1

HOME LOAN IN

FINANCIAL SERVICES LTD.

SUMMER TRAINING PROJECT REPORT
SUBMITTED TOWARDS PARTIAL
FULFILLMENT
OF
POST GRADUATE DIPLOMA IN MANAGEMENT

(TAKSILA BUSINESS SCHOOL, GREATER NOIDA)

Academic Session
[2009-2011]
Submitted By:
KULDEEP SINGH
PG-09015

UNDER THE GUIDANCE OF:

Mr.Dheeraj Bhatra Prof.
(Finance) Senior Lecturer
INDIABULLS Taksila Business School Gr. Noida
UdhyogVihar, Phase V, Gurgaon
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CERTIFICATE OF ORIGIN

This is to certify that Mr. Kuldeep Singh a student of Post Graduate Diploma in
Management (Finance), Taksila Business School, Greater Noida has worked in
INDIABULLS FINANCIAL SERVICES LIMITED, under the able guidance and
supervision of Mr.Ashish Jain (Deputy General Manager) IBFSL.

The period for which she was on training was for 45 days, starting from 1 st July, 2010
to 14th August, 2010. This Summer Internship report has the requisite standard for the
partial fulfilment the Post Graduate Diploma in Management. To the best of our
knowledge no part of this report has been reproduced from any other report and the
contents are based on original research and secondary data collected from different
sources.

Signature Signature
(Faculty Guide) (Student)
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ACKNOWLEDGEMENT

I express my sincere gratitude to my industry guide Mr Dheeraj Bhatra (

), IBFSL, for his able guidance, continuous support and cooperation throughout my
project, without which the present work would not have been possible.

I would also like to thank the entire team of Credit home loan team, for the
constant support and help in the successful completion of my project.

Also, I am thankful to my faculty guide Prof. Satya Prakash Rai of my institute, for
his continued guidance and invaluable encouragement.

I extent my gratitude towards my institute (Taksila Business School) for helping me

to successfully complete the project work.

Signature
(Student)
 4

PREFACE

Technological advancements have changed the face of the world of finance. It is today
more a world of transactions than a world of relations. Most relations are on
transactional basis.

“Transactions” mean coming together of two entities with a common purpose,

whereas “relations” mean keeping together of these two entities. For example, when a
bank provides a loan of a sum of money to a user, the transaction leads to a
relationship: that of a lender and a borrower. However, the relationship is terminated
when the loan is converted into a debenture. The relationship of being a debenture
holder in the company is now capable of acquisition and termination by transactions.

In the financial transactions arena, there is an unfortunate rift between two kinds of
scholarship. Scholarship that confronts the philosophical and policy-based groundings
of the transactions tends to focus on relatively simple transactions such as retail sales
contracts,1 secured loans,2 and the like, and tends to ignore more complex
transactions, notably including structured finance transactions. Instead, the writing on
structured finance and other complex transactions dwells almost exclusively on
doctrinal and practical questions such as how the transactions work and how they are
negotiated.
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EXECUTIVE SUMMARY
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India bulls is one of the top Indian business houses with business interests in real
estate, infrastructure, financial services, securities, retail, multiplex and power sectors.
India bulls Group companies are listed in Indian and overseas financial markets. India
bulls was founded by Sameer Gehlaut, Rajiv Rattan and Saurabh Mittal who are
engineering graduates from the Indian Institute of Technology in Delhi. India bulls has
been conferred the status of a “Business Super brand” by The Brand Council,
Super brands India.'

The three founders started India bulls Group by acquiring a minor brokerage company,
Orbis Securities, in 1999. The group started it business as a stock-brokerage firm and
pioneered online brokerage business in India before diversifying into other financial
services areas such as consumer credit (2004) and mortgages (2005). The group
partnered with Farallon Capital to purchase land-mark Bombay land assets and is
currently building one of the largest integrated commercial real estate projects in India
(valued at more than $2 billion). The group recently entered the Power generation
business and aims to have more than 5000 MW of power generation under
construction before 2008 end.
The three founders today control the Indiabulls Group and own more than $2,000
million worth of stock. Sameer Gehlaut was recently listed in the Forbes Billionaires
2008 list, and Saurabh Mittal and Rajiv Rattan are each worth more than $500 million.

Type Public (NSE)

Industry Financial Services
Founded 2000 As Indiabulls Financial Services Ltd
Headquarters Mumbai, India
Key People Sameer Gehlaut (Chairman & CEO), Rajiv Rattan (President
& CFO), Saurabh Mittal (Director)
Products Securities, Consumer Finance, Mortgages, Real Estate
Employees ~ 20000 (2009)
Website www.Indiabulls.com
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ORGANIZATIONAL
CHART
Indiabulls Financial Service

 Sameer Gahlaut (Chairman & CEO)

 Rajiv Rattan (Whole timer Director)

 Saubhav K Mittal (promoter non Exe. Director)

 Gagan Banga (Whole time Director)

 Shamsher Singh (non Exe. Independent Director)

 Aishverya Katoch (non Exe. Independent Director)

 Karan Singh (non Exe. Independent Director)

 PremPrakashMirdha (non Exe. Independent Director)

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Indiabulls Securities

 Divyesh B Shah (CEO & Director)

 Ashok Sharma (Whole time Director)

 AishveryaKatoch (Independent Director)

 Rajiv Rattan (Executive Director)

 Saubhav K Mittal (promoter Director)

 PremPrakashMirdha (Independent Director)

 Karan Singh (Independent Director)

 Brigadier Lal Singh Sitara(Independent Director)
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Indiabulls Real Estate

 Sameer Gahlaut (Chairman)

 Rajiv Rattan (non Exe. Executive Director)

 Saubhav K Mittal (non Exe. Executive Director)

 VipulBansal (Joint Managing Director)

 NarentraGahlaut(Joint Managing Director)

 Lal Singh Sitara(non Exe. Independent Director)

 Shamsher Singh (non Exe. Independent Director)

 Aishverya Katoch (non Exe. Independent Director)

 Karan Singh (non Exe. Independent Director)

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India bulls Retail

 Sameer Gahlaut (non Exe. Executive Chairman)

 Rajiv Rattan (non Exe. Executive Director)

 TarunTyagi (non Exe. Executive Director)

 Ikroop Singh Kehal (Whole time Director)

 Udesh Jha (non Exe. Executive Director)

 Aishverya Katoch (Independent Director)

 Shamshersingh (Independent Director)

 Karan Singh (Independent Director)

 PremPrakashMirdha (Independent Director)

 Savita Singh (Independent Director)

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OBJECTS OF THE COMPANY

The main objects to be pursued by the Company on its incorporation are:

1. To carry on the business of portfolio management services, investment advisory

services; custodial services; asset management services; leasing and hire purchase;
mutual fund services and to act as brokers of real estate and financial instruments.

2. To provide financial consultancy services; to provide investment advisory services

on the internet or otherwise; provide financial consultancy in the area of personal and
corporate finance; publish books and CD ROMs and any other information related to
the above.

3. To receive funds, deposits and investments from the public, Government agencies,
financial institutions and corporate bodies; grant advances and loans; conduct advisory
services related to banking activities, project financing, funding of mergers and
acquisition activities; fund management and activities related to money market
operations.

4. To operate mutual funds; receive funds from investors; equity or debt instrument
research activity instrument in debt and/or equity instruments.

5. To hold investments in various step-down subsidiaries for investing, acquiring,

holding, purchasing or procuring equity shares, debentures, bonds, mortgages,
obligations, securities of any kind issued or guaranteed by Company.

6. To conduct the business of sale, purchase, distribution and transfer of shares, debts,
instruments and hybrid financial instruments and to perform all related, incidental,
ancillary and allied services.

7. To carry on the business of financing; provide lease and hire purchase services; to
provide consultancy in the area of lease and hire purchase financing.

8. To conduct depository participant services; to conduct de-materialisation and re-

materialisation of shares; set up depository participant centers at various regions in
India and to perform all related, incidental, ancillary and allied services.
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QUALITY POLICY

To achieve and retain leadership, Indiabulls shall aim for complete customer
satisfaction, by combining its human and technological resources, to provide superior
quality financial services. In the process, Indiabulls will strive to exceed Customer’s
expectations.

QUALITY OBJECTIVE

As per the Quality Policy, Indiabulls will:-

 Build in-house processes that will ensure transparent and harmonious

relationships with its clients and investors to provide high quality of services.
 Establish a partner relationship with its investor service agents and vendors that
will help in keeping up its commitments to the customers.
 Provide high quality of work life for all its employees and equip them with
adequate knowledge & skills so as to respond to customer’s needs.
 Continue to uphold the values of honesty & integrity and strive to establish
unparalleled standards in business ethics.
 Use state-of-the art information technology in developing new and innovative
financial products and services to meet the changing needs of investors and
clients.
 Strive to be reliable source of value-added financial products and services and
constantly guide the individuals sand institutions in making a judicious choice
of same.
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PRODUCTS

CONSUMER FINANCE

 Commercial vehicle loans

Indiabulls started Commercial Vehicle Finance in

April 2006 to provide refinance to its commercial
vehicle clients. Indiabulls Commercial Vehicle
Loans offers commercial auto loans to a variety of
business owners. The Commercial Vehicle Finance
provided by Indiabulls helps the small and medium operators to acquire vehicles with
minimum hassle and documentation. It provides customized financing options to suit
Customer needs. Its strength lies in the quick completion of transactions, long
association with transporters and the intimate knowledge of the market and its
nuances.

 Commercial Credit Loans

Indiabulls Financial Services has opened financing

doors for SME/ Promoters/ Real Estate Developers.
A continuous supply of funds is required to enable
the growth of any commercial establishment.
Indiabulls offers a flexible structured loan package
to finance Customer’s commercial needs. Indiabulls
Commercial loans help to bridge gap in working
capital requirement. Indiabulls offers a variety of
attractive borrowing options.
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Mortgages Loan
 Home loans

Indiabulls reduce cost of funding which enables it

to be a major player in home loans. Current home
loans being offered are in line with other leading
home loan players. Direct selling team of close to
1000 persons offer home loans to customers.

 Loans against property

Indiabulls brings Loan against Property.
Customers can now take a loan against
residential or commercial property, to finance
their business, fund child's education and much
more.

Securities
 Equity Research
Equity research forms an integral part of the share
trading experience. Equity research decides the
stance one would take in the share trading
industry.
Forecasting scrip performance requires much
more characteristics and skills than just advance
arithmetical ability. It requires split-hair analysis
of the market. To do so one also needs to have
excellent understanding of the market.
Supported by valid, fact-based and reliable research inputs and published results, its
research desk picks out stocks, analyzes its future scope and give a timely
recommendation.
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 Online IPO

For various reasons, we often miss the opportunity

of subscribing to an IPO. It can either be because
we could not procure the application form or we did
not have the time to fill up the form and submit it.
The most important benefit of the ONLINE IPO
facility offered by Indiabulls Securities Ltd. is the
convenience in submission of applications from
anywhere breaking the limitations of time and
geography. You don’t need to submit the application
in paper form, or write a cheque or go to submit it anywhere.

