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A Comparative Study on Housing Loans
VIJAYA DEGREE COLLEGE Page 68
3. Age: The minimum age for applying for a loan at SBI is 21 years and
maximum age within which repayment should be made is 65 years.
Graph No. 7
Graph Showing Relationship Between Age & Risk
0 21 65
Age
Interpretation: Keeping all other factors the same, we can see that as the age
increases the risk level also increases.
Graph No. 8
Graph Showing Relationship Between Age & Loan Eligibility
0 21 65
Age
Interpretation: Keeping all other factors the same, we can see that as the age
increases the loan eligibility decreases.
R
I
S
K
A Comparative Study on Housing Loans
VIJAYA DEGREE COLLEGE Page 69
4. Term of Loan: The term of loan at SBI is upto a maximum period of 20 years.
Graph No. 9
Graph Showing Relationship Between Term Of Loan & Risk
0 5 10 15 20
Term of Loan
Graph No.10
Graph Showing Relationship Between Term Of Loan & Loan Eligibility
0 5 10 15 20
Term of Loan
Interpretation: Keeping all other factors the same, we can see that as the term of
R
I
S
K
A Comparative Study on Housing Loans
VIJAYA DEGREE COLLEGE Page 70
loan increases the risk level and loan eligibility increases.
Graph No. 11
Graph Showing Relationship Between Term Of Loan (Years) & Rate Of Interest
10.0 9.5%
9.5
9.0 8.75%
8.5
8.0
0 5 10 15 20
Term of Loan (Years)
Interpretation: From the above graph we can see that as the term of loan increases
the floating rate of interest also increases. There is a direct relationship between the
two. SBI is taken as an example to show the various interest rates for the different
periods. 0 - 5 years = 8.75%, 6 - 10 years = 9% and 11 - 20 years - 9.5%.
9%
%
A Comparative Study on Housing Loans
VIJAYA DEGREE COLLEGE Page 71
5. Cost of Property:
Graph No. 12
Graph Showing Relationship Between Costs Of Property & Risk
0 1 crore
Cost of Property
Interpretation: Keeping all other factors the same, we can see that as the cost of
property increases the risk level also increases. Loan eligibility is considered on the
basis of lower of the following 2 factors.
a. Repayment capacity (as determined by IIR / FOIR)
b. 85% of cost of property (For site 70%).
(Higher LCR for corporate tie-ups for most Housing Finance Institutions
Ex: SBI, LCR -90%.)
R
I
S
K
A Comparative Study on Housing Loans
VIJAYA DEGREE COLLEGE Page 72
6. Qualification:
Graph No. 13
Graph Showing Relationship Between Qualification & Risk
Qualification
Interpretation: Keeping all other factors the same, we can see that higher the
qualification lower is the level of risk. Higher the qualification greater are chances
of continuous employment and re-employment and hence lower chances of default
for the company.
R
I
S
K
A Comparative Study on Housing Loans
VIJAYA DEGREE COLLEGE Page 73
COMPARISON OF CREDIT PARAMETERS OF MAJOR PLAYERS
VIS-A-VIS SBI
The Following Objective Has Been Analyzed Here -
'To identify the individual elements and to analyze the major elements of
Credit Appraisal, which have a bearing on the sanction of the credit amount i.e.,
loan eligibility for SBI with other major players in the Housing Finance Industry".
Detailed discussions were held with the help of structured interview
schedules in the following major Housing Finance Institutions in Bangalore - a)
LIC Housing Finance Limited, b) ICICI c) State Bank of India (SBI) d) Vijaya
Bank. The above was done in order to draw up a comparison of the impact of all
the factors affecting disbursements of Housing Loans in general and Credit
appraisal system in particular. Comparison charts are presented in this chapter so
that an analysis of all the factors in comparison to SBI is made possible.
A Comparative Study on Housing Loans
VIJAYA DEGREE COLLEGE Page 74
Income (Table No. 4)
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A Comparative Study on Housing Loans
VIJAYA DEGREE COLLEGE Page 75
Interpretation:
1. SBI has no minimum income criteria. The same holds good for all other
Housing Finance Institutions studied except in the case of HDFC where the net
salary should be at least Rs.3,000 to Rs.4,000 per month.
