with respect to

name of housing finance.

5.24. Action against defaulters: Housing Finance Companies take serious action on the

defaulters, those loanees who do not pay EMI of the loan in time, as it is a large amount. If

the loanee become defaulter, the HFCs NPAs rise, which is a risky aspect. Hence the HFCs

go for councelling the defaulters, in the initial stage. Later they go for legal action, by

going to court of law. One time settlement is also best method which offers some discount

to the loanee. At the end, seizure of property is the only way left with the HFCs. From the

respondents of HDFC, 44.70 percent said counselling, 24.70 percent said legal action, 27.30

percent said one time settlement and 3.30 said the seizure of the property. From the

respondents of LICHFL, 24.70 percent said counselling, 34 percent said legal action, 36.70

percent said one time settlement and 4.70 said the seizure of the property. Both the

companies are preferring counselling to one time settlement.

H01: There is no significant association between name of housing finance and action

against on defaulters.

Crosstab5.24. Action against defaulters Total

220

Counselling

Legal action

One time settlement

Seizure of property

Name of HFC

HDFCCount 67 37 41 5 150% within Name of HFC 44.7% 24.7% 27.3% 3.3% 100.0%

LICHFL

Count 37 51 55 7 150% within Name of HFC 24.7% 34.0% 36.7% 4.7% 100.0%

TotalCount 104 88 96 12 300% within Name of HFC 34.7% 29.3% 32.0% 4.0% 100.0%

Chi-Square TestsValue df Asymp. Sig. (2-sided)

Pearson Chi-Square 13.256a 3 .004Likelihood Ratio 13.399 3 .004Linear-by-Linear Association 9.291 1 .002N of Valid Cases 300a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 6.00.

From the above table chi square is significant (sig. Value is 0.004 < 0.05), reject null

hypothesis. It means that there is a significant association between name of housing finance

and action against on defaulters. It means that action against on defaulters is dependent on

name of housing finance.

Chart5. 24Action against Defaulters.

1.Counselling 2.Legal Action 3.One time Settlement 4.Seizure of Property0

10

20

30

40

50

60

70

80

67

3741

5

37

5155

7

HDFCLICHFL

The above multiple bar diagram describes the action against on defaulters with respect to

name of housing finance.

221

5.25. Are you availing Tax benefits: Income tax benefits, which are being offered by the

Government to the loanees is an incentive or the motivator to take housing loan. From the

respondents of the HDFC, 84.70 percent said that they are availing the tax benefits and the

12.70 percent are not availing and 2.70 percent didnot respond to this question. From the

respondents of the LICHFL, 73.30 percent said that they are availing the tax benefits and

the 22.70 percent are not availing and 4 percent didnot respond to this question. On the

whole 79 percent of the loanees are availing the income tax benefits.

H01: There is no significant association between name of housing finance and their

opinions on availing tax benefits.

Crosstab5.25. Are you availing Tax

benefitsTotal

Availed Not availed no response

Name of HFC

HDFCCount 127 19 4 150% within Name of HFC 84.7% 12.7% 2.7% 100.0%

LICHFL

Count 110 34 6 150% within Name of HFC 73.3% 22.7% 4.0% 100.0%

TotalCount 237 53 10 300% within Name of HFC 79.0% 17.7% 3.3% 100.0%

Chi-Square Tests

Value df Asymp. Sig. (2-sided)

Pearson Chi-Square 5.865a 2 .053

Likelihood Ratio 5.927 2 .052

Linear-by-Linear Association 4.782 1 .029

N of Valid Cases 300

a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 5.00.

From the above table chi square is significant (sig. Value is 0.053 <= 0.05), reject null

hypothesis. It means that there is a significant association between name of housing finance

and availing tax benefits. It means that availing tax benefits is dependent of name of

housing finance.

Chart 5.25Are you Availing Tax Benefits.

222

1.Availed 2.Not Availed 3.No Response0

20

40

60

80

100

120

140127

19

4

110

34

6

HDFCLICHFL

The above multiple bar diagram describes the availing tax benefits with respect to name of

housing finance.

