A REPORT ON CENTURION BANK OF

PUNJAB(NOW HDFC)
PROJECT TITLE:APPRAISAL AND
FINANCING OF ASSET PRODUCTS OF
HDFC
SUBMITTED BY:
PREETHA MUKHERJEE
(E.I.I.LM.)
PRODUCT NAME-HOME LOAN AND
MORTGAGE

EXTERNAL GUIDE-MR.DIPANJAN
ROY(HDFC)
INTERNAL GUIDE-MR.SMARAJIT
SENGUPTA(E.I.I.L.M)

ACKNOWLEDGEMENT
Learning is an active process, as such I am delighted in making
the venture by way of preparing the project work on An
appraisal and financing of asset products of Centurion Bank Of
Punjab subsequently taken over by the HDFC Bank. I have
always endeavoured to disseminate the subject matter of my
project in as much as clear, lucid and comprehensible language
with objective analysis.
During that course of journey I am indebted to quite a few
personalities to whom I express my sincere gratitude because
without their lending support to me this project work could not
have seen the daylight. In this respect first , I wish to express my
sincere gratitude to Mr. Dipanjan Roy(Branch Head) who has
kindly consented to allow me to work under his guidance for my
summer project in the bank. He, also being the external guide
contributed substantially to the contents and structure of my
project.
I would also like to thank Mr.Bishan Das(Relationship
Manager)for extending his support particularly in the aspect of
imparting the knowledge of the specific banking product that
comprises my project work. Expressing my gratitude would be
incomplete without mentioning the names of Aditi Mukharji,
Subhrangshu Biswas and Joydip Roy but for their active support.
Apart from the names mentioned above the other employees, as
well have made this journey of two months an experience to
remember.
I am equally indebted to Mr.Smarajit Sengupt ,my internal
guide,whose innovative thoughts, effective guidance and warm
gesture paved the way for making the project a reality.

CONTENTS:
INTRODUCTION
OBJECTIVE
METHODOLOGY
MERGER STORY
FINANCIAL ANALYSIS OF MERGER
APPRAISAL AND FINANCING OF HOME LOAN
AND MORTGAGE

OVERVIEW
TYPES OF HOME LOAN
GENERAL FEATURES OF HOME LOAN
ABOUT HDFC LTD
HOME LOAN FEATURES OF HDFC
DOCUMENTS REQUIRED
PROCEDURE OF HOME LOAN DISBURSAL
BY HDFC
SECURITY FOR HOME LOAN(MORTGAGE)
ELIGIBILITY CALCULATION
COMPARISONS
RECOMMENDATIONS

CONCLUSION

INTRODUCTION
Generally, the income and deductions of a banking entity are computed in
the same way as those of other corporations. They are also subject to the
same federal income tax rates that apply to other corporations. The term
"bank" in recent years has become increasingly blurred, but is usually
applied to any establishment engaged in the various functions associated
with a bank. These functions include the receiving, collecting, lending,
and servicing of money.
Banking Industry has revolutionized the transaction and financial
services system worldwide. Through the development in technology
banking services has been availed to the customers at all times, even after
the normal banking hours, on a 24x7 basis. Banking Industry services is
nothing but the access of most of the banking related services (such as
verification of account details, going with the transactions, etc.). Now-adays, almost all the banks all over the world, especially the multinational
ones, provide their customers with Online Banking facility.
By the 1960s, the Indian banking industry has become an important tool
to facilitate the development of the Indian economy. At the same time, it
has emerged as a large employer, and a debate has ensued about the
possibility to nationalize the banking industry. Currently banking in India
is generally fairly mature in terms of supply, product range and reacheven though reach in rural India still remains a challenge for the private
sector and foreign banks. In terms of quality of assets and capital
adequacy, Indian banks are considered to have clean, strong and
transparent balance sheets relative to other banks in comparable
economies in its region.
In this space the focus is mainly on a particular bank that is Centurion
Bank of Punjab(CBOP) that has been taken over by HDFC and the
discussion centres around products mainly home loan and mortgage. First
the merger is discussed as to how CBOP has been merged with HDFC and
then the financing and appraising of home loan and mortgage.

OBJECTIVES:
To find out reasons for merger.
To find out parameters for disbursing loans to
customers.
To find out extent of loans disbursed by HDFC and
other processing charges in comparison to other
banks.(Especially in case of home loan & mortgage).

METHODOLOGY:
Primary data collected from the direct interaction
with branch manager, relationship manager.
Secondary data collected from internal source.
Observation from News Paper, Business Journal.
And observations from Internet

MERGER
Rather than waiting for changes to happen through slow organic growth, it is far
better to do it through mergers and acquisitions. Hence the attraction of mergers in the
banking space over and above the usual advantage of economies of scale. For HDFC,
the buyout makes eminent sense.
The merger is the culmination of a search, done independent of each other, by
HDFC Bank and CBoP, to find a partner who could help them capture and ride the
growth in the financial services industry more optimally. More particularly, HDFC
Bank, the second-largest private sector bank in the country, had been scouting for a
merger opportunity that would add scale to its operations, facilitate its expansion to
every nook and corner of the country, and bring on board an experienced management
team that would add to its management bandwidth. CBoP provides the perfect fit in
terms of culture, strategy and approach to business.
The top brass of the two banks have also developed a good chemistry. The HDFC
Bank-CBoP merger brings both advantages and downsides to the post-merger HDFC
Bank. The advantages can be analysed as the reasons for these banks to merge: They
are:
One of the critical barometers is the bank's capital adequacy ratio. Capital adequacy
ratio measures the amount of a bank's capital expressed as a percentage of its credit
exposure. Two types of capital are measured: tier one capital, which can absorb losses
without a bank being required to cease trading, and tier two capital, which can absorb
losses in the event of a winding-up and so provides a lesser degree of protection to
depositors. The Basel rules recognize that different types of equity are more important
than others. To recognize this, different adjustments are made:
1. Tier I Capital: Actual contributed equity plus retained earnings.
2. Tier II Capital: Preferred shares plus 50% of subordinated debt.
CBOPs total capital as a percentage of its risk weighted assets was 11.5% of which the
Tier I capital adequacy ratio was 10.0% and the Tier II capital adequacy ratio was
1.5%. HDFC Bank's good capitalisation levels also reflect in its high Tier I capital
adequacy ratio and overall capacity adequacy ratio, each as a proportion of riskweighted assets, at 8.55 per cent and 11.41 per cent respectively.

