housing finance with respect 2 sbi
TRANSCRIPT
1
A PROJECT ON
HOUSING FINANCE WITH REFERENCE TO SBI
PREPARED BY
AMIT C. BAKALKAR. T.Y.B.COM. (BANKING AND INSURANCE)
GUIDE PROF. MRS. MUGDHA KESKAR.
SUBMITTED TO UNIVERSITY OF MUMBAI
VIDYA PRASARAK MANDAL’S K.G JOSHI COLLEGE OF ARTS
AND N.G. BEDEKAR COLLEGE OF COMMERCE THANE
2010-2011 (VTH SEMISTER)
2
DECLARATION
Researcher Amit C. Bakalkar student of Joshi Bedekar
College studying in T.Y.B.Com (Banking & Insurance)
Semester V (2010-2011) hereby declare that I have
completed the project on “Housing Finance with reference to
SBI” successfully in the current academic year.
The information submitted is true and original to the
best of my knowledge.
Place: __________
Date: ___________ Signature of Student
A C K N O W L E D G E M E N T
3
Acknowledgement is not a mere formality or ritual but a
genuine opportunity to express the indebtedness to all those without
who’s active support and encouragement this project wouldn’t have
been possible.
Hence, it gives me immense gratification to place on records
my profound gratitude sincere appreciation to each and every one of
those who have helped me in this endeavour.
Firstly I would like to thank the Staff of the SBI Branch for
allowing me to do my project there and providing valuable help in
collecting the data.
I extend my sincere thanks to PROF. MUGDHA KESKAR for her
continuous guidance, cooperation and valuable suggestions to initiate
and carry out the study.
Date.
BAKALKAR AMIT CHANDRAKANT.
4
I N D E X
RESEARCH METHODOLOGY ABSTRACT..................................................................................................... 1
OBJECTIVES OF THE STUDY.................................................................... 3
NEED OF THE STUDY................................................................................. 4
SCOPE OF THE STUDY............................................................................... 4
DESIGN OF STUDY...................................................................................... 5
TOOLS AND TECHNOLOGIES USED....................................................... 7
LIMITATIONS OF THE STUDY.................................................................. 8
CHAPTER 1 1. INTRODUCTION TO HOUSING FINANCE
1.1. INTRODUCTION.................................................................................... 9
1.2. HOME LOAN INDUSTRY IN INDIA.................................................... 14
1.3. INDIA'S MORTGAGE MARKET SCORES OVER WEST................... 19
CHAPTER 2 2. COMPANY PROFILE
2.1. INTRODUCTION.................................................................................... 21
2.2. ROOTS.................................................................................................... 23
2.3. ASSOCIATE BANKS............................................................................. 24
2.4. BRANCHES………………………………………………………..……….. 25
2.5. FOREIGN OFFICES…………………………..………………………….. 25
2.6. ATM SERVICES.................................................................................... 25
2.7. GROUP COMPANIES.......................................................................... 26
2.8. PRODUCTS AND SERVICES............................................................... 27
2.9. PERFORMANCE…………………………………………………………… 28
2.10. ORGANIZATION.................................................................................. 28
2.11. THE BANK STANDS FOR BEST PRACTICES................................ 29
2.12. SHARE HOLDERS………………………………………......................... 29
2.13. UNIQUE FEATURES OF SBI HOME LOAN PRODUCTS............... 30
5
CHAPTER 3 3. HOME LOAN PRODUCTS OFFERED BY SBI
3.1. SBI EASY HOME LOAN........................................................................ 32
3.2. SBI ADVANTAGE HOME LOAN.......................................................... 34
3.3. HOME LOAN PRODUCT VARIANTS.................................................. 36
3.4. HOME LOAN TOP-UP PRODUCTS..................................................... 43
3.5. RELATED HOME LOAN PRODUCTS................................................. 45
CHAPTER 5 4. TERMS AND NORMS
4.1. ELIGIBILITY.......................................................................................... 47
4.2. DOCUMENTS......................................................................................... 49
4.3. PURPOSE................................................................................................ 56
4.4. QUANTUM OF LOAN............................................................................ 59
4.5. EQUATED MONTHLY INSTALLMENT CALCULATION................ 60
4.6. MONETARY CEILINGS........................................................................ 65
4.7. TOTAL PROJECT COST....................................................................... 66
4.8. MARGIN................................................................................................. 66
4.9. SECURITIZATION................................................................................ 67
4.10. FEES OR CHARGES........................................................................... 67
4.11. RATE OF INTEREST.......................................................................... 69
4.12. MORATORIUM..................................................................................... 70
4.13. GUARANTOR....................................................................................... 71
4.14. TAX BENEFITS.................................................................................... 72
4.15. PACKAGE OF EXCLUSIVE BENEFITS............................................ 72
4.16. INSURANCE COVER.......................................................................... 73
4.17. VALUATION POLICIES...................................................................... 75
6
CHAPTER 5 5. SYSTEMS AND PROCEDURES
5.1. STAFF INVLOVED AND THEIR ROLES............................................ 76
5.2. PROMOTION AND DISTRIBUTION OF THE PRODUCTS............... 77
5.3. PROCESS UNDERTAKEN.................................................................... 79
CHAPTER 6 6. PERFORMANCE EVALUATION
6.1. COMPETITORS...................................................................................... 91
6.2. STRENGTHS AND WEAKNESSES...................................................... 91
6.3. SIZE OF HOME LOAN.......................................................................... 92
6.4. SHARE OF HOME LOANS IN TOTAL ADVANCES.......................... 93
6.5. QUALITY OF ASSETS......................................................................... 94
6.6. NATURE OF COMPLAINTS COLLECTED FROM ONLINE
CONSUMER FORUMS................................................................... 95
6.7. AWARDS AND REWARDS............................................................. 96
CHAPTER 7 7. RECOMMENDATIONS & CONCLUSIONS
APPENDIX QUESTIONNAIRE TO THE BANK OFFICIAL
QUESTIONNAIRE TO CUSTOMERS
BIBLIOGRAPHY
7
LIST OF DIAGRAMS
Diagram No. Name of Diagram Page No.
1.1 Housing in India 14
1.2 Demographics in Housing 15
1.3 Housing Finance Timeline 15
1.4 Improved Affordability 16
2.1 Shareholders of SBI 29
3.1 Home Loan Products Offered by SBI 31
4.1 Home EMI Calculator 60
6.1 Size of home loan 92
6.2 Share of home loan 93
6.3 Quality of Assets 94
6.4 Customer complaints 95
8
LIST OF TABLES
Table No. Name of the Table Page No.
1.1 Major home loan providers 18
2.1 Best Practices in SBI 28
3..1 loan amount in SBI easy home loan 33
3.2 loan amount in SBI advantage home loan 35
3.3 Margin of bank on loan amount 37
4.1 Eligibility Criteria & Documentation 48
4.2 Criteria for Loan Amount 59
4.3 EMI calculation in the flat rate system 61
4.4 EMI calculation in Reduced balanced system 62
4.5 Monetary ceilings 65
4.6 Criteria of margin amount 66
4.7 Securitization 67
4.8 Processing fee amounts 67
4.9 Rate of interests of SBI Easy Home Loan 69
4.10 Rate of interests of SBI Advantage home loan 70
4.11 Valuation policies. 75
5.1 Systems and procedures in lending process 76
6.1 Competitors 91
6.2 Strengths and weaknesses 91
6.3 Size of home loan 92
6.4 Share of Home Loans 93
6.5 Quality of assets. 94
6.6 Customer complaints 95
9
RESEARCH METHODOLOGY
ABSTRACT
Home is a dream of a person that shows the quantity of efforts,
sacrifices luxuries and above all gathering funds little by little to
afford one’s dream. Home is one of the things that everyone one
wants to own. Home is a shelter to person where he rests and feels
comfortable. Many banks providing home loans, whether commercial
banks or financial institutions, to the people who want to have a
home. Many banks are providing home loans at cheapest rate to
attract consumers towards them. The more customer friendly
attitude of these banks, currently offer to consumers cheapest loan
over homes. In view of acute housing shortage in the country, and
keeping in mind the social – economic role of commercial banks in the
present times,
The ICICI Bank and Standard chartered bank has become the
first player in this sector to announce a housing loan for a 20 years
period. No doubt it will enhance the end cost of the home but it will
facilitate people to plan their house over longer duration now, it has
been made easy for a person to buy that dream house which he
dreamt of long ago.
A home loan is a loan taken for buying or constructing a home
or to make improvements to a residential property. Individual can
get a loan from banks and registered housing finance companies.
The Home loan sector in India is the pivotal role player in the
growth of the real estate scenario in India. With tax incentives given
10
to the housing finance sector in the annual budget of 2001,
transactions related to buying and selling of residential properties
increased considerably and was much higher as compared to previous
years. Since the new class of buyers are relatively younger set of
customers who are more aware about legal documentation and
approvals, buyers are now more 'end-users' rather than investors; the
property market in India undergoes transformation to align itself
with global standards with an increased emphasis on quality & cost
control and documentation methods. In the current economy of India,
the real estate sector has the maximum propensity to generate
income and demand for materials, equipment and services. It can be
said that housing finance companies were formed for co-existing with
buyer's requirements of housing loans for investing in properties.
Home loans are made available by financial institutions to both
Indian and NRI customers at floating and fixed rate of interest and
also at attractive EMI options.
OBJECTIVES OF THE STUDY
Identification Of The Problem
11
• To study and learn the various systems and procedures used by
the bank in lending to housing sector.
• To identify the problems faced by the bank in attracting more
customers to use its home loan products.
• To identify the problems faced by the bank at various stages of
undertaking the home loans.
• To understand and identify difficulties in the home loan asset
management practices of the bank.
• To study the valuation of collateral security method followed by
the bank while lending the home loans.
Offer A Solution To The Problem
• To suggest better alternative organizational and operational
practices.
• To enhance its capacity to tap potential market in the home
loan sector.
• To reduce credit risk
• To enhance the recovery system in the bank giving the home
loans.
12
NEED FOR THE STUDY
It has been felt very useful in future –
• To study the roles of the staff and the decision making
processes in lending to the home loan borrowers.
• To learn and comprehend thoroughly the systems and
Procedures used in financing the segment.
• To analyze the issues relating to various financial aspects of
lending.
• To calculate the risk involved and how the risk and uncertainty
to be assessed and managed by the bank while lending the
home loans.
• To study the valuation of collateral security method followed by
bank while lending the home loans.
SCOPE OF THE STUDY
• The present study is confined to Home loan products offered by
the domestic operations of State Bank of India.
• The study is also confined to the internal functional and
operational aspects of the lending process.
• The data and the information could be collected here has been
taken from the record books maintained by the branch and from
the oral communication with the branch manager
13
RESEARCH DESIGN
• The study done is exploratory in nature.
• The branch of the bank was selected by convenience and for the
sake of access to the qualitative information.
• For the latest information and focus, the study is confined to
the systems and procedures in lending and the time period as
said above.
14
SOURCES OF DATA
The data and the information presented here have been collected
mainly from two kinds of resources:
Primary sources
• Direct and oral interaction with the Bank officials,
particularly, the branch manager via a Questionnaire, a
copy of which is made available in the APPENDIX.
• The Record books maintained at the branch office.
Secondary sources
Several secondary resources have been referred for collecting first
hand information and literature on the subject that includes:
• The Training and Guidance Material supplied to the staff
of the Branch.
• Online Annual Reports by Consultancy and Research
companies.
• Online Content of the Bank’s Website.
• The material supplied by the Faculty Guide.
• Several websites on personal loans and
• Daily News Papers like Economic Times of India and
Business Standard.
The details of which have been presented in Bibliography.
15
TOOLS AND TECHNOLOGIES USED
1.6.1. Statistical techniques:
• Percentages.
• Averages and
• Tools like
• Tables,
• Bar Charts and
• Pie charts
1.6.2. Hardware and Software Technologies:
Home PC with Internet access
MS Word and Excel-2007.
World Wide Web or Internet
16
LIMITATIONS OF THE STUDY
Some of the limitations of the project that were encountered during
the study are:
• In case of interaction with the representative of a particular bank it
happens many a time that the representative cannot disclose all the
data because of certain reasons like banks privacy policy etc. thus
getting clear picture about the service provided is not possible.
• Due to paucity of time, only important factors have been analyzed and
discussed.
• To collect the data from banks was quite difficult due to non-
cooperation of banks. This proved to be major limitation of the study.
• To access such a large number of customers was difficult because of
non-cooperative attitude of respondents.
• Lack of data was also the other limitation of the study as some of
banks do not have proper data on topic.
• Generally the data on the websites of the banks are not fully disclosed
i.e. other than the charges mentioned on the website there are many
hidden charges which increases the cost like service charge etc
• Ignorance and reluctant attitude of customers was also a major
limitation in this study.
• I have tried a lot to overcome the above mentioned limitations as far
as possible.
17
CHAPTER -1
INTRODUCTION TO HOUSING FINANCE
1.1. INTRODUCTION
The realty boom in India has given a new dimension to the finance
sector in India - both in Home Loans and Home Insurance segments.
This has not only given a competitive edge to the finance companies
to provide attractive options to customers but has also contributed to
the increased investments in the real estate sector. This has resulted
in 13 new institutions foraying into the housing finance business in
the last three years.
Home loans work like any other debt. That is, loans are simply
specific money that borrow from a bank, a private lender, or some
other type of lender. Afterwards, borrowers must repay our debts
with interest. However, unlike other types of loans, home loans are
different in several respects. Owning a piece of land or property is a
lifetime dream for every individual. There are many home loans
provider in the market. There are different type of home loan i.e.
• Home Purchase Loans
• Home Improvement Loans
• Home Construction Loans
• Home Extension Loans
• Home Equity Loans
• Land Purchase Loans
• Bridge Loans
18
Home purchase loans:
These are the basic forms of home loans used for purchasing of
a new home. With about a million home lenders and mortgage
brokers it's becoming a tough challenge as the days are progressing.
But at the same time, when the sites are coming up with all the
latest tools and relevant information for us, and with all such
conveniences, obtaining a home purchase loan or mortgage has
become really pretty simple. However, at the same time though,
borrower may be flummoxed to look so many attractive rates and
offers in the market, not to forget the hidden costs associated with
each of them.
Home improvement loan:
Home improvement loans are used to finance improvements
and add on to the existing set of credentials of beauty on borrower’s
owned house, recently purchased property or rented accommodation.
Home improvement loans are used to maintain or enhance the value
of his house. In general it includes: repairs, remodeling, energy-
related items (permanent in nature), repairs, a new kitchen, a new
bathroom, terrace, an extension or general property improvements.
Luxury items and fireplaces are generally not eligible, though. Many
improvements in landscape and even swimming pools are nowadays
considered to be a part of home improvement.
19
Home construction loan:
Home construction loans are used to finance for the
construction of our newly acquired home or if a person is planning to
build a home. The factors include in calculations for house building
costs are as follows.
• Design of the house
• Construction cost
• Financing Cost
• Buildable site
All the above mentioned costs will help the Bank to determine
the amount need to borrow. For example, besides calculating the
construction costs, Bank may also be required to consider the total
expenditures to develop the site in order to build. Each site is unique
requiring different expenditures so this specific rupee amount will
vary from site location to site location.
Payment: Before the house starts getting build, Bank will be required
to pay a deposit to purchaser builder as well as paying a deposit for
the land if he is buying land. As work progresses he will need to
make payments to the builder. Certain loans can be structured for
progress payments to be made during construction. Home extension
loans are used by customers to get loans from the banks to extend
their houses, by adding more rooms, kitchens, wash rooms, terraces,
or any other rooms for his growing family. It may also be used to
enclose open balcony/terrace space, or constructing a Pujaghar.
20
Maximum Amount of Home Extension Loans:
Banks generally offers about 70-85% of the total amount of
home extension as loan. The amount of loan sanctioned also depends
on a number of factors such as the age of the applicant at the time of
loan, tenure of the loan, repayment capacity of the borrower; his/her
credit history etc.
Home equity loan:
Home equity loans helps customer to encash the market value
of the commodity by taking a loan by mortgaging the property. So,
Home equity loans are availed by customers, who wish to mortgage
his/her property to the bank for taking some loan for some other
purpose. Then, it's up to the bank's discretion to consider the market
value of the property and accordingly decide how much to pay to the
customer. Both the residential as well as non residential property can
be considered for the approval of the loan, provided the mortgager is
a licensed title holder and the land is free from any kind of dispute.
Home equity loans don't restrict one to use the loan money in specific
investments. It might also be used in marriage, higher education,
medical expenses, etc. However it should not be used in any illegal or
speculation purposes.
Land purchase loan:
Land Purchase loans are used by customers who wish to
purchase a plot of land for commercial or residential purpose.
21
Bridge loans
Bridge loans are designed for people who wish to sell the
existing home and purchase another one. The bridge loans help
finance the new home, until a buyer is found for the home. Bridge
loans are used by customers as an effective vehicle to capitalize on a
purchase opportunity. It can be considered as a short term financing
scheme which is generally expected to be paid back, within the range
of 6-36 months.
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23
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24
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26
Major Home Loan Providers
Banks & Public Sector
Housing Finance
Companies
State Bank of India, Corporation Bank, Punjab National
Bank, Central Bank, Dena Bank, Allahabad Bank, Bank
of Maharashtra, Bank of Baroda Housing Finance, Can
Find Homes, GIC Housing Finance, LIC Housing
Finance, PNB Housing Finance, SBI Home Finance,
Centbank Home Finance, HUDCO, LIC, etc
Financial Institutions HDFC, ICICI Ltd, Citibank, HSBC, Standard Chartered-
Grindlays, IDBI Bank, etc
Table 1.1: major home loan providers (Source: Researchers methodology)
27
1.3. INDIA'S MORTGAGE MARKET SCORES OVER WEST
1. In India, the borrower contributes a higher share of his own
funds (24-46% of house value) at the time of purchasing a
house.
2. The loan installments too eat away a smaller portion of the borrowers‟ income.
3. The installment to income ratio-ranged between 34% and 40%,
in India is lower than some countries in the West.
4. This is based on an analysis by rating agency Fitch of the home
loan asset pool that it rates.
5. This is because borrowers‟ income has kept pace with rise in
property prices.
6. The extent of second houses purchased is also limited and most
borrowers stick to their repurchase schedules.
7. The Diagrams computed by Fitch based on the asset pool that it
rates implies that on an average, the borrower funds up to 30%
of the house value through his own capital
8. This among other things increases the borrowers willingness to
repay.
9. Some bankers say the black money component is also high in
the Indian realty market, resulting in higher borrower equity.
28
10. Another notable factor is that delinquencies have remained
range-bound in the last 33 months, according to residential
mortgage index launched by the ratings firm.
11. The index which tracks home loans that have not repaid for
over 90 days has moved in a narrow range between 0.90% and
1.07%.
29
CHAPTER -2
COMPANY PROFILE
2.1. INTRODUCTION
State Bank of India (SBI) has history of more than 200 years of existence. The evolution of State Bank of India can be traced back
to the first decade of the 19th century. It began with the
establishment of the Bank of Calcutta in Calcutta, on 2 June 1806.
The bank was redesigned as the Bank of Bengal, three years later, on
2 January 1809. It was the first ever joint-stock bank of the British
India, established under the sponsorship of the Government of
Bengal. Subsequently, the Bank of Bombay (established on 15 April
1840) and the Bank of Madras (established on 1 July 1843) followed
the Bank of Bengal. These three banks dominated the modern
banking scenario in India, until when these banks were
amalgamated to form the Imperial Bank of India, on 27 January
1921.
An important turning point in the history of State Bank of
India is the launch of the first Five Year Plan of independent India,
in 1951. The Plan aimed at serving the Indian economy in general
and the rural sector of the country, in particular. Until the Plan, the
commercial banks of the country, including the Imperial Bank of
India, confined their services to the urban sector. Moreover, they
were not equipped to respond to the growing needs of the economic
revival taking shape in the rural areas of the country. Therefore, in
order to serve the economy as a whole and rural sector in particular,
30
the All India Rural Credit Survey Committee recommended the
formation of a state-partnered and state-sponsored bank.
The All India Rural Credit Survey Committee proposed the takeover
of the Imperial Bank of India, and integrating with it, the former
state-owned or state-associate banks. Subsequently, an Act was
passed in the Parliament of India in May 1955. As a result, the State
Bank of India (SBI) was established on 1 July 1955. This resulted in
making the State Bank of India more powerful, because as much as a
quarter of the resources of the Indian banking system were controlled
directly by the State. Later on, the State Bank of India (Subsidiary
Banks) Act was passed in 1959. The Act enabled the State Bank of
India to make the eight former State-associated banks as its
subsidiaries.
The State Bank of India emerged as a pacesetter, with its operations
carried out by the 480 offices comprising branches, sub offices and
three Local Head Offices, inherited from the Imperial Bank. Instead
of serving as mere repositories of the community's savings and
lending to creditworthy parties, the State Bank of India catered to
the needs of the customers, by banking purposefully. The bank
served the heterogeneous financial needs of the planned economic
development.
Today, State Bank of India (SBI) has spread its arms around the
world and has a network of branches spanning all time zones. SBI's
International Banking Group delivers the full range of cross-border
finance solutions through its four wings - the Domestic division, the
31
Foreign Offices division, the Foreign Department and the
International Services division.
In recent years the bank has focused on three priorities:
1. computerizing its operations and
2. Changing the attitude of its employees (through an ambitious
program aptly named 'Parivartan' which means change) as a
large number of employees are very rude to customers.
2.2 ROOTS:
The State Bank of India traces its roots to the first decade of
19th century, when the Bank of Calcutta, later renamed the Bank of
Bengal, was established on 2 June 1806. The government
amalgamated Bank of Bengal and two other Presidency banks,
namely, the Bank of Bombay (incorporated on 15 April 1840) and the
Bank of Madras on 27 January 1921, and named the reorganized
banking entity the Imperial Bank of India. All these Presidency
banks had been incorporated as joint stock companies, and were the
result of the royal charters. The Imperial Bank of India continued as
a joint stock company. Until the establishment of a central bank in
India the Imperial Bank and its early predecessors served as India's
central bank, at least in terms of issuing the currency. The State
Bank of India Act 1955, enacted by the Parliament of India,
authorized the Reserve Bank of India, which is the central banking
organization of India, to acquire a controlling interest in the Imperial
Bank of India, which was renamed the State Bank of India on 30
April 1955.
32
2.3 ASSOCIATE BANKS:
There are seven other associate banks that fall under SBI.
They all use the "State Bank of" name followed by the regional
headquarters' name. These were originally banks belonging to
princely states before the government nationalized them in 1959. In
tune with the first Five Year Plan, emphasizing the development of
rural India, the government integrated these banks with the State
Bank of India to expand its rural outreach. The State Bank group
refers to the seven associates and the parent bank. All the banks use
the same logo of a blue keyhole. Currently, the group is merging all
the associate banks into SBI, which will create a "mega bank", and
one hopes, streamline operations and unlock value.
State Bank of Bikaner and Jaipur (SBBJ)
State Bank of Hyderabad (SBH)
State Bank of Mysore (SBM)
State Bank of Patiala (SBP)
State Bank of Saurashtra (SBS)
State Bank of Travancore (SBT)
33
2.4. BRANCHES
The corporate center of SBI is located in Mumbai. In order to
cater to different functions, there are several other establishments in
and outside Mumbai, apart from the corporate center. The bank
boasts of having as many as 14 local head offices and 57 Zonal
Offices, located at major cities throughout India. It is recorded that
SBI has about 10000 branches, well networked to cater to its
customers throughout India.
2.5. FOREIGN OFFICES:
State Bank of India is present in 32 countries, where it has 84
offices serving the international needs of the bank's foreign
customers, and in some cases conducts retail operations. The focus of
these offices is India-related business.
2.6. ATM SERVICES
SBI provides easy access to money to its customers through
more than 8500 ATMs in India. The Bank also facilitates the free
transaction of money at the ATMs of State Bank Group, which
includes the ATMs of State Bank of India as well as the Associate
Banks – State Bank of Bikaner & Jaipur, State Bank of Hyderabad,
State Bank of Indore, etc. Account holder may also transact money
through SBI Commercial and International Bank Ltd by using the
State Bank ATM-cum-Debit (Cash Plus) card.
34
2.7 GROUP COMPANIES:
SBI Capital Markets Ltd
SBI Mutual Fund (A Trust)
SBI Factors and Commercial Services Ltd
SBI DFHI Ltd
SBI Cards and Payment Services Pvt Ltd
SBI Life Insurance Co. Ltd - Bancassurance (Life Insurance)
SBI Funds Management Pvt Ltd
SBI Canada
35
2.8. PRODUCTS AND SERVICES
2.8.1. Personal Banking
1) SBI Term Deposits SBI Loan For Pensioners
2) SBI Recurring Deposits Loan Against Mortgage Of
Property
3) SBI Housing Loan Against Shares & Debentures
4) SBI Car Loan Rent Plus Scheme
5) SBI Educational Loan Medi-Plus Scheme
2.8.2. Other Services
6) Agriculture/Rural Banking
7) NRI Services
8) Demat Services
9) Corporate Banking
10) Internet Banking
11) Mobile Banking
12) International Banking
13) Safe Deposit Locker
14) RBIEFT
15) E-Pay
16) E-Rail
17) SBI Vishwa Yatra Foreign Travel Card
18) Broking Services
19) Gift Cheques. Etc.
36
2.9. PERFORMANCE:
• SBI Bank India had Total Profit of Rs.119,49,82,91,000 for the
financial year 2009 -2010, Which has increased approximately
8.69% as compared to last year’s Balance sheet.
2.10. ORGANIZATION:
State Bank of India is headed by Mr. Shri O. P. Bhatt,
Chairman.
2.11 THE BANK STANDS FOR BEST PRACTICES AS IT
CLAIMS ITSELF AS UNDER:
Best practices followed in SBI
People dealing
with Customer
End to End service by Permanent employees of SBI who are
accountable to Customer/Account holder.
Place SBI branch of borrower’s choice will service his loan account.
Customer can always meet our employees face to face.
Price Complete transparency. Interest charged on the daily reducing
balance.
Prepayment
charges No penalty for prepayments made, out of bonafide savings or
windfall gains for which evidence is produced.
Costs hidden in
fine print No hidden costs
Transparency Complete transparency. All the features of our product,
including interest rates, are in the public domain.
Table 2.1: Best Practices in SBI (Source: Researchers methodology)
2.12 S
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38
2.13. UNIQUE FEATURES OF SBI HOME LOAN PRODUCTS:
• Provision for on the spot "In principle" approval.
• Loan sanctioned within 6 days of submission of required
documents.
• Option to avail Home Loan as a Term Loan or as an Overdraft
facility to save on interest and maximise gains.
• Option to club income of borrower’s spouse and children to
compute eligible loan amount.
• Provision to club depreciation, expected rent accruals from
property proposed to compute eligible loan amount.
• Provision to finance cost of furnishing and consumer durables
as part of project cost.
• Repayment permitted upto 70 years of age.
• Free personal accident insurance covers upto Rs.40 Lac.
• Optional Group Insurance from SBI Life at concessional
premium (Upfront premium).
39
CHAPTER - 3
HOME LOAN PRODUCTS OFFERED BY SBI
Diagram 3.1: Home Loan Products Offered by SBI
(Source: Researchers methodology)
40
3.1. SBI EASY HOME LOAN
For loan amount up to Rs.50 Lacs
SBI Easy is available up to 30th June 2010
Getting One’s dream home has become easier with SBI Easy
Home Loan. With low interest rates for home loan under Rs. 50 lakhs
category, SBI Easy ensures that he is not burdened with high
interest for one’s home loan. Plus with over 12000 SBI branches
nationwide borrower can get his Home Loan account parked at a
branch nearest to borrower’s present or proposed residence.
Interest Rate:
Interest rate during the first year (i.e. till first anniversary date from
the date of first disbursement) is fixed at 8% p.a.
Interest rate during next two years is fixed at 9% p. a
Interest rate after three years may be Fixed or Floating as per the borrower’s choice made at the time of sanction. If floating rate
option is chosen, then the rate will be 2.5% below SBAR. If fixed rate
option is chosen, then the rate will be 0.75% below SBAR prevailing
on the third anniversary date from the date of first disbursement,
and shall have a reset frequency of 5 years from the third
anniversary date of the loan. Fixed interest rate shall be subject to
force-majeure clause. (SBAR = 11.75% p.a.)
41
Processing Fee:
The revised processing fee structure (including service tax) from 9th
November 2009 is as under:
Table 3.1: loan amount in SBI easy home loan
(Source: www.sbi.co.in)
Loan Amount Processing Fee(Revised)
Upto Rs.5 Lac Rs.1000/-
Above Rs.5 Lac and upto Rs.10 Lac Rs.2000/-
Above Rs.10 Lac and upto Rs.20 Lac Rs.5000/-
Above Rs.20 Lac and upto Rs.50 Lac Rs.7,000/-
42
3.2. SBI ADVANTAGE HOME LOAN
For loan amount above Rs.50 lacs
SBI Advantage is available up to 31st September 2010
SBI Advantage Home Loan with competitive rates of interest is
available for home loans above Rs.50 lakhs. Plus with over 12000 SBI
branches nationwide one can get his Home Loan account parked at a
branch nearest to borrower’s present or proposed residence.
Interest Rate:
Interest rate during the first year (i.e. till first anniversary date from
the date of first disbursement) is fixed at 8% p.a.
Interest rate during next two years is fixed at 9% p. a
Interest rate after three years may be Fixed or Floating as per the borrower’s choice made at the time of sanction. If floating rate option
is chosen, then the rate will be 1.75% below SBAR. If fixed rate
option is chosen, then the rate will be 0.75% below SBAR prevailing
on the third anniversary date from the date of first disbursement,
and shall have a reset frequency of 5 years from the third
anniversary date of the loan. Fixed interest rate shall be subject to
force-major clause.
43
Processing Fee
The revised processing fee structure (including service tax) from 9th
November 2009 is as under:
Loan Amount Processing Fee(Revised)
Above Rs.50 Lac and up toRs.1 Cr Rs.8,000/-
Above Rs.1 Cr and up toRs.5 Cr Rs.10,000/-
Above Rs.5 Cr Rs.20,000/-
Table 3.2: loan amount in SBI advantage home loan
(Source: www.sbi.co.in)
44
3.3. HOME LOAN PRODUCT VARIANTS
i) SBI Max Gain
Home Loan as an Overdraft
An innovative and customer-friendly product to enable the borrower
to earn optimal yield on his savings and minimize interest burden on
Home Loans, with no extra cost.
The loan is granted as an Overdraft facility with the added flexibility
for him to operate his Home Loan Account like borrower’s SB or
Current Account.
The product serves to minimize borrower’s interest cost by enabling an individual to park his surplus funds in “SBI-Max gain” (with the
benefit to withdraw the surplus funds whenever his require),
specially in the wake of low yields from other deposit/ investment
avenues.
Minimum Loan Amount: Rs.5 lacs
ii) SBI Freedom
A revolutionary product designed for customers who are on the
lookout for a source of finance for a property they want to invest in
without mortgaging the same. All Borrowers have to do is pledge any
financial security that borrower has and he will get a Home Loan for
his dream home.
45
A must-take for those who do not want to pay stamp duty for
mortgage of their property or go through the hassles of creation of
mortgage.
Borrower also has an option to take the loan by way of mortgage of
the property and pledge financial securities in lieu of margin money.
Repayment is highly customized, giving borrower the option to repay
through regular EMIs or through maturity proceeds of the securities
pledged.
ii) SBI Realty
Home Loans for purchase of land for the purchase of plot of land for
the purchase of construction of a dwelling unit
A unique product if borrower is on the lookout for a loan to purchase
a plot of land for house construction. The loan is available for a
maximum amount of Rs.1 crore* and with a comfortable repayment
period of up to 15 years.
Loan Amount Margin Less than < Rs. 75 Lacs 20% of Project Cost Rs.75Lacs Rs.1 Crore 25% of Project Cost
>Rs.1 Crore 25% for Loan amount up to Rs.1 Crore + 50% for loan in excess of Rs.1 crore
For e.g. If project cost is 2.5 crores the margin would be calculated as – 25% of cost of property at loan amount Rs.1 Crore + 50% of rest of the project cost, i.e. 25% of Rs.1.33 Cores + 50% of Rs.1.17 crores = Rs.88.75 Lacs
Table 3.3: Margin of bank on loan amount. (Source: www.sbi.co.in)
Customers are also eligible to avail another Housing Loan for
construction of house on the plot financed above with the benefit of
46
running both the loans concurrently. (House construction should commence within 2 years from the date of availment of “SBI-Realty”
Housing Loan)
iv) SBI Flexi
Home Loans with a combination of Fixed and Floating Interest.
RATES
Home Loans with an option to choose a combination of floating
interest rate and fixed interest rate, in a pre determined ratio.
Minimum Loan Amount Rs.5.00 lacs.
A customized product designed to enable borrowers to hedge their
Home Loan against unfavourable movement in interest rates. The
product gives the borrower, a onetime irrevocable option to choose
one of the three customized combinations of fixed and floating
interest rates and also to choose the order in which the fixed and
floating rate will be availed.
47
v) NRI Home Loans
Home Loan to Non Resident Indians (NRIs) and persons of Indian
origin (holding a foreign passport)
Eligibility
Individual(s) over 18years of age with a steady source of income who
Are Non Resident Indians (NRIs) holding a valid Indian
passport.
Are persons of Indian origin (PIOs) holding a foreign passport.
Minimum employment tenure in India/abroad not less than 2
years.
Loan Amount
The loan amount is to be determined on the basis of repayment
capacity taking into account income, age, assets and liabilities,
qualifications, stability of occupation, and employment prospects on
return. The loan amount is subject to the following:
Minimum: Rs. 3 lacs
Maximum: Maximum permissible loan amount would be determined
by EMI/NMI ratio criteria as applicable to regular Home Loans
scheme for Resident Indian customers, which is 40% for Net Annual
Income (NAI) upto Rs.2 Lac, 50% for NAI above Rs..2 Lac and upto
Rs.5 Lac, 55% for NAI above Rs.5 Lacs.
48
vi) SBI Optima
Innovative and value added products extended to existing Home loan
borrowers with a satisfactory repayment record of 3 years and whose
loan is Standard Asset, with a view to reinforce the customer loyalty
and to maintain long term relationship with the borrowers. In case of
take-over of Home Loans from other Banks/HFCs, the borrower
should have fulfilled the above conditions with the present
Bank/HFC.
vii) SBI Tribal Plus
Special Home Loan scheme for hilly/tribal areas.
'SBI-Tribal Plus' Home Loans, a Special Scheme designed for
Hill/Tribal areas for extending financial assistance to individuals in
such areas to:
a) Purchase or construction of a new house / flat (without
mortgage of land)
b) Purchase of an existing (old) house / flat which is not more than
10 years old (In such cases, valuation report from our
empanelled valuer and a certificate on the condition of the
house to be given by a structural engineer or Govt. approved
architect should be taken);
c) Repair /Renovation/extension of an existing house or flat.
49
viii) Gram Niwas
Home Loans to farming and poorest of the poor in rural areas.
The Scheme covers all rural and semi-urban centers. “Rural
Area” for the purpose of the Scheme is the area comprised in any
village including the area comprised in any town, the population of
which does not exceed 50000 as per 2001 census. The scheme seeks to
provide home loans to farming and poorest of the poor in rural areas
for the purpose of purchase or construction of a house, repairs and
renovation, purchase of plot for the purpose of construction of a
house/shed etc.
ix) Sahyog Niwas
Rural home loans to self help groups
The Sahyog Niwas scheme has been instituted to finance the
self help groups with a good track of payment record for 2 years, for
on lending to members for housing in rural areas, covering the
following purposes.
1) For the purchase or construction of a house exclusively or
including the housing needs of activities carried by them.
(Dairy shed, tailoring shed/shop, grocery stores etc.)
2) For the renovation or repair of an existing house / shed
3) For the purchase of a plot of land for the purpose of house
construction.
4) For the extension of existing house / work space to existing
house / shed.
50
x) SBI Happy Home Loans
Home loans at 8% p.a.
The SBI Happy Home Loans scheme enables the genuine
needy buyers to buy dwelling units by freezing interest rate at 8%
p.a. for a period of one year from the date of disbursement on new
Home Loans including SBI Special Home Loans scheme.
xi) SBI Green Home Loan
State Bank of India has adopted a Green Banking Policy with
an objective of contributing towards the fight against the adverse
climate change. One of the initiatives approved by the Board for this
purpose is incentivizing customers who go in for Green Projects, i.e.
those projects which reduce Carbon Emissions and promote
Renewable Energy. “Green Housing” or “Green Home” is one of the
types of projects identified for this purpose.
At present State Bank of India is the only Bank in the country
supporting the cause of Green Buildings by offering a 5% concession
in margin, 0.25% concession in interest rate and waiver of processing
fees, on the existing home loan products to customers who go in for
Green Projects.
51
3.4. HOME LOAN TOP-UP PRODUCTS
i) SBI Home Line
SBI Home Line Special Personal Loans come with inbuilt
provision to sanction personal loans to home loans borrowers with a
satisfactory repayment record of 3 years. The rate of interest charged
on these personal loans is only 50 bps above the Home Loan interest
rate applicable to the repayment tenure opted by the borrower
(floating rates only), prevailing as on the date of sanction of “SBI-Home Line” Special Personal Loans.
ii) SBI Home Plus
SBI Home plus is scheme is launched for granting personal
loans to the banks home loans customers against the security of their
house property. All home loans customers with a satisfactory
repayment record of at least one year and who maintain a Savings
bank or current account with us.
The loan can be used for any purpose, viz. extension/repair of
house, purchase of car/ consumer durables, education / medical
expenses of family members, personal expenses, etc. There will be no
need to obtain documentary evidence for the end-use of funds.
However a certificate from the customer in the application to the
effect that the loan will not be used for speculative purposes would be
obtained.
52
iii) SBI Life style Loan
Loans to meet life style needs of Home Loans customers.
State Bank Of India launched the SBI Life Style Loans to help home
loan customers meet any short term expenditure, (Vacation travel,
purchase of Gold, Lifestyle goods) except speculative investments,
which adds comfort to the life style of the borrower with satisfactory
repayment record. SBI has tie up with various reputed travel houses,
lifestyle product companies for discounts to our customers.
53
3.5. RELATED HOME LOAN PRODUCTS
i) Earnest Money Deposit (EMD) Scheme
Many Government agencies, like Urban Development Authorities
and Housing Boards, periodically come out with schemes for sale of
plots/houses, wherein applicants have to submit 10-20% of the cost of
plot/house as Earnest Money Deposit (EMD) and allotments are
made by draw of lots.
The SBI EMD scheme is designed for financing against earnest
money for allotment of a house/plot. Individuals above 21 years of age
and with a steady source of income are eligible to avail loans under
this scheme.
Salient Features of the Scheme:
• No minimum income criteria.
• Margin waived in all cases.
• Eligible for 100% of application money, subject to maximum
loan amount of Rs.10 Lacs.
• Waiver of security in all cases irrespective of the loan amount.
• The above mentioned features of the scheme are applicable
subject to the following conditions:
54
ii) SBI Reverse Mortgage Loan
Loans for welfare of senior citizens in India.
SBI Reverse Mortgage Loan Enables house-owning Senior Citizens
having inadequate income to meet their financial needs for
renovation/repairs to house, medical & other personal purposes.
There is no compulsion for the borrower to repay a RML during his or
her lifetime or till such time he or she continues to stay in the house.
The borrower continues to retain ownership of the house. Also, the
borrower will have the option to prepay the loan at any time during
the loan tenure and there will be no pre-payment penalty.
7) OTHER SCHEMES:
The bank offers loans schemes known as 'Prashasan Plus', 'Teacher
Plus' and 'Oil Plus' to Government Employees, Teachers and
employees of public sector oil companies etc at concessional rates. These „plus‟ schemes offer concessional interest rate of 0.25% below
the applicable interest rates on Home Loans to niche client groups
like Government Employees, Teachers, employees of public sector oil
companies and so on
55
CHAPTER - 4
TERMS AND NORMS
4.1. ELIGIBILITY
If one is a resident or non-resident individual who is planning
to buy a house in India, one can apply for a home loan. If a person
has decided to buy a property in the near future, he/she can apply for
a loan before even selecting the property. Once the maximum amount
to put into the property has been decided, the Housing Finance
Institutions or Banks will let the customer know that how much
he/she is eligible for and this helps to plan out the budget.
Conditions regarding co-applicants:
All Housing Finance Institutions lay down conditions on who
can be co-applicants. All co-owners of the property need to be co-
applicants to the loan necessarily. These institutions do not permit
minors to join in as either co-owner or as co-applicants because a
minor is not eligible to enter into a contact as per law. They do not
permit even friends or relatives who are not blood relatives to take a
property jointly. However, Income of co-applicants can be clubbed
together to get higher loan eligibility. Given below is a Table that
throws light on acceptable relationship of a co-applicant for clubbing
of income.
Minimum age: 18 years as on the date of sanction
56
Maximum age: limit for a Home Loan borrower is fixed at 70 years,
i.e. the age by which the loan should be fully repaid, subject to
availability of sufficient, regular and continuous source of income for
servicing the loan repayment.
Eligibility Criteria & Documentation required for Individuals:
Salaried Self employed
Age 21years to 60years 21years to 70years
Income Rs.1,20,000 (p.a.) Rs.2,00,000 (p.a.)
Loan Amount Offered 5,00,000 - 1,00,00000 5,00,000 - 2,00,00000
Tenure 5years-20years 5years-20years
Current Experience 2years 3years
Documentation
1) Application form with
2) Photograph.
3) Identity & residence
proof.
4) Last 3 months salary
slip
5) Form 16.
6) Last 6 months bank
salaried.
7) credit statements.
8) Processing fee
cheque.
1) Application form with
photograph.
2) Identity & residence
proof.
3) Education
qualifications
certificate & proof of
business existence.
4) Business profile,
5) Last 3 years profit/loss
& balance sheet
6) Last 6 months bank
statements
7) Processing fee cheque Table 4.1: Eligibility Criteria & Documentation
(Source: Researchers methodology)
57
4.2. DOCUMENTS
(1) ADVOCATE Check List: (Prepare separate set)
Copies of Mother deed/parent document link deeds, allotment
letter, Khatha certificate/endorsement, up to date encumbrance
& tax paid receipts. (In case of flats, if the project is already
approved by SBI panel advocate then this is not required).
Copies of Agreement for sale, Construction Agreement
ORIGINAL Sub Registrar certified copy of the Sale Deed(for
takeover loans )
ORIGINAL of updated encumbrance certificate.
Copy of Plan sanction.
Copies of latest Khata certificate, Khata extract etc.
Upto date Tax paid receipts (Form-16).
Copies of Sanction letter of other bank/institution & Letter of
original documents held in their custody ( applicable In case of
takeover loans from other banks/institutions)
(2) ENGINEER Check List:
(Kindly take the Engineer Telephone NOC from the bank to co-
ordinate with him for inspection of borrower’s property)
Photo copy of Sale Deed.
Plan Sanction Copy.
Interior Estimate, if any, for approval by Engineer.
58
(3) Builders/Sellers Check List
Allotment Letter & detail split up cost of the project.
In case of completed projects, a letter from the builder stating
that the property is ready for registration.
Letter from the builder/seller the property is not mortgaged to
any bank/ financial institution. If mortgaged then an NOC from
the concerned bank/institution.
Advance Receipt / Paid Receipts from Builder/Seller, If any.
Due diligence on Builders and Seller KYC Norms : Proof of
Identity (PAN copy) & Residence proof (Telephone/electricity
bill - both self attested and originals verified & attested by the
bank) along with the duly filled in KYC form (form to collect
from the bank)
(4) Other Bank/Institution Check List ( In case of Takeover Loans)
Sanction Letter of the other bank/institution.
Loan account statement from the date of sanction till date.
Pre-closure letter inclusive of penalty from the other
bank/institution.
Letter of original documents held in their custody.
Receipts for the total amount of the project issued by
builder/seller to the purchaser/bank/institution.
59
(5) PERSONAL DOCUMENTS Check List
(From the Applicant / Co- applicant and Guarantor, if any)
SELF ATTESTED COPIES OF DOCUMENTS Sl.No.1 to 6:
1. Proof of Identity (passport/pan card)
2. Proof of Residence (telephone/electricity bill/ company letter)
3. Salary Slip - last 3 months. (Attested by the employer)
4. Salary account bank statement - last 6 months (bank attested)
5. Form 16 for the last two years.
6. Income Tax Saral copy for the last two years.
7. Photograph - 2 nos.
8. Application Form
9. Company Profile – details of company
60
(6) Check list by the Purpose
Confirmation of Income
If borrower is a salaried person, please provide two recent
consecutive pay slips or a copy of borrower’s employment
contract or a letter from his employer.
If borrower is self-employed, please provide copies of borrower’s
last two Financial Accounts as prepared by his accountant.
Appointment Letter
Salary Certificate
Retainer ship Agreement, if appointed as a consultant
FORM 16 issued by the employer in borrower’s name.
Last three years income tax returns duly filed and certified by
the Income Tax Authorities
Similar Document -separately for each co-applicant.
Employment Proof
Identity card issued by borrower’s employer
Visiting card
61
Age Proof
Passport
Voter's ID card
PAN card
Ration card
Employer's Identity card
School leaving certificate
Birth certificate
Residence Proof
Ration card
Passport
PAN card
Rent agreement, if borrower’s is staying currently on rent
Bank Pass book
Allotment letter from borrower’s company if borrower’s is
residing in company quarters.
62
Name Change Proof (If Applicable)
a. A copy of the official gazette
b. A copy of a newspaper advertisement publicizing the name
change
c. Marriage certificate
Investment Proof (If Applicable)
a. Bank statement for the last six months of all operating and
salary accounts
b. Bank statements for the last six months of all current accounts,
if self-employed.
c. Any other photocopies of investments held, if required by the
Bank
63
Property Title Proof
Original Sale agreement with Builder/Developer duly
registered, Registration receipt
Tripartite agreement from builder/developer
Land documents indicating ownership, e.g.- Photocopies of title
deeds, if applicable
A certificate by the legal advisor of the builder to the effect that
the builder has a good reputation and it is free from
encumbrance and other charges.
A certificate from builder's Chartered Accountant certifying
that the builder has not mortgaged the property anywhere else.
Certified true copy of approved plan.
Copies of receipts of payments made to builder/developer.
Allotment letter
Possession letter
Lease agreement, if applicable (Property bought from a
development authority)
Mortgage deed if the Bank opts for a registered mortgage.
No Objection Certificate from the developer, society or
development authority as applicable
Personal Guarantees, if applicable.
64
In case of alternate or additional security, documents for the
same depending upon the security details.
For self-construction: Approved plans and clearance certificates
along with estimates
Post dated cheques for the EMIs.
Confirmation of Rental Income
Copy of the existing tenancy agreement, or a rental appraisal,
from a local real estate agent signed by branch manager, or rental
manager.
Deposit or Investments
Evidence of borrower’s deposit or investment funds, i.e. a bank
statement or term deposit receipt.
For low equity loans (5-19% deposit), copy of his savings
account statements over the last six months.
Sale and Purchase Agreement
If borrower is planning to buy a property, please provide a copy
of the successful sale and purchase agreement signed by both
borrower and the vendor.
If borrower’s is planning to sell or have already sold his existing
property, please provide a copy of that property's sales and
purchase agreement.
65
New Customer to the banks of India
• If borrower’s is refinancing from another bank please provide
copies of his loan statements covering the last six months.
• Please provide copies of borrower’s account statements covering
the last six months from his current bank.
• Please provide copies of borrower’s identification and if
borrower has arrived in the country within the last 5 years,
please provide a copy of his passport.
GOVERNMENT VALUATION AND RATING
System A copy of the latest Government or Ratings Valuation is to be
provided. Depending on the age and value indicated in conjunction
with the amount required to borrow, the Bank may require a
Registered Valuation and borrower’s Banker will advise borrower.
66
4.3. PURPOSE
The bank offers home loans for purchase and/or construction of
house property as well as plot loans.
It offers loans for:
• Purchase/ Construction of new House/ Flat
• Purchase of an existing House/ Flat
• Purchase of a plot of land for construction of House
• Extension/ repair/ renovation/ alteration of an existing House/
Flat
• Purchase of Furnishings and Consumer Durables as a part of
the project cost
• Takeover of an existing loan from other Banks/ Housing
Finance Companies
67
4.4. QUANTUM OF LOAN
Actual loan amount will be determined taking into consideration such factors as applicant’s income and repaying capacity, age, assets
and liabilities, cost of the proposed house/flat etc.
Applicants aged between 18 and 45 years, can get 60 times Net
Monthly Income (NMI) or 5 times Net Annual Income (NAI) and for
applicants aged over 45 years of age, it is 48 times NMI or 4 times
NAI.
This will be subject to a maximum EMI/NMI ratio as under:
Net Annual Income EMI/NMI Ratio
Up to Rs.2 lacs 40%
Above Rs.2 lacs to Rs. 5 lacs 50%
Above Rs. 5 lacs 55%
Table 4.2: Criteria for Loan Amount
(Source: Researchers methodology)
Increase up to 5% in the EMI/NMI ratio may be permitted by
the sanctioning authority, depending on the availability of
disposable surplus income after meeting expenditure towards
maintenance of family.
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68
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69
The flat rate system:
The rate of interest on the loan amount is calculated over the
full duration of the loan, the principal and the interest is divided over
the number of installments and the value arrived is borrower’s EMI.
Let us understand this better:
Table 4.3: EMI calculation in the flat rate system
(Source: Researchers methodology)
A flat rate loan is the most expensive as in this case the
interest is calculated on the entire loan amount and no principal
deduction is taken into account. Thus the effective rate of interest works out to be much higher.
70
REDUCING BALANCE SYSTEM:
The interest is charged on the outstanding balance of the loan, which
goes on reducing. Hence the cost of the same loan amount on an
annual reducing balance method works out to 29% and 35% on a
monthly reducing balance method. Again in case of reducing system,
there are three types:
EMI Table - Monthly reducing balance method
Table 4.4: EMI calculation in Reduced balanced system
(Source: Researchers methodology)
Daily reducing balance method (Used by SBI)
Here, there is immediate reduction in principal thereby reducing the interest calculated on it. If borrower has taken a loan of Rs.1, 00,000/- at 21% interest for 3 years and he pay Rs.3, 760/- on Jan 10, the lender will consider total outstanding principal as Rs.96, 240/- from Jan 11. The interest will be calculated on Rs.1,00,000/- from Jan 1 to Jan 10 and from Jan 11, interest will be calculated on Rs.96,240/-. With a lower outstanding principal, the total interest paid out reduces and so does the EMI.
71
Monthly reducing balance method
Here, the principal component is deducted at the end of every
month and then the interest is calculated on this new outstanding
reduced principal. The above table gives the cash outflow on a loan of
Rs.1, 00,000/- at 21% interest for 3 years, when interest is calculated
by monthly reducing balance method.
Annual reducing balance method
Here the principal component of EMI though reduced every
month, is summated annually. Therefore, the interest is calculated
on the original loan amount for the entire year. At the end of the
year, the accumulated principal component is deducted from the
original loan amount and the interest for the next year is on this
reduced loan amount. If borrower has taken a loan of Rs.1,00,000/- at
21% interest for 3 years, the EMI will be Rs.4,018/-.
Which EMI plan to choose?
1. Payment of EMIs in advance or in arrears?
Paying the EMI at the beginning of the month (EMI in
advance) means that he lock borrower money for the month;
while paying in arrears, (i.e. at the end of the month) gives
him an extra month before the payout. The effective rate of
interest on the loan also goes up when he pay the EMI at the
beginning of the month. Hence if two schemes offer the same
EMI, choose the one, which allows payment in arrears.
72
2. Advance EMI payment
In advance EMI schemes a certain number of EMIs are
collected from the borrower in advance. The number of EMIs
that have to be paid out in advance varies with the interest
charged on the loan. The more borrower pay in advance the
lesser should be the interest charges.
Also in 100% financed loans, some EMIs have to be paid
upfront as advance. This effectively reduces the loan amount
and in real terms the financier has not given him 100% finance
but charges interest on the entire cost of the asset.
3. Deposit linked plan
Here, the financier offers a lower rate of interest,
provided the borrower invests 20% to 25% of the asset cost as a
fixed deposit with the financier. The interest on this deposit is
usually lower than the interest charged on the loan. Here
again borrower’ must consider the cost of parking borrower’s
funds in the deposit as the returns on it may not weigh
favourably with the low interest charged on the loan.
In the end, the thumb rule of EMI to remember: EMI is lowest,
when interest is calculated on a daily reducing basis. The
reason why EMI varies for the same loan amount, tenure and
interest rate is the difference in the compounding frequency of
interest rates.
73
bank remember that one liner joke - “Why sharks never take
lenders?” The answer is “Professional courtesy”.
4. Pre-EMI:
In case of part of disbursement of the loan, monthly
interest is payable only on the disbursement amount. This
interest is payable monthly till the final disbursement is made,
after the EMIs would commence.
4.6. MONETARY CEILINGS
The Maximum Permissible Loan Amount is subject to
following monetary ceilings:
Repairs/Renovation Rs. 10 lacs Above Rs.10 lacs require prior administrative clearance of network GM
Furnishings and consumer durables
10% of the Project Cost
(or)
3 lacs
Whichever is less where additional security is available
Table 4.5: monetary ceilings
(Source: Researchers methodology)
74
4.7. TOTAL PROJECT COST
The total value house or flat or the project cost includes:
• The cost of undivided share of the flat/land /construction cost,
• Additional Amenities like Car Parking, KEB & BWSSB
deposits,
• Insurance premium
• VAT & service taxes,
• Maintenance cost &
• Stamp duty and Registration expenses subject to borrower’s
eligibility as calculated above whichever is lower for purchase
/construction of new or old property.
4.8. MARGIN
Purchase/ Construction of a new House/ Flat/ Plot of land:
The SBI home loan borrower should pay 20% of the cost of home for
loans up to Rs 1 crore and 25% for loans above Rs 1 crore.
Loan Amount Margin (Min.)
Maximum LTV*Ratio (Max.)
Up to Rs. 75 Lacs 20% 80%
Above Rs. 75 Lacs. 25% 75%
Table 4.6: criteria of margin amount
(Source: Researchers methodology)
Repairs/ Renovation of an existing House/ Flat: 20%
*LTV ratio - Loan to value ratio=Loan amount/Value(project)
75
4.9. SECURITIZATION
In most cases, the property to be purchased itself becomes the
security and is mortgaged to the bank till the entire loan is repaid. Equitable or Registered mortgage of property
(or) Other tangible security of adequate value like NSCs, Life
Insurance policies etc., if the property cannot be mortgaged
Table 4.7: Securitization (Source: Researchers methodology)
4.10. FEES OR CHARGES
4.10.1. Pre-Sanction Fees
(i) Processing Fee: The revised processing fee structure (including service tax) from
9th November 2009 is as under:
Loan Amount Processing Fee (Revised):
Table 4.8: Processing fee amounts
(Source: Researchers methodology)
Loan Amount Fee
Up to Rs.5 Lac Rs.1000/
Above Rs.5 Lac and up to Rs.10 Lac Rs.2000/
Above Rs.10 Lac and up to Rs.20 Lac Rs.5000/
Above Rs.20 Lac and up to Rs.50 Lac Rs.7,000/
Above Rs.50 Lac and up to Rs.1 Cr Rs.8,000/
Above Rs.1 Cr and up to Rs.5 Cr Rs.10,000/
Above Rs.5 Cr Rs.20,000/
76
Note: 75 % of the processing fee may be refunded in the following
cases:
• Rejection of loan application on account of unsatisfactory pre-
sanction survey report.
• Rejection of loan application on account of unsatisfactory
legal/valuation reports.
• In cases where applications are sanctioned or rejected after
complete loan processing, fee will not be refunded.
(ii) Legal Charges:
Advocate's fee for property search and the title investigation report.
a. Legal Fee/charges: Rs.1500/-
b. Govt. Stamp duty: 0.25% of loan amount as stamp duty at the
time of equitable mortgage creation at the Bank.
c. Approx Govt. Stamp papers of Rs.1500/-(approx) for execution
of loan documents at the time of sanction
(Legal/Engineer/Processing fee cheques to be paid at the time of
submission of application form to the bank. Govt Stamp duty of
0.25 %( prevailing now) of the loan amount and Rs750/- approx
to be paid at the time of documentation of loan. Insurance will
be done after the registration of the property.)
(iii) Valuation Charges:
Valuer's fee for valuation report.
Engineer's Valuation fee: Rs.1, 500/-
77
4.10.2. Post-sanction Fees
i) Stamp duty payable for Loan agreement & mortgage.
ii) Property insurance premium:
Insurance: Insurance of property building against
fire/earthquake etc with New India Assurance Company to be
done.
iii) Service Charges
Payable to builders who have been engaged as Marketing
Associates.
4.11. RATE OF INTEREST
SBI EASY HOME LOAN (JULY 2010)
(Base Rate =7.50% p.a.)
Interest rate for proposals sanctioned
between 1st July 2010 and 30th September 2010.
Loan amount Maximum Rs.50 Lacs
Interest during first year 8% p.a.(Fixed)
2nd & 3rd year 9% p.a.(Fixed)
Floating interest rate after 3rd year
1.75% above Base Rate, Currently effective
rate being 9.25% p.a.
Fixed interest rate after 3rd year
3.50% above the Base Rate prevailing at the time of reset, With a reset frequency of 5 years.
Table 4.9: Rate of interests of SBI Easy Home Loan
(Source: www.sbi.co.in)
78
SBI ADVANTAGE HOME LOAN (JULY 2010)
Interest rate for proposals sanctioned between 1st July
2010 and 30th September 2010. Loan amount Above Rs.50 Lacs
Interest during first year 8% p.a.(Fixed)
2nd & 3rd year 9% p.a.(Fixed)
Floating interest rate after
3rd year
2.25% above the Base Rate, Currently
effective rate being 9.75% p.a.
Fixed interest rate after 3rd
year
3.50% above the Base Rate prevailing at the
Time of reset, with a reset frequency of 5 years.
Table 4.10: Rate of interests of SBI Advantage home loan
(Source: www.sbi.co.in)
4.12. MORATORIUM
Up to 18 months from the date of disbursement of first
instalment or 2 months after final disbursement in respect of loans
for construction of new house/ flat (moratorium period will be
included in the maximum repayment period)
79
4.13. GUARANTOR:
• The bank insists on a Guarantor till the property is
registered/title transferred on borrower’s name and Equitable
Mortgage registered in favour of the bank.
• Guarantor details in the application with Assets & Liabilities
duly filled in along with the above mentioned documents are
required.
• For Takeover Loans From Other Banks – Guarantor Is A Must
• An eligibility criterion of guarantor is that: 80% of the net
credit worthiness of the guarantor should be more than the loan
amount (takeover amount).
• The Title holders of the property should ONLY be the
borrowers. If the agreement is on the joint names (maximum
three persons), then the Sale deed also should be on the joint
names and the loan also will be on the joint names. The same is
also applicable for take over loans.
i.e. Joint Owners then Joint name in the loan application /
Single Owner then Single name in the loan application.
80
4.14. TAX BENEFITS
• Both principal as well as interest of home loans attract tax
benefits. With effect from 1st April 2005 (i.e. assessment year
2005-07) under section 80C of the Income Tax Act 1965:
• Principal amount of repayment of loan along with other savings
such as PF, PPF, and Life Insurance premium etc up to a
maximum of Rs 1, 00,000/- will be eligible for deduction from
gross income.
• Interest paid on loan after completion of construction will be
deductible from income from property
• For self occupied - Income will be treated as nil and interest
payment will be treated as minus income which will be adjusted
against other income. For rental property - It will be adjusted
against rental income.
4.15. PACKAGE OF EXCLUSIVE BENEFITS
• Complimentary international ATM-Debit card.
• Complimentary SBI Classic/ International Credit Card with
waiver of joining and first year's fees.
• Option for E-banking.
• Concessional package under 'Credit Khazana' for prospective
car loan borrowers whose accounts are conducted satisfactorily.
• 50% concession in charges in respect of all personal
remittances/ collection of outstation cheques.
81
4.16. INSURANCE COVER
Compulsory insurance of property, Optional life cover from
SBI Life & free accident insurance cover for borrower available. The
house/flat to be insured against the risk of
fire/riots/earthquake/lighting/floods etc. in the joint names of the
borrower and the bank for the actual project cost after netting off the
cost of land, stamp duty an registration charges.
People seeking home loan often encounter such worries like
what if anything happens to them in that case what would happen to
the home loan? Naturally, their main concern is that should
something happen to them their folks would have to encounter the
problem of facing the impact of repaying the loan debt. Home loan
insurance is completely different from home insurance.
This type of insurance covers the amount of home loan
borrower owe to the bank. This doesn't include the amount he has
already paid but the amount still to be paid and evidently his family
members will not face the problem of paying the amount being owed
to the bank but the insurance provider will bear the brunt of the
same. The insurance companies are not very impending about how
much amount is to be paid as part of the insurance premium as the
premium amount varies depending on the case.
The premium amount broadly relies on conditions like - age of
the person availing the loan (the younger the person, the lower the
premium amount); loan amount (the lesser the loan amount, the
lower the premium); period of the loan (the more the loan repayment
82
period, more is the premium); another important factor is the health
of the loan taker (the premium amount would be low in case of good
health of the individual). SBI offers mortgage life insurance policy to
the SBI home loan applicants thereby consolidating the insurance
premium along with the EMIs. The State Bank of India offers a free
personal accident insurance cover to their clients availing home loan
so that the client's family doesn't have to face any problem if he/she
meets an accident that proves to be fatal.
83
4.17. VALUATION POLICIES
The existing valuation policy was reviewed, and ECCB
approved the following valuation and re valuation policy w.e.f.
01.04.08 for individual home loans (IHLS):
Purpose Of Home Loan Valuation Policy
Construction of new dwelling unit
Valuation of land plus project cost i.e. stage-wise
estimated expenditure obtained from the
empanelled architect / engineer irrespective of
loan amount. Disbursement to be made according
to the stage of construction.
For loans unto Rs. 2 laces at rural /semi-urban
branches, the sanctioning authority may waive
valuation as above and my assess the valuation
based on market prices by enquiry and a
certificate by the contractor/engineer involved in
construction.
Purchase of second sale plot
/dwelling units
Valuation report obtained from the empanelled
architect/engineer/valuer irrespective of the loan
amount and age of the property.
Purchase of new dwelling units
For loans up to Rs 20 lacks, reasonableness of the
price mentioned in the underlying sale
did/agreement to sale etc. ascertained by the
sanctioning authority as per prevailing market
prices. For loans above Rs.20 lacks, valuation
report obtained from an external empanelled
architect/ engineer / valuer.
Purchase of plot for constructions of
dwelling unit from regional govt.
housing development authorities
Property valued at cost price as per the
agreement of sale/lease.
Table 4.11: valuation policies
(Source: Researchers methodology)
84
CHAPTER - 5
SYSTEMS AND PROCEDURES
5.1. STAFF INVLOVED AND THEIR ROLES
Table 5.1: Systems and procedures in lending process
(Source: Researchers methodology) (RACPC - The staff from respective Retail Asset Central Processing Cells)
85
5.2. PROMOTION AND DISTRIBUTION OF THE PRODUCTS
(a) PROMOTION:
• State Bank of India, has come up with a non-conventional
method to promote its home loan business.
• SBI promotes home loan segment at its ‘Home Fair Melas’ at
each circle level.
• SBI also use to enter into an agreement with the known
builders to promote its home loan segment.
• The bank is looking forward to develop special processing
channels so as to provide quick services to home loan
customers.
• There would be no processing fees on loans, adding that the
home loans approved at the fair would bear 0.25 per cent less
interest than the nominal rate from the start of fourth year of
repayment.
• Around 24 property dealers and builders were present at the
fair.
• Several kinds of staff are involved in these Fairs, who include:
Marketing Associates
Field Officers
Associated Builders and
The staff from respective Retail Asset Central
Processing Cells (RACPC).
86
• The staff do undertake several initiatives with the prospective
customers at these Fairs itself like:
Enquiries
Guidance
Instructions
Requirement Specifications
Application forms distribution
Application Approvals and
Customer Services
(b) DISTRIBUTION:
State Bank of India supplies and sells its home loan products
through its over 11,440 branches nation-wide and associated
RACPCs.
87
5.3. PROCESS UNDERTAKEN
5.3.1. APPLICATION SUBMISSION
• The home loan application form of SBI is rather lengthy
compared to the forms at other private sector lenders.
• Completely filled in Form along with the necessary
documents.
• Need to submit the documents from builder.
• In my case, the project had APF not in SBI (basically already
approved by SBI); so not much documentation was required.
• Otherwise they would make a surge report, which can
consume some time. I guess they are quite strict about it.
88
5.3.2. PRE-SANCTION PROCESS
1. The Field Officers hold Personal Discussion with the prospect
customer regarding Interest Rate, Eligibility, EMI and all the
terms and conditions
2. The prospect customer’s options and acceptance are ascertained
and recorded.
3. Necessary documents are collected from the customer.
4. Pre-Inspection Sheet is maintained along with the documents to record inspection by the Bank’s staff (or) outsourced agency.
5. Bank's Field Investigation for address proof/Employment etc.
6. All the documents are sent to Retail Assets Central Processing Cell (RACPC) for credit appraisal based on the customer’s
financial capacities.
7. All the terms are conditions including Loan amount, interest
rate, tenure, EMI etc are determined.
8. The RACPC would submit its credit appraisal report on the
customer to the branch.
89
Legal Opinion:
• Empanelled Lawyer(s) does submit the Title Deed verification
and the search report for 30 years in respect of properties of
the customer.
• The legal clearances/ opinion of the flat/property which
borrower is buying / staying /constructing have to be obtained
from an advocate from Bank panel.
• Submission of legal documents & legal check.
• The search report reveals encumbrance on the property based
on which the grant of loan can be avoided and the prospect
borrower may be asked to rectify it.
Valuation check:
• The Engineer’s valuation of the property and estimate for the
construction to be obtained with bank panel engineer.
• In case of takeover loans, two panel engineer valuation is
required and the least value between them should be more
than the takeover amount.
90
PRECAUTIONS TO BE TAKEN:
• Applications form to be complete in all respects.
• Market information about the potential borrower should be
gathered.
• Pre-sanction survey should be conducted wherever required.
• The authenticity of salary slip, form 16 return, and proof of
identification, address and income etc. should be cross checked.
• Income from all sources is to be considered, wherever
applicable, when the sanctioning authority is satisfied about
the quantum and uninterrupted flow thereof during the tenure
of the loan.
5.3.3. SANCTION STAGE
• The branch manager would consider the credit appraisal report
of RACPC and will take a decision whether to sanction or not
the loan to the customer.
• The decision is informed to the prospect customer the decision
so taken via Field Officer.
• If the decision is “sanctioned”, the Field Officer would issue
Offer letter to the prospect.
91
5.3.4. POST-SANCTION PROCESS
• Registration of Property documents
• Signing of Agreements and submitting post-dated cheques
• SBI insists on all the margin money contributions to have been
made to the seller and the money receipts to be handed over to
them prior to the loan disbursement.
• The customer needs to submit the cash amount for various
stamps, mortgage fee etc.
• SBI would take 12 cheques of SBI a/c for security.
• borrower can link his SBI savings a/c to have standing
instruction to deduct EMI.
Normally, almost all home purchase transactions will entail payment
of an advance to the seller and on the day of registration, the
remaining contribution from the buyer and the loan amount from the
bank are exchanged with the property documents. Not with SBI.
And once the registration is done, the loan applicant needs to get the latest Encumbrance Certificate (EC) from the Registrar’s Office and
submit it to SBI. Subsequent to this process, SBI will create an
equitable mortgage on the property in favour of the bank as
collateral. This entails a fee of Rs 7000 (I understand that this is a
percentage of the registered value of the property) to the loan
applicant. Only after all this is done, will the process be complete. I
never saw this equitable mortgage fee being mentioned anywhere in
the high decibel advertisements from SBI.
92
5.3.5. DISBURSEMENT
• The disbursement is made in phases correlating to the actual
progress made in the construction.
• The proper end-use of funds is ensured by visits to the sites.
• Certificate from the engineer may be required to be submitted
by the borrower stating the status of the project.
• By BC/DD crossed A/c Payee only incorporating the builder’s/seller’s A/c No. and banker’s name and sent directly
to builder/seller by Regd. AD/Speed Post.
5.3.6. POST- DISBURSEMENT PROCESS
• Property inspection is carried out and recorded in the
Inspection Register at each stage of disbursement by the field
officers.
• The installments are disbursed in different proportions in
different phases as per the progress of the work.
93
5.3.7. REPAYMENT
Loan repayment options:
• SBI lays down certain rules and regulations pertaining to the
repayment of loans.
• The loan applicants can repay the amount in the form of
equated monthly installments.
• The repayment is allowed up to the age of 70 years.
Repayment period:
Maximum 25 years (or) Up to the age of 70 years (the age by
which the loan should be fully repaid) of the borrower, whichever
is early.
MAXIMUM REPAYMENT PERIOD:
For applicants up to 45 years of age: 25 years
For applicants over 45 years of age: 15 years
Moratorium period (Repayment holiday):
The moratorium period is included within the maximum
repayment period.
94
5.3.8. PRE-CLOSURE
• Pre-closure is allowed by the Bank at any time after the
complete disbursal and before the actual tenure.
• If the loan is pre-closed from own resources for which proof is
submitted by the customer, penalty is not levied irrespective of
period for which the a/c has run.
Pre-closure Penalty:
• No penalty if the loan is pre-closed from own savings/windfall
gains for which documentary evidence is produced by the
customer.
• In case, such proof is not produced by the borrower, penalty
@2% on the amount prepaid in excess of normal EMI dues shall
be levied if the loan is pre closed within 3 years from the date of
commencement of repayment
95
5.3.9. RECOVERY MECHANISM
The following debt collection practices will be applied to all debts
(rates and sundry debtors) over $200 that is not in dispute which
have been outstanding for 90 days:
• First reminder letter will be forwarded, requesting payment
within 14 days or to contact Council to enter into an
arrangement.
• Where no response is received, second reminder letter will be
forwarded requesting payment within 14 days or to contact
Council to enter into an arrangement.
• Where no response has been received a letter of demand for
payment within 7 days will be forwarded. The letter will state
that failure to make payment in full or to enter into an
arrangement will result in the commencement of legal action.
• Where no response has been received, outstanding debt will be forwarded to Council’s debt collection agent.
96
Various Recovery Procedures
State Bank of India adopts various recovery procedures to recover the
debt from its defaulters.
The various recovery procedures are mentioned below:
• Reasons For Default :
There are various reasons for default like mismanagement,
diversification of fund, short fall in investment, will fall default
etc. So a credit manager should take various factors into account
before lending a loan.
• Demand Notice:
When a defaulter does not repays loan a demand notice is issued
to him that he has to repay his loan with a stipulate time period.
• Legal Notice:
When a defaulter does not respond to the demand notice a direct
notice is issued to him that if he does not repay the loan action
would be taken against him legally and the court notice is issued
against him.
• Transfer To NPA Account:
When a defaulter does not respond to respond to any legal notice
or he becomes bankrupt the Whole account is transferred to NPA
account.
97
5.3.11. CUSTOMER CARE
SBI home loan customer care services can be accessed from
everywhere and at any time using the toll-free helpline numbers or
the Internet. The bank has extensively covered all major cities of the
country while at the same time not overlooking the customer care
requirements of people residing in rural and semi-urban areas.
borrower can get instant solutions to all borrower’s home loans
related queries the moment he get in touch with the staff working in
a local SBI home loan customer care center.
State Bank of India is undoubtedly the largest financial
institution among all the public and private sector banks operational
in India. As a result, it receives an extremely large number of
requests seeking home loans and other types of financial assistance.
With an extensive customer base spanning all across the country and
also at some locations abroad, SBI has emerged as the largest
provider of home loans in India. Thus it is not uncommon to see an
SBI branch at a remotely located rural or semi-urban area, no matter
where it lies on the geographical map of the country.
The customers can talk to SBI executives in a friendly
environment and obtain information regarding the types of home
loans, current interest rates, repayment options, maximum loan
terms, EMI calculation and so on. Moreover, borrower can use SBI
home loan
customer care service for registering his complaints and
grievances, which ensure a swift remedial action by the concerned
98
authority of the bank. Furthermore, it is also possible to meet an SBI
senior official directly through a special service known as Public
Grievance Cell Facility and get solutions instantly. This facility is
available at all SBI branches across the nation and to avail the same
borrower need not take prior appointment or permission.
An Individual can access SBI home loan customer care service
through toll-free numbers and also through Internet. Though the
customer care toll free numbers are different for each city, the
services provided there remain the same, comprehensive, instant and
bearing the quality standard of State Bank of India.
SBI Home Loans Customer
Care Number (Toll Free): Ahmadabad: 1800 233 7933
Bangalore: 1800 425 8002
Bhopal: 1800-233-7551
Chennai: 1800 425 4424
Delhi: 1800 11 4545
Patna: 1800 345 6100
Guwahati: 1800-345-3631
Hyderabad: 1800 425 3888
Kolkata: 1800 345 3455
Lucknow: 1800 180 5201
Mumbai: 1600 22 8866
SBI Customer Care Mail ID:
Ahmedabad: [email protected]
Bangalore: [email protected]
Bhopal: [email protected]
Chennai: [email protected]
Delhi: [email protected]
Guwahati [email protected]
Hyderabad: [email protected]
Kolkata: [email protected]
Lucknow: [email protected]
Mumbai: [email protected]
99
CHAPTER -6
PERFORMANCE EVALUATION
6.1. COMPETITORS
S.No. Competitor Severity of Competition(Low/moderate/High)? 1 ICICI low 2 HDFC moderate 3 Andhra Bank low
Table 6.1: Competitors (Source: Researchers methodology)
Interpretation:
• Majority of the competitors for the bank are from private
sector in region.
• The closest competitor for the bank is HDFC .Virtually; there
was an “ad war” with teasing rates between the two banks.
• Others include the local player Andhra bank and the private
giant ICICI.
6.2. STRENGTHS AND WEAKNESSES
S.NO. Strengths Weaknesses 1 Able Work Force Long Turnaround Time 2 Network Multiple Visits 3 Innovative Schemes Documentation Needs 4 Loan Pricing Competition 5 Lack Of Prepayment Penalty, Varied Customer Demands 6 Transparency Shortage Of Staff 7 The Interest Rates
Table 6.2 strengths and weaknesses (Source: Researchers methodology)
Interpretation:
• The biggest strength of the bank has been its large
distribution network and able workforce.
• The weakest elements of the institution are the long processing times and the shortage of staff.
6.3. S
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•
•
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.3: Size of ho
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2008-09,
2008‐0
Financia
OF HOM
t(Rs. crore
ome loan
ort 08-09, 0
home loan
in the h
had grow
, which
09
l year
ME LOA
es)
09-10)
home loa
wn to 7
implies
2009‐2010
AN
an book s
1,193 cr
the size
size of
r from
e had
6.4. S
Interp
•
•
S
SHARE O
RH
pretation
The hom
total ret
10.
The oth
personalRs. 8,11,
77%
SHARE OF
OF HOM
Retail CredHome loansOther advanTotal retail
(Sou
n:
me loan s
ail segm
her retail
l loans et12,858 cro
F HOME LF
ME LOA
dit segmens nces advances
Table 6.4:
rce: SBI An
Diagram 6
segment
ent of ad
l advanc
tc got thores in th
101
OANS IN TOR 2009-1
ANS IN T
t Amount2,42,28,8,11,12,10,53,41
Share of Ho
nnual Repo
6.2: share of
had got
dvances b
ces like
he 77% shhe year.
23%
TOTAL AD0
TOTAL
t in Rs. cro515 858
1,373 ome Loans
ort 08-09, 0
f home loan
a small
by the br
car loan
hare of t
DVANCES.
Home Other
L ADVAN
ores % 23% 77% 100%
09-10)
i.e., 23%
ranch in
ns, educ
total reta
loans advances
NCES.
%
% share
the year
cational
ail advan
in the
2009-
loans,
nces of
6.5. Q
Total A
2,42,28crores
Interp
•
•
QUALIT
Assets Nin
8,515
4
pretation
Advance
total adv
That im
course w
TY OF A
Non Perforn Home lo
4,16,730 la
(SOUR
n:
es amoun
vances in
plies the
well withi
NPA's1.72%
ASSETS
rming Asseoan Segme
acs
Table 6
RCE: SBI AN
Diagram
nting to R
n the yea
e ratio of
in the lim
s%
QUALI
102
ets ent
TotaAdva
2,42,crore
6.5: Quality o
NNUAL REP
6.3: Quality
Rs. 4,16,7
ar 2008-0
f NPAs t
mits.
StanderdAssets98.28%
TY OF A
l ances
,28,515 es
of assets
PORT 08-09
y of Assets
730 lacs w
9.
to total A
d
ASSETS
NPAs/ToAssets
1.72%
9, 09-10)
went def
Advance
otal NPAAdva
1.72%
fault out
es is 1.72
As/Total ances
%
of the
2%, Of
6.6. N
Consu
Interp
•
•
•
•
NATURE
umer Fo
pretation
Majority
unreason
Operatio
The tran
Most of
rates.
Natu
E OF CO
orums:
(So
n:
y of the
nable del
onal syst
nsparenc
f the exi
11
7
5
10
ure of Co
Nat
TedDelTranNegLacInsuTeaHid
OMPLA
Table 6.6
ource: www
Diagram 6.
custome
lays in p
ems used
y level of
isting cu
13
12
6
mplaints
ture of Com
dious Procedays in Procensparency gligence byk of/improp
urance coveasing interesdden charges
103
INTS co
: customer c
w.consumer
.4: customer
ers are v
rocessing
d by SBI
f the ban
ustomers
3
19
(% of tota
mplaints
dures essing
staff per guidancer st rates s
ollected f
complaints
complaints
r complaints
very mu
g.
are so co
nk is mai
s are de
al) for the
TeDeTrNeLaInsTeHi
NumbeCompla13 19 12 11
e 7 5 10 6
from On
s.in)
s
uch conce
omplex.
intained
emanding
e year 200
dious Procedelays in Procansparency
egligence by ack of/impropsurance coveasing interedden charge
r of aints
nline
ern abou
low.
g for un
09-10
dures cessing
staffper guidanceer est rateses
ut the
niform
e
104
6.7. AWARDS AND REWARDS
Best Bank 2009 State Bank of India has been adjudged the best
bank 2009 by Business India. (August-2009)
Shri Om Prakash Bhatt Declared as one of the “25 most
valuable Indians” by the week magazine for 2009. (Published in
August-2009 Issue)
“Best Home Loan Provider 2008” by Outlook Money NDTV-
Profit.
“The Most Preferred Home Loan Provider” by CNBC AWAAZ
Consumer Awards for 3 years consecutively.
105
R E C O M M E N D A T I O N S
On the basis of the collected data and the analysis along with
detailed discussion made in conclusion of this report, some
suggestions can be made to the bank which will be helpful to them in
improving their services operational and financial performance.
These suggestions have been discussed as follows:
1. Using Information Technology and Electronic Data Interchange
at various stages of lending process would definitely give an edge
to the bank in fighting competition and arrive at a more realistic
lending decision. E.g.:
• Use of Central Mortgage Registry (proposed in the Budget-
2010 to be set up) for Title/Deed verification, which will
ensure that no two borrowers in the country will be able to
raise institutional loans against the same asset. This would
help the bank in reducing NPAs.
• Use of credit appraisal reports from CIBIL or Credit
Information Companies (CIC) to avoid frauds.
• Online Processing for various inspections and verifications
etc.
• Online Disbursals and Repayments.
106
2. To increase their customers, the bank should provide specialized
services in this sector. These services can be such as proper
guidance to the customer regarding the processing of loans,
especially for the customers who are illiterate.
3. To satisfy their customers and for good dealings in future, the
bank should make prompt disbursement of loan amount to the
customers so that they can buy or construct their dream home as
early as possible.
4. The Bank should use easy procedure, or say, less lengthy
procedure for the sanctioning of loan to the customer. There
should be less number of legal formalities, in case this exists,
then, these should be completed in less time. This will be helpful
in attracting more customers.
5. Although the interest rates on specific norms, yet customers seek
uniform interest rate giving equal justice to both the existing as
well as new customers.
6. The bank should improve their overall services to increase the
number of customers for home loans. They should recruit
professionals to provide such services and to satisfy the
customers.
7. Although SBI Bank is a market leader in 'home loans' sector but
they should innovate their services, viewing the- increasing
competitions from other banks such as HDFC.
107
8. The Banks should try to provide proper knowledge regarding
their home loan schemes, even to people who don't know about
such schemes and their benefits especially in rural areas. So
they should provide knowledge to the ignorant customers,
especially in rural areas and backward urban area.
9. So, above are the main suggestions provided to the banks. By
considering these suggestions, the banks can strengthen their
customer base in home loans sector.
10. They should improve their services and reduce legal proceedings
and should be friendly to their customers.
11. The bank needs to take serious and sincere steps in reducing the
processing times by taking certain measures like using
Information Technology to process the documents.
108
C O N C L U S I O N
The ratio of mortgage to GDP in India has remained low at
7%, as against 12% for china, 41% for Hong-Kong and more than
80%foor developed countries, thus providing for further growth in
the housing sector during the coming years. Hence, the banks
shall have more opportunities to tap the market.
Banks have been constantly increasing their market share,
there by intensifying competition from other banks as well as
Housing Finance Companies.
While the discounted / special scheme rates are offered to
new home loans, existing customers continue to ply higher rate of
interest. The Indian Bank’s Association has planned to introduce a
uniform rate for all borrowers. As being a Largest Lender in the
segment SBI needs to carry the same spirit and the move is in the
right direction is certainly expected from all the banks. We need to
watch how banks / HFCs adjust their lending portfolios to this
effect in future.
Last, but not the least, you may be the ‘King’ in the Market,
but, the Indian customer is your ‘Boss’ by whom, finally, your
decision has to be moulded.
109
APPENDIX
QUESTIONNAIRE
(BANK OFFICIAL)
Dear Sir/ Madam,
As part of my T.Y.BANKING & INSURANCE curriculum, I, BAKALKAR
AMIT, am undertaking a study Project on “Home Loans” for which I need your
views regarding banking products & services in shape of a questionnaire
designed by me. The data being collected are solely for academic purpose. I
request you to kindly extend your co-operation.
1) How many Home Loan Products that your Bank is offering to the prospect
customers?
Sr.No. Product/Scheme Customer Segment
Interest rate
Quantum of Amount
Tenure
1 2 3 4 5 6
2) What are the unique features of your offerings?
3) How are you rewarding your customers who service their loans regularly
and stand up to your expectations?
4) What are the Value Added Services, if any, that you are offering to the
customers?
5) What are the concessions, if any, that you are offering to the customers?
110
6) What are your strengths and weaknesses in the segment?
S.NO. Strengths Weaknesses
7) Who are your main competitors and what’s the level of competition you
face from them?
Sr.No. Competitor Severity of Competition (Low/Medium/High)?
1 2 3 4
8) How are you promoting your products?
Medium used Proportion of use (low/medium/high)
Any additional Info
Print Media TV Advertisement Personal Selling Campaigns Road-Side Hoardings
9) How are you distributing your Products?
S.NO. Channel (Sanctioned by) Terms/Conditions Proportion of Sales
1 2 3 4
111
10) What is the Process Undertaken (within your branch)
S.NO Stage What is done (operations) /considerations
Who does it How many days it takes
1 Promotion 2 Guidance to prospective 3 Application submission 4 Pre-Sanction Process 5 Sanction 6 Post-Sanction Process 7 Valuation 8 Inspections 9 Legal Sanctions
10 Disbursement
11 Post-Disbursement Inspections
11) How do you see the performance of Marketing Associates and their role in
bringing sales?
12) How many sales you have made from Marketing Associates?
Number of Sales from MAs Total Sales % of Total Sales
13) What are the various standard formats (Proforma Sheets) that you use at
various stages?
Title of the Sheet Primary Contents Purpose Who Maintains it
112
14) What did your customers prefer (Fixed/Floating Interest Rate)?
Type of Interest Rate
Number of Borrowers
Fixed
Floating
15) What is the Authority Structure for distribution of Loans:
Terms/Conditions Sanctioned by Authoritative organ
Administrative Clearance by
16) How are the builders considered and approved?
17) What is the criterion for Repayment?
18) What are the Pre-Closure norms?
19) What is the criterion for Re-Phasement?
20) How are you providing for Bad Loans?
21) What is the Recovery Mechanism that you practice?
22) What is the nature of recovery agents?
23) How do you undertake Take Overs?
113
24) How many prospects (demand)- Applied-Sanctioned-Under Process-
Disbursed?
Customers Number of Proposals
Have shown interest in buying your products
Applied(Applications)
Approved
Sanctioned
Disbursed
25) How many Home loans you have disbursed to:
Target Segment Number of accounts Amount (Rs.) Individuals from Weaker sections
Mortgage loans Salaried individuals Self-Employed individuals Realtors Your Staff
26) What was the purpose of home loans towards which disbursements have
been made?
Purpose Number of Accounts Amount(Rs.)
To Pay for First homes
To Purchase second homes
To Improve/renovate existing homes
114
27) NMI Profile of Customers:
NMI Range No. of Borrowers Total Amount (Rs.)
Up to Rs.2 Lacs
Between Rs.2 Lacs and Rs. 5 Lacs
Above Rs.5 Lacs
28) Loan Amount Disbursals:
Loan Amount No. of Borrowers
Upto Rs.5 Lac
Above Rs.5 Lac and up to Rs.10 Lac
Above Rs.10 Lac and upto Rs.20 Lac
Above Rs.20 Lac and upto Rs.50 Lac
Above Rs.50 Lac and upto Rs.1 Cr
Above Rs.1 Cr and upto Rs.5 Cr
Above Rs.5 Cr
29) Size Of Home Loan Book for the last 3 financial years:
Financial Year
Amount(Rs. crores) lent
2006-07 2007-08 2008-09
30) Year-on-Year Credit Growth :
Financial Year % growth rate
2006-07
2007-08
2008-09
31) What is the Share Of Home Loans in the retail portfolio?
115
32) How many Home Loans have been Taken Over from other Banks:
Bank Number of Accounts Amount (Rs.)
33) How many Outstanding Loan accounts are there?
Number of Accounts Outstanding
Total Amount Outstanding(Rs.)
Total Outstanding/Total Advances (%)
34) How are you mitigating risk factors in lending to the segment?
35) What is Net Income Generated on the segment?
Net Interest Income generated on Home Loans
Total Net Interest Income
% of Total Net Income
36) Have you met the Targets set? 37) How many complaints have been reached at Banking Ombudsman’s Office?
Total Complaints Share of Home Loans % of total
116
QUESTIONNAIRE
(CUSTOMER)
Name.__________________________________________________________
Age.______ Occupation.__________________________________________
Income Rs. /- Monthly Annual
Married Unmarried
Home Loan Taken Yes No
IF YES,
from which Bank/Financial institutions___________________________
Amount Rs. /- EMI Rs. /-
Interest Rate. Fixed Floating Rate %
Purpose: For First Home.......................
For second Home....................
For repairing Existing Home
Any Complain regarding Home loan You have taken _______________
_______________________________________________________________ __________________________________________________________________________________
IF NOT
Interested for taking Home loan Yes No
Applied Yes No
If yes, then from Which Bank/F.I. ________________________________
117
Reasons for selecting particular bank? ________________________
________________________________________________________________
Amount Rs. /-
Purpose: For First Home.......................
For second Home....................
For repairing Existing Home
Signature
Thank you.
BOOK
•
MAGA
•
NEW
•
WEB
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
K
Jain J.
Delhi, R
AZINE
Outlook
8 Septem
S PAPER
Economi
RESOU
www.sta
www.onl
www.apn
www.con
www.Co
www.len
www.gui
www.ind
www.dea
Artic
Date
B I
N, Mode
ejal Publ
Money,
mber 201
RS
ic Times
RCES:
atebanko
linesbi.co
naloan.co
nsumerco
nsumerc
ndingtree
ide2hom
diahousin
al4loans.
le
es
I B L I
ern Bank
lication.
‘21 Home
10.
of India
ofindia.co
om
om
omplaint
court.in
e.com
eloan.com
ng.com
.com
Econ
7 S
9 S
1 S
31
118
O G R
king & P
e loan es
and DNA
om
ts.in
m
omic Tim
Sep 2010
Sep 2010
Sep 2010
Aug 201
R A P H
Principle
ssentials
A
mes
0
0
0
0
H Y
es & Tec
to know
17 A
25 M
20 M
chniques
now’,
DNA
Aug 2010
March 201
March 201
, New
0
10
10
119
OTHER RESOURCES
1. The Training and Guidance Material supplied to the staff of the
Branch.
2. Annual Reports of RBI(made available on its website
(www.rbi.org.in)
3. Annual Reports of SBI(made available on its website
(www.sbi.co.in)