A Project Report

1
A PROJECT REPORT FOR

HOME LOAN PROVIDED BY THE INDIAN BANK
SEMESTER
2023-24
SUBMITTED
IN PARTIAL FULLFILLMENT OF THE REQUIREMENT FOR THE AWARDS OF
DEGREE OF MASTERS OF COMMERCE
BY
ADITYA. A. MHASHILKAR
ROLL NO: 4013
MAHARSHI DAYANAND COLLEGE OF ARTS, SCIENCE,

COMMERCE & HSVC
SHRI MANGALDAS VERMA CHOWK, MUMBAI-400012
DECLARATION
I ADITYA A. MHASHILKAR the student of M.com semester 3 (2022-23)

hereby declare that I have completed the project on HOME LOAN
PROVIDED BY THE INDIAN BANKS
The information submitted is true and original to the best of my

knowledge.
(Signature of the student)
ADITYA A. MHASHILKAR
ROLL NO 4013
3
CERTIFICATE
This is to certify that Mr. ADITYA A. MHASHILKAR, ROLL NO:4013

OF SECOND YEAR MCOM., Semester 3 (2022-23) has successfully
completed the project on ‘HOME LOAN PROVIDED BY THE INDIAN
BANKS ' under the guidance of Ms Priyanka prasad
Course Co-ordinator
(Prof. Adv. Priyanka prasad)
Principal
(Dr. C.S. Panse)
Project guide/ Internal Examiner
External Examiner
ACKNOWLEDGEMENT
It is matter of outmost pleasure to express my deep sense of gratitude and

thanks to my guide and our
co ordinatior DR PRIYANKA PRASAD, the college teacher information

provided by them for this project
I also wish to express my hearties thanks to all people who have contributed
to the making of this project. I also heartily thank who have supported.
Provided their valuable guidance and helped for the accomplishment of the
project.
Above all, I wish to thanks the “UNIVERSITY OF MUMBAI” for giving me the
opportunity to work on this project which was done with great consideration
and outmost seriousness
5
Index
INTRODUCTION
RATIONALE OF THE STUDY
HYPOTHESIS
RESEARCH METHODLOGY
EXPECTED CONTRIBUTION
TYPES OF LOANS
INTODUCTION TO HOME LOAN
CHARACTERISTICS OF HOME LOAN
TYPES OF HOME LOAN
BENEFITS OF HOME LOANS TO BORROWERS
TAX BENEFITS
STEPS IN PLANNING FOR A HOME LOAN

 PURPOSE
 SELECTION OF A PARTICULAR HOME
LOAN
 FINDING OUT COST OF THE HOUSE
 FOLLOW UP WITH BANK’S PROCEEDS
FAIR PRACTICES CODE TO BE FOLLOWED BY

BANKERS WHILE GIVING HOME LOANS
PROCEDURE OF HOME LOAN & PARAMETERS IN
RELATION TO HOME LOANS
BIBLIOGRAPHY
WEBSITES
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 a lifetime investment needs a loan and that is how a home loan comes
into the scheme of things in your life.
Almost all public and private sector banks are offering home loans at attractive rates for
purchasing their dream home. Home loan usually cover a variety of types. All Banks have
come out with home loan products studded with features and value additions that the
schemes not only attractive but also serve as a substantial source to the borrowers for
owning their dream home.
7
RATIONALE OF THE STUDY
The rationale of the study can be considered as follows:
 It helps to improve research ability.

 The study enables to enhance the knowledge base regarding home loans and
Its various other aspects.
 It enables to think logically and practically.
 The study helps in development of skills of getting primary data.
 It leads to overall knowledge development
HYPOTHESIS
The hypothesis being put forth for this study about home loans is that the awareness
of home loans is 100% but after the survey the conclusion can be put that there are
still many people who do not know about home loans. Banks are coming up with
new innovative home loans schemes for increasing their customer base.
RESEARCH METHODOLOGY
The research methodology is data collection through
 Primary Sources
 Secondary Sources
Primary Sources: Survey by distributing questionnaire to the people taking

sample
Size of 100 Interviews conducted with bankers.
Secondary Sources: Date collection through books, magazines, websites,
journals,
Etc.
Expectations from the study are that it may contribute to the real scenario of
home
Loans demand and accordingly the banks can go for new innovative schemes. It
will
Also specify some recommendations and based on that banks can make suitable
Arrangements in a particular sector. It will also make people aware about the
various
Home loan schemes and its various procedures and formalities.
INTRODUCTION
Banking system in the world has emerged many centuries ago in India it rooted
Its seed with the existence of the General bank of India in the year 1786. In
earlier
Days banks were the financial Institutions dealing in day to day services I . e .
Accepting deposits and lending money. But now it has spread its wings to various
Others sectors like it first started lending to big business entities and has also
entered
Into the retail banking sector i. e. it started lending for purchasing car, for
education,
Marriage and most importantly for purchasing a house.
9
To own a house is every man’s desire. But more than that, shelter is a basic
human
Need next only to food and clothing in importance. Yet every year more and
more
People continue to be added to the category of homeless. Though a basic need of
all
A significant section of the society is severely handicapped in getting shelter at
Affordable cost. This need for housing finance for individuals was only fulfilled
with
The advent of National Housing Bank (NHB), Housing and Urban Development
corporation (HUDCO), Housing Development Finance Corporation, etc and most
particularly with the entry of commercial banks in the housing finance sector.
In Tune with the conservative traditions in lending, commercial banks played a

very
Limited role in providing housing finance till the early seventies. However, now as
Per Reserve Bank guidelines, housing finance is part of priority sector lending
schemes for banks. There has been progressive increase in housing finance
disbursed by commercial banks since 1979.
The housing finance industry is getting increasingly commoditised. Competition

Within the sector is ensuring that players offer consumers flexibility and features
to
Choose from. Features such as adjustable rate plans, lower processing fees/
monthly
Rest/interest rates/EMI/margin money, no prepayment penalty have become
Common across the industry. There is a growing trend among Banks and FIs to
Include the cost of registration, stamp duty, society charges and other associated
Costs while sanctioning loans to differentiate and make the home loans products
More attractive. This has resulted in further lowering the threshold limit for
buying a
House.
TYPES OF LOANS
Loan refers to a sum of money borrowed at a particular interest rate. More
generally,
It refers to anything given on condition of its return or repayment of its
equivalent. A
Loan may be acknowledged by a bond, a promissory note, or a mere oral promise
to repay. Banks grants 3 types of loans which are as follows:
Commercial loans or Industrial loans, Consumer loans and mortgage loan
1) Commercial loans: Commercial loans are mainly provided to the business and
Industrial firms. These can be divided into:
 Short term loans: Short term loans are mainly given for a period up to 1 year
And usually granted to the business and industrial firms to meet the working
Capital requirement. For e.g.: Cash credit, Bank overdraft etc. (loans to finance
The purchase of material or labour)
 Long term loans: Long term loans are granted for a period above 5 years and
Are granted to meet capital expenditure. For e.g. project finance, Education loan
Etc. (loans to purchase machinery and equipment’s). Most commercial bank
Offers a variable interest rate on these loans, which means that the interest rate
Can change over the course of loan. Sanction of loan depends upon the credit
and
Loan history of the borrower, the borrower ability to make scheduled loan
payment, the amount of capital the borrower has invested in the business, the
conditions of the economy and the value of the collateral the borrower pledges
to give the bank if the
Loan payments are not made.
2) Consumer Loans: One of the important areas of bank financing in recent years
Is towards purchase of consumer durables like TV sets, Washing, Machines etc.
11
Bank also provide liberal car finance. These days banks are competing with one
Another to lend money for these purpose as default of payment is not high in
These areas as the borrowers are usually salaried persons as default of payment is
not high in these areas as the borrowers are usually salaried persons having regular
income. Further, bank’s interest rate is also higher. For
e.g. Housing Loan, Medical Loan, Car Loan, Education Loan.
There are two types of consumer loans:

 Closed ended credit: Closed ended loan are for fixed period of time, fixed
Amount of loan, but not for a fixed purpose. The items purchased by the
Consumer serve as collateral for the loan.
 Open ended credit: Open ended loan are for variable amount of money and it.
Does not require the borrower to specify the purpose of the loan. For e.g. Credit
Cards. Most open ended loans carry fixed interest rate and it requires no
collateral
But interest or other penalties or fees may be charged. Open end credit interest
rates
Usually exceed close end rate because open end loans are not backed by
collateral.
3) Mortgage loans:
These are usually long term loans and the interest rates charged can be either a
variable or a fixed rate for the term of the loan which often ranges from 15-30
years. These loans are used to purchase land or building such as household and
factories which serves as the collateral for the loan.
Classification of loans: Loans given by bankers can also be classified broadly into
the following categories on the basis of security:
1. Clean Loans: Advances for which are given on the personal security of the
debtor, for which no tangible or collateral security is taken; this type of
given either when the amount of the advance is very small, or when the
borrower is known to the banker and banker has complete confidence in
him.
2. Secured Loans: Loans which are covered by tangible or collateral security.

Bank provides such loan against different types of securities which a
banker may accept for such advances.
INTRODUCTION TO HOME LOAN

The sun at home warms better than sun elsewhere.
True isn’t it, where else do you find that comfort that makes you feel so special
everyday. Undoubtedly owning a house is the most important phase in ones life. Not
Long ago, turning this dream into a reality was a daunting task for the common man
With property rates going north all the time. But now, thanks to the proliferation of
Home loans and housing finance companies, one can aspire to own a roof over one’s
Head. Many think it is an expensive affair and beyond reach. Well that’s not always
true. It takes a little planning and awareness to get that home you want to call your
own.
Buying a home for the first time can be daunting to any person but in today’s time
Various banks are lending a helping hand to the people to purchase their dream
House. Thus people look forward towards choosing a home loan. The primary
concern
Of a housing finance company is to determine the loan amount that the borrower is
comfortably able to repay. The most popular method of financing a home purchase is
with a mortgage. This is a loan that is secured over the home. There are a number of
different mortgage suppliers and people will have to shop around in order to get the
best deal.
13
Home loan is one of the fastest growing retail and mass banking area. It forms an
important part of the country’s priority in 5 year plans. Almost all public and private
sector banks are offering home loans at attractive rates for purchasing their dream
home. Home loan usually cover a variety of types. All banks have come out with
home loan products studded with features and value additions that make the
schemes not only attractive but also serve as a substantial source to the borrowers
for owning their dream home.
Banks as financial service providers aims at providing financial support from the
Banking system to the needy for purchasing a home to the resident Indians as well as
Non-resident Indians. The main emphasis is that every needy person is provided with
An opportunity to pursue home loan with the financial support from the banking
system with affordable terms and conditions.
CHARACTERSTICS OF HOME LOAN

 Home Loans are the consumer loans.
 Home loans are long term loans provided by various banks.
 These are large amount loans which provide financial support to the people who
want to purchase their dream home.
 Home loans are secured loans.
 The borrowers get to own their dream home and pay for it in easy and affordable
instillments.
 Banks and financial institutions offers home loans at cost-effective rates.
 Tax concessions make home loans more attractive than other loan products.
 The borrowers can get tax deduction on repayment of the principle amount of a
loan taken to buy or construct a house.
 The interest paid on a loan is deductible from income from property’, even if it
has not been paid during the year.
 Interest paid on a new loan taken to repay the original housing loan is also
allowed as deduction.
TYPES OF HOME LOANS

