SUMMER INTERNSHIP PROGRAM

ON
CREDIT APPRAISAL OF RBL BANK

Submitted in partial fulfilment for the award of the degree of

Master of Management Studies (MMS)

(Under University of Mumbai)

Submitted By

NISHITA RAJENDRA SOLANKI

(Roll No. 91)

(MMS DIV ‘A’)

Under the Guidance of

Prof. HARDEEP KAUR

2018-2020

VIEKANAND EUCATION SOCIETY’S OF

INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH

1
 CERTIFICATE

This is to certify that project titled “Summer Internship Program” on “CREDIT

APPRAISAL OF RBL BANK” is successfully completed by Ms. NISHITA
RAJENDRA SOLANKI during the 3rd Semester, in partial fulfilment of the
Master’s Degree in Management Studies recognized by the University of
Mumbai for the academic year 2018-20 through Vivekanand Education Society’s
Institute of Management Studies and Research, Chembur.

This project work is original and not submitted earlier for the award of any degree
/ diploma or associate ship of any other University/ Institution.

Name: NISHITA RAJENDRA SOLANKI

Date: 27nd June, 2019

(Signature of the mentor)

Prof. HARDEEP KAUR

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 DECLARATION

I hereby declare that this Project Report submitted by me to Vivekanand

Education Society’s Institute of Management Studies and Research, Chembur is
a bonafide work undertaken by me and it is not submitted to any other University
or Institution for the award of any degree diploma/certificate or published any
time before.

Name: NISHITA RAJENDRA SOLANKI

(MMS BATCH 2018-2020)

Roll No.: 91

(Signature of the student)

NISHITA SOLANKI

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 ACKNOWLEDGEMENT

I take this opportunity to sincerely express my gratitude to my project guide Prof.

HARDEEP KAUR and the CFO of Brick Eagle Affordable Housing Finance
Limited CHAITAINYA KAMPANI and his core finance team for giving me an
opportunity to work as an intern with this organization.

The experience and the knowledge acquired of the interaction with the guide have
contributed a great deal in helping me to successfully complete this project.

Also, I would like to thank Prof. HARDEEP KAUR, for her constant support,
guidance and encouragement that helped me to stay focused on the project. Her
thoughtful review and indispensable suggestions have contributed a great deal in
helping me to successfully complete this project.

Last but not the least I would like to thank all those who supported and helped
me to stay focused on this project and provided me with the constant motivation
and encouragement for perseverance.

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 TABLE OF CONTENTS

Sr. no. Topic Page

Nos.

1 Executive Summary 6

2 About the Company 7

2.1 About the Brick Eagle 7

2.2 Brick eagle Tie with RBL 11

3 What is Credit Appraisal 10

3.1 Credit Appraisal process 12

3.2 Components of credit appraisal process 15

3.3 Credit analysis in the bank 16

3.4 Credit Appraisal of term loan by financial 21
institutions like bank

4 Housing finance in India and home loan 23

process

Case study
4.1 28

5 Brick Eagle home loan process 31

6 RBL bank home loan 36

6.1 RBL home loan base on eligibility and salary 40

5
7 Difference between RBL bank home loan 42
product and HDFC home loan product

8 What is Cibil 43

8.1 How Cibil helps bank and financial 46

institutions

9 Conclusion 57

10 Refrences 58

6
 1. Executive Summary
The project titled “CREDIT APPRAISAL OF RBL BANK” is about the RBL bank and their
home loan process that is an important part of Brick eagle affordable housing finance limited.
As my company Brick eagle works as the mediator for the RBL bank and customers. All the
home loan process of RBL bank are done by brick eagle like how much loan to give, cibil
score of the customers, application and everything is done by Brick eagle . Lastly the loan
disbursement is done by RBL bank as Brick eagle is not and NBFC firm.As an intern I have
seen all these processes and even I was working with finance team of the company. The
company follows a systematic process of credit appraisal and then only bank gives loan to the
customers.
The objective of this project to get the brief idea about the credit appraisal of rbl bank and
brick eagle partner with rbl bank

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 INDUSTRY ANALYSIS
About Brick Eagle Group

“We aspire to be the country’s affordable housing champions”.

India is home to 78 million homeless people. The country needs over 5 million affordable
homes each year, whereas supply is less than 10% of this demand. Affordable housing in
India is a local game and over 90% of the supply today comes from ‘Local Developers’
across the country. Growth of these developers has been hampered due to lack of funding and
professional management.

Brick Eagle was founded in 2011 with a vision to provide market-based solution for the
housing poverty in India. The group strives to bridge the funding gap and empowers Local
Developers across the country. Besides providing capital to developers, we also offer them a
management tool kit on corporate governance, financial discipline and Industry best
practices. We realize that Developers need support across the value chain in order to deliver
housing in scale. Hence we are incubating an ecosystem of entrepreneurs providing various
services right from product design to township management.

We understand that with great opportunities come great responsibilities. Our commitment to
sustainability is one amongst it and hence, we pioneered the concept of ‘Affordable Green’;.
Our goal is to reduce carbon footprint of our developments by using locally available
materials and adopting green construction technologies. Once demonstrated, we hope this
model can become a prototype for affordable housing development across the country.

We at Brick Eagle envision a movement to eradicate homelessness in India over the next
few years. Being in a position to make a huge impact only inspires us to continue doing
what we do best… changing lives of people by providing them their dream homes.

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Brick Eagle’s Ecosystem of Affordable Housing

Over the past five years, we have developed a disruptive model to deliver Affordable
Housing across the country. The model hinges on partnering with Local Developers and
incubating Entrepreneurs to plug gaps in the affordable housing value chain.

We operate through four business divisions.

 PROJECT FINANCE
FUNDING AFFORDABLE HOUSING PROJECT

 VALUE CHAIN PARTNERS

BUILDING AN AFFORDABLE HOUSING ECOSYSTEM

 BRICK EAGLE FOUNDATION

CATALYSING HOUSING FOR URBAN POOR

 DEVELOPER PARTNERS

INCUBATING AFFORDABLE HOUSING DEVELOPERS

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Governance @ Brick Eagle

Transparency in business and investment practices has been an integral part of our
organizational structure and success so far. We at Brick Eagle see ‘Transparency’ and ‘Good
Governance’ as two prime components in creating a momentous value to our stakeholders,
investors and partners.

We have constituted committees comprising of our investors and advisors, including leaders
in business, law and civil servants, to oversee our corporate practices, investment strategies
and risk management. We hold pride in ensuring that our eminent investment committee
evaluates and approves all our investment decisions.

We also understand the importance of an external body to review and audit our business
practices. Brick Eagle has employed the services of internationally renowned consultancy
firms like Deloitte to conduct rigorous audits, ensuring that we continue to pursue our vision
for affordable housing without compromising on the ‘Best Practices’.

Brick Eagle publishes monthly newsletters and updates its investors and stakeholders on
projects and proposed investments. We respect our investors’ right to all relevant information
and encourage requests for any additional details on our projects.

We look forth to continue serving our valuable stakeholders, investors, partners and
customers by demonstrating our commitment in maintaining a complete transparency on
operations.

OUR VISION

To transform the housing poverty in india into a $100 billion market opportunity.

OUR MISSION

To deliver 1 million homes by 2030.

OUR STRATERGY

Incubate 20 local developers across 20 cities in india by 2020

10
 What is Credit Appraisal?

Credit Appraisal is the process by which a lender appraises the technical feasibility, economic
viability and bankability including creditworthiness of the prospective borrower. Credit
appraisal process of a customer lies in assessing if that customer is liable to repay the loan
amount in the stipulated time, or not. Here bank has their own methodology to determine if a
borrower is creditworthy or not. It is determined in terms of the norms and standards set by the
banks. Being a very crucial step in the sanctioning of a loan, the borrower needs to be very
careful in planning his financing modes. However, the borrower alone doesn’t have to do all
the hard work. The banks need to be cautious, lest they end up increasing their risk exposure.
All banks employ their own unique objective, subjective, financial and non-financial
techniques to evaluate the creditworthiness of their customers.The word ‘credit appraisal’
garners a lot of meaning when you talk of personal loans. It looks a complicated word, but it is
assessing a particular loan application in a thorough manner, to check or gauge your loan
repayment ability. The lender or the bank does credit appraisal to check if you can repay the
loan

.Credit appraisal assesses two major factors. Ability and willingness to repay the loan. The
bank checks:

o Your past credit history. The bank goes through credit information report (CIR) and the credit
score. CIBIL gives you and other borrowers a score between 300 to 900. A CIBIL score of 700
and above is good and gets loans easily sanctioned.
o The bank checks if you are salaried or a businessman. It then goes through the various
conditions/criteria which you need to meet, based on the respective category.
o Understand a customer through physical interactions (body language) and gauge his intentions
and understand the business model.
o Assess the financials of customers. This is both the past and present. Banks go through
financials of the business and spending pattern of individuals also gauging source of income.
o The bank does the job of a policeman. It takes a close look at facial expressions of the customer
at the time of questioning. All details, financials might look up to the mark. But, if there is
strain in your voice while talking to the banker, he suspects something is amiss.
o Banks check conflict of interest before lending. Loans must never be given out of pity as the
customer might not be able to repay the loans.

