PUNJAB TECHNICAL UNIVERSITY, JALANDHAR

PROCESSING OF HOME LOANS FROM HDFC BANK AND COMPARATIVE ANALYSIS

A DISSERTATION REPORT ON

BY AYESHA SIDDIQUE REG. NO. 9207600031 MBA [2009-2011] PTU

Learning Center
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NETAJI SUBHASH INSTITUTE OF MANAGEMENT SCIENCES NETAJI SUBHASH PLACE, NEW DELHI

ACKNOWLEDGEMENT

It is with the feeling of satiated and sense of Zenith that I draft this acknowledgement note. I wish to express my gratitude to those who have generously helped me to compile the Dissertation and stand up high, to the expectation of the institute. I wish to express my deep sense of gratitude to my faculty guide, NIMS, Pitampura, New Delhi for his guidance has aided me in the completion of this project. I further declare that the information presented in this project is true and original to the best of my knowledge.

AYESSHA SIDDIQUE

CONTENTS
Executive Summary Introduction to Finance Introduction to Indian Housing Market Overview of Indian Housing Sector Features of Indian Housing Housing Finance: Building Strength National Housing Bank Company Profile Introduction to HDFC HDFC Group Objective & background Aim of HDFC Organizational Goal Organization & Management Review of Subsidiary & Associate Companies Financial Highlights Sales Force Size Home Loan Products Loan Appraisal Loan Portfolio 4

 Loan Against Property Factors While Choosing Bank Loan Industry Analysis Comparative Analysis Distribution Channel Promotional Tools Findings SWOT Analysis Conclusion Bibliography Questionnaire

EXECUTIVE SUMMARY
The purpose of the project is to get information about what are the different category of home loans, interest rate, sanction limit, charges, value added services provided by HDFC Bank, ICICI BaNK, GRUH Finance, State bank of India, , DENA Bank, Bank Of Baroda, BMW Birla housing finance, Bank, Bank of India. The Project is undertaken to get information about what are the different distribution channels, promotional tools used and sales force size of the entire home loan providing companies. This project is also undertaken to analyze all the sectors of company, to find out the position of housing loan in banking industry and compare it with other major bank in banking sector. This project is being made in order to understand the position of HDFC BANK LTD. in India. Following are the goals of this project: To understand the strategies of bank. To understand the banking industry. To understand the companys functions. To suggest ways for improving the market share, profit margin. To make an effective advertising campaign.

INTRODUCTION TO FINANCE
Housing finance is considered to be one of the basic human needs. The capital required to acquire or construct a house is large so that only a few individuals with high income can raise it from their own funds. There is, therefore, a great need and scope for the development of arrangements for supplying (loans) finance for housing. Finance for housing is generally provided in the form of mortgage loan, i.e. it is provided against the security of immovable property of land and building. Housing finance has now become a part of usual financial services provided by almost every banks and major financial companies. Housing finance usually categorized under home loans. These loans are disbursed to cover various financial requirements for residential houses. Traditionally, the housing finance business has been yielding a margin of around 2 per cent. The skill of the players is in converting their advances that have a maturity period of 15-30 years with the deposits that mature within three years. Though, the National Housing Bank (NHB) refinances housing loan up to Rs.2 lakh disbursed to the lower income group, this is just a negligible proportion of advances to the major players. The primary sources of funds are fixed deposits, debentures, private placement of bonds and borrowings from banks and financial institutions. Thus, efficient financial management has a key role to lay in this industry. Nearly 25 lakh houses are built every year in India. However, the nations requirement is around 65 lakh houses per annum. The housing sector in India is facing an estimated shortage of 4.1 crore houses and according to the Ninth Plan, the demand-supply gap in urban housing is 3.3 crore houses. In case, all these urban housing dwellings were to be built, it would require an investment of Rs.150,370 crore. Lending rates are predominantly market-driven and in view of the same, the housing finance industry has been in a slump in recent times with there being low demand from builders and investors alike. Furthermore, the entry of banks into the housing finance sector has also not

augured well for the industry. Most housing finance companies cater mainly to the higher income group having reasonably assured creditworthiness.

INTRODUCTION TO INDIAN HOUSING MARKET

OVERVIEW OF INDIAN HOUSING SECTOR The strengthening of local economic infrastructures through community development and housing initiatives is essential for any economy irrespective of its stage of development. The majority of the population in most of the developing nations of todays world live and work in segregated innercity or rural areas, characterized by decaying infrastructure and substandard housing.

Homeownership is the primary means by which households achieve financial security and communities achieve stability, yet discrimination in respect of housing has severely limited the economic and social opportunities available to human being. Satisfactory housing & housing satisfaction are integral part of socio-economic development, political stability, and development of intellectual capital and thus have a far-reaching impact on the well being of the generations to come. In India the housing economy is intertwined with the macro economic scenario through its numerous forward and backward linkages both on the supply as well as the demand side. On the one hand, favorable budgetary policy pronouncements and legislative reforms facilitate enhanced supply while expansionary fiscal and monetary policy incentives encourage increase in effective demand for housing by enhancing disposable income and reducing the effective cost of borrowing. Fiscal and monetary policy incentives coupled with the overall downward movement of the interest rates in the economy and increased competition among the institutions engaged in providing financial assistance for housing have also eased both the accessibility and affordability factors thereby resulting in a greater demand for housing. The housing finance sector has been maintaining a good growth rate when compared with the other sectors of the economy and considering the fact that the level of non-performing assets is low in the sector, it has attracted a number of market players to do more housing finance business. In order to attract the customers, the financial 10

institutions have liberalized the lending norms, reduced the rates of interest, increased the period of loan, eased the collateral requirement etc.

FEATURES OF INDIAN HOUSING

Against the milieu of rapid urbanization and a changing socio-economic scenario, the demand for housing has grown explosively. The importance of the housing sector in the economy can be illustrated by a few key statistics. According to the National Building Organization (NBO), the total demand for housing is estimated at 2 million units per year and the total housing shortfall is estimated to be 19.4 million units, of which 12.76 million units is from rural areas and 6.64 million units from urban areas. The housing industry is the second largest employment generator in the country. It is estimated that the budgeted 2 million units would lead to the creation of an additional 10 million man-years of direct employment and another 15 million man-years of indirect employment. Having identified housing as a priority area in the Ninth Five Year Plan (1997-2002), the National Housing Policy has envisaged an investment target of Rs. 1,500 billion for this sector. In order to achieve this investment target, the Government needs to make low cost funds easily available and enforce legal and regulatory reforms. According to that the features of Indian housing sector has been characterized into: a) The residential housing stock in India comprises of three types of houses: Pucca Houses Semi-Pucca houses and Kutcha house

This classification is based on the type of material used in the construction of its walls and roof. A Pucca house is related as one which has its walls made of burnt bricks, stones, cement concrete or timber etc. and roof made of tiles, galvanized iron sheets, asbestos cement sheets, reinforced brick concrete, reinforced cement concrete and timber etc. Houses, the wall and roof of which are

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made of materials such as unburnt bricks, mud, bamboo, grass reeds, thatch etc. or loosely packed stones, burnt bricks etc. are treated as Kutcha houses. A Semi-Pucca house falls in between the categories of Pucca and Kutcha houses.

Table 1. Percentage of Residential Census Houses by their Type of Structure

Type of Structure 1981 Rural Urban 63.80 24.30 11.10 _ 1991 Rural Urban 21.10 34.20 22.80 10.00 64.60 15.80 8. 40 _ 2008 Rural Urban 41.00 79.15 35.77 15.53 14.75 5.32 8.48 _

Pucca Semi-Pucca Kutcha (Serviceable)

19.00 37.60 29.00

Kutcha 12.30 (Unserviceable)

A study has shown that the percentage share of pucca houses has increased from 19 percent to 41 percent and from 63.80 percent to 79.15 percent in rural and urban areas respectively during the period 1981 to 2008. On the other hand, semi-pucca houses have shown a declining trend from 37.00 percent to 35.77 percent to 15.33 percent in rural and urban areas over the same period. Kutcha houses have also shown a decline over the same period. b) The Indian housing stock has shown certain structural deficiencies as well. As

percent are pucca dwellings, 30.12 percent are semi-pucca dwellings and 11.56 percent are kutcha dwellings. Out of this, 6.68 percent are unserviceable kutcha dwellings that need total replacement. c) The housing conditions of the people are very important indicators of the socio-

economic development of the country. In the census 2001 an additional feature on condition

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of housing has been included which categorized houses as good, livable or dilapidated. The below table depicts the distribution of census houses used as residence and residence and residence-cum other use by their condition.
Table 2. Distribution of Census Houses used as Residence and Residence-cum-other use by their condition as per 2001 census Residential Dwellings Total Rural Urban 87,063,733 135,051,268 52,012,465 Good 93,929,497 60,625,573 33,303,924 Livable 82,829,882 66,011,484 1,818,398 Dilapidated 10,304,354 8,414,211 1,890,143

The condition of houses as good, livable and dilapidated is not defined in census. The condition of census houses was recorded on the perceptions and response of the respondents. The above table reveals that 5.51 percent of the total residential houses in Indian are dilapidated which need replacement. In the rural and urban areas, 6.23 percent and 2.67 percent of the residential census houses are dilapidated which need replacement. d) Along with the small size of houses, another form of deficiency the Indian housing sector has been facing is the excess number of persons living in each house. Overcoming and congestion are some of the distributing factors. Table 3. depicts that the number of persons per dwelling were more in rural areas as compared to the urban areas showing more congestion in rural areas.

