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. ! once in a lifetime investment needs a loan and that is how a home loan comes into the scheme of things in your life. !lmost 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. !ll 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

"he rationale of the study can be considered as follows# $t helps to improve research ability.

"he study enables to enhance the knowledge base regarding home loans and its various other aspects.

$t enables to think logically and practically.

"he study helps in development of skills of getting primary data.

$t leads to overall knowledge development

HYPOTHESIS
"he hypothesis being put forth for this study about home loans is that the awareness of home loans is %&&' 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
"he research methodology is data collection through (rimary )ources )econdary )ources

Primary Sources )urvey by distributing *uestionnaire to the people taking sample si+e of %&&. $nterviews conducted with bankers. Seco!"ary Sources ,ata collection through books maga+ines websites -ournals etc.

EXPECTED CONTRI#UTION
./pectations 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. $t will also specify some recommendations and based on that banks can make suitable arrangements in a particular sector. $t will also make people aware about the various home loan schemes and its various procedures and formalities.

INTRODUCTION
Banking system in the world has emerged many centuries ago and in $ndia it rooted its seed with the e/istence of the 1eneral Bank of $ndia in the year %234. $n earlier days banks were the 5inancial $nstitutions 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. "o own a house is every man6s desire. But more than that shelter is a basic human need ne/t only to food and clothing in importance. Yet every year more and more people continue to be added to the category of homeless. "hough a basic need of all a significant section of the society is severely handicapped in getting shelter at affordable cost. "his need for housing finance for individuals was only fulfilled with the advent of 7ational Housing Bank (7HB) Housing and 8rban ,evelopment 9orporation (H8,9O) Housing ,evelopment 5inance 9orporation etc and most particularly with the entry of commercial banks in the housing finance sector. $n "une 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 :eserve Bank guidelines housing finance is part of priority sector lending schemes for banks. "here has been progressive increase in housing finance disbursed by commercial banks since %;2;.

"he housing finance industry is getting increasingly commoditised. 9ompetition within the sector is ensuring that players offer consumers fle/ibility and features to choose from. 5eatures such as ad-ustable rate plans lower processing fees<monthly rest<interest rates<.=$<margin money no pre- payment penalty have become common across the industry. "here is a growing trend among Banks and 5$s 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. "his has resulted in further lowering the threshold limit for buying a house.

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TYPES OF LOANS
?oan refers to a sum of money borrowed at a particular interest rate. =ore generally it refers to anything given on condition of its return or repayment of its e*uivalent. ! loan may be acknowledged by a bond a promissory note or a mere oral promise to repay. Banks grants > types of loans which are as follows# 9ommercial loans or $ndustrial loans 9onsumer loans and =ortgage loans $% Commercia& &oa!s 9ommercial loans are mainly provided to the business and industrial firms. "hese can be divided into# S'or( (erm &oa!s )hort term loans are mainly given for a period up to % year and usually granted to the business and industrial firms to meet the working capital re*uirements. 5or e.g.# 9ash credit Bank overdraft etc. (loans to finance the purchase of material or labour) Lo!) (erm &oa!s ?ong term loans are granted for a period above @ years and are granted to meet capital e/penditure. 5or e.g. pro-ect finance .ducation loan etc. (loans to purchase machinery and e*uipments). =ost commercial bank offers a variable interest rate on these loans which means that the interest rate can change over the course of loan. )anction 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.

*% Co!sumer Loa!s One of the important areas of bank financing in recent years is towards purchase of consumer durables like "A sets Bashing =achines etc. Banks also provide liberal car finance. "hese 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. 5urther bank6s interest rate is also higher. 5or e.g. Housing ?oan =edical ?oan 9ar ?oan .ducation ?oan.

"here are two types of consumer loans# C&ose" e!"e" cre"i( 9losed ended loan are for fi/ed period of time fi/ed amount of loan but not for a fi/ed purpose. "he items purchased by the consumer serve as collateral for the loan. O+e! e!"e" cre"i( Open ended loan are for variable amount of money and it does not re*uire the borrower to specify the purpose of the loan. 5or e.g. 9redit cards. =ost open ended loans carry fi/ed interest rate and it re*uires no collateral but interest or other penalties or fees may be charged. Open end credit interest rates usually e/ceed close end rate because open end loans are not backed by collateral. ,% Mor()a)e &oa!s "hese are usually long term loans and the interest rates charged can be either a variable or a fi/ed rate for the term of the loan which often ranges from %@- >& years. "hese loans are used to purchase land or building such as household and factories which serves as the collateral for the loan.

C&assi-ica(io! o- Loa!s
?oans given by bankers can also be classified broadly into the following categories on the basis of security# $. C&ea! Loa!s !dvances for which are given on the personal security of the debtor for which no tangible or collateral security is takenD 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. *. Secure" Loa!s ?oans 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

The sun at home warms better than sun elsewhere.
"rue isn6t it where else do you find that comfort that makes you feel so special everyday. 8ndoubtedly owning a house is the most important phase in ones life. 7ot 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 oneEs head. =any think it is an e/pensive affair and beyond reach. Bell that6s not always true. $t 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 today6s time various banks are lending a helping hand to the people to purchase their dream house. "hus people look forward towards choosing a
home loan.

"he primary concern of a housing finance company is to

determine the loan amount that the borrower is comfortably able to repay. "he most popular method of financing a home purchase is with a mortgage. "his is a loan that is secured over the home. "here are a number of different mortgage suppliers and people will have to shop around in order to get the best deal. Home ?oan is one of the fastest growing retail and mass banking area. $t forms an important part of the country6s priority in @ year plans. !lmost 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. !ll 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 $ndians as well as non-resident $ndians. "he 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

Home ?oans are the consumer loans. Home loans are long term loans provided by various banks. "hese are large amount loans which provide financial support to the people who want to purchase their dream home. Home loans are secured loans. "he borrowers get to own their dream home and pay for it in easy and affordable installments. Banks and 5inancial $nstitutions offers home loans at cost-effective rates. "a/ concessions make home loans more attractive than other loan products. "he borrowers can get ta/ deduction on repayment of the principal amount of a loan taken to buy or construct a house. "he interest paid on a loan is deductible from Eincome from propertyE even if it has not been paid during the year. $nterest paid on a new loan taken to repay the original housing loan is also allowed as deduction.

TYPES OF HOME LOANS

?ending institutions like banks offer different types of home loans for a wide gamut of housing activities. )ome of the popular home loans are# Home Purc'ase Loa!s "here are the basic home loans for the purchase of a new home. Home Im+ro/eme!( Loa!s "hese loans are given for implementing repair works and renovations in a home that has already been purchased by the borrower. Home Co!s(ruc(io! Loa!s "hese loans are available for the construction of a new home. Home E0(e!sio! Loa!s "hese are given for e/panding or e/tending an e/isting home. 5or e/ample addition of an e/tra room etc. La!" Purc'ase Loa!s "hese loans are available for purchase of land for both home construction or investment purposes. #ri")e Loa!s Bridge ?oans are designed for people who wish to sell the e/isting home and purchase another. "he bridge loan helps finance the new home until a buyer is found for the old home. #a&a!ce Tra!s-er Balance "ransfer loans help the borrower to pay off an e/isting home loan and avail the option of a loan with a lower rate of interest. Re-i!a!ce Loa!s "hese 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 Co!/ersio! Loa!s "hese 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 e/tra finances are re*uired. $n Home 9onversion ?oan the e/isting loan is transferred to new home including the e/tra amount re*uired eliminating need for pre-payment of the previous loan. S(am+ Du(y Loa!s "hese loans are sanctioned to pay the stamp duty amount that needs to be paid on the purchase of property.

Loa!s (o NRIs "hese loans are given to the 7:$6s to build<buy a home in $ndia. .=$ is payable till the loan is paid back in full. $t consists of a portion of the interest as well as the principal.

#ENEFITS OF HOME LOANS TO #ORRO1ERS

5ood clothing shelter -- these are the basic needs of every individual. But to most owning a home is -ust a dream. "he real estate boom and steadily rising capital values are now making it ne/t 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. =any builders have tie-ups with banks or financial institutions so that prospective buyers are assured of housing loans without any hassles. "aking 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. "he other is that the borrowers get several benefits under the $ncome "a/ !ct. TAX #ENEFITS $% For Resi"e!( I!"ia!s "here are certain ta/ benefits for the resident $ndians based on the principal and interest component of a loan under the $ncome "a/ !ct %;4%. $t may help one get ta/ benefit up to :s. @& C;& p.a. (appro/) if interest repayment of :s. % @& &&& p.a. is paid. $n addition to this one also is eligible for getting ta/ benefits under section 3&9 on repayment of :s. % && &&& p.a. that further reduces the ta/ liability by :s.>>.44& p.a. "hese deductions are available to assesses who have taken a loan to either buy or build a house under )ection 0C(b). However interest on borrowed capital is deductible up to :s. %@& &&& if the following conditions are fulfilled#

9apital is borrowed for ac*uiring or constructing a property on or after !pril % %;;;. "he ac*uisition and construction should be completed within > years from the end of the financial year in which capital was borrowed. "he person e/tending the loan certifies that such interest is payable in respect of the amount advanced for ac*uisition or construction of the house.

! loan for refinance of the principle amount outstanding under an earlier loan taken for such ac*uisition or construction.

$f the conditions stated above are not fulfilled then the interest on borrowed capital is deductible up to :s >& &&& though the following conditions have to be satisfied#

9apital is borrowed before !pril % %;;; for purchase construction reconstruction repairs or renewal of a house property. 9apital should be borrowed on or after !pril % %;;; for reconstruction repairs or renewals of a house property. $f the capital is borrowed on or after !pril % %;;; but construction is not completed within > years from the end of the year in which capital is borrowed.

$n addition to the above principal repayment of the loan<capital borrowed is eligible for a deduction of up to :s %&& &&& under )ection 3&9 from assessment year 0&&4-&2. Terms a!" co!"i(io!s -or a/ai&i!) Ta0 2e!e-i(s o! Home Loa!s %. "a/ deductions can be claimed on housing loan interest payments sub-ect to an upper limit of :s %@& &&& for a financial year. 0. !n additional loan for e/tension<improvement to the same house and the individualEs deductions on the e/isting loan are less than :s %@& &&&D he can claim further benefits from the additional loan taken sub-ect to the upper limit of :s %@& &&& for a financial year. >. "a/ benefits under )ection 0C and deduction under section 3&9 of the $ncome "a/ !ct can be claimed only when the payment is made. $f an individual fails to make .=$ payments he cannot claim ta/ benefits for the same. C. !ccording to the $ncome "a/ !ct ta/ rebates can only be claimed by the loan applicant. @. "he interest on home loans taken for repairs renewals or reconstruction also *ualifies for the deduction of :s %@& &&&. 4. ! husband and wife both of whom are ta/-payers with independent income sources get ta/ deduction benefits with respect to the same housing loanD to the e/tent of the amount of loan taken in their own respective name. 2. $f an individual buys a house and sells it within the same year or after > years and if any profit is made then a capital gains ta/ liability arises on the same for which the individual is liable to pay short-term capital gains ta/ since the sale took place in the same year. But in

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case if the sale had taken place after > years then a long-term capital gains ta/ liability would have arisen. 3. 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 ta/ benefits then ta/ benefits will not be allowed and benefits previously claimed will be clubbed to the income and ta/ed accordingly. "a/ benefits on interest on housing loans are allowable only for the original loan and according to )ection 0C (%) ta/ benefits can also be availed for a second loan taken to repay the first loan but not for subse*uent loans. "his 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 ta/ rebate on interest payments will not be permissible.

*% For No!3 Resi"e!( I!"ia!s 7:$s cannot claim ta/ benefits on home loans in $ndia as they have to pay ta/ in the nation where they work and earn. =oreover the borrowers need to file ta/ returns to become eligible for home loans. However if they pay ta/ in $ndia for income earned in $ndia they can claim ta/ rebate for the home loan.

