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A PROJECT ON

HOUSING FINANCE WITH REFERENCE TO SBI

PREPARED BY

AMIT C. BAKALKAR. T.Y.B.COM. (BANKING AND INSURANCE)

GUIDE PROF. MRS. MUGDHA KESKAR.

SUBMITTED TO UNIVERSITY OF MUMBAI

VIDYA PRASARAK MANDAL’S K.G JOSHI COLLEGE OF ARTS

AND N.G. BEDEKAR COLLEGE OF COMMERCE THANE

2010-2011 (VTH SEMISTER)

 

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DECLARATION

Researcher Amit C. Bakalkar student of Joshi Bedekar

College studying in T.Y.B.Com (Banking & Insurance)

Semester V (2010-2011) hereby declare that I have

completed the project on “Housing Finance with reference to

SBI” successfully in the current academic year.

The information submitted is true and original to the

best of my knowledge.

Place: __________

Date: ___________ Signature of Student

A C K N O W L E D G E M E N T

 

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Acknowledgement is not a mere formality or ritual but a

genuine opportunity to express the indebtedness to all those without

who’s active support and encouragement this project wouldn’t have

been possible.

Hence, it gives me immense gratification to place on records

my profound gratitude sincere appreciation to each and every one of

those who have helped me in this endeavour.

Firstly I would like to thank the Staff of the SBI Branch for

allowing me to do my project there and providing valuable help in

collecting the data.

I extend my sincere thanks to PROF. MUGDHA KESKAR for her

continuous guidance, cooperation and valuable suggestions to initiate

and carry out the study.

Date.

BAKALKAR AMIT CHANDRAKANT.

 

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I N D E X

RESEARCH METHODOLOGY ABSTRACT..................................................................................................... 1

OBJECTIVES OF THE STUDY.................................................................... 3

NEED OF THE STUDY................................................................................. 4

SCOPE OF THE STUDY............................................................................... 4

DESIGN OF STUDY...................................................................................... 5

TOOLS AND TECHNOLOGIES USED....................................................... 7

LIMITATIONS OF THE STUDY.................................................................. 8

CHAPTER 1 1. INTRODUCTION TO HOUSING FINANCE

1.1. INTRODUCTION.................................................................................... 9

1.2. HOME LOAN INDUSTRY IN INDIA.................................................... 14

1.3. INDIA'S MORTGAGE MARKET SCORES OVER WEST................... 19

CHAPTER 2 2. COMPANY PROFILE

2.1. INTRODUCTION.................................................................................... 21

2.2. ROOTS.................................................................................................... 23

2.3. ASSOCIATE BANKS............................................................................. 24

2.4. BRANCHES………………………………………………………..……….. 25

2.5. FOREIGN OFFICES…………………………..………………………….. 25

2.6. ATM SERVICES.................................................................................... 25

2.7. GROUP COMPANIES.......................................................................... 26

2.8. PRODUCTS AND SERVICES............................................................... 27

2.9. PERFORMANCE…………………………………………………………… 28

2.10. ORGANIZATION.................................................................................. 28

2.11. THE BANK STANDS FOR BEST PRACTICES................................ 29

2.12. SHARE HOLDERS………………………………………......................... 29

2.13. UNIQUE FEATURES OF SBI HOME LOAN PRODUCTS............... 30

 

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CHAPTER 3 3. HOME LOAN PRODUCTS OFFERED BY SBI

3.1. SBI EASY HOME LOAN........................................................................ 32

3.2. SBI ADVANTAGE HOME LOAN.......................................................... 34

3.3. HOME LOAN PRODUCT VARIANTS.................................................. 36

3.4. HOME LOAN TOP-UP PRODUCTS..................................................... 43

3.5. RELATED HOME LOAN PRODUCTS................................................. 45

CHAPTER 5 4. TERMS AND NORMS

4.1. ELIGIBILITY.......................................................................................... 47

4.2. DOCUMENTS......................................................................................... 49

4.3. PURPOSE................................................................................................ 56

4.4. QUANTUM OF LOAN............................................................................ 59

4.5. EQUATED MONTHLY INSTALLMENT CALCULATION................ 60

4.6. MONETARY CEILINGS........................................................................ 65

4.7. TOTAL PROJECT COST....................................................................... 66

4.8. MARGIN................................................................................................. 66

4.9. SECURITIZATION................................................................................ 67

4.10. FEES OR CHARGES........................................................................... 67

4.11. RATE OF INTEREST.......................................................................... 69

4.12. MORATORIUM..................................................................................... 70

4.13. GUARANTOR....................................................................................... 71

4.14. TAX BENEFITS.................................................................................... 72

4.15. PACKAGE OF EXCLUSIVE BENEFITS............................................ 72

4.16. INSURANCE COVER.......................................................................... 73

4.17. VALUATION POLICIES...................................................................... 75

 

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CHAPTER 5 5. SYSTEMS AND PROCEDURES

5.1. STAFF INVLOVED AND THEIR ROLES............................................ 76

5.2. PROMOTION AND DISTRIBUTION OF THE PRODUCTS............... 77

5.3. PROCESS UNDERTAKEN.................................................................... 79

CHAPTER 6 6. PERFORMANCE EVALUATION

6.1. COMPETITORS...................................................................................... 91

6.2. STRENGTHS AND WEAKNESSES...................................................... 91

6.3. SIZE OF HOME LOAN.......................................................................... 92

6.4. SHARE OF HOME LOANS IN TOTAL ADVANCES.......................... 93

6.5. QUALITY OF ASSETS......................................................................... 94

6.6. NATURE OF COMPLAINTS COLLECTED FROM ONLINE

CONSUMER FORUMS................................................................... 95

6.7. AWARDS AND REWARDS............................................................. 96

CHAPTER 7 7. RECOMMENDATIONS & CONCLUSIONS

APPENDIX QUESTIONNAIRE TO THE BANK OFFICIAL

QUESTIONNAIRE TO CUSTOMERS 

BIBLIOGRAPHY

 

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LIST OF DIAGRAMS

Diagram No. Name of Diagram Page No.

1.1 Housing in India 14

1.2 Demographics in Housing 15

1.3 Housing Finance Timeline 15

1.4 Improved Affordability 16

2.1 Shareholders of SBI 29

3.1 Home Loan Products Offered by SBI 31

4.1 Home EMI Calculator 60

6.1 Size of home loan 92

6.2 Share of home loan 93

6.3 Quality of Assets 94

6.4 Customer complaints 95

 

   

 

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LIST OF TABLES

Table No. Name of the Table Page No.

1.1 Major home loan providers 18

2.1 Best Practices in SBI 28

3..1 loan amount in SBI easy home loan 33

3.2 loan amount in SBI advantage home loan 35

3.3 Margin of bank on loan amount 37

4.1 Eligibility Criteria & Documentation 48

4.2 Criteria for Loan Amount 59

4.3 EMI calculation in the flat rate system 61

4.4 EMI calculation in Reduced balanced system 62

4.5 Monetary ceilings 65

4.6 Criteria of margin amount 66

4.7 Securitization 67

4.8 Processing fee amounts 67

4.9 Rate of interests of SBI Easy Home Loan 69

4.10 Rate of interests of SBI Advantage home loan 70

4.11 Valuation policies. 75

5.1 Systems and procedures in lending process 76

6.1 Competitors 91

6.2 Strengths and weaknesses 91

6.3 Size of home loan 92

6.4 Share of Home Loans 93

6.5 Quality of assets. 94

6.6 Customer complaints 95

 

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RESEARCH METHODOLOGY

ABSTRACT

Home is a dream of a person that shows the quantity of efforts,

sacrifices luxuries and above all gathering funds little by little to

afford one’s dream. Home is one of the things that everyone one

wants to own. Home is a shelter to person where he rests and feels

comfortable. Many banks providing home loans, whether commercial

banks or financial institutions, to the people who want to have a

home. Many banks are providing home loans at cheapest rate to

attract consumers towards them. The more customer friendly

attitude of these banks, currently offer to consumers cheapest loan

over homes. In view of acute housing shortage in the country, and

keeping in mind the social – economic role of commercial banks in the

present times,

The ICICI Bank and Standard chartered bank has become the

first player in this sector to announce a housing loan for a 20 years

period. No doubt it will enhance the end cost of the home but it will

facilitate people to plan their house over longer duration now, it has

been made easy for a person to buy that dream house which he

dreamt of long ago.

A home loan is a loan taken for buying or constructing a home

or to make improvements to a residential property. Individual can

get a loan from banks and registered housing finance companies.

The Home loan sector in India is the pivotal role player in the

growth of the real estate scenario in India. With tax incentives given

 

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to the housing finance sector in the annual budget of 2001,

transactions related to buying and selling of residential properties

increased considerably and was much higher as compared to previous

years. Since the new class of buyers are relatively younger set of

customers who are more aware about legal documentation and

approvals, buyers are now more 'end-users' rather than investors; the

property market in India undergoes transformation to align itself

with global standards with an increased emphasis on quality & cost

control and documentation methods. In the current economy of India,

the real estate sector has the maximum propensity to generate

income and demand for materials, equipment and services. It can be

said that housing finance companies were formed for co-existing with

buyer's requirements of housing loans for investing in properties.

Home loans are made available by financial institutions to both

Indian and NRI customers at floating and fixed rate of interest and

also at attractive EMI options.

OBJECTIVES OF THE STUDY

Identification Of The Problem

 

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• To study and learn the various systems and procedures used by

the bank in lending to housing sector.

• To identify the problems faced by the bank in attracting more

customers to use its home loan products.

• To identify the problems faced by the bank at various stages of

undertaking the home loans.

• To understand and identify difficulties in the home loan asset

management practices of the bank.

• To study the valuation of collateral security method followed by

the bank while lending the home loans.

Offer A Solution To The Problem

• To suggest better alternative organizational and operational

practices.

• To enhance its capacity to tap potential market in the home

loan sector.

• To reduce credit risk

• To enhance the recovery system in the bank giving the home

loans.

 

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NEED FOR THE STUDY

It has been felt very useful in future –

• To study the roles of the staff and the decision making

processes in lending to the home loan borrowers.

• To learn and comprehend thoroughly the systems and

Procedures used in financing the segment.

• To analyze the issues relating to various financial aspects of

lending.

• To calculate the risk involved and how the risk and uncertainty

to be assessed and managed by the bank while lending the

home loans.

• To study the valuation of collateral security method followed by

bank while lending the home loans.

SCOPE OF THE STUDY

• The present study is confined to Home loan products offered by

the domestic operations of State Bank of India.

• The study is also confined to the internal functional and

operational aspects of the lending process.

• The data and the information could be collected here has been

taken from the record books maintained by the branch and from

the oral communication with the branch manager

 

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RESEARCH DESIGN

• The study done is exploratory in nature.

• The branch of the bank was selected by convenience and for the

sake of access to the qualitative information.

• For the latest information and focus, the study is confined to

the systems and procedures in lending and the time period as

said above.

 

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SOURCES OF DATA

The data and the information presented here have been collected

mainly from two kinds of resources:

Primary sources

• Direct and oral interaction with the Bank officials,

particularly, the branch manager via a Questionnaire, a

copy of which is made available in the APPENDIX.

• The Record books maintained at the branch office.

Secondary sources

Several secondary resources have been referred for collecting first

hand information and literature on the subject that includes:

• The Training and Guidance Material supplied to the staff

of the Branch.

• Online Annual Reports by Consultancy and Research

companies.

• Online Content of the Bank’s Website.

• The material supplied by the Faculty Guide.

