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Summer Training Project Report

“Comparative Study
Offering Home Loans”


(SESSION – 2009-11)
ROLL NO-0932870031




• Acknowledgement
• Executive Summary
• Company Profile
• Objective of the study
• Major players in the field of housing finance
• Details of loan transfer cases studies (Analysis)
• Tend analysis of financial
Institution offering home loans

o Result and suggestions

o Limitations
o Appendix
o Questionnaire
o Bibliography

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

I am very thankful to Mr. Anshul Shrivastva
(officer-recoveries) for giving me valuable suggestions and
ideas for completing the project report. I am also grateful to
Mr. Prabhat Rao (Branch Manager, Delhi) for his help
and keep interest in project.
I am grateful to Mr. pramod garg my project guide
who provided me valuable guidance and should a great deal
of enthusiasm and commitment for this project, without his
guidance this project might not have reached the present
All the faculty member of Sunder Deep College of
Management Technology, Ghaziabad and all the concerned
persons contacted under the summer project report.


ROLL NO - 0932870031

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


H.D.F.C was set up on 17th October, 1977 by I.C.I.C.I. out of the consideration
that a specialised institution was needed to channel household savings as well
as funds from the capital market into the housing sector. H.D.F.C. has emerged
as the largest mortgage finance institution in the country. The primary objective
of H.D.F.C is to enhance residential housing stock and promote home
ownership. One of its major objectives is to increase flow of resources for
housing through the integration of housing financial institutions with the
domestic market.

Marketing effort

Marketing efforts and initiatives at HDFC LTD have always revolved around
the customer. The objective is to reach out to the customer and provide him/her
with all housing related solutions. Thus HDFC LTD has right since inception
positioned it self not just as a company providing finance to customers, but a
company that also provides loan counselling, technical and legal assistance and
other property related solutions. Credit appraisal skill and legal and technical
expertise has been built over the years. These set of skills, supplemented with
the vast database and trained personnel is today proving to be one of HDFC
LTD’ strongest assets.

Approvals and Disbursements

Total approvals during the year stood at Rs.9, 041.25 crores as against
Rs.6879.77 crores in the previous year, representing a growth of 31%. Loan
disbursements during the year were Rs.7, 616.56 crores against Rs.5, 803.01
crores in the previous year representing a growth of 31%.
Subsidiaries and Associates
Housing is the core business of HDFC LTD. while the main focus is to grow
the housing portfolio, organically and inorganically, in order to capitalise on
HDFC strong brand value and maximise returns for shareholders, HDFC LTD
has made investments in various group companies. These group companies
have strong synergies with HDFC LTD and such diversification will enable
HDFC LTD to offer a wide gamut of financial services and products to
customers. Investments made in the group companies are from borrowed funds,
where there is an interest charge debited to the profit and loss account, with out
a corresponding revenue flow in the initial years. While these investments are
long-term in nature, the businesses have tremendous potential, thereby
enhancing the valuations of HDFC. The shareholding of HDFC in its subsidiary
and associate companies as at March 31, 2003: are given:- HDFC Developers
Limited, HDFC Investments Limited, HDFC Holdings Limited, HDFC Trustee
Company Limited, HDFC Chubb General Insurance Company Limited, HDFC
Realty Limited, HDFC Asset Management Company Limited, GRUH Finance
Limited, Intelenet Global Services Limited, Credit Information Bureau(India)
Limited, HDFC Securities Limited, HDFC Bank Limited.

Risk Management
HDFC manages various risks associated with the mortgage business. These
risks include credit risk, liquidity risk and interest rate risk. HDFC manages
credit risk through stringent credit norms. Liquidity risk and interest rate risks
arising out of maturity mismatch of assets and liabilities are managed through
regular monitoring of the maturity profiles.



The NHB has issued guidelines to HFC's on prudential norms for income
recognition provisioning, asset classification, provision for Bad and Doubtful,
Capital adequacy and concentration of credit / investment. HDFC's position
with respect to the guidelines is as follows:-
• HDFC's capital for the purpose of determine the capital adequacy
companies entirely of Tier 1 Capital. The Tier was Rs. 2,066.71 Crores.
In accordance with the norms prescribed by NHB, HDFC's capital
adequacy is at 14.05% of risk weighted assets.
• Assets are classified as standard, Sub-Standard, doubtful and loss assets.
Any asset which is not standard asset is a non-performing asset. The
principal loans outstanding(along with Preference Shares and
Debentures for financial real
• Estate projects) , where payments were in arrears for over six months as
of march 31,2000,amounted to Rs. 98.71crores and constituted 0.90% of
the portfolio.

• HDFC is in compliance with the limits prescribed by NHB in respect of

concentration of credit/investment.



To undertake competitive analysis and to understand the information
contained in the financial statement with a view to know the weakness
and strength of the firm and to make a forecast about the future prospects
of the firm.
• To assess the present profitability and operating efficiency of the firm

• To assess the long term as well as short term liquidity position of the

• To find out the influencing features / benefits behind home loans.

• To find out the preferences of the people regarding certain parameters.



Major housing finance institutions are identified on the basis of the following

1. Net Sales
2. Net Profit
3. Net Worth


In the financial year 2003 – 04 , HDFC Ltd. recorded the highest net sales of
Rs. 2690.47 crores followed by LIC Housing Finance Ltd. with net sales of
Rs.873.26 crores,ICICI Home with Rs.191.96 crores, CANFIN
HomesLtd. Rs. 138.94 crores and SBI Home Finance Ltd. Rs.39.36 crores.