Leading institutions like banks offer different types of home loans for a wide gamut of
housing activities. Some of the popular home loan are:
Home Purchase Loans: There are the basic home loans for the purchase of a new
home.
Home Improvement Loans: These loans are given for implementing repair works and
renovations in home that has already been purchased by the borrower.
Home Construction Loans: These loans are available for the construction of a new
home.
Home Extension Loans: These are given for expanding or extending an existing
home. For example addition of an extra room, etc.
Land Purchase Loans: These loans area available for purchase of land for both home
construction or investment purposes.
Bridge Loans: Bridge Loans are designed for people who wish to sell the existing
home and purchase another. The bridge loan helps finance the new home, until a
buyer is found for the old home.
Balance Transfer: Balance Transfer loans help the borrower to pay off an existing
home loan and avail the option of a loans with a lower rate of interest.
15
Refinance Loans: These loans helps to pay off the debt the borrower have incurred
from private sources such as relatives and friends, for the purchase of your present
home.
Home Conversion Loans: These loans are for those people who have financed the
present home with a home loan and wishes to purchase move to another home for
which some extra finances are required. In home conversion loan, the existing loan is
transferred to new home including the extra amount required, eliminating need for
pre-payment of the previous loan.
Stamp Duty Loans: These loans sanctioned to pay the stamp duty amount that needs
to be paid on the purchase of property.
Loans to NRIs: These loans are given to the NRI’s to build/buy a home in india. EMI is
payable till the loan is paid back in full. It consists of a portion of the interest as well
as the principal.
BENEFITS OF HOME LOANS TO BORROWERS

Food, clothing, shelter—these are the basic needs of every individual. But to most owning a
home is just a dream. The real estate boom and steadily rising capital values are now making
it next to impossible for most people to fund their own homes. Banks and financial
institutions are offering aggressively competitive rates on home loans. Making it possible for
more people to own the home of their dreams. Many builders have tie-ups with banks or
financial institutions so that prospective buyers are assured of housing loans without any
hassles. Taking a home loan services two purposes. One of course is that the borrower gets
to buy his/her own home and pay for it in easy instalments. The other is that the borrowers
get several benefits under the income tax act.
TAX BENEFITES
1) For Resident Indians

There are certain tax benefits for the resident Indians based on the principal and interest
component of a loan under the income tax act, 1961. It may help one get tax benefit up to
Rs. 50,490 p.a. (approx.) if interest repayment of Rs.1,50,000 p. a. is paid. In addition to this,
one is eligible for getting tax benefits under section 80c on repayment of Rs. 1,00,000 p.a.
that further the tax liability by Rs. 33,660 p.a.
These deductions are available to assesses, who have taken a loan to either buy or build a
house, under section 24(b). However, interest on borrowed capital is deductible up to Rs.
150,000 if the following conditions are fulfilled:
 Capital is borrowed acquiring for or constructing a property on after April 1,

1999.
 The acquisition and construction should be completed within 3 years from the end of
the financial year in which capital was borrowed.
 The person, extending the loan, certifies that such interest is payable in respect of
the amount advanced for acquisition or construction of the house.
 A loan for refinance of the principle amount outstanding under an earlier loan taken
for such acquisition or construction.
If the conditions stated above are not fulfilled, then the interest on borrowed capital
is deductible up to Rs 30,000 though the following conditions have to be satisfied:
 Capital is borrowed before April 1, 1999 for purchase, construction, reconstruction

repairs of renewal of a house property.
 Capital should be borrowed on or after April 1, 1999, but construction is not
completed within 3 years from the end of the year, in which capital is borrowed.
17
In addition the above, principal repayment of the loan capital borrowed is eligible for
a deduction of up to RS 100,000 under section 80C from assessment year 2006-07.
Terms and conditions for availing Tax benefits on Home Loans

1. Tax deduction can be claimed on housing loan interest payments, subject to
an upper limit of Rs 150,000 a financial year.
2. An additional loan for extension/improvement to the same house and the

individual’s deduction on the existing loan are less than Rs 150,000; he can
claim further benefits from the additional loan taken, subject to the upper
limit of Rs 150,000 for a financial year.
3. Tax benefits under section 24 and deduction under section 80C of the income
tax act can be claimed only when the repayment is made. If an individual fails
to make EMI payments, he cannot claim tax benefits for the same.
4. According to the income tax act, tax rebates can only be claimed by the loan
applicant.
5. The interest on home loans taken for repairs, renewals or reconstruction, also
qualifies for the deduction of Rs 150,000.
6. A husband and wife, both of whom are tax-payers with independent income
sources, get tax deduction benefits, with respect to the same housing loan; to
the extent of the amount of loan taken in their own respective name.
7. If individual buys a house and sells it within the same year or after 3 years,
and if any profit. Its made, then a capital gains tax liability arises on the same
for which the individual is liable to pay short-term capital gains tax since the
sale took place in the same year. But in case, if the sale had taken place after
3 years, then a long-term capital gains tax liability would have arisen.
8. On being proved that the home loan is simply an arrangement between the
loan-seeker and the builder or with a third party for the purpose of claiming
tax benefits, then tax benefits will not be allowed and benefits, previously
claimed. Well be clubbed to the income and taxed accordingly.
Tax benefits on interest on housing loans are allowable only for the original
loan and according to section 24(!), tax. Benefits can also be availed for a
second loan taken to repay the first loan but not for subsequent loans. This
means that if the borrower have already availed of one loan to refinance the
original loans and want to now avail a third loan to refinance the second loan,
tax rebate on interest payments will not be permissible.
2) For Non-Resident Indians
NRIs cannot claim tax benefits on home loans in India as they to pay tax in the nation
where they work and earn. Moreover, the borrowers need to file tax returns to become
eligible for home loans. However, if they pay tax in India for income earned in India, they
claim tax rebate for the home loan.
STEPS IN PLANNING FOR A HOME LOAN
PURPOSE
The first step in planning for a home loan is to find out the purpose for which one is
planning to take the loan. Depending on the borrowers requirements, home loan can
be taken for a variety of purpose such as to purchase a new home, to implement
19
repair works and renovations in a home that has already been purchased by the
borrower, to construct a new home, for expanding or extending an existing home, to
purchase land for both home construction or investment purpose 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

The selection of a particular home loan depends on the affordability position of the
borrower. What kind of home one can afford tis, more often than not, a function of
how much the maximum one can borrow?
How much on can afford/ the maximum on can borrow: banks follow a thumb rule
while deciding the maximum a person can borrow: the monthly repayment on the
loan should not be more than 40 per cent of the net monthly income. This ratio is
called the income to Installment ratio or IIR. Some lenders may even be more
conservative. One could expect to be allowed to borrow an even lower figure if they
consider in IIR of as low as 30 per cent of the net monthly income. They finance a
certain portion of the property value, typically 75-85 per cent. The rest is the
borrowers’ contribution usually called the down payment of the margin, and has to
come out of his (borrower’s) own resources.
Down Payment: Another important determinant of the value of the house one can
afford is how much the borrower has saved up. Since banks only finance between 75
and 85 per cent of the property value. Effectively the down payment can determine
the value of the home that one can go for. Of course, this is subject to the limit on
how much one can repay every month, as determined by the IIR.
FINDING OUT COST OF THE HOUSE

Buying a home involves many financial considerations. Some home buying expenses
are one-time costs and other are ongoing commitments. In addition there are other
costs that the borrowers should take into consideration in calculating the cost of the
house. Below is a checklist of additional expenses that the borrowers need to keep in
mind when purchasing a home.
Home buying costs
The down payment: A minimum down payment of 15 % is required a Normal

housing loan. The government offers tax incentive for homebuyers.
The Payment: A Home Loan Security is security for a loan on the property the
borrower own. It is repaid in regular monthly payments which are combined
payments. This means that the payment includes the principal (amount borrowed)
plus the interest (the charge for borrowing money).
Checklist of Additional Expenses: Additional expenses need to be incurred after
one has moved in.
Maintenance costs: These costs are incurred to cover the costs of anticipated or
unexpected repairs or replacement of such things as the painting or household
appliances.
Renovation and repairs costs: These costs are incurred in cases where the need
arises to repair the house. A home inspection may indicate that the home needs
major structural repairs.
Property taxes: property taxes are always a certainty and needs to be taken into
account when one plans to purchase a home.
Property insurance: It is imperative for the borrowers to take insurance of the
house they plan to purchase. Additional expenses go into insuring the house like
premium expenses, legal expenses, etc.
Service charges: This includes the service charges levied by the banks and financial
institutions for processing the loan application.
21
Lawyer (notary) fees: Even a straightforward home purchase requires a lawyer to

review the Offer to Purchase, search the title, draw up mortgage documents and
tend
to the closing details, Lawyers’ fees for a Housing loan and purchase range widely
depending on the complexity of the deal but will probably be at least Rs.500
Moving costs: This refers to the expenses incurred when one moves from one home
to another for example expenses incurred for hiring a truck.
Other Costs: This is a list of possible extra costs involved in buying a home. Some
of them are one-time costs and others, such as maintenance fees and property
insurance, will be ongoing monthly expenses.
SELECTION OF THE MOST SUITABLE BANK
Choosing the most suitable bank is a crucial stage in the home loan process. It is
imperative to choose the financer with utmost care and proper consideration of its
past track record since the customer is entering in a long-term relationship with the
bank when he takes a home loan.
After finding out the cost of the house, one most compare banks on the basis of cost
to see which loan is the cheapest. Besides cost factors, though there are some other
factors that one need to consider. Evaluation of the lenders can be done on the basis
of the following factors:
Rate of interest: This is where it all begins. Although the rate of interest offered by
most banks is more or less the same on paper. some degree of bargaining in most
cases, leads to a lowering of rates by as much as 0.25 to 0.50 percentage points and
more so if the borrowers profile happens to match the requirements of the bank. The
lowering of interest rate has a significant impact over the long term although the
difference is not so noticeable over the near term. Care needs to be taken to ensure
that the difference is not being offset elsewhere by the bank under the guise of other
charges.
Total financing cost: This measure quantifies what the loan really costs. It not only
incorporates interest cost but also combines the other costs such as processing fees
and other administrative charges collected by lenders upfront. Looking for a bank not
just with the lowest interest rate but the lowest total financing cost can help one in
opting for the best deals.
National presence: The bank should be across the country or at least have
Branches in all major metros and towns. This assumes importance if the current job
Of an individual is of a transferable nature (e.g. bank jobs, defence personnel) or if
he needs to make long and frequent outstation visit (e.g. consultant businessmen).
The individual shouldn’t be put through the hassle of couriering his cheques to the
resident branch every time or contacting the resident branch each time he has a
Difficulty or a query. So it helps if the bank is well networked across the country.
Prepayment/foreclosure benefits: For many individuals, this plays a significant