• Several websites on personal loans and

• Daily News Papers like Economic Times of India and

Business Standard.

The details of which have been presented in Bibliography.

 

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TOOLS AND TECHNOLOGIES USED

1.6.1. Statistical techniques:

• Percentages.

• Averages and

• Tools like

• Tables,

• Bar Charts and

• Pie charts

1.6.2. Hardware and Software Technologies:

Home PC with Internet access

MS Word and Excel-2007.

World Wide Web or Internet

 

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LIMITATIONS OF THE STUDY

Some of the limitations of the project that were encountered during

the study are:

• In case of interaction with the representative of a particular bank it

happens many a time that the representative cannot disclose all the

data because of certain reasons like banks privacy policy etc. thus

getting clear picture about the service provided is not possible.

• Due to paucity of time, only important factors have been analyzed and

discussed.

• To collect the data from banks was quite difficult due to non-

cooperation of banks. This proved to be major limitation of the study.

• To access such a large number of customers was difficult because of

non-cooperative attitude of respondents.

• Lack of data was also the other limitation of the study as some of

banks do not have proper data on topic.

• Generally the data on the websites of the banks are not fully disclosed

i.e. other than the charges mentioned on the website there are many

hidden charges which increases the cost like service charge etc

• Ignorance and reluctant attitude of customers was also a major

limitation in this study.

• I have tried a lot to overcome the above mentioned limitations as far

as possible.

 

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CHAPTER -1

INTRODUCTION TO HOUSING FINANCE

1.1. INTRODUCTION

The realty boom in India has given a new dimension to the finance

sector in India - both in Home Loans and Home Insurance segments.

This has not only given a competitive edge to the finance companies

to provide attractive options to customers but has also contributed to

the increased investments in the real estate sector. This has resulted

in 13 new institutions foraying into the housing finance business in

the last three years.

Home loans work like any other debt. That is, loans are simply

specific money that borrow from a bank, a private lender, or some

other type of lender. Afterwards, borrowers must repay our debts

with interest. However, unlike other types of loans, home loans are

different in several respects. Owning a piece of land or property is a

lifetime dream for every individual. There are many home loans

provider in the market. There are different type of home loan i.e.

• Home Purchase Loans

• Home Improvement Loans

• Home Construction Loans

• Home Extension Loans

• Home Equity Loans

• Land Purchase Loans

• Bridge Loans

 

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Home purchase loans:

These are the basic forms of home loans used for purchasing of

a new home. With about a million home lenders and mortgage

brokers it's becoming a tough challenge as the days are progressing.

But at the same time, when the sites are coming up with all the

latest tools and relevant information for us, and with all such

conveniences, obtaining a home purchase loan or mortgage has

become really pretty simple. However, at the same time though,

borrower may be flummoxed to look so many attractive rates and

offers in the market, not to forget the hidden costs associated with

each of them.

Home improvement loan:

Home improvement loans are used to finance improvements

and add on to the existing set of credentials of beauty on borrower’s

owned house, recently purchased property or rented accommodation.

Home improvement loans are used to maintain or enhance the value

of his house. In general it includes: repairs, remodeling, energy-

related items (permanent in nature), repairs, a new kitchen, a new

bathroom, terrace, an extension or general property improvements.

Luxury items and fireplaces are generally not eligible, though. Many

improvements in landscape and even swimming pools are nowadays

considered to be a part of home improvement.

 

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Home construction loan:

Home construction loans are used to finance for the

construction of our newly acquired home or if a person is planning to

build a home. The factors include in calculations for house building

costs are as follows.

• Design of the house

• Construction cost

• Financing Cost

• Buildable site

All the above mentioned costs will help the Bank to determine

the amount need to borrow. For example, besides calculating the

construction costs, Bank may also be required to consider the total

expenditures to develop the site in order to build. Each site is unique

requiring different expenditures so this specific rupee amount will

vary from site location to site location.

Payment: Before the house starts getting build, Bank will be required

to pay a deposit to purchaser builder as well as paying a deposit for

the land if he is buying land. As work progresses he will need to

make payments to the builder. Certain loans can be structured for

progress payments to be made during construction. Home extension

loans are used by customers to get loans from the banks to extend

their houses, by adding more rooms, kitchens, wash rooms, terraces,

or any other rooms for his growing family. It may also be used to

enclose open balcony/terrace space, or constructing a Pujaghar.

 

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Maximum Amount of Home Extension Loans:

Banks generally offers about 70-85% of the total amount of

home extension as loan. The amount of loan sanctioned also depends

on a number of factors such as the age of the applicant at the time of

loan, tenure of the loan, repayment capacity of the borrower; his/her

credit history etc.

Home equity loan:

Home equity loans helps customer to encash the market value

of the commodity by taking a loan by mortgaging the property. So,

Home equity loans are availed by customers, who wish to mortgage

his/her property to the bank for taking some loan for some other

purpose. Then, it's up to the bank's discretion to consider the market

value of the property and accordingly decide how much to pay to the

customer. Both the residential as well as non residential property can

be considered for the approval of the loan, provided the mortgager is

a licensed title holder and the land is free from any kind of dispute.

Home equity loans don't restrict one to use the loan money in specific

investments. It might also be used in marriage, higher education,

medical expenses, etc. However it should not be used in any illegal or

speculation purposes.

Land purchase loan:

Land Purchase loans are used by customers who wish to

purchase a plot of land for commercial or residential purpose.

 

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Bridge loans

Bridge loans are designed for people who wish to sell the

existing home and purchase another one. The bridge loans help

finance the new home, until a buyer is found for the home. Bridge

loans are used by customers as an effective vehicle to capitalize on a

purchase opportunity. It can be considered as a short term financing

scheme which is generally expected to be paid back, within the range

of 6-36 months.

 

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26  

Major Home Loan Providers

Banks & Public Sector

Housing Finance

Companies

State Bank of India, Corporation Bank, Punjab National

Bank, Central Bank, Dena Bank, Allahabad Bank, Bank

of Maharashtra, Bank of Baroda Housing Finance, Can

Find Homes, GIC Housing Finance, LIC Housing

Finance, PNB Housing Finance, SBI Home Finance,

Centbank Home Finance, HUDCO, LIC, etc

Financial Institutions HDFC, ICICI Ltd, Citibank, HSBC, Standard Chartered-

Grindlays, IDBI Bank, etc

Table 1.1: major home loan providers (Source: Researchers methodology)

 

 

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1.3. INDIA'S MORTGAGE MARKET SCORES OVER WEST

1. In India, the borrower contributes a higher share of his own

funds (24-46% of house value) at the time of purchasing a

house.

2. The loan installments too eat away a smaller portion of the borrowers‟ income.

3. The installment to income ratio-ranged between 34% and 40%,

in India is lower than some countries in the West.

4. This is based on an analysis by rating agency Fitch of the home

loan asset pool that it rates.

5. This is because borrowers‟ income has kept pace with rise in

property prices.

6. The extent of second houses purchased is also limited and most

borrowers stick to their repurchase schedules.

7. The Diagrams computed by Fitch based on the asset pool that it

rates implies that on an average, the borrower funds up to 30%

of the house value through his own capital

8. This among other things increases the borrowers willingness to

repay.

9. Some bankers say the black money component is also high in

the Indian realty market, resulting in higher borrower equity.

 

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10. Another notable factor is that delinquencies have remained

range-bound in the last 33 months, according to residential

mortgage index launched by the ratings firm.

11. The index which tracks home loans that have not repaid for

over 90 days has moved in a narrow range between 0.90% and

1.07%.

 

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CHAPTER -2

COMPANY PROFILE

2.1. INTRODUCTION

State Bank of India (SBI) has history of more than 200 years of existence. The evolution of State Bank of India can be traced back

to the first decade of the 19th century. It began with the

establishment of the Bank of Calcutta in Calcutta, on 2 June 1806.

The bank was redesigned as the Bank of Bengal, three years later, on

2 January 1809. It was the first ever joint-stock bank of the British

India, established under the sponsorship of the Government of

Bengal. Subsequently, the Bank of Bombay (established on 15 April

1840) and the Bank of Madras (established on 1 July 1843) followed

the Bank of Bengal. These three banks dominated the modern

banking scenario in India, until when these banks were

amalgamated to form the Imperial Bank of India, on 27 January

1921.

An important turning point in the history of State Bank of

India is the launch of the first Five Year Plan of independent India,

in 1951. The Plan aimed at serving the Indian economy in general

and the rural sector of the country, in particular. Until the Plan, the

commercial banks of the country, including the Imperial Bank of

India, confined their services to the urban sector. Moreover, they

were not equipped to respond to the growing needs of the economic

revival taking shape in the rural areas of the country. Therefore, in

order to serve the economy as a whole and rural sector in particular,

 

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the All India Rural Credit Survey Committee recommended the

formation of a state-partnered and state-sponsored bank.

The All India Rural Credit Survey Committee proposed the takeover

of the Imperial Bank of India, and integrating with it, the former

state-owned or state-associate banks. Subsequently, an Act was

passed in the Parliament of India in May 1955. As a result, the State

Bank of India (SBI) was established on 1 July 1955. This resulted in

making the State Bank of India more powerful, because as much as a

quarter of the resources of the Indian banking system were controlled

directly by the State. Later on, the State Bank of India (Subsidiary

Banks) Act was passed in 1959. The Act enabled the State Bank of

India to make the eight former State-associated banks as its

subsidiaries.

The State Bank of India emerged as a pacesetter, with its operations

carried out by the 480 offices comprising branches, sub offices and

three Local Head Offices, inherited from the Imperial Bank. Instead

of serving as mere repositories of the community's savings and

lending to creditworthy parties, the State Bank of India catered to

the needs of the customers, by banking purposefully. The bank

served the heterogeneous financial needs of the planned economic

development.

Today, State Bank of India (SBI) has spread its arms around the

world and has a network of branches spanning all time zones. SBI's

International Banking Group delivers the full range of cross-border

finance solutions through its four wings - the Domestic division, the

 

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Foreign Offices division, the Foreign Department and the

International Services division.

In recent years the bank has focused on three priorities:

1. computerizing its operations and

2. Changing the attitude of its employees (through an ambitious

program aptly named 'Parivartan' which means change) as a

large number of employees are very rude to customers.

2.2 ROOTS:

The State Bank of India traces its roots to the first decade of

19th century, when the Bank of Calcutta, later renamed the Bank of

Bengal, was established on 2 June 1806. The government

amalgamated Bank of Bengal and two other Presidency banks,

namely, the Bank of Bombay (incorporated on 15 April 1840) and the

Bank of Madras on 27 January 1921, and named the reorganized

banking entity the Imperial Bank of India. All these Presidency

banks had been incorporated as joint stock companies, and were the

result of the royal charters. The Imperial Bank of India continued as

a joint stock company. Until the establishment of a central bank in

India the Imperial Bank and its early predecessors served as India's

central bank, at least in terms of issuing the currency. The State

Bank of India Act 1955, enacted by the Parliament of India,

authorized the Reserve Bank of India, which is the central banking

organization of India, to acquire a controlling interest in the Imperial

Bank of India, which was renamed the State Bank of India on 30

April 1955.

 

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2.3 ASSOCIATE BANKS:

There are seven other associate banks that fall under SBI.

They all use the "State Bank of" name followed by the regional

headquarters' name. These were originally banks belonging to

princely states before the government nationalized them in 1959. In

tune with the first Five Year Plan, emphasizing the development of

rural India, the government integrated these banks with the State

Bank of India to expand its rural outreach. The State Bank group

refers to the seven associates and the parent bank. All the banks use

the same logo of a blue keyhole. Currently, the group is merging all

the associate banks into SBI, which will create a "mega bank", and

one hopes, streamline operations and unlock value.