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STEPS IN PLANNING FOR A HOME LOAN

A% PURPOSE "he first step in planning for a home loan is to find out the purpose for which one is planning to take the loan. ,epending on the borrowers re*uirements home loans can be taken for a variety 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 e/panding or e/tending an e/isting 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. #% SELECTION OF A PARTICULAR HOME LOAN "he selection of a particular home loan depends on the affordability position of the borrower. Bhat kind of home one can afford is more often than not a function of how much<the ma/imum one can borrowF Ho4 muc' o!e ca! a--or"5 ('e ma0imum o!e ca! 2orro4 Banks follow a thumb rule while deciding the ma/imum a person can borrow# the monthly repayment on the loan should not be more than C& per cent of the net monthly income. "his ratio is called the $ncome to $nstallment ratio or $$:. )ome lenders may even be more conservative. One could e/pect to be allowed to borrow an even lower figure if they consider an $$: of as low as >& per cent of the net monthly income. "hey finance a certain portion of the property value typically 2@-3@ per cent. "he rest is the borrowers6 contribution usually called the down payment or the margin and has to come out of his (borrower6s) own resources. Do4! +ayme!( !nother important determinant of the value of the house one can afford is how much the borrower has saved up. )ince banks only finance between 2@ and 3@ 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 sub-ect to the limit on how much one can repay every month as determined by the $$:. C% FINDING OUT COST OF THE HOUSE

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Buying a home involves many financial considerations. )ome home buying e/penses are onetime costs and others are ongoing commitments. $n 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 e/penses that the borrowers need to keep in mind when purchasing a home. Home 2uyi!) cos(s T'e Do4! Payme!( ! minimum down payment of %@' is re*uired for a 7ormal Housing loan. "he government offers "a/ incentives for homebuyers. T'e Payme!( ! Home ?oan )ecurity is security for a loan on the property the borrower own. $t is repaid in regular monthly payments which are combined payments. "his means that the payment includes the principal (amount borrowed) plus the interest (the charge for borrowing money). C'ec6&is( o- A""i(io!a& E0+e!ses !dditional e/penses need to be incurred after one has moved in. Mai!(e!a!ce cos(s "hese costs are incurred to cover the costs of anticipated or une/pected repairs or replacement of such things as the painting or household appliances. Re!o/a(io! a!" re+airs cos(s "hese costs are incurred in cases where the need arises to repair the house. ! home inspection may indicate that the home needs ma-or structural repairs. Pro+er(y (a0es# (roperty ta/es are always a certainty and needs to be taken into account when one plans to purchase a home. Pro+er(y i!sura!ce# $t is imperative for the borrowers to take insurance of the house they plan to purchase. !dditional e/penses go into insuring the house like premium e/penses legal e/penses etc. Ser/ice c'ar)es# "his includes the service charges levied by the banks and financial institutions for processing the loan application. La4yer 7!o(ary% -ees# .ven a straightforward home purchase re*uires a lawyer to review the Offer to (urchase search the title draw up mortgage documents and tend to the closing details. %>

?awyers fees for a Housing loan and purchase range widely depending on the comple/ity of the deal but will probably be at least :s.@&&. Mo/i!) cos(s# "his refers to the e/penses incurred when one moves from one home to another for e/ample e/penses incurred for hiring a truck.. O('er Cos(s "his is a list of possible e/tra costs involved in buying a home. )ome of them are one-time costs and others such as maintenance fees and property insurance will be ongoing monthly e/penses. D% SELECTION OF THE MOST SUITA#LE #AN8 9hoosing the most suitable bank is a crucial stage in the home loan process. $t 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. !fter 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. .valuation of the lenders can be done on the basis of the following factors# Ra(e o- i!(eres( "his is where it all begins. !lthough 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@ to &.@& percentage points and more so if the borrowers profile happens to match the re*uirements of the bank. "he lowering of interest rate has a significant impact over the long term although the difference is not so noticeable over the near term. 9are needs to be taken to ensure that the difference is not being offset elsewhere by the bank under the guise of other GchargesE. To(a& -i!a!ci!) cos( "his measure *uantifies what the loan really costs. $t not only incorporates interest cost but also combines the other costs such as processing fees and other administrative charges collected by lenders upfront. ?ooking for a bank not -ust with the lowest interest rate but the lowest total financing cost can help one in opting for the best deals. Na(io!a& +rese!ce "he bank should be present across the country or at least have branches in all ma-or metros and towns. "his assumes importance if the current -ob of an individual is of a

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transferable nature (e.g. bank -obs defence personnel) or if he needs to make long and fre*uent outstation visits (e.g. consultants businessmen). "he individual shouldnEt be put through the hassle of couriering his che*ues to the resident branch every time or contacting the resident branch each time he has a difficulty or a *uery. )o it helps if the bank is well networked across the country. Pre+ayme!(5Forec&osure 2e!e-i(s 5or many individuals this plays a significant role in their decision to go in for a particular bank. 5or e/ample many salaried individuals know for a fact that their salaries would be revised every year. "his means that they can pay a higher .=$ going forward. )ome 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). )ome 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. Ca&cu&a(io! o- ('e e0ac( 'ome &oa! amou!( Here the banks differ in their calculation of the loan amount to be disbursed. )ome banks calculate the amount to be disbursed on the basis of say the gross salary while some banks calculate it on the net salary. "his might make a difference to individuals as the loan amount and the .=$ 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. E0(e!( o- -u!"i!) )ome banks fund only 4& to 2@ per cent of the property value while others fund higher amounts. $f the amount of down payment one have saved up is not enough this factor may tilt one lenderEs loan in ones6 favour. F&e0i2i&i(y o- re+ayme!( +&a!s. )ome banks offers fle/ibility in terms of repayment. "hey could have either have E)tep-upE plans in which the .=$ is stepped up as the tenure increases (suitable for young borrowers -ust starting their careers) or repayment plans that allow the borrower to load payments upfront (suitable for borrowers who are close to retirement). !lso some banks allow borrowers to fi/ the monthly payment themselves especially when they take a loan far lower than what they are eligible for and where repayments are very comfortable. $n such a case the borrower himself can fi/ the loan tenure. $f the profile fits one of these cases one can consider a bank who allows such fle/ibility.

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Pro+er(y c'arac(eris(ics )ome banks are wary about financing flats that are old (more than >& years). )o it is important to check whether the bank will finance such a property. !lso very few banks lend against properties that are sold by holders of power of attorney on a property rather than owners. Co&&a(era& Housing loans are already backed by collateral - the house being financed. $n addition to this some banks ask for collateral such as life insurance policies and fi/ed deposits. )ince there are banks who will not ask for such collateral and it is not particularly necessary to cough up e/tra collateral especially if the credit is good one can look for a bank that does not ask for such collateral. Ser/ice )ome banks offer some e/tra services that make the loan process a whole lot easier. "hey come to the applicant6s home and get the application form filled by himD they drop the disbursed check to the home or office of the borrower. Bhen there is a tie-up with the employer of the borrower the process becomes a whole lot easier. O('er -ac(ors Other factors like documentation processing fees document storage facilities and several other factors can be considered. $t 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. 5or e/ample individuals do not like it if the documentation is an irksome process or if the processing fees are e/orbitant.

E% FOLLO1 UP 1ITH #AN89S PROCEEDS

!fter 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 applicant6s e/planations during the interview. "he 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. $f the loan officer has some *ueries more documents and more e/planations may be needed. Based on the finding of the credit evaluation a loan amount is determined and sanctioned. ! sanction letter is then sent to the applicant who generally contains a disbursal plan.

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POINTS TO REMEM#ER A#OUT A HOME LOAN

$% T'e mo!('&y i!s(a&&me!( or ('e EMI. "he housing loan is normally repaid by a monthly installment. 8sually the monthly installment is an .=$ (e*uated monthly installment) an e*ual amount that if paid every month over the tenure of the loan results in fully paying off the loan taken. (art 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. (rincipal repaid in the previous month is reduced from outstanding principal amount every month. $nterest is calculated in the above fashion on reducing principal. !t the end of the loan tenure the principal reduces to +ero. *% T'e &oa! (e!ure ?onger 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 .*uated =onthly $nstallments (.=$) is important to know how much one is e/pected to pay and whether the borrower have the capacity to pay that in time. ,% Ho4 is ('e !e( mo!('&y i!come ca&cu&a(e" 5or a salaried individual the net monthly income is calculated as salary minus all the statutory deductions. )tatutory deductions are items like insurance premiums ta/ deductions (5 contributions which have to be deducted from the salary of an individual. $n case of self-employed person lenders look for cash earnings. "herefore they add a portion of the depreciation claimed by the applicant to the applicant6s annual net profit. "his divided by %0 gives the net monthly income for a self-employed person. 7ot all lenders consider depreciation though. )o 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. :% Mo!('&y5A!!ua& re+ayme!(s $t is important to know whether interest is being calculated on monthly rests or annual rests. "he 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 happenF "he answer lies in a small but important difference in the manner in

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which principal repaid by the borrower as part of the monthly installment is accounted for by the bank. $n case of monthly rests principal repaid in the previous month is reduced from the outstanding principal amount every month. $nterest 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 accounted for at the end of every month but only credited at the end of the year. "his results in more payment of interest by the borrower. $f one bank *uotes interest on annual rests basis and another *uotes on monthly rests basis even if the interest rate is the same effectively the annual rests rate in monthly reducing terms would be higher. )o when banks give a rate of interest asking them the method of computation would be helpful. ;% Fi0e" or -&oa(i!) ra(e o- i!(eres( "he borrowers are often faced with a choice between whether the loan should be at a fi/ed rate or a floating rate. "here are advantages to both. ! fi/ed 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. "he right time to pick a fi/ed rate loan is at the bottom of the interest rate cycle form where it looks like the rates have only one way to go. !nd 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. <% To(a& -i!a!ci!) cos(s !part from knowing how the interest rate is calculated it is important to understand the impact of processing and administrative costs on the loan cost. "hey add to the costs as they have to be paid upfront. "he total financing cost determines what the loan really costs the borrower. Hence a thorough study of the total costs is important. =% Co3a++&ica!( )ometimes the income of the borrower may not be enough to secure the loan amount re*uired by him. $n that case one can consider applying for the loan with a co-applicant. 9lubbing a co-applicant6s income and applying -ointly can help get one a higher loan amount. Bhen property is -ointly owned most banks insist that -oint owners have to be co-applicants for a loan against such a property. !lso sometimes the loan officer might have a view that the borrower doesn6t 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 applicant6s income. $n that case clubbing a co-applicant6s income might -ust put that loan within one6s reach.

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>% Ta0 a"/a!(a)es

! housing loan comes with some ta/ benefits. "hese benefits further

reduce the cost of the borrowing. "here are two heads under which a borrower can claim ta/ benefits. One is an e/emption for interest paid on a housing loan. "his e/emption is available up to an interest paid of :s % lakh per year. !nd the other is a 0& per cent rebate on principal repaid in the year sub-ect to a ma/imum rebate of :s C &&&. "hat is a 0& per cent rebate is available on a ma/imum principal repaid of :s 0& &&&. ?% I"e!(i-ica(io! o- ('e +ro+er(y $t is not always necessary for the property to be identified the application process for the loan starts. $n fact both the processes can be conducted simultaneously. Bhen the borrower is clear about the value of the property to be financed and have +eroed in on the bank he can get a pre-approval on the loan. "he loan pre-approval is a process where the bank conducts the credit evaluation and sanctions a loan amount for which the borrower is eligible. "he sanction is generally valid for si/ months during which period the borrower has to identify the property and e/ecute the property documentsD the payment will be released after this. (re-approval saves time and improves the bargaining position with the seller. $@% Pre3+ayme!( "i&emma $f the borrower decides to repay the loan before the stipulated period he will be pre-paying the loan. 5ew banks charge a &.@-0' of the amount the borrower is pre-paying as pre-payment penalty. )ome banks donEt have a pre-payment penalty provided the borrower is not paying off the entire loan amount. "hat means when the loan is pre paid partlyD there may not be any penalty or charges. "herefore it is advisable to borrow from a bank wherever the pre-payment clause or ?oan :edemption charge is not harsh.