2. Income for computation is considered as gross salary for SBI and the same is
observed for ICICI & Vijaya Bank. LIC and SBI compute income on the basis
of net salary.
3. This factor helps to identify the repayment capacity of the borrower based on
monthly income. The loan amount sanctioned is worked out by considering the
lower of either the income factor or LCR.
A Comparative Study on Housing Loans
VIJAYA DEGREE COLLEGE Page 76
NATURE OF EMPLOYMENT (Table No. 5)
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A Comparative Study on Housing Loans
VIJAYA DEGREE COLLEGE Page 77
Interpretation:
1. All Housing Finance Institutions treat self-employed borrowers as more risky in
comparison to salaried / employed borrowers.
2. Most of the Housing Finance Institutions arc singular in categorizing lawyers,
politicians, certain policemen, celebrities and sports people (without regular
income) as high-risk categories.
3. SBI does not give home loans for free-lance, part time borrowers. On the
contrary LIC and ICICI give home loans for-those categories.
AGE
(Table No.6)
SBI
Other Major Housing Finance Institutions
HDFC
ICICI
LICHFL
VIJAYA
BANK
Minimum
Age
(eligibility
21 Years
21 Years
21 Years
18 Years
21 Years
Maximum
Age
65 Years
65 Years
The loan
terminates
before or
when one
turns 65 or
before
retirement,
whichever is
earlier
Retirement
age or 70
whichever is
earlier
58 Years
(Usually)
A Comparative Study on Housing Loans
VIJAYA DEGREE COLLEGE Page 78
Interpretation:
1. LICHFL provides opportunity for a person whose just 18 years old to apply for
a housing loan provided he has satisfied other criteria, whereas in all other
Housing Finance Institutions including SBI minimum age is 21 years.
2. Even the maximum age for exit is higher at 70 years in the case of LICHFL
provided the applicant is still employed / in business.
TERM OF LOAN
(Table No.7)
SBI
Other Major Housing Finance Institutions
HDFC
ICICI
LICHFL
VIJAYA
BANK
Most Popular
Term Period
15 years
10 years
10 years (for
self-
employed
loan >than 5
lacks - only
10 years
term. <than 5
lacks - 15
years term).
15 years
15 years (for
employed) 5-
10 years (for
self-
employed)
Interpretation:
1. The term of loan generally ranges up to 20 years. The most popular term
period is 10 to 15 years.
A Comparative Study on Housing Loans
VIJAYA DEGREE COLLEGE Page 79
COST OF PROPERTY
(Table No.8)
SBI
Other Major Housing Finance Institutions
HDFC
ICICI
LICHFL
VIJAYA
BANK
Loan Amount
No lower
limit. Upper
limit - 1 crore
Lower limit-
Rs. 1,00,000
Lower limit -
1 lacks Upper
limit - 1
crore"
Grihaprakash
Scheme
No lower
limit. No
Upper limit
No Upper
limit
Lower limit -
Rs.25, 000
Upper limit -
Rs.l Crore
Grihalakshmi
Scheme
Lower limit -
Rs. 1 lakh
Upper limit -
Rs.l Crore
Extent of
Financing
(LCR)
85% of cost
of property
including
stamp duty +
registration
charges
85%
85%
85% of cost
of property
including
stamp duty +
registration
charges
80%
A Comparative Study on Housing Loans
VIJAYA DEGREE COLLEGE Page 80
Interpretation:
1. Though no upper limit is specifically mentioned for SBI and Vijaya Bank, the
upper limits are exercised on the basis of income criteria.
2. Only SBI & LICHFL among all Housing Finance Institutions offers 85% of
Cost of Property including stamp duty -t- registration charges, This implies
higher loan amount from SBI & LICHFL
which is not the case with other Housing Finance Institutions. Only for Vijaya
Bank LCR = 80%
QUALIFICATION
(Table No.9)
SBI
Other Major Housing Finance Institutions
HDFC
ICICI
LICHFL
VIJAYA
BANK
Important in
determining
the loan
eligibility
Very
Important
Not
Important
Not
Important
Not
Important
Not
Important
Interpretation:
1. Qualification docs not have any impact on loan eligibility for all other
Housing Finance Institutions. However SBI gives high importance to
qualification and has several flexible repayment packages like FLIP, SURF,
Balloon Payment etc. which would be of immense use for qualified /
professionals whose incomes have potential for high growth.