In the year 2003 – 04 , HDFC Ltd. recorded the highest net profit of Rs. 580.01
crores followed by LIC Housing Finance Ltd.with net profit of Rs.147.54
crores,ICICI Home Rs.9.58 crores, CANFIN Homes Ltd. with Rs.
16.63 crores and SBI Home FinanceLtd. Rs.-90.19 crores.


In the year 2004–05, HDFC recorded the highest net worth of Rs. 2702.84
crores followed by LIC Housing Finance Ltd. with net worth of Rs. 737. 23
crores, ICICI Home Rs.161.88 crores, CANFIN Homes Ltd. Rs.
113.05 crores and SBI Home Finance Ltd.Rs.-154.78 crores.
Q1. What is the reason / benefit that influences your choice of the financial
institution for a housing loan ?


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

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


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

Q3. How do you rate HDFC Ltd. in the following services ?

a. Interest Rates
b. Repayment Period
c. Customer Care
d. Transaction Period

Q.4) What is the reason of your loan transfer from HDFC Ltd. ?


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

Q5. In what terms / services do you find the other institutions (in which
your loan is

transferred) is better than us ?


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

Q6.Can we do anything to help you ?


From the above given data we can conclude that 40% of the respondents said
nothing can be done now when They have already Shifted to other financial
Institutions, 24% said HDFC LTD should improve its customer care services,
16% said that monthly rest option should be introduced, 12% said services
should be improved and 8% said that the desired loan amount should be

Q7. Are you satisfied with services of the financial institution you are currently
dealing with?


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

Q8. Financial Institutions in which Customers of HDFC LTD transferred

their loan ?

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

Trend analysis of financial

Trend analysis of financial institutions


ENDING Crore Crore
98 1445.25 326.53 61 59
99 1762.87 389.02 74 70
00 2011.81 460.95 85 83
01 2374.8 556.23 100 100
02 2692.41 690.93 113 124
SBI home finance ltd.


ENDING Crore crore
98 82.26 -7.56 204 35
99 66.99 -44.51 166 207
00 53.53 -24.24 133 112
01 40.37 -21.55 100 100
02 39.46 -90.12 98 418

LIC housing finance ltd.


ENDING Crore Crore
98 494.84 114.23 65 79
99 571.71 124.89 75 80
00 657.17 137.83 86 88
01 762.03 156.65 100 100
02 873.26 180.87 115 115

CANFIN homes ltd.


ENDING Crore Crore
98 100.26 14.81 78 64
99 109.76 19.46 86 84
00 112.97 18.27 89 79
01 127.63 23.19 100 100
02 139.03 24.68 109 106


S Rs Rs S T
Crore Cror
98 NA NA 0 0

99 NA NA 0 0
00 NA NA 0 0
01 57.75 1.93 100 100
02 191.96 12.64 332.39 655

Trend (%) sales of financial institution offering home loans-A comparison


From the graph and the data table we can arrive the conclusion that on the
whole, there was a continuous increase in volume as well as profit before tax of
financial institutions except SBI home finance Ltd. not only the client was
arrested but positive growth was also visible from the year 1998 to 2003.

But the figure of the SBI home finance Ltd when compared with the figure of
other financial institutions reveal that the sales have reduced year by year. The
sales of the financial institutions have continuously over a period of five years
commencing from 1998. The over all analysis of the financial institutions
shows that the financial institutions are doing well and financial position is
bound to be good.

On the basis of the ratio analysis and trend analysis it can be said that the
position of the HDFC Ltd is sound from the point of view, of leverage,
profitability, and solvency. On the other hand interest coverage ratio and fixed
assets turnover ratio of HDFC Ltd is showing and increasing position, of
course, never falling below the previous year. This means that firm is
maintaining its liquidity and long term solvency position of the firm seems to
be stronger than other financial institutions. The gross profit ratio of HDFC Ltd
has also increase which reflects better managerial and operational picture. The
HDFC Ltd. is showing a study and upward trend of percentage sales and the
trend percentage of profit before tax which is growing year by year. Finally we
want to give some suggestions on the basis of comparative study of financial
institution offering home loans.

• RATE OF INTEREST should be competitive with other financing


• Emphasis should be given on retaining customers.

• Proper credit appraisal of the customers should be done.

• Relevant information should be provided to customers time to time.

• People who deal with customers should have full knowledge about the
housing finance industry.

• The area where we lack is the area of Advertising HDFC Ltd should do
more organized communication between the costumer and the branch

• Regular news letter should be send to the customers by post ,courier to

enhance awareness of the home loan schemes .
1. Time was a major constraint, in completing the project. As the project
was very vast and there was paucity of time.

2. From the different financial institutions we could not get the data of
ending year 2005 so i am not able to comparative study on the ending
year 2005.

3. During the analysis i have taken those financial institutions which have
the same accounting policies.

4. Some of miner factor where neglected during the analysis because of

lack of time how ever i try to put in my best in the limited period and
covered the major factor.


National housing bank was formed as a subsidiary of the RBI when national
Housing Policy was announced in 1998 regulating the housing finance industry
in India. The national housing policy reflected the trust, the government wished
to give to the housing sector and pointed out that housing was not merely
consumption expenditure, but also a productive investment which would
provide economic activity and create a base for attaining several national policy
goals such as providing shelter and raising the quality of life. The national
housing policy also envisaged that an impetus given to housing would stimulate
economic activity through creation of substantial employment opportunities.

The national housing bank specifies various norms to be followed by the

HFC’s and regulates the industry on line of regulation of NBFCs by the RBI. It
specifies the interest rate to be followed in lending and borrowing, income
recognition and prudential norms, borrowing limits and audit to the housing
finance companies. It provides refinancing facility to the housing finance
companies and facilitates promotion of these companies on the specified lines.