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TIPS 1HILE #UYING 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'i&e 2uyi!) a -&a( -rom a +romo(er or 2ui&"er a% 1i(' res+ec( (o ('e &oca(io! i. ! proper check should be done for proper approach roads. ii. One should ensure secured electricity and water connections iii. .nsuring that well laid out drainage sewerage and garbage disposal arrangements have been made. iv. 9hecking out whether there is any pollution due to industries etc. in the area v. finding out the level of developmental activities of the area - ade*uate public transport facilities and other vital amenities like educational institutions hospitals and shopping avenues 2% 1i(' res+ec( (o a++ro/a&s i. One should check if the builder<promoter has been granted documented approvals from =unicipal 9orporation !rea ,evelopment !uthorities .lectricity Boards Bater )upply H )ewerage Boards !irport !rea !uthorities etc ii. 9hecking out if the builder<promoter has secured approvals from (ollution 9ontrol Boards !griculture H 5orest !uthorities c% 1i(' res+ec( (o ('e +ro+er(y

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i. 9hecking out for proper ,evelopment !greements and the authority for conveyance of title in favour of builder<promoter ii. Obtaining a clear and marketable title of the property iii. .nsuring e/ecution of proper sale agreements on the initial payments iv. Having a look at the sanctioned plan v. :egistration of the property vi. Aerification of the plinth and carpet area of the property "% 1i(' res+ec( (o ame!i(ies i. Aerification of the specifications given by the builder regarding including *uality of construction and availability of drinking and potable water have been delivered ii. !ssessment of the natural lighting ventilation water connection H sanitary connection status of the prospective property iii. 9hecking up the common service area charged and their reasonability *% 1'i&e 2uyi!) a -&a( -rom a seco!" o4!er a% 1i(' res+ec( (o ('e &oca(io! i. 9hecking for proper approach roads ii. 9hecking for electricity and municipal water connections iii. 5inding out whether well laid out drainage sewerage and garbage disposal arrangements are made iv. 5inding out whether there is pollution due to industries etc in the area v. 9hecking for the developmental activities of the area vi. (ublic transport facilities in the area

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vii. 9hecking for educational institutions hospitals shopping avenues nearby green belts H rainwater drainage

2% 1i(' res+ec( (o a++ro/a&s ,ocumented approvals from 9ity 9orporation !rea ,evelopment !uthorities .lectricity Boards and Bater )upply H )ewerage Boards c% 1i(' res+ec( (o ('e +ro+er(y i. "itle deeds of the vendor of the property ii. (revious title deeds covering a period of %> years iii. )anctioned plan iv. .ncumbrance certificate for the past %> years v. 8pto-date ta/ paid receipts vi. Aaluation of the property from a registered valuer vii. 9hecking out if the flat<apartment is free from tenancy viii. :egistration of the property "% 1i(' res+ec( (o ame!i(ies i. 9hecking for the condition of the building and the future life e/pectancy ii. 5inding out whether drinking water is available iii. 9hecking for natural lighting ventilation water connection H sanitary connection ,% 1'i&e 2uyi!) a! i!"e+e!"e!( 'ouse -rom a +romo(er5 2ui&"er a% 1i(' res+ec( (o ('e &oca(io!

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i. 9hecking for proper approach roads ii. 9hecking for electricity connections iii. 5inding out whether municipal water connections are present iv. 5inding out whether there is well laid out drainage sewerage and garbage disposal arrangement made v. 5inding out whether there is pollution due to industries etc in the area vi. 9hecking for the developmental activities of the area vii. 5inding out the availability of public transport facilities in the area viii. 9heck for educational institutions hospitals shopping avenues nearby green belts H rainwater drainage 2% 1i(' res+ec( (o a++ro/a&s 9hecking out if necessary approvals from 9ity 9orporation !rea ,evelopment !uthorities .lectricity Boards Bater )upply H )ewerage Boards and !irport !rea !uthorities have been obtained c% 1i(' res+ec( (o ('e +ro+er(y i. )ale deed of the vendor of the property ii. 9lear H marketable title of the property iii. )anctioned plan iv. .ncumbrance certificate for the past %> years v. 8pto-date ta/ paid receipts vi. Aaluation of the property from a registered valuer vii. :egistration of the property

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viii. 9hecking out the plinth area and the carpet area of the apartment i/. .nsuring that the price being paid for the flat including the common service area is reasonable "% 1i(' res+ec( (o ame!i(ies i. 9hecking for the condition of the building and the future life e/pectancy ii. 5inding out whether drinking water is available iii. 9hecking for natural lighting ventilation water connection H sanitary connection

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FAIR PRACTICES CODE TO #E FOLLO1ED #Y #AN8ERS 1HILE GIVING HOME LOANS

Bith a view to setting out fair lending practices in a transparent manner the :B$ has advised Banks and 5inancial $nstitutions (5$s) to adopt the following as ?enders6 5air (ractices 9ode. "he 5air (ractices code applies to the following areas# A% A++&ica(io!s -or &oa!s a!" ('eir +rocessi!) %) )tandard 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. ?ikewise 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. 0) :eceipt of completed application should be duly acknowledged. >) "he acknowledgement should also include the appro/imate date by which the applicant should call on the Bank for preliminary discussions if deemed necessary. C) !ll 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 re*uisite information<papers. @) $n case of re-ection 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 re-ection of the loan application. "he time frame for conveying the reason<s of re-ection should be as per the )chedules. #% Loa! a++raisa& a!" (erms5co!"i(io!s

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%) $n accordance with Bank6s prescribed risk based assessment procedures each loan application should be assessed and suitable margin<securities should be stipulated based on such risk assessment and Bank6s e/tant guidelines however without compromising on due diligence. 0) "he sanction of credit limit along with the terms and conditions thereof is to be conveyed to the loan applicant in writing and applicant6s acceptance of such terms and conditions should be obtained in writing. )uch terms and conditions as have been mutually agreed upon between the bank and borrower prior to the sanction will only be stipulated. >) 9opy of loan documents along with a copy of all relevant enclosures should be made available to the loan applicant on specific re*uest. )tandard sanction letter would include instances of approval disallowance etc. "he bank is under no legal obligation to consider increase<additional limits<facilities without proper review<assessment. C) $n case of lending under consortium arrangement the participating banks would decide the timeframe to complete appraisal of the proposal and communication of the decision. "he Bank will abide by the decision of the consortium. C% Dis2urseme!( o- &oa!s i!c&u"i!) c'a!)es i! (erms a!" co!"i(io!s %) ,isbursement of loans sanctioned is to be made immediately on total compliance of terms and conditions including e/ecution of loan documents governing such sanction. 0) !ny 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 (ublic 7otice<display on 7otice Board at the branches<on the Bank6s website<through (rint and or other =edia from time to time. >) 9hanges in interest rates and service charges should be effected prospectively. C) 9onse*uent upon such changes any supplemental deeds documents or writings are re*uired to be e/ecuted the same shall also be advised. 5urther availability of facility will be sub-ect to e/ecution of such deeds documents or writings. D% Pos( "is2urseme!( su+er/isio!

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%) (ost disbursement supervision by Banks< 5$s particularly in respect of loans upto :s. 0 lacs should be constructive with a view to taking care of any genuine difficulties that the borrower may face. 0) Before taking a decision to recall<accelerate payment or performance under the agreement or seeking additional securities the ?enders should give reasonable notice to the borrower. >) !ll securities pertaining to the loan should be released by Banks< 5$s on receipt of full and final payment of the loans sub-ect to any legitimate right or lien and set off for any other claim that the Bank< 5inancial $nstitution may have against the borrowers. $f such right is to be e/ercised borrowers should be given due and proper notice with re*uisite details. E% O('er )e!era& )ui"e&i!es %) "he Banks< 5$s should refrain from interference in the affairs of the borrower e/cept 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 Bank6s right of recovery and enforcement of security under ?aw as well as appointment of nominee directors where re*uired is affected by this commitment. 0) Bhile lending Banks< 5$s should not discriminate on the grounds of gender caste or religion in its lending policy and activity. >) $n the case of recovery Banks< 5$s should resort to the usual measures as per laid down guidelines and e/tant provisions and should operate within the legal framework. C) 5or the purpose of recovering loans Banks< 5$s should have a =odel (olicy on 9ode for 9ollection of ,ues and :epossession of )ecurity. "hey should not resort to undue harassment vi+. persistently bothering the borrowers at odd hours use of muscle power etc. @) $n case of re*uest for transfer of borrowal accounts either from the borrower or from a Bank<5$ the Bank6s consent or otherwise should be conveyed within a stipulated period from the date of receipt of re*uest. 4) "he Branch Officials should immediately take up the matter for redressal in case of any complaint<grievance from the applicant<borrowers.

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2) $n 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.

COMMITMENTS AND RESPONSI#ILITIES ON THE PART OF THE #AN8ERS

%. "he banks< 5$s should assure that they shall act fairly and reasonably in all their dealings with the customers on ethical principles of integrity and transparency in respect of services they offer and in the procedures and practices their staff follow and make sure the products and services meet relevant laws and regulations. 0. "he banks< 5$s shall help the borrowers to understand how the financial products and services work by giving information about them. "hey shall also provide the operational guidelines for 1ovt. accounts like ((5 < pension etc. "he salient features of the products < services including the financial implications should be highlighted in the product profile. >. Before people becomes a customer the banks< 5$s shall give clear information e/plaining the key features of the services and products which the people are interested in and give the information on any type of account facility which they have to offer. C. "he banks< 5$s 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 re*uirements and re*uest for additional information about them their business< profession and their family. "he Bank before opening any deposit account shall carry out due diligence as re*uired under IJnow Your 9ustomerI (JY9) guidelines issued by :B$ and or such other norms or procedures adopted by the Bank. "his 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. $n addition to the due diligence re*uirements under JY9 norms the Bank is re*uired by law to obtain (ermanent !ccount 7umber ((!7) or 1eneral $nde/ :egister (1$:) 7umber or alternatively declaration in 5orm 7o. 4& or 4% as specified under the $ncome "a/ !ct < :ules.

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$f the decision to open an account of a prospective depositor re*uires clearance at a higher level reasons for any delay in opening of the account shall be informed and the final decision of the Bank shall be conveyed at the earliest. @. "he banks< 5$s shall give upfront details of any interest and< or charges applicable to the products chosen by the borrowers. 4. "he banks< 5$s shall seek specific consent of the borrowers for giving details of their names addressess etc. to any third party including other entities in their group for marketing purposes. 2. "he banks< 5$s shall make sure that all advertising and promotional material is clear fair reasonable and not misleading. 3. "o help manage their account and check entries on it the banks< 5$s shall give the borrowers their account statements at regular intervals or (ass Book for the type of account they have. ;. "he banks< 5$s 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. %&. "he banks< 5$s shall keep original che*ues paid from the customer6s account or copies for such periods as re*uired by law. $f within a reasonable period after the entry has been made on their statement there is a dispute about a che*ue paid from their account the lenders< financial institutions shall provide the customers with the necessary information for evidence -sub-ect to a possible charge for the same. %%. $n the event the che*ue book passbook or !"=<,ebit card has been lost or stolen or that someone else knows the customer6s ($7 ((ersonal $dentification 7umber) or other security information the banks< 5$s shall on notification take immediate steps to try to prevent these from being misused. %0. "he customer information collected from the customers shall not be used for cross selling of services or products among the banks their subsidiaries or affiliates. "he banks< 5$s shall treat all the personal information of their customers as private and confidential (even when they are no longer their customer) including entities in their group other than in the following four e/ceptional circumstances for which the banks< 5$s are permitted to do so #a. $f they (i.e. the banks< 5$s) have to give the information by law. b. $f there is a duty to the public to reveal the information in the interest of the public at large.