Role in their decision to go in for a particular bank. For example, many salaried
Individual know for fact that their salaries would be revised every year. This
Means that they can play a higher EMI going forward. some of these individual also
Know that they would be getting a bonus, which they can utilise to play off their
home loan (either fully or partly). Some banks do not charge individuals for making
a prepayment/foreclosing his account. Obviously, such bank should get preference
over other banks that do levy a prepayment charge.
Calculation of the exact home loan amount: Here the bank differs in their
Calculation of the loan amount to be disbursed. Some banks calculate the amount to
Be disbursed on the basis of, say, the gross salary while some banks calculate it on
The net salary. This might make a difference to individual as the loan amount and
the EMI will vary across banks to understand which bank offers the best deal to the
borrower.
Extent of funding: Some banks fund only 60 to 75 per cent of the property value,
23
while other find higher amount. If the amount of down payment one have saved
up in not enough, this factor may tilt one leader’s loan in ones’ favour.
Flexibility of repayment plans. Some banks offers flexibility in terms of

Repayment. They could have either have ‘step-up’ plans in which the EMI is stepped
up as the tenure increases (suitable for young borrower just starting their careers) or
repayment plans that allow the borrower to load payment upfront (suitable for
borrower who are close to retirement). Also, some banks allow borrower to fix the
monthly payment themselves, especially when they take a loan far lower than what
they are eligible for and where repayment are very comfortable. In such a case, the
borrower himself can fix the loan tenure. If the profile fits one of these cases, one
can consider a bank who allow such flexibility.
Property characteristics: some banks are wary about financing flats hat are old
(more than 30 years). So, it is important to cheek whether the bank will finance such
a property. Also, very few banks lend against properties that are sold by holder of
power of attomey on a property, rather than owners.
Collateral: Housing loan are already backed by collateral – the house being financed.
In addition to this, some banks ask for collateral such as life insurance policies and
fixed deposits. Since there are banks who will not ask for such collateral and it is not
particularly necessary to cough up extra collateral, especially if the credit is good one
can look for a bank that does not ask for such collateral.
Service: Some banks offer some extra services that make the loan process a whole
lot easier. They come to the applicant’s home and get the application from filled by
him; they drop the disbursed check to the home or office of the borrower. When
there is a tie-up with the employer of the borrower, the process becomes a whole lot
easier.
Other factors: Other factors like documentation, processing fees, document storage
facilities and several other factors can be considered. It is also important to consider
the time taken to process the loan as well as special deals that a particular bank may
have with real-estate developer. For example, individuals do not like it if the
documentation is an irksome process or if the processing fees are exorbitant.
E) FOLLOW UP WITH BANKS PROCEEDS
After the application is submitted along with all supporting document, 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
from and the applicant’ s explanations during the interview.
The lender then conducts a credit evaluation of the applicant, which also factors in
the property valuation report from an independent valuer appointed by the lender
himself. If the loan officer has some queries, more documents and more explanations
may be needed. Based on the finding of the credit evaluation, a loan amount is
determined and sanctioned. A sanction letter sent to the applicant who generally
contains a disbursal plan.
FAR PRACTICES CODE TO BE FOLLOWED BY BANKERS WHILE

GIVING HOME LOANS
With a view to setting out fair lending practices in a transparent manner, the RBI has
advised banks and financial institutions (Fis) to adopt the following as Lenders’ fair
practices code.
The Fair Practices code applies to the following areas:

A) Application for loans and their processing
25
1) Standard schedule of fee/ charges relating to the loan application depending on the
segment to which the accounts belong should be made available to all the prospective
borrowers in a transparent manner, along with the loan application, irrespective of the
loan amount. Likewise, amount of fee refundable in the event of non-acceptance of
application, prepayment options and any other matter which affects the interest of the
borrower should also be made know to the borrower at the time of application.
2) Receipt of completed should be duly acknowledged.
3) The acknowledgment should also include the approximate date by which the applicant
should call on the bank for preliminary discussions, if deemed necessary.
4) All loan application will be disposed of within a stipulated period from the date of receipt
of duly completed loan application i.e. with all the requisite information/papers.
5) In case of rejection of loan application, irrespective of category of loans or threshold
limits, the same should be conveyed in writing along with the main reason(s), which led
to rejection of the loan application. The time frame for conveying the reason/s of
rejection should be as the schedules.
B) Loan appraisal and terms/conditions
1) in accordance with bank’s prescribed risk based assessment procedures, each loan
application should be assessed and suitable margin/securities should be stipulated based
on such risk assessment and bank’s extant guidelines, however without compromising on
dure diligence.
2) The sanction of credit limit along with the terms and condition thereof is to be conveyed
to the loan applicant in writing and applicant’s acceptance of such terms and conditions
should be obtained in writing. Such terms and condition as have been mutually agreed
upon between the bank and borrower prior the sanction will only be stipulated.
3) Copy of loan documents. Along with a copy all relevant enclosures should be made
available to the loan applicant on specific request. Standard sanction letter would
include instances of approval, disallowance, etc. the bank is under no legal obligation to
consider increase/additional limits/facilities without proper review/assessment.
4) In case of lending under consortium arrangement, the participating banks would decide
the timeframe to complete appraisal of the proposal and communication of the decision.
The bank will abide by the decision of the consortium.
C) Disbursement of loans including changes in terms and conditions
1) Disbursement of loans sanctioned is to be made immediately on total compliance of

terms and conditions including execution of loan documents governing such sanction.
2) Any changes in terms and conditions, including interest rate and service charges, should
be informed individually to the borrowers in case of account specific changes and in case
of others by public notice/display on notice board at the branches/on the bank’s
website/through print and or other media from time to time.
3) Charges in interest rates and service charges should be affected prospectively.
4) Consequent upon such charges any supplemental deeds, documents or writings are
required to be executed, the same shall also be advised. Further, availability of facility
will be subject to execution of such deeds, documents or writings.
D) Post disbursement supervision
1) Post disbursement supervision by banks/FIs, particularly in respect of loans upto Rs. 2

lacs, should be constructive with a view to taking care of any genuine difficulties that the
borrower may face.
2) Before taking a decision to recall/accelerate payment or performance under the
agreement or seeking additional securities the lenders should give reasonable notice to
the borrower.
3) All securities pertaining to the loan should be released by banks/Fis on receipt of full and
final payment of the loans subject o any legitimate right or lien and set off for any other
claim that the bank/ financial institution may have against the borrowers. If such right is
to be exercised, borrowers should be given due and proper notice with requisite details.
E) Other general guidelines

27
1) The banks/ Fis should refrain from interference in the affairs of the borrower except for
what is provided in the terms and conditions of loan sanction documents (unless new
information not earlier disclosed by the borrower, has come to the notice of the bank as
lender). However this does not imply that bank’s right of recovery and enforcement of
security under law as well as appointment of nominee directors, where required, is
affected by this commitment.
2) While lending banks/Fis should not discriminate on the grounds of gender, caste or
religion in its lending policy and activity.
3) In the case of recovery, bank/Fis should resort to the usual measures as per laid down
guidelines and extant provisions and should operate within the legal framework.
4) For the purpose of recovering loans, banks/Fis should have a model policy on code for
collection of dues and repossession of security. They should not resort to undue
harassment viz. persistently bothering the borrowers at odd hours, use of muscle power,
etc.
5) In case of request for transfer of borrower accounts, either from the borrower or from a
bank/Fis, the bank’s consent or otherwise should be conveyed within a stipulated period
from the date of receipt of request.
6) The branch officials should immediately take up the matter for redressal in case of any
complaint/grievance from the applicant/borrowers.
7) In case of complaints received, the branch should take into consideration the matter with
full details within a stipulated period from date of receipt and take all necessary steps to
redress and resolve the grievance/dispute within a proper time frame.
PROCEDURE OF HOME LOAN
Home loan procedure caters to process right from the time the customer walks into the bank
with a request for home loan till the time the loan is finally repaid by the customer. The
three major phases in the home loan procedure are the information acquisition, credit
appraisal and disbursement. Tracking the performance of the process in an underlying phase
that runs across the application processing cycle and is critical for monitoring and
profitability for the bank/financial institution.
The procedure for available a home loan can be explained with the help of the following
flow chart:
Submission of application from
Personal Discussion with customer
Field Investigation by the bank/FI
Credit Appraisal and loan sanction
Issue of offer letter to the customer
Submission of property / legal documents
Legal check on the property by the bank
Technical check on the property by the bank
Disbursement
Repayment
Interest tax certificate
Prepayment by the customer

29
A. Submission of application from: The application is submitted along with photograph,

credit documents and a cheque for processing documentation and administration
fees by the customer. The credit documents comprise documents to establish
income, age, residence, employment investment, etc. during this stage, the
bank/financial institution cheeks the repayment capacity of the customer. The
repayment capacity is determined by taking into consideration factors such as
income, age, qualification, number of dependants, spouse’s income, assets, liabilities,
stability and continuity of occupation and saving history.
B. Personal discussion with customer: some banks/Fis requires the customer be
present at the time of the credit appraisal. Some banks/Fis may insist on a personal
interview with the customer and perform a reference check on the references
provided by the customer on the application from. For the personal discussion the
customer needs to take with him all documents pertaining to the information
provided by him on the application form.
C. Field investigation by the bank/FI: the bank/FI validates information provided by the
customer on the application from. This stage revolves around two key aspects.
Critically appraising the credit worthiness of the customer and analysing the risk in
lending. It is necessary to capture all the information required to cater to these
aspects. It is important to verify that the information supplied by the customer is
correct and authentic. Banks achieve this mostly through external agencies. Also, the
validity and authenticity of information can be done through conducting cheeks on
the residential address of the customer, the place of employment of the customer,
and credentials of the employer, verification of documentary profs of income, age
and other information. To minimize the risk, it is necessary to check that the
customer is not a fraud or black listed within the bank or other institutions.
D. Credit Appraisal and loan sanction: the next phase in the home loan process is the
credit appraisal and home sanction. After checking the customer’s repayments
capacity, the bank/FI sets norms that define customer’s eligibility for a loan amount.
The loan then gets sanctioned along with certain terms and conditions. When
evaluating the measurable aspects of home loan requests, an analyst addresses the
following issues: the character of the borrower, the use of loan proceeds, the amount
needed, and the primary and secondary sources of repayment. Therefore, the bank
has to base its decisions more on qualitative parameters rather than quantitative
aspects. Credit analysis therefore is distinct for each type of home loan scheme.
Credit analysis is the most popular methods of evaluating home loans.
E. Issue of offer to the customer: the bank/FI sends an offer letter to the customer with
the loan sanction details which mention:
 Loan amount
 Rate of interest and whether it is fixed / variable rate of interest if variable, period
after which the rate of interest would be rest- annual / monthly reducing balance.
 Loan duration
 Mode of loan repayment
 Scheme of the loan, if a special scheme has been offered to the customer
 General terms and conditions of the loan
 Special condition, if any, which the customer need to adhere to prior to
disbursement
 Submission of the acceptance copy of the offer letter and a cheque for administrative
fees by the customer
F. Submission of property / legal documents by the customer to the bank/Fi:
After the selection of the property, the customer is required to submit the original
documents pertaining to the property being purchased or mortgaged (if the property
purchased is different from the property mortgaged). The bank/FI keeps the property
documents as security for the loan amount given to the customer till the time the
loan is fully repaid.
G. Legal check on the property by the bank: the bank/ FI sends all the documents to
their empanelled lawyer for a through security. On receiving the lawyers ’s report
that the document are clear, the bank/FI decides to disburse the loan to the
customer. If the document sent to the lawyer are not enough to arrive at a
judgement, the bank/FI request the customer to finish additional documents.
H. Technical check on the property by the bank/financial institution: prior to
disbursement, the bank/FI conduct a site visit to the customer’s property to verify
the following:
31
In case of under construction property:
 Quality of construction
 Stage of construction: whether it is the same as mentioned in the payment notice
given to the customer by the builder
 Progress of work
 Layout of flats and area of property is within permission granted by the governing
authority
 Requisite certificates have been received by the builder to start construction at
the site
In case of ready construction/resale:

 Age of the structure
 Quality of construction
 Whether the structure will last the tenure of the loan
 External maintenance of the property
 Internal maintenance of the property
 Surrounding area (development)
 Required certificates from the governing authority have been received by the
builder for handing over possession of the flat
 There is no existing lien or mortgage on the property
I. Disbursement: after verifying that the property is legally and technically clear, the
bank/FI disburses the loan amount on the basis of the stage of construction of the
property. The customer needs to pay the margin money from his own contribution
prior to the disbursement.
J. Repayment: the repayment of the loan by the customer starts only after the full
disbursement of the loan amount has been made by the bank/FI. The loan is always
repaid by way of EMIs. The mode of repayment, however, differs from case to case.
In case of a loan repayment done through deduction against salary (DAS), post dated
cheques (PDCs), standing instructions (SI) and cash / demand draft (accepted only by
some banks/Fis). The customer can deposit the amount of his EMI every month at
the bank/FI’s office.
K. Interest tax certificate: this certificate is given by the bank/FI to the customer to avail
of tax benefits that accrue through a home loan. The customer can submit this to his
employer or chartered accountant to account it while calculating the customer’s tax
liability.
L. Prepayment by the customer: the customer can either partly or fully prepay his loan
at any given point of time. The loan could be partly of fully disbursed when the
customer wishes to prepay his loan. Most banks/Fis, however, have a limit on the
number of times that a person can prepay his loan. There is, normally, also a
minimum amount that a customer has to prepay each time he wishes to do so.
Whenever a customer makes a prepayment, the customer has an option of reducing
his EMI by keeping his tenure constant.
PARAMETERS IN RELATION TO HOME LOANS
Home loans are an important means of social mobility. Under home loans, the
eligibility criteria, documentation, interest rates, quantum of loan, margin
requirement, security, repayment etc and such other important parameters are put
into consideration by banks and financial institutions while giving loans to the
borrowers. The parameters put down by banks and financial institution vary from
institution to institution. However, the overall guidelines followed by them are given
as below:
 ELIGIBILITY CRITERIA

33
Home loan eligibility for resident Indians depends upon the repayment capacity
of the loan applicant. The maximum loan that can be sanctioned varies with the
banks and other housing finance companies (HFC) and generally, the maximum
loan amount granted is 80 to 85% of the cost of the home.
Home loan eligibility corresponding to repayment option is based on the

following factors. Even though, the eligibility criteria may vary according to the
HFCs regulation:
Age (Minimum) 21 years

Age (Maximum) 58(salaried), 60(public limited/government
employees), (self employed)
Qualification graduation
Income Stable source of income and saving history
Dependents Number of dependents, assets, liabilities
Other income sources Spouse’s income
As home loan rates increase, the loan eligibility for a borrower becomes stiffer. In
such a scenario, some home loan borrowers might have to re-evaluate their
options (in terms of loan amount) on account of the new eligibility criteria. Home
loan eligibility can be enhanced by:
i) Increasing the home loan tenure: one of the basic process of enhancing the
home loan eligibility is by opting for a higher tenure. This is so because the
EMI, which an individual has to pay, starts to decline as the tenure increase
while the interest rate as well as the principal amount remains the same.
What changes through, is the net interest outgo, which rises with a rise in
tenure. And since the individual is paying a lower EMI now, his ‘ability to pay’
and therefore his loan eligibility automatically increase.
ii) Repaying other outstanding loans: there might be adverse effect on home
loan eligibility for individuals with outstanding loans like car loans or personal
loans. Industry standards suggest that existing loans with over 12 unpaid
installments are taken into account while computing the home loan
borrower’s eligibility. In such a scenario, individuals have the option of
prepaying in part/full their existing loans. This will ensure that their eligibility
for the home loan purpose is unaffected.
iii) Clubbing of incomes: home loan eligibility can also be enhanced by clubbing
incomes of spouse, children (son of daughter) staying with the applicant and
having regular income and even earning parents (father or mother) living with
the applicant. The eligibility in such cases will be calculated on the clubbed
income of both the applicants enhancing the individual’s eligibility to the
extent of the co-applicant’s income.
iv) Step-up loan: individuals can also enhance their loan eligibility by opting for
step-up loans a step-up loan is a loan wherein an individual pays a lower EMI
during the initial years and the same is enhanced during the rest of the loan
tenure. HFCs usually consider the lower EMI of the initial years to calculate
his loan eligibility while the initial lower EMI helps increase the individual’s
capacity to borrow’.
v) Perks: salaried individuals must ensure that variable sources of income like
performance-linked pay among other are taken into consideration while
computing their income. This in turn will imply that the loan amounts they
are eligible for stand enhanced as well.
However, potential investors and borrowers must work out solution 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.

The eligibility criteria of NRIs differ from resident Indians based on a few
parameters. The parameters include:
Age: The loan applicant has to be 21 years of age.
Qualification: The NRI loan seeker has to be a graduate.

35
Income: The loan applicant has to have a minimum monthly income of $ 2000
(although, this criterion may differ across HFCs). The eligibility is also
determined by the stability and continuity of your employment or business.
Payment options: The NRI also has to route his EMI (equated monthly
installments) cheques through his NRE/NRO account. He cannot make
payments form another source say, his saving account in India.
Number of dependants: The eligibility of the applicant is also determined by

the number of dependents, assets and liabilities.
An NRI applicant is eligible to get a home loan ranging from a minimum of Rs
5 lakhs to a maximum of Rs 1 crore, based on the repayment capacity and the
cost of the property, which although is variable by the priorities of the home
loan provider. Also home loan tenure for NRIs is different from resident
Indians. An applicant will be eligible for a maximum of 85% of the cost of the
property of the cost of construction as applicable and 75% of the cost of land
in case of purchase of land, based on the repayment capacity of the borrower.
However, a NRI can enhance his loan eligibility by applying for home loans
with a co-applicant who has a separate source of income. Also, the rate of
interest for home loans to NRI is higher than those offered to resident
Indians. The difference is to the income also, the rate of interest for home
loan to NRIs is higher than those offered to resident Indians. The difference is
to the extent of 0.25%-0.50% some HFC also have an internally earmarked
‘negative criterion’ for NRI home loans. As such, the NRIs who hail from
locations that are marked as being ‘negative’ in the books of HFCs, find it
difficult to get a home loan.
 QUNATUM OF LOAN
The quantum of loans is assessed based on the net monthly/net annual income
with a direct bearing on age factor of the borrower. A person of age in the range
of 21 to 45 years is eligible for a maximum amount of 60 times of his net monthly
income (NMI)/ five times of net annual income. In case the age is above 45 years
the quantum will be restricted to 48 times of NMI/four times of net annual
income. Many banks have put a ceiling on the maximum amount of home loan at
Rs.50 lakhs. In order to assess the quantum of finance income of spouse of close
relative can also be reckoned, provided that person becomes a co applicant.
 DOCUMENTATION
“Loan documentation” refers to the documents needed to legally enforce the

loan agreement and properly analyse the borrower’s financial capacity.
Documentation is an essential component from the point of view of the safety of
an advance. The ability to control arises from the documentation of provisions,
which confirm understanding on the basis of which a credit facility has been
sanctioned. Documents should be properly drafted, stamped and executed with
necessary legal formalities, if any. An effective loan approval process establishes
minimum requirements for the information and analysis upon which a credit
decision is based.
There are certain sets of documents that need to be submitted at the time of
application for a home loan. The documents sets will vary according to the
individual status – either resident or non resident in India, as also the type of loan
that the borrower may want to avail of.
Resident Indians Non – Resident Indians
 Income documents  Income documents

 Property documents  Property documents
 Personal documents  Personal documents
37
Documentation refers to the specific documents to be submitted by resident

Indians as they apply for home loan. These documents are very much necessary
for the banks to avoid any dispute and uncertainty. The documents to be
provided by the resident Indian include income proof, property documents and
personal identification documents, etc. which of course varies based on the
borrowers financial status and the type of loan he want to avail. And of course
every resident Indian should follow some eligibility criteria before applying for
home loans in India.
However, there are some standard documents made mandatory for a loan
applicant to produce such as the loan applicant’s profile, earning life of the
applicant and present financial status proof etc.
 The applicant’s profile refers to the bio-data of the applicant, mentioning his
address, age, family background and detail information.
 The earning life of the applicant’s proof clarifies the capability of the loan
payment.
 The present financial status gives the present capability of handling the own
contribution and other expenditures. The include the mortgage to be
deposited against the loan amount.
1) Income documents
 If you are employed

 Verification of employment from
 Latest salary slip/salary certificate showing all deduction for at least the past 6
months
 Form 16 from your employer for the past 3 years.
 If your job is transferable, permanent address where correspondence relating
to the application can be mailed.
 If you have been in your present employment/ business or profession for less
than a year, mention details of occupation for previous 5 years giving position
held reasons for change and period of the same.
 If you are self employed
 Balance sheet and profit and loss account of the business/profession along
with copies of individual income tax returns for the past 3 years as certified
by a charted accountant.
 A note giving information on the nature of the business/profession, year of
establishment, present bankers, form of organisation, clients, suppliers etc.
 Your net worth as an applicant/co- applicant.
2) Property documents
 Purchase of a flat or apartment from a builder/promoter
 Title deeds of the builder/land owner for a period of at least 13 years.
 Development agreement between the builder and land owner if applicable.
 Power of Attomey executed in favour of the builder, if applicable.
 An encumbrance certificate for the past 13 years.
 The khata certificate. (basic document indicating ownership of property as
entered in the register of the government authorities.)
 Up-to-date tax paid receipts of the property.
 A sanctioned plan and license.
 An agreement for sale and a construction agreement with the borrower.
 In case purchase of house from second owner
 Title deeds of land owner for a period of at least13 years.

 Encumbrance certificate for the past 13 years.
 Khata certificate (basic document indicating ownership of property as entered
in the register of the government authorities).
39
 Up to date tax paid receipts of the property.