 Commodities

Indiabulls Commodities Limited, a 100%

subsidiary of Indiabulls Securities Limited, offers
commodity brokerage services to its customers. ICL
is a registered Trading-cum-Clearing member of
Multi Commodity Exchange of India Ltd. (MCX)
and National Commodity and Derivatives Exchange
Ltd (NCDEX). These two Commodity Exchanges
have shown a phenomenal growth in trading
volumes. Significant Trading and Arbitrage
opportunities exist for informed players in the
futures market.
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 Real Estate

Indiabulls Real Estate Limited with projects

covering a total land area in excess of 10,000
acres is one of the largest listed real estate
companies in India and a leading national player
across multiple realty and infrastructure sectors.
IBREL projects include high-end office and
commercial spaces, premium residential
development, integrated townships, luxury resorts
and special economic zones.

 Power: Indiabulls Power Services Limited

(IBPSL):

Indiabulls Power Limited. was established in 2007 to

capitalize on emerging opportunities in the Indian
power sector. It develops and intends to operate and
maintain power projects in India. The Company has
five thermal power projects under development,
which will have a combined installed capacity of 6,660 MW. The Company intends to
sell the power generated from these projects under a combination of long term PPAs to
industrial and state-owned consumers on merchant basis. The Company is also
developing four medium sized hydro-power projects aggregating to 167 MW in
Arunachal Pradesh. These hydro-power projects are proposed to be developed as run-
of-the river projects. The Company is a subsidiary of IBREL, a part of the Indiabulls
Group and listed on the BSE and the NSE.
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VISION

To be the largest financial services organization in Indian retail market and become a
one stop shop for all non banking financial products and services for the retail
customer.

MISSION

Rapidly increase the number of our client relationships to clear market leader

Provide our clients with a very broad array of product offering

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MILESTONE

2000 - 01

 Indiabulls Financial Services Ltd.

established India’s one of the first trading platforms with the development of an
in house team.

2002 - 03

 Indiabulls expands its service offerings to include Equity, F&O, Wholesale

Debt, Mutual fund, IPO distribution and Equity Research.

2003 - 04

 Indiabulls ventured into Insurance distribution and commodities trading.

 Company focused on brand building and franchise model.

2004 - 05

 Indiabulls came out with its initial public offer (IPO) in September 2004.
 Indiabulls started its consumer finance business.
 Indiabulls entered the Indian Real Estate market and became the first company
to bring FDI in Indian Real Estate.
 Indiabulls won bids for landmark properties in Mumbai. 2005 - 06
 Indiabulls has acquired over 115 acres of land in Sonepat for residential home
site development.
 Merrill Lynch and Goldman sac, one of the renowned investment banks in the
world have increased their shareholding in Indiabulls.
 Farallon Capital and its affiliates, the world’s largest hedge fund committed Rs.
2000 million for Indiabulls subsidiaries Viz. Indiabulls Credit Services Ltd. and
Indiabulls Housing Finance Ltd.
 Steel Tycoon Mr. LN Mittal promoted LNM India Internet venture Ltd. acquired
8.2% stake in Indiabulls Credit Services Ltd.
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2006 - 07

 Indiabulls entered in a 50/50 joint venture with DLF, Kenneth Builders &
Developers (KBD). KBD has acquired 35.8 acres of land from Delhi
Development Authority through a competitive bidding process for Rs 450 crore
to develop residential apartments.
 Indiabulls Financial Services Ltd. is included in the prestigious Morgan Stanley
Capital International Index (MSCI).
 Farallon Capital has agreed to invest Rs. 6,440 million in Indiabulls Financial
Services Ltd.
 Indiabulls ventured into commodity brokerage business.
 Indiabulls has received an “in principle approval” from Government of India for
development of multi product SEZ in the state of Maharashtra.

2008-09

 During the financial year 2008-09, the company has entered into a memorandum
of understanding with MMTC Limited, to establish a commodities Exchange
with 26% ownership with MMTC and had advanced an amount of Rs.
153,840,000 as share application money pending allotment.
 The company had, during financial year 2008 entered into an MOU with
Sogecap, the life insurance arm of Societe General of France, for its upcoming
life insurance Joint Venture.
 The Securities and Exchange Board of India (SEBI) has approved setting up of
an Asset Management Company and a Trustee Company for setting up a Mutual
Fund.
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FINANCIAL SNAPSHOT

INDIABULLS FINANCIAL SERVICES LIMITED (CONSOLIDATED) AS 2009-10

(Rs. In million)

Total Income 16,350.40

Operating Expenses 171.98
Employee Cost 1,363.56
Administrative and other expenses 4,176.42

Earning before Interest, Tax & 10,638.44

Depreciation
Interest 5,980.82
Depreciation 84.40

Profit Before Tax 4,573.22

Tax 1,498.46

Profit After Tax 3,074.76

Equity Share Capital 619.79
Reserves & Surplus 42,480.90 FY 2010
– Net Worth 44,209.43
Market Capitalisation 32,569.91
Key Fina
nci Key Indicators al Highlig
hts Earnings Per Share- Rs. 9.94
Net Profit margin% 18.81%
Return on Net Worth% 6.95%  Tot
al Revenues of Rs 1,635.04 crore in FY 2010 vs Rs 2,005.79 crore in FY 200
 Profit before Tax of Rs. 457.32 crore in FY2010 vs Rs. 177.46 crore in FY 2009

 Profit after Tax of Rs. 307.48 crore in FY 2010 vs Rs. 105.96 crore in FY 2009
 EPS (basic) of Rs. 9.94/share in FY 2010 vs Rs. 3.13/share in FY 2009
 250% dividend amounting to Rs. 5 for every share of Face Value of Rs. 2 vs Rs.
2 for every share in FY 2009
 Well capitalized with 32.42% CRAR
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Q4 2010 –Key Financial Highlights

 Total Revenues of Rs 428.56 crore in Q4 FY 2010 vs Rs 415.73 crore in Q3 FY

2010
 Profit before Tax of Rs. 143.60 crore in Q4 FY 2010 vs Rs. 95.34
crore in Q3 FY 2010
 Profit after Tax of Rs. 94.36 crore in Q4 FY 2010 vs Rs. 65.80 crore in Q3 FY 2
010
 EPS (basic) of Rs. 2.99/share in Q4 FY 2010 vs Rs. 2.07/share in Q3 FY 2010

SWOT ANALYSIS

STRENGTHS

INDIABULL Shave a distinct set of competitive advantages that make it uniquely

capable of winning in the marketplace which are as follows:

 High absolute net worth in relation to business risk

The Indiabulls group has a consolidated net worth (excluding preference share capital
of Rs.453 million) of about Rs.4.95 billion as at March 31, 2005. Reasonable accretion
to reserves (Rs. 499 million in FY2004-05), an initial public offering (Rs. 517 million)
and a Global Depository Receipts (GDR) issue (USD 60 million) has contributed to
the high absolute net worth. The group also raised Rs.876 million in its personal loans
venture, Indiabulls Credit Services, by selling 33 per cent stake.
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The large net worth bolsters the funding profile of the group for the loans against
shares business and acts as a cushion against the inherent volatility in the equity
broking business.

Indiabulls has also dedicated a significant amount of net worth (Rs. 1.3 billion) for
Indiabulls Credit Services Limited. Though the current portfolio outstanding is small
in relation to the net worth deployed, the portfolio size in relation to the net worth will
be a key monitorable going forward.

 Strong market position in retail equity broking segment

Indiabulls Securities, the retail equity broking arm of the Indiabulls group, has
experienced strong growth over the last two financial years. Currently (as at March 31,
2005), it has a client base of 75000 (29000 as at March 31, 2004) and enjoys a market
share of about 4 per cent. Its widespread network, (79 offices in 60 cities) a strong
technology base, and the facility of loan against shares provided to clients (through
Indiabulls Financial Services) for purchasing equity shares has enabled it to gain
market share. Its client diversity reduces its dependence on any single client.

These strengths are, however, partially offset by the fact that it operates in a high-
volume, price-sensitive business segment. Retail brokerage rates are significantly
lower than institutional brokerage rates primarily because of an institutional broker’s
expertise level and on account of its offering of value-added services.

 Adequate risk management systems support asset quality

Adequate risk management systems limit its asset quality risks; consequently,
Indiabulls has not experienced any significant/major client defaults till date. The
company has instituted a specialized risk management team and its systems are
managed centrally to ensure that it can, at all times, measure and manage the risks on
online and offline transactions on a real-time basis. Online transactions account for
about 45 per cent of its total business and offline for the balance 55 per cent. On the
whole, the company’s risk management systems seem adequate for its projected
business volumes as they are scalable and have a high level of redundancy built in
currently.

The equity stocks that Indiabulls accepts as margin are approved by its risk
management committee and are only accepted after a 33 per cent haircut in market
value. At any time, the portfolio of the client (equity plus cash balances) will be 1.15
times the loan provided by Indiabulls against the portfolio of the client. As soon as the
value falls below 1.15 xs, the position of the client will be unwound and Indiabulls
would get out of the exposure.

The company-wide limits on the maximum exposure in a single scrip (7 per cent of
total funded portfolio) and maximum funding to a single client (5 per cent of net
worth) have been defined in the risk management manual and ensure reasonable
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diversification. The management and promoters have a clear philosophy of not
entering into the proprietary trading segment except for investing in some initial public
offerings (IPO) on a fully hedged basis. CRISIL derives comfort from the company’s
conservative risk practices.

 Demonstrated track record of the management

The management has demonstrated its ability to grow in a highly competitive segment
of the financial services industry, the group’s strength in a significant downturn has not
been sufficiently tested so far after reaching sizeable business volumes. The
management has also demonstrated its commitment to good systems and reasonably
conservative risk philosophies, which include no proprietary trading and adequate risk
management systems. The company has strengthened its systems and procedures over
the last few years. It also has a technically qualified second line of management.

 Inherent volatility of equity markets has the potential of impacting future

revenues

Equity markets are characterized by their inherent volatility. Since the Indiabulls group
derives a predominant portion of its revenues from business lines whose fortunes are
linked to the state of the equity markets, the impact of the latter’s volatility on
Indiabulls’ revenue streams cannot be ruled out. Currently, bulk of the group’s profits

Comes from the equity broking and loan against shares business. It is believed that
although the company has adequate coverage for fixed employee expenses (despite an
increasing employee base) and establishment costs, its earnings profile could be
vulnerable to a significant downturn in the equity markets. A downturn would affect
brokerage levels and income from loans against shares.

Growth in equity broking volumes, aided by an expanding network and buoyant equity
market conditions, has resulted in the strong growth. The interest spread earned from
the financing of the equity portfolio of its clients, has further boosted the profits.