With capital requirements for banks set to get more stringent next year onward as per
the Reserve Bank of India's Basel II norms, consolidation in the banking industry may
become more common.
Basel II implementation could see banks' operational costs shooting up and a
consequent rise in charges levied from customers. Thus, bigger banks with a better
scale of economies would be able to provide services at a lower cost and prevent
customer attrition. Basel II mandates stricter capital requirements based on the banks'
own measures of risk that require comprehensive data collection and analysis, which
will be expensive to implement. Further, the norm will require significant changes in
internal systems and processes, which are expensive as well.
Larger banks make stronger banks. Size and scale do matter in the banking space and
this deal has not come as a surprise. Stricter capital adequacy norms with Basel II
implementation could force more banks, especially several of them down south, to
merge with bigger entities. Thus, consolidation in the banking sector should go on for
a while.
With capital requirements for banks set to get more stringent next year onward as per
the Reserve Bank of India's Basel II norms, consolidation in the banking industry may
become more common.
Basel II implementation could see banks' operational costs shooting up and a
consequent rise in charges levied from customers. Thus, bigger banks with a better
scale of economies would be able to provide services at a lower cost and prevent
customer attrition. Basel II mandates stricter capital requirements based on the banks'
own measures of risk that require comprehensive data collection and analysis, which
will be expensive to implement. Further, the norm will require significant changes in
internal systems and processes, which are expensive as well.
The merger will further improve the franchise and customer proposition offered.
HDFC gets 394 branches and licences for 350 more when RBI is being very stingy on
doling out branch licences i.e. gains geographical spread, especially in Punjab and
Kerala. CBoPs branch network will also facilitate the expansion plans of HDFC Bank
subsidiaries HDFC Securities and HDB Finance, a non-banking finance company, in
newer areas. The marriage offers a strong platform for accelerated growth
It will create a bank with a Rs 1,50,000-crore balance sheet.
HDFC Bank gets the top class management of Centurion Bank of Punjab.
7

Strong two-wheeler, commercial vehicle and construction equipment portfolio. About

40 per cent of CBoP's total retail assets comprise home loans, car loans and personal
loans.
Small and medium enterprises (SME) client base of 2,500 and advances of over Rs
1,500 crore.
However the disadvantages cannot be ignored. They are summarized as follows:-

Share of low-cost deposits to decline marginally as CBoP has a much lower portfolio
of such deposits than HDFC Bank.
CBoP has relatively high net NPAs of 1.31 per cent. This will affect HDFC Bank's
asset quality.
Employee integration to be a big issue as CBoP has a large workforce.
Technology integration to take time and also cost a packet as the two banks operate on
different latforms.
It's an all-stock deal, but HDFC Bank promoter HDFC will have to pump in close to
Rs 4,000 crore to maintain its stake at a little over 23 per cent.
The merger will definitely lower the quality of HDFC Banks assets. It currently has a
net NPA level of 0.43 per cent, compared to the corresponding CBoP figure of 1.31 per
cent. So, even after accounting for the latter?s smaller loan portfolio, there will be
some increase in the net NPA level of the postmerger HDFC Bank. Then, NPAs
typically surface 2-3 years into the tenure of loans. Whether or not there are any booby
traps lurking in CBoP?s retail loan portfolio will be known only in future.
On the business front, the retail sector, which has powered the impressive performance
of the banking sector in the recent past, is experiencing a slowdown and banks are
already feeling the pinch. And, if the US slowdown turns into a full-blown recession, it
will be difficult for India to escape its impact. Under such circumstances, servicing a
large balance sheet will become difficult. So, while rival ICICI Bank spreading its

wings internationally, HDFC Bank top brass will get caught in managing the
integration for at least a year.
But banking sector analysts say both merging banks have experience at integrating
other banks into themselves?HDFC Bank acquired Times Bank while Centurion Bank
successfully merged Lord Krishna Bank and Bank of Punjab with itself. This
experience, and the track record of the top management of the combined bank,
analysts add, mean the pluses outnumber the minuses by a wide margin. Lots of
investors will be keeping their fingers crossed.
To answer the question as to why a merger is necessary at this stage HDFC Bank MD
Aditya Puri said, CBOP has 50% of the branch network , which HDFC Bank has. It
also has a robust SME and agri-financing franchise. There will be no management
integration issues as this will be a fair,professional and clean merger. We will not be
looking at downsizing the staff,who would join us from CBOP. The merged entity
would have a base which would be large enough to accommodate everyone. Mr.Puri
further added: We will look at other banks for inorganic growth opportunities, once
we digest this deal. Given the growth in our distribution network, we will gain market
share across all products, credit cards,personal loans and auto loans. The merger will
help us gain greater market share that too,at a faster pace.
Centurion Bank of Punjab shareholders will get one HDFC Bank share for every 29
shares they hold according to the swap ratio approved by the boards of the respective
banks.
Pre merger conditions
CBoP infrastructure and capabilities were underutilised. Although it had 400
branches which is more than 50% of the 700-odd branches that HDFC had, its
balance sheet was only 25% of HDFC.
CBoP was paying a higher cost of deposits which, when they come up for maturity, is
being renewed at the same cost as HDFC Bank. CBoP had good people, who were
sitting there as a cost after the bank had stopped some of the business like small-ticket
personal loans and two-wheelers. All its vendors now have to give HDFC pricing,
allowing cost-savings. CBoP was the fastest-growing private sector bank and it was
achieving this with an arm and a leg tied behind its back. It had hardly any products to
offer. But it had an excellent sales force. What the bank needed was a little more
direction, little more investment and products. All of which have been put in place.
The cost to revenue ratio of CBOP was 73% while that of HDFC was 49.9%.
Combined it could go marginally up to 53%-55%. Comparing the CASA ratio HDFC
were at 45%-50% while CBOP being at 24%-25%. Combined it could come down to
43%-45%
presently and 45%-50% within 6-9 months. The same goes for
delinquencies. Net NPA before the year-end will be the same as it was with HDFC
Bank.

In terms of interest earned and interest spared HDFC bank (11.10% and 4.30%) is
ahead of CBoP (12.60% and 3.30%) in interest spread while the latter has a better
yield. This is interesting as the HDFC may open it to new markets improving the
existing margins on larger funds.
The proportion of savings and current account deposits in these two banks present an
interesting picture. The CASA is high at 50.9% at HDFC Bank leading to lower cost of
funds, whereas CBoP has high cost deposits as its CASA is below 25%.
The capital adequacy of CBoP is 11.50% while the HDFC bank has capital adequacy
of 13.8%.
Both CBoP (57%) and HDFC (30%) had shown good growth in the other income for
the quarter ended Dec 07.
Post merger conditions
The post-merger conditions can be analysed as : HDFC Bank has gained high yielding
SME portfolios, 450 branches, good quality assets which are yielding at 9.30%, fairly
good business with capital adequacy taken care of and above all trained manpower to
leverage on its strengths in newer geographical areas.
The combined entity will have 1148 branches spread over the country, northern region
having more number of branches and 2,358 automated teller machines (ATMs) will
make it the largest by branches in the private sector.
Additional Branch network will help HDFC to distribute its financial products such as
mutual fund schemes and insurance.
CBoP has home loans while the HDFC bank prefers to keep away from home loans
reserving the space for the parent HDFC. CBoP home loan portfolios will be sold and
that will explain partly the buoyancy in HDFC shares as the latter stands to gain in
such an n arrangement. It has to find monies for the additional share subscription and
home loan take over.
But, with CBoP, HDFC Bank has, in fact, gobbled up four banks in all: Times Bank,
Centurion Bank, Bank of Punjab and Lord Krishna Bank. Puri, therefore, has made it
good, and has managed to close the gap with others, but just a wee bit. CBoP has not
fully absorbed the Lord Krishna Banks operations. This is an additional area of
concern to HDFC while consolidating the operations. While the Centurion bank staff
is expected to resemble HDFC bank in terms of methods, the latter has a job to do to
mould the staff of Bank of Punjab and Lord Krishna Bank, which was recently taken
over by Centurion Bank. We can expect a fait amount of employee shake out as
HDFC bank prepares to implement new work culture.