State Bank of Bikaner and Jaipur (SBBJ)

State Bank of Hyderabad (SBH)

State Bank of Mysore (SBM)

State Bank of Patiala (SBP)

State Bank of Saurashtra (SBS)

State Bank of Travancore (SBT)

 

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2.4. BRANCHES

The corporate center of SBI is located in Mumbai. In order to

cater to different functions, there are several other establishments in

and outside Mumbai, apart from the corporate center. The bank

boasts of having as many as 14 local head offices and 57 Zonal

Offices, located at major cities throughout India. It is recorded that

SBI has about 10000 branches, well networked to cater to its

customers throughout India.

2.5. FOREIGN OFFICES:

State Bank of India is present in 32 countries, where it has 84

offices serving the international needs of the bank's foreign

customers, and in some cases conducts retail operations. The focus of

these offices is India-related business.

2.6. ATM SERVICES

SBI provides easy access to money to its customers through

more than 8500 ATMs in India. The Bank also facilitates the free

transaction of money at the ATMs of State Bank Group, which

includes the ATMs of State Bank of India as well as the Associate

Banks – State Bank of Bikaner & Jaipur, State Bank of Hyderabad,

State Bank of Indore, etc. Account holder may also transact money

through SBI Commercial and International Bank Ltd by using the

State Bank ATM-cum-Debit (Cash Plus) card.

 

34  

2.7 GROUP COMPANIES:

SBI Capital Markets Ltd

SBI Mutual Fund (A Trust)

SBI Factors and Commercial Services Ltd

SBI DFHI Ltd

SBI Cards and Payment Services Pvt Ltd

SBI Life Insurance Co. Ltd - Bancassurance (Life Insurance)

SBI Funds Management Pvt Ltd

SBI Canada

 

35  

2.8. PRODUCTS AND SERVICES

2.8.1. Personal Banking

1) SBI Term Deposits SBI Loan For Pensioners

2) SBI Recurring Deposits Loan Against Mortgage Of

Property

3) SBI Housing Loan Against Shares & Debentures

4) SBI Car Loan Rent Plus Scheme

5) SBI Educational Loan Medi-Plus Scheme

2.8.2. Other Services

6) Agriculture/Rural Banking

7) NRI Services

8) Demat Services

9) Corporate Banking

10) Internet Banking

11) Mobile Banking

12) International Banking

13) Safe Deposit Locker

14) RBIEFT

15) E-Pay

16) E-Rail

17) SBI Vishwa Yatra Foreign Travel Card

18) Broking Services

19) Gift Cheques. Etc.

 

36  

2.9. PERFORMANCE:

• SBI Bank India had Total Profit of Rs.119,49,82,91,000 for the

financial year 2009 -2010, Which has increased approximately

8.69% as compared to last year’s Balance sheet.

2.10. ORGANIZATION:

State Bank of India is headed by Mr. Shri O. P. Bhatt,

Chairman.

2.11 THE BANK STANDS FOR BEST PRACTICES AS IT

CLAIMS ITSELF AS UNDER:

Best practices followed in SBI

People dealing

with Customer

End to End service by Permanent employees of SBI who are

accountable to Customer/Account holder.

Place SBI branch of borrower’s choice will service his loan account.

Customer can always meet our employees face to face.

Price Complete transparency. Interest charged on the daily reducing

balance.

Prepayment

charges No penalty for prepayments made, out of bonafide savings or

windfall gains for which evidence is produced.

Costs hidden in

fine print No hidden costs

Transparency Complete transparency. All the features of our product,

including interest rates, are in the public domain.

Table 2.1: Best Practices in SBI (Source: Researchers methodology)

 

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38  

2.13. UNIQUE FEATURES OF SBI HOME LOAN PRODUCTS:

• Provision for on the spot "In principle" approval.

• Loan sanctioned within 6 days of submission of required

documents.

• Option to avail Home Loan as a Term Loan or as an Overdraft

facility to save on interest and maximise gains.

• Option to club income of borrower’s spouse and children to

compute eligible loan amount.

• Provision to club depreciation, expected rent accruals from

property proposed to compute eligible loan amount.

• Provision to finance cost of furnishing and consumer durables

as part of project cost.

• Repayment permitted upto 70 years of age.

• Free personal accident insurance covers upto Rs.40 Lac.

• Optional Group Insurance from SBI Life at concessional

premium (Upfront premium).

 

39  

CHAPTER - 3

HOME LOAN PRODUCTS OFFERED BY SBI

Diagram 3.1: Home Loan Products Offered by SBI

(Source: Researchers methodology)

 

40  

3.1. SBI EASY HOME LOAN

For loan amount up to Rs.50 Lacs

SBI Easy is available up to 30th June 2010

Getting One’s dream home has become easier with SBI Easy

Home Loan. With low interest rates for home loan under Rs. 50 lakhs

category, SBI Easy ensures that he is not burdened with high

interest for one’s home loan. Plus with over 12000 SBI branches

nationwide borrower can get his Home Loan account parked at a

branch nearest to borrower’s present or proposed residence.

Interest Rate:

Interest rate during the first year (i.e. till first anniversary date from

the date of first disbursement) is fixed at 8% p.a.

Interest rate during next two years is fixed at 9% p. a

Interest rate after three years may be Fixed or Floating as per the borrower’s choice made at the time of sanction. If floating rate

option is chosen, then the rate will be 2.5% below SBAR. If fixed rate

option is chosen, then the rate will be 0.75% below SBAR prevailing

on the third anniversary date from the date of first disbursement,

and shall have a reset frequency of 5 years from the third

anniversary date of the loan. Fixed interest rate shall be subject to

force-majeure clause. (SBAR = 11.75% p.a.)

 

41  

Processing Fee:

The revised processing fee structure (including service tax) from 9th

November 2009 is as under:

Table 3.1: loan amount in SBI easy home loan

(Source: www.sbi.co.in)

Loan Amount Processing Fee(Revised)

Upto Rs.5 Lac Rs.1000/-

Above Rs.5 Lac and upto Rs.10 Lac Rs.2000/-

Above Rs.10 Lac and upto Rs.20 Lac Rs.5000/-

Above Rs.20 Lac and upto Rs.50 Lac Rs.7,000/-

 

42  

3.2. SBI ADVANTAGE HOME LOAN

For loan amount above Rs.50 lacs

SBI Advantage is available up to 31st September 2010

SBI Advantage Home Loan with competitive rates of interest is

available for home loans above Rs.50 lakhs. Plus with over 12000 SBI

branches nationwide one can get his Home Loan account parked at a

branch nearest to borrower’s present or proposed residence.

Interest Rate:

Interest rate during the first year (i.e. till first anniversary date from

the date of first disbursement) is fixed at 8% p.a.

Interest rate during next two years is fixed at 9% p. a

Interest rate after three years may be Fixed or Floating as per the borrower’s choice made at the time of sanction. If floating rate option

is chosen, then the rate will be 1.75% below SBAR. If fixed rate

option is chosen, then the rate will be 0.75% below SBAR prevailing

on the third anniversary date from the date of first disbursement,

and shall have a reset frequency of 5 years from the third

anniversary date of the loan. Fixed interest rate shall be subject to

force-major clause.

 

43  

Processing Fee

The revised processing fee structure (including service tax) from 9th

November 2009 is as under:

Loan Amount Processing Fee(Revised)

Above Rs.50 Lac and up toRs.1 Cr Rs.8,000/-

Above Rs.1 Cr and up toRs.5 Cr Rs.10,000/-

Above Rs.5 Cr Rs.20,000/-

Table 3.2: loan amount in SBI advantage home loan

(Source: www.sbi.co.in)

 

44  

3.3. HOME LOAN PRODUCT VARIANTS

i) SBI Max Gain

Home Loan as an Overdraft

An innovative and customer-friendly product to enable the borrower

to earn optimal yield on his savings and minimize interest burden on

Home Loans, with no extra cost.

The loan is granted as an Overdraft facility with the added flexibility

for him to operate his Home Loan Account like borrower’s SB or

Current Account.

The product serves to minimize borrower’s interest cost by enabling an individual to park his surplus funds in “SBI-Max gain” (with the

benefit to withdraw the surplus funds whenever his require),

specially in the wake of low yields from other deposit/ investment

avenues.

Minimum Loan Amount: Rs.5 lacs

ii) SBI Freedom

A revolutionary product designed for customers who are on the

lookout for a source of finance for a property they want to invest in

without mortgaging the same. All Borrowers have to do is pledge any

financial security that borrower has and he will get a Home Loan for

his dream home.

 

45  

A must-take for those who do not want to pay stamp duty for

mortgage of their property or go through the hassles of creation of

mortgage.

Borrower also has an option to take the loan by way of mortgage of

the property and pledge financial securities in lieu of margin money.

Repayment is highly customized, giving borrower the option to repay

through regular EMIs or through maturity proceeds of the securities

pledged.

ii) SBI Realty

Home Loans for purchase of land for the purchase of plot of land for

the purchase of construction of a dwelling unit

A unique product if borrower is on the lookout for a loan to purchase

a plot of land for house construction. The loan is available for a

maximum amount of Rs.1 crore* and with a comfortable repayment

period of up to 15 years.

Loan Amount Margin Less than < Rs. 75 Lacs 20% of Project Cost Rs.75Lacs Rs.1 Crore 25% of Project Cost

>Rs.1 Crore 25% for Loan amount up to Rs.1 Crore + 50% for loan in excess of Rs.1 crore

For e.g. If project cost is 2.5 crores the margin would be calculated as – 25% of cost of property at loan amount Rs.1 Crore + 50% of rest of the project cost, i.e. 25% of Rs.1.33 Cores + 50% of Rs.1.17 crores = Rs.88.75 Lacs

Table 3.3: Margin of bank on loan amount. (Source: www.sbi.co.in)

Customers are also eligible to avail another Housing Loan for

construction of house on the plot financed above with the benefit of

 

46  

running both the loans concurrently. (House construction should commence within 2 years from the date of availment of “SBI-Realty”

Housing Loan)

iv) SBI Flexi

Home Loans with a combination of Fixed and Floating Interest.

RATES

Home Loans with an option to choose a combination of floating

interest rate and fixed interest rate, in a pre determined ratio.

Minimum Loan Amount Rs.5.00 lacs.

A customized product designed to enable borrowers to hedge their

Home Loan against unfavourable movement in interest rates. The

product gives the borrower, a onetime irrevocable option to choose

one of the three customized combinations of fixed and floating

interest rates and also to choose the order in which the fixed and

floating rate will be availed.

 

47  

v) NRI Home Loans

Home Loan to Non Resident Indians (NRIs) and persons of Indian

origin (holding a foreign passport)

Eligibility

Individual(s) over 18years of age with a steady source of income who

Are Non Resident Indians (NRIs) holding a valid Indian

passport.

Are persons of Indian origin (PIOs) holding a foreign passport.

Minimum employment tenure in India/abroad not less than 2

years.

Loan Amount

The loan amount is to be determined on the basis of repayment

capacity taking into account income, age, assets and liabilities,

qualifications, stability of occupation, and employment prospects on

return. The loan amount is subject to the following:

Minimum: Rs. 3 lacs

Maximum: Maximum permissible loan amount would be determined

by EMI/NMI ratio criteria as applicable to regular Home Loans

scheme for Resident Indian customers, which is 40% for Net Annual

Income (NAI) upto Rs.2 Lac, 50% for NAI above Rs..2 Lac and upto

Rs.5 Lac, 55% for NAI above Rs.5 Lacs.