5.26. Are you a single applicant or do have a co-applicant: Usually head of the family or

the earning person in the family would take housing loan. But sometimes the HFCs may

ask for co-applicant, generally the earning spouse of the loanee. This concept of co-

applicant helps loanees to take larger amount of loan and the HFC less risky, regarding the

loan repayment. From the respondents of HDFC, 40.70 percent are single applicants and

the remaining 59.30 percent are co-applicants. . From the respondents of LICHFL, 58

percent are single applicants and the remaining 42 percent are co-applicants. On the whole,

more than 50 percent are co-applicants.

H01: There is no significant association between name of housing finance and their

opinions on single/co-applicants.

Crosstab5.26. Are you a single

applicant or do have a co-applicant

Total

Single Co-applicant

Name of HFC

HDFC Count 61 89 150% within Name of HFC 40.7% 59.3% 100.0%

LICHFL

Count 87 63 150% within Name of HFC 58.0% 42.0% 100.0%

Total Count 148 152 300% within Name of HFC 49.3% 50.7% 100.0%

Chi-Square TestsValue df Asymp. Sig. (2-sided)

Pearson Chi-Square 9.015a 1 .003Likelihood Ratio 9.061 1 .003

223

Fisher's Exact TestLinear-by-Linear Association 8.985 1 .003N of Valid Cases 300a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 74.00.

b. Computed only for a 2x2 table

From the above table chi square is significant (sig. Value is 0.003 < 0.05), reject null

hypothesis. It means that there is a significant association between name of housing finance

and their opinions on single/co-applicants. It means that single/co-applicants is dependent of

name of housing finance.

Chart 5. 26Are you a single applicant or do have a co-applicant

_ HDFC LICHFL0

10

20

30

40

50

60

70

80

90

100

61

8789

63

1.Single2.Co-Applicant

The above multiple bar diagram describes the opinions on single/co-applicants with respect

to name of housing finance.

5.27. Are you first time home buyer: The Government of India is giving tax incentives to

buyer of homes up to two homes, as the housing finance industry is indirectly encouraging

other industries. Hence, the high salaried people or the better earners are going for second

housing loan. Some are selling the first home and taking a bigger home. A question was as

about the first time home buyer. From the respondents of HDFC, 86 percent are first time

buyers and the remaining 14 percent are second time buyers. From the respondents of

LICHFL, 84 percent are first time buyers and the remaining 16 percent are second time

buyers. On the whole, 85 percent are first time buyers and 15 percent are second time

buyers. As the second time buyers increases, the risk to HFCs decreases.

H01: There is no significant association between name of housing finance and their

opinions on first/second time home buyer.

1. Name of HFC * 27. Are you first time home buyer Crosstabulation

224

5.27. Are you first time home buyer

Total

First time buyer

Second time

1. Name of HFC

HDFC Count 129 21 150% within 1. Name of HFC 86.0% 14.0% 100.0%

LICHFL

Count 126 24 150% within 1. Name of HFC 84.0% 16.0% 100.0%

Total Count 255 45 300% within 1. Name of HFC 85.0% 15.0% 100.0%

Chi-Square TestsValue df Asymp. Sig. (2-sided)

Pearson Chi-Square .235a 1 .628Likelihood Ratio .235 1 .628Fisher's Exact TestLinear-by-Linear Association .235 1 .628N of Valid Cases 300a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 22.50.b. Computed only for a 2x2 table

From the above table chi square is not significant (sig. Value is 0.628 > 0.05), no evidence

to reject null hypothesis. It means that there is no significant association between name of

housing finance and their opinions on first/second time home buyer. It means that opinions

on first/second time home buyer are independent of name of housing finance.

Chart 5. 27Are you first time home buyer.

HDFC LICHFL0

20

40

60

80

100

120

103 105

47 45

1.First Time2.Second Time

The above multiple bar diagram describes the opinions on first/second time home buyer

with respect to name of housing finance.