10

SME loans are prone to defaults at the signs of economic contraction as these
businesses are highly leveraged. At present CBoP has reported net non performing
asset of 1.60% of its assets compared 0.40% reported by HDFC Bank. This is expected
to strain the capital funds as and when the deceleration of the economy or IT slow
down affect personal loans.
Post-merger, HDFC Bank will have an asset size of Rs 1,09,718 crore. In the pecking
order, it will be seventh. The State Bank of India is the pack-leader at Rs 5,66,565
crore followed by ICICI Bank (Rs 3,44,658 crore).
It also gains from substantial cross-selling opportunities in the short-term. However, it
will not vend home loans given the conflict of interest with parent HDFC and may
even sell down CBoPs home-loan book to it. A point of concern is the fact that the
retail portfolio of the merged entity will have more by way of unsecured and twowheeler loans. This business has come under pressure in recent times.

We try to provide how both the banks stack up in terms of figures:(as on

Dec31,07,figures in Rs.crores)
HDFC
Net Profit

1,119

Advances

71,386

Deposits
Total Assets

99,386
1,31,439

CBOP
118
15,083
20,710
25,403

Net Interest Margin

4.3

3.6

Branches

754

394

ATMs

1,906

452

Thus the highlights of the merger being:

11

 On Feb 25, 2008, HDFC Bank approved the acquisition of Centurion Bank
of Punjab (CBoP)
CBoP shareholders will get 1 share of HDFC Bank for every 29 shares held
by them.
RBI approved the merger and the amalgamation; effective date May 23,
2008.
HDFC group, the promoters of HDFC Bank, would infuse further capital to
keep their shareholding level intact after the merger.
A capital dilution of around 25% would take place consequent to the
merger and preferential allotment to promoters (HDFC group).
A table comparing the estimates(E) of HDFC Bank with and without the merger is
presented below.
HDFC Bank-with and without merger
Details

Without merger
2008-09E

With Merger & promoter

money infusion

2009-10E

2008-09E
2009-10E
CASA
54%
55%
49%
50%
NIM
4.75%
4.80%
4.75%
4.79%
EPS(Rs.)
62
81
58
76
CAR
12.8%
12.5%
14.1%
13.1%
ROE
17.0%
18.7%
15.9%
15.5%
ROA
1.48%
1.59%
1.42%
1.53%
Source: Company Releases, Religare Institutional Equity Research
Estimates on the financials of the merged entity as presented in the above table. shows
that the merger is earnings dilutive in the near term i.e. at least until FY10. Even
though the margins of the bank might not be hit, the ROE and ROA should dip during
FY09 and FY10. CBoP has not announced its FY08 (and Q4) financials yet and as per
the latest Dec 2007 Q3 reports, the banks balance sheet size was Rs 254 bn with a
CAR of 11.5%.
Of its total advances, 60% were made to the retail segment of
which mortgage and personal loans comprised more than 50%. The quality of
these loans and the provisioning required to be made for these loans are the
other key areas unclear from HDFC Banks standpoint, in terms of the merger. The
last 4 quarters information were used as basis of the combined estimates.

12

FINANCIAL ANALYSIS
The analysis is highlighted with the help of bar-diagrams. These data has been
represented from the following table.
years
profit
before
tax
profit
after tax
deposit
loans
EPS
tier1
capital
ratio
total
capital
ratio
dividen
d per
share
BV per
share at
31st
march
MV per
share at
31st
march

2005-06

2006-07

2007-08

125351

163875

228063

87078
114145
159018
5579682 6829794 10076860
3506126 4694478 6342690
27.92
36.29
46.22
8.55%

8.58%

10.30%

11.41%

13.08%

13.60%

5.5

8.5

169.24

201.42

324.42

774.25

954.15

1331.25

It is represented in the following bar-diagrams.

13

This figure show the difference between profit before tax and profit after tax of HDFC
banks in last three years by which we can find net adjusted profit. From 2005-06 to
2006-07 the increase increase in profit before tax is 30.73% and that from 2006-07 to
2007-08 is 39.16%. While the rise in profit after tax from 2005-06 to 2006-07 is 31.08%
and from 2006-07 to 2007-08 is 39.31%. As we can see that PBT & PAT have increased
for last two consecutive years, it clearly shows HDFC Bank has been doing
exceptionally well.

Through the overall transaction which occurred in last three years we can find out
that there is a healthy relationship between the deposit taken and loan given, which
is very essential for a banks proper functioning and earn to a good profit. Here we
see the % increase in deposits from 2005-06 to 2006-07 is 22.40% whereas from
2006-07 to 2007-08 it is 47.54%. Again in case of loans the increment from 200506 to 2006-07 has been 33.89% and that from 2006-07 to 2007-07 is 33.89%. Here
also we can see that HDFC Bank has maintained an uniform growth from 2005-06
to 2007-08.

14

The % increase in EPS from 2005-06 to 2006-07 and 2006-07 to 2007-08 has been
29.97% and 27.36%. While tier1 capital has increased from 0.03% to 1.72% in 2005-06
to 2006-07 and 2006-07 to 2007-08 respectively. While for total capital ratio it is 1.67%
to 0.52%.Hence in this case we find that the increment has been a little less than the
previous year. Now the dividend per share has shown a % growth of 27.27% from
2005-06 to 21.42% which is also a little lower than the rate of the its preceding year.

This figure shows the growth of book value & market value of per share in last
three years. The % increase in book value per share from 2005-06 to 2006-07 is
about 19% and that of market value is 23.23% while that from 2006-07 to 2007-08
of book value is 61.06% and that of market value is 39.52%. It can be clearly seen
that market value of per share has increased considerably in comparison to the
book value, so we can say that the value of the share of HDFC have increased by a
15

long way in the last three years. The % increase in book value per share from
2005-06 to 2006-07 is about 19% and that of market value is 23.23% while that
from 2006-07 to 2007-08 of book value is 61.06% and that of market. It clearly
reflects a promising future for HDFC Bank.

HOME LOAN AND MORTGAGE

Against the milieu of rapid urbanisation and a changing socio-economic scenario, the
demand for housing has grown explosively. The importance of the housing sector in
the economy can be illustrated by a few key statistics. According to the National
Building Organisation (NBO), the total demand for housing is estimated at 2 million
units per year and the total housing shortfall is estimated to be 19.4 million units, of
which 12.76 million units is from rural areas and 6.64 million units from urban areas.
The housing industry is the second largest employment generator in the country. It is
estimated that the budgeted 2 million units would lead to the creation of an additional
10 million man-years of direct employment and another 15 million man-years of
indirect employment.
Home loans in India implies ownership of a house on payment of monthly installments
with an interest rate, in fixed or floating rate. Factors like the salary of the client, the
desired loan term and other related parameters of the customers profile determine the
home loans in India. The home loan rates in India varies with the nature of the loan,
with the choice of fixed rate loan or a floating rate loan.
There are many nationalized banks as well as housing companies who offer
finance at affordable interest rates. Some of the leading sources of Home Loans in
India are:

Citibank
Dewan Housing Finance
GIC Housing Fin.
HDFC
Hudco
HSBC
ICICI
IDBI
Kotak Bank
LIC Housing Finance Ltd.
PNB Home Loans
SBI Home Loans
16

 Standard Chartered Bank

Tata Housing Finance
TYPES OF HOME LOAN
. Not only are home loans a handy tool for the common man to own a roof over his
head but they also help save money in longrun. There are different types of home
loans tailored to meet your needs.