Objectives of NHB

The following are the major objectives of NHB-

1. to promote , establish, support or aid in the promote and establishment

of housing finance institutions;

2. to make a loans and advances or render any other form of financial

assistance whatsoever to housing finance institutions and scheduled bank
to any authority established by /under any central state act and engaged
in slum clearance;

3. to subscribe to or purchase stocks, shares, bonds, debentures and


of every other description;

4. to guarantee the financial obligations of housing finance institutions and

underwrite the issues of stocks, shares, bonds, debentures and securities
of every other description of housing finance institutions;

5. to coordinate with LIC, UTI, GIC and other financial institutions in the
discharge of its overall functions and
6. To act as an agent of the central /state government (s) or RBI/any
authority authorized by RBI.

Norms for Approval of Housing Finance

Companies by NHB
NHB refinances only those HFC’s that are approved to be set up by it. Some
of the conditions that have to be set up by it . Some of the conditions that have
to be met for approval are:

1. Minimum paid up capital of HFC should at least be Rs.1 cr.

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

Tax treatment of Loans for constructing Houses:

Section 24(1) of the Income Tax Act allows deduction of interest on borrowed
capital from the Gross Annual Value of the house on accrual basis. Any interest
paid on the loan borrowed for the purpose of constructing/ buying or upgrading
the house for which the annual value is assessed, is allowed as deduction. Also,
any interest on the amount borrowed during the pre-construction period
(starting form the date of borrowing and ending on March 31st or the date of
completion of the construction, which ever is earlier) is allowed to be deducted
in five successive years.

• Reduce taxable income by claiming deduction upto Rs.1, 50,000/- p.a.

on the interest payable u/s 24(b) of the income Tax Act, 1961.

• Claim tax rebate upto Rs.4000/-p.a. subject to a maximum principal

repayment of Rs.20, 000/-p.a. u/s 88(2) (xiv) of the income Tax Act,

The Other Initiatives


• The lack of adequate loan security is cited as the most pernicious

stimulizing block of mortgage finance.
• Low mortgage tenure. The existing loan tenure is 15 years in India while
in overseas it can exceed 40 years.
• HFC’s face asset mismatch problem.
• Sudden spurt in credit will have an inflationary impact on housing with
regard to prices. Mainly because of construction time lag.

Possible solutions

• One route adopted overseas to tackle defaults is by mortgage Insurance,

where mortgage premiums are paid along with EMIS.
• Mortgage terms should be raised and the escalation in mortgage risk for
the HFI due to higher tenure can be mitigated by early repayment option.
• Mortgage securitization permits the HFC’s to offload long-term
mortgages to other investors. The stumbling block here is high stamp
duty–as high as 3 percent.
• Route more funds through the consumer to the developer. Which
obviates the need for HFC’s to directly finance the developer in addition,
if the developer is dependent on the consumer demand simulated by
mortgage availability for a large part of funds, he will reduce cash
component to house value too.

General Terms and Conditions of a Housing Loan

The Following are the terms and conditions applicable to the basic Housing
Loan product only. These are likely to vary with respect to the different types
of Housing Loans.

1. The loan to value ratio cannot exceed a particular percentage. This

differs from product to product and from one HFI to another.
2. The maximum tenure of the loan is normally fixed by HFIs. However,
HFIs do provide for different tenors with different terms and conditions.
3. The instalment that you pay is normally restricted to about 40% of your
monthly gross income. This is known as the Instalment to Income Ratio
4. Your total monthly outflow towards all the loans that you have availed
of including the current loan is normally restricted to 50% of your Gross
Monthly Income. This is known as the Fixed Obligation To Income
Ratio (FOIR).
5. You will be eligible for a loan amount which is the lowest as per your
eligibility. This is calculated as per the LTV norms, the IIR norms and
the FOIR norms as mentioned above.
6. Most HFIs consider your profile before they judge your repayment
capacity. You are judged on the basis of age, qualifications , number of
dependents , employment details , employer credentials , work
experience , previous track record of repayment of any loans that you
have availed of occupation , the industry to which your business relates
to if you are self- employed , your turn over in the last 3 – 4 years , etc.
7. Some HFIs have a team of civil engineers visit the site to get a technical
report on the quality of construction and compliance with the local laws
before they disburse the loan.
8. Some HFIs insist on guarantees from other individuals for due
repayment of your loan. In such cases you have to arrange for the
personal guarantee before the disbursement of your loan takes place.
9. Most HFIs have a panel of lawyers who go through your property
documents to ensure that the documents are clear and are not
misrepresented. This is an added benefit that you get when you avail of a
loan from HFI.
10. The disbursement of your loan is as per the progress of construction of
your property unless it is a ready property in which case the
disbursement will be by one single cheque. PEMI or Simple Interest on
the loan amount disbursed to you in case of a part disbursement will be
payable by you on the disbursement.
11. The disbursement, in most cases, will be favouring the builder or the
seller or the society or the development authority as the case may be.
The disbursement will come in your favour under special circumstances
12. You repay the loan either through Deduction Against Salary, Post Dated
Cheques, standing instructions or by cash / DD.
13. The principal is amortized either on annual reducing or monthly
reducing basis as the case may be.

The above terms and conditions are generally true for most HFIs with respect
to Housing Loans. However, The specific terms and conditions vary with
respect to specific HFIs.

Credit Documentation

What are the typical credit documents that need to be submitted to the HFI?