Table 3. Average Number of Persons per Dwelling Unit

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Year 1981 1991 2008

Rural 5.92 5.72 5.49

Urban 5.70 5.49 5.48

Total 5.87 5.72 5.48

Magnitude of Housing Shortage

Housing shortage is a normative concept indicating a given shortfall in the availability of housing stock. The concept is essentially based on the concept of need for housing. Housing need can be defined as requirement of a house irrespective of the ability of the borrower to pay for a house, whereas housing demand is backed by the willingness and ability to pay on the part of the borrower. Therefore, as per the terminology in economics there exists a difference between housing demand and need. The difference between the existing housing need housing supplies measures the housing shortage. There are two criteria suggested by NBO for measuring the housing shortage which are as follows: a) Every household is in need of a house and must be provided with one. According to this criterion the problem of measuring absolute housing shortage reduces itself to estimating the difference between the number of households and the available housing stock, irrespective of the housing stock condition. However, this criterion is too simplistic and ignores the conditions of the house. This limitation has been reduced by the second criteria. b) NBO has suggested that at least serviceable kutcha houses in rural areas and semi-pucca houses in urban areas should be the minimum acceptable standard of housing. The table below highlights the absolute housing shortage in the country based on the census period 1988 to 2008. It can be seen that absolute housing shortage in urban areas has increased

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from 1.30 million units to 1.68 million units, whereas in rural areas it has reduced from 5.40 million units to 3.22 million units over the same period. It can be seen that the overall housing shortage has reduced from 6.70 million units to 4.90 million units, but the shortage in rural areas has been much more than in urban areas.

Table 4. Absolute Housing Shortage on the basis of one House for Every Household (in million units) Year No. of Households No. of Residential Dwellings Housing Shortage

Total Rural Urban Total Rural Urban Total Rural Urban 1988 1998 2008 123.40 94.10 29.30 116.70 88.70 28.00 6.70 153.20 112.50 40.70 148.00 108.70 39.30 5.20 191.96 138.27 53.69 187.06 135.05 52.01 4.90 5.40 1.30 3.80 1.40 3.22 1.68

Further it can be analyses from the table 5 that housing shortage (considering only pucca and semi-pucca dwellings in urban areas and pucca, semi-pucca and serviceable kutcha dwellings in rural areas) has reduced from 21.90 million units to 19.04 million units during the period 1988 to 2008

Table 5. Housing shortage on the basis of Usable Housing Stock. (In million units) Year No. of Households No. of Usable Housing Housing Shortage

Total

Rural Urban Total Rural Urban Total Rural Urban

1988 123.40 94.10 29.30 101.50 77.80 23.70 21.90 16.30 5.60 1998 153.20 112.50 40.70 133.80 97.80 36.00 19.40 12.76 6.64 2008 191.96 138.27 53.69 172.92 123.65 49.27 19.04 14.62 4.42

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With a view to provide adequate shelter to its citizens the Govt. of the country has been playing vital role. The Ministry of the Urban Development & Poverty Alleviation is the apex authority of Govt. of India at the national level to formulate policies, sponsors and support programme, coordinate the activities of the various Central Ministers, State Governments and other nodal authorities and monitor the programmes concerning all the issues of urban development and housing in the country. Though Govt. had initiated number of measures like framing of National Housing and Habitat Policy, extending various fiscal incentives to housing sector, allocating the funds to housing sector through various five-year plans, framing schemes for housing in urban and rural areas etc. But still the housing sector has traditionally been accorded and continues to receive a low priority in policy formulation as compared to other sectors of the economy. The Govt. has curtailed its contribution in housing by reducing the percentage allocation for housing from 34.23%in First Five Year Plan to only 13.38%during the Ninth Five Year Plan. This reflects shallowness of the financial system in India. It can be seen from the table that investments in housing sector have decreased from 34% during the First Plan Period to 13% during Ninth Plan Period.

Table 6. Investment in Housing Sector During Five Year Plans (Rs. in crores)
Plan Period Total Total Public Private Percentage Investment Investment Sector Sector In Housing Investment Investment Investment In Housing In Housing Housing To Total

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First Plan Second Plan Third Plan Fourth Plan Fifth Plan Sixth Plan Seventh Plan Eighth Plan Ninth Plan

3360 6750 10400 22635 47561 172210 322366 610000 859200

1150 1300 1550 2800 4436 19491 31458 97500 151000

250 300 425 625 796 1491 2458 31500 52000

900 1000 1125 2175 3640 18000 29000 66000 99000

34.23 19.26 14.90 12.37 9.33 11.32 9.67 15.98 13.38

Blessed are those who live in their own houses. For those not privileged, there are various sources to tap for housing finance. The existing housing finance system in the country has two components viz. formal and informal sector. The formal sector, as per definition adopted by Dr. Rangarajan Committee 1981 set up under the Chairmanship of Dr. C. Rangarajan, then Deputy Governor of RBI, includes: a) Budgetary Allocation of Central and State Govt. b) Financial Assistance From All India Financial Institutions like LIC, UTI, GIC c) Commercial Banks d) Provident Funds and e) Specialized Housing Finance Intermediaries like NHB, HFCs including HDFC, LICHF, PNBHF, SBI Home Finance Ltd., etc.and apex and primary cooperative housing finance societies. The informal sector consists of household savings, community based savings, loan from friends, relatives and money lenders, self-help groups, NGOs, and public and private sector employers

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providing loans to their employees. Traditionally in India, most people used to depend on their savings while considering buying a house. Provident funds and gratuity amounts received after retirement were the major sources of finance for employed or retired people looking for owning their own house. However with the emergence of housing finance as a major business in the country, an increasingly large number of people are going in for housing finance. As a result housing finance, being one of the important segments of financial services is booming since last 5-6 years. It is a high flying sector these days tipped to grow at 35% p.a. These good growth fortunes can be attributed to liberal tax policies of the govt. entry of more and more players in the sector, fall in other avenues of investment, falling interest rates, lowering of real estate prices etc. In the post liberalization era, three distinct groups of housing finance have emerge such as: a) specialized housing finance companies like HUDCO, Dewan Housing Finance Corporation Ltd (DHFCL), Maharishi Housing, b) Sundaram Housing Finance, Gruh Finance, Weizmann Homes etc. c) Housing finance companies set up as a subsidiary of commercial banks includes PNB Housing Finance Limited, Indland Housing and Corpbank Homes. d) Insurance corporations LIC and GIC have also set up Housing Finance subsidiaries like: LIC Housing Finance Ltd., and GIC and Housing Finance Ltd. These players are regulated by National Housing bank which is wholly owned subsidiary of RBI. NHB was set up on 9th July 1988 under an Act of Parliament viz. the National Housing Bank Act 1987 as a principal agency to promote housing finance institutions both at local and regional levels and to provide financial and their support to such institutions and foe matters connected therewith or incidental thereto. Second group comprised of commercial banks providing the housing finance in the country as per the guidelines of RBI.

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Third group comprised of cooperative housing societies providing housing loans to individuals.

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HOUSIG FINANCE: BUILDING STRENGTH

We are looking at the Housing Scenario at a stage when the National Economy is on the road to revival, after depressive conditions for over last three years. The growth rate of the economy might go up to levels up to 6%, if the revival is kept up. Share markets are not entirely looking up, though they are stabilizing at levels, which can be termed as reasonable. However, the happy feature is that industrial growth is picking up. Even, the steel sector, which was hopelessly down, is now having hopes of revival. It is only housing, that seems to have kept up stable front. Yes, the late 90s saw even housing go through a bad phase. However, then with that phase crossed, there has been a steady revival and stabilization of the market at levels which can be termed as reasonable from the point of view of both the customers and those on the supply side.

As far as availability of finance to the retail customers is concerned, there has been a tremendous improvement in the possibility over the last few years. There are over 32 NHB recognized Housing Finance Companies which dot the map of this country with their presence all-over. The nationalized banks have made housing to the reach for advancing loans to individuals. The HDFC, which organization I happen to represent, itself has over 200 centers in this country, which are covered by their physical presence. Leading Housing Finance organizations like the LIC, ICICI also have a widespread network all over the country giving out loans to customers for housing. SBI

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covers over 500 centers through their branches with personal banking division functions. The other banks too are not far behind in their reach out to the house purchasing public.

The customer who is purchasing a house today has not only the choice of different types of loans starting from the house-purchase or house-building loans to house-improvement loans, home equity loans [ loans on mortgage of property], home extension loans, NRI loans etc. It has never been better than this ever before.

There are huge number of banks, financial institutions and finance company actually giving out home loans. The home loans are offered at the best rates and conditions. As there are a huge number of people who are ready to give home loans, it is considered very well from the consumer's point of view. As now, there are more options available for him to choose from. Thus, so many people in the same sector giving a healthy competition among everyone thereby making the finance seeker get highly competitive interest rates.

Although, the terms and conditions for home loans differ from company to company. Few companies have a belief in asking the finance seeker to keep their property papers with them, for security reason. This is called keeping Collateral Securities with the home loan issuer.