A Comparative Study on Housing Loans
VIJAYA DEGREE COLLEGE Page 81
CHAPTER 5
FINDINGS AND CONCLUSION
FINDINGS:
1) Vijaya Bank offers the lowest rate of interest for housing loans in some
cases and offers on par with SBI in some cases. But for a term of Five years
its offers the industry's lowest rate of interest at 7.5%.
2) SBI, ICICI & Vijaya Bank are less conservative when compared to HDFC
on most occasions.
3) LICHFL offers the least preferred package of low loan eligibility, high rate
of interest and high processing + other charges.
4) SBI offers better deals for higher income groups when compared to lower /
middle income groups.
5) It is also found that IIR becomes the limiting factor for Housing Finance
Institutions, which are more conservative. Here the borrower gets a much
lower loan eligibility than what he is eligible for in other Housing Finance
Institutions.
6) When LCR becomes the limiting factor it is been that the borrower gets up
to 85% (80% in case of Vijaya Bank) of cost of property / loan required. In
exceptional cases, it is gathered from all Housing Finance Institutions that
they are willing to sanction up to 100% of loan required by the borrower.
A Comparative Study on Housing Loans
VIJAYA DEGREE COLLEGE Page 82
7) In all cases it is seen that the processing + other charges is highest in
LICHFL followed by SBI which would reduce the attractiveness of the loan
options offered by these two institutions. Vijaya Bank offers the best deal
with respect to processing + other charges. Although HDFC & ICICI offers
the same amount in three out of five cases, SBI offers a better deal than
ICICI with respect to processing + other charges.
CONCLUSION:
The major of the study is on evaluating the tools used by the Housing
Finance Institutions with particular focus on SBI and their effectiveness in hedging
risk exposure while remaining competitive in the industry.
It is the evident that SBI needs to play a far more important role in
providing higher / on par loans with other the Housing Finance Institutions,
especially in the category of borrowers with lower incomes. This category will be
predominantly the salaried class where monthly incomes are assured and SBI needs
to fine tune its tools of Credit Appraisal considering the probability of having a low
default rate in this segment, also as per a (Financial Times, Bangalore, Saturday,
August 16, 2004). It is seen that the number of low-income families (defined as
those with an annual income of less than Rs. 22500) is projected to decline from
86.10 million families as of the financial year 1995 to 39.90 million families by the
financial year 2007 in India. Also the lower middle-income category would in fact
account for a lions share of the nations population in income terms having a
39 % contribution.
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VIJAYA DEGREE COLLEGE Page 83
It can be inferred from the analysis that the two major threats to SBI in the Housing
Finance Industry are ICICI and HDFC, which are also major market players.
In all the case studies considered, these two Housing Finance Institutions offer
more / same loan amounts. Though in some cases the interest rates are marginally
higher (0.25%) with respect to ICICI and HDFC as compared to SBI, SBIs
charges of processing + administration are very high when compared to these two
Housing Finance Institutions.
Vijaya Bank is another Housing Finance Institution, which is fast catching
up in the Housing Finance Industry by giving the lowest interest rates (In fact Mr.
M.S. Kapur, Chairman & Managing Director, Vijaya Bank said that the rate of 7.50
% for a five year tenure loan acknowledges the credit worthiness of borrowers
who have not defaulted on their loans.) As a matter of tact it provides very
attractive options for the lower income group of borrowers. SBI offers the least
attractive loan amount to the every same segment.
LIC Housing Finance Limited at present offers low loan amounts, high
interest rates as well as high processing and administration charges as compared to
other Housing Finance Institutions.
The market threat for SBI is being / will be posed by ICICI, HDFC and
Vijaya Bank.
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VIJAYA DEGREE COLLEGE Page 84
CHAPTER 6
SUGGESTIONS
1) Lower / Middle income group whose income are less than Rs. 15,000 per
month because of lower IIR at 35% get significantly lower quantum of loan
from SBI as compared to all other major Housing Finance Institutions.
Housing loan will be an essential requirement for this category of people.