 Sanctioned plan and license.
 Agreement for sale in favour of the applicant/applicants.
 Valuation report from qualified values.
 In case of repairs / renovation/ extension of house/ flat
 Title deeds of land owner for a period of at least 13 years

 Khata certificate (basic document indicating ownership of property as entered
in the register of the government authorities).
 Sanctioned plan and license for the extension. Agreement for sale in favour of
the applicant/applicants.
 Estimates of costs from a qualified engineer.
3) Personal documents
 1 passport size photograph,
 1 copy of your passport/pan card/driving license/school leaving
certificate/birth certificate/LIC policy/ bankers sign verification,
 1 copy of last month’s telephone bill/ electricity bill/ration card (first and last
page)/title deed of property/ rental agreement/ driving license)
The documentation required to be submitted by the NRIs are different from the
resident Indians as they are required to submit additional documents, like copy of
the passport and a copy of the works contract, etc. and of course NRIs have to
follow certain eligibility criteria in order to get home loans in India.
Another vital document required while processing an NRI home loan is the power
of attorney (POA). The POA is important because, since the borrower is not based
in India; the bank would need a ‘representative’ in lieu of the NRI to deal with
and if needed. Although not obligatory, the POA is usually drawn on the NRI’s
parents/wife /children.
1) Income documents for NRIs

 Employment contract (if the contract is in any language other than English, the
same has to be translated into English and attested by the employer/Indian
embassy.
 Certified copy of the latest salary slips for the past 6 months
 Identity card issued from the current employer
 Continuous discharge certificate, if applicable
 Latest work permit
 Visa stamped on passport sheets
 NRE bank account passbook sheets
 Overseas bank account statement for the past 6 months
 Bio data covering educational qualification, age job experience, nature of
profession/business with necessary proof
 Power of attorney in favour of local representative in india, if required
 Guarantor forms along with net worth proof/income proof. Number of
guarantors as per the norms of the company. The guarantors should be related to
the applicant/applicants.
2) Property documents for NRI’s
 Purchase of a flat or apartments from a builder/promoter
 Title deed of the builder/land owner for a period of at least 13 years.
 Development agreement between the builder and land owner if applicable.
 Power attorney executed in favour of the builder, if applicable.
 An encumbrance certificate for the past 13 years.
 The khata certificate. (Basic document indicating ownership of property as
entered in the register of the government authorities.)
41
 Up-to-date tax paid receipts of the property.

 A sanctioned plan and license.
 An agreement for sale and a construction agreement with the borrower.
 In case purchase of house second owner

 Title deeds of land owner for a period of at least 13 years
 Khata certificate (Basic document indicating ownership of property as entered in
the register of the government authorities).
 Sanctioned plan and license.
 Valuation report from qualified values.
 In case of repairs /renovation /extension of house/flat

 Title deeds of land owner for a period of at least 13 years.
 Encumbrance certificate for
 the past 13 years.
 Khata certificate (Basic document indicating ownership of property as entered in
the register of the government authorities).
 Sanctioned plan and license for the extension.
 Estimates of costs from a qualified engineer
3) personal document for NRI’s
 1 passport size photograph,

 1 copy of your passport/pan card/driving license/school leaving certificate/birth
certificate/LIC policy/ bankers sign verification,
 1 copy of last month’s telephone bill/electricity bill/ ration card (first and last
page)/title deed of property/rental agreement/driving license)
 FEES & CHARGES
The interest rates and EMIs are not the only cost factor that the banks and
financial institutions take into account while giving home loans. The certain other
fees and charges that the banks levy on the borrowers can be as follows:
1) Processing charge: it’s a fee payable to the lender on applying for a loan. It is
either a fixed amount not linked to the loan or may also be percentage of the
loan amount. The loan amount received by the borrower can be less than the
processing fee.
2) Interest Tax: This is the tax payable on the interest paid on a home loan and not
the principle. This tax is some times included in the interest rate of the loan, or
may be charged separately as interest tax.
3) Documentation fees: banks collect fees for documentation, administration,

consultant charge, valuation fees and legal fees from the customers as part of the
application processing.
4) Commitment fees: some institutions levy a commitment fee in case the loan is
not availed of within a stipulated period of time after it is processed and
sanctioned.
5) Prepayment penalties: When a loan is paid back before the end of the agreed
duration a penalty is charged by some banks/companies, which is usually
between 1% and 2% of the amount being pre paid.
6) Registration of mortgage deed
 AGE CONSIDERATION FOR HOME LOANS
The minimum age requirement for availing any type of housing loans is 18 years,
and the maximum is 60 years. The maximum age can be relaxed in deserving
cases up to 65 to 70 years.
 PENALTY FOR PRE-PAYMENT
When a loan is paid back before the end of the agreed duration a penalty is
charged by some banks/companies, which is usually between 1% and 2% of the
amount being pre paid.
 EMI (EQUATED MONTHLY INSTALMENT)
This is the instalment amount the borrower has to make towards repayment of
his loan. The EMI comprises of both the principal and interest. Banks/FIs charge
an equated monthly installment from the borrower that is calculated on the basis
of loan amount and the interest rate charged for the same. Repayment by way of
EMI generally commences from the month following the month in which on takes
disbursement. It can be calculated either on the basis of annual reducing rest,
monthly rest, monthly rest or daily rest. In an annual rest the EMIs (equated
monthly installments) are calculated on an annual basis. The interest is calculated
on the outstanding principle at he beginning of every year. Once the interest is
43
calculated at the rate charged to the customer for the entire year it is deducted
from the EMIs received during the year. This is commonly known as annual
reducing balance of the principal amount lent. In this case EMI becomes 1/12 th
the equated annual installment. In the monthly rest, principal repayment are
credited at the end of every month and interest is calculated on the outstanding
principle at the end of every month. In the daily reducing principal repayments
are credited at the end of the day an instalment is paid.
The EMI for the loan will begin after the loan has been disbursed in full. Till such
time the borrower has to pay the interest for the loan. The amount of interest
payable every month is called pre-EMI.
In short the following four factors go into the determination of EMI.
 The principal amount – this is the actual loan amount taken. Obviously the
larger the amount, the greater the EMI.
 The rate of interest – another obvious one, the higher the interest rate, the
higher the EMI.
 The tenure – the longer one take the loan for, the lesser the EMI. The faster
one want to repay it, the higher the EMI.
 How the interest rate is calculated - it could be calculated either on a daily
reducing or monthly reducing or on an annual reducing basis.
 INTEREST RATES FOR HOME LOANS & THEIR

CALCULATION
Interest rates charged by housing finance companies vary depending upon your
individual status – either resident or non resident in India the loan amount,
scheme type, and are sometimes even based on the tenure of the loan.
The way banks / Fis charge interest to arrive at the value of EMI can be broadly
classified into ‘flat rate system’ and ‘reducing balance rate system’. In the flat rate
system, the rate of interest on the loan amount is calculated over the entire
duration of the loan and the principle plus the interest is divided over the
number of intallments and the value arrived is the EMI. But in case of ‘reducing
balance system’, the interest is charged on the outstanding balance of the loan,
which goes on reducing.
The reducing balance can be further classified into monthly reducing, quarterly
reducing and annual reducing methods based on the number of times the
principal is reduced/credited in a year. Suppose the principal is reduced 12 times
a year, it is termed as monthly reducing balance method, if the principal is
reduced 4 time a year, it termed as quarterly reducing balance method and if the
principal is reduced, I time a year, it known as annual reducing balance method.
Annual reducing balance method is very common with Indians banks and
monthly reducing balance method is popular among the foreign banks and
nationalized banks, engaged in the activity of housing finance.
Resident Indians Non-Resident Indians
 Buying a new house  Buying a new house

 Buying an existing house  Buying an existing house
 House improvement  House improvement
1) Interest rates for Resident Indians
 buying a new house from a builder/promoter
banks and Fis offer resident Indians loans upto Rs. 10,000,000 for upto 30 years
for buying a new flat from a builder. The flat may be under construction at the
time of application.
The table below offers a comparison of loan ranges and corresponding interest
rates applicable under this scheme.
Company12.75 loan amount (Rs.) Flotating rate (%) Fixed rate (%)
HDFC (monthly) For all loan amounts 11.25 13.25
HSBC For all loan amounts 12.00 13.50
ICICI For all loan amounts 13.75 14.00
SBI For all loan amounts 11.25 12.75
 buying a house from a second owner
banks and Fis offer resident Indians loan upto Rs 10,000,000 for upto 30 years
under this scheme.
The table below offer a comparison of loan ranges and corresponding interest
rates applicable under this scheme.
Company12.75 loan amount (Rs.) Flotating rate (%) Fixed rate (%)
45

 Home Improvement
Banks and financial institution offer non resident Indians loan upto Rs 1,000,000
for period ranging from 1 to 10 years under this scheme are:
 External repairs
 Waterproofing and roofing
 Internal and external painting
 Plumbing and electrical works
 Tiling and flooring
 Grills and aluminium windows
The table below offer a comparison of loan ranges and corresponding interest rate
applicable under this scheme.
Company loan amount (Rs.) Flotating rate (%) Fixed rate (%)
2) Interest Rates for Non-resident Indians
 buying a new house from a builder/promoter
banks/Fis offer non resident Indians loans upto Rs 10,000,000 for upto 10 years for
buying a new flat from a builder. The flat may be under construction at the time of
application.
The table below offers a comparison of loan ranges and corresponding interest rates
 buying a house from a second owner
banks/Fis offer non resident Indians loans upto Rs 10,000,000 for upto 10 years
under this scheme.
The table below offers a comparison of loan ranges and corresponding interest rates
 home improvement
banks and Fis offer non resident Indians loans upto Rs 1,000,000 for period ranging
from 1 to 10 years under this scheme.
Home improvement schemes allow the borrower to finance internal and external
repairs and other structural improvements in the home. Some of the home
improvements one can finance under this scheme are:
 external repairs
 waterproofing and roofing
 internal and external painting
 plumbing and electrical works
 tiling and flooring
 grills and aluminium windows
47
the table below offers a comparison of loan ranges and corresponding interest rate
 MARGIN AMOUNT FOR HOME LOANS
The difference in the total cost of the property and the loan amount sanctioned is
the margin amount. This money has to be invested by the borrower of the property
prior to the release of the loan amount in case of construction of a house. In case it is
for purchase of a ready house. The loan amount is released on the day of registration
of the property and the margin money by the borrower. A margin amount is the
amount that the applicant pays through his/her pocket. As far as home loans are
concerned a bank usually pays 85% of the total cost of he houses to be purchased by
the borrower. The margin is usually the amount not covered by the bank for the
payment of the essential and necessary fees for the purchase of the house. In most
of the cases, the margin amount of 25% of the purchase consideration has to borne
by the borrower in the case of purchase of old houses approved plots and 15% of the
project cost in the case of loans for construction purchase of new house/flat.
 SECURITY FOR HOME LOANS
In most cases the property to be purchased itself becomes the security and is
mortgaged to the lending institution till the entire loan repaid interim security may
be additionally required, if the property is under construction some companies may
also require additional securities which are called collateral securities like the
assignment of life insurance policies, pledge of shares NSCs units of mutual funds,
bank deposits or other investments.
 GUARANTOR FOR HOME LOANS
Guarantors are essential for sanctioning of loans. Usually. A guarantor is required

so that if the applicant fails or becomes incapable of repaying the guarantor will
be responsible for clearing the debt. Generally, most banks do not insist on a
guarantor when giving home loans but some might insist for 1 or 2 guarantors in
creation cases. A guarantor is equally liable to pay up the loan in case the
borrower mises out on repayments. By seeking a guarantor, the leader tries to
enforce a moral check that prevents the borrower from defaulting.
The same is the case for self-employed individual who lack required professional
qualification. Absence of a co-applicant for a loan sometimes calls for a guarantor.
In most other cases, there is no personal guarantor required as home is an
investment to which people have emotional bonding. And they are sure to go to
any extent to keep it. Any friend or family member can be a guarantor and can
guarantee the loan. A guarantor has to fulfil the criteria relating to age and
income of a normal customer. The minimum income criteria vary from one
housing finance company to another. This is to ensure that since he is equally
liable to pay the loan in case of default, he has to be financially sound to like the
loan applicant himself.
 DISBURSEMENT
When the entire essential work of selecting the land/home is done and after all the
legal documentation (such as handing over of the original agreement for sale /
lodging receipt to the lender), etc is completed, the borrower starts getting he
disbursement of the loan. On an average it takes around fifteen days for processing
of one’s application if the documents are in order. It takes another week for the
49
bank/FI to check out the property papers and make the disbursement. The bank/FI
also ask for a proof stating that the borrower own contribution of the cost of the
property. Has been paid upfront to the seller/vendor / developer of the property. In
case of property under construction, the disbursement of the loan is made in
instalments according to the stage of construction.
 REPAYMENT OPTIONS
Every bank/ FI have customized repayment options to suit every individual’s