 

48  

vi) SBI Optima

Innovative and value added products extended to existing Home loan

borrowers with a satisfactory repayment record of 3 years and whose

loan is Standard Asset, with a view to reinforce the customer loyalty

and to maintain long term relationship with the borrowers. In case of

take-over of Home Loans from other Banks/HFCs, the borrower

should have fulfilled the above conditions with the present

Bank/HFC.

vii) SBI Tribal Plus

Special Home Loan scheme for hilly/tribal areas.

'SBI-Tribal Plus' Home Loans, a Special Scheme designed for

Hill/Tribal areas for extending financial assistance to individuals in

such areas to:

a) Purchase or construction of a new house / flat (without

mortgage of land)

b) Purchase of an existing (old) house / flat which is not more than

10 years old (In such cases, valuation report from our

empanelled valuer and a certificate on the condition of the

house to be given by a structural engineer or Govt. approved

architect should be taken);

c) Repair /Renovation/extension of an existing house or flat.

 

49  

viii) Gram Niwas

Home Loans to farming and poorest of the poor in rural areas.

The Scheme covers all rural and semi-urban centers. “Rural

Area” for the purpose of the Scheme is the area comprised in any

village including the area comprised in any town, the population of

which does not exceed 50000 as per 2001 census. The scheme seeks to

provide home loans to farming and poorest of the poor in rural areas

for the purpose of purchase or construction of a house, repairs and

renovation, purchase of plot for the purpose of construction of a

house/shed etc.

ix) Sahyog Niwas

Rural home loans to self help groups

The Sahyog Niwas scheme has been instituted to finance the

self help groups with a good track of payment record for 2 years, for

on lending to members for housing in rural areas, covering the

following purposes.

1) For the purchase or construction of a house exclusively or

including the housing needs of activities carried by them.

(Dairy shed, tailoring shed/shop, grocery stores etc.)

2) For the renovation or repair of an existing house / shed

3) For the purchase of a plot of land for the purpose of house

construction.

4) For the extension of existing house / work space to existing

house / shed.

 

50  

x) SBI Happy Home Loans

Home loans at 8% p.a.

The SBI Happy Home Loans scheme enables the genuine

needy buyers to buy dwelling units by freezing interest rate at 8%

p.a. for a period of one year from the date of disbursement on new

Home Loans including SBI Special Home Loans scheme.

xi) SBI Green Home Loan

State Bank of India has adopted a Green Banking Policy with

an objective of contributing towards the fight against the adverse

climate change. One of the initiatives approved by the Board for this

purpose is incentivizing customers who go in for Green Projects, i.e.

those projects which reduce Carbon Emissions and promote

Renewable Energy. “Green Housing” or “Green Home” is one of the

types of projects identified for this purpose.

At present State Bank of India is the only Bank in the country

supporting the cause of Green Buildings by offering a 5% concession

in margin, 0.25% concession in interest rate and waiver of processing

fees, on the existing home loan products to customers who go in for

Green Projects.

 

51  

3.4. HOME LOAN TOP-UP PRODUCTS

i) SBI Home Line

SBI Home Line Special Personal Loans come with inbuilt

provision to sanction personal loans to home loans borrowers with a

satisfactory repayment record of 3 years. The rate of interest charged

on these personal loans is only 50 bps above the Home Loan interest

rate applicable to the repayment tenure opted by the borrower

(floating rates only), prevailing as on the date of sanction of “SBI-Home Line” Special Personal Loans.

ii) SBI Home Plus

SBI Home plus is scheme is launched for granting personal

loans to the banks home loans customers against the security of their

house property. All home loans customers with a satisfactory

repayment record of at least one year and who maintain a Savings

bank or current account with us.

The loan can be used for any purpose, viz. extension/repair of

house, purchase of car/ consumer durables, education / medical

expenses of family members, personal expenses, etc. There will be no

need to obtain documentary evidence for the end-use of funds.

However a certificate from the customer in the application to the

effect that the loan will not be used for speculative purposes would be

obtained.

 

52  

iii) SBI Life style Loan

Loans to meet life style needs of Home Loans customers.

State Bank Of India launched the SBI Life Style Loans to help home

loan customers meet any short term expenditure, (Vacation travel,

purchase of Gold, Lifestyle goods) except speculative investments,

which adds comfort to the life style of the borrower with satisfactory

repayment record. SBI has tie up with various reputed travel houses,

lifestyle product companies for discounts to our customers.

 

53  

3.5. RELATED HOME LOAN PRODUCTS

i) Earnest Money Deposit (EMD) Scheme

Many Government agencies, like Urban Development Authorities

and Housing Boards, periodically come out with schemes for sale of

plots/houses, wherein applicants have to submit 10-20% of the cost of

plot/house as Earnest Money Deposit (EMD) and allotments are

made by draw of lots.

The SBI EMD scheme is designed for financing against earnest

money for allotment of a house/plot. Individuals above 21 years of age

and with a steady source of income are eligible to avail loans under

this scheme.

Salient Features of the Scheme:

• No minimum income criteria.

• Margin waived in all cases.

• Eligible for 100% of application money, subject to maximum

loan amount of Rs.10 Lacs.

• Waiver of security in all cases irrespective of the loan amount.

• The above mentioned features of the scheme are applicable

subject to the following conditions:

 

54  

ii) SBI Reverse Mortgage Loan

Loans for welfare of senior citizens in India.

SBI Reverse Mortgage Loan Enables house-owning Senior Citizens

having inadequate income to meet their financial needs for

renovation/repairs to house, medical & other personal purposes.

There is no compulsion for the borrower to repay a RML during his or

her lifetime or till such time he or she continues to stay in the house.

The borrower continues to retain ownership of the house. Also, the

borrower will have the option to prepay the loan at any time during

the loan tenure and there will be no pre-payment penalty.

7) OTHER SCHEMES:

The bank offers loans schemes known as 'Prashasan Plus', 'Teacher

Plus' and 'Oil Plus' to Government Employees, Teachers and

employees of public sector oil companies etc at concessional rates. These „plus‟ schemes offer concessional interest rate of 0.25% below

the applicable interest rates on Home Loans to niche client groups

like Government Employees, Teachers, employees of public sector oil

companies and so on

 

55  

CHAPTER - 4

TERMS AND NORMS

4.1. ELIGIBILITY

If one is a resident or non-resident individual who is planning

to buy a house in India, one can apply for a home loan. If a person

has decided to buy a property in the near future, he/she can apply for

a loan before even selecting the property. Once the maximum amount

to put into the property has been decided, the Housing Finance

Institutions or Banks will let the customer know that how much

he/she is eligible for and this helps to plan out the budget.

Conditions regarding co-applicants:

All Housing Finance Institutions lay down conditions on who

can be co-applicants. All co-owners of the property need to be co-

applicants to the loan necessarily. These institutions do not permit

minors to join in as either co-owner or as co-applicants because a

minor is not eligible to enter into a contact as per law. They do not

permit even friends or relatives who are not blood relatives to take a

property jointly. However, Income of co-applicants can be clubbed

together to get higher loan eligibility. Given below is a Table that

throws light on acceptable relationship of a co-applicant for clubbing

of income.

Minimum age: 18 years as on the date of sanction

 

56  

Maximum age: limit for a Home Loan borrower is fixed at 70 years,

i.e. the age by which the loan should be fully repaid, subject to

availability of sufficient, regular and continuous source of income for

servicing the loan repayment.

Eligibility Criteria & Documentation required for Individuals:

Salaried Self employed

Age 21years to 60years 21years to 70years

Income Rs.1,20,000 (p.a.) Rs.2,00,000 (p.a.)

Loan Amount Offered 5,00,000 - 1,00,00000 5,00,000 - 2,00,00000

Tenure 5years-20years 5years-20years

Current Experience 2years 3years

Documentation

1) Application form with

2) Photograph.

3) Identity & residence

proof.

4) Last 3 months salary

slip

5) Form 16.

6) Last 6 months bank

salaried.

7) credit statements.

8) Processing fee

cheque.

1) Application form with

photograph.

2) Identity & residence

proof.

3) Education

qualifications

certificate & proof of

business existence.

4) Business profile,

5) Last 3 years profit/loss

& balance sheet

6) Last 6 months bank

statements

7) Processing fee cheque Table 4.1: Eligibility Criteria & Documentation

(Source: Researchers methodology)

 

57  

4.2. DOCUMENTS

(1) ADVOCATE Check List: (Prepare separate set)

Copies of Mother deed/parent document link deeds, allotment

letter, Khatha certificate/endorsement, up to date encumbrance

& tax paid receipts. (In case of flats, if the project is already

approved by SBI panel advocate then this is not required).

Copies of Agreement for sale, Construction Agreement

ORIGINAL Sub Registrar certified copy of the Sale Deed(for

takeover loans )

ORIGINAL of updated encumbrance certificate.

Copy of Plan sanction.

Copies of latest Khata certificate, Khata extract etc.

Upto date Tax paid receipts (Form-16).

Copies of Sanction letter of other bank/institution & Letter of

original documents held in their custody ( applicable In case of

takeover loans from other banks/institutions)

(2) ENGINEER Check List:

(Kindly take the Engineer Telephone NOC from the bank to co-

ordinate with him for inspection of borrower’s property)

Photo copy of Sale Deed.

Plan Sanction Copy.

Interior Estimate, if any, for approval by Engineer.

 

58  

(3) Builders/Sellers Check List

Allotment Letter & detail split up cost of the project.

In case of completed projects, a letter from the builder stating

that the property is ready for registration.

Letter from the builder/seller the property is not mortgaged to

any bank/ financial institution. If mortgaged then an NOC from

the concerned bank/institution.

Advance Receipt / Paid Receipts from Builder/Seller, If any.

Due diligence on Builders and Seller KYC Norms : Proof of

Identity (PAN copy) & Residence proof (Telephone/electricity

bill - both self attested and originals verified & attested by the

bank) along with the duly filled in KYC form (form to collect

from the bank)

(4) Other Bank/Institution Check List ( In case of Takeover Loans)

Sanction Letter of the other bank/institution.

Loan account statement from the date of sanction till date.

Pre-closure letter inclusive of penalty from the other

bank/institution.

Letter of original documents held in their custody.

Receipts for the total amount of the project issued by

builder/seller to the purchaser/bank/institution.

 

59  

(5) PERSONAL DOCUMENTS Check List

(From the Applicant / Co- applicant and Guarantor, if any)

SELF ATTESTED COPIES OF DOCUMENTS Sl.No.1 to 6:

1. Proof of Identity (passport/pan card)

2. Proof of Residence (telephone/electricity bill/ company letter)

3. Salary Slip - last 3 months. (Attested by the employer)

4. Salary account bank statement - last 6 months (bank attested)

5. Form 16 for the last two years.

6. Income Tax Saral copy for the last two years.

7. Photograph - 2 nos.

8. Application Form

9. Company Profile – details of company

 

60  

(6) Check list by the Purpose

Confirmation of Income

If borrower is a salaried person, please provide two recent

consecutive pay slips or a copy of borrower’s employment

contract or a letter from his employer.

If borrower is self-employed, please provide copies of borrower’s

last two Financial Accounts as prepared by his accountant.

Appointment Letter

Salary Certificate

Retainer ship Agreement, if appointed as a consultant

FORM 16 issued by the employer in borrower’s name.

Last three years income tax returns duly filed and certified by

the Income Tax Authorities

Similar Document -separately for each co-applicant.

