HOUSING FINANCE – 2

AUTO LOANS
PERSONAL LOANS
EDUCATIONAL LOANS
Session 2 ---- what we cover ?
i. Home Loans to NRIs
ii. Income Tax implications in case of Resident and
Non Resident Housing Loan borrowers.
iii. Loan against Property (LAP).
iv. Finance to Private Builders
v. Take-over of Account/ Loans from other lenders
vi. National Housing Bank -- Project Finance Policy
vii. NHB - Fair Practices code for HFCs
viii. Auto loans
ix. Personal loans
x. Educational loans
 Home Loans to NRIs
 An AD or a HFC approved by NHB may provide housing
loan to a NRI or a PIO for acquisition of a residential
accommodation (flat, row house, bungalow from private
developers/ Development Authorities or for
construction on a freehold / lease hold plot)  in India s.to
the following terms and conditions:
a. Quantum of loan, margin money & tenor shall be at par
with resident individuals
b. Loan amount shall not be credited to NRE/FCNR(B)/NRNR
a/c of borrower but will be disbursed as per sanction terms
c. Loan shall be fully secured by EMTD of the property
proposed to be acquired & if necessary also by lien on the
borrower's other assets in Indi.
e. Repayment of loans from any of the following sources -
i. remittances from outside India or
ii. out of funds in NRE/ FCNR(B)/ NRNR/ NRO/ NRSR account
of the borrower or
iii. out of rental income derived from renting out the property
acquired or
iv. by any relative of the borrower in India by crediting the
borrower's loan account through account to account
transfer.
f. rate of interest on the loan shall confirm to the directives
issued, if any, by the RBI and/ or NHB --- today every
lending institution is free to decide its rate & in most cases
depends on quantum of loan & credit score of the borrower.
g. generally banks allow loans to applicants aged between 21
to 65 yrs.
 IT implications Resident & NR HL borrowers