Home Purchase Loans: These are the basic forms of home loans used for
purchasing of a new home.
Home Improvement Loans: These loans are given for implementing repair
works, healing and renovations in a home that has already been purchased.
Home Construction Loans: These loans are available for the construction of a
new home.
Home Extension Loans: These loans are given for expanding or extending an
existing home. For eg: addition of an extra room etc.
Home Conversion Loans: These loans are available for those who have
financed the present home with a home loan and wish to purchase and move to
another home for which some extra funds are required. Through home
conversion loan, the existing loan is transferred to the new home including the
extra amount required, eliminating the need of pre-payment of the previous
loan.
Land Purchase Loans: These loans are available for purchasing land for both
construction and investment purposes.
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.

FEATURES OF HOME LOAN

Home loan is not a one-time decision; the market needs to be reviewed periodically
before availing them. Today there are unlimited numbers of banks in the country
wanting to give out Home loans. Given this scenario, it may seem easy getting a
loan.
But
its
not
completely
agreeable.
Buyers tend to make mistakes while entering into deals, which may not be
beneficial for them, so its better to compare all the variables before signing a loan
agreement by different banks. However the loan agreement should be finalized
only after reading the terms and conditions carefully.
: Home loan is a secured loan wherein collateral are required.
Loan tenure:: The maximum loan tenure is 20 years.
So if a customer is planning to avail a home loan, the following considerations must
be taken into account:

17

Firstly, it,s wise for the customer to take his own time and evaluate his expenses and do
a market survey about the property buying process. Buying a house, which is way
beyond his range, could affect him financially; banks help in financing customers
dream home via home loans.
Eligibility: Banks determine customers eligibility based on his repayment capacity
and discuss about the loan amount up front. The eligibility for acquiring a home loan
is augmented by clubbing income of customers father/spouse/mother/son, by clearing
his outstanding debts, by stretching his loan tenur., Salaried individuals can increase
their eligibility by showing their performance linked income or bonus earned.
Secondly, the customer must make his own analysis and check the impact of his
repayment of home loan on his monthly expenditure, as a thumb rule, its
recommended to make sure the EMI of his home loan do not exceed more than 40%
of his gross monthly income.
Interest rates best suited :An important factor that goes into customers EMI
calculations is the interest rates, which may vary from bank to bank. So a complete
and detailed analysis of the various options like the interest rates i.e. fixed and floating
rate of interest should be made.
Thirdly, if two banks give the customer the same amount of loan but at different
interest rates do the customer must decide whats best for him..
Fixed interest loans charge an interest, which remains the same through out the
tenure of the loan. This means that the consumer is immune to market risk or the
possible upward movement in the interest rates.
Hence, fixed rate is a good option when the interest rates are expected to move up in
the future.
As for floating rate loan, a consumer is exposed to market risk and his gain or loss
depends on the interest rate condition prevailing in the market. Floating rate is
beneficial if the interest rate falls in the future. A floating rate is considered nontransparent and is also known as 'adjustable rate'.
Fourthly, if the customer decides to opt for a fixed rate loan, he can still switch to a
floating rate loan in the future and vice versa as and when rates go in his favour and if
he decides to switch, he should take into account the cost of doing so and the interest
rate benefits of switching.
For a given interest rate, loan with a daily or monthly reducing balance is better than
an annual reducing balance loan. Interest rates vary depending on the tenure of the
loan, the amount of the loan and the consumers personal profile.
Insurance cover (an added cost) Also, many banks may insist on getting the customers
home insured to safeguard their interest. There are various kinds of insurance covers
available for the customers. Apart from getting the mandatory ones, he should try to
get insurance as per his circumstances. He also has a choice of getting insured from
another company without any objection from his particular bank.
Other costs The interest rates and EMIs are not the only cost factor. A 1%
administration fee and a 1% processing fee on a Rs.10 lac loan, would amount to
Rs.20,000.
Processing fees, administration fees, valuation fee, legal fee, is to be paid when anyone
applies for a loan and other fees paid at closing. Many of these fees are negotiable.
The customer should ask for zero processing fees and zero-penalty for pre-payment

18

option. If this were not available, then lowest cost would be better.
the customer must make sure he works out as to how much these other costs add up
to. So even though the interest rate may be lower, it usually adds up to being expensive.
If the EMIs may come out a lot more than what he can afford on a monthly basis; its
better to redo with changes in the tenure and loan amount (if possible).
Documents required: Most importantly, all deals and offers agreed upon are supported
by relevant papers. Self employed and salaried require different documents to support
the deal.
Penalties: Once the customer has received the loan he must do his best to pay it back
as quickly as possible. But this early payment might invite a pre-payment clause.
Banks make their money off the interest they charge and the sooner the customer pay
back his loan the less money he will have to pay in interest. When it comes to Home
loans, penalties are binding, like if he chose to pay up his entire money before the
tenure, a Pre-payment penalty is charged. So he should know about such penalties
beforehand to avoid future misunderstanding between him and the bank.

HDFC Ltd.
Now we try to focus on the various aspects of HDFC in providing home loans.
HDFC was incorporated in 1977 with the primary objective of meeting a social need that of promoting home ownership by providing long-term finance to households for
their housing needs. HDFC was promoted with an initial share capital of Rs. 100
million. The primary objective of HDFC is to enhance residential housing stock in the
country through the provision of housing finance in a systematic and professional
manner, and to promote home ownership. Another objective is to increase the flow of
resources to the housing sector by integrating the housing finance sector with the
overall domestic financial markets..
HDFC's main goals are to a) develop close relationships with individual households,
b) maintain its position as the premier housing finance institution in the country, c)
transform ideas into viable and creative solutions, d) provide consistently high returns
to shareholders, and e) to grow through diversification by leveraging off the existing
client base.
HDFC, having pioneered and helped develop market-oriented housing finance in
India, has continued to expand its services to a broader spectrum of clients by offering
specialised training courses.
HDFCs Centre for Housing Finance (CHF) provides technical assistance to national
governments and housing finance institutions in developing countries in the South
Asian and African regions, especially in the field of institutional development for
effective shelter finance delivery.

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The second major area of activity of the CHF is managerial training for housing
finance institutions. Besides effective housing finance operations, some established
housing finance institutions also seek training for systems development and
improvement.
The cut-throat competition in the housing finance market has ensured that
lending institutions come up with a wide array of products to woo the potential
customers. In such a scenario, prospective buyers need to adopt a prudent
approach and evaluate the options available in the market before choosing a
particular home loan.
First and foremost, the affordability factor has to be taken into account. As the
investment in a home does not yield any monthly income, the ability to repay the loan
depends entirely on salary or regular income from a stable business. Most finance
companies finance upto a maximum of 85% of the cost of the house and monthly
repayments are usually less than 35-50% of the customer's gross monthly salary.
Choosing the lending institution is another vital step. It is imperative to choose the
financer with utmost care and proper consideration of its past track record. Apart from
the housing finance companies, most of the major nationalized banks have forayed
into the home loan segment.
Another important consideration in choosing home loans is the tax bracket as housing
loans are one of the best ways to avail tax benefits. The tax breaks are directly related
to the level of interest and principal repayments made each year, with an over all upper
limit. One may not qualify for the full tax break if one's loan is relatively small.
Interest rate is undoubtedly one of the most important parameters to factor into one's
calculations. In fixed interest rates, the rate of interest remains unchanged for the
entire duration of the loan while in floating rates, interest rates change every time the
interest rate in the financial system change.
HOME LOAN FEATURES OF HDFC
Now we consider the various features of home loans provided by HDFC.