 Investments in unrelated businesses to be a key monitorable

The Indiabulls group has recently made an investment in real estate and power.
Though the articulated purpose of the investment is to acquire fixed assets for office
space, nevertheless it is an equity exposure in real estate and is thus exposed to the
inherent risks in real estate to the extent of the equity capital that would be invested by
the group.

CRISIL is of the view that the group will not be making any additional investment in
real estate and will continue to focus on the current lines of business in financial
services in the medium term to leverage on their present competencies. CRISIL will be
closely monitoring this aspect, especially in the event of investments in unrelated
businesses, if any, and the risk appetite of the group will be a key rating sensitivity
 24

Few of the strengths can be enumerated as follows:

 Diverse Branch Network

 Bouquet of financial products and services
 Advanced technology team that delivers market leading product innovation
 Strong sales and marketing teams with continuous reinvestment and training
 Strong cross selling opportunities
 Strong and experienced promoters
 Leading product innovation and marketing strategies
 Well capitalized player, with strong banking relationships and credit ratings
 Ability to combine people and technology in unique ways
 Strong market presence and increased market share leading to a virtuous cycle
of growth and profitability.

Weaknesses

 Weakeness in the retail sector

Turning happy doesn’t seem to have worked for the retail business of the India-
bulls Group. Indiabulls Retail has been plagued by problems, mainly financial,
ever since it entered the business by acquiring Pyramid Retail from the Mumbai-
based Ashok Piramal Group. Indiabulls officials privately say they inherited a
“mess” from Pyramal.

Piramyd was making losses at the time of its acquisition. Many investors
expected cash-rich Indiabulls to turn around the company, but it has not
happened thus far. On the contrary, the company has had to close down a
majority of the inherited stores. Indiabulls Retail Services Ltd, the company that
houses the retail business, has closed all but four of its 42 outlets.

 High interest lending –In the past Indiabulls has targeted the customers who
were not getting loans from outside easily. So it gave out loans to them at higher
rate of interest. Targeting this type of section has made it loose many good
customers.
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Opportunities

 Advisory services: Indiabulls is also into mutual fund and insurance advisory
businesses. Though this field is extremely competitive and requires significant
research skills, these are highly profitable business segments. Though these
businesses currently account for an insignificant portion of overall revenues,
considering the penetration levels of mutual funds and insurance in the country,
prospects are promising. Indiabulls can also enter into the business of portfolio
management.

 Aggressive growth plans: Indiabulls has set aggressive targets to expand its
business in the offline space. The company has also indicated its intent to
acquire strategic stake in other companies towards growing the business
inorganically.

 Scope in rural and semi urban areas-Rural and semi-urban areas, which are
largely under-banked, also offer substantial scope for NBFCs to improve their
business volumes.
 26
 Life insurance business and multi commodity exchange- new businesses of
Life Insurance and Multi-Commodity Exchange that they are going to launch
this year will act as long term growth drivers for the company.

 Opportunity for NRI’s to trade through Indiabulls opening trading for nri
will give indiabulls increase in beneficiary owners and reaching to the richer
sector of Indians which indirectly increase the business of Indiabulls as well as
trading industry and flow of foreign money in to India.

Threats

 Entry of foreign NBFCs- RBI is planning to open Indian market for the foreign
companies. Indiabulls will be facing a stiff competition from them . . Not only
the rates but the spreads, too, would be under great stress.

 Banking industry- Banks are reaching to every sector i.e. rural & urban and
every section of the community i.e. General, Schedule Caste/Tribe which
NBFCs are still lacking and so Indiabulls.

 Rising defaults – Defaults are rising due to downturn in the economy and the
crises which the economy is facing these days. This could have a negative
impact on the rating of the company and the overall profitability would be
affected.
 27

INRODUCTION OF HOME LOAN

What is a housing loan?

They say you mustn't trust a man till you know his house. Everyone likes hearing people say
"Wow, what a beautiful house you have!" From cave dwelling, we have evolved and now a house
provides far more than just shelter...it also becomes a source of pride. A Housing Loan is used
as finance to help you buy or modify that perfect home. The different Housing Loan products
can be classified as:
1. Home Loan
2. Home Extension Loans
3. Home Improvement Loan
4. Land Loans
5. NRI Loans
6. Home Equity Loans
7. Short term Bridging Loans
8. Balance Transfer

Who can apply?

As long as you want to buy a house in India, you can apply for a Home Loan. You could be a
Resident Indian or an NRI; you could want to buy a property now or in the future, but you may
still apply for a Home Loan. In case you go with the last option and want to wait before you
consider nests, all you have to be sure of is the amount you are willing to spend on this property
and the HfIs will let you know your eligibility based on your income which will help you plan
out your budget. To find out your eligibility, please use our calculator.
 28

General Terms and Conditions of a Housing Loan Product

You are allowed to visit zoos on the condition that you do not feed the animals. When you're 18, you are
allowed to go for that late night party on the condition that someone drops you home before 12. Every
step we take requires condition to be fulfilled. Similarly, these are the general terms & conditions of a
Home Loan. For more details, please refer to the individual product.
LTV Ratio will not exceed a particular percentage. This percentage differs from HFI to HFI and
the components of the value of property are covered in Cost of Property
Elastic can be stretched only to a certain extent. The loan tenure also will not go beyond 20
years. However, HFIs do provide for different tenures with different terms and conditions.
Your EMI normally does not exceed 50% of your Gross Monthly income.
The total monthly payment towards all the loans you have availed of, including the present
one, will normally not exceed 50% of your Gross Monthly Income.
Your loan eligibility is calculated using LTV, IIR and FOIR norms and the lowest from the three
is chosen.
Your profile is considered by the HFI before your repayment capacity is judged.
If the HFI insists on a personal guarantor, you need to provide one before the disbursement of
your loan.
Your property should be both technically and legally clear before your loan can get disbursed
by the HFI.
In case you have bought an under construction property, your loan will be partly disbursed, as
per the stages of construction and PEMI needs to be paid on it.
The disbursement, in most cases, will be in the name of the builder or the seller or the society
or the development authority unless you have made some payment to them.
Repayment of the loan is either via Deduction Against Salary, Post Dated Cheques, standing
instructions or by cash / DD.
You can either choose to repay the loan using the Annual rests or Monthly rests.

Charges applicable to Housing Loans

The different kinds of charges applicable to Home Loans are listed below:
 Upfront Fees
 Rate of Interest
 Legal and Technical Charges
 Stamp Duty and Registration Charges
 Personal Guarantee from Charges
 Cheque Bounce Charges
 Delayed Payment Charges
 Additional Charges
 Incidental Charges
 Prepayment Charges
 29
 PDC Swapping Charges

Legal and technical charges :

Some HFIs charge you for the legal and technical checks undertaken on your documents and
property, by lawyers and the technical team of the HFI.

Stamp duty and registration charges:

If you go in for a registered mortgage, these charges incurred by the HFI are passed onto you.
Sometimes these charges are rather heavy depending on the State laws in the state from where
you purchase your property.

Personal Guarantee form charges:

A piece of paper signed does not have much value unless stamped and validated by the
concerned authority. That power of attorney document that you signed with your spouse would
not be credible unless signed on a Rs.100 stamp paper. Similarly, HFIs currently charge you a
minimum of Rs.100 to get the personal guarantee validated and stamped in the eyes of the law.

PDC swapping charges:

In case you want to exchange the PDCs you gave the HFIs for EMI repayments because of a
change in bank accounts, a change in EMI amount, etc., the HFis might charge a flat fee for it.

Repayment capacity
Your repayment capacity is judged according to your income and your income is considered
differently if you are salaried and differently if you are self-employed. Income is used to
calculate the amount of money that you will be able to shell out every month towards your loan
installment using IIR and FOIR norms. FOIR calculation also takes into account the
installments of loans you are currently repaying. The lower between the IIR and FOIR is chosen
as your maximum repayment capacity. This is then compared to the loan amount that you have
requested for and the loan eligibility as per LTV norms and the lowest of these would be your
final loan eligibility.

Salaried Self-employed
Any extra income on your salary slip Any non-recurring income that affects
(including overtime, etc.) is subtracted profit (like sale of asset) is subtracted.

Any non-recurring expense that adversely

50% of the average variable income over
affects profits and was not capitalized (like
the last 6 months is added
repairs and maintenance) is added
 30

Any fixed cash or voucher payment that 50% of the average depreciation of the last
can be proved is added. two years is added.

HRA that can be received and is not being

received is added.

50% of the average annual income of the

last two years is added.

Credit Documentation-
Would you trust any Tom, Dick or Harry with any matter at all? We all require a certain
assurance from people before we trust them; some sort of guarantee that they are trustworthy.
For HFIs this guarantee rests in the form of tangible documents. Credit documents are
required by all HFIs but vary in kind based on your occupation, employer, qualifications,
experience, etc. Credit documents can be classified as –
Income documents:
: Money money money...no one can take a chance on the credibility of money matters because
at the end of the day, business is business. Almost everything about your loan is based on your
income and therefore proof regarding the same is required by the HFI to ensure that no
miscommunications occur.
Personal documents:
Previously, tribes and clans had passwords without which you could not enter into the
territory; as proof of who he was, King Solomon had a ring as identification. Throughout
history, proof of identity has been important as mistaken identity has never been uncommon.
To prevent any such shams, HFIs also require a set of documents, for a general Home Loan
Product, identifying who you are.
He following list out all the documents needed. {under this line will be placed the document
sent separately as an excel sheet}
Legal Documentation
We might be living in the electronic age but that doesn't take away the importance and
monopoly of paper as everything to do with law will always be on paper. To stick by this
unwritten rule, there are legal documents that need to be submitted by you to the HFI for
mortgaging and these differ from state to state and also depend on your property type. The
following form a broad outline of the documents required and a detailed list can be found
here.
 Copy of the offer letter sent by the HFI, accepted by you.
 Title documents of the property which include
-Duly registered sale agreement.
-Receipts of your own contribution.
-Allotment letter
-Registration receipt
 31
-If needed, land documents indicating ownership.
-Possession letter
-Lease agreement, if the property is bought from a development authority
-Mortgage deed if the HFI opts for a registered mortgage.
 No Objection Certificate from the developer, society or development authority
 Personal Guarantees, if required.
 Documents for alternate or additional security.
 Post dated cheques for the EMIs.
These documents do NOT cover the entire list needed and if it is a resale property, the
pertaining agreements, etc. will also need to be attached.