SBI can assess the income sources and if they are found steady, can use a
higher IIR, which will help this group to get loans on par with major
competitors of SBI. Also if the default rate in this segment is low, SBI
should offer higher loan amounts which are more / on par with its
competitors.
2) The higher income categories on the contrary will not be solely dependent
on housing loans and may have other avenues of funding. Also in a country
like India where there is a clear-cut directive by the Government to provide
housing for all and where several initiatives are taken, it is all the more
imperative that a big player like SBI in the Housing Finance Industry sets
the trend.
3) Even Banks, which have a tradition of being very conservative, are offering
very competitive interest rates for housing loans. Vijaya Bank offers interest
rates, which are lower than SBI in some plans. For a five-year term loan
(which is the most favorite among Business class as could be seen when the
Housing Finance Institutions were interviewed) Vijaya Bank offers the
industry lowest interest rate of 7.5%.
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VIJAYA DEGREE COLLEGE Page 85
4) Entry age level can be made at 18 years on par with LICHFL from present
age limit of 21 years. This will facilitate borrowers who are 18 years of age
and earning to avail housing loans.
SUGGESTIONS FOR FURTHER RESEARCH
While undertaking the study of this project, apart from the primary
information sources like the Housing Finance Institutions themselves, hardly
any other information source was available relevant to the study. While lot of
reports were available in the newspapers, magazines and the internet relating to
the Housing Loan/ Finance Industry, there was virtually no study found with
respect to Credit Appraisal system in the Housing Finance Institutions and in
particular SBI in order to elicit the data and information pertaining to the
objectives of the study.
It is suggested that on the basis of this study, the focus topics like default
rates in the industry, satisfaction of the borrower with respect to loan amount
sanctioned and the ways and means on which borrower mops up the balance
fianc required for the property and many more such relevant areas could be
undertaken for research purposed which would be immense benefit to this
sector, both for the borrowers and the Housing Finance Institutions.
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VIJAYA DEGREE COLLEGE Page 86
Interview Schedule For SBI
1) What are the types of customers for whom SBI sanctions home loans?
2) How do you analyze the customers and their loan eligibility?
3) Which are the major factors affecting Credit Appraisal in SBI?
4) Which are the other important factors taken into consideration while
sanctioning home loans?
5) What are the tools used by SBI for arriving at the loan eligible for the
customers?
6) How does age of the borrower affect loan eligibility?
7) What are the terms and conditions regarding home loans and their
disbursals?
8) Is there any differential treatment accorded for purchase of flats / house vis-
-vis purchase of plot and construction of house?
9) Do any category of customers have special concessions?
10) Is there any other information affecting disbursal of home loans?
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VIJAYA DEGREE COLLEGE Page 87
Interview Schedule For The Concerned Officials Of Other Housing
Finance Institutions
1) Which are the major factors affecting Credit Appraisal of home loans?
2) Which are the other important factors taken into consideration while
sanctioning home loans?
3) What are the terms and conditions regarding home loans and their
disbursals?
4) Which category of customers would you consider more risky and why?
5) Is there a minimum income requirement?
6) How much of the income of you consider for repayment?
7) Is the repayment calculation done on gross or net salary?
8) What is the minimum age for getting a home loan and what is the maximum
age within which the repayment should be done?
9) Does the term of loan affect eligibility?
10) Which is the most popular term of loan repayment?
11) Is their any differential treatment accorded for purchase of flats / house vis-
-vis purchases of plot and construction of house/ what is the extent of
financing tin the two cases?
12) Do any category of customer have special concessions?
13) Does qualifications play an important role in determining the eligibility of
the customer?
14) What is the USP (Unit Selling Point) in your Institution?
15) What are the processing fees charged? Are there any other charges?
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VIJAYA DEGREE COLLEGE Page 88
Bibliography
1. The Internet:
www.indiainfoline.com
www.personalfn.com
www.SBI.com
www.icici.com
www.statebankofindia.com
www.vijayabank.com
www.lichousingfinance.com
Google, Yahoo and other Search Engines.
2. Newspapers:
The Times Of India Property Times
The Economic Times And The Financial Times
3. Annual Reports of SBI and Vijaya Bank
4. Printed Material, Brochures From All The Housing Finance
Institutions
5. The Week Magazine May 25
th
, 2010 Issue.