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Brick Eagle Housing Finance Private Limited Tie up with RBL Bank

Brick eagle housing finance private limited company provide home loans to customer up to
30 lakhs. Brick eagle company comes under NBFC’s (Non-banking financial companies).
They offer various banking services but they do not a have banking license.

Brick Eagle housing loan company Tie up with RBL BANK

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 Credit Appraisal Process:

Banks check:

o Your Total Income

o Age
o Repayment capability
o Work experience and job stability
o Loan EMIs paid and currently being paid
o Nature of employment (Type of job you are in).
o Amount you spend each month.
o Future liabilities
o Taxes you are paying
o Assets you/business owns
o Capital structure of the business, (Debt or Equity).

Lenders check the fixed obligation to income ratio (FOIR): This gives banks an idea on
how much debt you have and how regular you are with repayments. FOIR gives the fixed
obligations a bank has to meet each month. Banks frown on customers having loan EMIs of
50% or more vis-à-vis monthly income. Banks assume that you require at least 50% of income
for living expenses. If more than 50% of monthly salary goes in loan EMIs, you could struggle
with repayments.

Let’s Calculate Loan Eligibility Based on FOIR:

You have an income of Rs 60,000 a month. (Take home salary). You have availed a car loan
where you pay Rs 9,500 a month in EMIs. You also have a personal loan where you pay Rs
6,500 a month. Banks believe that if loan EMIs are within 50% of monthly income, you can
safely repay loans.

Take home salary = Rs 60,000

Car loan = Rs 9,500

Personal loan = Rs 6,500

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Total loan EMIs = Rs 16,000.

Banks are happy to give you a loan as long as loan EMIs are within Rs 14,000. (This is 50%
of Rs 60,000 – Rs 16,000).

FOIR = Sum total of loan EMIs / Monthly Income.

FOIR = 16,000 / 60,000 = 27%.

Installment to Income Ratio: This is loan EMIs to income you earn.

Loan to Cost Ratio: This helps to gauge how much of a loan you must be given. A bank will
sanction a personal loan based on requirement. Banks would sanction a home loan based on
80-90% of the cost of the property. Banks would sanction 70-80% of the cost of the car.

Credit Appraisal Process in Bank Projects:

Identification of the customer:

Banks check identity proof like PAN and Passport, Employment proof like appointment
letter/experience letter or office address proof. CIBIL score of 700 and above. Investment proof
required for collateral like LIC Policy, Mutual Funds, Shares, FD or PPF.

The bank wants to know who you are, where you live, how much you earn and your reputation
in society. Banks want to know the ability and willingness to repay the loan.

Banks Want to Understand Your Business:

Banks want to understand the business model, before sanctioning credit. They enquire on the
nature of business, the industry you operate and peers in the business, and do research on the
performance of the business and the sector.

Banks Check Credit Requirements:

Banks need an accurate estimate of funds you need to run the business. If they sanction too
high a loan amount, the businessman will use the money for other purposes. Too low an amount
means money would not be sufficient to run the business.

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 Banks Slot You in the Right Scheme:

Banks slot you in a scheme based on the line of business. This could be a unique scheme for
traders, professionals, car dealers, travel agents and so on. Banks check eligibility, collateral,
margins, rate of interest, before slotting you in a scheme.

Loan Application:

You have to fill the loan application in the prescribed format. The bank collects crucial
information on you through loan application.

KYC:

 Identity proof
 Address proof
 Business proof
 PAN

CIBIL:

Banks go through the credit information report (CIR) and the CIBIL score. There are two types
of credit reports.

o Personal
o Commercial

Banks check for settlements, defaults, dues and written off amounts.

RBI Defaulters List:

The defaulter list can be got from the CIBIL website. Borrowers, proprietors, promoters,
partners, guarantors must not be on the list.

CERSAI:

Banks check the CERSAI website to find out if property is mortgaged to another lender.

15
Components of Credit Appraisal Process

While assessing a customer, the bank needs to know the following information: Incomes of
applicants and co-applicants, age of applicants, educational qualifications, profession,
experience, additional sources of income, past loan record, family history, employer/business,
security of tenure, tax history, assets of applicants and their financing pattern, recurring
liabilities, other present and future liabilities and investments (if any). Out of these, the incomes
of applicants are the most important criteria to understand and calculate the credit worthiness
of the applicants. As stated earlier, the actual norms decided by banks differ greatly. Each has
certain norms within which the customer needs to fit in to be eligible for a loan. Based on these
parameters, the maximum amount of loan that the bank can sanction and the customer is
eligible for is worked out. The broad tools to determine eligibility remain the same for all
banks. We can tabulate all the conditions under three parameters.

Parameter Documents

Technical
Field Investigation, Market value of asset
feasibility

Economic viability LTV(Loan to Value), IIR

Past month bank statements, Asset and liabilities of the

Bankability
applicant

Besides the above said process, profile of the customer is studied properly. Their CIBIL (Credit
Information Bureau (India) Limited) score is checked.

Parameter components & How bank asses your creditworthiness through it.

16
 Credit Analysis In Banks

Technical
What bank is looking for
Feasibility

Decent living standard with some tangibles like T.V. &

Living standard fridge will provide assurance to bank regarding your
residential status.

Presence of some undesirable elements like local goons or

Locality controversial areas adversely affects your loan appraisal
process.

Telephonic At least one response is need from person to establish the

Verification identity of the person from contact point of view.

Educational Not an essential barrier but essential to understand the

Qualification complex terms & conditions of bank loan.

An interesting reference point in the sense that they are one

Political Influence
of major category of loan defaulters.

To establish the residential identity of person from human

References
contact point of view & cross check of their loans.

Credit Appraisal Eligibilty: Three Methods to Achieve

 Installment to income ratio

 Fixed obligation to income ratio
 Loan to cost ratio

Installment to Income Ratio

This ratio is generally expressed as a percentage. This percentage denotes the portion of the
customer's monthly installment on the home loan taken. Usually, banks use 33.33 percent to
40 percent ratio. This is because it is has been observed that under normal circumstances, a
person can pay an installment up to 33.33 to 40 per cent of his salary towards a loan.

17
Example: If we consider the installment to income ratio equal to 33.33 per cent, and assume
the gross income to be Rs 30,000 per month, then as per the ratio, the applicant is eligible for
a loan with the maximum installment of Rs 10,000 per month.

Fixed obligation to income ratio

This ratio signifies the importance of the regularity in the repayment of previous loans. In this
calculation, the bank considers the installments of all other loans already availed of by the
customer and still due, including the home loan applied for. In other words, this ratio includes
all the fixed obligations that the borrower is supposed to pay regularly on a monthly basis to
any bank. Statutory deductions from salary like provident fund, professional tax and
deductions for investment like insurance premium, recurring deposit etc. are exempt from these
fixed obligations.

Example: Assume that monthly income of an applicant is Rs 30,000 and the applicant has a
car loan installment of Rs 4,000 per month, a TV loan installment of Rs 1,000 per month. In
addition to this his proposed housing loan installment is Rs 10,000 per month. Numerically,
the ratio is equal to Rs. 15,000 or 50 percent (i.e. 50 percent of the monthly income). If the
bank has decided on the standard of 40 per cent of ratio as the criteria, then the maximum total
installments the person can pay, as per the standard, would be Rs 12,000 per month. As he is
already paying Rs 5,000 for the car and TV, he only has Rs 7,000 left out. Hence, the customer
would be given only that loan for which the EMI would be equal to Rs 7,000, keeping in mind
the repayment capacity of the applicant.