BENEFITS OF HOME LOAN

Tax Benefits
Tax benefits are currently available only under Home Loans and Home Extension loans. The
details are given under the respective sections.
Property Insurance
Some events are not in our hands and are completely unavoidable. Floods, drought and storms
uproot trees and destroy the land. Along with this the birds lose their homes and while
building a nest may not be that bad and the loss is not that great, the money that you invest in
your cosy home might just be washed away. For this reason insuring your property is a good
idea as you safeguard the asset against damage or loss.. Property insurance is not compulsory
though some HFIs insist on a mortgage redemption life insurance policy and you will therefore
get a reduced interest rate. Some of the points that need to be noted regarding property
insurance are:
You can choose the tenure of your insurance.
The premium is charged up front
The longer your tenure, the greater the discounts insurance companies offer you.
 32

FAQs on Home Loan-

When can I apply for a Home Loan?

You can for apply for Home Loan at anytime. You may apply for it after you have
decided to acquire/construct a property, and even in case, the property has not
been selected or the construction has not commenced, you can still apply. What's
more, you can also avail for Home Loan facility if you want to renovate or expand
your home.

How do I make an application?

You need to submit the application form along with the necessary documents.
The bank, after going through your application will review it, ask questions
wherever necessary and will also informally tell you the loan amount you are
eligible for and the terms and conditions of the same and put across its decision
to you. You are as always, advised to shop around for more than one bank so as to
get better terms/larger loan amount/lowest interest etc.

How is my Home Loan eligibility determined?

Your Home Loan eligibility is determined by your repayment capacity, taking in
to consideration, factors such as: Your:
•Income
•Qualifications
•Age
•Spouse's income
•No. of dependants
 33
•Stability and continuity of occupation
•Assets/Liabilities.
•Savings history.
The most important concern of banks in determining your loan eligibility is that
whether or not you are contentedly able to pay off the amount you borrow.

What are the types of home loans available?

These are a range of Home Loans available:
• Home Purchase Loans: for the purchase of a new home.
• Home Improvement Loans: for implementing repair
works/renovations in a home that you have already purchased.
• Home Construction Loans : for the construction of a new home.
• Home Extension Loans: for expanding/extending an existing home.
• Land Purchase Loans: for purchase of land for home
construction/investment purposes.
• Home Conversion Loans: for those who have financed the present
home with a home loan and wishes to purchase/move to another
home for which some extra finances are required. In Home
Conversion Loan, the existing loan is transferred to the new home
including the extra amount required, eliminating the need for pre-
payment of the previous loan.
• Balance Transfer Loans: helps you to pay-off an existing home loan
and avail the option of a loan with a lower rate of interest.
• Bridge Loans: for people who wish to sell the existing home and
purchase another. This loan helps you finance the new home, until
you find a buyer for your old home.
• Refinance Loans: helps you pay off the debt you have incurred from
private sources like relatives/friends, for the purchase of your
present home.
• Stamp Duty Loans: is sanctioned to pay the stamp duty amount that
needs to be paid on the purchase of property.
• Loans to NRIs: to build/buy a home in India. EMI is payable till the
loan is paid back in full. It consists of a portion of the interest as well
as the principal.

Some of the incentives offered by banks are :

• Loan sanction without requiring you to identify property as a pre-
requisite for eligibility.
 34
• Free accident/property insurance.
• Waiving of pre-payment penalty/processing fee

How long does it take to get my application processed and the

loan sanctioned?

It takes around two weeks for processing of one's application if all the necessary
documents are in order and takes another week for the bank to inspect the property papers and
make the disbursement.

What is the maximum amount I can borrow?

The maximum amount that you can borrow depends on factors such as:
• The purpose of the loan
• Whether it is for purchase of property or improvement or renovation.
• Or purchase of land for development etc.
Besides, your residential status (whether resident Indian or Non-Resident
Indian) will also be significant on the maximum quantum of loan that you
can borrow. Typically Home Loans are provided for in the range of 75%-
85% of the cost of the property, including cost of land.

What security/collateral do I have to provide?

Banks usually take some additional securities which are called collateral
securities. Collateral could be in the form of guarantee from one or two persons,
assignment of life insurance policies, the surrender value of which should be
equal to the loan amount, deposit of shares, and units or other securities. These
additional securities are taken just incase a loan is not paid back; recourse may be
taken to such securities instead of depending upon the mortgage of the property
which is the last resort .

Does the property have to be insured?

Yes, and you will have to insure that the property for fire and other appropriate
hazards, as required by the banks during the loan tenure. The banks will be the
beneficiary of the insurance policy . You will also have to produce proof/evidence,
whenever required by the banks. This is an added cost that will add to the final
cost of purchase of the property.

Can I take a Home Loan for construction in one city while

working in another city?
 35
Yes, you can take loan for construction in one city while working in another. The
banks usually service this loan after getting details of the plot legally verified.

What is the range of interest rates offered?

The home loan interest rate varies from banks to banks and normally ranges from
12.5% to 16%.

How is the interest rates calculated on my loan?

Most banks follow the yearly reducing-balance method, which accounts for your
principal repayments only at the end of their financial year. As a result, you pay
interest on the principal that you have already returned to the bank. The effective
interest rate is therefore higher than the quoted interest rate by around 0.7%.
Some banks may also follow the daily or monthly reducing-balance method,
which results in a lower interest burden.

What are the bases of interest rates calculation?

The interest on Home Loans is usually calculated on Monthly Reducing or Yearly
Reducing balance. In Monthly Reducing Balance, the principal on which you pay
interest reduces every month as you pay your EMI. However in Yearly Reducing
Balance, the principal is reduced at the end of the year, therefore you continue to
pay interest on a certain part of the principal which you have actually paid back to
the bank, which basically means the EMI for the Monthly Reducing system is
effectively lesser than the Yearly Reducing system of calculating the interest.

What is the Fixed Rate of Interest?

Fixed Rate of Interest means that the interest rates remain FIXED for
the entire duration the loan. This basically means that you do not
benefit, even if the rates of interest drop in the market.
And Floating Rate of Interest?

This is the rate of interest that fluctuates according to the market lending rate.

What are the repayment period options?

The maximum period over which one can pay the loan varies for every bank, and
is also different for every scheme. Also your residential status makes a difference.
If you are a resident Indian, you could avail of a loan for duration of 5-20 years.
 36
Few banks offer a 20-year repayment period, generally at a higher interest rate. As
a Non-Resident Indian, you can only avail of a loan for a maximum period of 7
years.

Can I repay my loan ahead of schedule?

Yes, you can pay your loan ahead of schedule, if you want to. However, it must be
noted that banks charge a fee for early redemption of loan. This fee can vary
between 1-2% of the loan amount being pre-paid.

Who can be a Co-Applicant?

A Co-Applicant(s) is/are the Co-Owners of the property in respect of whom the
financial assistance has been sought. However all co-applicants need not be co-
owners. Usually co-applicants are: husband/wife, father/son, mother/daughter
etc.

What are the fees and charges payable and when are they
payable?
Banks charge fees at the time of application (processing fee) and at the time of
loan sanction (administrative fees). The processing fee is either a fixed amount
not linked to the loan or it may be a percentage of the loan amount. The loan
amount received by you can be less than the processing fee. And as for the
administrative fee, 1% of the loan amount sanctioned will have to be paid. Both
the processing fees and administration fees are payable upfront.

Home Loans may also be accompanied by the following extra costs:

• Interest Tax: is the tax payable on the interest paid on a home loan and not the
principal. This tax is some times included in the interest rate of the loan, or may
be charged separately as interest tax.
• Commitment Fees: Some banks levy a commitment fee in case the loan is not
availed of within a stipulated period of time after it is processed and sanctioned.
• Miscellaneous costs: It is somewhat possible that some banks may levy a
documentation or consultant charges

What is the EMI?

EMI or Equated Monthly Installments refers to the fixed sum of money that you
will be paying to the bank every month. The EMI comprise of both interest and
principal repayment. The amount of the EMI depends on the quantum of loan,
interest rate applicable and the term of the loan.

In how many installments can the loan be disbursed?

 37
The loan can be disbursed in full or in suitable installments (normally not
exceeding 3 months) taking into account the requirement of funds and progress
of construction, as assessed by the bank.

Do I get a tax benefit on Home Loan?

Yes, you are eligible for tax benefits on the principal and interest components of
the loan under the Income Tax Act, 1961. However as the benefits could vary each
year, do check out the current benefits available.

Does the agreement for sale have to be registered?

Yes, and you are advised to do so too as the Agreement for Sale between the
builder and the purchaser is required by law to be registered. You can register at
the office of the Sub-registrar appointed by the State Government under the
Indian Registration Act, 1908.

What are the documents required at the time of application?

Each bank has its own list of documents that one must submit at the time of
application. The common documents that the banks require at the pre-approval
stage are:
• Passport size photograph.
• Proof of Age.
• Copy of Bank A/C statements for the last 6 months.
• Copy of latest credit card statement.
• Signature verification from your banker.

If you are self-employed you require :

• Your business track record .
• Copy of audited financial statements for the last 2 years.

If you are salaried, you need :

• Salary and TDS certificate
• Latest pay slip.
• Letter from employer.

And at the disbursal stage (for property already located), you need to
submit the following :
• Allotment letters.
• Photocopies of title deeds.
• Encumbrance certificate.
 38
• Agreement to sell .

For self-construction:
• Approved plans and clearance certificates along with estimates.

Home Loan Banks

Home Loan is a product with so many variations in Eligibility, Rate of interest

(Fixed, Floating, and Mixed), and Loan amount. It is really difficult for a customer
to gather the information about the major players for the same. We are here to
help you realize your long cherished dream of owning your home through hassle
free and customer friendly home loans. So click on the below given banks to
know the documents required, eligibility, home loan interest rates and Articles
about Banks.

LIC Housing-LIC Housing Finance offers home loans for construction/purchase

of house/flat and also for renovation of existing flat/house. While LIC Griha
Prakash and are for purchase, construction of properties and extension of
residential units, LIC Griha Sudhar Loan facilitates repairs/renovation of
properties. Minimum age requirement is 21 years as on the date of sanction.

State Bank of India (SBI)-The most preferred home loan provider. The latest
offer is an interest rate concession on GREEN HOMES in accordance with SBI's
commitment to Environment protection. Having a vast variety of products to
suite every kind of customer. Minimum age limit 18 yrs & 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.

HDFC Bank-Over 3 decades of exclusive experience, a dedicated team of experts

and a complete package to meet all your housing finance needs. Their home loan
 39
is available for individuals to purchase (fresh / resale) or construct houses.
Application can be made individually or jointly. HDFC finances up to 85%
maximum of the cost of the property (Agreement value + Stamp duty +
Registration charges) based on the repayment capacity of the customer.

CitiBank-A bigger, better home with CITI bank home loans .The bank offers
loans for loans for built property as well as under construction property. Salaried
persons should have at least Rs 1,00,000 gross income per annum and minimum
age at least 23 years to be eligible for the loan, maximum age should be 65 or
retirement age. Self-employed gross annual income should be Rs 85,000. The age
limits are the same as salaried class.