While, on the other hand there are large number of finance issuers who go about asking the finance seeker to make a lump some deposit the first time, commonly known as down payment.

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Home loans are available for a number of reasons such as building a new house, extension of existing house and renovation of house. However, there are certain parameters that are fixed by the company for issuing home loan, which has to be abided by the customer.

These times you can afford to dreams as much as you want to. You can spread your wings wide, as the home loans are there to translate your dream of owning a house into reality. Commenting on what customers must look for while opting for a home loan, a spokesperson of the Housing Development Finance Corporation (HDFC) said that opting for a home loan is a big decision for most people, as their relationship with the bank usually spans 15-20 years. Hence, customers must look beyond the pricing aspects and seek clarity on the kinds of value-added services that are being offered. These are important aspects one needs to look for as they may have long-term implications for the entire transaction. Customers need to pay more attention to the property they are planning to buy and arm themselves with all information. Interest rates should not be the only determining factor while going for a home loan. Some other issues such as the legal aspects and the valuation of property are also important. Customers also prefer one-on-one interactions with the lending company and not just with sales executives and direct sales agents. Housing finance companies are also looking to broaden their reach to different segments of the market, while competing with one another.

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A critical factor in determining the demand for a housing loan is the ability of a borrower to afford one. This may be loosely described as the ability of a borrower to repay the installments comfortably on the borrowed amount.

To Fix or To Float?
When applying for a home loan, opting for interest rates is a cause of dilemma. Should one opt for floating' or fixed' rates of interest? Interest rates have been fluctuating for last few years, so consumer is not sure about the future. This uncertainty makes the question a million dollar one. What should a home loan consumer do? Should he go for a floating rate home loan? This could mean a home loan at a cheaper rate with an inherent risk of being hit by a huge increase in interest rates in the future. Or, should the consumer seek the safety of a fixed rate home loan. While the interest rates are a deciding factor in taking a home loan, we must remember that this is not a one-time decision. A well-informed consumer makes better choices. A fixed' interest rate is one which remains fixed during the entire tenure of the loan. Unlike the fixed' interest rates on the home loans; floating rates will be changed by the bank.

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. Our choice is based on certain criterion:

These loans are at least 2% cheaper than a comparative tenure fixed rate home loan There is safety in numbers. Over 90% of the home loan consumers opt for floating rate loans.

NATIONAL HOUSING BANK

The National Housing Bank (NHB) was established on 9th July 1988 under an Act of the Parliament viz. the National Housing Bank Act, 1987 to function as a principal agency to promote Housing Finance Institutions and to provide financial and other support to such institutions. The Act empowers NHB to: Issue directions to housing finance institutions to ensure their growth on sound lines Make loans and advances and render any other form of financial assistance to scheduled banks and housing finance institutions or to any authority established by or under any Central, State or Provincial Act and engaged in slum improvement and Formulate schemes for the purpose of mobilization of resources and extension of credit for housing.

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OBJECTIVES
NHB has been established to achieve , the following objectives: To promote a sound, healthy, viable and cost effective housing finance system to cater to all segments of the population and to integrate the housing finance system with the overall financial system To promote a network of dedicated housing finance institutions to adequately serve various regions and different income groups To augment resources for the sector and channelise them for housing. To make housing credit more affordable. To regulate the activities of housing finance companies based on regulatory and supervisory authority derived under the Act.

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HDFC PROFILE
INTRODUCTION TO HDFC
A new home brings with it new hopes, joys, & emotions. At HDFC we have shared new hopes, joys & emotions with over 26 lakh customers. Every customer has a specific and unique concern. Having earned an experience of 32 years in home loans, our home loan product is customized to provide you solutions for your unique concern.

HDFC was incorporated in October 1977 with a primary objective of meeting a housing need like construction/ purchase of residential houses anywhere in India by providing long term finance to households .Its main business is providing housing finance by creating an institutional facility. Its primary motto is to increase residential housing stock in a systematic and professional manner and enhance the flow of resources to the housing sector by integrating the housing finance sector with the domestic financial market. HDFC is a professionally managed by highly qualified board of directors represent various field including finance, taxation contraction & urban policy &development. The Board of directors primarily engaged on strategy formulation, policy and control, designed to deliver increasing value to share holder. The management team also comprises of two executives directors and several General Managers .HDFC has staff strength of 1100, which includes professionals from the fields of finance, law, accounts engineering and marketing

HDFC S organizational goals are: 27

1. Develop close relationship with individual households. 2. Maintain its position as the premier housing finance institution in the country. 3. Transform ideas into viable &creative solutions. 4. Provide consistently high return to shareholders. 5. To grow through diversification by leveraging of existing client basis. HDFC operates through 175 branches offices locate throughout the country & HDFC covers over 90 locations through out reach out reach programme & its one international office in Dubai with its incorporate head quarters at Mumbai, India. HDFC deals various activities training & human resource management & various other operations. The HDFC group has always been committed to the principles of transparency, integrity, accountability& social responsibility. The HDFC has always maintained that a strong customer focuses. Today HDFC evolved into a BRAND representing a wide range of products and services, retails & wholesale.

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CONTINUING GROWTH MOMENTUM LOAN APPROVALS & DISBURSEMENTS

500 450 400 350 300 250 200 150 100 50 0

425.20 333.32 256.34 206.79 261.78 328.75

FY 06

FY 07

FY 08

LOANS APPROVED

LOANS DISBURSED

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THE HDFC GROUP

HDFC and HDFC BANK continues to maintain an arms length relationship in accordance with the regulatory framework .both organizations however have capitalized a wide range of products and services under the HDFC brand name. During the year, net advances of HDFC BANK grew by 35% to Rs 63,427 crores. This was driven by the growth of 39% in retail advances and an increase of 30% in wholesale advances. on the strong synergies through a system of referrals special arrangements and cross selling in order to effectively provide

MAN WITH THE MISSION: - HASMUKH BHAI PAREKH [FOUNDER ] An extract from the book 'A Tribute' If ever there was a man with a mission it was Hasmukhbhai Parekh, our Founder and ChairmanEmeritus, who left this earthly abode on November 18, 1994. At the ripe age of 60, Hasmukhbhai started his second dynamic life, even more illustrious than his first. His vision for mortgage finance for housing gave birth to the Housing Development Finance Corporation - it was a trend-setter for housing finance in the whole Asian continent. When Mr. Deepak Parekh took over as Chairman from Hasmukhbhai, he said: "Taking over from H.T. Parekh is a formidable task; his vision brought about not only an institution, but an entire concept which has proved itself to be of lasting importance." In his last years, developments in the financial sector brought him some measure of satisfaction. Says ICICI Chairman, N. Vaghul: "The most gratifying aspect about his life is that values he cherished all his life came into reality in the last years. Opening up the financial sector, and deregulation of lending rates were issues he stood for all his life and this happened before he passed away."

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Farewell dear Hasmukhbhai! All of us will miss not only H.T. Parekh the financial wizard, but much more so, the man. The only and best tribute we can pay to such an individual is to try and follow in his footsteps, keeping in mind his high ideals and philanthropic outlook. As Henry W. Longfellow said: Lives of great men all remind us We can make our life sublime, And, departing leave behind us Footprints on the sands of time.

OBJECTIVES AND BACKGROUND

Against the milieu of rapid urbanization and a changing socio-economic scenario, the demand for housing has grown explosively. The importance of the housing sector in the economy can be illustrated by a few key statistics. According to the National Building Organization (NBO), the total demand for housing is estimated at 2 million units per year and the total housing shortfall is estimated to be 19.4 million units, of which 12.76 million units is from rural areas and 6.64 million units from urban areas. The housing industry is the second largest employment generator in the country. It is estimated that the budgeted 2 million units would lead to the creation of an additional 10 million man-years of direct employment and another 15 million man-years of indirect employment. Having identified housing as a priority area in the Ninth Five Year Plan (1997-2002), the National Housing Policy has envisaged an investment target of Rs. 1,500 billion for this sector. In order to achieve this investment target, the Government needs to make low cost funds easily available and enforce legal and regulatory reforms.

BACKGROUND

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HDFC was incorporated in 1977 with the primary objective of meeting a social need - that of promoting home ownership by providing long-term finance to households for their housing needs. HDFC was promoted with an initial share capital of Rs. 100 million.

AIM OF HDFC
Helping Indians experience the joy of home ownership. The road to success is a tough and challenging journey in the dark where only obstacles light the path. However, success on a terrain like this is not without a solution. As we found out nearly three decades ago, in 1977, the solution for success is customer satisfaction. All you need is the courage to innovate, the skill to understand your customers and the desire to give them your best. Today, nearly three million satisfied customers whose dream we helped realize, stand testimony to our success. Our objective, from the beginning, has been to enhance residential housing stock and promote home ownership. Now, our offerings range from hassle-free home loans and deposit products, to property related services and a training facility. We also offer specialized financial services to our customer base through partnerships with some of the best financial institutions worldwide.

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BUSINESS OBJECTIVE
The primary objective of HDFC is to enhance residential housing stock in the country through the provision of housing finance in a systematic and professional manner, and to promote home ownership. Another objective is to increase the flow of resources to the housing sector by integrating the housing finance sector with the overall domestic financial markets.