Loan to Cost Ratio

This ratio is used by banks to calculate the loan amount that an applicant is eligible to pay on
the basis of the total cost of the property. This ratio sets the upper limit or the maximum loan
amount that a person is eligible for, irrespective of the loan eligibility under any other criteria.
The maximum amount of loan the borrower is eligible to pay is pegged as equal to the cost or
value of the property. Even if the banks’ calculations of eligibility, according to the above
mentioned two criterions, turns out to be higher, the loan amount can't exceed the cost or value
of the property. This ratio is set equal to between 70 to 90 per cent of the registered value of
the property.

18
Hence, while deciding on the maximum amount of loan a customer can be given, the banks use
these three parameters. These parameters help in computing loan eligibility, which is crucial in
calculating the creditworthiness of a customer. It also acts as a guide to determine the loan
amount.

Economic Viability

IIR for salaried cases would be capped at 60% of Net

Installment to income
income in general.
ratio
-Pension Income cases IIR to be restricted to 40%
Fixed obligation to
FIOR kept at 55%
income ratio

Loan to cost ratio LTV amount to 80%

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Bankability Parameters

Parameter Norms Checkpoints

To check the average amount

Bank 6 months bank statements client is maintaining in the
Statements need to be furnished account is sufficient to pay the
installment amount or not.

Business
Two year IT returns made To enquire primary source of
continuity
compulsory income
proof

To check the general attitude of

Credit For the big loan amount customer along with efforts are
interview credit interview is necessary. put in to understand their needs
better.

Salaried professionals get an

Profile of Secured source of income give
edge over business income
customer them a edge
people.

Asset of value equal to or

more than loan amount taken To safeguard bank interest against
Security
has to be put as pledge or any future default.
collateral.

Ownership To be on the name or blood To establish the ownership claim

title relative of applicant. of the loan applicant.

Bank tool to check any default

CIBIL To check the credit history of
incidence in loaning history of
Report the bank applicant.
applicant.

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Credit Appraisal of Term Loans by Financial Institutions like Banks
Credit appraisal of a term loan denotes evaluating the proposal of the loan to find out
repayment capacity of the borrower. The primary objective is to ensure the safety of the
money of the bank and its customers. The process involves an appraisal of market,
management, technical, and financial.
Getting term loans from a financial institution is not so easy. The corporate asking for the
term loan has to go through several tests. The bank follows an extensive process of credit
appraisal before sanctioning any loan. It analyses the loan proposal from all angles. The
primary objective of credit appraisal is to ensure that the money is given in right hands and
the capital and interest income of the bank is relatively secured.

How to write Bank Loan Proposal

While appraising term loans, a financial institution would focus on evaluating the credit-
worthiness of the company and future expected stream of cash flow with the amount of risk
attached to them. Credit worthiness is assessed with parameters such as the willingness of
promoters to pay the money back and repayment capacity of the borrower.

21
Four broad areas of appraisal by banks are a market, management, technical and
management.

MARKET APPRAISAL

As part of the market appraisal, the very first thing a financial institution would look at is the
gap between demand and supply. Bigger the demand-supply gap, higher is the chances of the
flourishing of that business. The demand versus the proposed supply by the borrower should
have a wide difference in demand of 50000 units against the proposed supply of 10000 units.

Another most important parameter is marketing efforts and infrastructure. This is the factor
which converts a demand into sales for a business. The marketing side of the company needs
to be very strong as it is very critical to the success of the venture.

MANAGEMENT APPRAISAL

Management of the company needs to be appraised for their intentions, knowledge, and
dedication towards the project. By intention, it is meant to evaluate the willingness of the
promoters of the company to pay the money back. It needs to evaluate the real objective of
borrowing.

Only good intentions would not generate cash flows to honor the installments of the loan. The
management needs to be strong in terms of their knowledge about business, commitment
towards achieving the set goals etc.

TECHNICAL APPRAISAL

A technical appraisal is subject to the kind of business and industry of the borrower. If it’s a
manufacturing concern, all those parameters like project site, availability of raw material and
labor, capacity utilization, vicinity to selling market, transportation etc would be examined. A
project needs to be technically very sound to be able to sustain all business cycles.

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FINANCIAL APPRAISAL

After all the other kinds of appraisal, everything boils down to financial appraisal. This
probably is the most important part of credit appraisal of business loans. The reason is that it
expresses everything in terms of money.

Financial appraisal tries to assess the correctness or reasonability of the estimates of costs and
expenses and also the projected revenues. These may include the estimation of the selling
price, cost of machinery, the overall cost of the project and the means of financing.

Financial appraisal involves extensive financial modeling in excel. Basically, it takes the
financial statements of previous periods and forecasts the future financial position for at least
till the loan matures. From that, the cash flows of each year are compared with the installment
of loan because ultimately the cash flows are going to honor the payments of the bank.
Feasibility of the project is evaluated in terms of debt servicing capacity of the firm. Debt
service coverage ratio is a key ratio which is calculated for each future financial period and if
that ratio is satisfying the norms accepted by the bank, the loan would get another green
signal.
It is difficult to explain the process of appraisal in an article or even a set of articles. It is a
very extensive work being done at financial institutions. They have a separate team of
professionals for conducting such project appraisals.

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Housing Finance in India and Appraisal Process of Home Loans

Housing is one of the basic needs of every individual as besides providing shelter and
security, it also enables easy access to the credit market by working as collateral comfort /
security. The urban population of India has been growing at a rapid pace. As per the Census
2011, 31.16 per cent of the total population is in the urban areas. According to FICCI’s report
(October 2011), 900 million people will be added to Indian cities by 2050. With the growing
population of India, increasing nuclear family structure & urbanization the demand of home
is also ever increasing. In addition to it, the present upswing in economic growth of India has
caused increasing buying power of Indian consumer, so has boosted the real estate market.
Housing also plays an important role in terms of the multiplier effect it has on the economy
due to its strong backward and forward linkages with various industries and as a direct and
indirect employment generator. In pursuance of National Housing Policy of Central
Government, Reserve Bank of India has been facilitating the flow of credit to housing sector.
Since housing has emerged as one of the sectors attracting a large quantum of bank finance,
the current focus of RBI's regulation is to ensure orderly growth of housing loan portfolios of
banks.

A person can generally seek a first time housing / home loan for buying a house or a flat,
renovation, extension and repairing to his/her existing house. Indians with a regular source of
income, which includes salaried individuals, selfemployed professionals, self-employed
business people, NRI individuals and existing property owners who can pledge it as security
for the loan, are all eligible for a home loan. The individual applying for the loan should be
above 21 years of age when the loan period begins and should be less than 65 years when the
loan period closes. Generally as a thumb rule, banks or financial institutions lend 85-90% of
the cost of the property. 10-15% of the money is expected to be paid as a down payment
(Margin requirement) for the loan. By taking a home loan from a bank or a housing finance
company the borrower pledges his/her home as the lender’s security (Mortgage) for
repayment of the loan. The interest rates for Home Loans can be fixed or floating, or partly
fixed and or partly floating, suiting the needs of the borrower. Home loans are generally
taken for long tenures as the loan amount is usually a huge sum. A home loan can be taken
anywhere between 5 and 30 years. The amount of loan one is eligible for depends on the
individual’s credit profile. The bank or financial institution will hold the title or deed to the
property till the loan has been paid back with the interest due for it.

24
Important Guidelines and Schemes Regarding Housing Finance

 Housing Loans under Priority Sector Lending: Loans up to Rs. 25 Lakh in metropolitan
centres with population above 10 Lakh and Rs. 15 Lakh in other centres to individuals for
purchase/construction of a dwelling unit per family, excluding loans granted by banks to their
own employees, w.e.f. 01.04.2011.

 Loan To Value (LTV) Ratio: The LTV ratio in respect of housing loans should not exceed
80%. However, for small value housing loans i.e. housing loans up to Rs. 20 lakh (which get
categorized as priority sector advances), the LTV ratio should not exceed 90%.

 Factors for determining eligibility: The main concern of the bank is to make sure that
borrowers comfortably repay the loan on time and ensure end use. The higher the monthly
disposable income, higher will be the amount customer will be eligible for loan. Typically a
bank assumes that about 50-60 % of monthly disposable/surplus income is available for
repayment of loan. The amount of the loan also depends on applicant’s age, tenure of the loan
and the interest rate.

 Interest Rates: Banks generally offer either of the following loan options, Floating Rate
Home Loans and Fixed Rate Home Loans.