 NRIs get similar tax benefits like Resident Indians in

respect to repayment of principal and interest component
of home loans availed in India.
 NRIs can be benefitted from the tax deductions only if
they have some income that is taxable in India.
  Income earned abroad by NRI is not taxed in India
and same is taxed abroad.
 In case NRIs have taxable income in India, they can claim
deductions on the repayment of interest and principal
component from the taxable income as per Section 24,
80C and 80EE of the IT Act.
 Below are 5 tax benefits related to Residents/NRI home
loans availed in India: (Source: www.incometaxindia.gov.in)
1. As per Sec 80C, the deduction up to 150,000 p.a. is
available with regard to the repayment of the principal
component of home loans.
2. As per Sec 24, the deduction up to 200,000 p.a is available
for the repayment of interest on home loans.
3. Those buying their first home, an additional deduction of
up to 50,000 p.a. as per Section 80EE is available (subject to
the fulfilment of certain conditions) with regard to
repayment of interest over &above what is available under
sec 24 & 80 C.
4. As per Sec 80C, NRIs can also avail deductions for regist
charges & stamp duty paid for acquiring their property.
5. Even in the pre-construction phase, Sec 24 allows
deduction pertaining to repayment of interest.
 Loan against property (LAP)
1. Purpose : as TL/CC/OD
a. to Firms/Cos & individuals to meet financial needs of their
business, Agricultural or any other purpose acceptable to
the lender.
b. for meeting Personal expenditure like medical
emergencies, travelling expenses, social obligations etc.
2. Eligibility : Individual /Professionals/Businessmen (21-65)
3. Income criteria: verify ITR/AO for last 3 yrs
a. for salaried --- some min gross salary say Rs. 30,000 p.m.
b. for Non-Salaried -- some min income say Rs. 4 Lacs p.a.
4. Quantum of credit --- varies with lenders -- say 60 to 75 %
of distress sale value of property (non- agri) & of course
will depend on repaying capacity.
5. Repayment --- varies with lenders, some may cap at 144
months for TL. While computing monthly cash flow for
firms & co, use monthly cash flow generated i.e. PAT plus
depreciation/12 for determining EMI. For CC/OD, intt to be
serviced every month.
6. Security : EM/RM of Residential House /Flat / Apart/ Comm
property. Vacant land is not accepted. Such facilities are
also discouraged against third party’s immovable property.
7. Insurance --- against fire, riots etc.
8. Property title : NEC from empanelled lawyer certifying that
title is clear and marketable, certified copy of title deed.
9. Valuation : from banks’s approved valuer/chartered engg.
10. Right of Foreclosure -- Bank has the right to foreclose the
property if it turns NPA & borrower is unable to pay.
11. Takeover -- some lenders discourage takeover of such loans
Example:
 A business unit approaches a bank for a loan of Rs. 1 cr against his
commercial property situated in a metro. As per his AO for the last three
years his annual income (PAT +DEP) is Rs. 16, 12 & 8 lacs resp.
 How bank shall proceed with his request & how much amt it will sanction ?
Solution:
 proceed -- with KYC, verification of title & NEC, valuation of property
(2 valuers), creating EMTD, creating charge in CERSAI
 Loan Amt: (given --- intt @10 % pa, repayment = 144 months EMIs)
i. Avg monthly income = 16+12+8/3 = 12lakh/12 = 100,000/-
ii. Market value of property = 100 lakh
iii. Forced sale value/distressed sale value = 70 lakh
iv. Eligible quantum = 70 &70% = 49 lakh
v. EMI = 1195/lakh , say 1200 * 49 = 58,800/-
vi. Net income after EMI = 100,000 – 58800 = 42,200/-
vii. 40 % of NI= 40000/-
viii. Since party will be left with more than 40 % of income with him after
payment of EMI , bank may sanction a loan of Rs 49 lakh only as against
100.000/- requested by the party
 Finance to Private Builders
1. Purpose: TL/WC to for developing CRE (Project specific)
2. Eligibility:
i. Co having investment grade rating
ii. Project should be fully tied-up, if under consortium/or to
be solely financed by lender.
iii. Cash flows of the project to be sufficient to repay the amt.
3. Quantum of finance : no limit
4. Security –
i. First /parri –passu charge on the immoveable property --
min 150% (depends on lenders) of the exposure.
ii. Guarantee of the promoters/directors/ corporate
guarantee.
4. Promoters’ Margin : min 33 %
5. Rate of interest : will depend on rating or on mutually
agreed terms.
6. Insurance: to be insured against the possible risks.
7. Tenor of loans
i. TLs --- 3 to 5 yrs (varying )/ based on cash flows.
ii. WC – periodic physical verification & certificate of CA to be
taken certifying end-use of funds.
8. Property title: NEC & certified copy of deed
9. Documentation: as per lender’s requirement, EMTD to be
created, charge with CERSAI to be registered & wherever
required, deed to be registered within stipulated time
10. Builder to disclose name of the bank to which the
property is mortgaged & indicate that they would provide
NOC of mortgagee bank for sale of flats if required.
 Takeover of Home Loan Accounts
 obtain CIR on the borrower from transferor bank.
 obtain a copy of the sanction advice (issued by transferor
Bank/institution) along with the loan application.
 where the valuation of property exceeds Rs. 100 Lacs
obtain valuation by a second valuer
 carry out Due Diligence on borrower/ guarantor and
property
 exposure to be on fully constructed property,
 statement of account at least for last one year to be
obtained directly from the existing banker and a/c to depict
satisfactory conduct.
 account to be taken over should not have been re-
phased/rescheduled/restructured in the preceding two yrs.
On taking over loan---
 after sanction, issue a letter to transferor Bank
requesting details of the security held and the related
documents in possession.
 issue the PO /DD i/f/of transferor Bank for the total dues
(i.e. Principal with up to date interest).
 visit the transferor Bank along with the borrower for
handing over the PO/DD & taking delivery of the
securities in possession of the transferor Bank along with
the “No Dues” certificate and letter for relinquishment of
charge from transferor Bank.
 On receipt of original title deed and other original
documents create mortgage /charge on the securities
immediately within stipulated time as per sanction.
 Project Finance Policy -- NHB
Objectives:
a. To help increase housing for EWS/LIG segment of popul.
b. To meet the financial needs of various entities involved in
provision of housing stock in the country.
c. To help support up-gradation of sub-standard dwelling
units and aid in incremental housing.
d. To facilitate provision of hostel accommodation for women
and night shelters in urban and rural areas.
e. To develop delivery mechanisms for the informal sector.
f. To encourage use of innovative/appropriate building
materials and technology for cost effective housing.
g. To facilitate increased efficiency among the implementing
agencies through various technical assistance measures.
 Eligible Entities