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ORGANISATIONAL GOAL
HDFC's main goals are:(a) To develop close relationships with individual households, (b) To maintain its position as the premier housing finance institution in the country, (c) To transform ideas into viable and creative solutions, (d) To provide consistently high returns to shareholders, and (e) To grow through diversification by leveraging off the existing client base.

ORGANISATION AND MANAGEMENT

HDFC is a professionally managed organization with a board of directors consisting of eminent persons who represent various fields including finance, taxation, construction and urban policy & development. The board primarily focuses on strategy formulation, policy and control, designed to deliver increasing value to shareholders.

Board of Directors
Sr. No. 1 2 3 4 5 6 7 8 Name of Director Mr. Deepak S. Parekh Mr. Keshub Mahindra Mr. Shirish B. Patel Mr. B. S. Mehta Mr. D. M. Sukthankar Mr. D. N. Ghosh Dr. S. A. Dave Mr. S. Venkitaramanan 34 Category* Executive Chairman Independent Independent Independent Independent Independent Independent Independent

9 10 10 11 12 13 14

Dr. Ram S. Tarneja Mr. N. M. Munjee Dr. Bimal Jalan Mr. D. M. Satwalekar Dr. Jamshed J Irani+ Ms. Renu Sud Karnad Mr. K. M. Mistry

Independent Independent Member of Parliament (Rajya Sabha) Non-Executive Special Director++ Joint Managing Director Vice Chairman & Managing Director

HDFC has a staff strength of 1445 (as on 31st March, 2008), which includes professionals from the fields of finance, law, accountancy, engineering and marketing

EVIEW OF SUBSIDARY AND ASSOCIATE COMPANIES

HDFC has subsidiary companies HDFC BANK Ltd. HDFC Developers Ltd. HDFC Investment Ltd. HDFC Holding Ltd HDFC Standard life Insurance HDFC Gruh finance Limited

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HDFC BANK LTD. [HDFC BANK] The housing Development Finance Corporation ltd. Was amongst the first to receive an in
Principle approval from Reserve bank of India to set up a bank in private sector as part of the RBIs liberalization of the Indian banking industry in 1994. The Bank was incorporated in August 1994 in the name of HDFC Bank Limited with its registered office in Mumbai. During the year, retail banking was the fastest growing business segment of HDFC bank .For the ended March 31, 2004.HDFC Bank has reported a profit after tax of Rs. 510 crores as against Rs. 388 in the previous year .HDFC Bank declared dividend of 35% for the year under review.

23.27% owned by HDFC Market Cap US $ 11.7 billion In February 2008, HDFC Bank board approved the merger with Centurion Bank of Punjab {CBOP} (1 share of HDFC Bank for 29 shares of CBOP) 761 branches, 327 cities, 1977 ATMs Over 12 million customer accounts Key business areas Wholesale bankingRetail banking Financials for year ended March 31, 2008 Total net revenues: Rs 75.11 bn, increase of 51% over previous year
HDFC and HDFC BANK continues to maintain an arms length relationship in accordance with the regulatory framework .Both organizations however have capitalized a wide range of products and services under the HDFC brand name. During the year, net advances of HDFC BANK grew by 35% to Rs 63,427 crores. This was driven by the growth of 39% in retail advances and an increase of 30% in wholesale advances. 36 on the strong synergies through a system of referrals special arrangements and cross selling in order to effectively provide

Treasury operations

HDFC STADARD LIFE INSURANCE COMPANY [HDFC-SL]

HDFC-SL covers 450 cities and towns in India through its 572 distribution points in the country with over 1,45,000 financial consultants appointed by the company. HDFC-SL also has 379 corporate agents and other key partners and banks for distribution of insurance products. Gross premium income of HDFC-SL for the year ended march 31,2008 stood at Rs. 4,859 crores as compared to Rs.2,856 crores in the previous year a growth of 70%.The cumulative sum assured in respect of policies issued increases to Rs. 87,439 crores from Rs. 67,193 crores last year. The company has a portfolio of 20 retail products covering, saving, investment, protection, and retirement needs of the customer, along with five optional rider benefits. Structure Strong and stable partnership Tie up with Standard Life Assurance Company, U.K. HDFC holds 84.24% of the equity of HDFC-SL

Products Diversified product portfolio covering all life stages and needs Offers 21 individual products and 6 group plans along with 5 optional riders

37

HDFC ASSET MANAGEMENT COMPANY [HDFC-AMC]

During the year under review, HDFC AMC raised the raised the share capital by issuing fresh equity & preference share to its share holders. In proportion to its share holding HDFC subscribed to equity and redeemable preference share of HDFC- AMC. In June 2003, HDFC-AMC completed the acquisition of Zurich Asset management Company (India) private ltd.

Tie-up with Standard Life Investments (SLI) HDFC MF offers 30 equity & debt oriented products HDFC network distributes mutual fund products & acts as investor service centre Earned a Profit After Tax of Rs 675 million for FY07 Paid a dividend of 100% for FY07 to equity shareholders The total assets under management (AUM) of HDFC MF stood at Rs 356 billion as at June 30, 2007 Equity assets as a proportion of total assets is 47% Valued in June 2003 at Rs 3.4 billion (17 times the capital of the company) with AUM of Rs 85 bn

38

HDFC DEVELOPERS LIMITED

HDFC Developers is a wholly owned subsidiary of HDFC and its main activity include project management and real estate development for HDFC. The company also completed designing the interiors of 2000 seal call centre at Malad, Mumbai for Global services limited.

HDFC REALTY LIMITED (HDFC REALTY)

HDFC Realty Limited is a wholly owned subsidiary of HDFC. During the year HDFC Realty tied up with developers to market their projects within the HDFC and also to various other corporate. This also helped to generate additional loan business for HDFC. The other activities of HDFC Realty include organizing road shows to assist Non-Resident Indian in West Asia.

CREDIT INFORMATION BUREAU INDIA LTD

As per RBI guidelines, CIBIL maintains a database of suit filed accounts of (i) Rs. 10 mn & above (ii) willful defaulters of Rs. 2.5 mn & above The bureau deals with both positive and negative credit information which will be sold Credit information from the bureau will be sold in the form of credit reports

Potential users of these credit reports are:

39

Banks , NBFCs & financial institutions Consumer & mortgage finance companies Credit card companies & other service providers e.g. mobile phones companies etc.

87 credit grantors that have accepted membership of CIBIL 60 banks, 8 NBFCs, 8 HFCs, 8 FIs, 2 SFCs & 1 credit card company

CIBIL launched the Operations for its Consumer credit information bureau (software licensed by Trans Union) on April 05, 2004

40

FINANCIAL HIGHLIGHTS
PARTICULARS Quarter ended 31.3.2008 Quarter ended 31.3.2007 Nine Months ended 31.12.2007 Year ended Year ended 31.3.2008 31.3.2007 Audited

Rupees
Income from Operations : - Int - erest Income - Other Operating Income - Profit on Sale of Investments Other Income Total Income (excluding Profit on Sale of Investments - Subsidiaries and Associates) Expenditure : - Interest and Other Charges - Staff Expenses - Other Expenses - Depreciation Total Expenditure Profit Before considering Exceptional Items Exceptional Items - Profit on Sale of Investments - Subsidiaries and Associates (Refer Note 4 below) Profit Before Tax Tax Expense Net Profit After Tax Earnings per Share - (Rs) - Basic - Diluted Paid-up Equity Share Capital (Face value Rs 10) Reserves as at March 31 Aggregate of public Shareholding : - Number of Shares - Percentage of Shareholding 2,240.26 69.41 2.54 8.00 2,320.21

in

crore
5,543.73 189.69 130.72 11.71 5,875.85 7,783.99 259.10 133.26 19.71 8,196.06 5,314.03 236.19 292.30 20.76 5,863.28

1,527.50 90.14 111.65 4.48 1,733.77

1,359.79 31.03 35.35 4.49 1,430.66 889.55 202.07 1,091.62 323.50 768.12 27.34 26.39 284.04

1,005.06 21.35 26.09 5.15 1,057.65 676.12 0.00 676.12 126.07 550.05 21.91 20.32 253.00

3,783.09 86.77 146.19 12.11 4,028.16 1,847.69 434.19 2,281.88 613.75 1,668.13 62.52 58.89 281.57
28,15,70,039 100

5,142.88 117.80 181.54 16.60 5,458.82 2,737.24 636.26 3,373.50 937.25 2,436.25 89.86 85.28 284.04 11,663.31 28,40,37,98 5 100

3,666.85 91.27 152.90 17.46 3,928.48 1,934.80 32.98 1,967.78 397.40 1,570.38 62.65 58.25 253.00 5,298.39
25,30,06,607

100

41

The above results were reviewed and recommended by the Audit Committee of Directors and subsequently approved by the Board of Directors at the meeting held on April 30, 2008.