Maximum loan
85% of the cost of the property (including the cost of the land) and based on the
repayment capacity of the customer.
Maximum Term
20 years subject to applicants retirement age.
Applicant and Co- Applicant to the loan
Home Loans can be applied for either individually or jointly.
Proposed owners of the property, will have to be co-applicants. However, the
co-applicants need not be coowners.

20

Adjustable Rate Home Loan

Loan under Adjustable Rate is linked to HDFC's Retail Prime Lending Rate
(RPLR). The rate on the loan will be revised every three months from the date
of first disbursement, if there is a change in RPLR, the interest rate on the loan
may change. However, the EMI on the home loan disbursed will not change. If
the interest rate increases, the interest component in an EMI will increase and
the principal component will reduce resulting in an extension of term of the
loan, and vice versa when the interest rate decreases.

DOCUMENTS REQUIRED FOR HOME LOAN

We go through the following table to have an idea of the documents required by the
applicants for sanctioning of home loans that is needed by HDFC.
Salaried
Customers

Self Employed Professionals

Self Employed Businessman

Application form
with photograph

Application form with

photograph

Application form with

photograph

Identity and
Residence Proof

Identity and Residence Proof

Identity and Residence Proof

Latest Salary-slip

Education Qualifications
Certificate and Proof of
business existence

Education Qualifications
Certificate and Proof of business
existence

Form 16

Last 3 years Income Tax returns

(self and business)

Business profile
Last 3 years Income Tax returns
(self and business)

Last 6 months
bank statements

Last 3 years Profit /Loss and

Balance Sheet

Processing fee
cheque

Last 6 months bank statements

Last 6 months bank statements

(self and business)

Processing fee cheque

Processing fee cheque

Last 3 years Profit /Loss and

Balance Sheet

PROCEDURE OF DISBURSAL OF HOME LOAN BY HDFC

Next is the procedure of how the home loan is disbursed from HDFC.
Step 1 Application:
Complete and submit the Application Form to HDFC. The Application Form
contained in the Information Booklet is available for purchase from HDFC for Rf50/-.
21

Clarification and assistance in completing the forms would be provided by HDFC

where required. The information required would include:
(i)

Ownership documents and collateral,

(ii) Costing of proposed investment,
(iii) Proposed construction methods and arrangements,
(iv) Permits and drawings,
(v) Sources and amount of income of the applicant,
(vi) Credit history of the applicant,
(vii) Availability of down payment, and
(viii) Other relevant information depending on the proposal

Step 2 Preliminary Review:

Application will be reviewed by a Credit Officer, and applicant will be
requested to visit HDFC for a face-to-face interview (a telephone interview
would be arranged if this is not possible). Applicant would be requested to
bring along missing documents within 14 days of time. During the
interview, the proposal would be reviewed with the applicant to provide a
close fit of the investment to the applicants financial position. Applicant
would be advised if documentation is still incomplete and requested to
provide these within 14 days.
Step 3 Loan Processing:
When all the required information is received and documentation is completed, the
Credit Officer assigned to the project would evaluate the loan, and compile the Project
Report to the Credit Committee. At this stage HDFC would undertake site visit and take
photos and make assessment of the property. Fees required is 1% of the loan amount
applied plus applicable service taxes and cess. No Charges for replacement of cheques,
Income Tax Certificates and Accelerated Repayment Option.
Step 4 Loan Approval:
The Credit Committee reviews the Project Report produced by the Credit Officer
including supporting documents and other facts of the case, and approve (or does not
approve) the loan. The Internal Auditor would then review the documentation to
ensure proper procedures were followed by the Credit Committee in its decision
making.
Successful applicants would then receive an Offer Letter requesting to accept the loan
offer in writing (offer) delete within 14 working days.
Unsuccessful applications would be advised in writing as to why the loan is not
approved at this stage, and what needs to be rectified to be successful.
Step 5 Acceptance of Loan Offer:
Once the company received Letter of Acceptance from the applicant, the project would
be handed over to the Legal Department.

22

The Legal Department would then communicate with the applicant to finalise loan and
mortgage agreements and request to submit original title deed of the property, revenue
stamp and Funds Draw Down Schedule in line with the approved Work Plan. The
Loan Agreement would then be signed in the Civil Court, registered in the Civil Court,
and mortgage of the property completed by the Male Municipality.
Step 6 Release of Funding:
Once the Loan Agreement is signed and mortgage of the property is completed, the
HDFC funding would be released in installments as per with the approved Funds
Draw Down Schedule.
Step 7 Appeal:
Loans not approved initially will still remain open and the applicants are encouraged
to continue the discussion with HDFC to explore and meet the required conditions for
eligibility.
HDFC encourages applicants to appeal against any of its decisions directly to the
Appeals Committee of the Board of Directors.
Applicants may also request for meetings with either the CEO or the Chairman to
discuss and / or clarify any matters regarding loan applications and proposed projects.
These appointments would be provided with 24 hours of the request.
We discuss about the repayment options and security now.
The various kinds of repayment options offered by HDFC are:

Step Up Repayment Facility

Helps young executives take a much bigger loan today based on an increase in their
future income, this helps executives buy a bigger home today!
Flexible Loan installments Plan

Often customers, parents and their children, wish to purchase properties together. The
parent is nearing retirement and their children have just started working. This option
helps such customers combine the incomes and take a long term home loan where in
the installment reduces upon retirement of the earning parent.
Tranche Based EMI
Customers purchasing an under construction property need to pay interest ( on the
loan amount drawn based on level of construction) till the property is ready. To help
customer save this interest, HDFC have introduced a special facility of Tranche Based
EMI. Customers can fix the installments they wish to pay till the time the property is
ready for possession. The minimum amount payable is the interest on the loan amount
drawn. Anything over and above the interest paid by the customer goes towards

23

Principal repayment. The customer benefits by starting EMI and hence repays the loan
faster.
Accelerated Repayment Scheme offers customers a great opportunity to
repay the loan faster by increasing the EMI. Whenever he gets an increment, increase
in his disposable income or have lumpsum funds for loan prepayment, he can benefit
by increase in EMI which means faster loan repayment and saving of interest because
of faster loan repayment.
The security for the loan is a first mortgage of the property to be financed, normally by
way of deposit of title deeds and/or such other collateral security as may be necessary.
Interim security may be additionally required, if the property is under construction.
Collateral or interim security could be assignment to HDFC of life insurance policies,
the surrender value of which is at least equal to the loan amount, guarantees from
sound and solvent guarantors, pledge of shares and such other investments that are
acceptable to HDFC.
It is to be ensured that the title to the property is clear, marketable and free from
encumbrance. To elaborate, there should not be any existing mortgage, loan or
litigation, which is likely to affect the title to the property adversely.
This brings us to the concept of mortgage.