 For a Fixed Rate Loan, the rate of interest is fixed either for the entire tenure of the loan or
a certain part of the tenure of the loan. In case of a pure fixed loan, the EMI (Equated
Monthly Installment) due to the bank remains constant.

 The floating interest rate is made up of two parts: the index and the spread. The index is a
measure of interest rates generally (based on say, government securities prices), and the
spread is an extra amount that the banker adds to cover credit risk, profit mark-up etc. The
prime lending rate or the base rate (10-10.25% presently) is used as a basis for calculating the
floating rate and the interest rate charged is the prime interest rate / base rate plus a certain
spread. The EMI of a Floating Rate loan changes with changes in market interest rates. If
market rates increase, repayment increases. When rates fall, dues also fall.

 Security: security for a housing loan is typically a first mortgage of the property, normally
by way of deposit of title deeds. Banks also sometimes ask for other collateral security as
may be necessary. Collateral security assigned to bank could be Life Insurance policies, the
surrender value of which is set at a certain percentage to the loan amount, guarantees from

25
solvent guarantors, pledge of shares / securities and investments like KVP/ NSC etc. that are
acceptable to the banker. Banks would also require the borrower to ensure that the title to the
property is free from any encumbrance. (i.e., there should not be any existing mortgage, loan
or litigation, which is likely to affect the title to the property adversely).

 CERSAI Registration: To prevent frauds in loan cases the Government has facilitated
setting up of the Central Registry of Securitization Asset Reconstruction and Security Interest
of India (CERSAI) under the Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI Act, 2002). This Registry has
become operational with effect from March 31, 2011. The objective of setting up the Central
Registry is to provide a database of security interest over property rights to secure loans and
advances granted by banks and financial institutions. Availability of encumbrance status,
inter alia, help in preventing frauds involving cases where loans are taken from different
lenders against the same immovable property by creating multiple mortgages by deposit of
title deeds as well as fraudulent sale of property without disclosing the security interest over
such property. The operation of CERSAI is currently being managed by National Housing
Bank partially.

 Fees: A home loan often requires payment of various fees, such as loan origination or
processing charges, administrative charges, documentation, late payment, changing the loan
tenure, switching to different loan package during the loan tenure, restructuring of loan,
changing from fixed to floating interest rate loan and vice versa, legal fee, technical
inspection fee, recurring annual service fee, document retrieval charges and pre-payment
charges, if someone wants to prepay the loan. Many of these fees are negotiable / can be
waived also.

 Tax benefit on the loan: Resident Indians are eligible for certain tax benefits on both
principal and interest components of loan installments under the Income Tax Act, 1961.
Section 80C and Section 24B grant income tax rebates to people who have taken home loans.
Section Component Benefits per annum (w.e.f 1.04.14) 80C Principal Rs. 1,50,000 /- 24B
Interest Rs. 2,00,000 /- . Eligibility Calculation and Appraisal of Home Loan Proposal
Financial Appraisal An important part of credit appraisal is financial appraisal, where the
applicant's financial position is reviewed. Past repayment records including defaulting, late
payments, delinquencies and bankruptcies, earnings potential (including spouse), any
outstanding debt, assets, liabilities and stability of income comes under close scrutiny.

26
Those earning high salaries and carrying a professional degree with a bright growth potential
can definitely strike a great bargain. Financial stability of the borrower and the coborrower is
an important factor not only for credit appraisal but also for increasing applicants’
creditworthiness.

Usually a HFC or bank sets a fixed upper limit for the amount of money that can be
sanctioned for a particular type of loan. Depending on the creditworthiness of a customer, the
amount of money sanctioned to the party can be increased to a certain degree. Age is another
factor that can also impact how much amount will be sanctioned and speaks about borrower’s
repayment capacity. Age also matters when the tenure is quite long. Technical Appraisal
Apart from the financial appraisal, the technical appraisal is also an integral part of the credit
appraisal process. Here the validity for approvals for construction from local government
bodies is verified. Compliance with building laws, like restrictions on the number of floors or
height of the building, is also verified and the property to be financed is valuated and its
condition is checked. Technical appraisal judges if the property to be financed is viable at all.
3.3 Legal Appraisal Finally, legal appraisal of the property takes place. It requires the
borrower to submit Sale deeds (agreement for sell), Development agreement, Khata
certificates, Encumbrance Certificate and other property related papers. Then these papers are
handed over to lawyers who verify if the borrower is the absolute owner of the property that
needs to be financed. Subsequently, validation of succession of title from earlier owners to
the present one is done. 3.4 Credit History Checking A Credit History is basically a record of
an individual's or company's past borrowing, repayments of loans and credit card bills
including information about late payments & bankruptcy. There is a central database
available with the Credit Information Bureau (India) Limited (CIBIL) which collects and
maintains records of an individual’s payments pertaining to loans and credit cards. These
records are submitted to CIBIL by member banks and credit institutions, on a monthly basis.
The CIBIL TransUnion Score is a 3 digit numeric summary of a person’s credit history which
indicates applicant’s financial & credit health. The Score is derived from the credit history as
detailed in the Credit Information Report [CIR] and ranges from 300 to 900 points. Credit
score tells the lender how likely the applicant is to pay back loan or credit card dues based on
past repayment behavior. The higher is the score, the more is the chance of party’s loan
application getting approved! Before approving a loan a financial institution always checks
with CIBIL on applicant’s repayment track record

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CASE STUDY

Case Study Appraisal of a Home Loan Proposal of Rs. 8.00 Lakhs

Case Details Mrs. V (33 years) who is currently working as an assistant teacher in a Govt.
Primary School approached to Indian Overseas Bank, Garia branch for availing a Home
Loan. She was going to purchase a new flat for her 3 members’ family & for that reason bank
assistance was required. As she has been maintaining a savings account with IOB, Garia for
last 4 years, she decided to approach this branch first.

Now a days banks generally do not give loans to an unknown person without checking
his/her background. Maintaining an account with the bank makes it easier for the customers
to obtain the loan. These days public sector banks are following a very strict policy like the
private banks regarding mortgage loans as a preventive measure for Non Performing Assets
(NPA). The original cost of the flat was Rs. 15.30 lacs of which Rs. 50,000/- were already
paid by the applicant as advance. She applied to the bank for rest of the amount (i.e. Rs.
14.80 lacs). She proposed the name of her husband as the coapplicant of the loan to enhance
the eligibility.

Credit Assessment & Appraisal by the bank Quantum of a loan depends on various factors,
like applicant’s age, income, type of employment, cost of the project etc. As per bank’s
policy,

(i) Maximum 90% of the cost of the house / flat excluding Registration and Stamp
duty charges can be financed by the bank. The margin money is to be provided by
the borrower. Here the Marginal requirement was 10% which is (15.30 lacs X
10%) = Rs. 1.53 lacs. So the remaining amount was (15.30 lacs – 1.53 lacs) = Rs.
13.77 lacs.
(ii) Valuation of the property is to be done by bank’s empanelled valuer / engineer.
From the valuation report, bank will check Fair Market Value, Open Market
Value, Forced Sale Value and Comparable Sale Value of the property. Forced
Sale Value is the amount that may reasonably be received from the sale of a
property under forced sale conditions that do not meet all the criteria of a normal
market transaction. It is a price which arises from disposition under extraordinary
or atypical circumstances. Here the FSV of the property was Rs. 13.26 lacs.
(iii) Bank will finance that amount which is lower between (i) & (ii), i.e. 90% of the
total cost or the Forced Sale Value whichever is lower will be financed by the