Given below is the exhaustive list of credit documents that need to be

submitted for a general product. The documents vary from one HFI to another
based on your employer, qualifications, etc. The general requirements are as
follows :

1. Income documents
2. Proof of employment
3. Employer’s details (In case of private limited companies)
4. Proof of age
5. Proof of residence
6. Proof of name change (If applicable)
7. Proof of investments (If required)
8. A copy of the marriage certificate is required by some HFC’s
Income Documents

• Salary slips for the last three months

• Appointment letter
• Salary certificate
• Retainership agreement, if appointed as a consultant
• Form 16 issued by the employer in your name
• Last three years Profit & Loss Account Statement duly attested by a
Chartered Accountant employed.
• Last three years Balance Sheets duly attested by a Chartered Accountant,
if self – employed.
• Last three years Income Tax Returns duly filed and certified by the
Income Tax authorities.

Proof of Employment

• Identity card issued by your employer

• Visiting card

Employer’s details (In case of private limited companies)

• Profile of employer on employer’s letterhead (to be signed by a senior

person in the organization) comprising of :

a. Name of promoters / Directors

b. Background of promoters / Directors
c. Nature of business activity of your employer
d. Number of employees
e. List of branches / factories
f. List of suppliers
g. List of clients / customers
h. Turn over of your employer.
i. Annual reports of your employer for the last two to three years.

Proof of age (Any one of the following)

• Passport
• Voter’s ID card
• PAN card
• Ration card
• Employer’s Identity card
• School leaving certificate
• Birth certificate.

Proof of residence.(Any one of the following)

• PAN card
• Ration card
• Passport
• Rent agreement, if you are staying currently on rent
• Bank pass book
• Allotment letter from your company if you are residing in company

Proof of name change (If applicable)

• A copy of the official gazette

• A copy of a newspaper advertisement publicizing the name change
• Marriage certificate

Proof of investments (If required)

• Bank statement for the last six months of all operating and salary
• Bank statements for the last six months of all current accounts, if self-
• Any other photocopies of investments held, if required by the HFI.

Legal Documentation

What are the typical legal documents that need to be submitted to the HFI ?
Given below is a list of legal property documents that need to be submitted to
the HFI for mortgage of your property. The name and the list of documents
vary from state and also depend on the property being financed. A broad
outline of documents required is given below. For a detailed the documents are
required to be submitted, for a property in Maharashtra.

1. Acceptance copy of the offer letter issued by the HFI.

2. Title documents of the property that include
o Sale agreement duly registered
o Own contribution receipts
o Allotment letter
o Registration receipt
o Land documents indicating ownership, if applicable
o Possession letter
o Lease agreement, if applicable (Property bought from a
development authority)
o Mortgage deed if the HFI opts for a registered mortgage

3. No objection certificate from the developer, society or development

authority as applicable.

4. Personal Guarantees, if applicable.

5. In case of alternate or additional security, documents for the same
depending upon security details.
6. Post dated cheques for the EMIs.

The above documents are only indicative in nature and do not cover the entire
list. It may also be noted that in a resale case, the previous chain of agreements
also need to be taken.

Different kinds of charges applicable to Housing Loan products:-

All the different kinds of charges mentioned below may not be levied by all
HFIs. You will need to check the different charges that are levied by your HFIs
before availing of a loan. The different kinds of charges applicable to Home
Loans are listed below.
Pre-disbursement charges

1. Processing fees.
2. Administrative fees.
3. Rate of Interest.
4. Legal charges
5. Technical charges.
6. Stamp duty and registration charges.
7. Personal Guarantee form charges

Post-disbursement charges

1. Cheque Bounce charges

2. Delayed Payment charges
3. Additional charges
4. Incidental charges
5. Prepayment charges
6. PDC Swapping charges

Pre-disbursement charges

o Processing fees: This is a charge that is levied by most HFIs to

cover the costs that they incur on the processing of your loan
application.This has to be paid at the time of submission of the
application form.It’s normally charged as a percentage of the loan
amount sanctioned.Some HFIs also charges a flat fee based on the
loan amount instead of a percentage. When a lower Amount is
sanctioned the excess fees paid at the time of submission of the
application is adjusted with the charges, which you make to the
HFI subsequently. Most HFIs refund your processing fee if your
loan application is rejected

o Administrative fees: This charge is again, normally, a percentage

of the loan amount sanctioned. It is collected by the HFI for the
maintenance of your records, issuing interest certificates, legal
charges, technical charges, etc. through the tenure of the loan. It is
payable by you when accept the offer letter given by the HFI. This
payment has to be made before you avail of the disbursement. The
mode of collection of these fees varies from one HFI to another.

o Rate of Interest: This is the rate of interest applicable on your

loan amount through the tenure of the loan. It is charged on the
principal on either annual reducing method or monthly reducing
method. The difference between the two has been detailed out in
the Glossary section under the respective heads. Most HFIs give
you an option to select either a fixed rate of interest or a variable
rate of interest. This is also covers in the Glossary section under
the respective for your information.

o Legal charges: Some HFIs levy legal charges that they incur on
getting your property documents vetted by their panel of lawyers.

o Technical charges: These charges are also levied by certain HFIs

to meet their expenses on the technical site visits to your property.

o Stamp duty and registration charges: HFIs that go in for a

registered mortgage or English mortgage (see Glossary for more
details) pass these charges on to you. These are rather heavy in
certain states depending on the laws laid down by the state where
you buy a property.

Personal Guarantee form charges: Since the personal guarantees

provided by you need to be stamped, these charges are also recovered
from you. They are charged to you by HFIs who demand for
Post-disbursement charges

• Cheque Bounce Charges: In case the Cheque through which you make
a payment to HFIs gets dishonoured, some minimum charges are levied
by the Bank. The same are recovered from you.