SECURITY FOR HOME LOAN(MORTGAGE)

India Mortgage industry until recently was an unorganized sector. But today organized
mortgage sector is witnessing steady growth. It is estimated to be US $ 18 billion
industry. Huge real estate requirements and its subsequent development has fueled its
growth.
The predominant market leaders in organized 'India Mortgage' sector are housing
finance companies like LIC Housing Finance, HDFC, ICICI Home Finance etc.
Although, size of organized sector account only for 25% of the total housing
investment in India .
Mortgage rates in India industry is consistently registering 20-50 % growth from the
year 2000 onwards. Low income groups communities are still ignorant and skeptical of
about it, the bottlenecks are

Affordability

Accessibility

To help it grow and fulfill its huge requirements India Mortgage industry needs
indirect government participation, as a guardian and facilitator. Private funds and
even FDI should be encouraged to see 'India Mortgage' industry grow further. Overall
revamping of land laws, rental laws, fast mutation and registration process along with
setting up of credit rating organization and mortgage insurance will only help India in

24

realizing its housing dreams. This will accelerate organized growth of 'India
Mortgage' market and at the same time will help reach all sections of Indian society.
The mortgage industry, also known as the housing finance industry is one of the most
promising sectors of India of the past decade. Before viewing India Mortgage Rates , it
would be worthwhile to have a brief introduction to the word mortgage .
Mortgage is a conditional conveyance of property as security for repayment of loan.
Such a property is put up as a collateral security which is liable to confiscation in the
event of failure of repayment of the loan and the mortgage rate associated with it.
Hence, Mortgage Rate is a rate of
Indian Mortgage Rates can be classified into two types:

Fixed Mortgage Rate

Flexible Mortgage Rate

Fixed Mortgage Rate - in this case the rate of interest remains fixed throughout
the loan term. The mortgage rates do not vary according to market conditions.
In other words, the rate of interest is pre-fixed during the process of borrowing
and it generally varies between 12.5% and 25 %.

Flexible Mortgage Rate - is one in which the interest rate varies according to
market movements. This type of interest rate is called 'adjusting' or 'floating'
rates. The risk factor is high in this type of interest rates.

Some of the well-known mortgage-financing companies offering various types of

mortgage in India are as follows LIC Housing Finance
HDFC
ICICI Home Finance
SBI Housing Finance
UCO Bank
State Bank of India
State Bank of Mysore
Allahabad Bank
United Bank of India
United Commercial Bank of India
Bank of Baroda
Kotak Mahindra Bank

25

Citi Bank
HSBC
Standard Chartered Bank

The mortgage industry of India could break open from its age old image of being
housing mortgage facilitator only. Today, the types of mortgage that are being accepted
as collateral are varied and not confined to residential property only.
When a borrower is going for a First Time Buyer Mortgages, he has to first search for
a house that is within his budget. Then he has to apply for the home loan and once it
has been approved, he can buy his dream house. In the First Time Buyer Mortgages,
the lender usually advances 3.25 times the amount of salary of the single earning
member. In case the couple is earning, the lender advances 2.25 times of the salary of
the couple. Some lenders even advance in First Time Buyer Mortgages around 5 times
the amount of salary.
Mortgage financing is the process of utilizing property or conveying the personal as
well as real property of the mortgagor on condition, as a security for the repayment of
a loan. Mortgage financing in most of the countries is restricted generally to securing
loans against land or house.
Parties involved in mortgage financing:
Mortgage financing involves mainly 2 parties the first party is the mortgage lender
and second party is the mortgagor or the mortgage applicant. The mortgage lender is
the person who provides the mortgage loan against the collateral of the mortgagor. The
mortgage lender is legally allowed to confiscate the collateral in case the mortgagor is
not able to pay off the loan within the stipulated period. The mortgagor is the loan
applicant who is responsible for the repayment of the mortgage loan secured against
his personal property. In case of default in the repayment of the mortgage loan by the
mortgagor, the mortgagor has to suffer from the process of foreclosure carried on by
the mortgagee. Foreclosure is the procedure wherein the mortgage lender sells the
property of the mortgagor to recover the loan amount. Foreclosures can be of various
kinds like the foreclosure by judicial sale, foreclosure by power of sale, strict
foreclosure etc.
Repayment Procedure in mortgage financing:
The procedure of mortgage financing facilitates the mortgagors on account of the long
tenure of the mortgage loans and the large number of repayment options provided by
the mortgage lenders. The long tenure of the mortgage loans helps the mortgagor to
repay the loans in the form of small payments at regular intervals over a substantial
period of time. The large repayment options include the generally followed repayment
option of the repayment of both the interest and the capital amount at regular intervals
during the loan period. The exact opposite repayment option of the above repayment
option involves the repayment of the capital and the interest at the end of the loan
period. There are other 2 popular repayment options also available for the mortgagors.
26

The first popular option includes the repayment of the interest at regular intervals, but
the payment of the capital is done at the end of the tenure. The second popular option
involves the partial payment of the capital amount during the loan tenure but regular
payments of the interest. The calculation of interest in case of mortgage financing is
done with the aid of 2 interest calculation procedures-the fixed rate interest calculation
procedure and the adjustable rate interest calculation procedure.

Classifications of mortgage financing:

Mortgage financing can be classified into various types as home mortgage financing,
Second Mortgage Financing, Commercial Mortgage Financing etc. Home mortgage
financing is the most significant method of financing individual ownership of
residential properties prevalent in most of the countries around the world. The home
mortgage financing is usually stretched over a long period of time. Regular payments
towards the capital amount in case of a mortgage loan can be compared to the
annuities in case of insurances or retirement plans. The mortgage lenders essentially
use home mortgage financing to gain income from interests and usually resort to the
accumulation of funds with the issue of bonds or acceptance of public deposits.
Commercial mortgage financing involves securing of loans against any property used
for commercial purpose. Second mortgage financing is the procedure of taking
another mortgage loan against the already mortgaged property.
Key Constituents of Mortgage Loan Financing:
The term mortgage loan financing denotes a loan which is granted against the
property of the borrower and this property is considered as the collateral for the loan.
The key constituents of mortgage loan financing comprise of the rate of interest, a
specific sum of money that the borrower has to pay the lender at regular intervals for
the loan, the tenure of the loan, the regular payments made towards the principal
amount of the loan and the repayment procedure.
Mortgage Loan Financing Process:
Mortgage loan financing is presently done either through the fixed rate mortgage
process or through the variable or adjustable rate mortgage process. In the fixed rate
mortgage process, the mortgage lender lends money at an agreed rate of interest which
remains same for the entire tenure of the loan. In the variable rate mortgage process,
the mortgage lender lends money ab initio at a fixed rate of interest for an agreed
period of time and then modifies the rate of interest, in accordance with the market
indexes.
Default Procedure in Mortgage Loan Financing:
In case the borrower is not able to pay off his debt by the aid of any of the above
repayment procedures then the mortgage lender is allowed the choice to appropriate