225

5.28. Have you insurance for this home loan?: The total value of the home includes the

insurance cost also. The HFCs provide insurance to the home loan also, because it avoids

the risk, in case the loanee’s death. In case of the sudden death of the insured loanee , the

legal heirs of the diseased loanee need not pay the remaining loan amount, but the insurance

company pay the balance loan to HFC. Both the loanee and the HFC are benefiting from

the insurance. A question was asked whether the loanee tool insurance or not. From the

respondents of HDFC, 68.70 percent said Yes and the remaining 31.30 percent said No.

From the respondents of LICHFL, 70 percent said Yes and the remaining 30 percent said

No. On the whole 69.30 percent take insurance in the both the companies.

H01: There is no significant association between name of housing finance and their

opinions on insurance for this home loan.

1. Name of HFC * 28.Have you insurance for this home loan? Cross tabulation5.28.Have you insurance

for this home loan?Total

Yes No

1. Name of HFC

HDFC Count 103 47 150% within 1. Name of HFC 68.7% 31.3% 100.0%

LICHFL Count 105 45 150% within 1. Name of HFC 70.0% 30.0% 100.0%

Total Count 208 92 300% within 1. Name of HFC 69.3% 30.7% 100.0%

Chi-Square TestsValue df Asymp. Sig. (2-sided)

Pearson Chi-Square .063a 1 .802Likelihood Ratio .063 1 .802Fisher's Exact TestLinear-by-Linear Association .062 1 .803N of Valid Cases 300a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 46.00.b. Computed only for a 2x2 table

From the above table chi square is not significant (sig. Value is 0.802 > 0.05), no evidence

to reject null hypothesis. It means that there is no significant association between name of

housing finance and insurance for this home loan. It means that insurance for this home loan

is independent of name of housing finance.

Chart.5. 28Have you insurance for this home loan?

226

HDFC LICHFL0

20

40

60

80

100

120

103 105

47 45

1.Yes2.No.

The above multiple bar diagram describes the insurance for this home loan with respect to

name of housing finance.

5.29. Problems from lending organisation: A question was asked that what type of

problems are they facing from the lending organisation. From the respondents of HDFC, 55

percent of them said that they were facing financial problems and the remaining 45 percent

said they are facing non-financial problems. From the respondents of LICHFL, 52.70

percent of them said that they were facing financial problems and the remaining 47.30

percent said they are facing non-financial problems. On the whole 53.80 percent were

facing financial problems from the lending organisation.

H01: There is no significant association between name of housing finance and problems

from lending organisation.

1. Name of HFC * 29.Problems from lending organisation Cross tabulation5.29.Problems from lending organisation

Total

Financial Non-financial

1. Name of Housing

Finance

HDFC Count 82 67 149% within 1. Name of HFC 55.0% 45.0% 100.0%

LICHFL Count 79 71 150% within 1. Name of HFC 52.7% 47.3% 100.0%

Total Count 161 138 299% within 1. Name of HFC 53.8% 46.2% 100.0%

Chi-Square Tests

227

Value df Asymp. Sig. (2-sided)

Pearson Chi-Square .169a 1 .681Likelihood Ratio .169 1 .681Fisher's Exact TestLinear-by-Linear Association .168 1 .682N of Valid Cases 299a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 68.77.b. Computed only for a 2x2 table

From the above table chi square is not significant (sig. Value is 0.681 > 0.05), no evidence

to reject null hypothesis. It means that there is no significant association between name of

housing finance and problems from lending organisation. It means that problems from

lending organisation are independent of name of housing finance.

Chart.5. 29Problems from lending organisation.

HDFC LICHFL0

10

20

30

40

50

60

70

80

90

1.Financial2.Non-Financial

The above multiple bar diagram describes the problems from lending organisation with

respect to name of housing finance.