SALES FORCE SIZE

25 20 15 10 5 0 HDFC ICICI LIC SB I

Sales force size

The data of other bank are as followsSBI Dena bank SBS GRUH Housing finance Bank Of India Bank of Baroda

12% 10% 16% 4% 8% 12%

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HOME LOAN PRODUCTS

HDFC Ltd. finances for the following necessities: House Purchase (i) (ii) (iii) From Builder Resale House Purchase Government Authority

Construction Loan Extension Loan Improvement Loan Refinance of existing housing loan from other housing finance institutions/banks Top up loans for existing customers Home Equity Loan Short Term Bridging Loan NRP (Non Residential Premises)

Home Loan Home loans for individuals to purchase (fresh / resale) or construct houses. Application can be made individually or jointly. HDFC finances up to 85% maximum of the cost of the property (Agreement value + Stamp duty + Registration charges).

43

44

HOME EXTENSION LOANS HDFC provides Home Extension Loans specifically to facilitate the extension of an existing dwelling unit. This loan can be taken to meet the needs of a growing family.

HOME IMPROVEMENT LOANS This loan facilitates internal and external repairs and other structural improvements like Painting, Waterproofing and Roofing, Plumbing and Electrical Works etc. The Maximum term for this loan is 15 years.

RESIDENTIAL PLOT PURCHASE LOAN This loan is given for the purchase of residential plot. The location of the plot should be within the corporation limits. The maximum term is 10 years. The maximum 85% can be financed in case of allotment by government agency.

TOP UP LOANS Top up loans are for the existing customers. These are given in case any additional loan is required by the existing customer. For this, first the property has to be valued by HDFC valuers. Up to 70% can be financed subject to repayment capacity. These funds can be used for childrens education or purchase of furniture / consumer / business needs.

45

HOME EQUITY LOANS HDFC provides home equity loans to facilitate meeting of expenses such as higher education of children, medical expenses etc. The loan is granted against the security of a dwelling unit that is owned by an individual and occupied by him. One can borrow a maximum of 50% of the market value of the dwelling unit.

SHORT- TERM BRIDGING LOAN Such loans are provided for the interim period between purchase of a new dwelling unit and sale of the present unit. The maximum term for this loan is 2 years. The repayment is by way of payment of simple interest on a monthly basis, with the principal being repaid at the end of the term.

LOAN APPRAISAL
METHODOLOGY OF LOAN APPRAISING There are three parts to the loan appraisal: 1. 2. 3. Credit appraisal of the individual Technical appraisal of the property Legal appraisal.

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CREDIT APPRAISAL OF THE INDIVIDUAL

The credit appraisal is done on two parameters 1. The credit profile of the individual 2. The family background of the individual The credit appraisal of the individual decides that what loan amount can be given for the asked loan amount i.e. for how much loan is the present customer eligible based on his or her credit profile and family background.

STEPS IN CREDIT APPRAISAL

1. MAKING OF THE CUSTOMER FILE This step involves the collection of various documents into 1 complete file. The documentation involves the various documents i.e. customer information, legal technical etc. Once the file is made & arranged in order, its time to study the file.

2.

STUDY OF THE FILE All the documents are matched and cross-checked and the estimation for the credit profile of the customer is made.

3. CALCULATING IFA

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This step requires a lot of cross checking. According to the IFA the loan calculated.

eligibility is

4. INTERVIEWING THE CUSTOMER This activity helps in getting the idea of the customers financial details. When a customer asks that how much loan can he get, then he is given a rough idea by multiplying his monthly salary by multiplying his monthly salary by 30. This is a rough estimate given to him.

5. CALCULATION OF IIR , FOIR etc The last step is the calculation of how much loan can be given to the customer. Further all the ratios are calculated.

6. CALCULATION OF EMI Further the EMI is calculated which is based on the tenure for which the customer is eligible. As mentioned earlier the EMI remains constant. Only the tenure changes in variable rate of interest.

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INCOME APPRAISAL OF AN INDIVIDUAL

EMPLOYED: Appraised income is calculated by considering all the regular incomes. The documents should be in order. For employed people, all the regular incomes are considered like Basic allowance Daily allowance Housing rent allowance CA CCA

SELF EMPLOYED: * Categories Self Employed Non Professionals and Self Employed Professionals like doctors etc. * Possible forms of business organization in both Proprietorship Firm Partnership Firm Private Ltd Company.

LEGAL APPRAISAL
Legal appraisal makes sure that the title is clear. SECURITY FOR THE LOA

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Main Security Interim Security

TITLE DOCUMENTS IN CASE OF: Sale By Builder (i) (ii) (iii) (iv) (v) Allotment Letter OCR NOC as per HDFC draft Cash Down Tripartite Agreement on Rs.100 duly signed by the purchaser and builder

Allotment By Government Body (i) (ii) (iii) Allotment Letter OCR Mortgage Permission

Construction On Freehold Plot (i) (ii) (iii) (iv) Sale Deed Title Report Map+ Estimate Map Submission

Construction On Leasehold Plot (i) (ii) (iii) (iv) Lease Document Allotment Letter Possession Certificate Mortgage Permission

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Resale Cases (i) (ii) (iii) (iv) KYC ( Address, I.D., Age Proof, Bank Statement) Sale Deed Sale Agreement Copy of Registry

TECHNICAL APPRAISAL
It involves valuation of the house or plot. It should be kept in mind that the valuation amount should match the loan asked + own contribution by the customer. This is the technical appraisal. Maximum 85% of the cost of valuation can be the loan component. Rest 15% has to be the own contribution (i) (ii) The basic purpose of technical department is security To verify the property (a) Location (b) Quantity of construction (c) Salability of property (d) Infrastructure (e) FSI (Floor Surface Index) (f) FAR (Floor Area Ratio)

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CASE R.K. Malhotra wants to take loan for the purpose construction of a house. The details are as follows: Age: 33 Dependents: 1 Loan asked for: 10 lacs Time duration for repayment: 20 years Current rate of interest: 13.75% Plot area: 2000 sq feet Gross salary: Rs.25000 per month Deductions: PF = Rs.2500 GIS= Rs.500 Agriculture income per annum= Rs.100000 Rental income: Rs.5500 per month Deposits of: Rs.75000

CALCULATIONS: As the age of the customer is not much , he can easily repay the loan in 20 years. Further the net salary will be: 25000- (2500+500) = Rs.23000 per month

52

IFA = 25000 As the customers financial condition is good enough , we take IRR of 40% It comes out to be 8800 This becomes the monthly installment i.e. the EMI Now we take the factor at 9% for 15 years It comes to Rs.900 We now divide the possible EMI by the factor Thus 8800 / 900 = 9.7 Thus the loan can be given of 1000000

TECHNICAL APPRAISAL The plot area is 1380 sq feet Taking the average cost of Rs.700 / sq feet The cost comes out to be Rs.966000 This is the valuation done by the Valuers Thus the loan amount and the cost matches almost. Loan can now be sanctioned. But the documents should have been checked for legal part 85% loan can be given i.e. Rs.850000 Rest 15% has to be the own contribution i.e. 150000 The 1st disbursement is given of Rs.255000 after the utilization of the own contribution The 2nd disbursement is given of Rs.425000 after the laying of the slab The 3rd disbursement is given of Rs.170000 after the flooring and plastering have been done.

53

Now onwards the EMI starts of 8.5 * 900 = Rs.7650 RESULTS: The customer gets a loan of Rs.850000 His own contribution is Rs.150000 And he pays the EMI of Rs.7650

KYC
KYC is an acronym for know your customer, a term commonly used for Customer Identification Process. SEBI has prescribed certain requirements related to KYC norms for financial institution & financial intermediaries including mutual fund to know their customer. This could be in a form of verification of identity, address & financial status, occupation & such other personal information. It includes Driving License Telephone Bill Electricity Bill Ration Card PAN Card Voter I.D. Passport Bank A/C Statement

LIST OF BASIC DOCUMENTS REQUIRED

54

IN CONSTRUCTION / EXTENSION / IMPROVEMENT CASES Copy of Sale Deed / Title Deed / Free Hold Deed Search Certificate from Sub-Registrar for past 12 years Xerox copy of approved map with Permit to Build highlighting the area to be constructed Detailed estimate of construction from any approved Architect /Civil Engineer for only the area highlighted on the map Mortgage permission from Appropriate Authority if land is on lease

IN CASES OF PURCHASE FROM DEVELOPMENT AUTHORITY / UP HOUSING BOARD Copy of allotment letter Receipts of payments already made NOC for mortgaging the house / plot in favor of HDFC if property is on allotment or lease Possession Letter / Certificate / Inventory / Hire purchase agreement (in case property is on hire purchase) Final Costing Letter (if property has been converted to cash down basis) IN CASE OF PURCHASE FROM APPROVED BUILDER Copy of allotment letter Sale agreement, if already executed Receipts of payments already made to the builder NOC from builder as per HDFC draft Tripartite agreement with the builder as per HDFC draft if applicable

55

IN CASE OF PURCHASE ON RESALE FROM INDIVIDUALS Copy of sale agreement, if already executed Copies of earlier title deed / sale / lease deed Certificate of search for past 12 years from Sub-Registrars Office Details of Interim security which can be provided by the customer till property is mortgaged to HDFC in the form of shares, NSC, Fixed Deposits, Indira / Kisan Vikas Patras or any other property documents. These securities can also be in the name of your spouse / family members

56

FINANCIAL DOCUMENTS Latest salary certificate giving details of allowances & deductions Bank statement for last six months