ICICI Bank Home Loan-offers hassle free home loans with the best deal. The
loan tenure is maximum upto 25 years. They offer multiple benefits on the loan
taken.
• Simplified Documentation – The loan application process is easier and loan
approval process, faster with simplified documentation.
• Door Step Service – They personally deliver your Home Loan at your doorstep.
• Attractive Interest Rates –offers you a wide range of home loan rates to choose
from

IDBI Bank--Helps you realise your long cherished dream of owning your home
through hassle free and customer friendly home loans. The tenor of a home loan
can be up to 25 years for a resident individual whereas for NRIs the maximum
tenure is 15 years subject to maximum age of 60 years at maturity. Loan can be
applied for a maximum of 90% of the property value subject to credit discretion

IDBI Housing Finance-A New generation home finance company which

combines the best attributes of the various providers of home finance. They have
a unique offer for safe custody of documents, provided free of cost to their
customers. Minimum age eligibility is 21 years either for employed or self
employed individuals. You can get a loan from Rs 10,000 up to a maximum of Rs 1
crore.

DHFL-DHFL started its business in April 1984.It was the second housing
company that was setup in India. There objective is to provide loan to lower and
middle income Indians. Today they have 72 branches and 116 service location.
Dewan Housing Finance Limited offers home loan to individuals, Co-operative
Societies, Corporate bodies and associations of persons.
 40
Axis Bank-Buy the house that you've set your heart on with Axis Bank home
loans. Get attractive interest rates, balance transfer facility, doorstep service &
option to choose from floating rate or fixed rate. And what’s more no pre
payment penalty!! They offer the loan from Rs 1 lac & above onwards, the age
criteria is 24years at loan commencement. And up to 65 years or less at the time
of loan maturity

Deutsche Bank-Your partner for your dream home. They offer a wide range of
home loan options.The loan amounts range from Rs. 250,000 to Rs. 2 crore and
the tenure is from 5 years to 20 years. You can choose between a fixed and a
floating interest rate for your loan. Also, with attractive interest rates and savings
on taxes, a Deutsche bank Home Loan gives you complete peace of mind.

Standard Chartered Bank-If you are looking for a Home Loan that suits your
pocket & fulfill the basic need of a Dream Home, then Standard Chartered is
there to convert this dream into reality.The unique features, benefits & a wide
range of loans are available for you to purchasing a plot, construction flat, home
extension and renovation.

GE Money-GE Money makes it possible for you!! GE Money Housing Finance

offers you complete solutions for all your housing related needs. They offer Home
Loans upto Rs. 2 Crores with attractive interest rates. Your can get a Loan upto
85% of property value as loan. You can also avail of a Loan Transfer from other
banks.

ING Vysya Bank-Your search for a Ideal Home ends at ING Vysya Bank, you can
avail ING Vysya Home Loans for constructing a home, purchasing a ready built
house/flat, residential site or even for refinancing existing loans. With attractive
interest rates & funding upto 85%.They have flexible repayment options and
maximum loan tenor upto 20 years.

Reliance Housing Finance-With reliance housing finance you can fulfill your
requirement of owning that dream home. Their loans have been customized to
meet the individual’s needs & desires. They offer attractive interest rates with best
in class features and benefits. You can choose the tenor with simple EMI option.
And balance transfer option with a top-up facility.

Citifinancial-You can get a housing loan quickly & hassle free at Citifinancial.
Their home loans are customized to your requirements. They also have various
schemes which they offer on the loan to suit your needs
 41
Kotak Mahindra Bank-At Kotak home loan is given all the eligible candidates.

Home Loans Interest Rates

Buying your first home can seem intimidating, especially when faced with many
different loan types. Don't worry. Use this list to compare and narrow down the
choices to know which the best is.

To help its customers get the best interest rates on home loans deal4loans has
consolidated all the information regarding current rate of interest for all the
banks at one place. Please keep visiting this section to check updated rate of
interest for home loans.

Check Home Loan Interest Rates

Loan Amount

Loan Tenure
Above 20lac to 30lac From 15yrs to 20yrs

Bank Floating Processing Fee Prepayment

 42
Name Interest rate
Charges

0.50% of loan
Allahab
10.00% amount, Maximum N.A
ad Bank
Rs. 10,000/-

Andhra
10.50% N.A N.A
Bank

1% (For Fixed
1% of the loan
AXIS scheme ),
8.75% amount + applicable
Bank NIL( For
taxes
Floating)

Bank of
9.00% N.A N.A
Baroda

For loans upto Rs.30

lacs One time @
0.55% of loan amount
min. Rs. 3000/- and
max. Rs.10000/-
For Loan over Rs.30
Bank of
9.25% Lacs upto Rs.50 lacs – N.A
India
One time flat
Rs.15,000/-
For Loan over Rs.50
Lacs upto Rs.1.00
crore – One time flat
Rs.20,000/-

Bank of
Mahara 9% N.A N.A
stra

Barclays 9.25% 0.5% Part pre-

Bank payment with
Zero pre-
payment
charges subject
 43
to maximum
25% of the
principal
outstanding
amount else
2%
prepayment
charges have to
pay

Canara
9.25%
Bank

Central
1% of Loan Amount,
Bank of 9.00% N.A
minimum Rs.1000/-
India

8.25% (Upto
Citiban
Mar 31,2011), 5%+Service tax 2%
k
then 8.75%

Upto Rs.5 lakhs

0.50% of loan subject
to min. Rs.1,000/- &
max. Rs.2,500/-
Above Rs.5 lakhs &
upto Rs.15 lakhs
0.50% of loan subject
to min. Rs.2,500/- &
Corpora
max. Rs.7,500/-
tion 9.75% N.A
Above Rs.15 lakhs &
Bank
upto Rs.20 lakhs
0.50% of loan subject
to min. Rs.7,500/- &
max. Rs.10,000/-
Above Rs.20 lakhs
0.50% of loan subject
to min. Rs.10,000/- &
max. Rs.50,000/-
 44
Dena
9.75% N.A N.A
Bank

Deutsch 10,000 + 10.30%

8% Nil
e Bank (Service tax)

Deutsch
8.75%(fixed for
e Post Rs. 10,000/- + Service
2 yrs), then Nil
Housing Tax
market rate
Finance

Before 5 years
0%( below 10 lacs), -2%,For
DHFL 8.50%
1%(above 10 lacs) Balance
Transfer -3%

If 25% of
8.25% (Upto outstanding
Mar amount is paid
Rs. 10,000/- or 0.5%
31,2011),9.25% every year till 3
HDFC of loan
(from Apr years - No
Ltd amount(whichever is
1,2011 - Mar Penalty ,
lesser) + Service Tax
31,2012), Then otherwise 2%
9% of outstanding
amount

Rs.10,000/-
above 1 crore If
ICICI Full Payment -
Bank 0.50% of loan amount 2% of
8.75%
Home upto 1 crore outstanding
Loan amount If Part
Payment - No
Penalty

If Balance
0.50% of loan Transfer then
IDBI 8.75%
amount 2.5%
Otherwise Nil

India 8.75%(Fixed for 0.5% 2%-3%

 45
1 yr), 9.25%
Bulls (Fixed for 2
yrs),then 9%

Indian
Oversea 8.75% N.A N.A
s Bank

Up to 20 lacs -
8.25%(fixed for Rs.5000+10.30%
ING 1 yr), 9%(fixed (Service tax ) =
2%
Vysya for 1 yr),then Rs.5515/-
market rate Above 20 lacs : 0.5%
+10.30%(Service tax)

Kotak
8.25% 10,000+10.30% 2%
Bank

8.9%(Fixed
2% of out
LIC rate for 3
1% of loan amount standing
Housing years) Floating
Payment
8.75%

Oriental
Bank of
9.50% N.A N.A
Comme
rce

No Charges if
20% of the
Punjab 0.75%( from 10 lac - 15
outstanding
Nationa 9.75% lac ) , 0.5% ( above 15
amount pay in
l Bank lac)
a single year
after that 2%

8% (1st yr), 0.50% of loan amount

SBI 9%(2nd and with a cap of
N.A
Bank 3rd yr),10% Rs.10,000 + service
(after 3 years) tax

Standar 8.25% to 8.75% 0.25%-0.50% 0f loan 2% of out

d (basis on the standing
 46
Charter
profile) amount Payment
ed

Syndicat
9.50% N.A N.A
e Bank

UCO
9.50% - 10% - N.A
Bank

Union
Bank of 9.50% N.A N.A
India

United
Bank of 9.75% N.A N.A
India

Vijaya
10% N.A N.A
Bank

Home Loan Process

Owning a home gives a feeling of stability in life. However, with the steep rising prices of property in
India, buying a house at a go is not a very easy task. However, this process has been made
considerably easy by the home loans being granted by the umpteen numbers of Housing Finance
companies and nationalized and private banks in the country. Thanks to swelling competition in the
housing loan industry, the home loan process in India has become significantly streamlined. Despite
shaking off the tag of a long and tedious documentation process, the housing loan procedure still
requires one to go through certain mandatory stages. Read on to explore the basics of the home loan
process in India.

Home Loan Procedure In India

Submission Of Application Form

After choosing a particular home loan, the customer submits the application form to the housing
finance company (HFC) along with other relevant documents as required by the HFC. They comprise
documents to establish income, age, residence, employment, investments, etc. The customer also
needs to hand over a cheque for payment of an up front (non -refundable) processing fee of about
0.5-1% of the loan amount to the HFC.

Validation Of The Information

In the next stage, HFCs validate the information provided by the customer on the application form.
They usually conduct checks on the residential address of the customer, the place of employment of
 47
the customer, and credentials of the employer. Some HFCs may insist on a personal interview with
the customer and perform a reference check on the references provided by the customer on the
application form.

Issue Of Sanction Letter

After due appraisal of customer profile, a sanction letter is issued which contains details such as loan
amount, rate of interest, annual / monthly reducing balance, tenor of the loan, mode of repayment and
general terms and conditions of the loan. This is the actually the approval of the money lending
procedure by the company. However, the money is sanctioned only after the documents and the
property on behalf of which the loan is being granted is thoroughly verified.

Submission Of Documents
Once the sanction letter is passed, the customer is required to leave the entire set of original
documents pertaining to the property being purchased with the HFC as security for the loan amount
sanctioned. These documents remain in the custody of the HFC till the time the loan is fully repaid.
Once the documents are handed over to the HFC, they send all the documents for a thorough legal
scrutiny.

Validation Of Property
Prior to disbursement, the HFC also conducts a site visit to the customer's property to ensure that all
construction norms have been adhered to properly. Once the HFC is satisfied that the property is
legally and technically clear, they disburse the loan amount. The disbursement from the HFI is on the
basis of the stage of construction of the property.

Payment Procedure
Once all the above mentioned process, the borrower is entitled to take the money from the lender
party. Until such time that the entire sanctioned amount is not drawn, the customer is supposed to pay
a simple interest on the Actual Amount drawn (without any principal repayments). The EMI
payments commences only after the entire sanctioned loan amount is drawn.