Employment Proof

Identity card issued by borrower’s employer

Visiting card

 

61  

Age Proof

Passport

Voter's ID card

PAN card

Ration card

Employer's Identity card

School leaving certificate

Birth certificate

Residence Proof

Ration card

Passport

PAN card

Rent agreement, if borrower’s is staying currently on rent

Bank Pass book

Allotment letter from borrower’s company if borrower’s is

residing in company quarters.

 

62  

Name Change Proof (If Applicable)

a. A copy of the official gazette

b. A copy of a newspaper advertisement publicizing the name

change

c. Marriage certificate

Investment Proof (If Applicable)

a. Bank statement for the last six months of all operating and

salary accounts

b. Bank statements for the last six months of all current accounts,

if self-employed.

c. Any other photocopies of investments held, if required by the

Bank

 

63  

Property Title Proof

Original Sale agreement with Builder/Developer duly

registered, Registration receipt

Tripartite agreement from builder/developer

Land documents indicating ownership, e.g.- Photocopies of title

deeds, if applicable

A certificate by the legal advisor of the builder to the effect that

the builder has a good reputation and it is free from

encumbrance and other charges.

A certificate from builder's Chartered Accountant certifying

that the builder has not mortgaged the property anywhere else.

Certified true copy of approved plan.

Copies of receipts of payments made to builder/developer.

Allotment letter

Possession letter

Lease agreement, if applicable (Property bought from a

development authority)

Mortgage deed if the Bank opts for a registered mortgage.

No Objection Certificate from the developer, society or

development authority as applicable

Personal Guarantees, if applicable.

 

64  

In case of alternate or additional security, documents for the

same depending upon the security details.

For self-construction: Approved plans and clearance certificates

along with estimates

Post dated cheques for the EMIs.

Confirmation of Rental Income

Copy of the existing tenancy agreement, or a rental appraisal,

from a local real estate agent signed by branch manager, or rental

manager.

Deposit or Investments

Evidence of borrower’s deposit or investment funds, i.e. a bank

statement or term deposit receipt.

For low equity loans (5-19% deposit), copy of his savings

account statements over the last six months.

Sale and Purchase Agreement

If borrower is planning to buy a property, please provide a copy

of the successful sale and purchase agreement signed by both

borrower and the vendor.

If borrower’s is planning to sell or have already sold his existing

property, please provide a copy of that property's sales and

purchase agreement.

 

65  

New Customer to the banks of India

• If borrower’s is refinancing from another bank please provide

copies of his loan statements covering the last six months.

• Please provide copies of borrower’s account statements covering

the last six months from his current bank.

• Please provide copies of borrower’s identification and if

borrower has arrived in the country within the last 5 years,

please provide a copy of his passport.

GOVERNMENT VALUATION AND RATING

System A copy of the latest Government or Ratings Valuation is to be

provided. Depending on the age and value indicated in conjunction

with the amount required to borrow, the Bank may require a

Registered Valuation and borrower’s Banker will advise borrower.

 

66  

4.3. PURPOSE

The bank offers home loans for purchase and/or construction of

house property as well as plot loans.

It offers loans for:

• Purchase/ Construction of new House/ Flat

• Purchase of an existing House/ Flat

• Purchase of a plot of land for construction of House

• Extension/ repair/ renovation/ alteration of an existing House/

Flat

• Purchase of Furnishings and Consumer Durables as a part of

the project cost

• Takeover of an existing loan from other Banks/ Housing

Finance Companies

 

67  

4.4. QUANTUM OF LOAN

Actual loan amount will be determined taking into consideration such factors as applicant’s income and repaying capacity, age, assets

and liabilities, cost of the proposed house/flat etc.

Applicants aged between 18 and 45 years, can get 60 times Net

Monthly Income (NMI) or 5 times Net Annual Income (NAI) and for

applicants aged over 45 years of age, it is 48 times NMI or 4 times

NAI.

This will be subject to a maximum EMI/NMI ratio as under:

Net Annual Income EMI/NMI Ratio

Up to Rs.2 lacs 40%

Above Rs.2 lacs to Rs. 5 lacs 50%

Above Rs. 5 lacs 55%

Table 4.2: Criteria for Loan Amount

(Source: Researchers methodology)

Increase up to 5% in the EMI/NMI ratio may be permitted by

the sanctioning authority, depending on the availability of

disposable surplus income after meeting expenditure towards

maintenance of family.

 

4.5. E

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69  

The flat rate system:

The rate of interest on the loan amount is calculated over the

full duration of the loan, the principal and the interest is divided over

the number of installments and the value arrived is borrower’s EMI.

Let us understand this better:

Table 4.3: EMI calculation in the flat rate system

(Source: Researchers methodology)

A flat rate loan is the most expensive as in this case the

interest is calculated on the entire loan amount and no principal

deduction is taken into account. Thus the effective rate of interest works out to be much higher.

 

70  

REDUCING BALANCE SYSTEM:

The interest is charged on the outstanding balance of the loan, which

goes on reducing. Hence the cost of the same loan amount on an

annual reducing balance method works out to 29% and 35% on a

monthly reducing balance method. Again in case of reducing system,

there are three types:

EMI Table - Monthly reducing balance method

Table 4.4: EMI calculation in Reduced balanced system

(Source: Researchers methodology)

Daily reducing balance method (Used by SBI)

Here, there is immediate reduction in principal thereby reducing the interest calculated on it. If borrower has taken a loan of Rs.1, 00,000/- at 21% interest for 3 years and he pay Rs.3, 760/- on Jan 10, the lender will consider total outstanding principal as Rs.96, 240/- from Jan 11. The interest will be calculated on Rs.1,00,000/- from Jan 1 to Jan 10 and from Jan 11, interest will be calculated on Rs.96,240/-. With a lower outstanding principal, the total interest paid out reduces and so does the EMI.

 

71  

Monthly reducing balance method

Here, the principal component is deducted at the end of every

month and then the interest is calculated on this new outstanding

reduced principal. The above table gives the cash outflow on a loan of

Rs.1, 00,000/- at 21% interest for 3 years, when interest is calculated

by monthly reducing balance method.

Annual reducing balance method

Here the principal component of EMI though reduced every

month, is summated annually. Therefore, the interest is calculated

on the original loan amount for the entire year. At the end of the

year, the accumulated principal component is deducted from the

original loan amount and the interest for the next year is on this

reduced loan amount. If borrower has taken a loan of Rs.1,00,000/- at

21% interest for 3 years, the EMI will be Rs.4,018/-.

Which EMI plan to choose?

1. Payment of EMIs in advance or in arrears?

Paying the EMI at the beginning of the month (EMI in

advance) means that he lock borrower money for the month;

while paying in arrears, (i.e. at the end of the month) gives

him an extra month before the payout. The effective rate of

interest on the loan also goes up when he pay the EMI at the

beginning of the month. Hence if two schemes offer the same

EMI, choose the one, which allows payment in arrears.

 

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2. Advance EMI payment

In advance EMI schemes a certain number of EMIs are

collected from the borrower in advance. The number of EMIs

that have to be paid out in advance varies with the interest

charged on the loan. The more borrower pay in advance the

lesser should be the interest charges.

Also in 100% financed loans, some EMIs have to be paid

upfront as advance. This effectively reduces the loan amount

and in real terms the financier has not given him 100% finance

but charges interest on the entire cost of the asset.

3. Deposit linked plan

Here, the financier offers a lower rate of interest,

provided the borrower invests 20% to 25% of the asset cost as a

fixed deposit with the financier. The interest on this deposit is

usually lower than the interest charged on the loan. Here

again borrower’ must consider the cost of parking borrower’s

funds in the deposit as the returns on it may not weigh

favourably with the low interest charged on the loan.

In the end, the thumb rule of EMI to remember: EMI is lowest,

when interest is calculated on a daily reducing basis. The

reason why EMI varies for the same loan amount, tenure and

interest rate is the difference in the compounding frequency of

interest rates.

 

73  

bank remember that one liner joke - “Why sharks never take

lenders?” The answer is “Professional courtesy”.

4. Pre-EMI:

In case of part of disbursement of the loan, monthly

interest is payable only on the disbursement amount. This

interest is payable monthly till the final disbursement is made,

after the EMIs would commence.

4.6. MONETARY CEILINGS

The Maximum Permissible Loan Amount is subject to

following monetary ceilings:

Repairs/Renovation Rs. 10 lacs Above Rs.10 lacs require prior administrative clearance of network GM

Furnishings and consumer durables

10% of the Project Cost

(or)

3 lacs

Whichever is less where additional security is available

Table 4.5: monetary ceilings

(Source: Researchers methodology)

 

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4.7. TOTAL PROJECT COST

The total value house or flat or the project cost includes:

• The cost of undivided share of the flat/land /construction cost,

• Additional Amenities like Car Parking, KEB & BWSSB

deposits,

• Insurance premium

• VAT & service taxes,

• Maintenance cost &

• Stamp duty and Registration expenses subject to borrower’s

eligibility as calculated above whichever is lower for purchase

/construction of new or old property.

4.8. MARGIN

Purchase/ Construction of a new House/ Flat/ Plot of land:

The SBI home loan borrower should pay 20% of the cost of home for

loans up to Rs 1 crore and 25% for loans above Rs 1 crore.

Loan Amount Margin (Min.)

Maximum LTV*Ratio (Max.)

Up to Rs. 75 Lacs 20% 80%

Above Rs. 75 Lacs. 25% 75%

Table 4.6: criteria of margin amount

(Source: Researchers methodology)

Repairs/ Renovation of an existing House/ Flat: 20%

*LTV ratio - Loan to value ratio=Loan amount/Value(project)

 

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4.9. SECURITIZATION

In most cases, the property to be purchased itself becomes the

security and is mortgaged to the bank till the entire loan is repaid. Equitable or Registered mortgage of property

(or) Other tangible security of adequate value like NSCs, Life

Insurance policies etc., if the property cannot be mortgaged

Table 4.7: Securitization (Source: Researchers methodology)

4.10. FEES OR CHARGES

4.10.1. Pre-Sanction Fees

(i) Processing Fee: The revised processing fee structure (including service tax) from

9th November 2009 is as under:

Loan Amount Processing Fee (Revised):

Table 4.8: Processing fee amounts

(Source: Researchers methodology)

Loan Amount Fee

Up to Rs.5 Lac Rs.1000/

Above Rs.5 Lac and up to Rs.10 Lac Rs.2000/

Above Rs.10 Lac and up to Rs.20 Lac Rs.5000/

Above Rs.20 Lac and up to Rs.50 Lac Rs.7,000/

Above Rs.50 Lac and up to Rs.1 Cr Rs.8,000/

Above Rs.1 Cr and up to Rs.5 Cr Rs.10,000/

Above Rs.5 Cr Rs.20,000/

 

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Note: 75 % of the processing fee may be refunded in the following

cases:

• Rejection of loan application on account of unsatisfactory pre-

sanction survey report.

• Rejection of loan application on account of unsatisfactory

legal/valuation reports.

• In cases where applications are sanctioned or rejected after

complete loan processing, fee will not be refunded.

(ii) Legal Charges:

Advocate's fee for property search and the title investigation report.

a. Legal Fee/charges: Rs.1500/-

b. Govt. Stamp duty: 0.25% of loan amount as stamp duty at the

time of equitable mortgage creation at the Bank.

c. Approx Govt. Stamp papers of Rs.1500/-(approx) for execution

of loan documents at the time of sanction

(Legal/Engineer/Processing fee cheques to be paid at the time of

submission of application form to the bank. Govt Stamp duty of

0.25 %( prevailing now) of the loan amount and Rs750/- approx

to be paid at the time of documentation of loan. Insurance will

be done after the registration of the property.)