• Delayed Payment Charges: HFIs charges delayed payment charges

from you if you delay the payment of instalments beyond the due date.

• Additional charges: These are levied as a percentage on the delayed

payment charges by most HFIs. They are levied if you fail to pay the
dues within the stipulated time after a delay has taken place.
• Incidental charges: This is payable in case the HFIs sends a
representative from their organization to collect their outstanding dues. It
is normally charged at a flat rate per visit. These charges are levied by
most HFIs

• Prepayment charges: This is a penalty charged by HFIs from when you

make either a part prepayment or a full repayment of loan. This charge is
levied only on lump sum payments and not on the EMIS that you pay.
This charges is levied on the amount prepaid by you and not on the
entire outstanding principal. These charges are gradually being
discontinued by the HFIs.

• PDC swapping charges: In case, you wish to swap the PDCs given by
you to the HFI for your EMI repayments, some HFIs charges a flat fee
for the same.

Look before you leap

1. How not to trip up while taking a loan?

Applying for a loan is a complicated process where a customer is faced with
many bewildering choices. It is important to make the right impression on your
loan officer to get the loan you want. However, there are some important to
make the right impression on your loan officer to get the loan you want.
However, there are some things that you should just not do. Here are 10
common-enough pitfalls to avoid while applying for a loan.

Don’t lie in your application form

All the columns in the application form are meant to provide vital information
that the prospective lender uses to evaluate your creditworthiness. Do not leave
out any important details about your income, your address (both temporary &
permanent) and about your past or existing relationship with the lender. All this
information has also to be supported by documents. Lying in the application
form amounts to fudging documents.

Don’t fudge salary slips and income statements

Don’t ever fudge salary slips or income statement. Your loan officer handles
hundreds of loan cases. The chances are, he knows ever trick in the book before
you could even think of one. Fudging salary slips is a serious offence. It is
fraudulence of a high order. Don’t ever do it .not only will you not get this
loan, you can even be blacklisted by not only this lenders too (given the amount
of information-sharing between companies).

Don’t go in for a co-applicant unless it is necessary

Loan officers are notoriously conservative. The greater the pile of documents
related to your case in their files, the more comfortable they feel. You should
always put your foot sown when a loan officer asks for more guarantors or asks
you to bring another co-applicant. The loan officer could be convinced of your
case but may be merely trying to protect himself from all possible eventualities.
If you follow his dictates. You are killing the prospects of the co-applicant to
procure a loan for herself in the future.

Don’t offer proof of a lavish lifestyle to prove creditworthiness

Your loan officer is only interested in seeing the adequacy of your income. This
emerges clearly out of the income documents you submit with your loan
application. So an effort to project al lifestyle merely to impress him is a define
no-no. It could even backfire on you if he feels that you are living beyond your
means. Remember, he can reject your loan application on this ground. If you
ever blew your month’s salary on your favourite perfume or that gorgeous
pashmina shawl, please don’t tell him.

Don’t bounce or return cheques

Your bank statement speaks volumes about your spending habits. It mirrors
your spending behaviour. It provides your loan officer with a comprehensive
view of how you manage your money. If there are too many cheques bounced
or returned check entries in your bank statement, be prepared with a convincing
explanation and papers to prove it. Generally, though, there should not be any
Cheque returns or bounced cheques. It lowers your creditworthiness and could
result in lower or no borrowing.

Don’t show a cleaned-out account

Maintain a certain balance a show some savings in your account. Otherwise

you will come across as someone who is barely able to meet his expenses.
Savings in your account will show the loan officer that you’ll be able to meet
the EMI. Otherwise you will have to come up with a convincing plan of
lowering your expenses.

Don’t hide details about other loans

If there is a recurring payment on an exiting loan, make sure you’ve mentioned

the existing liability in the form. Since other loan repayments bring sown your
income–to –instalment ratio and result in a lower loan, this is a vital piece of
information. Don’t hide details about the loan. Consider consolidating all your
debt before going in for another loan.

Don’t fudge details of professional degrees

Loans to self-employed professionals are extended on the strength of the

professional degree and the income (especially in case of a personal loan). In
such a case, fudging your professional degree or income documents can
seriously jeopardize your loan application. Professional qualifications are
almost always verified.
Don’t ever attempt to bribe the loan officer

You perhaps fees that your loan application is not strong enough to get you the
loan amount you are asking for. And you probably think that you can grease the
palm of the loan officer to enhance your loan eligibility. Can’t even think about
it. Even if you got lucky and your loan officer was the bad apple in the
company’s basket (it could happen), your loan is reviewed by two or
sometimes three other people. You were not planning to bribe all of them, were

Don’t take a loan against your FD as collateral, Break it.

A common mistake most borrowers commit is to borrow against their fixed

deposit. They prefer taking loan against their own money at a rate higher than
the rate they are receiving on their fixed deposit. You should consider this
option only when you require funds for a very short term. Otherwise, it makes
sense to encash your FDs. This way you’d be able to borrow less.