1. Public Agencies

2. Micro Finance Institutions

3. Cooperative Societies
(for undertaking residential housing for
their members)
1 (a). Public agencies -----
1. State Housing Boards/Improvement Trusts.
2. State Slum Clearance Boards, Development Authorities.
3. Municipal Corporations/Councils, Urban Local Bodies
4. New Town Development Agencies
5. Local Authorities for housing & urban development
6. Housing Welfare Organizations of Central and State Government
employees like CGEWHO, AWHO, AFNHB, IRWO etc.
7. Agencies set up by government to provide housing to specific
target groups like state Police Housing Corporations.
8. State governments for supplementing funds requirements for
their employees’ rental/ownership housing.
9. Other corporations set up by state/central governments to meet
the housing needs of different segments of people.
10. SPVs in public sector or jointly with private sector
1 (b). Projects eligible for finance:
1. Slum rehabilitation/slum improvement Projects.
2. Residential Housing Projects.
3. Township cum housing development project
4. Land acquisition for the purpose of township and
housing development.
5. Land development for housing construction.
6. Turn-key housing projects
7. Programme lending for special housing projects
undertaken consequent to natural calamities.
8. Infrastructure development for housing settlements.
9. Rental housing projects
2. Micro Finance Institutions ---- following
types of community based financial institutions will
be eligible for financial support
1. Housing Micro Finance Institutions
2. Non Government Organizations (NGOs)
3. Societies registered under Societies Registration
Act, 1860 etc.
4. Section 25 Companies
5. NBFCs undertaking EWS / LIG housing projects
6. Any other institution approved by Govt. / RBI for
purposes of undertaking microfinance
 Types of Facilities ---- NHB may provide following
types of facilities :
1. Term Loans (max 15 yrs)
2. Short Term Loans (not exceeding 2 yrs)
3. Takeover of Term Loan Liabilities (standard)
4. Line of Credit (max tenure 5 yrs)
5. Financial Guarantees
6. Composite Loans --- Housing cum Productivity
Loans (only to NGOs & MFIs)
7. Unsecured loans (as per policy)
 FAIR PRACTICES CODE FOR HFCs
Purpose is to serve as a part of best corporate practices and
to provide transparency in business practices.
Objectives of the Code:
1. promote good and fair practices --- setting minimum
standards in dealing with customer
2. increase transparency --- better understanding of
reasonable expectations of the services
3. encourage market forces --- through competition to
achieve higher operating standards
4. promote a fair and cordial relationship -- between
customer and HFC
5. foster confidence -- in the housing finance system.
 Auto loans
1. Eligibility : Salaried, Professionals, Self Employed and
Businessmen, Farmers and Agriculturists, Corporate & Non
Corporate, NRIs, partnership/Prop/corporate
2. Purpose : purchase of 2/4 wheelers new as well used/2nd
hand ones ( age stipulated for cars – say 5 yr)
3. Type of facility: Term Loan
4. Income Criteria:
i. Salaried --- some min take home pay (say 20 K)
ii. PSE & Businessmen, farmers --- some min income (4/5 lakh
pa) based on ITR/AO or statement of means.
iii. Corporate – based on audited BS
5. Quantum – generally no ceiling but amt linked to income
(net take home pay after all deduction including EMI should
be 40/50% of GMI) & max loan up to 85 % of On-Rood Price.
6. Margin --- 10 -15 % for new & 20 -30 for used ones & 10%
for two wheelers. Some banks include road tax/registeraion
charges, insurance also as part of cost.
7. Security: hypo of vehicle, charge with RTO & guarantee if
required (generally for NRIs)
8. Moratorium : normally NO moratorium
9. ROI : varies from lender to lender.
10. Repayment : take PDCs or ECS mandate
i. 4 wheelers --- max 7 yrs, 2 wheeler – max 5/6 yrs, Pre used
vehicles --- 3 - 5 yrs.
11. Pre payment charges – PSBs do not charge
12. Insurance -- Comprehensive with Bank clause
13. Disbursement -- to the Dealer – DD/PO should have his
a/c no.
15. Tie Up arrangement --- lenders enter with vehicle dealers
– RBI prohibits payment of commission etc.
16. Default management :
i. constantly look for EWS
ii. taking possession of vehicle without borrower’s consent –
law of land doesn’t permit. If moving thru recovery agent,
sensitise them.
iii. On PDC bouncing file case under sec 138 of NI Act
iv. in case a/c becomes NPA move court to recover the dues
Lenders should independently check & verify the
authenticity of RTO Smart Card (RC Book), RTO Tax
Receipt, Insurance Policy, Driving License etc. through
Websites/Checking with concerned Offices to ensure end
use of funds.
Example:
Particulars Amt (Rs)
i. Cost of new vehicle 21,64,000
ii. Cost of accessories 41,594
iii. Cost of insurance 98,503
iv. Cost of registration 2,28,577
v. Total cost 25,32,674
vi. Margin (min 15 %) 3,79, 901
vii. Margin offered (21%) 5,32, 674