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c. $f their interests re*uire them to give the information (for e/ample to prevent fraud) but the banks< 5$s 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. d. $f the customers asks the banks< 5$s to reveal the information or if the banks< 5$s have the customers6 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

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Home loan procedure caters to processes right from the time the customer walks into the bank with a re*uest for home loan till the time the loan is finally repaid by the customer. "he three ma-or phases in the home loan procedure are the information ac*uisition credit appraisal and sanction and disbursement. "racking 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< 5inancial $nstitution. "he procedure for availing a home loan can be e/plained with the help of the following flow chart#
Su2missio! o- a++&ica(io! -orm Perso!a& Discussio! 4i(' cus(omer Fie&" I!/es(i)a(io! 2y ('e 2a!65FI Cre"i( A++raisa& a!" &oa! sa!c(io! Issue o- o--er &e((er (o ('e cus(omer Su2missio! o- +ro+er(y 5 &e)a& "ocume!(s

Le)a& c'ec6 o! ('e +ro+er(y 2y ('e 2a!6 Tec'!ica& c'ec6 o! ('e +ro+er(y 2y ('e 2a!6 Dis2urseme!( Re+ayme!( I!(eres( (a0 cer(i-ica(e Pre+ayme!( 2y ('e cus(omer

A. Su2missio! o- a++&ica(io! -orm "he application is submitted along with photographs credit documents and a che*ue for processing documentation and administration fees by the

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customer. "he credit documents comprise documents to establish income age residence employment investments etc. ,uring this stage the bank<financial institution checks the repayment capacity of the customer. "he repayment capacity is determined by taking into consideration factors such as income age *ualifications number of dependants spouseEs income assets liabilities stability and continuity of occupation and savings history. #. Perso!a& Discussio! 4i(' cus(omer )ome banks<5$s re*uire the customer be present at the time of the credit appraisal. )ome banks<5$s 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. 5or the personal discussion the customer needs to take with him all documents pertaining to the information provided by him on the application form. C. Fie&" I!/es(i)a(io! 2y ('e 2a!65FI "he bank<5$ validates information

provided by the customer on the application form. "his stage revolves around two key aspects. 9ritically appraising the credit worthiness of the customer and analy+ing the risk in lending. $t is necessary to capture all the information re*uired to cater to these aspects. $t is important to verify that the information supplied by the customer is correct and authentic. Banks achieve this mostly through e/ternal agencies. !lso 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. "o minimi+e the risk it is necessary to check that the customer is not a fraud or black listed within the bank or other institutions. D. Cre"i( A++raisa& a!" &oa! sa!c(io! "he ne/t phase in the home loan process is the credit appraisal and loan sanction. !fter
checking

the customerEs repayment capacity the bank<5$ sets

norms that define the customerEs eligibility for a loan amount. "he loan then gets sanctioned along with certain terms and conditions. Bhen evaluating the measurable aspects of home loan re*uests 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. "herefore the bank has to base its decisions more on *ualitative parameters rather than *uantitative aspects. 9redit analysis therefore is distinct for each type of home loan scheme. 9redit analysis is the most popular methods of evaluating home loans.

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D.

Issue o- o--er &e((er (o ('e cus(omer "he bank<5$ sends an offer letter to

the customer with the loan sanction details which mention# ?oan amount :ate of interest and whether it is fi/ed < variable rate of interest. $f variable period after which the rate of interest would be reset - annual < monthly reducing balance ?oan duration =ode of loan repayment )cheme of the loan if a special scheme has been offered to the customer 1eneral terms and conditions of the loan )pecial conditions if any which the customer needs to adhere to prior to disbursement )ubmission of the acceptance copy of the offer letter and a che*ue for administrative fees by the customer F. Su2missio! o- +ro+er(y 5 &e)a& "ocume!(s 2y ('e cus(omer (o ('e 2a!65FI !fter the selection of the property the customer is re*uired to submit the original documents pertaining to the property being purchased or mortgaged (if the property purchased is different from the property mortgaged). "he bank<5$ keeps the property documents as given to the customer till the time the loan is fully repaid. G. Le)a& c'ec6 o! ('e +ro+er(y 2y ('e 2a!6 # "he bank<5$ sends all the documents to their empanelled
lawyer security

for the loan amount

for a thorough scrutiny. On receiving the lawyerEs report that the documents
loan

are clear the bank<5$ decides to disburse the additional documents.

to the customer. $f the documents sent to the

lawyer are not enough to arrive at a -udgment the bank<5$ re*uests the customer to furnish

H. Tec'!ica& c'ec6 o! ('e +ro+er(y 2y ('e 2a!65-i!a!cia& i!s(i(u(io! (rior to disbursement the bank<5$ conduct a site visit to the customerEs property to verify the following# I! case o- u!"er co!s(ruc(io! +ro+er(y Kuality of construction )tage of construction# Bhether it is the same as mentioned in the payment notice given to the customer by the builder

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(rogress of work ?ayout of flats and area of property is within permission granted by the governing authority :e*uisite certificates have been received by the builder to start construction at the site

I! case o- rea"y co!s(ruc(io!5 resa&e !ge of the structure Kuality of construction Bhether the structure will last the tenure of the loan ./ternal maintenance of the property $nternal maintenance of the property )urrounding area (development) :e*uired certificates from the governing authority have been received by the builder for handing over possession of the flat "here is no e/isting lien or mortgage on the property

I. Dis2urseme!( !fter verifying that the property is legally and technically clear the bank<5$ disburses the loan amount on the basis of the stage of construction of the property. "he customer needs to pay the margin money from his own contribution prior to the disbursement. A. Re+ayme!( "he repayment of the loan by the customer starts only after the full disbursement of the loan amount has been made by the bank<5$. "he loan is always repaid by way of .=$s. "he mode of repayment however differs from case to case. $n case of a loan repayment done through ,eduction !gainst )alary (,!)) (ost ,ated 9he*ues ((,9s) )tanding $nstructions ()$) and cash < ,emand ,raft (accepted only by some banks<5$s). "he customer can deposit the amount of his .=$ every month at the bank<5$6s office. 8. I!(eres( (a0 cer(i-ica(e "his certificate is given by the bank<5$ to the customer to avail of ta/ benefits that accrue through a
Chartered Accountant home loan.

"he customer can submit this to his employer or

to account it while calculating the customerEs ta/ liability.

L. Pre+ayme!( 2y ('e cus(omer "he customer can either partly or fully prepay his loan at any given point of time. "he loan could be partly or fully disbursed when the customer wishes to

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prepay his loan. =ost banks<5$s however have a limit on the number of times that a person can prepay his loan. "here is normally also a minimum amount that a customer has to prepay each time he wishes to do so. Bhenever a customer makes a prepayment the customer has an option of reducing his .=$ by keeping his tenure constant or to reduce his tenure by keeping the .=$ constant.

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PARAMETERS IN RELATION TO HOME LOANS

Home loans are an important means of social mobility. 8nder home loans the eligibility criteria documentation interest rates *uantum of loan margin re*uirement security repayment etc and such other important parameters are put into consideration by banks and financial institutions while giving loans to the borrowers. "he parameters put down by banks and financial institutions vary from institution to institution. However the overall guidelines followed by them are given as below#

ELIGI#ILITY CRITERIA
$% For Resi"e!( I!"ia!s Home loan eligibility for :esident $ndians depends upon the repayment capacity of the loan applicant. "he ma/imum loan that can be sanctioned varies with the banks and other housing finance companies (H59) and generally the ma/imum loan amount granted is 3& to 3@' of the cost of the home. Home loan eligibility corresponding to repayment option is based on the following factors. .ven though the eligibility criteria may vary according to the H59s regulations# 0% Years 58(salaried) 60((ublic limited<1overnment .mployees) 65 (self employed) 1raduation )table source of income and saving history 7umber of dependents assets liabilities )pouseEs income

A)e 7Mi!imum% A)e 7Ma0imum% Bua&i-ica(io! I!come De+e!"e!(s O('er i!come sources

!s home loan rates increase the loan eligibility for a borrower becomes stiffer. $n 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#

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i% I!creasi!) ('e Home &oa! (e!ure One of the basic process of enhancing the home loan eligibility is by opting for a higher tenure. "his is so because the .=$ which an individual has to pay starts to decline as the tenure increases while the interest rate as well as the principal amount remains the same. Bhat changes though is the net interest outgo which rises with a rise in tenure. !nd since the individual is paying a lower .=$ now his Eability to payE and therefore his loan eligibility automatically increase. ii% Re+ayi!) o('er ou(s(a!"i!) &oa!s "here might be adverse effect on home loan eligibility for individuals with outstanding loans like car loans or personal loans. $ndustry standards suggest that e/isting loans with over %0 unpaid installments are taken into account while computing the home loan borrowerEs eligibility. $n such a scenario individuals have the option of prepaying in part<full their e/isting loans. "his will ensure that their eligibility for the home loan purpose is unaffected. iii% C&u22i!) o- i!comes 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. "he eligibility in such cases will be calculated on the clubbed income of both the applicants enhancing the individualEs eligibility to the e/tent of the co-applicantEs income. i/% S(e+3U+ &oa! $ndividuals can also enhance their loan eligibility by opting for step-up loans. ! step-up loan is a loan wherein an individual pays a lower .=$ during the initial years and the same is enhanced during the rest of the loan tenure. H59s usually consider the lower .=$ of the initial years to calculate his loan eligibility while the initial lower .=$ helps increase the individualEs Ecapacity to borrowE. /% Per6s )alaried individuals must ensure that variable sources of income like performancelinked pay among others are taken into consideration while computing their income. "his 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.

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*% For No!3 Resi"e!( I!"ia!s "he eligibility criteria of 7:$s differ from :esident $ndians based on a few parameters. "he parameters include# A)e "he loan applicant has to be 0% years of age. Bua&i-ica(io! "he 7:$ loan seeker has to be a graduate. I!come "he loan applicant has to have a minimum monthly income of L 0 &&& (although this criterion may differ across H59s)."he eligibility is also determined by the stability and continuity of your employment or business. Payme!( o+(io!s "he 7:$ also has to route his .=$ (.*uated =onthly $nstallments) che*ues through his 7:.< 7:O account. He cannot make payments from another source say his savings account in $ndia. Num2er o- "e+e!"a!(s "he eligibility of the applicant is also determined by the number of dependents assets and liabilities. !n 7:$ applicant is eligible to get a home loan ranging from a minimum of :s @ lakhs to a ma/imum of :s % crore based on the repayment capacity and the cost of the property which although is variable by the priorities of the home loan provider. !lso Home ?oan "enure for 7:$s is different from :esident $ndians. !n applicant will be eligible for a ma/imum of 3@' of the cost of the property or the cost of construction as applicable and 2@' of the cost of land in case of purchase of land based on the repayment capacity of the borrower. However a 7:$ can enhance his loan eligibility by applying for home loans with a co-applicant who has a separate source of income. !lso the rate of interest for home loans to 7:$s is higher than those offered to :esident $ndians. "he difference is to the income. !lso the rate of interest for home loans to 7:$s is higher than those offered to :esident $ndians. "he difference is to the e/tent of &.0@'-&.@&'. )ome H59s also have an internally earmarked Enegative criterionE for 7:$ home loans. !s such the 7:$s who hail from locations that are marked as being EnegativeE in the books of H59s find it difficult to get a home loan.

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BUANTUM OF LOAN

"he *uantum of loan is assessed based on the net monthly< net annual income with a direct bearing on age factor of the borrower. ! person of age in the range of 0% to C@ years is eligible for a ma/imum amount of 4& times of his 7et =onthly $ncome (7=$)< five times of 7et !nnual $ncome. $n case the age is above C@ years the *uantum will be restricted to C3 times of 7=$< four times of 7et !nnual $ncome. =any banks have put a ceiling on the ma/imum amount of home loan at :s.@& lakhs. $n order to assess the *uantum of finance income of spouse or close relative can also be reckoned provided that person becomes a co applicant.