28
 bank. In this case, 90% of the cost of the flat was Rs. 13.77 lacs but the FSV of
the same was Rs. 13.26 lacs. So the applicant could get maximum Rs. 13.26 lacs
as loan.
(iv) In case of salaried individual, if the applicant is not a permanent employee he/she
will not be eligible for a home loan & if the co-applicant is not a permanent
employee his/her income will not be taken into consideration while calculating the
eligible loan amount by the bank. In this case, Mr. K’s (Co-applicant) income was
not considered by the bank for the computation of total income because there was
no deduction (like PF, Professional tax etc.) in his salary statement & bank
presumed that he is not a permanent employee rather working on a contractual
basis. So the bank appraised the loan only with the income of Mrs. V. (i.e. Rs.
13825.00)
(v) The loan must be liquidated before/at 65 years of age or age of retirement,
whichever is earlier. Bank fixes the maximum number of EMIs that a borrower
can avail by considering this criterion. In this case, Mrs. V’s present age is 33
years & she has 27 years left of her service. So she is eligible for 240 EMIs
repayment schedule.
(vi) Final calculation of eligible loan amount depends on the income of the applicant.
According to 40% income norms, one needs around 40% of his/her income for
personal expenses, all fixed obligations including the home loan applied for,
should be restricted to a maximum of 60% of his/her gross monthly income. EMI
of a home loan should not exceed 60% of an individual’s gross salary (Average
annual gross salary is calculated from last 3 or 4 years Income Tax return). In this
case, gross salary of the applicant was Rs. 13,825/- per month. So maximum EMI
that can be deducted is (60% of 13,825) = Rs. 8295/-. After considering the above
parameters of the applicant, IOB has sanctioned Rs. 8.00 lacs with applicable
liability insurance amount (Rs. 24,080/-). The formula for computing EMI is
shown below, Where,
P = Principal loan amount = Rs. 8,24,.080.00

r = Annual interest rate in fraction / 12 = 0.1025/12

n = Number of monthly installments = 240

29
(vii) Inspection of the property is a very important step in the credit appraisal process.
Inspection was carried out by bank officials at the pre-sanction as well as at the
postsanction stage. During Pre-sanction inspection, the branch official cross
verified the information submitted by the applicant with respect to his identity,
residence, employment / business and property to be purchased. Post–Sanction
activities mainly emphasize on verification of the end use of funds after
disbursement of the loan by physically verifying the assets created out of bank
finance. Valuation of the Property must be done in every three years by Bank’s
empanelled valuer / engineer. Lastly Proper Monitoring and follow up of credit by
bank are required to ensure that it remains a standard asset.

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BRICK EAGLE HOME LOAN PROCESS

Application

Applicant and Co-applicant KYC

Application fee

Property visit

Analysis

Sanction

Processing fee

Legal And Technical

Disbursement

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Step 1

Application Form – Filling up the application form is the first step. The look of an application
form may differ from bank to bank, but nearly 80 percent of the information they need is
similar. Most of this is basically your personal and professional information, details of your
financial assets and liabilities and the details of the property (if finalized) including the
estimated cost and the means of financing the same.

Step 2

KYC – While submitting the application form, every bank asks for several documents. And
most banks these days provide doorstep service, so that you don’t have to spend time visiting
their office to submit the documents. However, some banks still insist on the customer visiting
their offices at least once.

Proof of income – This will need to be backed up by proof such as copies of last three year’s
Income Tax returns (along with copies of Computation of Income/Annual accounts, if any),
Form 16/Form 16A, last three month’s salary slips, copies of the last 6 month’s statements of
all your active bank accounts in which your salary/business income details are reflected, etc.

Age proof – Copy of your school leaving certificate/Driving license/Passport/ration

card/PAN card/Election Commission’s card/etc.
Address proof – Similar documents need to be provided to prove that you are actually staying
at your current address.
Identification proof – Same as above, but with photograph. Sometimes, the same document if
it contains a photograph, the current residential address and the correct age can be the proof
for all 3 things.
Financial check – All the income-related documents you submit serve a specific purpose. The
lending institution uses them to study your financial status.

Step 3

Application Fee – Along with the application form and the credit documents, company ask for
a application fee. Collect the application fees from customers.

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Step 4

Property Visit - Thousands of people apply for loans everyday. And however eager a company
is to complete its targets, every loan is a risk. So, it is only natural that it confirms or validates
the details you provide. The bank checks all your information including your existing
residential address, your place of employment, employer credentials (if you work for a small
organization), residence and work telephone numbers. Representatives are sent to your
workplace or residence to verify the details.

Step 5

Analysis - All the income-related documents you submit serve a specific purpose. The lending
institution uses them to study your financial status. And in this analysis cibil is most important
to check cibil score of customer to know customer financial status.

Step 6

Sanction - If the bank is not convinced about your credentials, your application may get
rejected. If it is satisfied, it sanctions your loan. The bank or the home financier establishes
your repayment capacity based on your income, age, qualifications, experience, employer,
nature of business (if self-employed), etc. and based on these, works out your maximum loan
eligibility, and the final loan amount is communicated to you. And then issues a sanction letter.

Step 7

Processing Fee - This fee varies from bank to bank, but is usually around 2% of the total loan
amount. For instance, if you take a loan of Rs 10 lakh, you will have to pay around Rs 20,000
as processing fee.

Step 8

Legal And Technical – Making double sure. Banks are extremely careful about the property
they plan to finance. They send an expert to visit the premises you intend to purchase. This
expert could either be a bank employee or he could belong to a firm of architects or civil
engineers. This process handle only RBL Bank.

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Property In case of under construction:
 Stage of construction is the same as that mentioned in the payment notice given to you by
the builder.
 Quality of construction
 Satisfactory progress of work.
 Layout of flats and area of property is within permissions granted by the governing
authority.
 The builder has the requisite certificates to start construction at the site.
 Valuation of the property in relation to other deals in the surrounding areas.

In case of ready/resale construction:

 External / internal maintenance of the property.
 The age of the building.
 Will the building last the loan tenure? This has a direct bearing on your loan eligibility,
since the loan tenure will be restricted to the maximum age of the property as decided by
the bank’s engineer and this will impact your loan eligibility.
 Quality of construction.
 Surrounding area (development).
 Whether the builder has received the requisite certificates for handing over possession of
the flat.
 There is no existing lien or mortgage on the property.
 Valuation of the property in relation to other deals in the surrounding areas.
 These inspections are carried out to protect consumer interests in terms of construction
quality, adherence to local laws, approved building plans, etc. A technical inspection also
lets the bank understand the progress of construction so as to release the staggered
disbursements.

34
Step 9

Disbursement - After the bank has ensured that the property is legally and technically clear,
all the original documents pertaining to transfer of ownership of property in your favour have
been submitted and all the necessary loan agreements have been executed, finally, it is
payment time! n case you are expecting money from other sources to fund your own
contribution, you need to provide sufficient evidence for the same. It is only after submitting
this proof that the bank will release part-disbursement of the loan.

The cheque will be in the name of the reseller (for resale flats), builder, society or the
development authority. It is only in exceptional circumstances, that is, if you provide
documents to support that you have made an excess payment from your own account that the
cheque will be handed over to you directly by the bank.

Usually, loans are disbursed on the basis of the stage of construction of the property. So, in
case of resale or ready possession properties, the disbursement is full and final. However, in
case of under-construction properties, the payment is made in parts, also known as part-
disbursement.

Part disbursement: When a loan is partly disbursed, the bank does not start EMIs
immediately, since it is calculated on the total loan amount at a particular rate of interest and
for a given tenure. Moreover, it normally does not start breaking up the installments into its
principal and interest components until the entire loan amount is disbursed.

Full and final disbursement: If it is a ready-possession property, the bank disburses the entire
loan amount in favour of either the reseller or the builder.

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RBL Bank Home Loan

RBL Bank offers housing loan to people who want money to purchase a house, home
renovation and home extension etc. The house itself acts as a security to the loan.

RBL Bank Home Loan Details

Interest Rate 10.45%onwards

Compare with Other Banks

Processing Fee Minimum ₹ 5,000 Maximum ₹ 15,000

Max Tenure 25 years

Lowest EMI ₹ 941 per lakh

Age : Min 24 and Max 60 years for Salaried. Min 24 and Max 65 years for Self Employed.

Home Loan Interest Rates RBL Bank

RBL Bank home loan interest rates are in the range of 10.45% to 11.80%, with special
discounted rates for specific category of borrowers such as ladies borrowers for whom the
bank offers the lowest interest rate of 10.45%.

36
 RBL Products

Ratnakar Bank Home Loan Floating

Latest RBL Bank home loan rate starts from 10.45% , as applicable based on the 1 Year
MCLR, last announced on 22nd Jun 19. Any change in RBL Bank benchmark 1 Year MCLR
rate will translate into a similar change in the bank’s home loan rate. For instance, if RBL
Bank slashes 1 Year MCLR rate by 0.15%, its current home loan rate will be cut from 10.45%
to 10.3%

RBL Bank housing loan interest depends upon

 Loan amount: Housing loan rate in RBL Bank depends upon the loan amount you apply
for. Higher the loan amount, lesser will be the rate

 Your Salary: Income helps you in identifying your rate of interest. Bank's rate varies with
your monthly income. Higher the income, lesser will be the rate
 Type of loan opted for: RBL Bank also offers differential rates for women borrowers and
also under their fixed and floating rate schemes. The rate of interest may be higher or lower
under their special or popular loan product offers.