(iii) Valuation Charges:

Valuer's fee for valuation report.

Engineer's Valuation fee: Rs.1, 500/-

 

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4.10.2. Post-sanction Fees

i) Stamp duty payable for Loan agreement & mortgage.

ii) Property insurance premium:

Insurance: Insurance of property building against

fire/earthquake etc with New India Assurance Company to be

done.

iii) Service Charges

Payable to builders who have been engaged as Marketing

Associates.

4.11. RATE OF INTEREST

SBI EASY HOME LOAN (JULY 2010)

(Base Rate =7.50% p.a.)

Interest rate for proposals sanctioned

between 1st July 2010 and 30th September 2010.

Loan amount Maximum Rs.50 Lacs

Interest during first year 8% p.a.(Fixed)

2nd & 3rd year 9% p.a.(Fixed)

Floating interest rate after 3rd year

1.75% above Base Rate, Currently effective

rate being 9.25% p.a.

Fixed interest rate after 3rd year

3.50% above the Base Rate prevailing at the time of reset, With a reset frequency of 5 years.

Table 4.9: Rate of interests of SBI Easy Home Loan

(Source: www.sbi.co.in)

 

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SBI ADVANTAGE HOME LOAN (JULY 2010)

Interest rate for proposals sanctioned between 1st July

2010 and 30th September 2010. Loan amount Above Rs.50 Lacs

Interest during first year 8% p.a.(Fixed)

2nd & 3rd year 9% p.a.(Fixed)

Floating interest rate after

3rd year

2.25% above the Base Rate, Currently

effective rate being 9.75% p.a.

Fixed interest rate after 3rd

year

3.50% above the Base Rate prevailing at the

Time of reset, with a reset frequency of 5 years.

Table 4.10: Rate of interests of SBI Advantage home loan

(Source: www.sbi.co.in)

4.12. MORATORIUM

Up to 18 months from the date of disbursement of first

instalment or 2 months after final disbursement in respect of loans

for construction of new house/ flat (moratorium period will be

included in the maximum repayment period)

 

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4.13. GUARANTOR:

• The bank insists on a Guarantor till the property is

registered/title transferred on borrower’s name and Equitable

Mortgage registered in favour of the bank.

• Guarantor details in the application with Assets & Liabilities

duly filled in along with the above mentioned documents are

required.

• For Takeover Loans From Other Banks – Guarantor Is A Must

• An eligibility criterion of guarantor is that: 80% of the net

credit worthiness of the guarantor should be more than the loan

amount (takeover amount).

• The Title holders of the property should ONLY be the

borrowers. If the agreement is on the joint names (maximum

three persons), then the Sale deed also should be on the joint

names and the loan also will be on the joint names. The same is

also applicable for take over loans.

i.e. Joint Owners then Joint name in the loan application /

Single Owner then Single name in the loan application.

 

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4.14. TAX BENEFITS

• Both principal as well as interest of home loans attract tax

benefits. With effect from 1st April 2005 (i.e. assessment year

2005-07) under section 80C of the Income Tax Act 1965:

• Principal amount of repayment of loan along with other savings

such as PF, PPF, and Life Insurance premium etc up to a

maximum of Rs 1, 00,000/- will be eligible for deduction from

gross income.

• Interest paid on loan after completion of construction will be

deductible from income from property

• For self occupied - Income will be treated as nil and interest

payment will be treated as minus income which will be adjusted

against other income. For rental property - It will be adjusted

against rental income.

4.15. PACKAGE OF EXCLUSIVE BENEFITS

• Complimentary international ATM-Debit card.

• Complimentary SBI Classic/ International Credit Card with

waiver of joining and first year's fees.

• Option for E-banking.

• Concessional package under 'Credit Khazana' for prospective

car loan borrowers whose accounts are conducted satisfactorily.

• 50% concession in charges in respect of all personal

remittances/ collection of outstation cheques.

 

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4.16. INSURANCE COVER

Compulsory insurance of property, Optional life cover from

SBI Life & free accident insurance cover for borrower available. The

house/flat to be insured against the risk of

fire/riots/earthquake/lighting/floods etc. in the joint names of the

borrower and the bank for the actual project cost after netting off the

cost of land, stamp duty an registration charges.

People seeking home loan often encounter such worries like

what if anything happens to them in that case what would happen to

the home loan? Naturally, their main concern is that should

something happen to them their folks would have to encounter the

problem of facing the impact of repaying the loan debt. Home loan

insurance is completely different from home insurance.

This type of insurance covers the amount of home loan

borrower owe to the bank. This doesn't include the amount he has

already paid but the amount still to be paid and evidently his family

members will not face the problem of paying the amount being owed

to the bank but the insurance provider will bear the brunt of the

same. The insurance companies are not very impending about how

much amount is to be paid as part of the insurance premium as the

premium amount varies depending on the case.

The premium amount broadly relies on conditions like - age of

the person availing the loan (the younger the person, the lower the

premium amount); loan amount (the lesser the loan amount, the

lower the premium); period of the loan (the more the loan repayment

 

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period, more is the premium); another important factor is the health

of the loan taker (the premium amount would be low in case of good

health of the individual). SBI offers mortgage life insurance policy to

the SBI home loan applicants thereby consolidating the insurance

premium along with the EMIs. The State Bank of India offers a free

personal accident insurance cover to their clients availing home loan

so that the client's family doesn't have to face any problem if he/she

meets an accident that proves to be fatal.

 

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4.17. VALUATION POLICIES

The existing valuation policy was reviewed, and ECCB

approved the following valuation and re valuation policy w.e.f.

01.04.08 for individual home loans (IHLS):

Purpose Of Home Loan Valuation Policy

Construction of new dwelling unit

Valuation of land plus project cost i.e. stage-wise

estimated expenditure obtained from the

empanelled architect / engineer irrespective of

loan amount. Disbursement to be made according

to the stage of construction.

For loans unto Rs. 2 laces at rural /semi-urban

branches, the sanctioning authority may waive

valuation as above and my assess the valuation

based on market prices by enquiry and a

certificate by the contractor/engineer involved in

construction.

Purchase of second sale plot

/dwelling units

Valuation report obtained from the empanelled

architect/engineer/valuer irrespective of the loan

amount and age of the property.

Purchase of new dwelling units

For loans up to Rs 20 lacks, reasonableness of the

price mentioned in the underlying sale

did/agreement to sale etc. ascertained by the

sanctioning authority as per prevailing market

prices. For loans above Rs.20 lacks, valuation

report obtained from an external empanelled

architect/ engineer / valuer.

Purchase of plot for constructions of

dwelling unit from regional govt.

housing development authorities

Property valued at cost price as per the

agreement of sale/lease.

Table 4.11: valuation policies

(Source: Researchers methodology)

 

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CHAPTER - 5

SYSTEMS AND PROCEDURES

5.1. STAFF INVLOVED AND THEIR ROLES

Table 5.1: Systems and procedures in lending process

(Source: Researchers methodology) (RACPC - The staff from respective Retail Asset Central Processing Cells)

 

85  

5.2. PROMOTION AND DISTRIBUTION OF THE PRODUCTS

(a) PROMOTION:

• State Bank of India, has come up with a non-conventional

method to promote its home loan business.

• SBI promotes home loan segment at its ‘Home Fair Melas’ at

each circle level.

• SBI also use to enter into an agreement with the known

builders to promote its home loan segment.

• The bank is looking forward to develop special processing

channels so as to provide quick services to home loan

customers.

• There would be no processing fees on loans, adding that the

home loans approved at the fair would bear 0.25 per cent less

interest than the nominal rate from the start of fourth year of

repayment.

• Around 24 property dealers and builders were present at the

fair.

• Several kinds of staff are involved in these Fairs, who include:

Marketing Associates

Field Officers

Associated Builders and

The staff from respective Retail Asset Central

Processing Cells (RACPC).

 

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• The staff do undertake several initiatives with the prospective

customers at these Fairs itself like:

Enquiries

Guidance

Instructions

Requirement Specifications

Application forms distribution

Application Approvals and

Customer Services

(b) DISTRIBUTION:

State Bank of India supplies and sells its home loan products

through its over 11,440 branches nation-wide and associated

RACPCs.

 

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5.3. PROCESS UNDERTAKEN

5.3.1. APPLICATION SUBMISSION

• The home loan application form of SBI is rather lengthy

compared to the forms at other private sector lenders.

• Completely filled in Form along with the necessary

documents.

• Need to submit the documents from builder.

• In my case, the project had APF not in SBI (basically already

approved by SBI); so not much documentation was required.

• Otherwise they would make a surge report, which can

consume some time. I guess they are quite strict about it.

 

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5.3.2. PRE-SANCTION PROCESS

1. The Field Officers hold Personal Discussion with the prospect

customer regarding Interest Rate, Eligibility, EMI and all the

terms and conditions

2. The prospect customer’s options and acceptance are ascertained

and recorded.

3. Necessary documents are collected from the customer.

4. Pre-Inspection Sheet is maintained along with the documents to record inspection by the Bank’s staff (or) outsourced agency.

5. Bank's Field Investigation for address proof/Employment etc.

6. All the documents are sent to Retail Assets Central Processing Cell (RACPC) for credit appraisal based on the customer’s

financial capacities.

7. All the terms are conditions including Loan amount, interest

rate, tenure, EMI etc are determined.

8. The RACPC would submit its credit appraisal report on the

customer to the branch.

 

89  

Legal Opinion:

• Empanelled Lawyer(s) does submit the Title Deed verification

and the search report for 30 years in respect of properties of

the customer.

• The legal clearances/ opinion of the flat/property which

borrower is buying / staying /constructing have to be obtained

from an advocate from Bank panel.

• Submission of legal documents & legal check.

• The search report reveals encumbrance on the property based

on which the grant of loan can be avoided and the prospect

borrower may be asked to rectify it.

Valuation check:

• The Engineer’s valuation of the property and estimate for the

construction to be obtained with bank panel engineer.

• In case of takeover loans, two panel engineer valuation is

required and the least value between them should be more

than the takeover amount.

 

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PRECAUTIONS TO BE TAKEN:

• Applications form to be complete in all respects.

• Market information about the potential borrower should be

gathered.

• Pre-sanction survey should be conducted wherever required.

• The authenticity of salary slip, form 16 return, and proof of

identification, address and income etc. should be cross checked.

• Income from all sources is to be considered, wherever

applicable, when the sanctioning authority is satisfied about

the quantum and uninterrupted flow thereof during the tenure

of the loan.

5.3.3. SANCTION STAGE

• The branch manager would consider the credit appraisal report

of RACPC and will take a decision whether to sanction or not

the loan to the customer.

• The decision is informed to the prospect customer the decision

so taken via Field Officer.

• If the decision is “sanctioned”, the Field Officer would issue

Offer letter to the prospect.

 

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5.3.4. POST-SANCTION PROCESS

• Registration of Property documents

• Signing of Agreements and submitting post-dated cheques

• SBI insists on all the margin money contributions to have been

made to the seller and the money receipts to be handed over to

them prior to the loan disbursement.

• The customer needs to submit the cash amount for various

stamps, mortgage fee etc.

• SBI would take 12 cheques of SBI a/c for security.

• borrower can link his SBI savings a/c to have standing

instruction to deduct EMI.

Normally, almost all home purchase transactions will entail payment

of an advance to the seller and on the day of registration, the

remaining contribution from the buyer and the loan amount from the

bank are exchanged with the property documents. Not with SBI.