DOCUMENTATION

M?oan ,ocumentationN refers to the documents needed to legally enforce the loan agreement and properly analy+e the borrower6s financial capacity. ,ocumentation is an essential component from the point of view of the safety of an advance. "he ability to control arises from the documentation of provisions which confirm understanding on the basis of which a credit facility has been sanctioned. ,ocuments should be properly drafted stamped and e/ecuted with necessary legal formalities if any. !n effective loan approval process establishes minimum re*uirements for the information and analysis upon which a credit decision is based. "here are certain sets of documents that need to be submitted at the time of application for a home loan. "he document sets will vary according to the individual status - either resident or non resident in $ndia as also the type of loan that the borrower may want to avail of. Resi"e!( I!"ia!s $ncome documents (roperty documents (ersonal documents No! C Resi"e!( I!"ia!s $ncome documents (roperty documents (ersonal documents

>;

$% For Resi"e!( I!"ia!s ,ocumentation refers to the specific documents to be submitted by :esident $ndians as they apply for home loan. "hese documents are very much necessary for the banks to avoid any dispute and uncertainty. "he documents to be provided by the resident $ndians 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. !nd of course every resident $ndian should follow some eligibility criteria before applying for Home ?oans in $ndia. However there are some standard documents made mandatory for a loan applicant to produce such as the loan applicantEs profile earning life of the applicant and present financial status proof etc.

"he !pplicantEs (rofile refers to the bio-data of the applicant mentioning his address age family background and detail information. "he .arning ?ife of the !pplicantsE proof clarifies the capability of the loan payment. "he (resent 5inancial status gives the present capability of handling the own contribution and other e/penditures. "his includes the mortgage to be deposited against the loan amount.

$% I!come "ocume!(s

I- you are em+&oye" Aerification of .mployment form ?atest salary slip<salary certificate showing all deductions for at least the past 4 months 5orm %4 from your employer for the past > years. $f your -ob is transferable permanent address where correspondence relating to the application can be mailed. $f you have been in your present employment < business or profession for less than a year mention details of occupation for previous @ years giving position held reasons for change and period of the same.

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I- you are se&- em+&oye" Balance sheet and profit and loss account of the business<profession along with copies of individual income ta/ returns for the past > years as certified by a chartered accountant. ! 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.

*% Pro+er(y "ocume!(s

Purc'ase o- a -&a( or a+ar(me!( -rom a 2ui&"er5+romo(er "itle deeds of the builder<land owner for a period of at least %> years. ,evelopment agreement between the builder and land owner if applicable. (ower of !ttorney e/ecuted in favour of the builder if applicable. !n encumbrance certificate for the past %> years. "he khata certificate. (Basic document indicating ownership of property as entered in the register of the government authorities.) 8p-to-date ta/ paid receipts of the property. ! sanctioned plan and license. !n agreement for sale and a construction agreement with the borrower. I! case +urc'ase o- 'ouse -rom seco!" o4!er "itle deeds of land owner for a period of at least %> years. .ncumberance certificate for the past %> years. Jhata certificate (Basic document indicating ownership of property as entered in the register of the government authorities). 8p to date ta/ paid receipts of the property. )anctioned plan and license. !greement for sale in favour of the applicant<applicants.

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Aaluation report from *ualified valuers.

I! case o- re+airs 5 re!o/a(io! 5 e0(e!sio! o- 'ouse5 -&a( "itle deeds of land owner for a period of at least %> years .ncumberance certificate for the past %> years. Jhata certificate (Basic document indicating ownership of property as entered in the register of the government authorities). 8p to date ta/ paid receipts of the property. )anctioned plan and license for the e/tension. !greement for sale in favour of the applicant<applicants. .stimates of costs from a *ualified engineer.

,% Perso!a& "ocume!(s

% passport si+e photograph % copy of your passport<(!7 card<,riving ?icense<<)chool ?eaving 9ertificate<Birth 9ertificate<?$9 (olicy<Bankers sign verification % copy of last monthEs telephone bill<electricity bill< ration card (first and last page)<"itle deed of property<rental agreement<driving license)

*% For No!3 Resi"e!( I!"ia!s "he documentation re*uired to be submitted by the 7:$s are different from the :esident $ndians as they are re*uired to submit additional documents like copy of the passport and a copy of the works contract etc. !nd of course 7:$s have to follow certain eligibility criteria in order to get Home ?oans in $ndia. !nother vital document re*uired while processing an 7:$ home loan is the power of attorney ((O!). "he (O! is important because since the borrower is not based in $ndiaD the bank would need a ErepresentativeE Ein lieu ofE the 7:$ to deal with and if needed. !lthough not obligatory the (O! is usually drawn on the 7:$Es parents<wife<children. $% I!come "ocume!(s -or NRIs

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.mployment contract (if the contract is in any language other than .nglish the same has to be translated into .nglish and attested by the employer<$ndian .mbassy. 9ertified copy of the latest salary slips for the past 4 months $dentity card issued from the current employer 9ontinuous discharge certificate if applicable ?atest work permit Aisa stamped on passport 7:. bank account passbook sheets Overseas bank account statement for the past 4 months Bio data covering educational *ualifications age -ob e/perience nature of profession<business with necessary proof

(ower of attorney in favour of local representative in $ndia if re*uired 1uarantor forms along with net worth proof<income proof. 7umber of guarantors as per the norms of the company. "he guarantors should be related to the applicant<applicants.

*% Pro+er(y "ocume!(s -or NRI9s

Purc'ase o- a -&a( or a+ar(me!( -rom a 2ui&"er5+romo(er "itle deeds of the builder<land owner for a period of at least %> years. ,evelopment agreement between the builder and land owner if applicable. (ower of !ttorney e/ecuted in favour of the builder if applicable. !n encumbrance certificate for the past %> years. "he khata certificate. (Basic document indicating ownership of property as entered in the register of the government authorities.) 8p-to-date ta/ paid receipts of the property. ! sanctioned plan and license. !n agreement for sale and a construction agreement with the borrower. I! case +urc'ase o- 'ouse -rom seco!" o4!er "itle deeds of land owner for a period of at least %> years .ncumberance certificate for the past %> years. Jhata certificate (Basic document indicating ownership of property as entered in the register of the government authorities). C>

8p to date ta/ paid receipts of the property. )anctioned plan and license. !greement for sale in favour of the applicant<applicants. Aaluation report from *ualified valuers. I! case o- re+airs 5 re!o/a(io! 5 e0(e!sio! o- 'ouse5 -&a( "itle deeds of land owner for a period of at least %> years. .ncumberance certificate for the past %> years. Jhata certificate (Basic document indicating ownership of property as entered in the register of the government authorities). 8p to date ta/ paid receipts of the property. )anctioned plan and license for the e/tension. !greement for sale in favour of the applicant<applicants. .stimates of costs from a *ualified engineer

,% Perso!a& "ocume!(s -or NRI9s

% passport si+e photograph % copy of your passport<(!7 card<,riving ?icense<<)chool ?eaving 9ertificate<Birth 9ertificate<?$9 (olicy<Bankers sign verification % copy of last monthEs telephone bill<electricity bill< ration card (first and last page)<"itle deed of property<rental agreement<driving license)

FEES D CHARGES
"he interest rates and .=$s are not the only cost factor that the banks and financial institutions take into account while giving Home ?oans. "he certain other fees and charges that the banks levy on the borrowers can be as follows# $% Processi!) C'ar)e $tEs a fee payable to the lender on applying for a loan. $t is either a fi/ed amount not linked to the loan or may also be a percentage of the loan amount. "he loan amount received by the borrower can be less than the processing fee.

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*% I!(eres( Ta0 "his is the ta/ payable on the interest paid on a home loan and not the principal. "his ta/ is some times included in the interest rate of the loan or may be charged separately as interest ta/. ,% Docume!(a(io! Fees Banks collect fees for documentation administration consultant charge valuation fees and legal fees from the customers as part of the application processing. :% Commi(me!( Fees )ome 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. ;% Pre+ayme!( Pe!a&(ies Bhen a loan is paid back before the end of the agreed duration a penalty is charged by some banks<companies which is usually between %' and 0' of the amount being pre paid. <% Re)is(ra(io! o- mor()a)e "ee"

AGE CONSIDERATION FOR HOME LOANS

"he minimum age re*uirement for availing any type of Housing ?oan is %3 years and the ma/imum is 4& years. "he ma/imum age can be rela/ed in deserving cases up to 4@ to 2& years.

PENALTY FOR PRE3PAYMENT

Bhen a loan is paid back before the end of the agreed duration a penalty is charged by some banks<companies which is usually between %' and 0' of the amount being pre paid.

EMI 7EBUATED MONTHLY INSTALMENT%

"his is the installment amount the borrower has to make towards repayment of his loan. "he .=$ comprises of both the principal and interest. Banks<5$s charge an .*uated =onthly $nstallment from the borrower that is calculated on the basis of loan amount and the interest rate charged for the same. :epayment by way of .=$ generally commences from the month following the month in which one takes disbursement. $t can be calculated either on the basis of annual reducing rest monthly rest or daily rest. $n an annual rest the .=$s (e*uated monthly installments) are calculated on an annual basis. "he interest is calculated on the outstanding principal at the beginning of every year. Once the interest is calculated at the rate charged to the

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customer for the entire year it is deducted from the .=$s received during the year. "he balance .=$ 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 ne/t year. 8nder this method typically the component of interest in the .=$ is higher for the first few years and later on the component of principal increases and the interest keeps reducing year after year. $n other words the interest in the .=$ will keep reducing year after year and the principal component in the .=$ keeps increasing. "his is commonly known as !nnual :educing Balance of the principal amount lent. $n this case .=$ becomes %<%0th the .*uated annual installment. $n 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. $n the daily reducing principal repayments are credited at the end of the day an installment is paid. "he .=$ for the loan will begin after the loan has been disbursed in full. "ill such time the borrower has to pay the interest for the loan. "he amount of interest payable every month is called pre-.=$. $n short the following four factors go into the determination of .=$. T'e +ri!ci+a& amou!( - "his is the actual loan amount taken. Obviously the larger the amount the greater the .=$. T'e ra(e o- i!(eres( - !nother obvious one the higher the interest rate the higher the .=$. T'e (e!ure - "he longer one take the loan for the lesser the .=$. "he faster one want to repay it the higher the .=$. Ho4 ('e i!(eres( ra(e is ca&cu&a(e" - $t could be calculated either on a daily reducing or monthly reducing or on an annual reducing basis.

INTEREST RATES FOR HOME LOANS D THEIR CALCULATION

$nterest rates charged by housing finance companies vary depending upon your individual status - either resident or non resident in $ndia the loan amount scheme type and are sometimes even based on the tenure of the loan. "he way banks < 5$s charge interest to arrive at the value of .=$ can be broadly classified into O5lat rate system6 and O:educing balance rate system6. $n 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

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interest is divided over the number of installments and the value arrived is the .=$. But in case of E:educing Balance system6 the interest is charged on the outstanding balance of the loan which goes on reducing. "he reducing balance can be further classified into monthly reducing *uarterly reducing and annual reducing methods based on the number of times the principal is reduced<credited in a year. )uppose the principal is reduced %0 times a year it is termed as monthly reducing balance method if the principal is reduced C time a year it termed as *uarterly reducing balance method and if the principal is reduced % time a year it known as annual reducing balance method. !nnual reducing balance method is very common with $ndian banks and monthly reducing balance method is popular among the foreign banks and nationali+ed banks engaged in the activity of housing finance. Resi"e!( I!"ia!s Buying a new house Buying an e/isting house House improvement No!3Resi"e!( I!"ia!s Buying a new house Buying an e/isting house House improvement

$% I!(eres( ra(es -or Resi"e!( I!"ia!s #uyi!) a !e4 'ouse -rom a 2ui&"er5+romo(er

Banks and 5$s offer resident $ndians loans upto :s %& &&& &&& for upto >& years for buying a new flat from a builder. "he flat may be under construction at the time of application. "he table below offers a comparison of loan ranges and corresponding interest rates applicable under this scheme.