 Existing bank customers: RBL Bank offers one of the lowest home loan rates to its existing
bank account customers in view of their past relationship with the bank.

RBL Bank Home Loan Processing Fee and Other Charges

In addition to interest rates, home loan from RBL Bank also carry some other charges which
include:

 Processing Fee - RBL Bank applies processing charges to account for its expenses incurred
for conducting a credit appraisal and completing the lending process.

 Technical and Legal Charges - RBL Bank also charges technical and legal charges which
are explained to the customer during the loan process. Once you go through the loan
application process, you will need to pay these charges based on RBL Bank rules.

37
 Prepayment Charges: If you decide to foreclose or transfer your housing loan to another
bank, you need to submit an application for the same to RBL Bank. As per RBI rules, banks
are not allowed to charge prepayment penalty on floating rate home loans. Hence, you can
prepay your home loan with RBL Bank at Nil charges.

RBL Bank Housing Loan: Apply

If you want to get a housing loan from RBL Bank, the process to get the loan is fairly easy.
All you need to do is to apply for a home loan at MyLoanCare. We are a channel partner of
all top banks in India including HDFC, SBI, Axis Bank, Citibank. Your loan application will
be processed online and RBL Bank’s representatives will get in touch to begin the process of
getting a home loan. You will also be assisted by MyLoanCare’s personal housing loan
advisor to ensure that all the lending process is smooth, quick and you get the best house loan
from RBL Bank.

You can also do a comparison of HDFC Bank RBL Bank’s Home Loan Interest rates and
other charges using MyLoanCare comparison tool. Once you apply online, you can check the
real time status of your home loan application in your customer account section of
MyLoanCare.

RBL Bank Home Loan Documents

For Salaried employees

 Filled up loan application form

 2 Passport Size Photo
 ITR of last 2 years
 Identity Proof - Passport/ Driving Licence/ Voter ID/ PAN
 Residential Address Proof - Leave and License/ Registered Rent Agreement/ Utility Bill
(upto 3 months old), Passport
 Income Documents – 6 months payslip, 2 years Form 16, 6 months bank statement showing
salary credit and any EMI debit

38
 Property Documents - Past title chain: Conveyance deed, Sales deed, Allotment letter,
Possession letter, Latest property tax receipt, Copy of approved plan for construction/
extension

For Self-Employed

 Filled up loan application form

 2 Passport Size Photo
 Identity Proof - Passport/ Driving License/ Voter ID/ PAN
 Residential Address Proof - Leave and License/ Registered Rent Agreement/ Utility Bill
(upto 3 months old), Passport
 Business proof such as VAT/ service tax registration, incorporation details in case of
companies, business address proof, profit and loss account and balance sheets certified by
CA, copy of partnership deed and proof of business existence and business profile
 Property Documents - Past title chain: Conveyance deed, Sales deed, Allotment letter,
Possession letter, Latest property tax receipt, Copy of approved plan for construction/
extension

39
RBL Bank home loan eligibility based on salary

Net Income: Your net monthly income (take home salary after all deductions like PF, ESI,
gratuity) determines your home loan servicing capacity. It determines how much home loan
EMI you are capable of paying after meeting living expenses based on your standard of
living. For instance, if your salary is Rs. 25,000 and the value of house you are buying is Rs.
40 lakh, then at interest rate of 10.45% offered by RBL Bank, the loan amount that you will
be eligible for (assuming you have no other EMI’s to pay) would be Rs. 24.14 Lakh to Rs.
34.55 Lakh depending on your age. Similarly, if your salary is Rs. 75,000, you might get
eligible for a loan amount of Rs. 48.27 Lakh to Rs. 69.10 Lakh for same property at same
rate depending on your age at the time of loan application.

Age Monthly income

25000 50000 75000

25 years 34.55 lakhs 51.83 lakhs 69.10 lakhs
30 years 34.55 lakhs 51.83 lakhs 69.10 lakhs
35 years 34.55 lakhs 51.83 lakhs 69.10 lakhs
40 years 32.66 lakhs 48.99 lakhs 65.33 lakhs
45 years 29.48 lakhs 44.23 lakhs 58.27 lakhs
50 years 24.14 lakhs 36.20 lakhs 48.27 lakhs

You may consider repaying any loans with short tenure and high EMI in order to increase
your RBL Bank home loan eligibility.

Nature of Employment: RBL Bank will check whether you are salaried or self employed
and the company and sector in which you are working. It also looks at your years of
experience to check for job and income stability. RBL Bank requires minimum income
history and job stability of more than 3 years for salaried individuals and of 5 years for self
employed individuals.

40
 Illustration on Home Loan RBL Bank

Here is an illustration of the total cost of the loan:

 Total amount borrowed: Rs. 1 Lakh

 Time period: 5 years to 25 years
 RBL Bank Home Loan Interest Rate: 10.45% to 11.80%
 Processing Fee payable to RBL Bank: Upto Rs. 10,000. Current offer for processing fee is
Minimum Rs. 5,000 Maximum Rs. 15,000
 Fee payable to MyLoanCare: NIL
 Total Monthly Cost – From Rs. 941 for a 25 years Rs. 1 Lakh loan at 10.45% (lowest rate,
longest time period) to Rs. 2,214 for a 5 years Rs. 1 Lakh loan at 11.80% (highest rate,
shortest time period). This is inclusive of principal repayment.
Annual Percentage Rate (APR) of charge including all applicable fees: 10.45% to 11.8%
 Total cost payable over loan tenure: Rs. 42,861 for 5 years loan to Rs. 1.92 Lakh for 25 years
loan
RBL Bank’s terms and conditions as per loan agreement applicable. Short term loans/ pay
day loans not available; minimum loan tenure: 5 years. Rate of interest depends upon income,
job stability, loan amount, CIBIL score, credit profile, existing obligations, verification and
other factors. Credit at sole discretion of RBL Bank

41
Difference between RBL Bank home loan product & HDFC Bank home loan product

RBL BANK HDFC BANK

Product name Ratnakar Bank Home Loan HDFC Housing Loan

Floating Floating

Eligible Age of Borroswer 24 - 60 years 24 - 60 years

Minimum Eligible Income Rs. 10,000 and above Rs. 25,000 and above

Work Experience for 3 years 2 years

Salaried

Business Stability for Self 5 years 5 years

Employed

Loan Amount Eligibility Rs. 15 Lakh to Rs. 10 Cr Up to Rs. 10 Cr

Maximum loan as percent of Upto 90% Upto 90%

property value

Maximum EMI as percent of Up to 65% Up to 65%

income

Interest Rate 10.45% to 11.80% Base Rate - 9.15%

PLR(BPLR) – 17.65%

42
WHAT IS CIBIL?

Credit Information Bureau (India) Limited, commonly known as CIBIL, is India’s first Credit
Information Company or Credit Bureau. It maintains records of all credit-related activity of
individuals and companies including loans and credit cards . The records are submitted to
CIBIL by registered member banks and other financial institutions on a periodic (usually
monthly) basis. Based on this data, CIBIL issues a Credit Information Report or CIR
(commonly referred to as a credit report) and a credit score.
CIBIL was founded in 2000 in order to bring greater efficiency and transparency in the credit
space. TransUnion International (a global credit bureau) and Dun and Bradstreet (a global
provider of credit information) are technical partners of CIBIL in India. CIBIL’s mission is
“To catalyze growth of Credit in India through: solutions that enable well informed Credit
decisions; technology that enables superior information availability; and people that provide
high quality services.” It has an ISO 27001 rating, which is the highest security standard in
the world.

Shareholders in CIBIL include TransUnion International, ICICI, SBI, IOB, HSBC, Union
Bank of India, Bank of India, Bank of Baroda, and Allahabad Bank.

CIBIL has two focus areas: A Consumer Bureau that deals with consumer credit records and
a Commercial Bureau that deals with the records of companies and institutions.

It is important to note that CIBIL is a database of credit information. It does not make any
lending decisions. It provides data to banks and other lenders who use it as a quick and
efficient resource to filter loan applications.