5.30. How do you Rate the organization?: The HFC and the loanee have to maintain a

long term cordial relationship with each other. A question was asked about the Rating of

the HFC. The better ranking means the better services offered by the HFC. From the

respondents of HDFC, 24 percent said Excellent, 40 percent said Good, 24 percent opined

Satisfactory and 12 percent said Not satisfactory. From the respondents of LICHFL, 24.70

percent said Excellent, 42.70 percent said Good, 24.70 percent opined Satisfactory and 8

percent said Not satisfactory. On the whole, 65.60 percent opined Excellent and Good.

H01: There is no significant association between name of housing finance and their

opinions rate the organisation.

228

1. Name of HFC * 5.30. How do you Rate the organization? Crosstabulation5.30. How do you rate the

organization?Total

Excellent

Good Satisfactory

Not Satisfactor

y

1. Name of HFC

HDFC

Count 36 60 36 18 150% within 1. Name of HFC 24.0% 40.0% 24.0% 12.0% 100.0

%

LICHFL

Count 37 64 37 12 150% within 1. Name of HFC 24.7% 42.7% 24.7% 8.0% 100.0

%

TotalCount 73 124 73 30 300% within 1. Name of HFC 24.3% 41.3% 24.3% 10.0% 100.0

%

Chi-Square TestsValue df Asymp. Sig. (2-sided)

Pearson Chi-Square 1.356a 3 .716Likelihood Ratio 1.365 3 .714Linear-by-Linear Association .565 1 .452N of Valid Cases 300a. 0 cells (0.0%) have expected count less than 5. The minimum expected count is 15.00.

From the above table chi square is not significant (sig. Value is 0.716 > 0.05), no evidence

to reject null hypothesis. It means that there is no significant association between name of

housing finance and their opinions rate the organisation. It means that their opinions rate the

organisation is independent of name of housing finance.

229

Chart.5.30How do you rate the organization?

1.Excellent 2.Good 3.Satisfied 4.Not Satisfied0

10

20

30

40

50

60

70

36

60

36

18

37

64

37

12

HDFCLICHFL

The above multiple bar diagram describes the opinions rate the organisation with respect to

name of housing finance.

******

230

Chapter VIFINDINGS & SUGGESTIONS

The following are the some of the chapter wise findings and observations from the study,

Chapter - 1. Introduction.

1. World Habitat Conference in 1976 and the International Year of Shelter for the

Homeless (ITSH) in 1987 high lightened the importance of housing for humanity.

2. Western countries realized that the importance of housing activity in the 1950s.

3. The investment in real estate and housing activity directly and indirectly impact

more than 250 industries and more than 600 sectors.

4. Housing is the second largest employment provided in India, for skilled, semi-

skilled and unskilled, especially in non-agricultural seasons.

5. Urbanization means providing respectable, convenient, approachable, affordable,

livable and quality housing facilities which include education, employment,

entertainment, health, transport, etc.

6. People are migrating from rural areas to urban places in search of better education,

employment and entertainment, which convert the urban centres crowdy and slums.

7. Both the Union Government of India and State Government have recognized

housing as the important welfare activity and placed in the top priority place in their

welfare lists.

8. The role of the Government was changed and transformed from the ‘provider’ of

housing facilities to ‘facilitator’ of housing facilities and infrastructure.

9. Government recognized the increasing housing shortage due to increasing

population and urbanization.

10. Government set up HUDCO, NHB, NBCC, NABARD, Housing cooperatives,

Housing Boards, etc. to cater the needs of increasing housing in India.

11. The Government is introducing and implementing a number of housing schemes in

India since independence.

12. Keeping the importance of housing in India, the Government of India declared

“Housing for All by 2022”, to celebrate the 75th independence year.

Chapter - 2 – Housing Finance Industry

1. The Government came to know that the entire money in the world put in housing,

even then it is not sufficient.

231

2. The Government of India decided to allow the private sector in to the housing

activity due to non-availability of sufficient funds in public sector.

3. Housing needs large amounts of finance and long term oriented, for which

specialized institutions are needed.