LEGAL DOCUMENTS (Originals and photocopies are required while applying before disbursement) Sale deed/ lease deed in the name of the seller Original receipts of payments made to the government authority 12 years non encumbrance certificate from the sub Registrar Office in the name of the seller Earlier Sale Deed if any

DOCUMENTS REQUIRED IN CASE OF EMPLOYED 1. Verification of Employment 2. Latest original Salary Slip / Salary Certificate showing all deductions 3. If the job is transferable, permanent address where correspondence relating to the application can be mailed 4. Updated Original Bank Pass Book / or Original Bank Statements showing salary and saving entries for the last 6 months 5. A photocopy of Form 16 (issued by the employer) for the last Assessment Year DOCUMENTS REQUIRED IN CASE OF SELF- EMPLOYED

57

1. Balance Sheet and Profit and Loss Accounts of the business / profession along with copies of Individual Income Tax Returns for the last 3 years certified by a Chartered Accountant 2. A note giving information on the nature of your business / profession, form of organization, clients, suppliers, etc. 3. Copies of Individual Tax Challans for the last 3 years 4. Copy of Advance Tax Challan (if any) 5. Updated Original Bank Pass Book or Original Bank Statement showing savings entries for the last 12 months DOCUMENTS REQUIRED IN CASE OF NRI INCASE OF PROFESSIONALS 1. Last 6 months salary slip 2. Employment Contract / Employment Letter 3. Overseas Bank Account statement for last 1 year (minimum 6 months) 4. W2 Form + Income Tax Returns (last 2 years) 5. Visa Stamp + Passport 6. Copy of his professional degree 7. Credit Report ( Financial History, Personal Details, Credit Source) 8. NRE / NRO Account for last 1 year 9. Power Of Attorney + Address Proof 10. HR E-mail ID

INCASE OF MERCHANT NAVY 1. CDC (Continuous Discharge Certificate) 2. Salary slip + Employment Contract 3. Passport with Visa stamped

58

4. NRE / NRO Account for last 1 year 5. Copy of degree / Professional diploma certificate 6. HR E-mail ID (a) Ship / Vessel (b) Duration of sale DOCUMENTS REQUIRED IN CASE OF CORPORATE FIRM / COMPANY 1. Profile of the Company 2. List of Board Of Directors 3. Copy of Registration Certificate 4. Attested Copies of Last Three Years audited Balance Sheet and profit and loss account 5. Bank Statement for last one year 6. Cash flows for the next three years 7. Details of the loans availed during the last three years by the company with details of security offered against the loan 8. Copy of Memorandum of Articles and Association 9. Sale Deed 10. Earlier Sale Deeds 11. Mutation order 12. Income Tax Clearance 13. Allotment Letter and Possession letter by the Development Authority 14. Lay out map 15. Approved Building Plan from competent authority along with the plan 16. Detailed to estimate along with the list of specification 17. Permit to build from the competent authority 18. Detailed project report sectional 7. Boarding Details

59

Certain statuary requirements are to be complied with as per the companies act, office of registrar of companies and income tax act depending upon the nature of the company. For loan processing, photocopies of all the above documents are required. And after sanction all the documents would be required in original.

REPAYMENT TYPES
The following types of repayment are available for the customers depending upon their level of comfort and above all their eligibility. Straight term Flexible loan installment plan (FLIP) Balloon payment (BP) Step up repayment facility (SURF)

STRAIGHT TERM REPAYMENT This payment facility is for young employees or self employed individuals. In this repayment facility the EMI is made constant. Only the term varies according to the variable rate of interest. The maximum term is given on the customers requirements. Maximum term is either 20 years or the retirement age whichever is earlier. FLEXIBLE LOAN INSTALLMENT PLAN This repayment facility is for senior government employees whose jobs are with pension. Also there are just less than 10 years of service left. On the basis of this feature additional loan can

60

be worked out on pension income. The loan actually is broken down in two parts- on the basis of the present income and the other part on the basis of the pension.

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BALLON PAYMENT This payment type is for senior government employees who have less than two years of service left. It is for those people who are willing to make bulk payment from their retirement benefits. To the extent additional loan can be given based on the present value of this money. No EMI is worked out on this additional loan.

STEP UP REPAYMENT FACILITY This payment facility is for young professional who are willing to make payment of enhanced EMI as their income rises periodically. In the initial years only the interest is repaid as simple interest. This scheme is good for income tax planning. With the help of this scheme around 15% higher loan can be worked out EMI Customer pays the loan in Equated Monthly Installments (EMI) comprising principal and interest. Repayment by way of EMI commences from the month in which you take full disbursement. PRE- EMI INTEREST Pending final disbursement, the customer pays interest on the portion of the loan disbursed. This interest is called Pre-EMI interest. Pre-EMI interest is payable every month from the date of each disbursement upto the date of commencement of EMI.

TRANCHE BASED EMI REPAYMENT To help customers save pre-EMI interest, HDFC has introduced a special facility of Tranche Based EMI. For under construction properties customers can choose the installments they

62

wish to pay, till the time the property is ready for possession. Anything paid over and above the interest by the customer goes towards Principal Repayment. The customer benefits by starting EMI and hence the loan after MODE OF REPAYMENT The repayment can be made through the following modes: Post dated cheques Salary deduction by the employer on the permission of the customer and the consent of his employer as well. ECS

DISBURSEMENT SCHEDULE
Disbursement starts after the sanctioning of the loan. It is done in 3 steps. 1st disbursement is starts after the customer has utilized his own contribution. The disbursement component is around 30% of the loan amount 2nd disbursement starts after the laying of the slab. The disbursed component is around 4050% of loan component. It is the largest amount as maximum work has to be done now. 3rd disbursement starts after plastering and flooring done. It contributes about remaining percentage of the loan i.e. about 10-20%. Until the final disbursement pre-EMI has to be given by the customer. After getting the last disbursement, the full EMI starts from the next month. Disbursement is done according to the construction. There are 3 types of construction

63

1. A Class Simple Work 2. B Class Muzak, Tilling 3. C Class Marble Flooring, Quality Work, Wooden Work

FEQUENTLY USED TOOLS

IRR (Installment to Income Ratio) It is the ratio between the monthly installment to be given by the customer and his / her monthly income. This ratio basically tells that out of ones monthly income, how much percentage does the monthly loan installment makes. This gives the idea of the customers financial strength. Normally the IIR ranges between 25% to 35% based on the customers credit profile. It can also extend upto maximum 50% if the case is really good. Lets take an example..

EMI = Rs.3000 Gross income = Rs.10000 IIR = (EMI / GROSS INCOME) % = 3000 / 10000% = 30%

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Thus in this case the IIR is 30%. It means that out of the customers income, he is eligible for giving installments which is 30% of his income. PARAMETERS THAT DECIDE IIR 1. Age 2. Qualifications 3. Employer 4. Designation 5. Assets 6. Liabilities 7. Savings history 8. Property location 9. Residential address 10. Family background 11. Dependents

LCR (Loan To Cost Ratio) This ratio is the ratio between the loan amount and the cost of the property. This ratio gives the idea that the loan amount forms what percentage of the property cost. Lets take an example Loan = Rs.1000000 Total Construction Cost = Rs1500000 LCR = (LOAN / CONSRUCTION COST) %

65

= 1000000 / 1500000% = 67%

66

Thus the LCR here shows that the loan amount comprises 67% of the actual cost of the property. It also shows that 33% should come from the persons own contribution. It should also be brought to the notice that maximum 85% can be considered as LCR. It also means that maximum loan that can be granted can not exceed 85% of the cost of property. That means that rest 15% should come from ones own contribution. In existing customers case the limit can be raised upto 100% if the loan is for the same property address. FOIR (Fixed Obligation Income Ratio) FOIR stands for the ratio between the fixed obligations stand for the sum of HDFCS EMI and any other loan installments. For example, if a person has some vehicle loan running , life insurance along with the housing loan of HDFC, then the fixed obligations would include the EMI of HDFC + EMI of vehicle loan + the life insurance premium. Lets take an example Gross income = Rs.2000 Car loan = Rs.2500 p.m. for 2 years Festival Advance = Rs.500 Loan Amount = 300000 EMI = 982 x 3 = 2946 IRR = EMI / Income = 2946 / 20000% = 15% FOIR = 2946+2500 / 20000% = 5446 / 20000% = 27.23% 67

LOAN PORTFOLIO
The loan approval process of HDFC is decentralized with varying approval limits. Approval of lending proposals beyond certain limits is referred to the committee of management (COM). Large proposals as appropriate are referred to the Board of Directors. During the, year HDFCS loan book increased to Rs.72998 cr. from Rs.56512 cr. in the previous year. The net increase in the loan book of Rs.16486 cr. has been determined after taking into account, loan repayments of Rs.15819 cr. (previous year Rs.13589 cr.) & net loans written off during the year amounting to Rs.18.40 cr. (previous year Rs.7.77 cr.). The loan book has grown by 29% during the year.