43
How CIBIL helps banks and financial institutions

As India’s first Credit Information Company (CIC) or Credit Bureau, CIBIL’s products and
services have led to a significant change in the functioning of the financial sector, both for the
banks and the consumers. Today, we take a closer look at one of these products- the Credit
Information Report (CIR)- and how it helps banks and financial institutions manage their
business, and helps consumers like you obtain credit faster, and at better terms.
CIBIL collects and maintains records of individuals’ and companies’ loans and credit cards.
These records are submitted monthly to CIBIL by its members (banks and other financial
institutions). This information is then used to create the CIR and the CIBIL Score (a 3-digit
summary of your credit history) which are provided to lenders to help evaluate loan
applications.

44
 WHAT IS CIBIL CREDIT REPORT?

A credit report is a comprehensive document that details an individual’s or corporate’s

borrowing history and repayment record. It provides potential lenders with a detailed picture
of an individual (or company’s) credit-worthiness based on past and current credit behavior.
It allows lenders to have quick access to accurate information when they receive new
applications for credit, and allows them to make a faster and transparent lending decision.

A credit report is issued by 4 authorized credit bureaus in India which are CIBIL, Equifax,
CRIF High Mark and Experian. Credit bureaus including CIBIL collects and maintains
records of the credit-related transactions of individuals as reported by their lenders (whether
banks, NBFCs or credit card companies). This information could include details of all loan
and credit card repayments including any late or missed payments; details of enquires made
by lenders on loan or credit card applications made in the past; all current loans and credit
cards; total credit limit; and other such credit-related information.
A credit report is a single unified document that covers your credit history across different
lenders over a significant period of time. Your credit report would include the following
details:

 Personal information like name, age, gender and address

 Employment details and income

 Number of hard enquiries made by potential lenders on receipt of your loan/credit card
application

 Information on past and current loans along with your payment record

 Any defaults on loan

 Any ‘Settled’ loans

 Total credit limit and the amount spent monthly (Credit Utilisation Ratio)

 Any credit card payment defaults

 Credit score – an important component of your credit profile that gives potential lenders a
quick idea of your credit worthiness.

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 WHAT IS IMPORTANCE OF A CIBIL REPORT?

A credit report is a resource for banks and other financial institutions to evaluate an
individual or company’s credit worthiness in order to make a lending decision. There are
several reasons why the credit report is highly valued:

 Offers a single comprehensive report of the customer’s past and current borrowing and
repayment history

 Gives potential lenders a detailed idea of the customer’s spending discipline and ability to
fulfill debt obligations

 Gives individuals information on their credit strengths and weaknesses and enables them to
take focused steps to improve their credit health
 Ensures greater transparency and streamlining in the loan approval process as customers
and lenders have access to the same credit information. Customers know the reasons why
their loan has been rejected, and lenders can make quicker decisions on who they can lend
to, without spending time and money on background checks.

HOW TO READ CREDIT CIBIL REPORT?

A credit report is a comprehensive document that details an individual’s borrowing history

and repayment record. It provides potential lenders with a detailed picture of an individual’s
credit-worthiness based on past and current credit behaviour. It allows lenders to have quick
access to accurate information when they receive new applications for credit, and allows
them to make a faster and transparent lending decisions.

A credit report is issued by 4 authorized credit bureaus in India which are CIBIL, Equifax,
CRIF High Mark and Experian. It can seem technical in its format and language. However, it
is possible to learn how to understand the salient information contained in your credit report.

In a typical credit report, you will see demographic and identification data on your credit
report like

 Date of birth

 Current and previous address

46
 Email ID

 Telephone number

 PAN number

 Driver’s license number

 Passport number

 Type of employment

 Annual income

It is important to ensure that all this information is correct, so that there are no administrative
errors when you apply for a loan. It is also a good practice to check your credit report every
year. If there are any errors it is vital to coordinate with the lender and the credit bureau to
resolve these immediately so that it does not impact your loan application.

Next you will also find details of every single loan that you have ever been granted. Your
report will list the names of all your lenders, type of loan (personal loan,credit card, auto
loan, etc.), date the loan was disbursed, total amount of the loan, the current outstanding,
interest rate charged, the period of the loan, monthly EMI amount, current status of the loan,
36 month history on your repayment behaviour, etc. Late payments, if any, are recorded as
DPD or Days Past Due. All overdue repayments are listed, and the status field will signify if
there is any negative status – e.g. if the loan is in a WRITE-OFF status, previously
SETTLED, if a legal suit has been filed or whether the loan is considered CURRENT, which
means all repayments are being made in a timely manner. This is important data in the
computation of the credit score and you should ensure that this section is always and
completely accurate.
Lastly, the credit report will list the number of times that you have ever applied for a loan or
credit card – this is called a credit enquiry. Too many credit enquiries without a
corresponding approved loan could adversely affect your credit score. This means that the
customer is ‘credit hungry’ and could have a negative impact on your credit score.

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 FACTORS THAT AFFECT THE CIBIL SCORE

The most important factor in your credit score is your repayment history. Your payment
record forms approximately 30% of your credit score. Making your all your credit
repayments ( on loans and credit cards) on time and in full plays a substantial role in building
a good credit score. Below are some of the important factors that impact your credit score.

 Percentage of timely payments

The higher the percentage of on-time repayments you make, the better your score will be.
Your repayment record is one of the more heavily weighted factors used when calculating
your score since a consistent pattern of timely payments denote a reliable borrower. Banks
are reassured that there is a high probability that you will make payments on time. By the
same token, even one or two late payments can have a negative impact on your credit score
as it implies that you cannot be relied on to make on-time payments. Paying all your
EMIs, credit card bills and all other debts is a very important factor in gaining a good
score.

 Number of negative marks

A negative mark could denote one of many things – foreclosure, accounts in collections
due to defaults in payments, ‘Written Off’ or ‘Settled’ status on a past loan etc. This again
is a heavily weighted factor and a relatively large number of negative marks could severely
restrict your eligibility for a loan. A negative mark indicates that you have not been able to
adequately manage your credit and serves as a warning to potential lenders. It can take
years for a negative mark to be erased from your credit history.

 Length of credit history

When you have a long credit history, banks are reassured that they have detailed and
substantial information on your credit behavior. For instance, if you have a credit card for
ten years, potential lenders can see your repayment activity on that card for a significant
period of time. On the other hand, even if you have good credit history on a two year-old
credit card, banks are wary as they do not have sufficient information on your repayment
patterns over a long period. It is therefore not a good idea to give up older credit cards as
they are the ones who provide a fuller credit picture to your potential lenders.

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 Number of hard enquiries

A hard enquiry is when a potential lender or credit card issuer accesses your CIR to
determine whether you qualify for a loan. A single hard enquiry might only marginally
reduce your credit score but multiple hard enquiries without corresponding loan approvals
denote that you need credit and are applying to several lenders in order to maximise your
chances of securing it. The number of hard enquiries is another factor used to determine
your score and a large number of enquiries/loan applications in a limited time frame can
significantly decrease your credit score.

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 SOME COMMON MISTAKES THAT DECREASED CREDIT SCORE

Sometimes a low credit score is more due to lack of awareness on how the credit score is
calculated and the important factors that constitute a score. Here are a few common mistakes
that can be easily avoided if you wish to maintain a good score:

1. Delayed or missed loan or credit card payments:

This could be due to several reasons. Sometimes, if you have an unexpected spending
emergency like medical expenses etc., you might skip one or two payments and make a full
payment in a month or two, thinking it will not affect your score. That is a common
mistake.Sometimes you may miss a payment due to oversight. In this case, make sure you
have a monthly payment reminder on your calendar. Many banks can send email or sms
reminders for loan/card payments. Or you can have a standing instruction for your loan
and credit card payments to be automatically debited from your bank account. If you have
an auto –debit arrangement, make sure there is enough money in the account to make the
payments..
2. Making multiple loan applications:
Many people do not realize that each time you make a loan or credit card application, the
lender makes a “hard enquiry’ on your credit report. Every hard enquiry leads to a drop in
your credit score. To avoid this, research the various offers online and only apply to the
lender where you think you have the best chance of succeeding. Each loan rejection also
leads to a drop in your credit score so make sure you apply where you think you have the
best chance of being approved.
3. Having too many unsecured loans:
An unsecured loan is one which does not require collateral. Personal loans and regular
credit cards are the most common kinds of unsecured credit. If you have too many
unsecured loans, it signifies that you may have too many monthly repayment obligations.
4. Spending too much on your credit card, even if you are within your credit limit:
If you spend more than 50% of your credit card limit, it signifies that you are hungry for
credit and do not have strong spending discipline. This can affect your credit score as well.
For instance, if your credit limit is Rs. 1 lakh and you consistently spend more than
Rs.50,000 a month on expenses, it will have a negative effect on your credit score. Make
sure that you do not exceed 50% of your credit limit to protect your credit score from a
negative impact.

