Comparison of Home Loan Scheme of Different Banks

A

SUMMER TRAINING

REPORT

ON

“COMPARISON OF HOME LOAN SCHEME OF DIFFERENT BANKS”

SUBMITTED TO

SUPERVISOR NAME

SUBMITTED BY

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ACKNOWLEDGEMENT

Perfect is the famous saying and when a person get practical experience under the guidance of expert of the respective field, the knowledge gained is priceless.

With the sense of great pleasure and satisfaction, I present this project report entitled “COMPARISON OF HOME LOAN SCHEME OF DIFFERENT BANKS” completing a task successfully is never a man efforts similarly completion of this report is the result of invaluable support and contribution of number of the peoples in direct and indirect manner. In the light of foregoing, first of all my heartfelt great fullness and thanks goes to Mr. SUMIT SURI as a MANAGER of HDFC LIMITED for giving opportunity to work for his highly esteemed organization and for being a constant source of inspiration and guidance throughout the project. Without his able support the project would not have seen the light of the day.

At this juncture, I would also like to thank all the other team members of the HDFC LIMITED. Without their indispensable cooperation, the project won’t have been completed within the stipulated time period. Finally I would like to thank the staff of otherhome loan provider banks, without whose cooperation in providing the data for the project would have been impossible.

PREFACE

Modern organizations are highly complex ad dynamics systems. They operate under very turbulent social economic and political environment. They are required to reconcile several incompatible goals. Conflicting roles and divergent interest they are also fraught with the use risk and uncertainties, hence tactful management of such organization to plan to execute guide, coordination and control the performance of people to achieve predetermined goals. Management has to keep the organization vibrant moving and in equilibrium. It has to achieve goal which themselves are changing it is therefore a problem highly complex and ticklish.

This information will be asset to marketing manager in making effective decisions. The researches are used to acquire and analyze information and to make suggestions to management as to how marketing problems should be solved.

The marketing research is the process which links to manufacturer, dealers and individuals through information in important part of curriculum of M.B.A. programme is project taken by the students to institute under which he or she is studying, after completion of third semester of the programme.

The objective of this project is to enable the students to understand the application of the academics in the real business life. I am fully confident that this project report will be extremely useful to the management.

INTRODUCTION

The roof over one’s head and ground beneath one’sfeet count as the bare necessities of life. There’s nothing quite like owing a home, however humble to give that warm and glowing feeling. But when one buys a home, one has much more than a feel good purchase in mind! It’s also a crucial investment decision, perhaps the biggest spending decision of one’s life. There are ample opportunities today for young salaried investors to plan their moves early and buy a house at right time- and at right price. In the process, not only do they fulfill that cherished dream of owing a house, but also put themselves on the path to acquiring property that would meet the needs and aspirations of their growing family, even as it leads to wealth creation. Every individual aspires to own a home. But many either spend a lifetime saving to purchase a house or exhaust money on monthly house rents.

Take a house loan and let the monthly rent (easily converted into affordable EMI’s) build dream home.

OBJECTIVE OF THE STUDY:

The main objective of the study is to find out the tariff changes charges by other banks in comparison to HDFCbank.

The aim of the study is to help HDFC to know where it lacks in loans and how for the performance of other banks is better so that HDFC figure out the common problems being faced by the customers while dealing in the loan department so that further HDFC can improve its services and schemes offered by them to their customers.

PROFITABLE PROPOSITION

“The overall demand in residential sector has grown by about 7-8% in the past few months as compared to the same period last year. The growth is on account of two main factors:

One, income tax exemption.

Two, with no similar rebates available for individuals in the high income group, they are creating a second asset.

Add to this the stable property prices over the last year and plunging interest rates, planning for dream,] home could not have been better timed. Rock-bottom interest rates, standardization of periodicity of interest calculation across lenders (which make it easier to compare loans), lower interest charges, waiver of loan application processing fee and a customer friendly attitude is reason enough to celebrate the ascension of the home loan consumer as the king.

In response, private players like ICICI Bank, IDBI Bank, Standard Chartered Bank and few others too lowered their rates.

Market leader HDFC also brought down its interest rate to 8.75% very recently, to participate in the interest rate war. If one is still not satisfied with the lowered loan rates there’s more. Some industry watchers believe that the floating home loan rate will slip to 8% for long term loans another two or three years.