LOAN OUTSTANDING (In Cr.) 80000 70000 60000 50000 40000 30000 20000 10000 200 4 2005 2006 200 7 2008

The outstanding investments in debenture and corporate deposits for financing housing and real estate projects amounted to Rs.1106 cr. as compared to Rs. 1476 cr. in the previous year. The total

68

portfolio as on March 31, 08 amounted to Rs.74104 cr. compared to Rs.57988 cr. in the previous year, an increase of 28%

Loan Against Property

Loan against Property refers to the secured loan category where the borrower gives a guarantee by using his property as a security. The right of ownership of the property is still with the borrower, and if the customer is unable to repay the loan amount, then he can sell the property to pay off the debts. The maximum loan tenure is 15 years. Customers require security, collateral or guarantors for obtaining a Loan against Property. Most banks do not accept properties that are on lease or that are based on power of attorney. The maximum age limit of eligibility is 60 years. A processing fee is usually 0.05% to 3% of the loan amount. Also know these points before availing a LAP: . Customer should have all information about processing fees and time. Consider pre-payment options. All banks charge 2% - 3% of the loan in case you decide to prepay the outstanding amount. Default in payments results in penalties. It can also adversely affect your credit history and profile. So make sure to make your payments on time. Do not at any circumstance give any false information. This may amount to fraud and could land you in trouble.

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FACTORS WHILE CHOOSING BANK LOAN

13%

5%

INTEREST RATE
0% 20%

Very Inportant Important Some What Important Not Important

62%

Not at all Important

Here the total sample size is 15 respondents. Out of that 20% respondents said that interest rate is very important, 62% said that it is important, 13% said that it is somewhat important, 5% said that it is not important while nobody said that it is not at all important.

DOCUMENTATION
15% 5% 0%

Very Inportant Important

Some What Important

55% 25%

Not Important

Not at all Important

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Here the total sample size is 15 respondents. Out of that 55% respondents said that documentation is very important, 25% said that it is important, 15% said that it is somewhat important, 5% said that it is not important while nobody said that it is not at all important.

TRANSACTION TIME
0%
Very Inportant

10%

0% 20%

Not Important Some What Important Not Important

70%

Important

Here the total sample size is 15 respondents. Out of That 70% respondents said that transaction time is very important, 20% said that it is important, 10% said that it is somewhat important, 0% said that it is not important while nobody said that it is not at all important. Here the total sample size is 15 respondents. Out of that 15% respondents said that after sales services is very important, 42% said that it is important, 30% said that it is somewhat important, 13% said that it is not important while nobody said that it is not at all important.

Industry Analysis
The banking industry has come under increasing pessimism of late because of rising short and long-term interest rates. The banking industry's market capitalization made a substantial decline. Most investors are concerned with whether the industry can sustain continued profitability as a result of these factors. Banks have responded in recent years to these problems by diversifying away from interest sensitive products and services. But interest rates are the fundamental aspect of

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any financial services. Therefore, I believe the financial services industry will be deeply affected by rising interest rates. Banks have experienced good business factors over the past two years. Interest rates were low, credit quality was good, and inflation was low. These factors are usually predictive of the types of earnings banks should report. But good times can't continue because interest rate hikes because reduced lending activity, damaged credit quality, and reduced values of bond portfolios. Porter's Five Forces Analysis: 1. Rivalry among competing sellers: The banking industry is continuing to restructure and position itself for our changing economy as a result, many mega-mergers have occurred in recent years. Citicorp and Travelers Insurance agreed to merge in April 1998 at a value of $70 billion. Bank of America and Nation's Bank also agreed to merge shortly afterwards which became the largest bank in the United States. Bank mergers are usually consummated as a cost-cutting measure but also to compete with non-bank providers of financial services. Bank rivalries are very strong, and as we've seen many of the largest banks are merging to increase their power. In fact, Charlotte, NC is practically owned by Bank of America and First Union. 2. Potential entry of new competitors: There is virtually no chance of a new entrant significantly affecting the major banks' market share. The only place that new entrants may have a chance in the industry is through Internet banking, because of its low cost. 3. Firms offering substitute products: This is not really an issue within the banking industry, because there aren't really any legal alternatives, except buying a safe and borrowing from a loan shark 4. Competitive pressures stemming from supplier and buyer bargaining power: In the group of these two categories together because in the banking industry the buyers are the suppliers and vice versa, so I might as well just discuss the situation as a whole. Interest rates are the single most important aspect of bank profitability they are the bargaining power. Most bank profits are derived from net interest income. This is interest income received on loans minus interest expense for

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borrowed funds. Interest rates determine the amount of money a bank can earn. Another measure is a banks' net interest margin which is a bank's net interest income divided by its average earning assets. This is a common measure of a bank's ability to squeeze profits from its loans. When interest rates fall, they have a positive effect on a bank. First, net interest margin can expand. Second, the value of a bank's fixed rate of investment portfolio is enhanced by declining rates, since a bond with a higher stated interest rate becomes more valuable as prevailing rates drop. Third, falling rates lower the cost of credit, which stimulates loan demand and reduces delinquency rates. Opportunities: 1. Because of the increasing amount of technology Internet banking will begin to replace traditional banking, thus cutting personnel costs. 2. Incorporating investment banking into the banking industry, as some major companies are doing, lets the bank increase profits and promote economic growth while improving company image. Threats: 1. An increase in interest rates causing a decline in bank activity. 2. A collapse of the Fed leading to bank failures, a repeat of the crash of 1929. 3. A decline in the US economy leading to a fall in the value of the dollar, thus causing an instable economy. From there the US banking system would be less secure in terms of dollar values that many people would move their money overseas into a more stable economic situation. Similar to the situation in many South American countries. (a little far-fetched, but possible) Key Success Factors: Capability to use the internet for banking, investing, and general ecommerce Size of company, name recognition, innovative local marketing Best rates (loans, checking, savings, etc.) The capability to have the fastest and simplest banking through design, innovation, and location.

COMPARITIVE ANALYSIS
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Home loan interest rates

The following table illustrates the comparison between the interest rates from various Housing Finance Companies and banks. As you know, there are quite a few hidden prices involved as well, so, please be very vigilant while approaching a bank for a loan, because, the best rate may not be the best deal always

The analysis shows overall comparison between the competing housing finance companies and provides the information about current scenario in the housing finance industry. It provides information about the different schemes provided by banks, current interest rates, documentation, processing charges, sanction limit and value added services.

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STATE BANK OF INDIA

Loan:The State Bank Of India is providing the different types of homes loans describe below. Home loan, land loan, Repair & renovation and Housing loan for NRIS. that can be

SBI Credit Khazana for regular customers 0.25% concession for different loans like two wheeler, four wheeler loan, personal loan and this person is easily eligible for all this loans.

Interest Rates:Years UP to 5 years 5 to 15 years 15 to 20 years Floating rates 11% 11% 11% Fixed rates 12.75% 12.75% 12.75%

*For the government employees 0.25% concession.

Sanction limit:-

21-45 years: income

5 times of net annual income for salaried person 60 times of net monthly

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Above 45 years:

- 4 times of net annual income and 48 times for salaries persons.

Charges:o Processing fees is 0.25% of the loan amounts.

Value added services: SBI is providing a free accident insurance for housing finance customers.

BHW BIRLA HOME FINANCE LTD.

Loan:-

BHW BIRLA HOME FINANCE LTD. Is providing different kind of home loan they are providing loan for purchasing a home, land loan, top up loan. They are also providing a loan for selfconstruction loan.

Interest Rate:Loan amount Up to 5 lacs 5 to 10 lacs 10 to 15 lacs More than 15 lacs Floating rate 10.5% 11% 11% 11% Fixed rate 13.5% 14% 14% 14%

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Charges: Processing fees if 0.50% of loan amount.

Sanction Limit:The person who is between 21 to 65 years is eligible for home loan. Minimum 4 lakes loan amount is for every person there is no maximum limit for loan.

Value added services:The bank provides property insurance and personal accident insurance but it is chargeable.

BANK OF BARODA
Loan:Bank of Baroda is providing a different types of home loans for purchase of house, land loan, repair and renovation loan.

Interest rate: Years Up to 5 years 5 to 15 years More then 15 years Floating rate 10.5% 10.5% 10.5% Fixed rate No fixed rate

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Charges: Processing charges is 0.25% of loan amount. Loan amount Documentation charges Up to 25000 Nil 25000 to 2 lacs 100 2 lakes to 5 lacs 350 5 lakes to 20 lacs 1000 20 lakes to 25 lacs 1500 Above 25 lacs 3000 The person is eligible who is between 21 to 65 years. The maximum loan amount is 50 lacs for home loan.

Sanction Limit: -

Value added services: Free Credit Card Personal insurance with property insurance.

BANK OF INDIA
Loan:Bank of India is providing home loan, land loan and repair and renovation loan.

Interest Rate: Floating Rate Up to 5 yrs 5-10 yrs Over 10 yrs Up to 5 yrs Fixed Rate Over 5

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9.75%

9.75%

10%

N.A

N.A

Charges: Loan amount Up to Rs. 2 lacs Over Rs. 2 lacs Processing charges 0.55% of loan amount 0.55% of loan amount Rs.500 Rs.2,200

Value added services: Free personal accident insurance. Loan amount of Rs. 50,000 for furnishing the house/flat at a rate of interest as applicable to housing loan under the scheme.

DENA BANK
Loan: Dena Niwas Housing Finance Scheme is for purchase a plot, construct a house, extension loan.