Financial results of the financial institutions for the year ended

March 2001 & 2003


HDFC Ltd Rs Crore March 2001 March2003

Operating income 2011.81 2374.8
Fund base income 1935.9 2271.42
Free base income 75.7 102.82
Interest costs 1436.95 1689.61
Depreciation 41.68 43.06
PBDT( NNRT) 502.63 599.29
PBT (NNRT) 460.95 556.23
PAT (NNRT) 401.81 473.65
Gross fixed assets 424.35 562.06
Leased assets 266.29 242.52
Investments 3341 3052.14
Stock in trade 0 0
Cash and bank balance 1081.18 1007.82
Receivables 11569.65 14675.91
Net worths 2095.97 2371.94
Equity capital 119.11 120.08
Long term borrowing 12882.82 15406.81
Current liability and provision 1226.03 1344.84

* Data Source CMIE

SBI home finance Ltd

SBI home finance Ltd. March 2001 March2003

Operating income 40.37 39.46
Fund base income 37.95 36.88
Free base income 2.42 2.58
Interest costs 53.66 57.62
Depreciation 1.91 1.86
PBDT( NNRT) -19.64 -88.26
PBT (NNRT) -21.55 -90.12
PAT (NNRT) -21.55 -90.12
Gross fixed assets 32.05 32.15
Leased assets 25.17 25.17
Investments 32.5 34.71
Stock in trade 0 0
Cash and bank balance 21.7 21.33
Receivables 361.88 375.26
Net worths -64.59 -154.78
Equity capital 15 15
Long term borrowing 389 435.9
Current liability and provision 110.77 149.55

* Data Source CMIE

LIC housing finance Ltd.

LIC housing finance Ltd. Rs Crore March 2001 March2003

Operating income 762.03 873.26
Fund base income 724.94 829.62
Free base income 37.09 43.64
Interest costs 568.27 644.6
Depreciation 1.16 1.32
PBDT( NNRT) 157.81 182.19
PBT (NNRT) 156.65 180.87
PAT (NNRT) 121.35 145.32
Gross fixed assets 15.01 21.64
Leased assets 0 0
Investments 241.51 344.21
Stock in trade 0 0
Cash and bank balance 543.76 550
Receivables 5387.49 6368.93
Net worths 638 737.23
Equity capital 75 75
Long term borrowing 526.82 6207.05
Current liability and provision 278.96 344.24

* Data Source CMIE

Canfin homes Ltd

Canfin homes Ltd Rs Crore March 2001 March2003

Operating income 127.63 139.03
Fund base income 122.39 132.21
Free base income 5.24 6.82
Interest costs 92.4 100.4
Depreciation 0.56 0.57
PBDT( NNRT) 23.75 25.25
PBT (NNRT) 23.19 24.68
PAT (NNRT) 17.69 18.98
Gross fixed assets 7.42 7.79
Leased assets 0 0
Investments 32.86 32.66
Stock in trade 0 0
Cash and bank balance 31.88 82.02
Receivables 87.56 1060.01
Net worths 100.07 113.05
Equity capital 20.49 20.49
Long term borrowing 806.84 968.02
Current liability and provision 36.63 97.81

* Data Source CMIE

ICICI Home finance co. Ltd

ICICI Home finance co. Ltd Rs Crore March 2001 March2003
Operating income 57.79 191.96
Fund base income 43.49 159.44
Free base income 14.3 32.52
Interest costs 33.18 129.25
Depreciation 0.07 0.4
PBDT( NNRT) 2 13.04
PBT (NNRT) 1.93 12.64
PAT (NNRT) 1.49 9.58
Gross fixed assets 0.8 3.4
Leased assets 0 0
Investments 0 7.81
Stock in trade 0 0.1
Cash and bank balance 10.55 62.1
Receivables 721.79 1620.55
Net worths 94.57 161.88
Equity capital 95 115
Long term borrowing 251.5 630.08
Current liability and provision 387.83 902.83

* Data Source CMIE


1. Who can avail of a home loan?

Anyone! Well, anyone who earns a regular income that is! Whether you're in
business or working with a company, as long as you're in a position to make
repayments, you're eligible. The categories of eligible applicants are –

• Salaried Individuals
• Self-Employed Individuals
• Partnership Firms

Private Limited Companies

So if you belong to any of the above, consider your loan granted!

2. When can I make an application?

You can apply the minute you've decided to buy or construct a house! That's
right, no bureaucratic waiting periods here! In fact, some HFCs (Housing
Finance companies) even assist clients in locating suitable properties through
their dedicated in-house teams. While you're in the process of identifying and
selecting your property, you can get an in-principal approval. This is valid for 3
months during which the interest rates at which the loan can be taken are
locked in. Just keep in mind, however, that all this depends on whether the
property you've chosen is acceptable to the finance company, to enable them to
create a valid mortgage against it.

3. How do I go about getting myself a home loan?

Nothing could be easier! Pick up the prescribed form for loan applications from
your HFC office or download it from the company website. Fill in all the
details and submit it along with the application fee mentioned. Besides the
application fee, you will have to pay a non-refundable processing fee, which
will be around 0.3-1% of the loan applied for. Once you accept the terms of the
loan offer made to you by the HFC, you will be charged a minimal
administrative fee - another 0.5-1% of the loan amount sanctioned. And that's it
- you're on your way to buying that dream home for your family!

Remember: if you are not the only person who will own the property you plan
to buy, the other proposed owners will also have to sign as co-applicants. That
however does not mean that all co-applicants have to be co-owners.
Just a point to keep in mind, some HFCs charges a commitment fee of 1% per
annum on the amount of the loan yet to be drawn. This fee starts being
applicable nine to twelve months from the day you accept the loan and
continues to be charged till you avail of it fully.

4. How much time will the loan approval take?

Approximately between 2 and 3 weeks.

5. How much time will the loan disbursement take?

Fortunately, not much! After all the relevant documents have been thoroughly
checked and all other formalities such as payment of margin money (your
contribution) etc., are completed, your loan will be disbursed in one or two
weeks, at the most. And just in case you're wondering - your contribution is the
total cost of the property minus the amount of the loan!