Home Loan: Process: Overview

There are several steps in the home loan process. Here are the steps in brief:

 Application form
 Personal Discussion - Interest Rate, Eligibility, EMI
 Bank's Field Investigation
 Credit appraisal by the bank and loan sanction
 Offer Letter
 Submission of legal documents & legal check
 Technical / Valuation check
 Valuation
 Registration of property documents
 Signing of agreements and submitting post-dated cheques
 Disbursement
 48

Home Loan: Interest Rates

 Home loan interest rate

Check out home loan interest rates of all possible banks to help you decide the best one for you.

Read More >

Home Loan: Eligibility Criteria

 Calculate your home loan eligibility? Compare home loan eligibility amount as per your income
for various tenure from various banks

Home Loan: Process: Basics

 How To Select Property?

tips on how to choose property to invest ......

 Can I sell my property with a loan outstanding against it?

Can one sell his/her property taken on loan when it is still outstanding against it? ......
 How to change the sanctioned home loan amount

increase or decrease the loan amount sanctioned ......

Beginning the home loan process in India

The process of getting a home loan starts with a formal application for the loan. The application form
requires certain basic information about you. This will include your personal, residential, income,
employment, educational details, details about the property, estimated costs and current means of
financing the property. Though the requirements may vary from bank to bank but there certain thing
which every bank will ask.

The application form must be supported with valid documents to substantiate the facts. Generally the
banks will ask you to submit following documents.

 Income proof
 Age proof
 Identity proof
 Address proof
 Employment details
 Proof of educational qualifications
 Details about the property if finalized
 Bank statements
 49
The purpose of the entire exercise is to ascertain the suitability of a applicant for a home loan. The
income documents and bank statements provide vital clues to the bank regarding your financial
health.

Processing fees for home loans in India

An important thing to note about home loans is the processing fee. Banks charge a processing fee for
every home loan application. This fees is non refundable. The processing fees varies from bank to
bank and is generally between 0.25% to 0.50% of the loan amount. This fees is used by the bank to
start and maintain the home loan process including completing the various formalities during the
entire period.

LENDING TO PRIORITY SECTOR

At a meeting of the National Credit Council held in July 1968, it was emphasised that commercial banks should
increase their involvement in the financing of priority sectors, viz., agriculture and small scale industries. The
description of the priority sectors was later formalised in 1972 on the basis of the report submitted by the
Informal Study Group on Statistics relating to advances to the Priority Sectors constituted by the Reserve Bank
in May 1971. On the basis of this report, the Reserve Bank prescribed a modified return for reporting priority
sector advances and certain guidelines were issued in this connection indicating the scope of the items to be
included under the various categories of priority sector. Although initially there was no specific target fixed in
respect of priority sector lending, in November 1974 the banks were advised to raise the share of these sectors
in their aggregate advances to the level of 33 1/3 per cent by March 1979.

At a meeting of the Union Finance Minister with the Chief Executive Officers of public sector banks held in
March 1980, it was agreed that banks should aim at raising the proportion of their advances to priority sectors
to 40 per cent by March 1985. Subsequently, on the basis of the recommendations of the Working Group on
the Modalities of Implementation of Priority Sector Lending and the Twenty Point Economic Programme by
Banks, all commercial banks were advised to achieve the target of priority sector lending at 40 per cent of
aggregate bank advances by 1985. Sub-targets were also specified for lending to agriculture and the weaker
sections within the priority sector. Since then, there have been several changes in the scope of priority sector
lending and the targets and sub-targets applicable to various bank groups.

On the basis of the recommendations made in September 2005 by the Internal Working Group, set up in
Reserve Bank to examine, review and recommend changes, if any, in the existing policy on priority sector
lending including the segments constituting the priority sector, targets and sub-targets, etc. and the
comments/suggestions received thereon from banks, financial institutions, public and the Indian Banks’
Association (IBA), it has been decided to include only those sectors as part of the priority sector, which impact
large segments of population & the weaker sections, and which are employment-intensive.

Accordingly the broad categories of priority sector for all scheduled commercial banks will be as under:

I. CATEGORIES OF PRIORITY SECTOR

(i) Agriculture (Direct and Indirect finance): Direct finance to agriculture shall include short, medium and
long term loans given for agriculture and allied activities directly to individual farmers, Self-Help Groups
(SHGs) or Joint Liability Groups (JLGs) of individual farmers without limit and to others (such as corporates,
 50

partnership firms and institutions) up to Rs. 20 lakh, for taking up agriculture/allied activities.

Indirect finance to agriculture shall include loans given for agriculture and allied activities as specified in
Section I, appended.

(ii) Small Enterprises (Direct and Indirect Finance): Direct finance to small enterprises shall include all
loans given to small (manufacturing) enterprises engaged in manufacture/ production, processing or
preservation of goods, and small (service) enterprises engaged in providing or rendering of services, and
whose investment in plant and machinery and equipment (original cost excluding land and building and such
items as mentioned therein) respectively, does not exceed the amounts specified in Section I, appended.

Indirect finance to small enterprises shall include finance to any person providing inputs to or marketing the
output of artisans, village and cottage industries, handlooms and to cooperatives of producers in this sector.

(iii) Other Small Business / Service Enterprises: Other Small Business / Service Enterprises shall include
small business, retail trade, professional & self-employed persons, small road & water transport operators and
all other service enterprises, as per the definition given in Section I appended.

(iv) Micro Credit: Provision of credit and other financial services and products of very small amounts not
exceeding Rs. 50,000 per borrower to the poor, either directly or indirectly through a SHG/JLG mechanism or
any intermediary (including NBFC/NGO/MFI), or to an NBFC/NGO engaged in provision of credit to the poor
up to Rs. 50,000 per borrower will constitute micro credit. The poor for this purpose, shall include persons
below the poverty line in the respective areas.

(v) Education loans: Education loans include loans and advances granted to only individuals for educational
purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad, and do not include those
granted to institutions;

(vi) Housing loans: Loans up to Rs. 15 lakh per family, for construction of houses by individuals, (excluding
loans granted by banks to their own employees) and loans given for repairs to the damaged houses of
individuals up to Rs. 1 lakh in rural and semi-urban areas and up to Rs. 2 lakh in urban areas.

(2) Investments by banks in securitised assets, representing loans to agriculture (direct or indirect), small
enterprises (direct or indirect) and housing, shall be eligible for classification under respective categories of
priority sector (direct or indirect) depending on the underlying assets, provided the securitised assets are
originated by banks and financial institutions and fulfil the Reserve Bank of India guidelines on securitisation.
This would mean that the banks' investments in the above categories of securitised assets shall be eligible for
classification under the respective categories of priority sector only if the securitised advances were eligible to
be classified as priority sector advances before their securitisation.

(3) Outright purchases of any loan asset eligible to be categorised under priority sector, shall be eligible for
classification under the respective categories of priority sector (direct or indirect).

(4) The targets and sub-targets under priority sector lending would be linked to Adjusted Net Bank Credit
(ANBC) (Net Bank Credit plus investments made by banks in non-SLR bonds held in HTM category) or Credit
Equivalent amount of Off-Balance Sheet Exposures (as defined by Department of Banking Operations and
Development of Reserve Bank of India from time to time), whichever is higher, as on March 31 of the previous
year. Investments made by banks in the Recapitalization Bonds floated by Government of India will not be
taken into account for the purpose.

(5) In order to encourage banks to increasingly lend directly to the priority sector borrowers, the banks'
deposits placed with NABARD/SIDBI on account of non-achievement of priority sector lending targets would
not be eligible for classification as indirect finance to agriculture/SSI, as the case may be.

II. TARGETS/SUB-TARGETS

The targets and sub-targets set under priority sector lending for domestic and foreign banks operating in India
are furnished below:

Domestic commercial banks Foreign banks

 51
Total Priority 40 per cent of Adjusted Net Bank Credit (ANBC) or credit 32 per cent of ANBC or
Sector Advances equivalent amount of Off-Balance Sheet Exposure, whichever is credit equivalent
higher. amount of Off-Balance
Sheet Exposure,
whichever is higher.
Total Agricultural 18 per cent of ANBC or credit equivalent amount of Off-Balance No target.
Advances Sheet Exposure, whichever is higher.
Of this, indirect lending in excess of 4.5% of ANBC or credit
equivalent amount of Off-Balance Sheet Exposure, whichever is
higher, will not be reckoned for computing performance under 18
per cent target. However, all agricultural advances under the
categories 'direct' and 'indirect' will be reckoned in computing
performance under the overall priority sector target of 40 per cent
of ANBC or credit equivalent amount of Off-Balance Sheet
Exposure, whichever is higher.
Small Advances to small enterprises sector will be reckoned in 10 per cent of ANBC or
Enterprises computing performance under the overall priority sector target of credit equivalent
Advances 40 per cent of ANBC or credit equivalent amount of Off-Balance amount of Off-Balance
Sheet Exposure, whichever is higher. Sheet Exposure,
whichever is higher.
Micro i. 40 per cent of total advances to small enterprises should Same as for domestic
Enterprises go to micro (manufacturing) enterprises having banks.
Within Small investment in plant and machinery up to Rs 5 lakh and
Enterprises micro (service) enterprises having investment in
Sector equipment up to Rs. 2 lakh;

ii. 20 per cent of total advances to small enterprises should

go to micro (manufacturing) enterprises with investment
in plant and machinery above Rs 5 lakh and up to Rs. 25
lakh, and micro (service) enterprises with investment in
equipment above Rs. 2 lakh and up to Rs. 10 lakh. (Thus,
60 per cent of small enterprises advances should go to
the micro enterprises).
Export Credit Export credit is not a part of priority sector for domestic 12 per cent of ANBC or
commercial banks. credit equivalent
amount of Off-Balance
Sheet Exposure,
whichever is higher.
Advances to 10 per cent of ANBC or credit equivalent amount of Off-Balance No target.
Weaker Sections Sheet Exposure, whichever is higher.
Differential Rate 1 per cent of total advances outstanding as at the end of the No target.
of Interest previous year. It should be ensured that not less than 40 per cent
Scheme of the total advances granted under DRI scheme go to scheduled
caste/scheduled tribes. At least two third of DRI advances should
be granted through rural and semi-urban branches.

[ANBC or credit equivalent of Off-Balance Sheet Exposures (as defined by Department of Banking
Operations and Development of Reserve Bank of India from time to time) denotes the outstanding as
on March 31 of the previous year. For this purpose, outstanding FCNR (B) and NRNR deposits
balances will no longer be deducted for computation of NBC for priority sector lending purposes. For
the purpose of priority sector lending, Adjusted NBC (ANBC) denotes NBC plus investments made by
banks in non-SLR bonds held in HTM category. Investments made by banks in the Recapitalization
Bonds floated by Government of India will not be taken into account for the purpose of calculation of
ANBC.]