27

the mortgage amount by selling the property which was kept as security for the
repayment of the loan.
Kinds of Mortgage Loan Financing:
Varied market requirements has led to the formulation as well as implementation of a
large number of mortgage loan financing schemes worldwide. Some of the prominent
mortgage loan financing schemes include:
Assumed Mortgage
Commercial Loan
Reverse Mortgage
Budget Loan
Seasoned Mortgage
Equity Loan
Jumbo Mortgages
Participation Mortgage
Bridge Loan
Non-Conforming Mortgage
The Indian mortgage loan financing sector has been facilitated by the entry of the
renowned banks like the State Bank of India, Citibank, HDFC, HSBC, ICICI etc. in
mortgage loan financing.
Home Mortgage Financing, better defined as home mortgage loans, help in the
procurement of a house, in which the said house in considered as a security against
the loan amount. Home Mortgage Financing usually stretch over a substantial period
of time.
Key Constituents of Home Mortgage Financing:
Home Mortgage Financing revolves around certain constituents and the most
significant constituent is the house that has initiated the need for home mortgage
financing. The choice of the proper institution to avail the loan is the second important
constituent. The next constituent are the terms and conditions set up for the mortgage
procedure. Terms and conditions involve the principal loan amount, required for the
purchase of the house and the rate of interest is calculated on the principle amount.
Home Mortgage Financing is carried on with the help of two systems, that include:
Fixed Rate Mortgage
Adjustable Rate mortgage
Fixed rate mortgage provide the assurance of a fixed rate of interest maintained
throughout the loan period. Fixed rate mortgage also guarantees an exact loan
repayment amount at particular intervals. While the variable or adjustable rate
mortgage maintains a specific interest rate maintained for a particular time span. The

28

interest rate after the completion of that particular time span is altered with the altered
market indices.
Repayment Procedure of Home Mortgage Financing:
The procedure of repayment of home mortgage loans has been simplified by providing
the borrower with a number of choices for repayment. The most common among the
repayment plans is the capital and interest repayment procedure which lies in contrast
to the special repayment plan i.e. no capital or interest repayment procedure. Another
variation to the said repayment plans is the interest only repayment plan, that does not
require the repayment of the capital amount. Provisions have been made where the
payment of the total interest amount is required and but the partial payment of capital
amount can be done.
The income groups for mortgage can be classified into: Salaried
Business- class
The following documents are required:
For proprietorship firms
o Last 3 years P/L balance sheet
o If turnover is greater than Rs.40,000 audited balance sheet is
needed.
o Last 3 years trade license

For private firms

o Memorandum
o Articles
o Form 32
o Form 18
o Pan card of company
o Pan card of directors
o Address proof
o Photograph

29

For salaried persons

o Minimum salary should be 1 lac
o Form 16
o Income tax return for last 2 years
o Salary account bank statement for last 2 years
o Minimum work experience should be 3 years

ELIGIBILITY CALCULATION FOR HOME LOAN

Now comes the eligibility calculation for disbursing home loans. At HDFC a system of
fixed obligation income ratio(FOIR) is maintained. The table for which is given below:
INCOME(p.m.)
LESS THAN Rs.10,000
BETWEEN Rs.10,000-20,000
BETWEEN Rs.21,000-30,000
GREATER THAN Rs.30,000

FIXED OBLIGATION
INCOME RATIO(FOIR)
35%
38%
40%
45%-50%

Let us consider an example as to how this chart is really going to work for customers
who intend to take loans.
Let income of a customer be=Rs.40,000p.m.Let his car loan instalment be
Rs.4,000p.m,instalment for t.v.loan Rs.1,000pm & proposed housing loan
instalment of Rs.12,000p.m.
According to the FOIR chart the ratio is 50%of monthly income.
However the let us consider the standard FOIR is 40% of monthly income.
The proposed solution:

30

 So the total amount of instalment,the person can pay,as per the standard would
be Rs.16,000p.m.
As he is already paying Rs.5,000 for car and t.v. he has Rs.11,000 left.
The home loan will be calculated taking Rs.11,000 p.m. as the repayment
capacity of the applicant not the proposed Rs.12,000
The security for home loan is is a first mortgage of the property to be financed,
normally by way of deposit of title deeds and/or such other collateral security as may
be necessary. Interim security may be required, if the property is under construction.
COMPARISON OF HDFC WITH SBI AND ICICI
The comparisons of HDFC in respect of home loan providing criteria is shown below
where 2 more banks are taken for comparisons. SBI and ICICI.
ELIGIBILTY REQUIRED(SALARIEDS
HDFC
SBI

ICICI

AGE

25-58

21-58

21-65

MIN INCOME

1,00,000

LOAN AMT

2LAC-1CR

2LAC-2CR

2LAC-1CR

TENURE

5-20YRS

5-20YRS

85%OF
AGREEMENT
VALUE

LOAN TO
85%OF
VALUE RATIO AGREEMENT
VALUE

ELIGIBILTY(SELF-EMPLOYED)
HDFC
SBI
AGE
21-65
21-65

ICICI
21-65

MIN
INCOME

LOAN AMT

2LACS-2CR

2LACS-2CR

31

TENURE

5-20YRS

LOAN TO
VALUE
RATIO

85%OF
AGREEMENT
VALUE

5-20YRS
85%OF
85%OF
AGREEMENT AGREEMENT
VALUE
VALUE

INTEREST RATES & PROCESSING FEES

HDFC
SBI
ICICI
FIXED

13.25%

12.75%

14.75%

FLOATING

10.25%

11%

13.5%

PROCESSING
FEES

0.50%

0.25%

0.50%

The question which naturally arises next is why should people actually go for home
loans from HDFC. There are reasons that can be offered to support the cause. The
primary ones are listed as follows:Leading private sector lender in home loans space, HDFC reduced interest rate on
floating loans by 0.50 per cent but left the fixed rate untouched at 13.25 per cent.
Accordingly, the revised rate stands at 10.50 per cent and will be applicable to loan
disbursements on or before 31 October, an HDFC spokesperson said here today.
However, there is no revision in the fixed home loan rate which remains unchanged at
13.25 per cent. Commenting on this step, HDFC executive director Ms Renu Sud
Karnad, said, "Our lending rates are a function of our cost of funds and we have seen
a reduction in our cost of funds."
"Historically, we have maintained a pre-determined spread and have always believed
in passing the benefits to the customers. This special offer is an extension of the same
philosophy."

32

The country's largest housing finance company, HDFC announced a special interest
rate of 10.50% for customers availing home loans at floating rate of interest.
The offer will be applicable to all loans disbursed on or before October 31. This is 75
basis points lower than HDFC's regular rates and 50 basis points lower than the rates
charged under the monsoon scheme launched last quarter.
BPTP, one of the fastest growing players in real estate industry today signed an MOU
with HDFC HOME LOANS. HDFC would be extending home loans on exclusive
terms to investors in the Group Housing project at Sector 75, BPTP Parklands, the
new age integrated township at Faridabad.
The unique feature of the loan is that it would be disbursed on a special interest rate
with 24 months interest-free period. HDFC would grant loan to the extent of 90% of
the apartment cost to the purchaser.
The first Equal Monthly Installment (EMI) would be payable only after two years from
the date of disbursement of the loan. The project is also likely to be completed in the
next two years and as such, the buyer would be ready to move in before the
commencement of loan repayment schedule. This facility would be made available to
prospective buyers from 22nd to 24th September '07.
HDFC Bank Ltd., India's third- biggest financial services company by market value,
said fiscal first quarter profit rose 34 percent as it gave more loans to individuals and
companies and as fees increased.
Net income rose to 3.21 billion rupees ($79 million) in the three months ended June
30, compared with 2.39 billion rupees a year earlier, the bank said in an e-mailed
statement. That's higher than the 3.13 billion rupees median estimate of five analysts
surveyed by Bloomberg.
Demand for loans from individuals to buy consumer durables and from companies
seeking to expand in an economy that grew an average 8.6 percent in the past four
years has boosted earnings at Indian banks. More than half HDFC Bank's loans go to
individuals who are increasing borrowing as incomes rise
Other than these some other important features being:Home Loan - Home loans for individuals to purchase (fresh / resale) or construct
houses. Application can be made individually or jointly. HDFC finances up to 85%
33