Com+a!y H,59 (=onthly)

Loa! amou!( 7Rs.% 5or all loan amounts 5or all loan amounts

F&oa(i!) ra(e 7E% %%.0@ %0.&& %>.2@

Fi0e" ra(e 7E% %>.0@

H)B9 5or all loan amounts $9$9$

%>.@& %C.&&

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)B$

5or all loan amounts

%%.0@

%0.2@

#uyi!) a 'ouse -rom a seco!" o4!er

Banks and 5$s offer resident $ndians loans upto :s %& &&& &&& for upto >& years under this scheme. "he table below offers a comparison of loan ranges and corresponding interest rates applicable under this scheme.

Com+a!y H,59 (=onthly)

Loa! amou!( 7Rs.% 5or all loan amounts 5or all loan amounts

F&oa(i!) ra(e 7E% %%.0@ %0.&& %>.2@ %%.0@

Fi0e" ra(e 7E% %>.0@

H)B9 5or all loan amounts $9$9$ )B$ 5or all loan amounts

%>.@& %C.&& %0.2@

Home Im+ro/eme!(

Banks and financial institutions offer non resident $ndians loans upto :s % &&& &&& for periods ranging from % to %& years under this scheme. Home improvement schemes allow the borrower to finance internal and e/ternal repairs and other structural improvements in your home. )ome of the home improvements one can finance under this scheme are# ./ternal repairs Baterproofing and roofing $nternal and e/ternal painting (lumbing and electrical works "iling and flooring 1rills and aluminium windows

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"he table below offers a comparison of loan ranges and corresponding interest rates applicable under this scheme.

Com+a!y H,59 (=onthly)

Loa! amou!( 7Rs.% 5or all loan amounts 5or all loan amounts

F&oa(i!) ra(e 7E% %%.0@ %0.&& %>.2@ %%.0@

Fi0e" ra(e 7E% %>.0@

H)B9 5or all loan amounts $9$9$ )B$ 5or all loan amounts

%>.@& %C.&& %0.2@

*% I!(eres( Ra(es -or No!3Resi"e!( I!"ia!s #uyi!) a !e4 'ouse -rom a 2ui&"er5+romo(er

Banks< 5$s offer non resident $ndians loans upto :s %& &&& &&& for upto %& years for buying a new flat from a builder. "he flat may be under construction at the time of application. "he table below offers a comparison of loan ranges and corresponding interest rates applicable under this scheme.

Com+a!y H,59 (=onthly)

Loa! amou!( 7Rs.% 5or all loan amounts 5or all loan amounts

F&oa(i!) ra(e 7E% %%.0@ %0.&& %>.2@ %%.0@

Fi0e" ra(e 7E% %>.0@

H)B9 5or all loan amounts $9$9$ )B$ 5or all loan amounts

%>.@& %C.&& %0.2@

#uyi!) a 'ouse -rom a seco!" o4!er

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Bankls< 5$s offer non resident $ndians loans upto :s %& &&& &&& for upto %& years under this scheme. "he table below offers a comparison of loan ranges and corresponding interest rates applicable under this scheme.

Com+a!y H,59 (=onthly)

Loa! amou!( 7Rs.% 5or all loan amounts 5or all loan amounts

F&oa(i!) ra(e 7E% %%.0@ %0.&& %>.2@ %%.0@

Fi0e" ra(e 7E% %>.0@

H)B9 5or all loan amounts $9$9$ )B$ 5or all loan amounts

%>.@& %C.&& %0.2@

Home Im+ro/eme!(

Banks and 5$s offer non resident $ndians loans upto :s % &&& &&& for periods ranging from % to %& years under this scheme. Home improvement schemes allow the borrower to finance internal and e/ternal repairs and other structural improvements in the home. )ome of the home improvements one can finance under this scheme are# ./ternal repairs Baterproofing and roofing $nternal and e/ternal painting (lumbing and electrical works tiling and flooring 1rills and aluminium windows

"he table below offers a comparison of loan ranges and corresponding interest rates applicable under this scheme.

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Com+a!y H,59 (=onthly)

Loa! amou!( 7Rs.% 5or all loan amounts 5or all loan amounts

F&oa(i!) ra(e 7E% %%.0@ %0.&& %>.2@ %%.0@

Fi0e" ra(e 7E% %>.0@

H)B9 5or all loan amounts $9$9$ )B$ 5or all loan amounts

%>.@& %C.&& %0.2@

MARGIN AMOUNT FOR HOME LOANS

"he difference in the total cost of the property and the loan amount sanctioned is the margin amount. "his 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. $n 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. $n case of purchase of flats also the release will be made only on investment of the margin money by the borrower. ! margin amount is the amount that the applicant pays through his<her pocket. !s far as home loans are concerned a bank usually pays 3@' of the total cost of the house to be purchased by the borrower. "he 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. $n most of the cases the margin amount of 0@' of the purchase consideration has to be borne by the borrower in the case of purchase of old houses<approved plots and %@' of the pro-ect cost in the case of loans for construction<purchase of new house<flat.

SECURITY FOR HOME LOANS

$n most cases the property to be purchased itself becomes the security and is mortgaged to the lending institution till the entire loan is repaid. $nterim security may be additionally re*uired if the property is under construction )ome companies may also re*uire additional securities which are called collateral securities like the assignment of life insurance policies pledge of shares 7)9s units of mutual funds bank deposits or other investments.

GUARANTOR FOR HOME LOANS

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1uarantors are essential for sanctioning of loans. 8sually a guarantor is re*uired so that if the applicant fails or becomes incapable of repaying the guarantor will be responsible for clearing the debt. 1enerally most banks do not insist on a guarantor when giving home loans but some might insist for % or 0 guarantors in certain cases. ! guarantor is e*ually 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.

$f 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. $n case one runs a small business with low profits the banks are taking a risk. "o safeguard their interests in such circumstances banks seek a guarantor who is legally bound to make repayments in case of default. "he bank seeks a guarantor in case the loan applicant does not live in the same city in which he is purchasing the property. $f the nature of his -ob is such that he will be constantly transferred or could go abroad the banks need a guarantor. "he same is the case for self-employed individuals who lack re*uired professional *ualifications. !bsence of a co-applicant for a loan sometimes calls for a guarantor. $n most other cases there is no personal guarantor re*uired as home is an investment to which people have emotional bonding. !nd they are sure to go to any e/tent to keep it. !ny friend or family member can be a guarantor and can guarantee the loan. ! guarantor has to fulfill the criteria relating to age and income of a normal customer. "he minimum income criteria vary from one housing finance company to another. "his is to ensure that since he is e*ually liable to pay the loan in case of default he has to be financially sound too like the loan applicant himself.

DIS#URSEMENT

Bhen 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 oneEs application if the documents are in order. $t takes another week for the bank<5$ to check out the property papers and make the disbursement.

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"he bank <5$ 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. $n case of property under construction the disbursement of the loan is made in installments according to the stage of construction.

REPAYMENT OPTIONS

$% For Resi"e!( I!"ia!s .very bank< 5$ have customi+ed repayment options to suit every individualEs re*uirement and also repaying capacity with some ta/ benefits. "hey have thereby come up with more fle/ible and =ultiple :epayment Option. ! few among them are# S(e+3u+ Re+ayme!( Faci&i(y "he ob-ective of step-up repayment is to provide the borrower with a repayment schedule which is linked to e/pected growth in income. $t not only helps a customer get a larger amount of loan as compared to the loan under the normal housing loanD but the customer can avail of a higher amount of loan and pay lower .=$s in the initial years which is subse*uently accelerated proportionately with the assumed increase in his income. F&e0i2&e Loa! I!s(a&&me!(s P&a! "his repayment option offers a customi+ed solution to suit the needs of customers whose repayment capacity is likely to alter during the term of the loan. $n cases when a borrower is nearing retirement the loan is structured in such a way that the .=$ is higher during the initial years and subse*uently decreases in the latter part proportionate to the reduced income of the customer. "his option helps such customers combine the incomes and take a long term home loan where in the installment reduces upon retirement of the borrower. Tra!c'e #ase" EMI 9ustomers purchasing an under construction property need to pay interest (on the loan amount drawn based on level of construction) till the property is ready. "ranche Based .=$ is a special facility offered by some banks to help customer save this interest. 9ustomers can fi/ the installments they wish to pay till the property is ready. "he

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minimum amount payable is the interest on the loan amount drawn. !nything over and above the interest paid by the customer goes towards principal repayment. "he customer benefits by starting .=$ and hence repays the loan faster. Acce&era(e" Re+ayme!( Sc'eme !ccelerated :epayment )cheme offers the borrower a great opportunity to repay the loan faster by increasing the .=$. Bhenever the borrower get an increment increase in the disposable income or have lump sum funds for loan prepayment he can benefit by#

$ncrease in .=$ means faster loan repayment )aving of interest because of faster loan repayment Or invest lump sum funds rather than use it for loan prepayment. "he return from the investments also gives the borrower the comfort of paying the increased .=$.

#a&&oo! Payme!( Balloon (ayment is an augmentation tool offered by the banks<5$s which helps in increasing the loan eligibility of the customer without increasing the .=$ by assigning securities like 7ational )avings 9ertificate (7)9) ?$9 policies etc. "he present value of the maturity amount of assigned securities is combined with the loan amount to arrive at the enhanced loan eligibility. 8nder this facility the .=$ is calculated on the net loan amount (i.e. total loan less the present value of the maturity value of the securities). *% For No!3 Resi"e!( I!"ia!s "he repayment option for 7on-:esident $ndians (7:$s) is done in .=$s and includes interest and principal amount calculated on monthly rests. "he borrower can pay .=$s by issuing postdated che*ues from the 7on :esident ./ternal (7:.)<7on-:esident Ordinary (7:O) or 7on :esident ()pecial) :upee !ccount (7:):) in $ndiaD or any other account approved by the :eserve Bank of $ndia (:B$). $n the case of part-disbursement of the loan the monthly interest is payable only on the disbursed amount. .=$ is payable every month by the end of the month from the date of each disbursement up to the date of commencement of .=$. (re-.=$ is calculated at the same rate at which .=$ is calculated. S(e+3U+ Re+ayme!( Faci&i(y 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. $n this @C

repayment option the loanee has to pay less .=$ in the initial years which increase as the income grows with the coming years. F&e0i2&e Loa! I!s(a&&me!(s P&a! $n this mode of repayment the borrower has fle/ible loan installment facility where a borrower nearing retirement age can opt for paying higher .=$ in the initial years and gradually move to paying lower installments after reaching retirement age. Tra!c'e #ase" EMI "ranche Based .=$ 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. $n such cases customers can fi/ the installments they wish to pay till the property is ready. "he minimum amount payable is the interest on the loan amount drawn. !nything over and above the interest paid by the customer goes towards principal repayment. "he customer benefits by starting .=$ and hence repays the loan faster. Acce&era(e" Re+ayme!( Sc'eme !ccelerated :epayment )cheme for 7:$s offers a great opportunity to repay the loan faster by increasing the .=$. Bhenever the 7:$ get an increment increase in the disposable income or have lump sum funds for loan prepayment the loanee can benefit by#

$ncrease in .=$ which means faster loan repayment )aving of interest because of faster loan repayment and can invest lump sum funds rather than use it for loan prepayment.

! 7:$ loanee can opt for repayment ahead of schedule by remittances in abroad through normal banking channels the 7:O < 7:): in $ndia. However by regulations in many states in $ndia the !greement of )ale between the builder and purchaser is re*uired to be registered by law. $t is therefore advisable to record the agreement for registration within four months of the date of the !greement at the office of the )ub :egistrar appointed by the )tate 1overnment under the $ndian :egistration !ct %;&3.