Most banks have changed the way the interest is calculated from annual rest to monthly rests. Under the annual rest method, the EMI’s (equal monthly installment) one pay through a year, are factored in as part-repayment of the principal component only at the end of each year. In other words one has to pay interest even on the installments one has paid until they are reduced from the principal at the end of each year. Under monthly rests, the principal is lowered by the appropriate amount each month. The thumb rule being that the more frequently interest is calculated, the better for the creditor.

HDFC added monthly rests on its fixed interest loans apart from annul rests. As a result the fall in the EMI’s on fixed interest loans (where the interest rate is constant for the entire tenure of the loan, irrespective of the changes in the lending rates) is more pronounced than on floating rate loans (where the loan interest rate varies with the changes in the interest rate). For example, the EMI on a fifteen year fixed interest loan for Rs. 15 lakh has come down by Rs. 15 lakh has come down by Rs. 840, the corresponding fall in the EMI on a floating rate loan is only 4165. apart from lowering the cost of one’s loan, the switchover to monthly rests has another advantage : it makes it easier to compare loans.

HOME LOAN

Home loans are loans you have access to, depending on whether you want to buy or build a house and can also be used to repair or extend an existing house.

Who can avail of these loans?

According to lending institutions, any Indian resident who is over 21 years of age at the beginning of the loan and below 65at its maturity can avail of the loan. Salaried Employees as well as Self- Employed citizens can apply. NRI Salaried and RBI Self Employed, under RBI guidelines, can approach only nationalized banks and other HDFC for loans.

Why should one option for a loan to buy a house?

Taking a loan seems like a good option when the money at hand is insufficient to buy the house of your dreams. Consider couples in their twenties and thirties. They enjoy a good income currently, buy their accumulated capital isn’t enough to purchase a house. Whereas a home loan can give them access to capital their current earnings.

Also, if you take a 10 years old loan when you are thirty, you could repay it by the time you’re forty. So you don’t have to be burdened with the interest and are free to plan your retirement savings.

The Quantum of loan that one can avail of :

Loan sanctioned depend on your repayment capacity – which is based on your current income and your future repayment capacity. You would include your spouse’s name to enhance the loan amount.The maximum loan can be sanctioned varies with each bank/institutions and ranges from Rs.10 lakhs to Rs. 1 crore.

Benefits of taking a home loan:

A home loan is very different from a personal loan like a car loan for instance. You can utilize a home loan for financing an asset that will hold its value and even appreciate over the period of the loan. Though its price could fluctuate in the short terms, Total Estate will show capital appreciation over the years. The value of your house generally while the loan remains constant. If you had opted to wait, save up and buy a house, it would, in the long run cost you much more; home loans also come with many tax benefits.

Tax benefits of taking a home loan:

The income tax authorities look with favor upon those servicing a housing loan from specified financial institutions. And, it is up to you to be wise enough to take advantage of this.

Section 24 of the Income Tax:

Interest on loan till Rs.1.5 lakhs per annum is exempted form income tax (under section 23/24(1) of the Income tax act).

Section 88 of Income Tax Act:

You get a 20% rebate on repayment of principle during a financial year. Once again, over the years, the principle repayment eligible for rebate has been enhanced from Rs.10,000 to the current limit of Rs.20,000 Stamp duty, registration fee or transfer of such house property to the assesses is also considered under this amount.

Financial Institutions, which give, home loans:

Leading BanksHousing finance companies

FINANCIAL IMPLICATIONS OF AVAILING A LOAN (SMALL OR BIG)

There are several expenses involved apart from repayment of the actual loan amount:

1.Processing fees- A processing fee (PF) is charges at the time of submission of the application form and covers expenses incurred for processing the application form. This fee has to be paid upfront by the customer – in some cases, it is non-refundable.

2.Administration fees- to meet operating expenses.

3.Pre-EMI- A simple interest calculated on the disbursement amount in case of a plot under construction.

4.EMI- The EMI is an abbreviated form of the equated money installment and is simply referred to as monthly installment in common parlance. And, being a self-explanatory term that is exactly what it is. The amount you will have to pay you financier every month when repaying your loan. Being a monthly payment, at the end of the year, you would have paid 12 EMIs.

TYPES OF LOANS AVAILABLE

Broadly two types- fixed rate and variable rate loans; while the former deals with a fixed rate of interest over the entire duration of the loan, the latter has the rate of interest changing according to the fluctuations in the market.

LOAN THAT ONE CAN AVAIL

Up to 85-90% of the total cost based primarily upon the individual’s payback capacity.