And once the registration is done, the loan applicant needs to get the latest Encumbrance Certificate (EC) from the Registrar’s Office and

submit it to SBI. Subsequent to this process, SBI will create an

equitable mortgage on the property in favour of the bank as

collateral. This entails a fee of Rs 7000 (I understand that this is a

percentage of the registered value of the property) to the loan

applicant. Only after all this is done, will the process be complete. I

never saw this equitable mortgage fee being mentioned anywhere in

the high decibel advertisements from SBI.

 

92  

5.3.5. DISBURSEMENT

• The disbursement is made in phases correlating to the actual

progress made in the construction.

• The proper end-use of funds is ensured by visits to the sites.

• Certificate from the engineer may be required to be submitted

by the borrower stating the status of the project.

• By BC/DD crossed A/c Payee only incorporating the builder’s/seller’s A/c No. and banker’s name and sent directly

to builder/seller by Regd. AD/Speed Post.

5.3.6. POST- DISBURSEMENT PROCESS

• Property inspection is carried out and recorded in the

Inspection Register at each stage of disbursement by the field

officers.

• The installments are disbursed in different proportions in

different phases as per the progress of the work.

 

93  

5.3.7. REPAYMENT

Loan repayment options:

• SBI lays down certain rules and regulations pertaining to the

repayment of loans.

• The loan applicants can repay the amount in the form of

equated monthly installments.

• The repayment is allowed up to the age of 70 years.

Repayment period:

Maximum 25 years (or) Up to the age of 70 years (the age by

which the loan should be fully repaid) of the borrower, whichever

is early.

MAXIMUM REPAYMENT PERIOD:

For applicants up to 45 years of age: 25 years

For applicants over 45 years of age: 15 years

Moratorium period (Repayment holiday):

The moratorium period is included within the maximum

repayment period.

 

94  

5.3.8. PRE-CLOSURE

• Pre-closure is allowed by the Bank at any time after the

complete disbursal and before the actual tenure.

• If the loan is pre-closed from own resources for which proof is

submitted by the customer, penalty is not levied irrespective of

period for which the a/c has run.

Pre-closure Penalty:

• No penalty if the loan is pre-closed from own savings/windfall

gains for which documentary evidence is produced by the

customer.

• In case, such proof is not produced by the borrower, penalty

@2% on the amount prepaid in excess of normal EMI dues shall

be levied if the loan is pre closed within 3 years from the date of

commencement of repayment

 

95  

5.3.9. RECOVERY MECHANISM

The following debt collection practices will be applied to all debts

(rates and sundry debtors) over $200 that is not in dispute which

have been outstanding for 90 days:

• First reminder letter will be forwarded, requesting payment

within 14 days or to contact Council to enter into an

arrangement.

• Where no response is received, second reminder letter will be

forwarded requesting payment within 14 days or to contact

Council to enter into an arrangement.

• Where no response has been received a letter of demand for

payment within 7 days will be forwarded. The letter will state

that failure to make payment in full or to enter into an

arrangement will result in the commencement of legal action.

• Where no response has been received, outstanding debt will be forwarded to Council’s debt collection agent.

 

96  

Various Recovery Procedures

State Bank of India adopts various recovery procedures to recover the

debt from its defaulters.

The various recovery procedures are mentioned below:

• Reasons For Default :

There are various reasons for default like mismanagement,

diversification of fund, short fall in investment, will fall default

etc. So a credit manager should take various factors into account

before lending a loan.

• Demand Notice:

When a defaulter does not repays loan a demand notice is issued

to him that he has to repay his loan with a stipulate time period.

• Legal Notice:

When a defaulter does not respond to the demand notice a direct

notice is issued to him that if he does not repay the loan action

would be taken against him legally and the court notice is issued

against him.

• Transfer To NPA Account:

When a defaulter does not respond to respond to any legal notice

or he becomes bankrupt the Whole account is transferred to NPA

account.

 

97  

5.3.11. CUSTOMER CARE

SBI home loan customer care services can be accessed from

everywhere and at any time using the toll-free helpline numbers or

the Internet. The bank has extensively covered all major cities of the

country while at the same time not overlooking the customer care

requirements of people residing in rural and semi-urban areas.

borrower can get instant solutions to all borrower’s home loans

related queries the moment he get in touch with the staff working in

a local SBI home loan customer care center.

State Bank of India is undoubtedly the largest financial

institution among all the public and private sector banks operational

in India. As a result, it receives an extremely large number of

requests seeking home loans and other types of financial assistance.

With an extensive customer base spanning all across the country and

also at some locations abroad, SBI has emerged as the largest

provider of home loans in India. Thus it is not uncommon to see an

SBI branch at a remotely located rural or semi-urban area, no matter

where it lies on the geographical map of the country.

The customers can talk to SBI executives in a friendly

environment and obtain information regarding the types of home

loans, current interest rates, repayment options, maximum loan

terms, EMI calculation and so on. Moreover, borrower can use SBI

home loan

customer care service for registering his complaints and

grievances, which ensure a swift remedial action by the concerned

 

98  

authority of the bank. Furthermore, it is also possible to meet an SBI

senior official directly through a special service known as Public

Grievance Cell Facility and get solutions instantly. This facility is

available at all SBI branches across the nation and to avail the same

borrower need not take prior appointment or permission.

An Individual can access SBI home loan customer care service

through toll-free numbers and also through Internet. Though the

customer care toll free numbers are different for each city, the

services provided there remain the same, comprehensive, instant and

bearing the quality standard of State Bank of India.

SBI Home Loans Customer

Care Number (Toll Free): Ahmadabad: 1800 233 7933

Bangalore: 1800 425 8002

Bhopal: 1800-233-7551

Chennai: 1800 425 4424

Delhi: 1800 11 4545

Patna: 1800 345 6100

Guwahati: 1800-345-3631

Hyderabad: 1800 425 3888

Kolkata: 1800 345 3455

Lucknow: 1800 180 5201

Mumbai: 1600 22 8866

SBI Customer Care Mail ID:

Ahmedabad: helpline.lhoahm@sbi.co.in

Bangalore: sbihelpline.lhoblr@vsnl.net

Bhopal: mysbi@sbi.co.in

Chennai: helpline.lhoche@sbi.co.in

Delhi: helpline.lhodel@sbi.co.in

Guwahati luithelp@sify.com

Hyderabad: helpline.lhohyd@sbi.co.in

Kolkata: sbihelpline.lhokol@sbi.co.in

Lucknow: sbihelp@sancharnet.in

Mumbai: helpline.lhomum@sbi.co.in

 

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CHAPTER -6

PERFORMANCE EVALUATION

6.1. COMPETITORS

S.No. Competitor Severity of Competition(Low/moderate/High)? 1 ICICI low 2 HDFC moderate 3 Andhra Bank low

Table 6.1: Competitors (Source: Researchers methodology)

Interpretation:

• Majority of the competitors for the bank are from private

sector in region.

• The closest competitor for the bank is HDFC .Virtually; there

was an “ad war” with teasing rates between the two banks.

• Others include the local player Andhra bank and the private

giant ICICI.

6.2. STRENGTHS AND WEAKNESSES

S.NO. Strengths Weaknesses 1 Able Work Force Long Turnaround Time 2 Network Multiple Visits 3 Innovative Schemes Documentation Needs 4 Loan Pricing Competition 5 Lack Of Prepayment Penalty, Varied Customer Demands 6 Transparency Shortage Of Staff 7 The Interest Rates

Table 6.2 strengths and weaknesses (Source: Researchers methodology)

Interpretation:

• The biggest strength of the bank has been its large

distribution network and able workforce.

• The weakest elements of the institution are the long processing times and the shortage of staff.

 

6.3. S

Interp

•

•

SIZE OF

pretation

There ha

SBI

In the y

54,063 c

doubled

10,00

20,00

30,00

40,00

50,00

60,00

70,00

80,00

Am

ount

(Rs.

cror

es) l

ent

F HOME

FinaYear200720082009

(Sou

n:

as been

year 200

cr in th

in two ye

0

00

00

00

00

00

00

00

00

20

E LOAN

ancial r 7-08 8-09 9-2010

Table 6.

rce: SBI An

Diagram

steady i

09-10, th

he year

ears.

007‐08 

SIZE O

100 

Amountlent 42,71054,063 71,193

.3: Size of ho

nnual Repo

6.1: Size of h

increase

he size h

2008-09,

2008‐0

Financia

OF HOM

t(Rs. crore

ome loan

ort 08-09, 0

home loan

in the h

had grow

, which

09 

l year

ME LOA

es)

09-10)

home loa

wn to 7

implies

2009‐2010

AN

an book s

1,193 cr

the size

 

size of

r from

e had

 

6.4. S

Interp

•

•

S

SHARE O

RH

pretation

The hom

total ret

10.

The oth

personalRs. 8,11,

77%

SHARE OF

OF HOM

Retail CredHome loansOther advanTotal retail

(Sou

n:

me loan s

ail segm

her retail

l loans et12,858 cro

F HOME LF

ME LOA

dit segmens nces advances

Table 6.4:

rce: SBI An

Diagram 6

segment

ent of ad

l advanc

tc got thores in th

101 

OANS IN TOR 2009-1

ANS IN T

t Amount2,42,28,8,11,12,10,53,41

Share of Ho

nnual Repo

6.2: share of

had got

dvances b

ces like

he 77% shhe year.

23%

TOTAL AD0

TOTAL

t in Rs. cro515 858

1,373 ome Loans

ort 08-09, 0

f home loan

a small

by the br

car loan

hare of t

DVANCES.

Home Other

L ADVAN

ores % 23% 77% 100%

09-10)

i.e., 23%

ranch in

ns, educ

total reta

loans advances

NCES.

%

% share

the year

cational

ail advan

 

in the

2009-

loans,

nces of

 

6.5. Q

Total A

2,42,28crores

Interp

•

•

QUALIT

Assets Nin

8,515

4

pretation

Advance

total adv

That im

course w

TY OF A

Non Perforn Home lo

4,16,730 la

(SOUR

n:

es amoun

vances in

plies the

well withi

NPA's1.72%

ASSETS

rming Asseoan Segme

acs

Table 6

RCE: SBI AN

Diagram

nting to R

n the yea

e ratio of

in the lim

s%

QUALI

102 

ets ent

TotaAdva

2,42,crore

6.5: Quality o

NNUAL REP

6.3: Quality

Rs. 4,16,7

ar 2008-0

f NPAs t

mits.

StanderdAssets98.28%

TY OF A

l ances

,28,515 es

of assets

PORT 08-09

y of Assets

730 lacs w

9.

to total A

d

ASSETS

NPAs/ToAssets

1.72%

9, 09-10)

went def

Advance

otal NPAAdva

1.72%

fault out

es is 1.72

 

As/Total ances

%

of the

2%, Of

 

6.6. N

Consu

Interp

•

•

•

•

NATURE

umer Fo

pretation

Majority

unreason

Operatio

The tran

Most of

rates.