The detailed guidelines in this regard are given hereunder.

 52

SECTION I

1. AGRICULTURE
DIRECT FINANCE
1.1 Finance to individual farmers [including Self Help Groups (SHGs) or Joint Liability Groups (JLGs),
i.e. groups of individual farmers, provided banks maintain disaggregated data on such finance] for
Agriculture and Allied Activities
1.1.1 Short-term loans for raising crops, i.e. for crop loans. This will include traditional/non-traditional
plantations and horticulture.
1.1.2 Advances up to Rs. 10 lakh against pledge/hypothecation of agricultural produce (including
warehouse receipts) for a period not exceeding 12 months, irrespective of whether the farmers
were given crop loans for raising the produce or not.
1.1.3 Short-term loans under tie-up arrangements with sugar mills, agro-processing units and agri-
exporters.
1.1.4 Working capital and term loans for financing production and investment requirements for
agriculture and allied activities.
1.1.5 Loans to small and marginal farmers for purchase of land for agricultural purposes.
1.1.6 Loans to distressed farmers indebted to non-institutional lenders, against appropriate collateral or
group security.
1.1.7 Loans granted for pre-harvest and post-harvest activities such as spraying, weeding, harvesting,
grading, sorting, processing and transporting undertaken by households or groups/cooperatives of
households.
1.2 Finance to others up to an aggregate amount of Rs. 20 lakh per borrower for the purposes listed at
1.1.1 to 1.1.4 above.
INDIRECT FINANCE
1.3 Finance for Agriculture and Allied Activities
1.3.1 Loans to entities covered under 1.2 above in excess of Rs. 20 lakh in aggregate per borrower for
agriculture and allied activities. In such cases, the entire amount outstanding shall be treated as indirect
finance for agriculture.
1.3.2 Loans to food and agro-based processing units with investments in plant and machinery up to Rs.
10 crore, undertaken by other than households.
1.3.3 Loans to Non-Banking Financial Companies (NBFCs) for on lending to individual farmers.
1.3.4 (i) Credit for purchase and distribution of fertilisers, pesticides, seeds, etc.
(ii) Loans up to Rs. 40 lakh granted for purchase and distribution of inputs for the allied activities
such as cattle feed, poultry feed, etc.
1.3.5 Finance for setting up of Agriclinics and Agribusiness Centres.
1.3.6 Finance for hire-purchase schemes for distribution of agricultural machinery and implements.
1.3.7 Loans to farmers through Primary Agricultural Credit Societies (PACS), Farmers’ Service Societies
(FSS) and Large-sized Adivasi Multi Purpose Societies (LAMPS).
1.3.8 Loans to cooperative societies of farmers for disposing of the produce of members.
1.3.9 Financing the farmers indirectly through the co-operative system (otherwise than by subscription
to bonds and debenture issues) provided a certificate from the State Co-operative Bank/State
Cooperative Agriculture and Rural Development Bank (SCARDB), as the case may be, is
produced, certifying the end use of such loans.
1.3.10 Investments by banks in special bonds issued by NABARD with the objective of financing
exclusively agriculture/allied activities (not eligible for classification under priority sector lending
with effect from April 1, 2007)
1.3.11 Loans for construction and running of storage facilities (warehouse, market yards, godowns, and
silos), including cold storage units designed to store agriculture produce/products, irrespective of
their location.
If the storage unit is registered as SSI unit, the loans granted to such units may be classified under
advances to SSI, provided the investment in plant and machinery is within the stipulated ceiling.
1.3.12 Advances to Custom Service Units managed by individuals, institutions or organisations who
maintain a fleet of tractors, bulldozers, well-boring equipment, threshers, combines, etc., and
undertake work for farmers on contract basis.
 53
1.3.13 Finance extended to dealers in drip irrigation/sprinkler irrigation system/agricultural machinery,
irrespective of their location, subject to the following conditions:
(a) The dealer should be dealing exclusively in such items or if dealing in other products, should
be maintaining separate and distinct records in respect of such items.
(b) A ceiling of up to Rs. 30 lakh per dealer should be observed.
1.3.14 Loans to Arthias (commission agents in rural/semi-urban areas functioning in markets/mandies)
for extending credit to farmers, for supply of inputs as also for buying the output from the individual
farmers/ SHGs/ JLGs.
1.3.15 Fifty per cent of the credit outstanding under loans for general purposes under General Credit
Cards (GCC).
1.3.16 Loans already disbursed and outstanding as on the date of this circular, to State Electricity Boards
(SEBs) and power distribution corporations/companies, emerging out of bifurcation/restructuring of
SEBs, for reimbursing the expenditure already incurred by them for providing low tension
connection from step-down point to individual farmers for energising their wells and for Systems
Improvement Scheme under Special Project Agriculture (SI-SPA), are eligible for classification as
indirect finance up to March 2009.
2 Small ENTERPRISES
DIRECT FINANCE
2.1 Direct Finance in the small enterprises sector will include credit to:
2.1.1 Small (manufacturing) Enterprises
Enterprises engaged in the manufacture, processing or preservation of goods and whose investment in plant
and machinery [original cost excluding land and building and the items specified by the Ministry of Small
Scale Industries vide its notification no. S.O. 1722 (E) dated October 5, 2006] does not exceed Rs. 5 crore.

2.1.2 Micro (manufacturing) Enterprises

Enterprises engaged in the manufacture, processing or preservation of goods and whose investment in plant
and machinery [original cost excluding land and building and such items as in 2.1.1] does not exceed Rs. 25
lakh, irrespective of the location of the unit.
2.1.3 Small (service) Enterprises
Enterprises engaged in providing/rendering of industry related services and whose investment in equipment
(original cost excluding land and building and furniture, fittings and other items not directly related to the
service rendered or as may be notified under the MSMED Act, 2006) does not exceed Rs. 2 crore.
2.1.4 Micro (service) Enterprises
Enterprises engaged in providing/rendering of industry related services and whose investment in equipment
(original cost excluding land and building and furniture, fittings and such items as in 2.1.3) does not exceed
Rs. 10 lakh.
2.1.5 Khadi and Village Industries Sector (KVI)
All advances granted to units in the KVI sector, irrespective of their size of operations, location and amount of
original investment in plant and machinery. Such advances will be eligible for consideration under the sub-
target (60 per cent) of the small enterprises segment within the priority sector.
INDIRECT FINANCE
2.2 Indirect finance to the small (manufacturing as well as service) enterprises sector will include
credit to:

2.2.1 Persons involved in assisting the decentralised sector in the supply of inputs to and marketing of
outputs of artisans, village and cottage industries.

2.2.2 Advances to cooperatives of producers in the decentralised sector viz. artisans village and cottage
industries.

2.2.3 Subscription to bonds issued by NABARD with the objective of financing exclusively non-farm
sector (not eligible for classification under priority sector lending with effect from April 1, 2007).

2.2.4 Loans granted by banks to NBFCs for on lending to small (manufacturing as well as service)
enterprises sector.
 54

3. OTHER SMALL BUSINESS / SERVICE ENTERPRISES

3.1 Loans granted to other small business and service enterprises such as, small road and water transport
operators, small business, professional & self-employed persons, and other enterprises, engaged in
providing/rendering of services and whose investment in equipment (original cost and excluding land and
building) does not exceed Rs. 2 crore.

3.2 (i) Advances granted to retail traders dealing in essential commodities (fair price shops), consumer co-
operative stores, and;

(ii) Advances granted to private retail traders with credit limits not exceeding Rs. 20 lakh.

4. MICRO CREDIT

4.1 Loans of very small amount not exceeding Rs. 50,000 per borrower provided by banks to the poor, either
directly or through a group mechanism or through any intermediary (as approved by Department of
Banking Operations and Development of Reserve Bank of India for the Banking Correspondent model), or
to an NBFC/NGO for providing credit to the poor up to Rs. 50,000 per borrower.

4.2 Loans to poor indebted to informal sector

4.2.1 Loans to distressed poor to prepay their debt to lenders in the informal sector would be eligible for
classification under priority sector.

4.2.2 Poor for this purpose may include those families who are below the poverty line in the respective
areas. Such loans to poor may also be classified under weaker sections within the priority sector.

5. State Sponsored Organizations for Scheduled Castes/Scheduled Tribes

Advances sanctioned to State Sponsored Organisations for Scheduled Castes/ Scheduled Tribes for the
specific purpose of purchase and supply of inputs to and/or the marketing of the outputs of the
beneficiaries of these organisations.

6. Education

Educational loans granted to individuals for educational purposes up to Rs. 10 lakh for studies in India
and Rs. 20 lakh for studies abroad. Loans granted to institutions will not be eligible to be classified as
priority sector advances.
7. Housing
7.1 Loans up to Rs. 15 lakh, irrespective of location, for construction of houses by individuals,
excluding loans granted by banks to their own employees.

7.2 Loans given for repairs to the damaged houses of individuals up to Rs. 1 lakh in rural and semi-
urban areas and up to Rs. 2 lakh in urban and metropolitan areas.
7.3 Assistance up to Rs. 1.25 lakh per housing unit given to any governmental agency/ non-
governmental agency (other than Housing Finance Companies) for construction/ reconstruction of
houses or for slum clearance and rehabilitation of slum dwellers.
7.4 Assistance up to Rs. 5 lakh per housing unit given to Housing Finance Companies for
construction/ reconstruction of houses or for slum clearance and rehabilitation of slum dwellers.
8. Weaker Sections
The weaker sections under priority sector shall include the following:
 55
(a) Small and marginal farmers with land holding of 5 acres and less, and landless labourers, tenant
farmers and share croppers;
(b) Artisans, village and cottage industries where individual credit limits do not exceed Rs. 50,000;
(c) Beneficiaries of Swarnjayanti Gram Swarozgar Yojana (SGSY);
(d) Scheduled Castes and Scheduled Tribes;
(e) Beneficiaries of Differential Rate of Interest (DRI) scheme;
(f) Beneficiaries under Swarna Jayanti Shahari Rozgar Yojana (SJSRY);
(g) Beneficiaries under the Scheme for Liberation and Rehabilitation of Scavangers (SLRS);
(h) Advances to Self Help Groups;
(i) Loans to distressed poor to prepay their debt to informal sector, against appropriate collateral or group
security.
9. Export Credit
This category will form part of priority sector for foreign banks only.