requirement and also repaying capacity with some tax benefits. They have thereby
come up with more flexible and multiple repayment option. A few among them are:
Step-up repayment facility: The objective of step-up repayment is to provide the

borrower with a repayment schedule, which is linked to expected growth in income.
It not only helps a customer get a larger amount of loan as compared to the loan
under the normal housing loan; but the customer can avail of a higher amount of
loan and pay lower EMIs in the initial years, which is subsequently accelerated
proportionately with assumed increase in his income.
Flexible loan intallments plan: This repayment option offers a customized solution to
suit the needs of customers whose repayment capacity is likely to alter during the
term of the loan. In cases when a borrower is nearing retirement, the loan is
structured in such a way that the EMI is higher during the initial years and
subsequently decreases in the latter part proportionate the reduced income of the
customer. This option helps such customers combine the incomers and take a long
term home loan where loan in the instalment reduces upon retirement of the
borrower.
Tranche based EMI: customers purchasing an under construction property. Need to

pay interest (on the loan amount drawn based on level of construction) till the
property is ready. Tranche based EMI is a special facility offered by some banks to
help customer save this interest. Customers can fix the instalments they wish to pay
till the property is ready. The minimum amount payable is the interest on the loan
amount drawn. Anything over and above the interest paid by the customer goes
towards principal repayment. The customer benefits by starting EMI and hence
repays the loan faster.
Accelerated Repayment scheme: accelerated repayment scheme offers the borrower

a great opportunity to repay the loan faster by increasing the EMI. Whenever the
borrower gets an increment, increase in the disposable income or have lump sum
funds loan prepayment, he can benefit by:
 Increase in EMI means faster loan repayment

 Saving of interest because of faster loan repayment
 Or invest lump sum funds rather than use it for loan prepayment. The return
from the investments also gives the borrower the comfort of paying increased
EMI.
Ballon payment: ballon payment is an augmentation tool offered by the

banks/Fis, which helps in increasing the loan eligibility of the customer without
increasing the EMI by assigning securities like national savings certificate (NSC).
LIC policies etc. the present value of the maturity amount of assigned securities is
combined with the loan amount to arrive at the enhanced loan eligibility. Under
this facility, the EMI is calculated on the net loan amount (i.e. total loan less the
present value of the maturity value of the securities).
The repayment option for Non-resident Indians (NRIs) is done in EMIs, and
includes interest and principal amount calculated on monthly rests. The borrower
can pay EMIs by issuing post-added cheques from the non resident external
51
(NRE)/Non-resident ordinary (NRO) or non resident (special) rupee account

(NRSR) in India; or any other account approved by the reserve bank of India (RBI).
In the case of part-disbursement of the loan, the monthly interest is payable only
on the disbursed amount. EMI is payable every month, by the end of the month
from the date of each disbursement up to date of commencement of EMI. Pre-
EMI is calculated at the same rate at which EMI is calculated.
Step-up Repayment Facility: By the step-up repayment option, a borrower can

apply for a higher range loan based on the prospects of growth in income for
years to come. In this repayment option the loanee has to pay less EMI in the
initial years which increase as the income grows with the coming years.
Flexible loan instalments plan: In this mode of repayment, the borrower has
flexible loan instalment facility where a borrower nearing retirement age can opt
for paying higher EMI in the initial years and gradually move to paying lower
instalments after reaching retirement age.
Tranche based EMI: Tranche 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. In such cases, customers can fix
the instalments they wish to pay till the property is ready. The minimum amount
payable is the interest on the loan amount drawn. Anything over and above the
interest paid by the customer goes towards principal repayment. The customer
benefits by starting EMI and hence repays the loan faster.
Accelerated Repayment scheme: Accelerated repayment scheme for NRIs offers

a great opportunity to repay the loan faster by increasing the EMI. Whenever the
NRI get an increment, increase in the disposable income or have lump sum funds
for loan prepayment, the loanee can benefit by:
 Increase in EMI which means faster loan repayment
 Saving of interest because of faster loan repayment and can invest lump sum
funds rather than use it for loan prepayment.
A NRI loanee can opt for repayment ahead of schedule, by remittances in

abroad through normal banking channels, the NRO / NRSR in India. However,
by regulation in many states in India, the agreement of sale between the
builder and purchaser is required to be registered by law. It is therefore
advisable to record the agreement for registration within four months of the
date of the agreement at the office of the sub register appointed by the state
government, under the Indian registration act, 1908.
 REPAYMENT TENURE
The home loan tenure for Non-resident Indians differs from the resident Indians on a
few points, which may of course vary from one bank to another. For most banks the
home loan tenure exceeds maximum from 25 to 30 years. However, for NRIs the
maximum tenure is from 7 years up to 15 years, the number of years fixed by RBI.
However, one cannot opt for a term that extends beyond attaining retirement age or
60 years of age (whichever is earlier).
Home loan tenure:
Type of property Salaried Self-Employed
Residential 15 years 10 years
Plot of Land 10 years 10 years

53
Against Existing plot of Land 15 years 10 years
The home tenure for non-resident Indians differs from the resident Indians on a few
points, which may of course vary from one bank to another. For most banks the
home loan tenure exceeds maximum from 25 to 30 years. However, for NRIs the
maximum tenure is from 7 years up to 15 years, the number of years fixed by RBI.
However, one cannot opt for a term that extends beyond attaining retirement age or
60 years of age (whichever is earlier).
HOME LOAN WITH INSURANCE COVER
There are many individuals who worry about the adverse impact of the home loans if
Something happened to them. This is where a home loan insurance product comes
to
The rescue. Many banks and financial institutions insist on getting the home insured
To safeguard their interest. The borrower needs to ensure that the property is duly
and
Properly insured for fire and other appropriate hazards, as required by the bank and
financial institution during the period of the loan and will have to produce evidence
each year and/or whenever required by the lenders. The bank/financial institution
will be the
Beneficiary of the insurance policy. There are various kinds of insurance covers
available for a homeowner. The various options may be insurance against fire, against
other disasters, etc.
Home loan insurance plans, also know as mortgage redemption plans are polices that
Cover the home loan liability. Through there are some minor variants, most plans
offer
A sum assured that reduces as the outstanding home loan comes down every year. In
Such plans, it is not the home but the loan that is covered should something happen
to the borrower. For instance, if a person have taken a home loan of Rs 40 lakh and
covered this through a home loan insurance. If after a year, the outstanding loan
comes down to Rs 39 lakh, then the sum assured also comes down to Rs 39 lakh, in
short, the sum assured is adjusted against the home loan liability.
This insurance is much like the term plan or pure risk cover plan that is available form
various insurance companies, there are exceptions like ICICI bank (through their tie-
ups with ICICI Lombard) home insurance loan where the sum insured remains
constant. And in the event of death of the life assured, the outstanding home loan is
cleared off and the rest is paid to the family. Some characteristics of such plans
include:
 Low premiums, high cover

 No maturity amount on survival of the term
 Choice of one time premium or regular premiums
However, the cover in term plans available in India are level term plans where the
Cover remains the same whereas in the case of home loan covers, the amount keeps
falling as the home loan liability decreases. Also, it is important to know that while
most
Term plans can be bought till the age of 55, home loan insurance plans can be bought
till
The age of 60. However, the medical underwriting is stringent and it is only after
adequate tests that these policies are issued at the higher age band. If one opts for a
joint application then the premium is double. And if any of the joint applicants die,
55
the loan is paid off by the insurance company. The premiums are calculated based on
the medical underwriting, based on the age and medical record.
The conditions are:
Age of the life insured: The premium increases with age. Medical tests increase with
age and are mandatory above 40 years. Below this age, a simple declaration is good
enough though this depends on each insurance company.
Medical record: If the borrower of the loan is in a good health, the premiums will be
regular but if the insurance company’s prognosis about the life assured is at higher
risk, then the premiums will be higher. A past family history of early death or critical
illness will also increase the premiums.
Loan tenure: The premium will increase with the duration of the loan. A cover of Rs
50 lakh for five years and a cover of Rs 50 lakh for 20 years will attract different
premium, with the latter being more expensive.
Since this is a life insurance plan issued by an insurance company, the premium paid
towards life insurance schemes are eligible for deduction under section 80C.
however, if the premium is clubbed within the equated monthly instalment of the
home loan, then the borrower will not get the section 80C benefit. Most banks have
tie-ups with insurance companies for the issuance of such policies. There is always
the question that whether it is better to take a term plan and ensure the life that is
going to repay the home loan or go for home loan insurance. A factor that tilts the
argument in favour of term plans is the cost, which is much less and remains
constant as well.
However, a majority of the people should get through needs analysis done and not
just cover their home liability but other liabilities as well, dependent goals (financial
needs of children) and dependent income goals (monthly needs of family if the
borrower were to die) as well. After this, taking a term plan for the requisite cover
needed is considered. For those who cannot undergo this exercise, opting for the
home loan insurance cover may prove helpful.
The policies that one may consider other than a home insurance are as
follows:
1) Fire policy for a householder
Suitability
A householder can cover his movable and immovable properties against fire and
allied perils. Apart form persons owning a house, people staying in a rented/leased
house can take this policy, if they are responsible for its safety by any covenant. An
individual can also ensure household contents not belonging to him, but held in trust
or belonging to relatives permanently staying with him.
Salient features
The fire policy can be taken to cover any property within the country. The policy
offers cover on loss and/or damage on account of:
 Accidental fires
 Lightning
 Explosion & implosion ‘due’ to pressure vessels (used for domestic purpose)
 By rioting mob, striking workers, malicious acts by third parties and damage by
terrorists.
 Impact damage by rail/road vehicles, cartas & animals
 By aircraft or any arial devices or articles dropped there from
57
 Landslide & rockslide

 Storm, cyclone, flood & inundation and similar vagaries of nature
 Bursting and over flowing of water tanks and pipes etc.
 Missile testing
 Leakage from sprinklers
 Bush fire
Benefits
 Claims are payable at the market value of the property damaged at the time of
loss.
 If the individual value if assets is not furnished then the value of each property is
considered as not more than 5% of the total sum insured.
 Long term policy may be taken.
2) All risk insurance
Suitability
This policy is suitable for people owning things, which are prone to accidental
loss or damages.
Salient features
It covers valuable like jewellery, work of art and similar artifacts of sentimental
values. The scop of the cover is limited to loss or damage due to fire, riot & strike,
terrorist act, burglary, larceny or theft and accidental loss or damages.
Benefits
The policy pays for any loss to the property insured against by insured perils. The
amount of claim payable is limited to the sum insured or the market value at the
time of loss, whichever is lower.
3) Burglary Insurance
.
Suitability
This policy is more suitable for people who have movable property like clothes,
appliances etc. prone to burglary, theft and larceny.
Salient features
This insurance policy covers burglary, theft and larceny.