4. Housing Development Finance Corporation Limited (HDFC) was set up in 1977,

entered into housing finance sector in private sector with magic slogan “All for

Housing” which now flipped and became the famous slogan of Indian Government

“Housing for All by 2022”. The vision of the HDFC is providing own house for

every Indian.

5. Housing finance is a long term finance and needs large amounts of finance, usually

repaid in installments, i.e. EMI.

6. HUDCO, HDFC, LICHFL, NHB and about 85 HFCs and commercial banks through

their branches and housing cooperatives, etc. are offering housing loans.

7. Governments are offering financial and non-financial incentives and income tax

exemptions to both builders and buyers of homes.

8. Approximately 10 percent of GDP comes from housing and its allied activities.

9. Liberalizing the Low Income Group (LIG), Middle Income Group (MIG) and High

Income Group (HIG) norms to enable more people to own a home.

10. Attractive subsidy is being offered by the Government to housing finance sector.

11. Housing finance industry is facing some problems, like NPAs, non-availability of

funds and delay in implementation of Government policies.

12. Sufficient land is not available at affordable rate for housing.

13. Legal formalities to be followed by the housing organizations are very large number.

14. Housing has been infrastructure status by the Government India.

15. Investment of Rs.1 lakh in housing creates 4 jobs.

Chapter III – Risk Management in HDFC & LICHFL

1. Risk Management is the identification, assessment and prioritization of risks

followed by coordinated and economical application of resources to minimize,

monitor, avoid and control risk.

2. Risk Management aims at minimize, avoid or reduce the impact of the negative

incident.

232

3. Business risk profile, operating environment, business mix, ownership structure,

financial risk profile, asset quality, liquidity, profitability and capital adequacy are

some root causes for risk.

4. Risk identification and risk assessment key steps in risk management.

5. Risk avoidance, risk reduction, risk sharing, risk transfer, risk mitigation and risk

baring are some risk management techniques.

6. Liquidity risk, credit risk, residual risk, market risk, interest rate risk, investment

risk, legal risk, forex risk are some of the risks in housing finance companies.

7. Housing finance companies are facing severe interest rate competition from

commercial banks.

8. Housing finance companies are feeling shortage of funds.

Chapter – IV- Performance Analysis of HDFC & LICHFL

1. Total income of HDFC is increasing @ 17 percent CAGR, where as the total income

of LICHFL is increasing at 23 percent CAGR.

2. The loan sanctions of HDFC increase 21.02 percent CAGR and the loan sanctions of

LICHFL are increasing 20.69 percent CAGR.

3. The disbursements of the HDFC and LICHFL are increasing at 22.73 percent and

23.12 percent CAGR respectively.

4. The Capital Adequacy Reserve Ratio (CRAR) in HDFC and LICHFL is 15.06

percent and 15.23 percent respectively.

5. The Human Resources of HDFC and LICHFL have increased to 2305 and 1833

respectively by the year 2017 with 5.40 percent and 7.28 percent CAGR

respectively.

6. The average asset per employee of HDFC and LICHFL are Rs.96.10 crore and

Rs.51.54 crore respectively.

7. The average profit per employee of HDFC and LICHFL are Rs.240 lakh and

Rs.78.19 lakh respectively.

8. The HDFC and LICHFL paid dividends Rs.18/- and Rs.6.20 respectively in the year

2017. And the average dividend declared by these two companies is 573 percent

and 199 percent per year.

9. The average book value of share of HDFC and LICHFL is Rs.153.30 and LICHFL

Rs.148.30 respectively. The EPS of HDFC and LICHFL is Rs.29.60 and Rs.22.57

respectively.

233

10. Net Interest Margin (NIM) of HDFC and LICHFL is 4.10 percent and 2.70 percent

respectively. The percentage of individual loans in HDFC and LICHFL is 73

percent and 92.28 percent respectively.

11. The average loan size of HDFC and LICHFL is Rs.20.20 lakh and Rs.15.65 lakh

respectively.