Interest rate: -

Floating interest rate category

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Years Up to 3 years More than 3years & up to 5 years More than 5 years & up to 10 years More than 10 years

Interest rate 10.75% 10.75% 10.75% 11.00%

Fixed rate of interest

Size of loan Up to 5 5 years to 10 years More than 10 years years Up to Rs. 5 lacs. N.A. N.A. N.A. Above 5 lacs & up to Rs. 100 N.A. N.A. N.A. lacs. *Interest charged on daily reducing balance. *No prepayment charges.

Charges: Processing charge 0.50% of loan amount. Supervision charges are Rs.500 for one or two years only.

Sanction limit: -

Age- 21 to 60 Rs. 100 lacs for the purchase of a house. Rs. 5 lacs for renovation / up gradation.

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HOUSING LIC FINANCE LTD

Loan: Home loan for ready and under construction home, land loan for construction purpose only, repair and renovation loan, top- up loan.

Interest rate: Category Floating rate Fixed rate Class A 10.5% N.A Class B 10.5 % N.A Class C 11 % N.A

Processing charges: 1% of loan amount For class-A 0.50% of loan amount

Age: -

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 Minimum 21 years to retirement age. Minimum 21 to 60 years

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HDFC LTD.
Loan: Home loan for new house, Land loan, Home improvement loan, Home home loan, Top-up loan, Home equity loan extension loan, NRI

Interest rate: Loan amount Less than 3 lacs More than 3 lacs Floating rate 11% 11% Fixed rate 14% 14%

Age: Minimum 21 years to retirement age. Minimum 21 to 65 years for businessman.

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ICICI BANK LTD.

Loan: Home loan for purchase of new house Loan for construction of new house Land loan for construction purpose Home improvement loan Loan against property Top up loan.

Interest Rates: Loan Amount

Up to 10 lacs Above 10 lacs

Floating (%)
12.75% 13.50%

Fixed (%)
14.75% 15.50%

Value added services : Personal Accident Insurance free Loan security insurance

Charges: -

Processing Fees: 0.5% of the loan amount

Age:- - minimum age 21 years to retirement age for government servant and 65 years for SEP and SENP.

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Disclaimer: The data on interest rates presented here are updated regularly. Please re-check the rates with the respective banks and HFCs before finally deciding to take a loan from one of them. We do not guarantee any of the rates offered. There are two kinds of interest rates for housing finance in India - Fixed rate and Floating rate interests. Some HFC's have fixed rate of interest which means that the interest rates remain unchanged for the entire duration the loan. This basically means that you do not benefit, even if the rates of interest drop in the market while the floating rate interest fluctuates according to the market lending rate. The interest rates may vary from institutions to institutions and generally range from about 12.5% to around 16%. Repayment is in the form of EMI's (equated monthly installments) so, longer the tenure, the more you pay in interest, but your monthly payment will be less. Generally, the maximum tenure of home loans is 15 years, with a few lenders offering tenure of 20 years or more. The longer the tenure, more you pay in total interest, but your monthly payments will be less. So depending on your earning potential and bank balance, you can choose an appropriate tenure. An important requirement of most banks/HFCs is that you pay up the entire loan before you retire.

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DISTRIBUTION CHANNEL

1. Sales Force
SALES FORCE

40%

60%

Users

Non-Users

Users: - ICICI, HDFC, LIC Housing Finance, BMW Birla housing finance. Non User:-SBI, Bank of India, SBS, Dena Bank, Gruh Finance, Bank of Baroda.

2. Corporate

Non User

50%

User

50%

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Users: Birla HFL, LIC HFL, ICICI, BOI, and HDFC

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3. Walk-ins

100% 80% 60% 40% 20% 0%

100%

0% Users Non-users

User: - Gruh Finance Ltd., LIC HFL and ICICI, SBI, SBS, Bank of Baroda, Dena Bank, Birla HFL, BOI, and HDFC

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PROMOTIONAL TOOLS

100% 80% 60% 40% 20% 0%

S TR AD FE E FA ST IR IV AL OF FE RS HO AR DI NG S
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PERCENTAGE

ME DI A PR IN T
PRINT MEDIA ROAD SHOWS TRADE FAIR HOARDINGS FESTIVAL OFFERS

Users: - SBI,BMW Birla housing finance, Bank of Baroda, Bank of India, Dena Bank, Gruh finance ltd, LIC Housing Finance ltd, SBS,HDFC,ICICI. Users:-Dena Bank, LIC Housing Finance, HDFC Users: - Gruh Finance, LIC Housing Finance, SBI, BOB, HDFC Users:-LIC Housing Finance, Dena Bank, SBI, BOB , HDFC

RO AD

SH OW

Users: - SBI,BMW Birla housing finance, Bank of Baroda, Bank of India, Dena Bank, Gruh finance
ltd, LIC Housing Finance ltd, SBS,HDFC,ICICI.

FINDINGS

Easy availability of loans and prompt services are the most attractive features for the customers towards the home loan service.

Housing companies have a great scope in future as out of 84 respondents 71 had plan for taking home loan in future.

HDFC housing company has a strong customer base in housing sector. Most customers found the services of HDFC housing company as good and efficient. Private finance companies are becoming more preferable day to day due to their innovative schemes and offers

Only 6 banks use corporate links to market its products

All the banks have a facility of Walk-IN.

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SWOT ANALYSIS

STRENGTH 1. Oldest & pioneer financial institution. 2. Training of sales person & performance review. 3. Committed service levels. 4. Low attrition rate.

WEAKNESS 1. Awareness level is low in respect of HDFC. 2. No tapping of low income group.

OPPURTUNITY 1. Growing real estate sector. 2. Collaboration with foreign bank. 3. Globalization.

THREATS 1. Presence of foreign banks. 2. Banks taking up most of the housing market. 3. Less interest rate of the nationalized banks.

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CONCLUSION
The research study shows that various factors that bring about the satisfaction of customers towards the home loan services are- easy availability of loans, tax benefits, repayments period and good brand image. The real estate sector has been growing rapidly and is a sensitive sector, given its strong interlinkage to other industries in the economy. HDFC housing finance is a known brand among customers. People generally want loan, they only need awareness. It was observed, during the survey that most of the people do not know about the details of the taking housing loan. Because of the above-mentioned factors, it can be conducted the housing finance companies have a wide scope in future. The services provided by the financial institutions can be improved by emphasizing on the above-mentioned factors that attract customers towards their services. In India, it is the time when we can embrace residential planning in its true sense - as a profession that needs to be dynamic and works to improve the quality of life. HDFCS main task is to increase home ownership in India WORK AT PRIORITY. For over the decades, HDFC has pursued this mission successfully, efficiently & effectively. Above all, HDFC remains unshaken in its commitment to increase home ownership, which in turn provides a sense of security all for the betterment of civil society.

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BIBLIOGRAPHY Bank: HDFC, Branch: Sector-62, Institutional Area, Noida -201307

WEBSITE: 1. www.hdfcbank.com 2. www.google.com 3. www.answers.com 4. www.hdfc.com

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QUESTIONNAIRE QUESTIONNAIRE FOR THE KEY PARTNERS NAME CODE Last years investment

In your opinion the deposits market is (a) Increasing

(b) Decreasing Reason why ---------

Rate in the order of preference (i.e. safety and return) by your depositors, following Investment schemes available in the market--(a) PO MIS Strongly preferred mostly preferred undecided mostly not preferred strongly not preferred

(b) Govt. of India 8% (taxable) saving bonds Strongly preferred (c) KVP/NSC Strongly preferred mostly preferred undecided mostly not preferred strongly not preferred

mostly preferred

undecided

mostly not preferred

strongly not preferred

(d) HDFC Deposits Strongly preferred

mostly preferred

undecided

mostly not preferred

strongly not preferred

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(e)Income funds of mutual funds Strongly preferred mostly preferred

undecided

mostly not preferred

strongly not preferred

(f)Bank deposits Strongly preferred

mostly preferred

undecided

mostly not preferred

strongly not preferred

(g)Other company deposits Strongly preferred mostly preferred

undecided

mostly not preferred

strongly not preferred

Rank the following based on liquidity where you are investing ___ ___ ___ ___ ___

(a) Income funds of mutual funds (b) P.O. MIS (c) Bank Deposit (d) HDFC Deposits (e) Govt. of India 8 %( taxable) saving bond

What other measures should HDFC Deposits for improving their present investment --How do they rate HDFC deposits in terms of its relationship with their deposit agent in the following --(a) timeliness of payment of brokerage (b) receipt of renewal reminders (c) receipt of statement of account (d) attitude of deposit staff Which type of technical support do you want from HDFC Ltd?

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Is the brokerage structure of HDFC at par other NBFCs (a) Yes (b) No In your opinion what else should HDFC do in similar parameter for the payment of brokerage structure? Monthly Annually Deferred payment Fortnight Do you think the present brokerage structure motivates the agents? (a) Yes (b) no

(a) (b) (c) (d)

Generally what is the income level of the investors who are generally interested in HDFC ----

(a) 1-3 lac p.a. (b) 3-5 lac p.a. (c) >6 lac p.a. In what way you promote customers in investing more money in HDFC deposits in comparison to other institutions. Give the rank (a)Service standard (b)AAA rating (c)Behaviour towards borrower (d)Rate of interest (e)Operational simplicity (f)Liquidity

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