Benefits
This policy pays for any loss of property due to burglary, theft or larceny occurring
during the policy period. The amount of claim payable is limited to the sum
insured or the market value at the time of loss, whichever is lower. This policy
also covers damage to the premises like walls, windows etc.
4) Householder’s Package Policy
Suitability
This is a single package policy offered at economical rates of premium through
which all of the householder’s needs are addressed.
Salient features
The package includes the following policies:
 Fire insurance
 Burglary
59
 All risks insurance

 Plate glass insurance
 Break down of domestic appliances (electrical and mechanical failures)
 Television including VCR & VCP and music system
 Pedal cycle insurance
 Personal baggage insurance
 Personal accident
 Public liability
 Employers’ liability
Benefits
This being a package policy, only one proposal from is to be completed instead of
separate proposal forms for individual policies. As regards fire risks, while covers
like explosion/implosion (other domestic gas cylinders or pressure cookers) and
impact of rail/road vehicles are withdrawn as inconsequential, special risks like
damage due to bursting and overflowing of water tanks, apparatus, or pipes are
included in the policy.
RECOMMENDATIONS FOR BANKERS
The entire housing finance sector thrives on a simple logic that the house is the
single largest investment made by a common man in his entire lifetime. There is
an emotional and sentimental attachment towards his house property wherein
lots of personal money is involved. Hence, the risk is very low to a lender since it
would be a great loss to the borrower if he loses the possession of the house.
This safest mode of business has spurred many new entrants to join the fray.
According to the details given by the national housing board (NHB) pertaining to
the housing loan disbursements of banks and housing finance companies as on
June 29, 2006, the housing finance sector has shown an exponential growth as
compared to the other areas of credit.
The housing finance sector even if it is showing exponential growth is not devoid
of risks. The problem of bad loans has always been a matter of concern for the
entire industry. Since the competition among the players in the housing finance
sector is too high, all the housing finance companies maintain the interest rates
in unison except for public sector banks which operate on relatively low rates of
interest as they concentrate more on retail business. Despite the low risk
attached to this sector and legal support to the lenders, problem of bd loans the
banks and financial institutions may undertake the following remedial measures
for mitigation of risks:
1) PROPER SCRUTINY IN SANCTION AND

DISBURSEMENTS
Homes loans are made available by banks and financial institution to both
Indians and Non Resident Indian customers at floating and fixed rates of
interest and also with attractive EMI options. The loans are offered for
construction of or buying a new house, home repair and renovation purchase
of plots, against mortgage of property, etc. Hence the banks and financial
institution should conduct a proper scrutiny while sanctioning and
disbursements of loans.
2) PROPER STUDY OF FINACIAL STATEMENTS

61
Many a times the banks and financial institutions in order to cope with and to
outsmart the competitors, they for to the extent of luring the customers of
their competitors by providing attractive schemes. Some companies even go
to the extent of sanctioning the home loan without identifying the property
and improper title deeds which is the prerequisite for eligibility. Waiving the
processing fee, providing free accident insurance and property insurance
waiving penalties, etc, are some of the factors causing reduction in the profit
margin. Hence proper study of financial statements and analysis should be
undertaken in order to increase the profitability.
3) END USE OF THE MONEY LENT
Banks and other housing finance companies have high rate of interests for
non-residential use of the loan. A study of the NPAs of these banks/Fis shows
that individuals who avail themselves of loan for residential properties, divert
them for commercial or any other purpose. Any fluctuations in the business
operations or mindset of the borrower lead to non-payment of interest. At
times, it is very difficult for the lender to recover the loan amount if the
borrower has left the country. Hence, it is very important for banks and
financial institutions to verify that the loan given is utilized for the purpose for
which it is sanctioned.
4) MARKETABILITY OF THE MORTGAGED ASSETS

Improper valuation and security of the documents tend to lead the financier
to invest more than 100% of the value of the property. In case the loan is not
serviced, he may not realize the claim amount. When the borrower
constantly defaults in servicing the loan, the lender has five types of rights.
Possession, lease, manage, reconstruct or sell. In practice the possessed
assets are in such a condition that they can be neither sold nor managed nor
given for lease. To market them the lender of the loan has to incur further
expenses adding to his risk of getting back his further investment.
5) CONSTANT MONITORING
Once the loan is sanctioned, the job of the lender is not over. He has to
exercise vigilance and monitor the payments of instalments by the borrowers.
It is advisable to make periodical review of the borrower’s financial position
to ensure his capabilities of prompt payment of instalments. A close
monitoring has to be done by the lender about the performance of various
industrial units, changes in the socioeconomic conditions in his areas of
operations, which will have a bearing on the repayment capacity if the
individuals.
6) TAKE OVER OF BAD LOANS

Most of the institutions play safe by handling over their doubtful and risky
loans to the other institutions. These are taken over just to add a feather to
their asset portfolio in the balance sheet. As far as possible, taking over of
loans should be done only after a through study of the case and the reasons
of handing over the loan. Verification of repayment track and reasons for
takeover are very important.
7) FAIR ASSESSMENT OF PROPERTY

While scrutinizing the valuations, it is very important for the lender to go by
his own assessment instead of being carried over by real estate boom. The
banks and financial institutions should keep in mind the resale value of the
asset rather than the market value. Most of the cases suffer form the
drawback of poor collateral. Condition of the asset is sold very soon after
seizing it. Or else, the resale value may come down. Therefore, finding out the
63
buyers to dispose of the asset is a challenging task for the banks and financial
institutions.
8) INCRASING EMPOYEE MORALE

The banks and financial institutions should protect the employee morale by
providing performance-based incentives as there is a tendency in any finance
department to become corrupt. The sanctioning official mut be made directly
responsible for the bad loans to a certain extent.
TABULATED COMPARISON BETWEEN HOME LOAN SCHEMES

PROVIDED BY SBI BANK & ICICI BANK
1) ELIGIBILITY
Scheme Min Max Min Max

age age income income
(years) (years) (Rs/mth) (Rs/mth)
SBI options additional home 21 45 1 -
loans/SBI housing loan RI/SBI
freedom home loan (NRI)
ICICI home loans (for Resident 21 65 1 -
Indians)
ICICI Home Loans (for NRIs) 21 65 - -
2) FEES
Scheme Processing fees (%) Administrative
fees(%)
SBI Freedom Home Loans (NRI) SBI Housing 0.50 -
Loan-RI/SBI Option Additional Home Loans
ICICI Home Loans (for NRIs) - -
ICICI Home Loans (for Resident Indians) 0.50 0.50
3) INTEREST
Scheme From To From To (Rs) Interest

(years) (years) (Rs) Rate(%)
SBI Options Additional Home 1 5 - 500,00,000 9.50

Loans
SBI Options Additional Home 6 10 - 500,00,000 9.75
Loans
SBI Housing Loan-RI/SBI 1 5 - 500,00,000 9.50
Freedom Home Loans
SBI Housing Loan-RI 6 10 - 500,00,000 9.75
SBI Freedom Home Loans 6 10 - 500,00,000 9.25

(NRI)
SBI Maxgain Home Loan-RI 1 5 500,000 0 8.75
SBI Flex Home Loan-RI 0 5 500,000 0 8.75
ICICI Home Loans (for RI) - 20 2,00,000 - 11.00

65
ICICI Home Loans (for RI) - 20 2,00,000 - 9.50
ICICI Home Loans (for NRIs) - - 5,00,000 100,00,000 11.00
4) MAXIMUM LIMIT
Scheme Min Max Amt Max Limit Min Max
Amt (Rs) Term Term

(Rs) (Years) (Years)
SBI - 5,00,00,00 - - 20
Freedom 0
Home
Loans
(NRI)
SBI - 5,00,00,00 The maximum amount=60 0 5
Housing 0 NMI/5 times NAI, subject to
Loan-RI aggregate repayment
obligations not exceeding
57.50% of NMI/NAI for those
less 45 years of age. If the
borrower is above 45 years of
age it is 48 times NMI or 4
times NAI.
SBI Option - 5,00,00,00 The eligibility is 18 times NMI - -
Additional 0 (for salaried borrowers) 1
Home times NAI (for others) or (i)
Loans 25% of the original project
cost of house flat (ii) 85% of
the cost of repairs etc. or(iii)
gap between 85% of the
current market price of
flat/house and actual
outstanding loan dues,
whichever is lower (EMI/NMI
ratio of all loans should not
exceed 60%)
ICICI Home 2,00,000 - Maximum of 85% of the cost - 20
Loans (for of the property
Resident
Indians)
ICICI Home 5,00,000 1,00,00,00 Maximum of 85% of the cost - 15
Loans (for 0 of the property
NRIs)
5) UNIQUE FEATURES
Scheme Unique Features