REPAYMENT TENURE
$% For Resi"e!( I!"ia!s

@@

Home loan tenures fi/ed by :B$ are available up to a term of %@ years. )ome financial institutions have home loan tenures in the range e/tending up to 0& 0@ and >& years if the applicant fulfills certain criteria. However one cannot opt for a term that e/tends beyond attaining retirement age or 4& years of age (whichever is earlier). Home &oa! Te!ure

Ty+e o- Pro+er(y :esidential (lot of ?and !gainst ./isting (lot of ?and *% For No!3 Resi"e!( I!"ia!s

Sa&arie" %@ years %& years %@ years

Se&-3Em+&oye" %& years %& years %& years

"he home loan tenure for 7on-resident $ndians differs from the :esident $ndians on a few points which may of course vary from one bank to another. 5or most banks the home loan tenure e/ceeds ma/imum from 0@ to >& years. However for 7:$s the ma/imum tenure is from 2 years up to %@ years the number of years fi/ed by :B$. However one cannot opt for a term that e/tends beyond attaining retirement age or 4& years of age (whichever is earlier).

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HOME LOAN 1ITH INSURANCE COVER

"here are many individuals who worry about the adverse impact of the home loans if something happened to them. "his is where a home loan insurance product comes to the rescue. =any banks and financial institutions insist on getting the home insured to safeguard their interest. "he borrower needs to ensure that the property is duly and properly insured for fire and other appropriate ha+ards as re*uired by the bank and financial institution during the period of the loan and will have to produce evidence each year and<or whenever re*uired by the lenders. "he bank<financial institution will be the beneficiary of the insurance policy. "here are various kinds of insurance covers available for a homeowner. "he 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. "hough there are some minor variants most plans offer a sum assured that reduces as the outstanding home loan comes down every year. $n such plans it is not the home but the loan that is covered should something happen to the borrower. 5or instance if a person have taken a home loan of :s C& lakh and covered this through a home loan insurance. $f after a year the outstanding loan comes down to :s >; lakh then the sum assured also comes down to :s >; lakh. $n short the sum assured is ad-usted against the home loan liability. "his insurance is much like the term plan or pure risk cover plan that is available from various insurance companies. "here are e/ceptions like $9$9$ Bank (through their tie-ups with $9$9$

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?ombard) home insurance loan where the sum insured remains constant. !nd in the event of death of the life assured the outstanding home loan is cleared off and the rest is paid to the family. )ome characteristics of such plans include# ?ow premiums high cover 7o maturity amount on survival of the term 9hoice of one time premium or regular premiums

However the cover in term plans available in $ndia 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. !lso it is important to know that while most term plans can be bought till the age of @@ home loan insurance plans can be bought till the age of 4&. However the medical underwriting is stringent and it is only after ade*uate tests that these policies are issued at the higher age band. $f one opts for a -oint application then the premium is double. !nd if any of the -oint applicants die the loan is paid off by the insurance company. "he premiums are calculated based on the medical underwriting based on the age and medical record. "he conditions are# A)e o- ('e &i-e i!sure" "he premium increases with age. =edical tests increase with age and are mandatory above C& years. Below this age a simple declaration is good enough though this depends on each insurance company. Me"ica& recor" $f the borrower of the loan is in a good health the premiums will be regular but if the insurance companyEs prognosis about the life assured is at higher risk then the premiums will be higher. ! past family history of early death or critical illness will also increase the premiums. Loa! (e!ure "he premium will increase with the duration of the loan. ! cover of :s @& lakh for five years and a cover of :s @& lakh for 0& years will attract different premiums with the latter being more e/pensive. )ince this is a life insurance plan issued by an insurance company the premiums paid towards life insurance schemes are eligible for deductions under )ection 3&9. However if the premium is clubbed within the e*uated monthly installment of the home loan then the borrower will not

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get the )ection 3&9 benefit. =ost banks have tie-ups with insurance companies for the issuance of such policies. "here is always the *uestion 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. ! factor that tilts the argument in favour of term plans is the cost which is much less and remains constant as well. However a ma-ority of the people should get thorough needs analysis done and not -ust 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. !fter this taking a term plan for the re*uisite cover needed is considered. 5or those who cannot undergo this e/ercise opting for the home loan insurance cover may prove helpful.

T'e +o&icies ('a( o!e may co!si"er o('er ('a! a 'ome i!sura!ce are as -o&&o4s $% Fire +o&icy -or a 'ouse'o&"er
Sui(a2i&i(y ! householder can cover his movable and immovable properties against fire and allied perils. !part from persons owning a house people staying in a :ented<?eased house can take this policy if they are responsible for its safety by any covenant. !n individual can also insure household contents not belonging to him but held in trust or belonging to relatives permanently staying with him. Sa&ie!( Fea(ures "he 5ire (olicy can be taken to cover any property within the country. "he policy offers cover on loss and<or damage on account of# !ccidental fires ?ightning ./plosion H implosion EdueE to pressure vessels (used for domestic purposes) By rioting mob striking workers malicious acts by third parties and damage by terrorists $mpact damage by rail<road vehicles carts H animals By aircraft or any arial devices or articles dropped there from

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?andslide H rockslide )torm cyclone flood H inundation and similar vagaries of nature Bursting and over flowing of water tanks and pipes etc. =issile "esting ?eakage from sprinklers Bush 5ire

#e!e-i(s 9laims are payable at the market value of the property damaged at the time of loss. $f the individual value if assets is not furnished then the value of each property is considered as not more than @' of the total sum insured. ?ong term policy may be taken.

*% A&& ris6 I!sura!ce

Sui(a2i&i(y "his policy is suitable for people owning things which are prone to accidental loss or damages. Sa&ie!( Fea(ures $t covers valuables like -ewelry work of art and similar artifacts of sentimental values. "he scope of the cover is limited to loss or damage due to fire riot H strike terrorist act burglary larceny or theft and accidental loss or damages. #e!e-i(s "he policy pays for any loss to the property insured against by insured perils. "he amount of claim payable is limited to the sum insured or the market value at the time of loss whichever is lower.

,% #ur)&ary I!sura!ce

4&

Sui(a2i&i(y "his policy is more suitable for people who have movable property like clothes appliances etc. prone to burglary theft and larceny. Sa&ie!( Fea(ures "his insurance policy covers burglary theft and larceny. #e!e-i(s "his policy pays for any loss of property due to burglary theft or larceny occurring during the policy period. "he amount of claim payable is limited to the sum insured or the market value at the time of loss whichever is lower. "his policy also covers damage to the premises like walls windows etc.

:% House'o&"er9s Pac6a)e Po&icy

Sui(a2i&i(y "his is a single package policy offered at economical rates of premium through which all of the householderEs needs are addressed. Sa&ie!( Fea(ures "he package includes the following policies# 5ire $nsurance Burglary !ll :isks $nsurance (late 1lass $nsurance Break down of ,omestic !ppliances (.lectrical and mechanical failures)

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"elevision including A9: H A9( and music systems (edal cycle $nsurance (ersonal baggage insurance (ersonal accident (ublic liability .mployers ?iability

#e!e-i(s "his being a package policy only one proposal form is to be completed instead of separate proposal forms for individual policies. !s regards fire risks while covers like e/plosion<implosion (other domestic gas cylinders or pressure cookers) and impact of rail<road vehicles are withdrawn as inconse*uential special risks like damage due to bursting and overflowing of water tanks apparatus or pipes are included in the policy.

RECOMMENDATIONS FOR #AN8ERS

"he 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. "here 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. "his safest mode of business has spurred many new entrants to -oin the fray. !ccording to the details given by the 7ational Housing Board (7HB) pertaining to the housing loan disbursements of banks and housing finance companies as on Pune 0; 0&&4 the housing finance sector has shown an e/ponential growth as compared to the other areas of credit. 40

"he housing finance sector even if it is showing an e/ponential growth is not devoid of risks. "he problem of bad loans has always been a matter of concern for the entire industry. )ince the competition among the players in the housing finance sector is too high all the housing finance companies maintain the interest rates in unison e/cept for public sector banks which operate on relatively low rates of interest as they concentrate more on retail business. ,espite the low risk attached to this sector and legal support to the lenders problem loans are creeping into the system overwhelmingly. $n order to avoid the problem of bad loans the banks and financial institutions may undertake the following remedial measures for mitigation of risks#

$% PROPER SCRUTINY IN SANCTIONS AND DIS#URSEMENTS

Home loans are made available by banks and financial institutions to both $ndian and 7on :esident $ndian customers at floating and fi/ed rates of interest and also with attractive .=$ options. "he 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.

*% PROPER STUDY OF FINANCIAL STATEMENTS

=any a times the banks and financial institutions in order to cope with and to outsmart the competitors they go to the e/tent of luring the customers of their competitors by providing attractve schemes. )ome companies even go to the e/tent of sanctioning the home loan without identifying the property and improper title deeds which is the prere*uisite for eligibility. Baiving 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.

,% END USE OF THE MONEY LENT

Banks and other housing finance companies have high rate of interests for non- residential use of the loan. ! study of the 7(!s of these banks<5$s shows that individuals who avail themselves of loans for residential properties divert them for commercial or any other purposes. !ny fluctuations in the business operations or mindset of the borrowers lead to non-payment of interest. !t times it is very difficult for the lender to recover the loan amount if the borrower has

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left the country. Hence it is very important for banks and financial institutions to verify that the loan given is utili+ed for the purpose for which it is sanctioned.

:% MAR8ETA#ILITY OF THE MORTGAGED ASSETS

$mproper valuation and scrutiny of the documents tend to lead the financier to invest more than %&&' of the value of the property. $n case the loan is not serviced he may not reali+e the claim amount. Bhen the borrower constantly defaults in servicing the loan the lender has five types of rights. (ossession lease manage reconstruct or sell. $n practice the possessed assets are in such a condition that they can be neither sold nor managed nor given for lease. "o market them the lender of the loan has to incur further e/penses adding to his risk of getting back his further investment.

;% CONSTANT MONITORING
Once the loan is sanctioned the -ob of the lender is not over. He has to e/ercise vigilance and monitor the payments of installments by the borrowers. $t is advisable to make periodical review of the borrower6s financial position to ensure his capabilities of prompt payment of installments. ! 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.

<% TA8E OVER OF #AD LOANS

=ost of the institutions play safe by handing over their doubtful and risky loans to the other institutions. "hese are taken over -ust to add a feather to their asset portfolio in the balance sheet. !s 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. Aerification of repayment track and reasons for takeover are very important.

=% FAIR ASSESSMENT OF PROPERTY

Bhile scrutini+ing the valuations it is very important for the lender to go by his own assessment instead of being carried over by real estate boom. "he banks and financial institutions should

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keep in mind the resale value of the asset rather than the market value. =ost of the cases suffer form the drawback of poor collateral. 9ondition of the underlying asset also must be taken care of. 9are should be taken to see that the asset is sold very soon after sei+ing it. Or else the resale value may come down. "herefore finding out the buyers to dispose of the asset is a challenging task for the banks and financial institutions.

>% INCREASING EMPLOYEE MORALE

"he 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. "he sanctioning official must be made directly responsible for the bad loans to a certain e/tent.