12. The average Non-performing loans (NPL) in HDFC and LICHFL is 0.76 percent

and 0.68 percent respectively.

13. The number of marketing outlets of HDFC and LICHFL are 427 and 267 in the year

2017 respectively.

14. Both the companies are employing the borrowed funds upto ninety percent.

15. The Profit Before Tax of HDFC and LICHFL is increasing at 19 percent and 23

percent CAGR respectively. The Profit after Tax of HDFC and LICHFL is

increasing at 16 percent and 21 percent CAGR respectively.

16. The average Return on Equity (ROE) of HDFC and LICHFL is 19.61 percent and

19.06 percent respectively.

Chapter -VI – Performance Appraisal – Loanees’ Views.

1. Most of the loanees are of 30 years to 50 years age. Among the loanees of HDFC

61 percent are male and from LICHFL, 55 percent are male.

2. 62 percent of the loanees of HDFC and 68 percent of loanees of LICHFL are highly

qualified. 85 percent of total loanees from the both the companies are Government

employees. And 70 percent of loanees are from below Rs.15 lakh income per year

category.

3. Agents create awareness upto 55 percent. 63 percent of loanees opt for buying new

apartments.

4. 58 percent of the loanees opined that the loan processing is cumbersome.

5. 56 percent of loanees applied for loan amount of Rs.10 lakh to Rs.20 lakh.

6. 56 percent of the loanees opined that the loan to value is 50 percent to 60 percent

category.

7. 67 percent of loanees said that the time lag between loan application and loan

sanction is below 20 days. 76 percent of loanees said that the time lag between loan

sanction and loan disbursement is below 20 days.

8. 68 percent of the loanees opined that the rate of interest is very high and high.

234

9. 58 percent of loanees opined that the attitude of the company is excellent. And 70

percent of the loanees said that they took loan for below ten years term.

10. 68 percent of the loanees are repaying their loan through EMI automatically

deducted from salary bank.

11. 59 percent of the loanees are saying that loan recovery system is more convenient.

12.79 percent of loanees are availing tax incentives. 49 percent are single applicants

and 51 percent are co-applicants. Among the loanees, 85 percent are first time home

buyers. 69 percent of the loanees are having home insurance.

SUGGESTIONS: After the in depth analysis of housing finance companies, some

suggestions are offered for betterment and improvement of performance of housing finance

companies.

1. The regular revision of land values and registration charges are increasing the total

cost of the housing unit. These charges must be as least as possible.

2. Due to the continuous increase of inflation, the price of the housing unit is also

continuously increasing, which is a burden to the buyers.

3. Network of HDFC and LICHFL is presently confined to limited areas. It would be

better, if they expand their operational network to every village.

4. Rural housing should be encouraged to reduce over crowding in urban areas.

5. Loan application process must be simplified. Time lag between loan application and

loan sanction should be minimized.

6. Low cost funds should be made available to housing finance companies to lend

loans to housing.

7. The housing finance companies should not insist for extra guarantors, as the

property itself is the collateral security.

8. It would be better to persuade the defaulters through counselling before going for

legal action.

9. Prepayment of loan should be encouraged.

10. Both the companies should evaluate the loan application thoroughly well in advance,

in order to avoid the loan becoming NPA.

11. The Government should be a model builder by following all the norms.

12. The local Governments should develop all the necessary infrastructural facilities and

hand over the project to private sector, to reduce shortfalls.

13. Income tax incentive should be increased.

235

14. The entire rental income should be exempted from income tax, as it encourages the

building homes for rent.

15. The Government should made clear title norms before purchasing house.

16. Interest subsidy schemes and interest subversion schemes should be made available

to all the loanees.

17. Information regarding marketing of houses should be available in the internet.

18. Second sales should be encouraged with low registration and transfer charges.

19. Companies should make proper arrangements to reduce forex rate risk.

20. Both the companies should maintain cordial relationship with the loanees and be in

touch with them until the loan is completely paid.

**********

236

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***

238