SBI Freedom Home This product is for those individuals who are on the lookout for a source of
Loans(NRI) finance for a property they want to invest in without mortgaging the same.
All they have to do is pledge any financial security that they have and will get
a home loan for their dream home.
SBI Housing Loan-RI This loan is for purchase construction of new house/flat, purchase of an
existing house/flat, purchase of a plot of land for construction of house,
extension repair/renovation/alteration of an existing house/flat, takeover of
67
an existing loan from other banks/Fis. Free personal accident insurance cover.
Optional group insurance from SBI Life at concessional premium.
SBI Option This loan is aimed at enabling the customer meet expenditure towards major
Additional Home repair, renovation, addition to their house/flat, purchase of furniture, fixtures
Loans and consumer durables.
ICICI Home Loans Door-step service from enquiry stage till final disbursement. Free personal
(for Resident accidental insurance, special 100% funding for select properties. The
Indians) borrowers can transfer the existing high-interest rate loan.
ICICI Home Loans The borrowers can take loans for purchase, construction, extension or
(for NRIs) renovation of a new house or flat.
ANALYSIS
ICICI and SBI are the pioneers in the home loan sector in private and public sector
respectively in India. These banks offer home loans with attractive and unique features
for the benefits of their customers. As per the eligibility criteria ICICI bank holds a better
position as compared to SBI bank because it provides home loan to maximum age limit
of 65 years as compared to the maximum age limit of 45 years offered by SBI bank. With
respect to the fees SBI stands ahead of ICICI because it has less processing fees and
administrative charges. Interest rates offered by ICICI are up to 11% whereas in case of
SBI the loans are offered below 10%. SBI has an upper hand over ICICI because the
maximum limit is Rs. 5, 00, 000. By analysing the home loan schemes offered by both the
banks SBI can be placed at a better position as compared to ICICI because of the
advantages stated above.
SURVEY
I had conducted a survey taking the sample size of 100 people including all groups of
people. I had done the survey at different places like Andheri station, Kandivali,
bhyander, Ghatkoper, Lokahndwala, Borivali, Santacruz, Bandra, Dadar and other places
considering all income groups of people. The questionarie of the survey in enclosed in
the annexure.
It was a very good experience while conducting this survey. It developed a sense of
confidence and augmented the data collection skills within me. It enabled me to develop
a skill of getting primary data from the common people and then analysing it and
presenting it in a systemic manner. Most importantly it made me think logically and
practically and thereby improved my research ability. The information collected is
analysed and represented below with all possible digrams.
ANALYSIS
AWARMESS OF HOME LOAN
The survey indicates that nearly 95% of the people are aware about the home loan
facilities offered by different banks. But there are still 5% of people who are not much
educated and are unaware about the different types of home loan facility. For this banks
should also target their lower income group while making the publicity of their home
loan products and their should also be a direct selling concept of marketing their product
and by this banks can increase their customer base by providing loan to this particular
section of people by making them aware of it. Security and comfort in life is a top
priority for everyone. So, everyone should be made aware of this facility and enable
them to take advantages of it for which banks and financial institutions should take care
of.
69
DEMAND FOR HOME LOANS
The survey conducted by me shows that 70% of the people want to purpose home loan
facility in the future if required. This shows there is an increase in the demand for home
loans. The reason behind this could be the boom in the home loan sector in India. The
real estate boom has added new dimension to the housing finance sector. The new class
of young buyers, whose affordability are high, is spending a little more on paying
equated monthly instalments (EMIs) rather than spending huge amounts on the rents,
thereby, owns a house. Hence the reasons for the growth of the home loans market has
been mainly fuelled by certain fiscal, social and regulatory drivers such as:
 Changes in demographic profile including increase in the rate of household formation
due to structural shift from joint family system to nuclear family
 Ever increasing middle class, migration of population and increasing urbanization
resulting in acute shortage of housing units
 Increase in disposable income levels due to decrease in marginal tax rates and
increase in total income levels
 Tax benefits and other fiscal incentives announced in the union budgets thereby
encouraging the sector
 Increasing affordability of housing property purchase due to declining interest rates
and stable property prices
 Decline in the average house cost to annual income ratio to around 4-5 from 11-14
during the last decade resulting in an affordable EMI as a percentage of monthly
income
 Aggressive lending by banks to the housing sector due to lower credit off take by the
corporate sector, attractive spread and lower non performing assets
PREFERENCE FOR TYPE OF HOME LOAN
According to the survey 42% of the people would prefer to take loan for home
purchase, 33% for purchasing land, 14% for home
extension/improvement/renovation, while only 11% for other type of loan. Due to
the hike in the property rates the demand for loan for home purchase is increasing
and the same is so for the purchase of land property. Due to affordability factor and
less amount of money required for home extension or improvement or renovation
people prefer less to opt for loan for these purposes. The other type of loans such as
bridge loans, balance transfer, refinance loans, home conversion loans, stamp duty
loans and loans to NRIs, are not much in demand.
71
PREFERENCE TO PRIVATE, PUBLIC SECTOR OR FOREIGN BANKS
As per the survey, 60% of the people preferred to go for public sector banks, 30% for
private sector banks while the remaining for foreign banks. In the booming home loan
segment. It is the public sector banks (PSBs) which are now having a clear-cut advantage
over their private and foreign counterparts. Some of the big PSBs, including state bank of
India, bank of Baroda and Canara bank, are offering both fixed and floating home loan
products almost 75-100 basis points cheaper than private and foreign banks.
After the recent rate hike by the reserve bank of India (RBI), the private sector and
foreign banks like ICICI bank and standard chartered have also raised rates to managing
the rising cost of funds. However, their public sector counterparts are yet to join the
bandwagon and are unlikely to react before the quarterly review of the RBI annual
policy.
As a result, public sector banks, now following the same marketing model like the private
sector and foreign banks, are now offering competitive rates in home loan segments. To
make life further tough for the private and foreign banks, PSBs have beefed up their
marketing campaign to sell home loan products. For example, BOB has launched a pilot
project in Mumbai, named project Parivartan, in which BOB officers are going door-to-
door to sell home loans. This move is probably for the first time that a public sector bank
is going door-to-door to sell their products, initiatives normally associated with private
banks. Foreign banks have recently started concentrating on retailing sector particular in
home loan sector In India so there is till a lot of scope for them to catch the interest of
the Indian borrowers. In case of public sector banks, the rise in home loan rate is not as
steep as in the private sector.
PREFERENCE FOR FIXED OR FLOATING INTEREST RATES
Going by the trend, it should surprise no one if interest rates on home loans rise as a
consequence of the rising interest rate scenario. This being the case, home loan seekers
consider opting for a fixed rate loan (i.e. fixed for 3-5 years). This product them form a
potential interest rate hike in the near term. At the end of the said 3–5year term, they
have the option of considering either to continue with the ‘fixed’ rate (if interest rates
continue to rise) or migrate to a floating rate loan however, in case an individual does
not have the risk appetite to take the interest rate fluctuations in his stride, he may
consider selecting the ‘truly’ fixed rate loans. Such loans have a fixed rate throughout the
tenure of the loan. However, if interest rates were to decline going forward, the truly
fixed rate loan will not reflect the fall in interest rates and the consumer will forfeit any
chance of benefiting from a decline in interest rates.
EFFECTS OF PROPERTY RATES HIKE ON HOME LOANS

The home loan sector has been drastically affected by the hike in the property rates. The
property prices have been rising and touching unprecedented hights. In fact so much so,
that property are again becoming out of reach of common man. Whether the price rise
is justified or is it just a manipulated bubble ramins to be seen. Reserve bank of India, in
its policy statements has time and again cautioned the banks to be extra cautious before
taking exposure. In fact RBI went to the extent of increasing the risk weight age of the
housing loans. Reserve bank of India increased the risk weight on real estate exposure
73
and hiked the risk weight for lending to the real estate sector. The RBI has cautioned the
banks to be extra careful while going all out to fund and finance the real estate sector.
According to reports, the property prices hike has been quite fast and unrealistic. The
growth in infrastructure has not been able to keep pace with the increase in property
prices. Hence property rates hike has led to an increasing importance to home loans but
bankers have to be extra cautious on their part.
HOME LOAN PROCESS
According to the survey 25% of the people feel that home loan process is convenient.
Maximum number of people i.e. 75% says that the process is lengthy as banks requires
time for processing the loan application, verification of various documents, appraising
the credit and other formalities takes a longer time in sanctioning of the loan.
CONCLUSION
In view of its backward and forward linkages with other sectors of the economy, housing
finance in developing countries is seen as a social good. In India, growth of housing
finance segment has accelerated in recent years. Several supporting policy measures
(like tax benefits) and the supervisory incentives instituted had played a major role in
this market.
The housing finance industry is getting increasingly commoditised, competition

within the sector is ensuring that players offer consumers flexibility and features to
choose from. Features such as adjustable rate plans, lower processing fees/monthly
rest/interest rates/EMI/margin money. No pre-payment penalty have become common
across the industry. There is a growing trend among banks and Fis to include the cost of
registration, stamp duty, society charges and other associated costs while sanctioning
loans to differentiate and make the home loans products more attractive. This has
resulted in further lowering the threshold limit for buying a house. For differentiation of
their home loan products, banks are also resorting to offering of free add-ons such as life
insurance, credit cards and consumer loans at reduced rates for furnishing the house.
Some of the major players in the housing finance industry have started organizing
property fairs, wherein the projects of different construction companies are brought
together and bundled with a lower-than-normal interest rate loan product. Such
initiatives are expected to result in a more organized housing market and more value for
the customer, on the services front the banks/Fis have begun addressing concerns of
borrowers through counselling and legal advisory services on matters pertaining to
property’s title, its technical evaluation, and its pricing etc. banks/Fis have been
upgrading their technology and investing in sophisticated system for sourcing, processing
and managing information pertaining to home loan customers.
Housing credit has increased substantially over last few years, but from a very low
base. Thus, from miniscule amounts, the exposure of the banking sector to housing loans
has gone up however, with growing competition in the housing finance market, there has
been a growing concern over its likely impact on the asset quality. While no immediate
financial stability concerns exist, there is a need to put in place appropriate risk
management systems, strengthen internal control procedures and also improve
regulatory oversight in this area. Banks also need to monitor their exposure and the
credit quality. In a fiercely competitive market, there may be some temptation to slacken
the loan scrutiny procedures and this need to be severely checked.
ANNEXURE
75
I had visited ICICI bank, Andheri (west) branch on 28th August, 2007. There I interviewed
miss Shubhangi Gaikwad, Assistant Manager of the bank. It was a very good experience
interviewing her. Also she entertained me to the full extent and rendered full support by
providing me with the relevant information in regards to the completion of this project.
BIBLIOGRAPHY
MAGAZINES
BOOK FOR REFERENCE
 Merchant Banker by H. R. Suneja
OTHER SOURCES
 Interview with Miss. Shubhangi Gaikwad (Assistant Manager), ICICI Bank, Andheri
(West) Branch and Mrs. Mithila Jadhav (Chief Manager) SBI Bank, Andheri (East)
Branch.
 Brochures of ICICI Bank and SBI Bank
WEBSITES
 www.economicetimes.com
 www.inidainfoline.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.bank of baroda.com
 www.sundarmfinace.com
 www.harmonyinida.org
 www.obc.com
 www.sify.com
77

A Project Report

Uploaded by

Copyright:

Available Formats

You might also like

A Project Report

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

A Project Report

Uploaded by

Copyright:

Available Formats

1

A PROJECT REPORT FOR

MAHARSHI DAYANAND COLLEGE OF ARTS, SCIENCE,

I ADITYA A. MHASHILKAR the student of M.com semester 3 (2022-23)

The information submitted is true and original to the best of my

(Signature of the student)

This is to certify that Mr. ADITYA A. MHASHILKAR, ROLL NO:4013

Project guide/ Internal Examiner

It is matter of outmost pleasure to express my deep sense of gratitude and

co ordinatior DR PRIYANKA PRASAD, the college teacher information

RATIONALE OF THE STUDY

INTODUCTION TO HOME LOAN

CHARACTERISTICS OF HOME LOAN

TYPES OF HOME LOAN

BENEFITS OF HOME LOANS TO BORROWERS

STEPS IN PLANNING FOR A HOME LOAN

FAIR PRACTICES CODE TO BE FOLLOWED BY

RATIONALE OF THE STUDY

The rationale of the study can be considered as follows:

 It helps to improve research ability.

The research methodology is data collection through

Primary Sources: Survey by distributing questionnaire to the people taking

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

The housing finance industry is getting increasingly commoditised. Competition

There are two types of consumer loans:

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

INTRODUCTION TO HOME LOAN

CHARACTERSTICS OF HOME LOAN

TYPES OF HOME LOANS

BENEFITS OF HOME LOANS TO BORROWERS

1) For Resident Indians

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

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

Terms and conditions for availing Tax benefits on Home Loans

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

STEPS IN PLANNING FOR A HOME LOAN

SELECTION OF A PARTICULAR HOME LOAN

FINDING OUT COST OF THE HOUSE

Home buying costs

The down payment: A minimum down payment of 15 % is required a Normal

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

SELECTION OF THE MOST SUITABLE BANK

Prepayment/foreclosure benefits: For many individuals, this plays a significant

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

E) FOLLOW UP WITH BANKS PROCEEDS

FAR PRACTICES CODE TO BE FOLLOWED BY BANKERS WHILE

The Fair Practices code applies to the following areas:

B) Loan appraisal and terms/conditions

C) Disbursement of loans including changes in terms and conditions

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

D) Post disbursement supervision

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

E) Other general guidelines

PROCEDURE OF HOME LOAN

Submission of application from

Personal Discussion with customer

Field Investigation by the bank/FI

Credit Appraisal and loan sanction