SECTION II
PENALTIES for NON-ACHIEVEMENT OF PRIORITY SECTOR LENDING TARGET / SUB-TARGETS
1. Domestic scheduled commercial banks – Contribution by banks to Rural Infrastructure
Development Fund (RIDF):
1.1 Domestic scheduled commercial banks having shortfall in lending to priority sector target (40 per cent
of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher) and / or
agriculture target (18 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure,
whichever is higher) shall be allocated amounts for contribution to the Rural Infrastructure Development
Fund (RIDF) established with NABARD. The concerned banks will be called upon by NABARD, on
receiving demands from various State Governments, to contribute to RIDF.
1.2 The corpus of a particular tranche of RIDF is decided by Government of India every year. Fifty per
cent of the corpus shall be allocated among the domestic commercial banks having shortfall in lending to
priority sector target of 40 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure,
whichever is higher, on a pro-rata basis. The balance fifty per cent of the corpus shall be allocated among
the banks having shortfall in lending to agriculture target of 18 per cent of ANBC or credit equivalent
amount of Off-Balance Sheet Exposure, whichever is higher, on a pro-rata basis. The amount of
contribution by banks to a particular tranche of RIDF will be decided in the beginning of the financial year.
1.3 The interest rates on banks’ contribution to RIDF shall be fixed by Reserve Bank of India from time to
time.
1.4 Details regarding operationalisation of the RIDF such as the amounts to be deposited by banks,
interest rates on deposits, period of deposits etc., will be communicated to the concerned banks
separately by August of each year to enable them to plan their deployment of funds.
2. Foreign Banks – Deposit by Foreign Banks with SIDBI
2.1 The foreign banks having shortfall in lending to stipulated priority sector target/sub-targets will be
required to contribute to Small Enterprises Development Fund (SEDF) to be set up by Small Industries
Development Bank of India (SIDBI).
2.2 The corpus of SEDF shall be decided by Reserve Bank of India on a year to year basis. The tenor of
the deposits shall be for a period of three years or as decided by Reserve Bank from time to time. Fifty
per cent of the corpus shall be contributed by foreign banks having shortfall in lending to priority sector
target of 32 per cent of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is
higher, on a pro-rata basis The balance fifty per cent of the corpus shall be contributed by foreign banks
having aggregate shortfall in lending to SSI sector and export sector of 10 per cent and 12 per cent
respectively, of ANBC or credit equivalent amount of Off-Balance Sheet Exposure, whichever is higher,
on a pro-rata basis.
2.3 The concerned foreign banks will be called upon by SIDBI, as and when required by them, to
contribute to SEDF, after giving one month’s notice.
2.4 The interest rates on foreign banks’ contribution to SEDF, period of deposits, etc. shall be fixed by the
Reserve Bank of India from time to time.
3. Non-achievement of priority sector targets and sub-targets will be taken into account while granting
regulatory clearances/approvals for various purposes.
 56
SECTION III
common guidelines for priority sector advances
1 Banks should follow the following common guidelines prescribed by the Reserve Bank for all categories
of advances under the priority sector.
2 Processing of Applications
2.1 Completion of Application Forms
In case of Government sponsored schemes such as SGSY, the concerned project authorities like
DRDAs, DICs, etc. should arrange for completion of application forms received from borrowers. In other
areas, the bank staff should help the borrowers for this purpose.
2.2 Issue of Acknowledgement of Loan Applications
Banks should give acknowledgement for loan applications received from weaker sections. Towards this
purpose, it may be ensured that all loan application forms have perforated portion for acknowledgement
to be completed and issued by the receiving branch. Each branch may affix on the main application form
as well as the corresponding portion for acknowledgement, a running serial number. While using the
existing stock of application forms which do not have a perforated portion for acknowledgement is
separately given, care should be taken to ensure that the serial number given on the acknowledgement is
also recorded on the main application. The loan applications should have a check list of documents
required for guidance of the prospective borrowers.
2.3 Disposal of Applications
(i) All loan applications up to a credit limit of Rs. 25,000 should be disposed of within a fortnight and those
for over Rs. 25,000, within 4 weeks.

(ii) All loan applications for SSI up to a credit limit of Rs. 25,000 should be disposed of within 2 weeks and
those up to Rs. 5 lakh within 4 weeks, provided the loan applications are complete in all respects and are
accompanied by a 'check list'.
2.4 Rejection of Proposals
Branch Managers may reject applications (except in respect of SC/ST) provided the cases of rejection
are verified subsequently by the Divisional/Regional Managers. In the case of proposals from SC/ST,
rejection should be at a level higher than that of Branch Manager.
2.5 Register of Rejected Applications
A register should be maintained at the branch, wherein the date of receipt,
sanction/rejection/disbursement with reasons therefor, etc., should be recorded. The register should be
made available to all inspecting agencies.
3 Repayment Schedule
3.1 Repayment programme should be fixed taking into account the sustenance requirements, surplus
generating capacity, the break-even point, the life of the asset, etc., and not in an 'ad hoc' manner. In
respect of composite loans, repayment schedule may be fixed for term loan component only.
3.2 As the repaying capacity of the people affected by natural calamities gets severely impaired due to the
damage to the economic pursuits and loss of economic assets, the benefits such as restructuring of
existing loans, etc. as envisaged under our circular RPCD.CO.PLFS.NO. BC 16/05.04.02/2006-07 dated
August 9, 2006 may be extended to the affected borrowers.
4 Rates of Interest
4.1 The rates of interest on various categories of priority sector advances will be as per RBI directives issued
from time to time.
4.2 (a) In respect of direct agricultural advances, banks should not compound the interest in the case of
current dues, i.e. crop loans and instalments not fallen due in respect of term loans, as the agriculturists
do not have any regular source of income other than sale proceeds of their crops.
(b) When crop loans or instalments under term loans become overdue, banks can add interest to the
principal.
(c) Where the default is due to genuine reasons banks should extend the period of loan or reschedule the
instalments under term loan. Once such a relief has been extended, the overdues become current dues
and banks should not compound interest.
(d) Banks should charge interest on agricultural advances in respect of long duration crops, at annual
rests instead of quarterly or longer rests, and could compound the interest, if the loan/instalment
becomes overdue.
5 Penal Interest
5.1 The issue of charging penal interests that should be levied for reasons such as default in repayment, non-
submission of financial statements, etc. has been left to the Board of each bank. Banks have been
 57
advised to formulate policy for charging such penal interest with the approval of their Boards, to be
governed by well accepted principles of transparency, fairness, incentive to service the debt and due
regard to difficulties of customers.
5.2 No penal interest should be charged by banks for loans under priority sector up to Rs 25,000 as hitherto.
However, banks will be free to levy penal interest for loans exceeding Rs 25,000, in terms of the above
guidelines.
6. SERVICE CHARGES / INSPECTION CHARGES
6.1 No service charges/inspection charges should be levied on priority sector loans up to Rs. 25,000/-.
6.2 For loans above Rs. 25,000/- banks will be free to prescribe service charges with the prior approval of
their Boards, in terms of circular No. DBOD.Dir.BC.86/03.01.00/99-2000 dated September 7, 1999.
7. Insurance against Fire and Other Risks
7.1 Banks may waive insurance of assets financed by bank credit in the following cases:
No. Category Type of Risk Type of Assets
(a) All categories of priority sector advances up to and inclusive of Fire & other Equipment and current
Rs. 10,000/- risks assets
(b) Advances to SSI sector up to and inclusive of Rs. 25,000/- by
way of -
 Composite loans to artisans, village and cottage Fire Equipment and current
industries assets
 All term loans Fire Equipment
 Working capital where these are against non- Fire Current Assets
hazardous goods
7.2 Where, however, insurance of vehicle or machinery or other equipment/assets is compulsory under the
provisions of any law or where such a requirement is stipulated in the refinance scheme of any
refinancing agency or as part of a Government-sponsored programmes such as SGSY, insurance should
not be waived even if the relative credit facility does not exceed Rs. 10,000/- or Rs. 25,000/-, as the case
may be.
8. Photographs of Borrowers
While there is no objection to taking photographs of the borrowers for purposes of identification, banks
themselves should make arrangements for the photographs and also bear the cost of photographs of
borrowers falling in the category of Weaker Sections. It should also be ensured that the procedure does
not involve any delay in loan disbursement.
9 Discretionary Powers
All Branch Managers of banks should be vested with discretionary powers to sanction proposals from
weaker sections without reference to any higher authority. If there are difficulties in extending such
discretionary powers to all the Branch Managers, such powers should exist at least at the district level
and arrangements be ensured that credit proposals on weaker sections are cleared promptly.
10 CAPACITY BUILDING
Banks may ensure appropriate training of personnel to specifically cater to the needs of priority sector.
11 Machinery to look into Complaints
There should be machinery at the regional offices to entertain complaints from the borrowers if the
branches do not follow these guidelines, and to verify periodically that these guidelines are scrupulously
implemented by the branches.
12 Amendments
These guidelines are subject to any instructions that may be issued by the RBI from time to time.
 58

Guidelines for home loans soon

April 26, 2003 12:43 IST

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The Reserve Bank of India [ Get Quote ] is likely to outline detailed guidelines on documentation for
home loans and as well as margin requirements in the forthcoming Credit Policy on April 29.

The move aims at regulating the unbridled growth in home loans. The central bank feels that in their
over-aggressiveness in building home loan portfolios some banks may end up burning fingers.

"In a deregulated regime, the RBI cannot regulate interest rates. It can, however, see to it that banks
do not undercut or make losses while pricing home loans," said a source.

The RBI has recently detected some cases where customers have raised loans from banks and
housing finance companies for buying homes and used the funds for commercial purposes.

These loans were raised by forging documents and the central bank suspects that banks officials were
in cahoots with real estate agents, builders and customers.

There have also been instances where several banks had extended home loans for the same property.

Interest rates for home loans have been falling continuously. There has been fierce competition in the
home loan arena with most of the commercial banks focussing on this sector as loans to corporates
have seen a slower growth.

Banks across the country have been aggressively pushing home loans. In fact, the phenomenal non-
food credit offtake in 2002-03 was largely on account of the growth in retail loans, driven by home
loans.
 59
There has been a feeling that with increasing competition banks are not taking enough care on the
documentation part.

The finance ministry had also written a letter to the RBI urging the regulator to keep a close tab on
the increasing home loan portfolio of commercial banks.

The RBI is likely to come out with detailed guidelines on the margin requirements on the declared
value of the property for home loans.

The regulators is likely to set a margin of 15-20 per cent of the declared value.

In case of a default, the margin will protect the banks to some extent and they will be able to recover
the money by selling the asset.

Some banks have in recent times been offering home loans of up to 100 per cent on the value of the
property.

In order to avoid unnecessary undercutting of interest rates, RBI is also likely to ask banks to seek
board approval for the interest rates at which these loans are being offered.

Why do you want a home? As an investment, a short-term place to live, or a place to

retire?

You have to be pretty good to flip a house and make a profit in any year, much less during a pending
recession. If you’re looking for an investment, find an inexpensive place to live (rent or own) and put
your disposable income into a retirement account. However, if you want a place to live, then
predicting the future 5-10 years down the road is tricky. Buy a place you like, rather than somewhere
that is just adequate to get by until the next place.

How long do you plan on living in the home?

Are you buying a studio condo as a starter for just a few years, with plans to move in 3-5 years and
make a profit on the sale? