EXECUTIVE SUMMARY

INTRODUCTION

Home is where the heart is - owning a home is a lifelong dream for most of the people. Home is

more or less a lifetime investment and hence home loans are an integral part of every person

who dreams and wants to have a living space of his own. Buying a home is probably the biggest

purchase most of us will ever make in our lifetimes. Owning our own home is a watershed event

in our life. You are the master (or mistress) of your own space, your little corner in the universe.

But the process of finding your little nest is a stressful one. A once in a lifetime investment

needs a loan and that is how a home loan comes into the scheme of things in your life.

Almost all public and private sector banks are offering home loans at attractive rates for

purchasing their dream home. Home loan usually cover a variety of types. All Banks have come

out with home loan products studded with features and value additions that make the schemes

not only attractive but also serve as a substantial source to the borrowers for owning their dream

home.

RATIONALE OF THE STUDY

The rationale of the study can be considered as follows:

It helps to improve research ability.

The study enables to enhance the knowledge base regarding home loans and its various

other aspects.

It enables to think logically and practically.

The study helps in development of skills of getting primary data.

It leads to overall knowledge development

1

HYPOTHESIS

The hypothesis being put forth for this study about home loans is that the awareness of home

loans is 100% but after the survey the conclusion can be put that there are still many people who

do not know about home loans. Banks are coming up with new innovative home loans schemes

for increasing their customer base.

RESEARCH METHODOLOGY

The research methodology is data collection through

Primary Sources

Secondary Sources

Primary Sources: Survey by distributing questionnaire to the people taking sample size of 100.

Interviews conducted with bankers.

Secondary Sources: Data collection through books, magazines, websites, journals, etc.

EXPECTED CONTRIBUTION

Expectations from the study are that it may contribute to the real scenario of home loans demand

and accordingly the banks can go for new innovative schemes. It will also specify some

recommendations and based on that banks can make suitable arrangements in a particular sector.

It will also make people aware about the various home loan schemes and its various procedures

and formalities.

2

INTRODUCTION

Banking system in the world has emerged many centuries ago and in India it rooted its seed with

the existence of the General Bank of India in the year 1786. In earlier days banks were the

Financial Institutions dealing in day to day services i.e. accepting deposits and lending money.

But now it has spread its wings to various others sectors like it first started lending to big

business entities and has also entered into the retail banking sector i.e. it started lending for

purchasing car, for education, marriage and most importantly for purchasing a house.

To own a house is every man’s desire. But more than that, shelter is a basic human need next

only to food and clothing in importance. Yet every year more and more people continue to be

added to the category of homeless. Though a basic need of all a significant section of the society

is severely handicapped in getting shelter at affordable cost. This need for housing finance for

individuals was only fulfilled with the advent of National Housing Bank (NHB), Housing and

Urban Development Corporation (HUDCO), Housing Development Finance Corporation, etc

and most particularly with the entry of commercial banks in the housing finance sector.

In Tune with the conservative traditions in lending, commercial banks played a very limited role

in providing housing finance till the early seventies. However, now as per Reserve Bank

guidelines, housing finance is part of priority sector lending schemes for banks. There has been

progressive increase in housing finance disbursed by commercial banks since 1979.

The housing finance industry is getting increasingly commoditised. Competition within the

sector is ensuring that players offer consumers flexibility and features to choose from. Features

such as adjustable rate plans, lower processing fees/monthly rest/interest rates/EMI/margin

money, no pre- payment penalty have become common across the industry. There is a growing

trend among Banks and FIs to include the cost of registration, stamp duty, society charges and

other associated costs while sanctioning loans to differentiate and make the home loans products

more attractive. This has resulted in further lowering the threshold limit for buying a house.

3

TYPES OF LOANS

Loan refers to a sum of money borrowed at a particular interest rate. More generally, it refers to

anything given on condition of its return or repayment of its equivalent. A loan may be

acknowledged by a bond, a promissory note, or a mere oral promise to repay. Banks grants 3

types of loans which are as follows:

Commercial loans or Industrial loans, Consumer loans and Mortgage loans

1) Commercial loans: Commercial loans are mainly provided to the business and industrial

firms. These can be divided into:

Short term loans: Short term loans are mainly given for a period up to 1 year and usually

granted to the business and industrial firms to meet the working capital requirements. For

e.g.: Cash credit, Bank overdraft etc. (loans to finance the purchase of material or labour)

Long term loans: Long term loans are granted for a period above 5 years and are granted to

meet capital expenditure. For e.g. project finance, Education loan etc. (loans to purchase

machinery and equipments). Most commercial bank offers a variable interest rate on these

loans, which means that the interest rate can change over the course of loan. Sanction of loan

depends upon the credit and loan history of the borrower, the borrower ability to make

scheduled loan payment, the amount of capital the borrower has invested in the business, the

condition of the economy and the value of the collateral the borrower pledges to give the

bank if the loan payments are not made.

2) Consumer Loans: One of the important areas of bank financing in recent years is towards

purchase of consumer durables like TV sets, Washing Machines etc. Banks also provide

liberal car finance. These days banks are competing with one another to lend money for

these purposes as default of payment is not high in these areas as the borrowers are usually

salaried persons as default of payment is not high in these areas as the borrowers are usually

salaried persons having regular income. Further, bank’s interest rate is also higher. For e.g.

Housing Loan, Medical Loan, Car Loan, Education Loan.

There are two types of consumer loans:

4

Closed ended credit : Closed ended loan are for fixed period of time, fixed amount of loan,

but not for a fixed purpose. The items purchased by the consumer serve as collateral for the

loan.

Open ended credit : Open ended loan are for variable amount of money and it does not

require the borrower to specify the purpose of the loan. For e.g. Credit cards. Most open

ended loans carry fixed interest rate and it requires no collateral but interest or other

penalties or fees may be charged. Open end credit interest rates usually exceed close end rate

because open end loans are not backed by collateral.

3) Mortgage loans:

These are usually long term loans and the interest rates charged can be either a variable or a

fixed rate for the term of the loan which often ranges from 15- 30 years. These loans are used to

purchase land or building such as household and factories which serves as the collateral for the

loan.

Classification of Loans:

Loans given by bankers can also be classified broadly into the following categories on the basis

of security:

1. Clean Loans: Advances for which are given on the personal security of the debtor, for

which no tangible or collateral security is taken; this type of given either when the amount of

the advance is very small, or when the borrower is known to the banker and banker has

complete confidence in him.

2. Secured Loans: Loans which are covered by tangible or collateral security. Bank provides

such loan against different types of securities which a banker may accept for such advances.

INTRODUCTION TO HOME LOAN

5

The sun at home warms better than sun elsewhere.

True isn’t it, where else do you find that comfort that makes you feel so special everyday.

Undoubtedly owning a house is the most important phase in ones life. Not long ago, turning this

dream into a reality was a daunting task for the common man with property rates going north all

the time. But now, thanks to the proliferation of home loans and housing finance companies, one

can aspire to own a roof over one's head. Many think it is an expensive affair and beyond reach.

Well, that’s not always true. It takes a little planning and awareness to get to that home you want

to call your own.

Buying a home for the first time can be daunting to any person but in today’s time various banks

are lending a helping hand to the people to purchase their dream house. Thus people look

forward towards choosing a home loan. The primary concern of a housing finance company is to

determine the loan amount that the borrower is comfortably able to repay. The most popular

method of financing a home purchase is with a mortgage. This is a loan that is secured over the

home. There are a number of different mortgage suppliers and people will have to shop around

in order to get the best deal.

Home Loan is one of the fastest growing retail and mass banking area. It forms an important part

of the country’s priority in 5 year plans. Almost all public and private sector banks are offering

home loans at attractive rates for purchasing their dream home. Home loan usually cover a

variety of types. All Banks have come out with home loan products studded with features and

value additions that make the schemes not only attractive but also serve as a substantial source

to the borrowers for owning their dream home.

Banks as financial service providers aims at providing financial support from the banking

system to the needy for purchasing a home to the resident Indians as well as non-resident

Indians. The main emphasis is that every needy person is provided with an opportunity to pursue

home loan with the financial support from the banking system with affordable terms and

conditions.

CHARACTERISTICS OF HOME LOAN

6

Home Loans are the consumer loans.

Home loans are long term loans provided by various banks.

These are large amount loans which provide financial support to the people who want to

purchase their dream home.

Home loans are secured loans.

The borrowers get to own their dream home and pay for it in easy and affordable

installments.

Banks and Financial Institutions offers home loans at cost-effective rates.

Tax concessions make home loans more attractive than other loan products.

The borrowers can get tax deduction on repayment of the principal amount of a loan taken to

buy or construct a house.

The interest paid on a loan is deductible from 'income from property', even if it has not been

paid during the year.

Interest paid on a new loan taken to repay the original housing loan is also allowed as

deduction.

TYPES OF HOME LOANS

7

Lending institutions like banks offer different types of home loans for a wide gamut of housing

activities. Some of the popular home loans are:

Home Purchase Loans: There are the basic home loans for the purchase of a new home.

Home Improvement Loans: These loans are given for implementing repair works and

renovations in a home that has already been purchased by the borrower.

Home Construction Loans: These loans are available for the construction of a new home.

Home Extension Loans: These are given for expanding or extending an existing home. For

example addition of an extra room, etc.

Land Purchase Loans: These loans are available for purchase of land for both home

construction or investment purposes.

Bridge Loans: Bridge Loans are designed for people who wish to sell the existing home and

purchase another. The bridge loan helps finance the new home, until a buyer is found for the old

home.

Balance Transfer: Balance Transfer loans help the borrower to pay off an existing home loan

and avail the option of a loan with a lower rate of interest.

Refinance Loans: These loans helps to pay off the debt the borrower have incurred from private

sources such as relatives and friends, for the purchase of your present home.

Home Conversion Loans: These loans are for those people who have financed the present

home with a home loan and wishes to purchase/move to another home for which some extra

finances are required. In Home Conversion Loan, the existing loan is transferred to new home

including the extra amount required, eliminating need for pre-payment of the previous loan.

Stamp Duty Loans: These loans are sanctioned to pay the stamp duty amount that needs to be

paid on the purchase of property.

Loans to NRIs: These loans are given to the NRI’s to build/buy a home in India. EMI is

payable till the loan is paid back in full. It consists of a portion of the interest as well as the

principal.

BENEFITS OF HOME LOANS TO BORROWERS

8

Food, clothing, shelter -- these are the basic needs of every individual. But to most, owning a

home is just a dream. The real estate boom and steadily rising capital values are now making it

next to impossible for most people to fund their own homes. Banks and financial institutions are

offering aggressively competitive rates on home loans, making it possible for more people to

own the home of their dreams. Many builders have tie-ups with banks or financial institutions so

that prospective buyers are assured of housing loans without any hassles. Taking a home loan

serves two purposes. One, of course, is that the borrower gets to buy his/her own home and pay

for it in easy installments. The other is that the borrowers get several benefits under the Income

Tax Act.

TAX BENEFITS

1) For Resident Indians

There are certain tax benefits for the resident Indians based on the principal and interest

component of a loan under the Income Tax Act, 1961. It may help one get tax benefit up to Rs.

50,490 p.a. (approx) if interest repayment of Rs. 1, 50,000 p.a. is paid. In addition to this, one

also is eligible for getting tax benefits under section 80C on repayment of Rs. 1, 00,000 p.a. that

further reduces the tax liability by Rs.33.660 p.a.

These deductions are available to assesses, who have taken a loan to either buy or build a house,

under Section 24(b). However, interest on borrowed capital is deductible up to Rs. 150,000 if the

following conditions are fulfilled:

Capital is borrowed for acquiring or constructing a property on or after April 1, 1999.

The acquisition and construction should be completed within 3 years from the end of the

financial year in which capital was borrowed.

The person, extending the loan, certifies that such interest is payable in respect of the amount

advanced for acquisition or construction of the house.

A loan for refinance of the principle amount outstanding under an earlier loan taken for such

acquisition or construction.

If the conditions stated above are not fulfilled, then the interest on borrowed capital is deductible

up to Rs 30,000 though the following conditions have to be satisfied:

9

Capital is borrowed before April 1, 1999 for purchase, construction, reconstruction repairs or

renewal of a house property.

Capital should be borrowed on or after April 1, 1999 for reconstruction, repairs or renewals

of a house property.

If the capital is borrowed on or after April 1, 1999, but construction is not completed within

3 years from the end of the year, in which capital is borrowed.

In addition to the above, principal repayment of the loan/capital borrowed is eligible for a

deduction of up to Rs 100,000 under Section 80C from assessment year 2006-07.

Terms and conditions for availing Tax benefits on Home Loans

1. Tax deductions can be claimed on housing loan interest payments, subject to an upper limit

of Rs 150,000 for a financial year.

2. An additional loan for extension/improvement to the same house and the individual's

deductions on the existing loan are less than Rs 150,000; he can claim further benefits from

the additional loan taken, subject to the upper limit of Rs 150,000 for a financial year.

3. Tax benefits under Section 24 and deduction under section 80C of the Income Tax Act can

be claimed only when the payment is made. If an individual fails to make EMI payments, he

cannot claim tax benefits for the same.

4. According to the Income Tax Act, tax rebates can only be claimed by the loan applicant.

5. The interest on home loans taken for repairs, renewals or reconstruction, also qualifies for

the deduction of Rs 150,000.

6. A husband and wife, both of whom are tax-payers with independent income sources, get tax

deduction benefits, with respect to the same housing loan; to the extent of the amount of loan

taken in their own respective name.

7. If an individual buys a house and sells it within the same year or after 3 years, and if any

profit is made, then a capital gains tax liability arises on the same for which the individual is

liable to pay short-term capital gains tax since the sale took place in the same year. But in

case, if the sale had taken place after 3 years, then a long-term capital gains tax liability

would have arisen.

8. On being proved that the home loan is simply an arrangement between the loan-seeker and

the builder or with a third party for the purpose of claiming tax benefits, then tax benefits

will not be allowed and benefits, previously claimed, will be clubbed to the income and

taxed accordingly.

10

Tax benefits on interest on housing loans are allowable only for the original loan and according

to Section 24 (1), tax benefits can also be availed for a second loan taken to repay the first loan

but not for subsequent loans. This means that if the borrower have already availed of one loan to

refinance the original loan and want to now avail a third loan to refinance the second loan, tax

rebate on interest payments will not be permissible.

2) For Non- Resident Indians

NRIs cannot claim tax benefits on home loans in India as they have to pay tax in the nation

where they work and earn. Moreover, the borrowers need to file tax returns to become eligible

for home loans. However, if they pay tax in India for income earned in India, they can claim tax

rebate for the home loan.

STEPS IN PLANNING FOR A HOME LOAN

A) PURPOSE

The first step in planning for a home loan is to find out the purpose for which one is planning to

take the loan. Depending on the borrowers requirements, home loans can be taken for a variety

11

of purposes such as to purchase a new home, to implement repair works and renovations in a

home that has already been purchased by the borrower, to construct a new home, for expanding

or extending an existing home, to purchase land for both home construction or investment

purposes, etc. Hence finding out the purpose of the loan is the first and foremost step in planning

for a home loan.

B) SELECTION OF A PARTICULAR HOME LOAN

The selection of a particular home loan depends on the affordability position of the borrower.

What kind of home one can afford is, more often than not, a function of how much/the

maximum one can borrow?

How much one can afford/ the maximum one can borrow: Banks follow a thumb rule while

deciding the maximum a person can borrow: the monthly repayment on the loan should not be

more than 40 per cent of the net monthly income. This ratio is called the Income to Installment

ratio or IIR. Some lenders may even be more conservative. One could expect to be allowed to

borrow an even lower figure if they consider an IIR of as low as 30 per cent of the net monthly

income. They finance a certain portion of the property value, typically 75-85 per cent. The rest is

the borrowers’ contribution, usually called the down payment or the margin, and has to come out

of his (borrower’s) own resources.

Down payment: Another important determinant of the value of the house one can afford is how

much the borrower has saved up.  Since banks only finance between 75 and 85 per cent of the

property value, effectively the down payment can determine the value of the home that one can

go for. Of course, this is subject to the limit on how much one can repay every month, as

determined by the IIR.

C) FINDING OUT COST OF THE HOUSE

Buying a home involves many financial considerations. Some home buying expenses are one-

time costs and others are ongoing commitments. In addition, there are other costs that the

borrowers should take into consideration in calculating the cost of the house. Below is a

checklist of additional expenses that the borrowers need to keep in mind when purchasing a

home.

Home buying costs

12

The Down Payment: A minimum down payment of 15% is required for a Normal Housing

loan. The government offers Tax incentives for homebuyers.

The Payment: A Home Loan Security is security for a loan on the property the borrower own.

It is repaid in regular monthly payments which are combined payments. This means that the

payment includes the principal (amount borrowed) plus the interest (the charge for borrowing

money).

Checklist of Additional Expenses: Additional expenses need to be incurred after one has

moved in.

Maintenance costs: These costs are incurred to cover the costs of anticipated or unexpected

repairs or replacement of such things as the painting or household appliances.

Renovation and repairs costs: These costs are incurred in cases where the need arises to repair

the house. A home inspection may indicate that the home needs major structural repairs.

Property taxes: Property taxes are always a certainty and needs to be taken into account when

one plans to purchase a home.

Property insurance: It is imperative for the borrowers to take insurance of the house they plan

to purchase. Additional expenses go into insuring the house like premium expenses, legal

expenses, etc.

Service charges: This includes the service charges levied by the banks and financial institutions

for processing the loan application.

Lawyer (notary) fees: Even a straightforward home purchase requires a lawyer to review the

Offer to Purchase, search the title, draw up mortgage documents and tend to the closing details.

Lawyers fees for a Housing loan and purchase range widely depending on the complexity of the

deal but will probably be at least Rs.500.

Moving costs: This refers to the expenses incurred when one moves from one home to another

for example expenses incurred for hiring a truck..

13

Other Costs: This is a list of possible extra costs involved in buying a home. Some of them are

one-time costs and others, such as maintenance fees and property insurance, will be ongoing

monthly expenses.

D) SELECTION OF THE MOST SUITABLE BANK

Choosing the most suitable bank is a crucial stage in the home loan process. It is imperative to

choose the financer with utmost care and proper consideration of its past track record since the

customer is entering in a long-term relationship with the bank when he takes a home loan.

After finding out the cost of the house, one must compare banks on the basis of cost to see

which loan is the cheapest. Besides cost factors, though, there are some other factors that one

need to consider. Evaluation of the lenders can be done on the basis of the following factors:

Rate of interest: This is where it all begins. Although the rate of interest offered by most banks

is more or less the same on paper, some degree of bargaining in most cases, leads to a lowering

of rates by as much as 0.25 to 0.50 percentage points and more so if the borrowers profile

happens to match the requirements of the bank. The lowering of interest rate has a significant

impact over the long term although the difference is not so noticeable over the near term. Care

needs to be taken to ensure that the difference is not being offset elsewhere by the bank under

the guise of other `charges'.

Total financing cost: This measure quantifies what the loan really costs. It not only

incorporates interest cost but also combines the other costs such as processing fees and other

administrative charges collected by lenders upfront. Looking for a bank not just with the lowest

interest rate but the lowest total financing cost can help one in opting for the best deals.

National presence: The bank should be present across the country or at least have branches in

all major metros and towns. This assumes importance if the current job of an individual is of a

transferable nature (e.g. bank jobs, defence personnel) or if he needs to make long and frequent

outstation visits (e.g. consultants, businessmen). The individual shouldn't be put through the

hassle of couriering his cheques to the resident branch every time or contacting the resident

branch each time he has a difficulty or a query. So it helps if the bank is well networked across

the country.

14

Prepayment/Foreclosure benefits: For many individuals, this plays a significant role in their

decision to go in for a particular bank. For example, many salaried individuals know for a fact

that their salaries would be revised every year. This means that they can pay a higher EMI going

forward. Some of these individuals also know that they would be getting a bonus, which they

can utilise to pay off their home loan (either fully or partly). Some banks do not charge

individuals for making a prepayment/foreclosing his account. Obviously such bank should get

preference over other banks that do levy a prepayment charge.

Calculation of the exact home loan amount: Here the banks differ in their calculation of the

loan amount to be disbursed. Some banks calculate the amount to be disbursed on the basis of,

say, the gross salary while some banks calculate it on the net salary. This might make a

difference to individuals as the loan amount and the EMI will vary across banks. One needs to

look into this and get a comparative analysis done across banks to understand which bank offers

the best deal to the borrower.

Extent of funding: Some banks fund only 60 to 75 per cent of the property value, while others

fund higher amounts. If the amount of down payment one have saved up is not enough, this

factor may tilt one lender's loan in ones’ favour.

Flexibility of repayment plans. Some banks offers flexibility in terms of repayment. They

could have either have 'Step-up' plans in which the EMI is stepped up as the tenure increases

(suitable for young borrowers just starting their careers) or repayment plans that allow the

borrower to load payments upfront (suitable for borrowers who are close to retirement). Also,

some banks allow borrowers to fix the monthly payment themselves, especially when they take a

loan far lower than what they are eligible for and where repayments are very comfortable. In

such a case, the borrower himself can fix the loan tenure. If the profile fits one of these cases,

one can consider a bank who allows such flexibility.

Property characteristics: Some banks are wary about financing flats that are old (more than 30

years). So it is important to check whether the bank will finance such a property. Also, very few

banks lend against properties that are sold by holders of power of attorney on a property, rather

than owners.

Collateral: Housing loans are already backed by collateral - the house being financed. In

addition to this, some banks ask for collateral such as life insurance policies and fixed deposits.

15

Since there are banks who will not ask for such collateral and it is not particularly necessary to

cough up extra collateral, especially if the credit is good, one can look for a bank that does not

ask for such collateral.

Service: Some banks offer some extra services that make the loan process a whole lot easier.

They come to the applicant’s home and get the application form filled by him; they drop the

disbursed check to the home or office of the borrower. When there is a tie-up with the employer

of the borrower, the process becomes a whole lot easier.  

Other factors: Other factors like documentation, processing fees, document storage facilities

and several other factors can be considered. It is also important to consider the time taken to

process the loan as well as special deals that a particular bank may have with a real-estate

developer. For example, individuals do not like it if the documentation is an irksome process or

if the processing fees are exorbitant.

E) FOLLOW UP WITH BANK’S PROCEEDS

After the application is submitted along with all supporting documents, the loan officer conducts

a formal interview where he assesses the creditworthiness of the applicant and his repayment

capability, based on the information provided in the form and the applicant’s explanations

during the interview.

The lender then conducts a credit evaluation of the applicant, which also factors in the property

valuation report from an independent valuer appointed by the lender himself. If the loan officer

has some queries, more documents and more explanations may be needed. Based on the finding

of the credit evaluation, a loan amount is determined and sanctioned. A sanction letter is then

sent to the applicant who generally contains a disbursal plan.

POINTS TO REMEMBER ABOUT A HOME LOAN

16

1) The monthly installment or the EMI. The housing loan is normally repaid by a monthly

installment. Usually the monthly installment is an EMI (equated monthly installment), an equal

amount that, if paid every month over the tenure of the loan, results in fully paying off the loan

taken. Part of the monthly installment is interest (calculated at the loan interest rate on the

principal outstanding for that month) and the remaining part is accounted for as principal repaid.

Principal repaid in the previous month is reduced from outstanding principal amount every

month. Interest is calculated in the above fashion on reducing principal. At the end of the loan

tenure, the principal reduces to zero.

2) The loan tenure: Longer repayment tenure would mean more interest payments on the loan.

Before one sets out to complete the paperwork for a loan, the calculation of the Equated

Monthly Installments (EMI) is important to know how much one is expected to pay and whether

the borrower have the capacity to pay that in time.

3) How is the net monthly income calculated: For a salaried individual, the net monthly

income is calculated as salary minus all the statutory deductions. Statutory deductions are items

like insurance premiums, tax deductions, PF contributions, which have to be deducted from the

salary of an individual. In case of self-employed person lenders look for cash earnings.

Therefore, they add a portion of the depreciation claimed by the applicant to the applicant’s

annual net profit. This, divided by 12, gives the net monthly income for a self-employed person.

Not all lenders consider depreciation, though. So the loan amount may be less than what one

thought it would be if the lender does not consider depreciation in the computation of net annual

income.

4) Monthly/Annual repayments: It is important to know whether interest is being calculated on

monthly rests or annual rests. The reason is that the borrower pays more as interest over the

years in case of annual rests as compared to monthly rests, even if the interest rate is the same.

How does this happen? The answer lies in a small but important difference in the manner in

which principal repaid by the borrower as part of the monthly installment is accounted for by the

bank.

In case of monthly rests, principal repaid in the previous month is reduced from the outstanding

principal amount every month. Interest is calculated in the above fashion on reducing principal.

On the other hand, in case of annual rests of principal, principal repayment every month is not

17

accounted for at the end of every month but only credited at the end of the year. This results in

more payment of interest by the borrower.

If one bank quotes interest on annual rests basis and another quotes on monthly rests basis, even

if the interest rate is the same, effectively, the annual rests rate in monthly reducing terms would

be higher. So when banks give a rate of interest asking them the method of computation would

be helpful.

5) Fixed or floating rate of interest: The borrowers are often faced with a choice between

whether the loan should be at a fixed rate or a floating rate. There are advantages to both. A

fixed rate loan means that one will have certainty of payments and even if interest rates rise in

the future the borrower will still be paying the older, lower rate. The right time to pick a fixed

rate loan is at the bottom of the interest rate cycle form where it looks like the rates have only

one way to go. And that is up. On the other hand, the right time to pick a floating rate is when

interest rates are at their highest and the interest rates look like they are on their way down.

6) Total financing costs: Apart from knowing how the interest rate is calculated, it is important

to understand the impact of processing and administrative costs on the loan cost. They add to the

costs as they have to be paid upfront. The total financing cost determines what the loan really

costs the borrower. Hence, a thorough study of the total costs is important.

7) Co-applicant: Sometimes the income of the borrower may not be enough to secure the loan

amount required by him. In that case, one can consider applying for the loan with a co-applicant.

Clubbing a co-applicant’s income and applying jointly can help get one a higher loan amount.

When property is jointly owned, most banks insist that joint owners have to be co-applicants for

a loan against such a property. Also sometimes, the loan officer might have a view that the

borrower doesn’t have much of a chance of getting the desired loan on his own strength and also

is not convinced of the regularity and sustainability of the applicant’s income. In that case,

clubbing a co-applicant’s income might just put that loan within one’s reach.

8) Tax advantages: A housing loan comes with some tax benefits. These benefits further

reduce the cost of the borrowing. There are two heads under which a borrower can claim tax

benefits. One is an exemption for interest paid on a housing loan. This exemption is available up

to an interest paid of Rs 1 lakh per year. And the other is a 20 per cent rebate on principal repaid

18

in the year subject to a maximum rebate of Rs 4,000. That is, a 20 per cent rebate is available on

a maximum principal repaid of Rs 20,000.

9) Identification of the property: It is not always necessary for the property to be identified the

application process for the loan starts. In fact, both the processes can be conducted

simultaneously. When the borrower is clear about the value of the property to be financed and

have zeroed in on the bank, he can get a pre-approval on the loan. The loan pre-approval is a

process where the bank conducts the credit evaluation and sanctions a loan amount for which the

borrower is eligible. The sanction is generally valid for six months, during which period the

borrower has to identify the property and execute the property documents; the payment will be

released after this. Pre-approval saves time and improves the bargaining position with the seller.

10) Pre-payment dilemma: If the borrower decides to repay the loan before the stipulated

period, he will be pre-paying the loan. Few banks charge a 0.5-2% of the amount the borrower is

pre-paying as pre-payment penalty. Some banks don't have a pre-payment penalty provided the

borrower is not paying off the entire loan amount. That means when the loan is pre paid partly;

there may not be any penalty or charges. Therefore it is advisable to borrow from a bank

wherever the pre-payment clause or Loan Redemption charge is not harsh.

19

TIPS WHILE BUYING A HOME

Buying a home is a dream of a lifetime for most of the people. Before applying for a home loan,

here are some tips that will be helpful when the borrowers are looking for a house of their own.

1) While buying a flat from a promoter or builder

a) With respect to the location

i. A proper check should be done for proper approach roads.

ii. One should ensure secured electricity and water connections

iii. Ensuring that well laid out drainage, sewerage and garbage disposal arrangements have been

made.

iv. Checking out whether there is any pollution due to industries etc. in the area

v. finding out the level of developmental activities of the area - adequate public transport

facilities and other vital amenities like educational institutions, hospitals and shopping avenues

b) With respect to approvals

i. One should check if the builder/promoter has been granted documented approvals from

Municipal Corporation, Area Development Authorities, Electricity Boards, Water Supply &

Sewerage Boards, Airport Area Authorities, etc

ii. Checking out if the builder/promoter has secured approvals from Pollution Control Boards,

Agriculture & Forest Authorities

c) With respect to the property

i. Checking out for proper Development Agreements and the authority for conveyance of title in

favour of builder/promoter

ii. Obtaining a clear and marketable title of the property

20

iii. Ensuring execution of proper sale agreements on the initial payments

iv. Having a look at the sanctioned plan

v. Registration of the property

vi. Verification of the plinth and carpet area of the property

d) With respect to amenities

i. Verification of the specifications given by the builder regarding including quality of

construction and availability of drinking and potable water have been delivered

ii. Assessment of the natural lighting, ventilation, water connection & sanitary connection status

of the prospective property

iii. Checking up the common service area charged and their reasonability

2) While buying a flat from a second owner

a) With respect to the location

i. Checking for proper approach roads

ii. Checking for electricity and municipal water connections

iii. Finding out whether well laid out drainage, sewerage and garbage disposal arrangements are

made

iv. Finding out whether there is pollution due to industries etc in the area

v. Checking for the developmental activities of the area

vi. Public transport facilities in the area

vii. Checking for educational institutions, hospitals, shopping avenues nearby, green belts &

rainwater drainage

21

b) With respect to approvals

Documented approvals from City Corporation, Area Development Authorities, Electricity

Boards, and Water Supply & Sewerage Boards

c) With respect to the property

i. Title deeds of the vendor of the property

ii. Previous title deeds covering a period of 13 years

iii. Sanctioned plan

iv. Encumbrance certificate for the past 13 years

v. Upto-date tax paid receipts

vi. Valuation of the property from a registered valuer

vii. Checking out if the flat/apartment is free from tenancy

viii. Registration of the property

d) With respect to amenities

i. Checking for the condition of the building and the future life expectancy

ii. Finding out whether drinking water is available

iii. Checking for natural lighting, ventilation, water connection & sanitary connection

3) While buying an independent house from a promoter/ builder

a) With respect to the location

i. Checking for proper approach roads

ii. Checking for electricity connections

iii. Finding out whether municipal water connections are present

22

iv. Finding out whether there is well laid out drainage, sewerage and garbage disposal

arrangement made

v. Finding out whether there is pollution due to industries etc in the area

vi. Checking for the developmental activities of the area

vii. Finding out the availability of public transport facilities in the area

viii. Check for educational institutions, hospitals, shopping avenues nearby, green belts &

rainwater drainage

b) With respect to approvals

Checking out if necessary approvals from City Corporation, Area Development Authorities,

Electricity Boards, Water Supply & Sewerage Boards, and Airport Area Authorities have been

obtained

c) With respect to the property

i. Sale deed of the vendor of the property

ii. Clear & marketable title of the property

iii. Sanctioned plan

iv. Encumbrance certificate for the past 13 years

v. Upto-date tax paid receipts

vi. Valuation of the property from a registered valuer

vii. Registration of the property

viii. Checking out the plinth area and the carpet area of the apartment

ix. Ensuring that the price being paid for the flat, including the common service area is

reasonable

23

d) With respect to amenities

i. Checking for the condition of the building and the future life expectancy

ii. Finding out whether drinking water is available

iii. Checking for natural lighting, ventilation, water connection & sanitary connection

24

FAIR PRACTICES CODE TO BE FOLLOWED BY BANKERS

WHILE GIVING HOME LOANS

With a view to setting out fair lending practices in a transparent manner, the RBI has advised

Banks and Financial Institutions (FIs) to adopt the following as Lenders’ Fair Practices Code.

The Fair Practices code applies to the following areas:

A) Applications for loans and their processing

1) Standard schedule of fee/ charges relating to the loan application depending on the segment to

which the accounts belong should be made available to all the prospective borrowers in a

transparent manner, along with the loan application, irrespective of the loan amount. Likewise,

amount of fee refundable in the event of non-acceptance of the application, prepayment options

and any other matter which affects the interest of the borrower should also be made known to

the borrower at the time of application.

2) Receipt of completed application should be duly acknowledged.

3) The acknowledgement should also include the approximate date by which the applicant

should call on the Bank for preliminary discussions, if deemed necessary.

4) All loan applications will be disposed of within a stipulated period from the date of receipt of

duly completed loan applications i.e. with all the requisite information/papers.

5) In case of rejection of loan application, irrespective of category of loans or threshold limits,

the same should be conveyed in writing along with the main reason(s), which led to rejection of

the loan application. The time frame for conveying the reason/s of rejection should be as per the

Schedules.

B) Loan appraisal and terms/conditions

1) In accordance with Bank’s prescribed risk based assessment procedures, each loan application

should be assessed and suitable margin/securities should be stipulated based on such risk

assessment and Bank’s extant guidelines, however without compromising on due diligence.

25

2) The sanction of credit limit along with the terms and conditions thereof is to be conveyed to

the loan applicant in writing and applicant’s acceptance of such terms and conditions should be

obtained in writing. Such terms and conditions as have been mutually agreed upon between the

bank and borrower prior to the sanction will only be stipulated.

3) Copy of loan documents, along with a copy of all relevant enclosures should be made

available to the loan applicant on specific request. Standard sanction letter would include

instances of approval, disallowance, etc. The bank is under no legal obligation to consider

increase/additional limits/facilities without proper review/assessment.

4) In case of lending under consortium arrangement, the participating banks would decide the

timeframe to complete appraisal of the proposal and communication of the decision. The Bank

will abide by the decision of the consortium.

C) Disbursement of loans including changes in terms and conditions

1) Disbursement of loans sanctioned is to be made immediately on total compliance of terms and

conditions including execution of loan documents governing such sanction.

2) Any change in terms and conditions, including interest rate and service charges, should be

informed individually to the borrowers in case of account specific changes and in case of others

by Public Notice/display on Notice Board at the branches/on the Bank’s website/through Print

and or other Media from time to time.

3) Changes in interest rates and service charges should be effected prospectively.

4) Consequent upon such changes any supplemental deeds, documents or writings are required

to be executed, the same shall also be advised. Further, availability of facility will be subject to

execution of such deeds, documents or writings.

D) Post disbursement supervision

1) Post disbursement supervision by Banks/ FIs, particularly in respect of loans upto Rs. 2 lacs,

should be constructive with a view to taking care of any genuine difficulties that the borrower

may face.

26

2) Before taking a decision to recall/accelerate payment or performance under the agreement or

seeking additional securities the Lenders should give reasonable notice to the borrower.

3) All securities pertaining to the loan should be released by Banks/ FIs on receipt of full and

final payment of the loans subject to any legitimate right or lien and set off for any other claim

that the Bank/ Financial Institution may have against the borrowers. If such right is to be

exercised, borrowers should be given due and proper notice with requisite details.

E) Other general guidelines

1) The Banks/ FIs should refrain from interference in the affairs of the borrower except for what

is provided in the terms and conditions of loan sanction documents (unless new information, not

earlier disclosed by the borrower, has come to the notice of the Bank as lender). However this

does not imply that Bank’s right of recovery and enforcement of security under Law as well as

appointment of nominee directors, where required, is affected by this commitment.

2) While lending Banks/ FIs should not discriminate on the grounds of gender, caste or religion

in its lending policy and activity.

3) In the case of recovery, Banks/ FIs should resort to the usual measures as per laid down

guidelines and extant provisions and should operate within the legal framework.

4) For the purpose of recovering loans, Banks/ FIs should have a Model Policy on Code for

Collection of Dues and Repossession of Security. They should not resort to undue harassment

viz. persistently bothering the borrowers at odd hours, use of muscle power, etc.

5) In case of request for transfer of borrowal accounts, either from the borrower or from a

Bank/FI, the Bank’s consent or otherwise should be conveyed within a stipulated period from

the date of receipt of request.

6) The Branch Officials should immediately take up the matter for redressal in case of any

complaint/grievance from the applicant/borrowers.

7) In case of complaints received, the branch should take into consideration the matter with full

details within a stipulated period from date of receipt and take all necessary steps to redress and

resolve the grievance/dispute within a proper time frame.

27

COMMITMENTS AND RESPONSIBILITIES ON THE PART OF

THE BANKERS

1. The banks/ FIs should assure that they shall act fairly and reasonably in all their dealings

with the customers on ethical principles of integrity and transparency in respect of services

they offer, and in the procedures and practices their staff follow and make sure the products

and services meet relevant laws and regulations.

2. The banks/ FIs shall help the borrowers to understand how the financial products and

services work by giving information about them. They shall also provide the operational

guidelines for Govt. accounts like PPF / pension etc. The salient features of the products /

services including the financial implications should be highlighted in the product profile.

3. Before people becomes a customer, the banks/ FIs shall give clear information explaining

the key features of the services and products which the people are interested in and give the

information on any type of account facility which they have to offer.

4. The banks/ FIs shall tell the customers what information they need from the borrowers,

before opening any deposit a/c, to prove their identity and address and to comply with legal

and regulatory requirements, and request for additional information about them, their

business/ profession and their family. The Bank before opening any deposit account shall

carry out due diligence as required under "Know Your Customer" (KYC) guidelines issued

by RBI and or such other norms or procedures adopted by the Bank. This will involve

satisfying about the identity of the person, verification of address, satisfying about his

occupation and source of income, obtaining introduction of the prospective depositor from a

person acceptable to the Bank and obtaining recent photograph of the person/s opening /

operating the account. In addition to the due diligence requirements, under KYC norms the

Bank is required by law to obtain Permanent Account Number (PAN) or General Index

Register (GIR) Number or alternatively declaration in Form No. 60 or 61 as specified under

the Income Tax Act / Rules.

If the decision to open an account of a prospective depositor requires clearance at a higher level,

reasons for any delay in opening of the account shall be informed and the final decision of the

Bank shall be conveyed at the earliest.

28

5. The banks/ FIs shall give upfront details of any interest and/ or charges applicable to the

products chosen by the borrowers.

6. The banks/ FIs shall seek specific consent of the borrowers for giving details of their names,

addressess etc. to any third party including other entities in their group, for marketing

purposes.

7. The banks/ FIs shall make sure that all advertising and promotional material is clear, fair,

reasonable and not misleading.

8. To help manage their account and check entries on it, the banks/ FIs shall give the borrowers

their account statements at regular intervals or Pass Book for the type of account they have.

9. The banks/ FIs shall tell the borrowers about the clearing cycle, including when they can

withdraw their money after lodging collection instruments and when they will start earning

interest.

10. The banks/ FIs shall keep original cheques paid from the customer’s account or copies, for

such periods as required by law. If, within a reasonable period after the entry has been made

on their statement, there is a dispute about a cheque paid from their account, the lenders/

financial institutions shall provide the customers with the necessary information for evidence

-subject to a possible charge for the same.

11. In the event the cheque book, passbook or ATM/Debit card has been lost or stolen, or that

someone else knows the customer’s PIN (Personal Identification Number) or other security

information, the banks/ FIs shall, on notification, take immediate steps to try to prevent

these from being misused.

12. The customer information collected from the customers shall not be used for cross selling of

services or products among the banks, their subsidiaries or affiliates. The banks/ FIs shall

treat all the personal information of their customers as private and confidential (even when

they are no longer their customer), including entities in their group, other than in the

following four exceptional circumstances for which the banks/ FIs are permitted to do so :-

a. If they (i.e. the banks/ FIs) have to give the information by law.

b. If there is a duty to the public to reveal the information in the interest of the public at large.

c. If their interests require them to give the information (for example, to prevent fraud) but the

banks/ FIs shall not use this as a reason for giving information about its customers or their

accounts (including their name and address) to anyone else, including other companies in

their group, for marketing purposes.

29

d. If the customers asks the banks/ FIs to reveal the information, or if the banks/ FIs have the

customers’ permission to provide such information to their group/ associate/ entities or

companies when the lenders/ financial institutions have tie-up arrangements for providing

other financial service products.

PROCEDURE OF HOME LOAN

Home loan procedure caters to processes right from the time the customer walks into the bank

with a request for home loan till the time the loan is finally repaid by the customer. The three

major phases in the home loan procedure are the information acquisition, credit appraisal and

30

sanction, and disbursement. Tracking the performance of the process is an underlying phase that

runs across the application processing cycle and is critical for monitoring and profitability for

the Bank/ Financial Institution.

The procedure for availing a home loan can be explained with the help of the following flow

chart:

A. Submission of application form: The application is submitted along with photographs,

credit documents and a cheque for processing, documentation and administration fees by the

customer. The credit documents comprise documents to establish income, age, residence,

employment, investments, etc. During this stage, the bank/financial institution checks the

repayment capacity of the customer. The repayment capacity is determined by taking into

Submission of application form

Personal Discussion with customer

Field Investigation by the bank/FI

Credit Appraisal and loan sanction

Issue of offer letter to the customer

Submission of property / legal documents

Legal check on the property by the bank

Technical check on the property by the bank

Disbursement

Repayment

Interest tax certificate

Prepayment by the customer

31

consideration factors such as income, age, qualifications, number of dependants, spouse's

income, assets, liabilities, stability and continuity of occupation and savings history.

B. Personal Discussion with customer: Some banks/FIs require the customer be present at the

time of the credit appraisal. Some banks/FIs may insist on a personal interview with the

customer and perform a reference check on the references provided by the customer on the

application form. For the personal discussion the customer needs to take with him all documents

pertaining to the information provided by him on the application form.

C. Field Investigation by the bank/FI: The bank/FI validates information

provided by the customer on the application form. This stage revolves around two key aspects.

Critically appraising the credit worthiness of the customer and analyzing the risk in lending. It is

necessary to capture all the information required to cater to these aspects. It is important to

verify that the information supplied by the customer is correct and authentic. Banks achieve this

mostly through external agencies. Also the validity and authenticity of information can be done

through conducting checks on the residential address of the customer, the place of employment

of the customer, and credentials of the employer, verification of documentary proofs of income,

age and other information. To minimize the risk, it is necessary to check that the customer is not

a fraud or black listed within the bank or other institutions.

D. Credit Appraisal and loan sanction: The next phase in the home loan process is the credit

appraisal and loan sanction. After checking the customer's repayment capacity, the bank/FI sets

norms that define the customer's eligibility for a loan amount. The loan then gets sanctioned

along with certain terms and conditions. When evaluating the measurable aspects of home loan

requests, an analyst addresses the following issues: the character of the borrower, the use of loan

proceeds, the amount needed, and the primary and secondary sources of repayment. Therefore,

the bank has to base its decisions more on qualitative parameters rather than quantitative aspects.

Credit analysis therefore is distinct for each type of home loan scheme. Credit analysis is the

most popular methods of evaluating home loans.

D. Issue of offer letter to the customer: The bank/FI sends an offer letter to

the customer with the loan sanction details which mention:

Loan amount

32

Rate of interest and whether it is fixed / variable rate of interest. If variable, period after

which the rate of interest would be reset - annual / monthly reducing balance

Loan duration

Mode of loan repayment

Scheme of the loan, if a special scheme has been offered to the customer

General terms and conditions of the loan

Special conditions, if any, which the customer needs to adhere to prior to disbursement

Submission of the acceptance copy of the offer letter and a cheque for administrative fees by

the customer

F. Submission of property / legal documents by the customer to the bank/FI: After the

selection of the property, the customer is required to submit the original documents pertaining to

the property being purchased or mortgaged (if the property purchased is different from the

property mortgaged). The bank/FI keeps the property documents as security for the loan amount

given to the customer till the time the loan is fully repaid.

G. Legal check on the property by the bank: The bank/FI sends all the documents to their

empanelled lawyer for a thorough scrutiny. On receiving the lawyer's report that the documents

are clear, the bank/FI decides to disburse the loan to the customer. If the documents sent to the

lawyer are not enough to arrive at a judgment, the bank/FI requests the customer to furnish

additional documents.

H. Technical check on the property by the bank/financial institution: Prior to disbursement,

the bank/FI conduct a site visit to the customer's property to verify the following:

In case of under construction property:

Quality of construction

Stage of construction: Whether it is the same as mentioned in the payment notice given to

the customer by the builder

Progress of work

Layout of flats and area of property is within permission granted by the governing authority

Requisite certificates have been received by the builder to start construction at the site

33

In case of ready construction/ resale:

Age of the structure

Quality of construction

Whether the structure will last the tenure of the loan

External maintenance of the property

Internal maintenance of the property

Surrounding area (development)

Required certificates from the governing authority have been received by the builder for

handing over possession of the flat

There is no existing lien or mortgage on the property

I. Disbursement: After verifying that the property is legally and technically clear, the bank/FI

disburses the loan amount on the basis of the stage of construction of the property. The customer

needs to pay the margin money from his own contribution prior to the disbursement.

J. Repayment: The repayment of the loan by the customer starts only after the full

disbursement of the loan amount has been made by the bank/FI. The loan is always repaid by

way of EMIs. The mode of repayment, however, differs from case to case. In case of a loan

repayment done through Deduction Against Salary (DAS), Post Dated Cheques (PDCs),

Standing Instructions (SI) and cash / Demand Draft (accepted only by some banks/FIs). The

customer can deposit the amount of his EMI every month at the bank/FI’s office.

K. Interest tax certificate: This certificate is given by the bank/FI to the customer to avail of

tax benefits that accrue through a home loan. The customer can submit this to his employer or

Chartered Accountant to account it while calculating the customer's tax liability.

L. Prepayment by the customer: The customer can either partly or fully prepay his loan at any

given point of time. The loan could be partly or fully disbursed when the customer wishes to

prepay his loan. Most banks/FIs, however, have a limit on the number of times that a person can

prepay his loan. There is, normally, also a minimum amount that a customer has to prepay each

time he wishes to do so. Whenever a customer makes a prepayment, the customer has an option

of reducing his EMI by keeping his tenure constant or to reduce his tenure by keeping the EMI

constant.

34

PARAMETERS IN RELATION TO HOME LOANS

35

Home loans are an important means of social mobility. Under home loans, the eligibility criteria,

documentation, interest rates, quantum of loan, margin requirement, security, repayment etc and

such other important parameters are put into consideration by banks and financial institutions

while giving loans to the borrowers. The parameters put down by banks and financial

institutions vary from institution to institution. However, the overall guidelines followed by

them are given as below:

ELIGIBILITY CRITERIA

1) For Resident Indians

Home loan eligibility for Resident Indians depends upon the repayment capacity of the loan

applicant. The maximum loan that can be sanctioned varies with the banks and other housing

finance companies (HFC) and generally, the maximum loan amount granted is 80 to 85% of the

cost of the home.

Home loan eligibility corresponding to repayment option is based on the following factors.

Even though, the eligibility criteria may vary according to the HFCs regulations:

Age (Minimum)21 Years

Age (Maximum)58(salaried), 60(Public limited/Government

Employees), 65 (self employed)

QualificationGraduation

Income Stable source of income and saving history

Dependents Number of dependents, assets, liabilities

Other income sources Spouse's income

As home loan rates increase, the loan eligibility for a borrower becomes stiffer. In such a

scenario, some home loan borrowers might have to re-evaluate their options (in terms of loan

amount) on account of the new eligibility criteria. Home loan eligibility can be enhanced by:

i) Increasing the Home loan tenure: One of the basic process of enhancing the home loan

eligibility is by opting for a higher tenure. This is so because the EMI, which an individual has

to pay, starts to decline as the tenure increases while the interest rate as well as the principal

36

amount remains the same. What changes though, is the net interest outgo, which rises with a rise

in tenure. And since the individual is paying a lower EMI now, his 'ability to pay' and therefore

his loan eligibility automatically increase.

ii) Repaying other outstanding loans: There might be adverse effect on home loan eligibility

for individuals with outstanding loans like car loans or personal loans. Industry standards

suggest that existing loans with over 12 unpaid installments are taken into account while

computing the home loan borrower's eligibility. In such a scenario, individuals have the option

of prepaying in part/full their existing loans. This will ensure that their eligibility for the home

loan purpose is unaffected.

iii) Clubbing of incomes: Home loan eligibility can also be enhanced by clubbing incomes of

spouse, children (son or daughter) staying with the applicant and having regular income and

even earning parents (father or mother) living with the applicant. The eligibility in such cases

will be calculated on the clubbed income of both the applicants enhancing the individual's

eligibility to the extent of the co-applicant's income.

iv) Step-Up loan: Individuals can also enhance their loan eligibility by opting for step-up loans.

A step-up loan is a loan wherein an individual pays a lower EMI during the initial years and the

same is enhanced during the rest of the loan tenure. HFCs usually consider the lower EMI of the

initial years to calculate his loan eligibility while the initial lower EMI helps increase the

individual's 'capacity to borrow'.

v) Perks: Salaried individuals must ensure that variable sources of income like performance-

linked pay among others are taken into consideration while computing their income. This in turn

will imply that the loan amounts they are eligible for stand enhanced as well.

However, potential investors and borrowers must work out solutions best suited for their profile

after speaking to their home loan consultant and only then consider acting on the options

discussed. Because, increasing loan eligibility can have an impact on other aspects of their

financial planning.

2) For Non- Resident Indians

37

The eligibility criteria of NRIs differ from Resident Indians based on a few parameters. The

parameters include:

Age: The loan applicant has to be 21 years of age.

Qualification: The NRI loan seeker has to be a graduate.

Income: The loan applicant has to have a minimum monthly income of $ 2,000 (although, this

criterion may differ across HFCs).The eligibility is also determined by the stability and

continuity of your employment or business.

Payment options: The NRI also has to route his EMI (Equated Monthly Installments) cheques

through his NRE/ NRO account. He cannot make payments from another source say, his savings

account in India.

Number of dependants: The eligibility of the applicant is also determined by the number of

dependents, assets and liabilities.

An NRI applicant is eligible to get a home loan ranging from a minimum of Rs 5 lakhs to a

maximum of Rs 1 crore, based on the repayment capacity and the cost of the property, which

although is variable by the priorities of the home loan provider. Also Home Loan Tenure for

NRIs is different from Resident Indians. An applicant will be eligible for a maximum of 85% of

the cost of the property or the cost of construction as applicable and 75% of the cost of land in

case of purchase of land, based on the repayment capacity of the borrower.

However, a NRI can enhance his loan eligibility by applying for home loans with a co-applicant

who has a separate source of income. Also, the rate of interest for home loans to NRIs is higher

than those offered to Resident Indians. The difference is to the income. Also, the rate of interest

for home loans to NRIs is higher than those offered to Resident Indians. The difference is to the

extent of 0.25%-0.50%. Some HFCs also have an internally earmarked 'negative criterion' for

NRI home loans. As such, the NRIs who hail from locations that are marked as being 'negative'

in the books of HFCs, find it difficult to get a home loan.

QUANTUM OF LOAN

38

The quantum of loan is assessed based on the net monthly/ net annual income with a direct

bearing on age factor of the borrower. A person of age in the range of 21 to 45 years is eligible

for a maximum amount of 60 times of his Net Monthly Income (NMI)/ five times of Net Annual

Income. In case the age is above 45 years the quantum will be restricted to 48 times of NMI/

four times of Net Annual Income. Many banks have put a ceiling on the maximum amount of

home loan at Rs.50 lakhs. In order to assess the quantum of finance income of spouse or close

relative can also be reckoned, provided that person becomes a co applicant.

DOCUMENTATION

“Loan Documentation” refers to the documents needed to legally enforce the loan agreement

and properly analyze the borrower’s financial capacity. Documentation is an essential

component from the point of view of the safety of an advance. The ability to control arises from

the documentation of provisions, which confirm understanding on the basis of which a credit

facility has been sanctioned. Documents should be properly drafted, stamped and executed with

necessary legal formalities, if any. An effective loan approval process establishes minimum

requirements for the information and analysis upon which a credit decision is based.

There are certain sets of documents that need to be submitted at the time of application for a

home loan. The document sets will vary according to the individual status - either resident or

non resident in India, as also the type of loan that the borrower may want to avail of.

Resident Indians Non – Resident Indians

Income documents

Property documents

Personal documents

Income documents

Property documents

Personal documents

1) For Resident Indians

39

Documentation refers to the specific documents to be submitted by Resident Indians as they

apply for home loan. These documents are very much necessary for the banks to avoid any

dispute and uncertainty. The documents to be provided by the resident Indians include income

proof, property documents and personal identification documents, etc. which of course varies

based on the borrowers financial status and the type of loan he want to avail. And of course

every resident Indian should follow some eligibility criteria before applying for Home Loans in

India.

However, there are some standard documents made mandatory for a loan applicant to produce

such as the loan applicant's profile, earning life of the applicant and present financial status

proof etc.

The Applicant's Profile refers to the bio-data of the applicant, mentioning his address, age,

family background and detail information.

The Earning Life of the Applicants' proof clarifies the capability of the loan payment.

The Present Financial status gives the present capability of handling the own contribution

and other expenditures. This includes the mortgage to be deposited against the loan amount.

1) Income documents

If you are employed

Verification of Employment form

Latest salary slip/salary certificate showing all deductions for at least the past 6 months

Form 16 from your employer for the past 3 years.

If your job is transferable, permanent address where correspondence relating to the

application can be mailed.

If you have been in your present employment / business or profession for less than a year,

mention details of occupation for previous 5 years, giving position held reasons for change

and period of the same.

If you are self employed

40

Balance sheet and profit and loss account of the business/profession along with copies of

individual income tax returns for the past 3 years as certified by a chartered accountant.

A note giving information on the nature of the business/profession, year of establishment,

present bankers, form of organisation, clients, suppliers etc.

Your net worth as an applicant/co-applicant.

2) Property documents

Purchase of a flat or apartment from a builder/promoter

Title deeds of the builder/land owner for a period of at least 13 years.

Development agreement between the builder and land owner if applicable.

Power of Attorney executed in favour of the builder, if applicable.

An encumbrance certificate for the past 13 years.

The khata certificate. (Basic document indicating ownership of property as entered in the

register of the government authorities.)

Up-to-date tax paid receipts of the property.

A sanctioned plan and license.

An agreement for sale and a construction agreement with the borrower.

In case purchase of house from second owner

Title deeds of land owner for a period of at least 13 years.

Encumberance certificate for the past 13 years.

Khata certificate (Basic document indicating ownership of property as entered in the register

of the government authorities).

Up to date tax paid receipts of the property.

Sanctioned plan and license.

Agreement for sale in favour of the applicant/applicants.

Valuation report from qualified valuers.

In case of repairs / renovation / extension of house/ flat

41

Title deeds of land owner for a period of at least 13 years

Encumberance certificate for the past 13 years.

Khata certificate (Basic document indicating ownership of property as entered in the register

of the government authorities).

Up to date tax paid receipts of the property.

Sanctioned plan and license for the extension.

Agreement for sale in favour of the applicant/applicants.

Estimates of costs from a qualified engineer.

3) Personal documents

1 passport size photograph,

1 copy of your passport/PAN card/Driving License//School Leaving Certificate/Birth

Certificate/LIC Policy/Bankers sign verification,

1 copy of last month's telephone bill/electricity bill/ ration card (first and last page)/Title

deed of property/rental agreement/driving license)

2) For Non- Resident Indians

The documentation required to be submitted by the NRIs are different from the Resident Indians

as they are required to submit additional documents, like copy of the passport and a copy of the

works contract, etc. And of course NRIs have to follow certain eligibility criteria in order to get

Home Loans in India.

Another vital document required while processing an NRI home loan is the power of attorney

(POA). The POA is important because, since the borrower is not based in India; the bank would

need a 'representative' 'in lieu of' the NRI to deal with and if needed. Although not obligatory,

the POA is usually drawn on the NRI's parents/wife/children.

1) Income documents for NRIs

Employment contract (if the contract is in any language other than English, the same has to

be translated into English and attested by the employer/Indian Embassy.

Certified copy of the latest salary slips for the past 6 months

Identity card issued from the current employer

Continuous discharge certificate, if applicable

42

Latest work permit

Visa stamped on passport

NRE bank account passbook sheets

Overseas bank account statement for the past 6 months

Bio data covering educational qualifications, age job experience, nature of

profession/business with necessary proof

Power of attorney in favour of local representative in India, if required

Guarantor forms along with net worth proof/income proof. Number of guarantors as per the

norms of the company. The guarantors should be related to the applicant/applicants.

2) Property documents for NRI’s

Purchase of a flat or apartment from a builder/promoter

Title deeds of the builder/land owner for a period of at least 13 years.

Development agreement between the builder and land owner if applicable.

Power of Attorney executed in favour of the builder, if applicable.

An encumbrance certificate for the past 13 years.

The khata certificate. (Basic document indicating ownership of property as entered in the

register of the government authorities.)

Up-to-date tax paid receipts of the property.

A sanctioned plan and license.

An agreement for sale and a construction agreement with the borrower.

In case purchase of house from second owner

Title deeds of land owner for a period of at least 13 years

Encumberance certificate for the past 13 years.

Khata certificate (Basic document indicating ownership of property as entered in the register

of the government authorities).

Up to date tax paid receipts of the property.

Sanctioned plan and license.

Agreement for sale in favour of the applicant/applicants.

Valuation report from qualified valuers.

43

In case of repairs / renovation / extension of house/ flat

Title deeds of land owner for a period of at least 13 years.

Encumberance certificate for the past 13 years.

Khata certificate (Basic document indicating ownership of property as entered in the register

of the government authorities).

Up to date tax paid receipts of the property.

Sanctioned plan and license for the extension.

Agreement for sale in favour of the applicant/applicants.

Estimates of costs from a qualified engineer

3) Personal documents for NRI’s

1 passport size photograph,

1 copy of your passport/PAN card/Driving License//School Leaving Certificate/Birth

Certificate/LIC Policy/Bankers sign verification,

1 copy of last month's telephone bill/electricity bill/ ration card (first and last page)/Title

deed of property/rental agreement/driving license)

FEES & CHARGES

The interest rates and EMIs are not the only cost factor that the banks and financial institutions

take into account while giving Home Loans. The certain other fees and charges that the banks

levy on the borrowers can be as follows:

1) Processing Charge: It's a fee payable to the lender on applying for a loan. It is either a fixed

amount not linked to the loan or may also be a percentage of the loan amount. The loan amount

received by the borrower can be less than the processing fee.

2) Interest Tax: This is the tax payable on the interest paid on a home loan and not the

principal. This tax is some times included in the interest rate of the loan, or may be charged

separately as interest tax.

3) Documentation Fees: Banks collect fees for documentation, administration, consultant

charge, valuation fees and legal fees from the customers as part of the application processing.

44

4) Commitment Fees: Some institutions levy a commitment fee in case the loan is not availed

of within a stipulated period of time after it is processed and sanctioned.

5) Prepayment Penalties: When a loan is paid back before the end of the agreed duration a

penalty is charged by some banks/companies, which is usually between 1% and 2% of the

amount being pre paid.

6) Registration of mortgage deed

AGE CONSIDERATION FOR HOME LOANS

The minimum age requirement for availing any type of Housing Loan is 18 years, and the

maximum is 60 years. The maximum age can be relaxed in deserving cases up to 65 to 70 years.

PENALTY FOR PRE-PAYMENT

When a loan is paid back before the end of the agreed duration a penalty is charged by some

banks/companies, which is usually between 1% and 2% of the amount being pre paid.

EMI ( EQUATED MONTHLY INSTALMENT)

This is the installment amount the borrower has to make towards repayment of his loan. The

EMI comprises of both the principal and interest. Banks/FIs charge an Equated Monthly

Installment from the borrower that is calculated on the basis of loan amount and the interest rate

charged for the same. Repayment by way of EMI generally commences from the month

following the month in which one takes disbursement. It can be calculated either on the basis of

annual reducing rest, monthly rest or daily rest. In an annual rest the EMIs (equated monthly

installments) are calculated on an annual basis. The interest is calculated on the outstanding

principal at the beginning of every year. Once the interest is calculated at the rate charged to the

customer for the entire year it is deducted from the EMIs received during the year. The balance

EMI is taken as principal repaid during the year and this is deducted from the opening balance of

principal of the current year to arrive at the opening balance of principal for the next year. Under

this method, typically the component of interest in the EMI is higher for the first few years and

later on the component of principal increases and the interest keeps reducing year after year. In

other words, the interest in the EMI will keep reducing year after year and the principal

component in the EMI keeps increasing. This is commonly known as Annual Reducing Balance

45

of the principal amount lent. In this case EMI becomes 1/12th the Equated annual installment.

In the monthly rest, principal repayments are credited at the end of every month and interest is

calculated on the outstanding principal at the end of every month. In the daily reducing principal

repayments are credited at the end of the day an installment is paid.

The EMI for the loan will begin after the loan has been disbursed in full. Till such time the

borrower has to pay the interest for the loan. The amount of interest payable every month is

called pre-EMI.

In short the following four factors go into the determination of EMI.

The principal amount - This is the actual loan amount taken. Obviously the larger the

amount, the greater the EMI.

The rate of interest - Another obvious one, the higher the interest rate, the higher the EMI.

The tenure - The longer one take the loan for, the lesser the EMI. The faster one want to

repay it, the higher the EMI.

How the interest rate is calculated - It could be calculated either on a daily reducing or

monthly reducing or on an annual reducing basis.

INTEREST RATES FOR HOME LOANS & THEIR CALCULATION

Interest rates charged by housing finance companies vary depending upon your individual status

- either resident or non resident in India, the loan amount, scheme type, and are sometimes even

based on the tenure of the loan.

The way banks / FIs charge interest to arrive at the value of EMI can be broadly classified into

‘Flat rate system’ and ‘Reducing balance rate system’. In the flat rate system, the rate of interest

on the loan amount is calculated over the entire duration of the loan and the principal plus the

interest is divided over the number of installments and the value arrived is the EMI. But in case

of 'Reducing Balance system’, the interest is charged on the outstanding balance of the loan,

which goes on reducing.

The reducing balance can be further classified into monthly reducing, quarterly reducing and

annual reducing methods based on the number of times the principal is reduced/credited in a

year. Suppose the principal is reduced 12 times a year, it is termed as monthly reducing balance

method, if the principal is reduced 4 time a year, it termed as quarterly reducing balance method

46

and if the principal is reduced 1 time a year, it known as annual reducing balance method.

Annual reducing balance method is very common with Indian banks and monthly reducing

balance method is popular among the foreign banks and nationalized banks, engaged in the

activity of housing finance.

Resident Indians Non-Resident Indians

Buying a new house

Buying an existing house

House improvement

Buying a new house

Buying an existing house

House improvement

1) Interest rates for Resident Indians

Buying a new house from a builder/promoter

Banks and FIs offer resident Indians loans upto Rs 10,000,000 for upto 30 years for buying a

new flat from a builder. The flat may be under construction at the time of application.

The table below offers a comparison of loan ranges and corresponding interest rates applicable

under this scheme.

Company Loan amount (Rs.) Floating rate (%) Fixed rate (%)

HDFC (Monthly) For all loan amounts 11.25

13.25

HSBC

For all loan amounts12.00 13.50

ICICI

For all loan amounts 13.75 14.00

SBI For all loan amounts 11.25 12.75

Buying a house from a second owner

47

Banks and FIs offer resident Indians loans upto Rs 10,000,000 for upto 30 years under this

scheme.

The table below offers a comparison of loan ranges and corresponding interest rates applicable

under this scheme.

Company Loan amount (Rs.) Floating rate (%) Fixed rate (%)

HDFC (Monthly) For all loan amounts 11.25

13.25

HSBC

For all loan amounts12.00 13.50

ICICI

For all loan amounts 13.75 14.00

SBI For all loan amounts 11.25 12.75

Home Improvement

Banks and financial institutions offer non resident Indians loans upto Rs 1,000,000 for periods

ranging from 1 to 10 years under this scheme.

Home improvement schemes allow the borrower to finance internal and external repairs and

other structural improvements in your home. Some of the home improvements one can finance

under this scheme are:

External repairs

Waterproofing and roofing

Internal and external painting

Plumbing and electrical works

Tiling and flooring

Grills and aluminium windows

The table below offers a comparison of loan ranges and corresponding interest rates applicable

under this scheme.

48

Company Loan amount (Rs.) Floating rate (%) Fixed rate (%)

HDFC (Monthly) For all loan amounts 11.25

13.25

HSBC

For all loan amounts12.00 13.50

ICICI

For all loan amounts 13.75 14.00

SBI For all loan amounts 11.25 12.75

2) Interest Rates for Non-Resident Indians

Buying a new house from a builder/promoter

Banks/ FIs offer non resident Indians loans upto Rs 10,000,000 for upto 10 years for buying a

new flat from a builder. The flat may be under construction at the time of application.

The table below offers a comparison of loan ranges and corresponding interest rates applicable

under this scheme.

Company Loan amount (Rs.) Floating rate (%) Fixed rate (%)

HDFC (Monthly) For all loan amounts 11.25

13.25

HSBC

For all loan amounts12.00 13.50

ICICI

For all loan amounts 13.75 14.00

SBI For all loan amounts 11.25 12.75

Buying a house from a second owner

Bankls/ FIs offer non resident Indians loans upto Rs 10,000,000 for upto 10 years under this

scheme.

49

The table below offers a comparison of loan ranges and corresponding interest rates applicable

under this scheme.

Company Loan amount (Rs.) Floating rate (%) Fixed rate (%)

HDFC (Monthly) For all loan amounts 11.25

13.25

HSBC

For all loan amounts12.00 13.50

ICICI

For all loan amounts 13.75 14.00

SBI For all loan amounts 11.25 12.75

Home Improvement

Banks and FIs offer non resident Indians loans upto Rs 1,000,000 for periods ranging from 1 to

10 years under this scheme.

Home improvement schemes allow the borrower to finance internal and external repairs and

other structural improvements in the home. Some of the home improvements one can finance

under this scheme are:

External repairs

Waterproofing and roofing

Internal and external painting

Plumbing and electrical works

tiling and flooring

Grills and aluminium windows

The table below offers a comparison of loan ranges and corresponding interest rates applicable

under this scheme.

Company Loan amount (Rs.) Floating rate (%) Fixed rate (%)

HDFC (Monthly) For all loan amounts 11.25

13.25

50

HSBC

For all loan amounts12.00 13.50

ICICI

For all loan amounts 13.75 14.00

SBI For all loan amounts 11.25 12.75

MARGIN AMOUNT FOR HOME LOANS

The difference in the total cost of the property and the loan amount sanctioned is the margin

amount. This money has to be invested by the borrower of the property prior to the release of the

loan amount in case of construction of a house. In case it is for purchase of a ready house, the

loan amount is released on the day of registration of the property and the margin money has to

be invested by the borrower prior to the release. In case of purchase of flats also, the release will

be made only on investment of the margin money by the borrower. A margin amount is the

amount that the applicant pays through his/her pocket. As far as home loans are concerned a

bank usually pays 85% of the total cost of the house to be purchased by the borrower. The

margin is usually the amount not covered by the bank for the payment of the essential and

necessary fees for the purchase of the house. In most of the cases, the margin amount of

25% of the purchase consideration has to be borne by the borrower in the case of purchase of old

houses/approved plots and 15% of the project cost in the case of loans for construction/purchase

of new house/flat.

SECURITY FOR HOME LOANS

In most cases, the property to be purchased itself becomes the security and is mortgaged to the

lending institution till the entire loan is repaid. Interim security may be additionally required, if

the property is under construction Some companies may also require additional securities which

are called collateral securities like the assignment of life insurance policies, pledge of shares,

NSCs, units of mutual funds, bank deposits or other investments.

GUARANTOR FOR HOME LOANS

Guarantors are essential for sanctioning of loans. Usually, a guarantor is required so that if the

applicant fails or becomes incapable of repaying, the guarantor will be responsible for clearing

51

the debt. Generally most banks do not insist on a guarantor when giving home loans but some

might insist for 1 or 2 guarantors in certain cases. A guarantor is equally liable to pay up the

loan in case the borrower misses out on repayments. By seeking a guarantor, the lender tries to

enforce a moral check that prevents the borrower from defaulting.

If the borrower is a salaried individual with a good employment record and laudable debt

repayment history, banks are assured of his/her financial stability and credibility. In case one

runs a small business with low profits, the banks are taking a risk. To safeguard their interests in

such circumstances, banks seek a guarantor who is legally bound to make repayments in case of

default. The bank seeks a guarantor in case the loan applicant does not live in the same city in

which he is purchasing the property. If the nature of his job is such that he will be constantly

transferred or could go abroad, the banks need a guarantor.

The same is the case for self-employed individuals who lack required professional

qualifications. Absence of a co-applicant for a loan sometimes calls for a guarantor. In most

other cases, there is no personal guarantor required as home is an investment to which people

have emotional bonding. And they are sure to go to any extent to keep it. Any friend or family

member can be a guarantor and can guarantee the loan. A guarantor has to fulfill the criteria

relating to age and income of a normal customer. The minimum income criteria vary from one

housing finance company to another. This is to ensure that since he is equally liable to pay the

loan in case of default, he has to be financially sound too like the loan applicant himself.

DISBURSEMENT

When the entire essential work of selecting the land/ home is done and after all the legal

documentation (such as handing over of the original agreement for sale / lodging receipt to the

lender), etc is completed, the borrower starts getting the disbursement of the loan. On an average

it takes around fifteen days for processing of one's application if the documents are in order. It

takes another week for the bank/FI to check out the property papers and make the disbursement.

The bank /FI also ask for a proof stating that the borrowers own contribution of the cost of the

property has been paid upfront to the seller/vendor / builder / developer of the property. In case

52

of property under construction, the disbursement of the loan is made in installments according to

the stage of construction.

REPAYMENT OPTIONS

1) For Resident Indians

Every bank/ FI have customized repayment options to suit every individual's requirement and

also repaying capacity with some tax benefits. They have thereby come up with more flexible

and Multiple Repayment Option. A few among them are:

Step-up Repayment Facility: The objective of step-up repayment is to provide the borrower

with a repayment schedule, which is linked to expected growth in income. It not only helps a

customer get a larger amount of loan as compared to the loan under the normal housing loan; but

the customer can avail of a higher amount of loan and pay lower EMIs in the initial years, which

is subsequently accelerated proportionately with the assumed increase in his income.

Flexible Loan Installments Plan: This repayment option offers a customized solution to suit

the needs of customers whose repayment capacity is likely to alter during the term of the loan. In

cases when a borrower is nearing retirement, the loan is structured in such a way that the EMI is

higher during the initial years and subsequently decreases in the latter part proportionate to the

reduced income of the customer. This option helps such customers combine the incomes and

take a long term home loan where in the installment reduces upon retirement of the borrower.

Tranche Based EMI: Customers purchasing an under construction property, need to pay

interest (on the loan amount drawn based on level of construction) till the property is ready.

Tranche Based EMI is a special facility offered by some banks to help customer save this

interest. Customers can fix the installments they wish to pay till the property is ready. The

minimum amount payable is the interest on the loan amount drawn. Anything over and above

53

the interest paid by the customer goes towards principal repayment. The customer benefits by

starting EMI and hence repays the loan faster.

Accelerated Repayment Scheme: Accelerated Repayment Scheme offers the borrower a great

opportunity to repay the loan faster by increasing the EMI. Whenever the borrower get an

increment, increase in the disposable income or have lump sum funds for loan prepayment, he

can benefit by:

Increase in EMI means faster loan repayment

Saving of interest because of faster loan repayment

Or invest lump sum funds rather than use it for loan prepayment. The return from the

investments also gives the borrower the comfort of paying the increased EMI.

Balloon Payment: Balloon Payment is an augmentation tool offered by the banks/FIs, which

helps in increasing the loan eligibility of the customer without increasing the EMI by assigning

securities like National Savings Certificate (NSC), LIC policies etc. The present value of the

maturity amount of assigned securities is combined with the loan amount to arrive at the

enhanced loan eligibility. Under this facility, the EMI is calculated on the net loan amount (i.e.

total loan less the present value of the maturity value of the securities).

2) For Non- Resident Indians

The repayment option for Non-Resident Indians (NRIs) is done in EMIs, and includes interest

and principal amount calculated on monthly rests. The borrower can pay EMIs by issuing post-

dated cheques from the Non Resident External (NRE)/Non-Resident Ordinary (NRO) or Non

Resident (Special) Rupee Account (NRSR) in India; or any other account approved by the

Reserve Bank of India (RBI).

In the case of part-disbursement of the loan, the monthly interest is payable only on the

disbursed amount. EMI is payable every month, by the end of the month from the date of each

disbursement up to the date of commencement of EMI. Pre-EMI is calculated at the same rate at

which EMI is calculated.

Step-Up Repayment Facility: By the step-up repayment option, a borrower can apply for a

higher range loan based on the prospects of growth in income for years to come. In this

54

repayment option the loanee has to pay less EMI in the initial years which increase as the

income grows with the coming years.

Flexible Loan Installments Plan: In this mode of repayment, the borrower has flexible loan

installment facility where a borrower nearing retirement age can opt for paying higher EMI in

the initial years and gradually move to paying lower installments after reaching retirement age.

Tranche Based EMI: Tranche Based EMI is a special facility offered to the customers so as to

save their interest, in cases when customers purchasing an under construction property need to

pay interest (on the loan amount drawn based on level of construction) till the property is ready.

In such cases, customers can fix the installments they wish to pay till the property is ready. The

minimum amount payable is the interest on the loan amount drawn. Anything over and above

the interest paid by the customer goes towards principal repayment. The customer benefits by

starting EMI and hence repays the loan faster.

Accelerated Repayment Scheme: Accelerated Repayment Scheme for NRIs offers a great

opportunity to repay the loan faster by increasing the EMI. Whenever the NRI get an increment,

increase in the disposable income or have lump sum funds for loan prepayment, the loanee can

benefit by:

Increase in EMI, which means faster loan repayment

Saving of interest because of faster loan repayment and can invest lump sum funds rather

than use it for loan prepayment.

A NRI loanee can opt for repayment ahead of schedule, by remittances in abroad through

normal banking channels, the NRO / NRSR in India. However, by regulations in many states in

India, the Agreement of Sale between the builder and purchaser is required to be registered by

law. It is therefore advisable to record the agreement for registration within four months of the

date of the Agreement at the office of the Sub Registrar appointed by the State Government,

under the Indian Registration Act, 1908.

REPAYMENT TENURE

1) For Resident Indians

55

Home loan tenures fixed by RBI are available up to a term of 15 years. Some financial

institutions have home loan tenures in the range extending up to 20, 25 and 30 years if the

applicant fulfills certain criteria. However, one cannot opt for a term that extends beyond

attaining retirement age or 60 years of age (whichever is earlier).

Home loan Tenure:

Type of Property Salaried Self-Employed

Residential15 years

10 years

Plot of Land10 years 10 years

Against Existing Plot of Land 15 years10 years

2) For Non- Resident Indians

The home loan tenure for Non-resident Indians differs from the Resident Indians on a few

points, which may of course vary from one bank to another. For most banks the home loan

tenure exceeds maximum from 25 to 30 years. However, for NRIs the maximum tenure is from

7 years up to 15 years, the number of years fixed by RBI. However, one cannot opt for a term

that extends beyond attaining retirement age or 60 years of age (whichever is earlier).

56

HOME LOAN WITH INSURANCE COVER

There are many individuals who worry about the adverse impact of the home loans if something

happened to them. This is where a home loan insurance product comes to the rescue. Many

banks and financial institutions insist on getting the home insured to safeguard their interest. The

borrower needs to ensure that the property is duly and properly insured for fire and other

appropriate hazards, as required by the bank and financial institution during the period of the

loan and will have to produce evidence each year and/or whenever required by the lenders. The

bank/financial institution will be the beneficiary of the insurance policy. There are various kinds

of insurance covers available for a homeowner. The various options may be insurance against

fire, against other disasters, etc.

Home loan insurance plans, also known as mortgage redemption plans are policies that cover the

home loan liability. Though there are some minor variants, most plans offer a sum assured that

reduces as the outstanding home loan comes down every year. In such plans, it is not the home

but the loan that is covered should something happen to the borrower. For instance, if a person

have taken a home loan of Rs 40 lakh and covered this through a home loan insurance. If after a

year, the outstanding loan comes down to Rs 39 lakh, then the sum assured also comes down to

Rs 39 lakh. In short the sum assured is adjusted against the home loan liability.

57

This insurance is much like the term plan or pure risk cover plan that is available from various

insurance companies. There are exceptions like ICICI Bank (through their tie-ups with ICICI

Lombard) home insurance loan where the sum insured remains constant. And in the event of

death of the life assured, the outstanding home loan is cleared off and the rest is paid to the

family. Some characteristics of such plans include:

Low premiums, high cover

No maturity amount on survival of the term

Choice of one time premium or regular premiums

However, the cover in term plans available in India are level term plans where the cover remains

the same whereas in the case of home loan covers, the amount keeps falling as the home loan

liability decreases. Also it is important to know that while most term plans can be bought till the

age of 55, home loan insurance plans can be bought till the age of 60. However, the medical

underwriting is stringent and it is only after adequate tests that these policies are issued at the

higher age band. If one opts for a joint application then the premium is double. And if any of the

joint applicants die, the loan is paid off by the insurance company. The premiums are calculated

based on the medical underwriting, based on the age and medical record. The conditions are:

Age of the life insured: The premium increases with age. Medical tests increase with age and

are mandatory above 40 years. Below this age, a simple declaration is good enough though this

depends on each insurance company.

Medical record: If the borrower of the loan is in a good health, the premiums will be regular

but if the insurance company's prognosis about the life assured is at higher risk, then the

premiums will be higher. A past family history of early death or critical illness will also increase

the premiums.

Loan tenure: The premium will increase with the duration of the loan. A cover of Rs 50 lakh

for five years and a cover of Rs 50 lakh for 20 years will attract different premiums, with the

latter being more expensive.

Since this is a life insurance plan issued by an insurance company, the premiums paid towards

life insurance schemes are eligible for deductions under Section 80C. However, if the premium

58

is clubbed within the equated monthly installment of the home loan, then the borrower will not

get the Section 80C benefit. Most banks have tie-ups with insurance companies for the issuance

of such policies. There is always the question that whether it is better to take a term plan and

insure the life that is going to repay the home loan or go for home loan insurance. A factor that

tilts the argument in favour of term plans is the cost, which is much less and remains constant as

well.

However, a majority of the people should get thorough needs analysis done and not just cover

their home liability but other liabilities as well, dependent goals (financial needs of children) and

dependent income goals (monthly needs of family if the borrower were to die) as well. After

this, taking a term plan for the requisite cover needed is considered. For those who cannot

undergo this exercise, opting for the home loan insurance cover may prove helpful.

The policies that one may consider other than a home insurance are as

follows:

1) Fire policy for a householder

Suitability

A householder can cover his movable and immovable properties against fire and allied perils.

Apart from persons owning a house, people staying in a Rented/Leased house can take this

policy, if they are responsible for its safety by any covenant. An individual can also insure

household contents not belonging to him, but held in trust or belonging to relatives permanently

staying with him.

Salient Features

The Fire Policy can be taken to cover any property within the country. The policy offers cover

on loss and/or damage on account of:

Accidental fires

Lightning

Explosion & implosion 'due' to pressure vessels (used for domestic purposes)

By rioting mob, striking workers, malicious acts by third parties and damage by terrorists

Impact damage by rail/road vehicles, carts & animals

By aircraft or any arial devices or articles dropped there from

59

Landslide & rockslide

Storm, cyclone, flood & inundation and similar vagaries of nature

Bursting and over flowing of water tanks and pipes etc.

Missile Testing

Leakage from sprinklers

Bush Fire

Benefits

Claims are payable at the market value of the property damaged at the time of loss.

If the individual value if assets is not furnished then the value of each property is considered

as not more than 5% of the total sum insured.

Long term policy may be taken.

2) All risk Insurance

Suitability

This policy is suitable for people owning things, which are prone to accidental loss or damages.

Salient Features

It covers valuables like jewelry, work of art and similar artifacts of sentimental values. The

scope of the cover is limited to loss or damage due to fire, riot & strike, terrorist act, burglary,

larceny or theft and accidental loss or damages.

Benefits

The policy pays for any loss to the property insured against by insured perils. The amount of

claim payable is limited to the sum insured or the market value at the time of loss, whichever is

lower.

3) Burglary Insurance

Suitability

This policy is more suitable for people who have movable property like clothes, appliances etc.

prone to burglary, theft and larceny.

60

Salient Features

This insurance policy covers burglary, theft and larceny.

Benefits

This policy pays for any loss of property due to burglary, theft or larceny occurring during the

policy period. The amount of claim payable is limited to the sum insured or the market value at

the time of loss, whichever is lower. This policy also covers damage to the premises like walls,

windows etc.

4) Householder’s Package Policy

Suitability

This is a single package policy offered at economical rates of premium through which all of the

householder's needs are addressed.

Salient Features

The package includes the following policies:

Fire Insurance

Burglary

All Risks Insurance

Plate Glass Insurance

Break down of Domestic Appliances (Electrical and mechanical failures)

Television including VCR & VCP and music systems

Pedal cycle Insurance

Personal baggage insurance

61

Personal accident

Public liability

Employers Liability

Benefits

This being a package policy, only one proposal form is to be completed instead of separate

proposal forms for individual policies. As regards fire risks, while covers like

explosion/implosion (other domestic gas cylinders or pressure cookers) and impact of rail/road

vehicles are withdrawn as inconsequential, special risks like damage due to bursting and

overflowing of water tanks, apparatus, or pipes are included in the policy.

RECOMMENDATIONS FOR BANKERS

The entire housing finance sector thrives on a simple logic that the house is the single largest

investment made by a common man in his entire lifetime. There is an emotional and sentimental

attachment towards his house property wherein lots of personal money is involved. Hence, the

risk is very low to a lender since it would be a great loss to the borrower if he looses the

possession of the house. This safest mode of business has spurred many new entrants to join the

fray. According to the details given by the National Housing Board (NHB) pertaining to the

housing loan disbursements of banks and housing finance companies as on June 29, 2006, the

housing finance sector has shown an exponential growth as compared to the other areas of

credit.

The housing finance sector even if it is showing an exponential growth is not devoid of risks.

The problem of bad loans has always been a matter of concern for the entire industry. Since the

competition among the players in the housing finance sector is too high, all the housing finance

companies maintain the interest rates in unison except for public sector banks which operate on

62

relatively low rates of interest as they concentrate more on retail business. Despite the low risk

attached to this sector and legal support to the lenders, problem loans are creeping into the

system overwhelmingly. In order to avoid the problem of bad loans the banks and financial

institutions may undertake the following remedial measures for mitigation of risks:

1) PROPER SCRUTINY IN SANCTIONS AND DISBURSEMENTS

Home loans are made available by banks and financial institutions to both Indian and Non

Resident Indian customers at floating and fixed rates of interest and also with attractive EMI

options. The loans are offered for construction of or buying a new house, home repairs and

renovations, purchase of plots, against mortgage of property, etc. Hence the banks and financial

institutions should conduct a proper scrutiny while sanctioning and disbursements of loans.

2) PROPER STUDY OF FINANCIAL STATEMENTS

Many a times the banks and financial institutions in order to cope with and to outsmart the

competitors, they go to the extent of luring the customers of their competitors by providing

attractve schemes. Some companies even go to the extent of sanctioning the home loan without

identifying the property and improper title deeds which is the prerequisite for eligibility.

Waiving the processing fee, providing free accident insurance and property insurance, waiving

penalties, etc,. are some of the factors causing reduction in the profit margin. Hence proper study

of financial statements and analysis should be undertaken in order to increase the profitability.

3) END USE OF THE MONEY LENT

Banks and other housing finance companies have high rate of interests for non- residential use of

the loan. A study of the NPAs of these banks/FIs shows that individuals who avail themselves of

loans for residential properties, divert them for commercial or any other purposes. Any

fluctuations in the business operations or mindset of the borrowers lead to non-payment of

interest. At times, it is very difficult for the lender to recover the loan amount if the borrower has

left the country. Hence, it is very important for banks and financial institutions to verify that the

loan given is utilized for the purpose for which it is sanctioned.

4) MARKETABILITY OF THE MORTGAGED ASSETS

Improper valuation and scrutiny of the documents tend to lead the financier to invest more than

100% of the value of the property. In case, the loan is not serviced, he may not realize the claim

63

amount. When the borrower constantly defaults in servicing the loan, the lender has five types of

rights. Possession, lease, manage, reconstruct or sell. In practice the possessed assets are in such

a condition that they can be neither sold nor managed nor given for lease. To market them the

lender of the loan has to incur further expenses adding to his risk of getting back his further

investment.

5) CONSTANT MONITORING

Once the loan is sanctioned, the job of the lender is not over. He has to exercise vigilance and

monitor the payments of installments by the borrowers. It is advisable to make periodical review

of the borrower’s financial position to ensure his capabilities of prompt payment of installments.

A close monitoring has to be done by the lender about the performance of various industrial

units, changes in the socio-economic conditions in his areas of operations, which will have a

bearing on the repayment capacity if the individuals.

6) TAKE OVER OF BAD LOANS

Most of the institutions play safe by handing over their doubtful and risky loans to the other

institutions. These are taken over just to add a feather to their asset portfolio in the balance sheet.

As far as possible, taking over of loans should be done only after a thorough study of the case

and the reasons of handing over the loan. Verification of repayment track and reasons for

takeover are very important.

7) FAIR ASSESSMENT OF PROPERTY

While scrutinizing the valuations, it is very important for the lender to go by his own assessment

instead of being carried over by real estate boom. The banks and financial institutions should

keep in mind the resale value of the asset rather than the market value. Most of the cases suffer

form the drawback of poor collateral. Condition of the underlying asset also must be taken care

of. Care should be taken to see that the asset is sold very soon after seizing it. Or else, the resale

value may come down. Therefore, finding out the buyers to dispose of the asset is a challenging

task for the banks and financial institutions.

64

8) INCREASING EMPLOYEE MORALE

The banks and financial institutions should protect the employee morale by providing

performance-based incentives as there is a tendency in any finance department to become

corrupt. The sanctioning official must be made directly responsible for the bad loans to a certain

extent.

TABULATED COMPARISON BETWEEN HOME LOAN

SCHEMES PROVIDED BY SBI BANK & ICICI BANK

1) ELIGIBILITY

Scheme Min Age

(years)

Max Age

(years)

Min Income

(Rs/mth)

Max Income

(Rs/mth)

SBI Optima Additional Home Loans/SBI

Housing Loan-RI/SBI Freedom Home

Loans(NRI)

21 45 1 _

ICICI Home Loans (for Resident Indians) 21 65 1 _

ICICI Home Loans (for NRIs) 21 65 _ _

2) FEES

Scheme Processing Fees (%) Administrative Fees (%)

65

SBI Freedom Home Loans(NRI)/SBI Housing Loan-

RI/SBI Optima Additional Home Loans

0.50 _

ICICI Home Loans (for NRIs) _ _

ICICI Home Loans (for Resident Indians) 0.50 5.00

3) INTEREST

Scheme From (years) To

(years)

From

(Rs)

To (Rs) Interest Rate

(%)

SBI Optima Additional Home Loans 1 5 _ 500,00,000 9.50

SBI Optima Additional Home Loans 6 10 _ 500,00,000 9.75

SBI Housing Loan-RI/ SBI Freedom

Home Loans

1 5 _ 500,00,000 9.50

SBI Housing Loan-RI 6 10 _ 500,00,000 9.75

SBI Freedom Home Loans (NRI) 6 10 _ 500,00,000 9.25

SBI Maxgain Home Loan- RI 1 5 500,000 0 8.75

SBI Flexi Home Loan-RI 0 5 500,000 0 8.75

ICICI Home Loans (for RI) _ 20 2,00,000 _ 11.00

ICICI Home Loans (for RI) _ 20 2,00,000 _ 9.50

ICICI Home Loans (for NRIs) _ _ 5,00,000 100,00,000 11.00

4) MAXIMUM LIMIT

Scheme Min

Amt

(Rs)

Max Amt

(Rs)

Max Limit   Min

Term

(years)

Max

Term

(years)

SBI Freedom

Home Loans

(NRI)

_ 5,00,00,000 _ _ 20

SBI Housing _ 5,00,00,000 The maximum amount=60 NMI/ 5 times

NAI, subject to aggregate repayment

0 5

66

Loan-RI obligations not exceeding 57.50% of NMI/

NAI for those less than 45 years of age. If the

borrower is above 45 years of age it is 48

times NMI or 4 times NAI.