TA#ULATED

COMPARISON

#ET1EEN

HOME

LOAN

SCHEMES PROVIDED #Y S#I #AN8 D ICICI #AN8

$% ELIGI#ILITY
Sc'eme )B$ Optima !dditional Home 5reedom ?oans<)B$ Home 0% 0% 4@ 4@ % Q F F Mi! 7years% 0% A)e Ma0 7years% C@ A)e Mi! I!come 7Rs5m('% % Ma0 I!come 7Rs5m('% Q

Housing ?oans(7:$)

?oan-:$<)B$

$9$9$ Home ?oans (for :esident $ndians) $9$9$ Home ?oans (for 7RIs)

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*% FEES
Sc'eme )B$ 5reedom Home ?oans(7:$)<)B$ Housing ?oan:$<)B$ Optima !dditional Home ?oans
$9$9$ Home ?oans (for 7:$s) $9$9$ Home ?oans (for :esident $ndians)

Processi!) Fees 7E% &.@& Q &.@&

A"mi!is(ra(i/e Fees 7E%

Q Q @.&&

,% INTEREST
Sc'eme
From 7years% To 7years% )B$ Optima !dditional Home ?oans From 7Rs% To 7Rs% I!(eres( 7E% Ra(e

% 4 % 4 4 % & Q Q Q

@ %& @ %& %& @ @ 0& 0& Q

Q Q Q Q Q @&& &&& @&& &&& 0 && && & 0 && && & @ && && &

@&& && &&& @&& && &&& @&& && &&& @&& && &&& @&& && &&& & & Q Q %&& && &&&

;.@& ;.2@ ;.@& ;.2@ ;.0@ 3.2@ 3.2@ %%.&& ;.@& %%.&&

)B$ Optima !dditional Home ?oans )B$ Housing ?oan-:$< )B$ 5reedom Home ?oans )B$ Housing ?oan-:$ )B$ 5reedom Home ?oans (7:$) )B$ =a/gain Home ?oan- :$
)B$ 5le/i Home ?oan-:$

$9$9$ Home ?oans (for :I) $9$9$ Home ?oans (for :I) $9$9$ Home ?oans (for 7:$s)

:% MAXIMUM LIMIT
Sc'eme Mi! Am( 7Rs%
)B$ 5reedom Home ?oans (7:$) Ma0 7Rs% Am( Ma0 Limi( Mi! Term 7years% Ma0 Term 7years%

F F

@ && && &&& @ && && &&&

F "he ma/imum amountR4& 7=$< @ times

F &

0& @

)B$

Housing

44

?oan-:$

7!$

sub-ect

to

aggregate

repayment

obligations not e/ceeding @2.@&' of 7=$< 7!$ for those less than C@ years of age. $f the borrower is above C@ years of age it is C3
)B$ !dditional ?oans Optima Home

@ && && &&&

times 7=$ or C times 7!$. "he eligibility is %3 times 7=$ (for salaried borrowers)< % times 7!$ (for others) or (i) 0@' of the original pro-ect cost of house<flat (ii) 3@' of the cost of repairs etc. or (iii) gap between 3@' of the current market price of flat<house and actual outstanding loan dues whichever is lower (.=$<7=$ ratio of all loans should not e/ceed 4&') =a/imum of 3@' of the cost of the property

$9$9$ ?oans

Home (for

0 && &&&

0&

:esident $ndians) $9$9$ Home ?oans (for 7:$s)

@ && &&&

% && && &&&

=a/imum of 3@' of the cost of the property

%@

;% UNIBUE FEATURES
Sc'eme )B$ 5reedom Home ?oans(7:$) )B$ Housing ?oan:$
U!iGue Fea(ures

"his 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. !ll they have to do is pledge any financial security that they have and will get a Home ?oan for their dream home. "his loan is for (urchase<9onstruction of new House< 5lat (urchase of an e/isting House< 5lat purchase of a plot of land for construction of House ./tension< repair< renovation< alteration of an e/isting House< 5lat takeover of an e/isting loan from other Banks< 5$s. 5ree personal accident insurance cover. Optional 1roup $nsurance from )B$ ?ife at concessional premium. "his loan is aimed at enabling the customer meet e/penditure towards ma-or repair renovation addition to their house<flat purchase of furniture fi/tures and consumer durables. ,oor-step service from en*uiry stage till final disbursement. 5ree personal accidental insurance )pecial %&&' funding for select properties. "he borrowers can transfer the e/isting high-interest rate loan. "he borrowers can take loans for purchase construction e/tension or renovation of a new house or flat.

)B$ Optima !dditional Home ?oans $9$9$ Home ?oans (for :esident $ndians)

$9$9$ Home ?oans (for 7:$s)

ANALYSIS

42

$9$9$ and )B$ are the pioneers in the home loan sector in private and public sector respectively in $ndia. "hese banks offer home loans with attractive and uni*ue features for the benefits of their customers. !s per the eligibility criteria $9$9$ bank holds a better position as compared to )B$ bank because it provides home loan to ma/imum age limit of 4@ years as compared to the ma/imum age limit of C@ years offered by )B$ bank. Bith respect to the fees )B$ stands ahead of $99$ because it has less processing fees and administrative charges. $nterest rates offered by $9$9$ are up to %%' whereas in case of )B$ the loans are offered below %&'. )B$ has an upper hand over $9$9$ because the ma/imum limit is :s. @ && && &&&. By analy+ing the home loan schemes offered by both the banks )B$ can be placed at a better position as compared to $9$9$ because of the advantages stated above.

SURVEY
$ had conducted a survey taking the sample si+e of %&& people including all groups of people. $ had done the survey at different places like !ndheri station Jandivli Bhayander 1hatkopar ?okhandwala Borivali )antacru+ Bandra ,adar and other places considering all income groups of people. "he *uestionnaire of the survey in enclosed in the anne/ure. $t was a very good e/perience while conducting this survey. $t developed a sense of confidence and augmented the data collection skills within me. $t enabled me to develop a skill of getting primary data from the common people and then analy+ing it and presenting it in a systemic manner. =ost importantly it made me think logically and practically and thereby improved my research ability. "he information collected is analy+ed and represented below with all possible diagrams.

ANAYLSIS
A1ARENESS OF HOME LOAN

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5%
Aware

Not aware

95%

"he survey indicates that nearly ;@' of the people are aware about the Home loan facilities offered by different banks. But there are still @' of people who are not much educated and are unaware about the different types of home loan facility. 5or 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. )ecurity and comfort in life is a top priority for everyone. )o 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
30%

Want to Pursue

Dont want to Pursue

70%

"he survey conducted by me shows that 2&' of the people want to pursue home loan facility in the future if re*uired. "his shows there is an increase in the demand for home loans. "he reason behind this could be the boom in the home loan sector in $ndia. "he real estate boom has added new dimensions to the housing finance sector. "he new class of young buyers whose affordability are high is spending a little more on paying .*uated =onthly $nstallments (.=$s) 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: 4;

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

No. o- +eo+&e

45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

Home purchase

Lan Purchase

Home !"tens#on

$thers

Ty+e o- &oa! +re-erre"

!ccording to the survey C0' of the people would prefer to take loan for home purchase >>' for purchasing land %C' for home e/tension<improvement<renovation while only %%' for other type of loan. ,ue 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. ,ue to affordability factor and less amount of money re*uired for home e/tension or improvement or renovation people prefer 2&

less to opt for loan for these purposes."he other type of loans such as Bridge ?oans Balance "ransfer :efinance ?oans Home 9onversion ?oans )tamp ,uty ?oans and ?oans to 7:$s are not much in demand.

PREFERENCE TO PRIVATEH PU#LIC SECTOR OR FOREIGN #AN8S

%&'
Pu%&#c 'ector (an)s

>&'

Pr#*ate 'ector (an)s +ore#,n (an)s

4&'

!s per the survey 4&' of the people preferred to go for public sector banks >&' for private sector banks while the remaining for foreign banks. $n the booming home loan segment it is the public sector banks (()Bs) which are now having a clear-cut advantage over their private and foreign counterparts. )ome of the big ()Bs including )tate Bank of $ndia Bank of Baroda and 9anara Bank are offering both fi/ed and floating home loan products almost 2@-%&& basis points cheaper than private and foreign banks. !fter the recent rate hike by the :eserve Bank of $ndia (:B$) the private sector and foreign banks like $9$9$ Bank and )tandard 9hartered have also raised rates to manage the rising cost of funds. However their public sector counterparts are yet to -oin the bandwagon and are unlikely to react before the *uarterly review of the :B$ !nnual (olicy. !s 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. "o make life further tough for the private and foreign banks ()Bs have beefed up their marketing campaign to sell home loan products. 5or e/ample BoB has launched a pilot pro-ect in =umbai named (ro-ect (arivartan in which BoB officers are going door-to-door to sell home loans. "his 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. 5oreign Banks have recently started 2%

concentrating on retailing sector particular in home loan sector in $ndia so there is still a lot of scope for them to catch the interest of the $ndian borrowers. $n 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 1oing by the trend it should surprise no one if interest rates on home loans rise as a conse*uence of the rising interest rate scenario. "his being the case home loan seekers considers opting for a fi/ed rate loan (i.e. fi/ed for >-@ years). "his protects them from a potential interest rate hike in the near term. !t the end of the said >-@ year term they have the option of considering either to continue with the Efi/edE 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 EtrulyE fi/ed rate loans. )uch loans have a fi/ed rate throughout the tenure of the loan. However if interest rates were to decline going forward the truly fi/ed 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 HI8E ON HOME LOANS "he home loan sector has been drastically affected by the hike in the property rates. "he property prices have been rising and touching unprecedented heights. $n fact so much so that property are again becoming out of reach of common man. Bhether the price rise is -ustified or is it -ust a manipulated bubble remains to be seen. :eserve Bank of $ndia in its policy statements has time and again cautioned the banks to be e/tra cautious before taking e/posure. $n fact :B$ went to the e/tent of increasing the risk weight age of the housing loans. :eserve Bank of $ndia increased the risk weight on real estate e/posure and hiked the risk weight for lending to the real estate sector. "he :B$ has cautioned the banks to be e/tra careful while going all out to fund and finance the real estate sector. !ccording to reports the property prices have come to their saturation and there is little scope for further increases. "he price hike has been *uite fast and unrealistic. "he 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 e/tra cautious on their part.

20

HOME LOAN PROCESS !ccording to the survey 0@' of the people feel that home loan process is convenient. =a/imum number of people i.e. 2@' says that the process is lengthy as banks re*uires 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

$n view of its backward and forward linkages with other sectors of the economy housing finance in developing countries is seen as a social good. $n $ndia growth of housing finance segment has accelerated in recent years. )everal supporting policy measures (like ta/ benefits) and the supervisory incentives instituted had played a ma-or role in this market. "he housing finance industry is getting increasingly commoditised. 9ompetition within the sector is ensuring that players offer consumers fle/ibility and features to choose from. 5eatures such as ad-ustable rate plans lower processing fees<monthly rest<interest rates<.=$<margin money no pre- payment penalty have become common across the industry. "here is a growing trend among Banks and 5$s 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. "his has resulted in further lowering the threshold limit for buying a house. 5or differentiation of their home loan products banks are also resorting to

2>

offering of free add-ons such as life insurance credit cards and consumer loans at reduced rates for furnishing the house. )ome of the ma-or players in the housing finance industry have started organi+ing property fairs wherein the pro-ects of different construction companies are brought together and bundled with a lower than normal interest rate loan product. )uch initiatives are e/pected to result in a more organi+ed housing market and more value for the customer. On the services front the banks< 5$s have begun addressing concerns of borrowers through counseling and legal advisory services on matters pertaining to property6s title its technical evaluation and its pricing etc. Banks< 5$s 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. "hus from miniscule amounts the e/posure 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 *uality. Bhile no immediate financial stability concerns e/ist 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 e/posure and the credit *uality. $n a fiercely competitive market there may be some temptation to slacken the loan scrutiny procedures and this need to be severely checked.

ANNEXURE

2C

$ had visited $9$9$ Bank !ndheri (Best) Branch on 03 th !ugust 0&&2. "here $ interviewed =iss. )hubhangi 1aekwad !ssistant =anager of the bank. $t was a very good e/perience interviewing her. !lso she entertained me to the full e/tent and rendered full support by providing me with the relevant information in regards to the completion of this pro-ect.

#I#LIOGRAPHY
MAGAIINES (rofessional Banker ("he $95!$ 8niversity (ress :elease Pune 0&&2 (ublication)

#OO8S FOR REFERENCE =erchant Banker by H. :. )une-a

OTHER SOURCES $nterview with =iss. )hubhangi 1aekwad (!ssistant =anager) $9$9$ Bank !ndheri (Best) Branch and =rs. =ithila Padhav (9hief =anager) )B$ Bank !ndheri (.ast) Branch. Brochures of $9$9$ Bank and )B$ Bank.

1E#SITES

2@

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

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