6. In how many instalments can the loan be disbursed?

The loan will be disbursed in full or in suitable instalments (normally not

exceeding) taking into account requirement of funds and progress of
construction, as assessed by the Housing Finance company. So if you're in a
time and a cash crunch, you'll probably get your loan accordingly!

7. Are there any conditions I have to fulfill to avail a home loan?

Well, depending on which category you belong to, you need to meet the
following basic requirements –

In the case of self-employed/salaried individuals –

• The age of the individual, at the time of applying for the loan, should not
be less than 21 years and not more than the retirement age at the end of
the loan tenor. For a self-employed person, this outer age limit can be
extended to 65 years.
• The individual should be employed for the last 3 years.

The individual should be a resident of the city where the HFC has a collection

In the case of professionals/businessmen –

• A professional (Doctor/ Engineer/ CA etc.) should have an established
practice that has been operational over the last 3 years.

A businessman should be able to prove his financial soundness over the last 3

8. What are the general documents required?

To put it in a nutshell –

• Proof of Identity
• Proof of Residence
• Proof of Income.

9. What is the maximum amount I can borrow?

Generally speaking, you can borrow a maximum of 80-85% of the cost of the
property (this includes stamp duty and registration charges). However, do
remember that this limit is also linked to your paying capacity. Usually the
installment-to-income ratio (IIR) ranges between 25-50% of a person's total
income. Yet another factor would be the upper ceiling on the amount that the
HFC itself can lend. So depending on how much you earn and how much the
HFC is able to lend - the maximum amount would vary from person to person.

10. How will the HFC decide the loan amount I am eligible for?

Good question! Let's see - the most basic criterion will be your repayment
capacity! That in turn will depend upon –

• Your income,
• Its stability and continuity,
• Your age,
• Your educational qualifications,
• The number of dependents you have,
• Your spouse's income,
• Your assets and liabilities,
• Your savings history.

Other factors which would influence the amount of loan granted would be –

• The purpose for which you're taking the loan (purchase, construction,
extension or renovation of the house property),the time you need to
repay it.

To put it simply, what the HFC is concerned with while determining loan
eligibility - is that you should be able to repay the loan - comfortably!

11. Now if you're wondering how the HFC calculates your monthly income:
here's a close look at how it all adds up!

The HFC takes into account all your recurrent credits i.e.:

• Basic Salary, HRA, and other allowance apart from LTA and medical
any rental income that you are getting.
• The amount you save on rents thanks to your moving from a rented
house to your own house.

If your spouse is working and is your co-applicant, his/her income will be

clubbed together with yours.

In short, for salaried people, the calculation will be, in the form of a simple sum

net cash inflows - expenses + commission

For self-employed people or private companies, the calculation will be as per

your profit and loss account –

net profit + 2/3rd depreciation + directors' remuneration

Once the EMI capacity of the person has been estimated and the tenure of loan
repayment is known, the HFC decides on the loan amount it can provide. This
is done with the help of an EMI table.
As you can see, it's all very scientific and sensible, so you don't have to worry
your own head too much!.
That's as far as detailed calculations goes. However some HFCs have schemes
for professionals like CAs, Doctors, MBAs and Architects which are
delightfully termed 'plain vanilla deals'! In these cases the amount of loan is
simply 1-2 times the gross receipts of the said professional.

12. What kinds of property can be financed through a home loan?

To get finance, the property you choose has to be acceptable to the HFC. The
age of the property should not be more than 25 years and the title to the
property should be clear and unencumbered. In other words, there should be no
hidden snags or doubtful ownership claims for the property loan to get a go-

13. Can I get a loan for commercial property, like offices etc.?

Yes, you certainly can but in that case, the loan to property-value ratio is much
less than in the case of a residential property.

14. Can I get a loan for renovation?

Yes, you can get a home improvement loan for internal and external repairs
(waterproofing, roofing, painting, plumbing, electrical work, tiling, flooring
etc.) and other structural improvements.

The improvements have to be those that will increase the life of your home,
contribute towards a better living environment and at the same time, add to the
value of your house. To get such a loan, you need to submit an estimate from
your architect to the HFC. However, you must remember that the maximum
loan amount and the maximum loan tenor allowable is much less in this case
than if you were buying or constructing a brand new house.

15. Can I get a loan for a plot of land?

Sure you can! Again, however, the loan to value ratio will be less than in the
case of other home loans.

16. Does the agreement for sale have to be registered?

Yes, very much so. In many states in India, the Agreement for Sale between the
builder and the purchaser is required by law to be registered. You are advised,
in your own interest to lodge the Agreement for Sale at the office of the Sub-
registrar appointed by the State Government under the Indian Registration Act,
In fact, the Union cabinet decided to make registration of immovable property
compulsory and restrict it to the area where the property is located in order to
streamline the system, curb malpractices and black money generation, and plug
huge revenue leakages. As a result of this order, 'benami' purchases and illegal
transfers on power-of-attorney basis, both common practices in cities like
Delhi, will hopefully be controlled and reduced to some extent.

17. Does the property have to be insured?

Yes, you will have to ensure that the property is duly and properly insured for
fire and other appropriate hazards, as required by the HFC during the period of
the loan and will have to produce evidence each year and/or whenever required
by the HFC. The HFC will be the beneficiary of the insurance policy. This is an
added cost that will add to the final cost of purchase of the property - so don't
forget to account for it when you're planning your house!

18. Can I get a loan for properties held on power-of-attorney basis?

No. After the measure taken by the union cabinet to make the registration of
immovable property mandatory, the Housing Finance companies would not be
able to grant a loan for property held on a power-of-attorney basis.