viii. Eligible loan amt based on margin 21,52,772

ix. Eligible loan amt based on margin offered 20,00,000

x. Net take home pay (GMI = 120,000/- minus Statutory ded = 59,000
30,000/- minus EMI = 31000/)-
xi. EMI ( loan = 20 lakh, repayment – 84 months, intt 8%) 31,172
Net take home should be atleast 40% of GMI i.e. 120,000/) 48,000
 Personal loan
1. Eligibility : salaried employees, professionals, HNI,
pensioners/family pensioners drawing pension thru bank.
2. Purpose: to meet expenses of marriage, education, repairs,
medical, social obligations, purchase of consumer durables
et
3. Type of facility: DL/TL/OD
4. Income criteria: Net Take Home Pay should not to be less
than 40% of GMI s.to some min take home say 10 k.
5. Security: mostly unsecured &/or hypo of assets financed.
6. Amount : varies from lender to lender e.g. Some cap it at
Rs. 15 lakh – linked to certain times of monthly salary/ avg
monthly income
7. Margin : generally NIL
8. Rate of Interest : varies from lender to lender.
9. Repayment ---
i. 30 to 84 EMI – in case of employees full repayment to
happen one year before retirement.
ii. standing Instruction/ECS/NACH mandate for payment of
EMI amount to be obtained from borrower.
10. Guarantee – depends on lenders ----- some banks obtain
personal guarantee of spouse/nominee of PF/Gratuity of
borrower (for loans to employees only)
11. CIBIL Score – some min no. (say 600/700)
12. Disbursement -- directly to the borrower’s a/c & in case
of consumer durables directly to the supplier/dealer.
13. Processing Charges --- depends on lenders
14. Prepayment Charges ---- Nil in PSBs
 Educational Loans