maximum of the cost of the property (Agreement value + Stamp duty + Registration
charges).
-> Home Improvement Loan - HIL facilitates internal and external repairs and other
structural improvements like painting, waterproofing, plumbing and electric works,
tiling and flooring, grills and aluminium windows. HDFC finances up to 85% of the
cost of renovation (100% for existing customers).
-> Home Extension Loan - HEL facilitates the extension of an existing dwelling unit.
All the terms are the same as applicable to Home Loan.
-> Land Purchase Loan - Be it land for a dream house, or just an investment for the
future, HDFC Land Purchase Loan is a convenient loan facility to purchase land.
HDFC finances up to 70% of the cost of the land (Conditions Apply). Repayment of
the loan can be done over a maximum period of 10 years.
Loan cover Term Assurance Plan - HDFC Standard Life Insurance Company Ltd.
offers an insurance plan*, which is designed to ensure that life's uncertainties do not
affect customers family's interests and the precious home. LCTAP provides a lumpsum payment on the unfortunate demise of the life assured. This pure risk plan is
designed in a way that the cover decreases as customer repays his home loan making
it a low cost premium insurance plan.
Automated Repayment of Home loan EMI - Customer can give HDFC standing
instructions to repay his Home Loan EMIs directly from his HDFC Bank Savings
Account, thus, saving him the trouble of procuring, signing and tracking post-dated
cheques.
-> HDFC also offers In -house scrutiny of Property documents for customers
complete peace of mind.
-> Customer privileges - If someone is an existing HDFC Home Loan customer, he
can avail of other loans (such as Personal Loans, Car Loans, Two-wheeler Loans and
Loan against securities) at lower interest rates.

HDFC Bank looking to start operations in rural areas

With most urban centres growing to saturation for a host of business activities, rural
initiative is fast becoming the flavour among major players from every sector. After
34

FMCG and telecom bigwigs, now the financial services firms are putting in place a
detailed plan aimed at a strong rural presence. HDFC Bank is aiming to take the lead
in finance segment which, on a pan India basis, accounts for about 70% of the
country's one-billion-plus population.
One of the distinguishing features of HDFC Bank's rural foray is its decision to take
the more demanding route of connecting with customers directly, rather than taking
the easier direct sales agent route. "The bank prefers to connect to its customers
directly," Ashok Khanna, EVP, HDFC Bank said.
Moreover HDFC trusted brand name synonymous with integrity, transparency and
quality services. Supporting over 2.4 million families through home loan approvals
of over Rs 70,000 Crores.
RECOMMENDATIONS
However the recommendations that could be given are summarized as follows:
Processing charges should be refunded. If an applicant for home loan is found to have
become compelled for any reason not in a position to draw the loan the processing fees
charged earlier for the purpose should be returned.
Reverse mortgage is a Home Loan product designed for the senior citizens by
converting their fixed asset - their home or in banking terms their equity in any house
property into an income channel without having to liquidify your equity in case of any
requirement. It involves two parties, the borrower - the senior citizen and the lender any bank or housing finance institution. The borrower pledge their home property to a
lender. In return of the house property pledged, the borrower gets a lump sum amount
or periodic payments spread over the borrower's lifetime that can be utilized by the
borrower (senior citizen) as per needs and not for speculative purposes. The
homeowner and now the borrower will not be required to repay the loan during his
lifetime. On his death or leaving the house permanently, the loan along with the
accumulated interest is repaid through the sale of the property pledged. In case the
accumulated interest and loan amount is larger than the value of the mortgaged
property, the mortgage loan is capped at the value of the home equity only and the
lender is the party at loss. Any excess amount by the sale of the property is duly
remitted to the borrower incase of permanent leaving of the house or his heirs in case
of the death of the borrower. Adoption of such a scheme is another important step.

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HDFC is already identifying customers and their needs in respect of its proposal for
reverse mortgage product.
HDFC should, along with the home loan cover the moving cost also which basically
involves cost of furniture, durables etc. The secret to a successful move, with
minimum stress, requires organization and taking things one step at a time. "TIME
COSTS MONEY. The less the mover has to handle, the better packed and prepared
he will be. Hence the less expensive his moving bill will be.

Lastly a scorecard has been recommended.

NET WORTH
PAST REPAYMENT
RECORD
RENTAL
VALUE OF
COLLATERAL
SECURITY
FREE FROM
ENCUMBERANCES
IMPENDING
LOANS(OTHER
THAN HOME
LOANS)
TOTAL

UPTO 1 CR

1CR-2CR

2CR-4CR

4CR-6CR

>6CR

1
DEFAULTER

2
PART
PAYMENT

3
PREPAYMENT

4
INSTALLMENT

5
TIMELY
PAYMENT
5

1
NO
0
< 1 CR

1CR-2CR
2

2CR-4CR
3

4CR-6CR

YES
1
>6CR

WT.
ASSIGNED
0.35
0.15

0.20
0.10

NO

YES

0.05

0
YES

1
NO

0.15

We take an example.
Let us consider 2 customers one has a net value of his asset as Rs.3cr and
another Rs.6 cr.

Both customers past re-payment being on time.

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 Let the value of collateral security of the 1st customer be Rs.1cr and the 2nd
Rs.5 cr.

Both would receive rent from tenants.

Their house would be hassle-free.

Suppose the 1st one maintains some impending personal loans along with the
home-loan to be taken and the 2nd one does not.

Let the standard weightage taken for a customer to get loan to be 3. We have
taken a scale of 0-5.
Here comes the recommendation.
For networth the 1st scores 3*0.35=1.05 & the 2nd customer scores
5*0.35=1.75

For past repayment record both score 5*0.15=0.75

For collateral security the 1st one scores 2*0.10=0.2 and the 2nd one 4*0.10=0.4

For rental both score,1*0.20=0.2

For their house being hassle-free,1*0.05=0.05

For impending personal loan the 1st one scores 0*0.15=0 & the 2nd scores
1*0.5=0.5

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 Thus the total of the 1st customer is=1.05+0.75+ 0.2+0.2+0.05+0=2.25 and that
of the 2nd being=1.75+0.75+0.4+0.2+0.05+0.5=3.65.

Thus we can see that the 1st customer does not meet our standard weightage of
getting loan(as his total comes to 2.25 which is less than the standard weightage
of 3 that we have taken) while the 2nd customer is quite easily accesible in
getting this loan according to the standard set by us(as his total comes to 3.65
much higher than our standard weightage of 3).

CONCLUSION
I want to conclude by saying my summer training was a great learning experience and
I am really grateful for the exposure to the real world of the workplace atmosphere. I
am glad that I was given the opportunity of participating in daily banking operations
and helped in generating TDS certificate details and dispatching it to customer
contacts, assisted in post merger data standardization project pertaining to a/c opening
forms, signature scanning of around 1000 AOFs, renewal of overdraft facilities
against FD. Lastly I have learnt extensively regarding HDFCs procedure of
appraising and financing about home loan and mortgage. Also the changing scenario
of merger of Centurion Bank of Punjab into HDFC Bank showed a new dimension of
the banking activities.

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REFERENCE
The following were of immense help in making this project. They
are:
The Economic Times
Business Today
Business World
www.hdfcbank.com
www.hdfc.com

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