19. What is meant by the margin in a loan?

The finance companies do not finance the full value of the house. They finance
up to 80-85% of the property-value. The remainder has to be invested by the
person taking the loan. This is called margin money.

20. What is meant by the term co-applicant?

A home loan is taken either in a single name by an individual or jointly. In such

a case, the other person applying for the same loan is known as a co-applicant

21. Who can be my co-applicant?

If you are an individual - your spouse, your parents, or even your children can
be your co-applicants and their incomes can be clubbed with your income to
enhance the amount of loan you are eligible for. It makes sense therefore, that
the co-owner of a property has to be a co-applicant, but a co-applicant need not
be the co-owner of the property. If you are a partnership or a private limited
company, any one of the directors or partners can be your co-applicant

22. What are the various costs that have to be paid to the Housing Finance
company to avail of a home loan?

After all, you need to know what you're going in for! Well, the various charges
involved in availing a housing loan are –

• Interest cost
the interest cost for the finance provided.
• Processing, Overhead and Administrative Charges
these are one-time payments made for initiating the process of a housing
loan. They are generally taken as a percentage of the loan amount,
subject to a maximum and minimum amount.
• Pre-Payment Charge
these are the charges that are levied for pre-paying the loan.

Commitment Charge
This charge is levied on the un-drawn amount of the loan. The period for which
it is levied commences after a breathing period of a few months from the date
of sanction. The charge is levied after this period till the borrower withdraws
the funds.

23. What is the interest rate on a home loan?

Interest rates range between 12.5-14.5% and vary depending on the loan
amount and the period of repayment.

24. Which interest rate structure is better - daily/monthly/annual reducing

and why?

Before you agree to a re-payment structure, here are the pros and cons of them
all –

Daily Reducing

In this case, reducing principal repayments are credited at the end of every day

Monthly Reducing

Here, whatever you repay on your principal is credited at the end of every
month, and interest is calculated on the outstanding principal remaining. Since
you end up paying interest on the reduced principal every month as compared
to interest

On the outstanding principal at the end of every year in the case of annual
reducing, this tends to be the most beneficial structure, and is indeed what most
people go for!

Annual Reducing
Under this arrangement, interest is calculated on an annual basis on the
outstanding at the beginning of the year. The EMI therefore becomes 1/12th the
Equated Annual Installment.

The difference between daily and monthly rest is very negligible.

25. Can I get the benefit of reduced interest rates in the intervening period or
the during the balance tenure of my loan?

Yes you can, but only if you have opted for the floating rate being offered by
some of the big HFCs.

26.What is meant by security?

Simply what you can offer as guarantees to the HFC! As you will see, there are
various types of securities acceptable –

• The first mortgage (equitable/registered) of the property to be financed

by way of deposit of title deeds.
• The personal guarantee of one/two individuals acceptable to the HFC.

In the case of loans to allottees of flats/houses built by state housing

development authorities or members of co-operative housing societies - interim
security such as LIC policies, pledge of marketable shares and such other
investments need to be provided.

27. What kind of security do most Housing Finance companies require?

In most cases, the property itself, bought or intended to be bought, becomes the
security and is mortgaged to the lending institution till the entire loan is repaid.
Some companies require additional security such as life insurance policies, FD
receipts, share or savings certificates.

28. What is EMI?

EMI or Equated Monthly Instalment, refers to the fixed sum of money that you
will be paying to the HFC every month. It comprises both interest and principal

The size of the EMI depends on various factors –

1. the quantum of the loan,

2. the interest rate applicable and the term of the loan.

29. What is a Monthly Reducing Loan?

A loan in which the principal on which you pay interest reduces with every
monthly payment you make. Like we mentioned earlier, this is the most
beneficial type for the borrower!

30. What is an Annual Reducing Loan?

Under this scheme, the principal reduces only at the end of the year. Therefore,
you continue to pay interest on a portion of the principal which you've already
actually paid back to the lending company. In effect, you end up paying more
under the Annual Reducing Loan as compared to a Monthly Reducing Loan

31. What is Fixed Rate of Interest?

A fixed rate of interest means that the rate of interest on the loan amount
remains unchanged for the entire duration of the loan agreement, irrespective of
changes in the interest rates in the economy. Therefore, if you opt for a fixed
rate of interest you will not be able to benefit if interest rates are falling! On the
other hand, if the rates are rising, you end up paying more than you had
bargained for! So you see, it's one of those double-edged decisions!

32. What is Floating Rate of Interest?

A floating rate of interest is one that fluctuates according to the market lending
rate. Hence, in an environment where interest rates are rising, your budgeted
expenditure on the house loan also goes up! conversely, when they fall, you get
yourself a cheaper deal!

33. What are the tax benefits that are applicable to Home Loans and Home
Extension Loans?

Every Home Loan customer is eligible for tax benefits under Section 24 of the
Income Tax Act.

• Allowable deduction of interest paid during the year -

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

Tax exemption on Principal repaid during the year -

Budget 2000-01 provides for tax exemption on a maximum of 20% of a
principal amount of Rs. 20,000 or the actual interest paid during the year
(whichever is lower) to the Housing Finance Company from the total tax
payable by the customer.

34.Can I repay my loan ahead of schedule?

Wow, looks like you're liquid! Yes, you can pay your loan ahead of schedule.
However, you must consider that Housing Finance companies charge a fee for
early redemption of loans. This fee can vary between 1-2% of the loan amount
being prepaid.
• Center for Monitoring Industrial Economy

• Books

• M.A. SAHAF - Management Accounting principle and practice

• R.P. RASTOGI - Financial Management

• PANDEY I.M - Financial Management

• Web – Sites


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