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 ROLE OF CIBIL IN THE LOAN APPROVAL PROCESS

The credit report and credit score enables potential lenders to get accurate and updated
information on your credit worthiness which helps them make a more informed and objective
lending decision. The credit bureau itself does not make the lending decision, it merely
provides the information that allows lenders to make more efficient and transparent decisions
regarding loan applications. It saves lenders from spending time and money on background
checks for every customer. They use the credit score to make a quick evaluation on whether
to process the application further. After that, they have access to the detailed credit report to
judge the applicant’s credit history and probability of repaying his debt obligations on time.
The credit bureau facilitates the credit approval process with its data-driven information.

What is a CIBIL score?

A CIBIL score is a 3 digit number between 300 and 900 that is a snapshot of your credit-
worthiness. There are 3 established credit rating agencies in India that issue credit scores
and credit reports - CIBIL, Equifax and Experian. The credit scores of all three bureaus are
equally valid, though the CIBIL score is perhaps the best-known.

How is your score calculated?

Your score is calculated based on all your credit-related activity within the financial system.
Member banks and other financial institutions of the credit bureaus submit credit information
on their customers on a periodic (usually monthly) basis. This includes details of all
payments including any late or missed payments, loans and credit card applications approved,
credit limit and credit utilisation, and status of credit accounts (including Settled or Written
Off accounts) among other information. All this data is then subject to complex statistical
analysis and your 3 digit credit score is calculated on the basis of your credit records.
Each credit bureau uses its own mathematical formulae with different weightages given to the
various component factors. In general however, about one third of your credit score is made
up of your repayment history. Your track record on repaying your loan obligations is the most
important factor in your credit score.

Other factors that play a role in your credit score include your credit utilisation ratio (how
much you spend on a monthly basis as a proportion to your total credit limit), the age and

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 type of your credit accounts (the older the account, the better for your score as lenders have a
longer period from which to judge your repayment behaviour), and number of enquiries from
lenders (which reflects the applications you have made for loans and credit cards). There are
a variety of factors that go into calculating your credit score and it is important to focus on
these areas when trying to improve your score

Importance of your credit score in the loan-approval process

A credit score of 750 and above is a good score to have as it indicates that you have a good
track record of fulfilling your loan obligations. A low credit score signifies that you do not
have a good history of making repayments and have a higher probability of default.

Potential lenders first look at a customer’s credit score to evaluate whether to process the
application further. Data shows that an overwhelming majority of all loans that are sanctioned
are made to customers with a credit score of 750 or above. Other advantages of a high credit
score include:

 Lower interest rate

 Bigger loan amount

 Longer tenure

 Quicker approval process/simpler documentation

 Higher card limit

 It is good to learn the factors used to calculate a credit score so you can improve it, if
required, and avail the best loan offers on the market.CIBIL SCORE FOR PERSONAL
LOAN

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 How important is a CIBIL credit score in order to apply for a personal loan?
Your CIBIL™ score is one of the most important factors in being approved for a personal
loan. This is because personal loans are unsecured loans (do not require collateral) and are
generally more risky for banks than home loans or auto loans - which have the home or
vehicle as collateral. Lenders therefore look at your credit score and credit report to evaluate
if you are a responsible borrower.A credit score ranges from 300 to 900. A borrower should
have a minimum score of 750 in order to be eligible for a loan.

What are some of the other factors influencing sanction of a personal loan
Before sanctioning of the personal loan a lender looks also looks at the annual income of the
borrower, profile of the company, current loan commitments, among other factors.

What can I use my personal loan for?

This personal loan can be used for any reason. All personal expenses a person wants to make
can be made available by applying for a personal loan. This could vary from wedding
expenses to hospital expenses or home renovation or even a vacation. There is no restriction
on how you use the loan amount.

What are the interest rates?

The interest rate for personal loans varies from lender to lender. In general, interest rates on
personal loans are some of the highest among all kinds of loans since there is no collateral
that can be used by the lender in case of default. Other factors that influence the interest rate
are also the credit history of the borrower and the amount that is being borrowed.

I have a low CIBIL score. What should I do to improve it?

 Make all your EMIs and credit card payments on time, and in full.

 Always keep your balances low. Do not spend more than 50% of your total credit card
limit.

 Review your credit history periodically by obtaining a copy of your credit card, so that you
are aware of your credit situation and take steps to improve it

Is it good to have zero credit? (i.e. No loans or credit cards)

Therefore, while there is no fixed minimum CIBIL™ score to apply for a card, it is
recommended that you ensure that you have a score of at least 750 before you apply for a
card. If you have a low score, there is a high chance that your application will be rejected,
and each rejection causes your credit score to drop even further.

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 CIBIL SCORE FOR HOME LOAN
What is a good CIBIL score?
A CIBIL score ranges from 300-900. A good CIBIL Score to qualify for a home loan is 700
and above. The closer you are towards 900 the better chance you have of being approved for
a loan. Moreover, a higher credit score means that you can avail of more attractive offers
including lower interest rates, larger loan amounts, simpler documentation, and longer
repayment periods. You can get up to 80% of the total cost of the property.

If you want to apply for a loan and avoid the prospect of rejection, then you need to know the
importance of a CIBIL score in the loan-approval process.

The first thing a lender checks when you are applying for a loan is your CREDIT Score. If
you have a low credit score there is a good chance the lender will reject your loan
application? However, if you have a good CREDIT score (above 700), then the lender looks
into the application further to check the credit worthiness of the borrower before making a
final lending decision. Your credit score gives lenders a quick impression of your probability
of default based on your past repayment behaviour.

If you have a low CIBIL Score how can you improve it?
 Never make any late or missed payments.

 Keep a balance between secured and unsecured loans.

 Keep an eye on your Credit Report and check your credit score on a regular basis.

 Do not apply for too many loans at the same time.

 Do not use more than 50% of your credit limit.

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 How do lenders make use of my Credit Score?
Earlier, lenders needed to make a partly-subjective internal assessment and do background
checks in order to sanction a loan. But now with the help of a Credit Score and a Credit
Report, it has become very easy for the lender to access accurate, data-based credit
information on the applicant.

 CIBIL has a database of the credit related activity of customers. This is used to calculate
their individual credit score.

 If you have a low score, (less than 700) lenders might see you as a high risk customer with
history of defaulting on payments and might be unwilling to approve your loan application.

 If you have a high score, lenders see you as a low-risk customer with low probability of
default and will be willing to lend to you with attractive terms.

 While there is no fixed minimum CIBIL score to apply for a card, it is recommended that
you ensure that you have a score of at least 700 before you apply for a home loan.

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SWOT Analysis of Brick Eagle housing loan finance limited

Strengths

The company offers a unique business model for affordable housing with
a presence in under-penetrated geography. Strong capitalisation will augur well
for growth ahead and niche focus ensures low dependency on government
actions. Brick eagle has been able to finely balance the use of technology and
human expertise in ensuring superior service delivery. A motivated employee
base also provides the winning edge. Brick eagle is a success due to identif ying
the right customer profile, the right collateral and heavy usage of analytics,
systems and process.

Weakness

Risks associated with being regional players will come into play due to
concentration in particular geographies. IPO is deemed to be expensive and
overcapitalisation means lower RoEs. Only 15 percent of post IPO net worth will
be generated through internal accrual.

Opportunities

There is scope for geographic expansion to aid growth as India remains under -
penetrated in terms of affordable housing financing.

Threat

The progress in the affordable housing sector is really slow along with supply
side constraints in the segment. The Reserve Bank of India has also raised red
flags in the affordable housing sector for loans below Rs 2 lakhs.

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 CONCLUSIONS

This presents the conclusion of my summer internship project in relation to Credit appraisal
of RBL bank. The conclusion is drawn from the study of overall process and management of
the bank and company.

In this I have I learned the main how whole credit appraisal application is form from start to
finish till the loan is sanction and disbursement is done to the customers. All this process
takes time sometimes a month , or a week depends upon case to case.

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 REFERENCES
1. https://indianmoney.com/articles/what-is-credit-appraisal
2. https://www.brickeagle.com/
3. https://www.rblbank.com/
4. https://www.bankbazaar.com/personal-loan/credit-appraisal.html

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