GENERAL CONDITIONS THAT GOVERN A HOME LOAN:

These are likely to vary with respect to the different types of housing loans:

The maximum period of the loan is normally fixed by HFIs. However, HFIs do provide for different tenors with different terms and conditions.

The Installment that you pay is normally restricted to amount 45% of your monthly gross income.

You will be eligible for a loan amount, which is the lowest as per your eligibility. This is calculated on the basis of your gross income and payback capabilities.

Some HFIs insist on guarantees from other individuals for due repayment of your loan. In such cases you have to arrange for the personal guarantee before the disbursement of your loan tasks place.

Most HFIs have a panel of lawyers who go through your property documents to ensure that the documents are clear and are not misrepresented. This is an added benefit that you get when you avail of a loan from an HFI.

You repay the loan either through Deduction against Salary, Post dated cheques, and standing instructions or by Cash/DD.

WHAT ALL ONE CAN TAKE THE LOAN FOR?

There are different types of home loan tailored to meet ones needs here’s all some of them.

Home purchase loan: This is the basic home loan for the purchase of new home.

Home improvement loans: These loans are given for implementation repair works & renovation in a home that has already been purchased by the client.

Home construction loan: This is available for the construction of new home.

Home extension loan: This is given for expanding or extending an existing home for e.g.: addition of an extra room etc.

Home conversion loan: This is for those who have financed the present home with home loan & wish to purchase& move to another home for which some extra funds are required through home on version loan ,existing loan is transferred to the new home including the extra amount required eliminating the pre payment of the previous loan.

Land purchasing loan: this loan is available for the purchasing of land for both construction and investment purpose.

Bridge loan: these are designed for those people who wish to sell the existing home & purchase another one. The bridge loan help finance the new home, until a buyer is found for the home.

HDFC BANK

INTRODUCTION

HDFC (Home Development Finance Corporation) Home Loan, India have been serving the people for around 3 decades and providing various housing loan according to their varied needs at attractive and reasonable interest rates. Owing to their wide network of financing, HDFC Home Loans provide services at doorstep and helps you find a home as per your requirements.

COMPANY PROFILE

HDFC Limited founded in 1997 by Ravi Maurya and Hansmukh bhai Parekh, is an Indian NBFS focusing on home loans. HDFC operates through almost 450 locations throughout the country with its corporate head quarters in Mumbai,India. HDFC also has an international office in Dubai, UAE with service associates in Kuwait. HDFC is the largest housing company in India for the last 27 years.

HDFC was amongst the first to receive an in principal approval from RBI to set up a bank in the private sector, as a part of the RBI’s liberalization of the Indian banking industry. It was incorporated on 30th august 1994 in the name of ‘HDFC Bank Limited’, with its registration office in Mumbai. HDFC began its operations as a scheduled commercial bank on 16th January 1995.

ABOUT THE PROMOTER

HDFC, the promoter, is India’s premier housing finance company and enjoy animpeccable track record in India as well as in international markets.

Since its inception in 1997, HDFC has maintained a consistent growth in its operation and profitability. Its outstanding loan portfolio covers over a million dwelling units. HDFC has developed significant expertise in retail mortgage loans to different market segment and also has a large corporate client base in relation to its housing related credit facilities and its investment in portfolio.

With its tremendous brand equity, the strong reputation in the Indian and international financial services market, large shareholder base and unique consumer franchise, HDFC was ideally positioned to promote a bank in the

Indian environment. HDFC (together with its fully owned subsidiary HDFC Investment Limited) owns about 31 % of the equity. They had started with a strategic alliance with the Natwest group in UK with 20% equity, which has divested later on. The bank has also signed a memorandum of understanding for strategic business collaboration with chase Manhattan Bank in Feb. 2, 1999.

BUSINESS PHILOSOPHY

The mission of the HDFC Bank is to be world class Indian bank. This would imply a bank that would meet various financial needs of its customers in a convenient and cost effective manner at international standard of service.

The bank seeks to achieve the status of a “preferred organization” among its major constituents- customers, shareholders, regulators, employees, suppliers etc. while maintaining the highest level of integrity and corporate governance.

The business philosophy at HDFC bank is based on four core values: operational excellence, customer focus, and product leadership and people competitors.

The Bank faces the strong competition in all of their principal lines of business. Their primary competitors are large public sector banks, other private sector banks, foreign banks and in some product areas, non-banking financial institutions.