SBI Optima

Additional Home

Loans

_ 5,00,00,000 The eligibility is 18 times NMI (for salaried

borrowers)/ 1 times NAI (for others) or (i)

25% of the original project cost of house/flat

(ii) 85% of the cost of repairs etc. or (iii) gap

between 85% of the current market price of

flat/house and actual outstanding loan dues,

whichever is lower (EMI/NMI ratio of all

loans should not exceed 60%)

_ _

ICICI Home

Loans (for

Resident Indians)

2,00,000 _ Maximum of 85% of the cost of the property _ 20

ICICI Home

Loans (for NRIs)

5,00,000 1,00,00,000 Maximum of 85% of the cost of the property _ 15

5) UNIQUE FEATURES

Scheme Unique Features

SBI Freedom Home

Loans(NRI)

This product is for those individuals who are on the lookout for a source of finance for a

property they want to invest in without mortgaging the same. All they have to do is pledge

any financial security that they have and will get a Home Loan for their dream home.

SBI Housing Loan-

RI

This loan is 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, takeover of an existing loan from other Banks/ FIs.

Free personal accident insurance cover. Optional Group Insurance from SBI Life at

concessional premium.

SBI Optima

Additional Home

Loans

This loan is aimed at enabling the customer meet expenditure towards major repair,

renovation, addition to their house/flat, purchase of furniture, fixtures and consumer

durables.

ICICI Home Loans

(for Resident

Indians)

Door-step service from enquiry stage till final disbursement. Free personal accidental

insurance, Special 100% funding for select properties. The borrowers can transfer the

existing high-interest rate loan.

ICICI Home Loans

(for NRIs)

The borrowers can take loans for purchase, construction, extension or renovation of a new

house or flat.

67

ANALYSIS

ICICI and SBI are the pioneers in the home loan sector in private and public sector respectively

in India. These banks offer home loans with attractive and unique features for the benefits of

their customers. As per the eligibility criteria ICICI bank holds a better position as compared to

SBI bank because it provides home loan to maximum age limit of 65 years as compared to the

maximum age limit of 45 years offered by SBI bank. With respect to the fees SBI stands ahead

of ICCI because it has less processing fees and administrative charges. Interest rates offered by

ICICI are up to 11% whereas in case of SBI the loans are offered below 10%. SBI has an upper

hand over ICICI because the maximum limit is Rs. 5, 00, 00,000. By analyzing the home loan

schemes offered by both the banks SBI can be placed at a better position as compared to ICICI

because of the advantages stated above.

SURVEY

I had conducted a survey taking the sample size of 100 people including all groups of people. I

had done the survey at different places like Andheri station, Kandivli, Bhayander, Ghatkopar,

Lokhandwala, Borivali, Santacruz, Bandra, Dadar and other places considering all income

groups of people. The questionnaire of the survey in enclosed in the annexure.

It was a very good experience while conducting this survey. It developed a sense of confidence

and augmented the data collection skills within me. It enabled me to develop a skill of getting

primary data from the common people and then analyzing it and presenting it in a systemic

manner. Most importantly it made me think logically and practically and thereby improved my

research ability. The information collected is analyzed and represented below with all possible

diagrams.

ANAYLSIS

AWARENESS OF HOME LOAN

68

The survey indicates that nearly 95% of the people are aware about the Home loan facilities

offered by different banks. But there are still 5% of people who are not much educated and are

unaware about the different types of home loan facility. For this banks should also target their

lower income group while making the publicity of their home loan products and their should

also be a direct selling concept of marketing their product and by this banks can increase their

customer base by providing loan to this particular section of people by making them aware of it.

Security and comfort in life is a top priority for everyone. So everyone should be made aware of

this facility and enable them to take advantage of it for which banks and financial institutions

should take care of.

DEMAND FOR HOME LOANS

The survey conducted by me shows that 70% of the people want to pursue home loan facility in

the future if required. This shows there is an increase in the demand for home loans. The reason

behind this could be the boom in the home loan sector in India. The real estate boom has added

new dimensions to the housing finance sector. The new class of young buyers, whose

affordability are high, is spending a little more on paying Equated Monthly Installments (EMIs)

rather than spending huge amounts on the rents, thereby, owns a house. Hence the reasons for

the growth of the home loans market has been mainly fuelled by certain fiscal, social and

regulatory drivers such as:

69

Changes in demographic profile including increase in the rate of household formation due to

structural shift from joint family system to nuclear family

Ever increasing middle class, migration of population and increasing urbanization resulting

in acute shortage of housing units

Increase in disposable income levels due to decrease in marginal tax rates and increase in

total income levels

Tax benefits and other fiscal incentives announced in the Union Budgets thereby

encouraging the sector

Increasing affordability of housing property purchase due to declining interest rates and

stable property prices

Decline in the average house cost to annual income ratio to around 4-5 from 11-14 during

the last decade resulting in an affordable EMI as a percentage of monthly income

Aggressive lending by banks to the housing sector due to lower credit off take by the

corporate sector, attractive spread and lower non performing assets

PREFERENCE FOR TYPE OF HOME LOAN

According to the survey 42% of the people would prefer to take loan for home purchase, 33%

for purchasing land, 14% for home extension/improvement/renovation, while only 11% for other

type of loan. Due to the hike in the property rates the demand for loan for home purchase is

increasing and the same is so for the purchase of land property. Due to affordability factor and

less amount of money required for home extension or improvement or renovation people prefer

70

less to opt for loan for these purposes.The other type of loans such as Bridge Loans,

Balance Transfer, Refinance Loans, Home Conversion Loans, Stamp Duty Loans and Loans to

NRIs, are not much in demand.

PREFERENCE TO PRIVATE, PUBLIC SECTOR OR FOREIGN BANKS

As per the survey, 60% of the people preferred to go for public sector banks, 30% for private

sector banks while the remaining for foreign banks. In the booming home loan segment, it is the

public sector banks (PSBs) which are now having a clear-cut advantage over their private and

foreign counterparts. Some of the big PSBs, including State Bank of India, Bank of Baroda and

Canara Bank, are offering both fixed and floating home loan products almost 75-100 basis

points cheaper than private and foreign banks.

After the recent rate hike by the Reserve Bank of India (RBI), the private sector and foreign

banks like ICICI Bank and Standard Chartered have also raised rates to manage the rising cost

of funds. However, their public sector counterparts are yet to join the bandwagon and are

unlikely to react before the quarterly review of the RBI Annual Policy.

As a result, public sector banks, now following the same marketing model like the private sector

and foreign banks, are now offering competitive rates in home loan segments. To make life

further tough for the private and foreign banks, PSBs have beefed up their marketing campaign

to sell home loan products. For example, BoB has launched a pilot project in Mumbai, named

Project Parivartan, in which BoB officers are going door-to-door to sell home loans. This move

is probably for the first time that a public sector bank is going door-to-door to sell their products,

initiatives normally associated with private banks. Foreign Banks have recently started

71

concentrating on retailing sector particular in home loan sector in India so there is still a lot of

scope for them to catch the interest of the Indian borrowers. In case of public sector banks the

rise in home loan rate is not as steep as in the private sector.

PREFERENCE FOR FIXED OR FLOATING INTEREST RATES

Going by the trend, it should surprise no one if interest rates on home loans rise as a

consequence of the rising interest rate scenario. This being the case, home loan seekers

considers opting for a fixed rate loan (i.e. fixed for 3-5 years). This protects them from a

potential interest rate hike in the near term. At the end of the said 3-5 year term, they have the

option of considering either to continue with the 'fixed' rate (if interest rates continue to rise) or

migrate to a floating rate loan However, in case an individual does not have the risk appetite to

take the interest rate fluctuations in his stride, he may consider selecting the 'truly' fixed rate

loans. Such loans have a fixed rate throughout the tenure of the loan. However, if interest rates

were to decline going forward, the truly fixed rate loan will not reflect the fall in interest rates

and the consumer will forfeit any chance of benefiting from a decline in interest rates.

EFFECTS OF PROPERTY RATES HIKE ON HOME LOANS

The home loan sector has been drastically affected by the hike in the property rates. The

property prices have been rising and touching unprecedented heights. In fact so much so, that

property are again becoming out of reach of common man. Whether the price rise is justified or

is it just a manipulated bubble remains to be seen. Reserve Bank of India, in its policy

statements has time and again cautioned the banks to be extra cautious before taking exposure.

In fact RBI went to the extent of increasing the risk weight age of the housing loans. Reserve

Bank of India increased the risk weight on real estate exposure and hiked the risk weight for

lending to the real estate sector. The RBI has cautioned the banks to be extra careful while going

all out to fund and finance the real estate sector. According to reports, the property prices have

come to their saturation and there is little scope for further increases. The price hike has been

quite fast and unrealistic. The growth in infrastructure has not been able to keep pace with the

increase in property prices. Hence property rates hike have led to an increasing importance to

home loans but bankers have to be extra cautious on their part.

72

HOME LOAN PROCESS

According to the survey 25% of the people feel that home loan process is convenient. Maximum

number of people i.e. 75% says that the process is lengthy as banks requires time for processing

the loan application, verification of various documents, appraising the credit and other

formalities takes a longer time in sanctioning of the loan.

CONCLUSION

In view of its backward and forward linkages with other sectors of the economy,

housing finance in developing countries is seen as a social good. In India, growth of housing

finance segment has accelerated in recent years. Several supporting policy measures (like tax

benefits) and the supervisory incentives instituted had played a major role in this market.

The housing finance industry is getting increasingly commoditised. Competition within

the sector is ensuring that players offer consumers flexibility and features to choose from.

Features such as adjustable rate plans, lower processing fees/monthly rest/interest

rates/EMI/margin money, no pre- payment penalty have become common across the industry.

There is a growing trend among Banks and FIs to include the cost of registration, stamp duty,

society charges and other associated costs while sanctioning loans to differentiate and make the

home loans products more attractive. This has resulted in further lowering the threshold limit for

buying a house. For differentiation of their home loan products, banks are also resorting to

73

offering of free add-ons such as life insurance, credit cards and consumer loans at reduced rates

for furnishing the house.

Some of the major players in the housing finance industry have started organizing

property fairs, wherein the projects of different construction companies are brought together and

bundled with a lower than normal interest rate loan product. Such initiatives are expected to

result in a more organized housing market and more value for the customer. On the services

front the banks/ FIs have begun addressing concerns of borrowers through counseling and legal

advisory services on matters pertaining to property’s title, its technical evaluation, and its pricing

etc. Banks/ FIs have been upgrading their technology and investing in sophisticated systems for

sourcing, processing and managing information pertaining to home loan customers.

Housing credit has increased substantially over last few years, but from a very low base.

Thus, from miniscule amounts, the exposure of the banking sector to housing loans has gone up.

However, with growing competition in the housing finance market, there has been a growing

concern over its likely impact on the asset quality. While no immediate financial stability

concerns exist, there is a need to put in place appropriate risk management systems, strengthen

internal control procedures and also improve regulatory oversight in this area. Banks also need

to monitor their exposure and the credit quality. In a fiercely competitive market, there may be

some temptation to slacken the loan scrutiny procedures and this need to be severely checked.

ANNEXURE

74

I had visited ICICI Bank, Andheri (West) Branch on 28th August, 2007. There I interviewed Miss. Shubhangi Gaekwad, Assistant Manager of the bank. It was a very good experience interviewing her. Also she entertained me to the full extent and rendered full support by providing me with the relevant information in regards to the completion of this project.

BIBLIOGRAPHY

MAGAZINES

Professional Banker (The ICFAI University Press Release, June 2007 Publication)

BOOKS FOR REFERENCE

Merchant Banker by H. R. Suneja

OTHER SOURCES

Interview with Miss. Shubhangi Gaekwad (Assistant Manager), ICICI Bank, Andheri (West) Branch and Mrs. Mithila Jadhav (Chief Manager) SBI Bank, Andheri (East) Branch.

Brochures of ICICI Bank and SBI Bank.

75

WEBSITES

www.economictimes.com www.indiainfoline.com www.icicibank.com www.surfindia.com www.hindustanlinks.com www.myiris.com www.moneycontrol.com www.bankofindia.com www.hdfc.com www.sbi.co.in www.bankof baroda.com www.sundaramfinance.com www.harmonyindia.org www.obc.com www. sify.com

SEARCH ENGINES

www.google.com www.yahoo.com www.rediff.com

76