 Loans for education are seen as investment for economic

development & prosperity & development of human capital.
1. Objective ---
i. to provide financial support to meritorious students for
pursuing higher education in India & Abroad at affordable
T&C so that no deserving/ meritorious student is denied
an opportunity to pursue higher education merely for want
of financial support.
2. Eligibility --
ii. Student to be an Indian National.
iii. Secured admission to a higher education course in India or
abroad through Entrance test or selection process or cut
off marks in qualifying examination, after completion of
(10 + 2 or eqiv) or any other criteria decided by lender.
3. Eligible courses ( studies in India) –
i. Approved Engineering, Medical, Agriculture, Veterinary,
Law, Dental, Management, Computer courses leading to
graduate/PG degree / diplomas conducted by
recognized Colleges/Universities recognized by
UGC/Govt./ AICTE/ AIBMS/ICMR etc.
ii. ICWA, CA, CPA, CFA etc.
iii. Courses conducted by IIMs, Ills, lISC, XLRl, NIFT, NID
iv. Regular degree/diploma courses like Aeronautical, Pilot
training, Shipping etc.
v. Degree/diploma course in Nursing or any other
discipline approved by Director General of Civil
Aviation/Shipping/Nursing or any other regulatory
body.
Eligible courses (studies Aboard) –
i. Graduation: For job oriented professional/ technical courses
offered by reputed universities
ii. Post-Graduation: MCA, MBA, MS etc.
iii. Courses conducted by CIMA-London, CPA in USA etc.
iv. Degree/diploma courses like aeronautical, pilot training,
shipping etc. recognized by competent regulatory bodies in
India/abroad for the purpose of employment in India/ Abroad.
4. Purpose –
i. to provide need based finance to meet expenses for pursuing
higher studies.
ii. it covers expenses such as fee, book/stationary, travel,
computer etc, hostel/boarding, caution deposit, building fund
etc.
Expenses covered
Expenses Limit
Fee payable to college/school/hostel As approved
Reasonable for
boarding/lodging

Examination/Library/Lab fee Actual

Travel One way (outward)
Insurance premium for student Actual
Caution deposit, building fund/refundable Not to exceed 10%
deposit of total tuition fee
Purchase of books/equipment/instruments, Based on realistic
uniforms, Purchase of computer (a) assessment but not
to exceed 20% of
total tuition fee.
Any other expense --- study tour, project work,
thesis etc (b)
5. Quantum of finance:
i. Rs. 10 lakh for studies in India
ii. Rs.20 lakh for studies abroad
(banks consider higher quantum also on case to case basis)
6. Assessment of Loan Amount: among others, keep in mind
i. Prospect of Future employment
ii. Expected realizable income
iii. Interest for the total period
7. Margin:
i. Up to Rs.4 lakh - NIL
ii. Above Rs.4 lakh - 5% for studies In India & 15 % for abroad
 Margin to be brought on pro-rata basis
 Scholarship/assistantship will be included in the margin
8. Security:
i. For loan up to Rs.7.50 lacs
 Co-obligation of Parents
 No Security or third party guarantee.
ii. For Loan above Rs. 7.50 lacs
 Co-obligation of Parents
 Tangible collateral security equivalent to full value of loan
 If security is in the name of third Party, guarantee of third
party is to be obtained.
 Assignment of future income of the student
iii. All the loans up to Rs7.50 lacs are covered under Credit
Guarantee coverage (max cover available is 75 %)
iv. Guarantee fee is borne by the Bank.
9. Rate of Interest:
i. ROI linked to the lender’s Floating Rate (MCLR/Repo)
ii. Simple interest to be charged during the repayment
holiday/moratorium period
iii. Servicing of interest during moratorium period is optional.
iv. Accrued interest will be added to the principal amount
borrowed while fixing EMI.
10. Repayment:
i. 180 EMI for all categories after moratorium period
ii. Repayment holiday/moratorium --- Course period + 1 year
after completion of studies.
iii. If the student fails to get a job or good income after
completing the course, moratorium may be extended for
additional one & half years in three spells of 6 months
each.
11. Processing & Pre- payment charges ------ no charges
12. Mandatory to have life insurance policy on the student.
13. If student is not able to complete the course within
stipulated time , additional period of 2 yrs may be
permitted to complete the course.
14. 1 % concession in intt rate may be provided by the banks if
intt is serviced during moratorium.
15. Banks can issue capability certificate to students going
abroad.
16. No restriction on age but for minors parents to execute
documents & minor to ratify same on attaining majority.
17. Top up loan can be given for further studies within the
overall eligibility limit.
18. Loans up to Rs. 10 lakh are eligible as PS loans
19. Students can also apply thru Vidya Lakshmi Portal
20. If the student discontinues the course midway, a
suitable repayment schedule to be worked out by the
bank in consultation with student.
21. Existence of an earlier education loan to a brother/sister
will not affect the eligibility of another student from the
same family.
22. Central sector interest subsidy
students belonging to EWS (annual gross parental family
income is upto Rs. 4.5 lakh) are eligible for full interest
subsidy during the period of moratorium i.e course
period + 1 year for educational loan availed from any
SCB under the educational loan scheme of IBA.
 Follow Up & Tracking