Natu

E OF CO

orums:

(So

n:

y of the

nable del

onal syst

nsparenc

f the exi

11

7

5

10

ure of Co

Nat

TedDelTranNegLacInsuTeaHid

OMPLA

Table 6.6

ource: www

Diagram 6.

custome

lays in p

ems used

y level of

isting cu

13

12

6

mplaints

ture of Com

dious Procedays in Procensparency gligence byk of/improp

urance coveasing interesdden charges

103 

INTS co

: customer c

w.consumer

.4: customer

ers are v

rocessing

d by SBI

f the ban

ustomers

3

19

(% of tota

mplaints

dures essing

staff per guidancer st rates s

ollected f

complaints

complaints

r complaints

very mu

g.

are so co

nk is mai

s are de

al) for the

TeDeTrNeLaInsTeHi

NumbeCompla13 19 12 11

e 7 5 10 6

from On

s.in)

s

uch conce

omplex.

intained

emanding

e year 200

dious Procedelays in Procansparency

egligence by ack of/impropsurance coveasing interedden charge

r of aints

nline

ern abou

low.

g for un

09-10

dures cessing

staffper guidanceer est rateses

 

ut the

niform

e

 

104  

6.7. AWARDS AND REWARDS

Best Bank 2009 State Bank of India has been adjudged the best

bank 2009 by Business India. (August-2009)

Shri Om Prakash Bhatt Declared as one of the “25 most

valuable Indians” by the week magazine for 2009. (Published in

August-2009 Issue)

“Best Home Loan Provider 2008” by Outlook Money NDTV-

Profit.

“The Most Preferred Home Loan Provider” by CNBC AWAAZ

Consumer Awards for 3 years consecutively.

 

105  

R E C O M M E N D A T I O N S

On the basis of the collected data and the analysis along with

detailed discussion made in conclusion of this report, some

suggestions can be made to the bank which will be helpful to them in

improving their services operational and financial performance.

These suggestions have been discussed as follows:

1. Using Information Technology and Electronic Data Interchange

at various stages of lending process would definitely give an edge

to the bank in fighting competition and arrive at a more realistic

lending decision. E.g.:

• Use of Central Mortgage Registry (proposed in the Budget-

2010 to be set up) for Title/Deed verification, which will

ensure that no two borrowers in the country will be able to

raise institutional loans against the same asset. This would

help the bank in reducing NPAs.

• Use of credit appraisal reports from CIBIL or Credit

Information Companies (CIC) to avoid frauds.

• Online Processing for various inspections and verifications

etc.

• Online Disbursals and Repayments.

 

106  

2. To increase their customers, the bank should provide specialized

services in this sector. These services can be such as proper

guidance to the customer regarding the processing of loans,

especially for the customers who are illiterate.

3. To satisfy their customers and for good dealings in future, the

bank should make prompt disbursement of loan amount to the

customers so that they can buy or construct their dream home as

early as possible.

4. The Bank should use easy procedure, or say, less lengthy

procedure for the sanctioning of loan to the customer. There

should be less number of legal formalities, in case this exists,

then, these should be completed in less time. This will be helpful

in attracting more customers.

5. Although the interest rates on specific norms, yet customers seek

uniform interest rate giving equal justice to both the existing as

well as new customers.

6. The bank should improve their overall services to increase the

number of customers for home loans. They should recruit

professionals to provide such services and to satisfy the

customers.

7. Although SBI Bank is a market leader in 'home loans' sector but

they should innovate their services, viewing the- increasing

competitions from other banks such as HDFC.

 

107  

8. The Banks should try to provide proper knowledge regarding

their home loan schemes, even to people who don't know about

such schemes and their benefits especially in rural areas. So

they should provide knowledge to the ignorant customers,

especially in rural areas and backward urban area.

9. So, above are the main suggestions provided to the banks. By

considering these suggestions, the banks can strengthen their

customer base in home loans sector.

10. They should improve their services and reduce legal proceedings

and should be friendly to their customers.

11. The bank needs to take serious and sincere steps in reducing the

processing times by taking certain measures like using

Information Technology to process the documents.

 

108  

C O N C L U S I O N

The ratio of mortgage to GDP in India has remained low at

7%, as against 12% for china, 41% for Hong-Kong and more than

80%foor developed countries, thus providing for further growth in

the housing sector during the coming years. Hence, the banks

shall have more opportunities to tap the market.

Banks have been constantly increasing their market share,

there by intensifying competition from other banks as well as

Housing Finance Companies.

While the discounted / special scheme rates are offered to

new home loans, existing customers continue to ply higher rate of

interest. The Indian Bank’s Association has planned to introduce a

uniform rate for all borrowers. As being a Largest Lender in the

segment SBI needs to carry the same spirit and the move is in the

right direction is certainly expected from all the banks. We need to

watch how banks / HFCs adjust their lending portfolios to this

effect in future.

Last, but not the least, you may be the ‘King’ in the Market,

but, the Indian customer is your ‘Boss’ by whom, finally, your

decision has to be moulded.

 

109  

APPENDIX

QUESTIONNAIRE

(BANK OFFICIAL)

Dear Sir/ Madam,

As part of my T.Y.BANKING & INSURANCE curriculum, I, BAKALKAR

AMIT, am undertaking a study Project on “Home Loans” for which I need your

views regarding banking products & services in shape of a questionnaire

designed by me. The data being collected are solely for academic purpose. I

request you to kindly extend your co-operation.

1) How many Home Loan Products that your Bank is offering to the prospect

customers?

Sr.No. Product/Scheme Customer Segment

Interest rate

Quantum of Amount

Tenure

1 2 3 4 5 6

2) What are the unique features of your offerings?

3) How are you rewarding your customers who service their loans regularly

and stand up to your expectations?

4) What are the Value Added Services, if any, that you are offering to the

customers?

5) What are the concessions, if any, that you are offering to the customers?

 

110  

6) What are your strengths and weaknesses in the segment?

S.NO. Strengths Weaknesses

7) Who are your main competitors and what’s the level of competition you

face from them?

Sr.No. Competitor Severity of Competition (Low/Medium/High)?

1 2 3 4

8) How are you promoting your products?

Medium used Proportion of use (low/medium/high)

Any additional Info

Print Media TV Advertisement Personal Selling Campaigns Road-Side Hoardings

9) How are you distributing your Products?

S.NO. Channel (Sanctioned by) Terms/Conditions Proportion of Sales

1 2 3 4

 

111  

10) What is the Process Undertaken (within your branch)

S.NO Stage What is done (operations) /considerations

Who does it How many days it takes

1 Promotion 2 Guidance to prospective 3 Application submission 4 Pre-Sanction Process 5 Sanction 6 Post-Sanction Process 7 Valuation 8 Inspections 9 Legal Sanctions

10 Disbursement

11 Post-Disbursement Inspections

11) How do you see the performance of Marketing Associates and their role in

bringing sales?

12) How many sales you have made from Marketing Associates?

Number of Sales from MAs Total Sales % of Total Sales

13) What are the various standard formats (Proforma Sheets) that you use at

various stages?

Title of the Sheet Primary Contents Purpose Who Maintains it

 

112  

14) What did your customers prefer (Fixed/Floating Interest Rate)?

Type of Interest Rate

Number of Borrowers

Fixed

Floating

15) What is the Authority Structure for distribution of Loans:

Terms/Conditions Sanctioned by Authoritative organ

Administrative Clearance by

16) How are the builders considered and approved?

17) What is the criterion for Repayment?

18) What are the Pre-Closure norms?

19) What is the criterion for Re-Phasement?

20) How are you providing for Bad Loans?

21) What is the Recovery Mechanism that you practice?

22) What is the nature of recovery agents?

23) How do you undertake Take Overs?

 

113  

24) How many prospects (demand)- Applied-Sanctioned-Under Process-

Disbursed?

Customers Number of Proposals

Have shown interest in buying your products

Applied(Applications)

Approved

Sanctioned

Disbursed

25) How many Home loans you have disbursed to:

Target Segment Number of accounts Amount (Rs.) Individuals from Weaker sections

Mortgage loans Salaried individuals Self-Employed individuals Realtors Your Staff

26) What was the purpose of home loans towards which disbursements have

been made?

Purpose Number of Accounts Amount(Rs.)

To Pay for First homes

To Purchase second homes

To Improve/renovate existing homes

 

114  

27) NMI Profile of Customers:

NMI Range No. of Borrowers Total Amount (Rs.)

Up to Rs.2 Lacs

Between Rs.2 Lacs and Rs. 5 Lacs

Above Rs.5 Lacs

28) Loan Amount Disbursals:

Loan Amount No. of Borrowers

Upto Rs.5 Lac

Above Rs.5 Lac and up to Rs.10 Lac

Above Rs.10 Lac and upto Rs.20 Lac

Above Rs.20 Lac and upto Rs.50 Lac

Above Rs.50 Lac and upto Rs.1 Cr

Above Rs.1 Cr and upto Rs.5 Cr

Above Rs.5 Cr

29) Size Of Home Loan Book for the last 3 financial years:

Financial Year

Amount(Rs. crores) lent

2006-07 2007-08 2008-09

30) Year-on-Year Credit Growth :

Financial Year % growth rate

2006-07

2007-08

2008-09

31) What is the Share Of Home Loans in the retail portfolio?

 

115  

32) How many Home Loans have been Taken Over from other Banks:

Bank Number of Accounts Amount (Rs.)

33) How many Outstanding Loan accounts are there?

Number of Accounts Outstanding

Total Amount Outstanding(Rs.)

Total Outstanding/Total Advances (%)

34) How are you mitigating risk factors in lending to the segment?

35) What is Net Income Generated on the segment?

Net Interest Income generated on Home Loans

Total Net Interest Income

% of Total Net Income

36) Have you met the Targets set? 37) How many complaints have been reached at Banking Ombudsman’s Office?

Total Complaints Share of Home Loans % of total

 

 

116  

QUESTIONNAIRE

(CUSTOMER)

Name.__________________________________________________________

Age.______ Occupation.__________________________________________

Income Rs. /- Monthly Annual

Married Unmarried

Home Loan Taken Yes No

IF YES,

from which Bank/Financial institutions___________________________

Amount Rs. /- EMI Rs. /-

Interest Rate. Fixed Floating Rate %

Purpose: For First Home.......................

For second Home....................

For repairing Existing Home

Any Complain regarding Home loan You have taken _______________

_______________________________________________________________ __________________________________________________________________________________

IF NOT

Interested for taking Home loan Yes No

Applied Yes No

If yes, then from Which Bank/F.I. ________________________________

 

117  

Reasons for selecting particular bank? ________________________

________________________________________________________________

Amount Rs. /-

Purpose: For First Home.......................

For second Home....................

For repairing Existing Home

Signature

Thank you.

 

   

 

BOOK

•

MAGA

•

NEW

•

WEB

i.

ii.

iii.

iv.

v.

vi.

vii.

viii.

ix.

K

Jain J.

Delhi, R

AZINE

Outlook

8 Septem

S PAPER

Economi

RESOU

www.sta

www.onl

www.apn

www.con

www.Co

www.len

www.gui

www.ind

www.dea

Artic

Date

B I

N, Mode

ejal Publ

Money,

mber 201

RS

ic Times

RCES:

atebanko

linesbi.co

naloan.co

nsumerco

nsumerc

ndingtree

ide2hom

diahousin

al4loans.

le

es

I B L I

ern Bank

lication.

‘21 Home

10.

of India

ofindia.co

om

om

omplaint

court.in

e.com

eloan.com

ng.com

.com

Econ

7 S

9 S

1 S

31

118 

O G R

king & P

e loan es

and DNA

om

ts.in

m

omic Tim

Sep 2010

Sep 2010

Sep 2010

Aug 201

R A P H

Principle

ssentials

A

mes

0

0

0

0

H Y

es & Tec

to know

17 A

25 M

20 M

chniques

now’,

DNA

Aug 2010

March 201

March 201

 

, New

0

10

10

 

119  

OTHER RESOURCES

1. The Training and Guidance Material supplied to the staff of the

Branch.

2. Annual Reports of RBI(made available on its website

(www.rbi.org.in)

3. Annual Reports of SBI(made available on its website

(www.sbi.co.in)