1. Obtain T/Mobile number, E-MAIL ID of the student & update

same at regular intervals.
2. Collect without fail his/her Progress Report for the previous
yr when he/she approaches for release of subsequent instal.
3. Advise student to send at least two letters to the Bank at
suitable intervals informing of the progress made in studies,
his personal achievements and other related matters.
4. For future tracking keep a copy of PAN of student /parents
but PAN details not a pre-condition for sanction of loan.
5. Maintain close liaison with Educational Institutes for
obtaining details of academic achievements.
6. Must not use any coercive & intimidating method for
recovery
Example: (fig in USD)
 Mr. Rohit has got admission for pursuing MBA at Chicago
Univ business school. Yearly expenses are as under
a. Annual fee = 20,000/-
b. Boarding/lodging = 1000/- pm
c. Examination & Lab fee (annual) = 4000/-
d. building fund/refundable deposit = 4000/-
e. Books, computer = 2000/-
 Rohit’s father is agreeable to mortgage his residential
house which he has purchased 3 years back from DLF for
Rs. 1 cr
 How bank will proceed to process the request of Rohit and
 How much loan bank shall sanction
 What shall be the repayment period of the loan
Solution:
Eligible expenses:
a. Annual fee = 20,000/- (allowed in full)
b. Boarding/lodging = 1000/- pm ( i.e. 12000 pa --seems to be on
higher side. It need to be reasonable say around 5000 pa.)
c. Examination & Lab fee (annual) = 4000/- (allowed in full)
d. building fund/refundable deposit = 4000/- (should not be more than
10 % of annual tuition fee , so allowed 2000)
e. Books, computer = 2000/- (allowed full as these can be 20 % of
tuition fee)
f. Total =20000+5000+4000+2000+2000 = 33000
g. Margin = 15 % of 33,000 /- = 4950/-
h. Loan amt = 33,000 – 4950 = 28050 say USD 28100/-
i. Loan amt in INR = 28,100 * 73 = Rs. 20,51,300/-
( margin to be brought on pro - rata basis)
Process:
a. Advise sanction to Rohit
b. Obtain sanction acceptance from Rohit & his father
c. Obtain documents & include his father as co – borrower
d. Create EMTD of the property by following the requisite
procedure & get it registered if required as per state laws.
e. Register charge with CERSAI
f. Remit tuition fee directly to the university as required in the
their broacher after obtaining 15 % margin from Rohit.
g. Issue a FDD favouring Rohit say for USD 2000 as boarding
/lodging expenses for initial ¾ months
h. Payments other than boarding/lodging should always be
made directly to Univ & receipts to be obtained & kept on
record
i. Obtain periodic performance reports from Rohit
THANK YOU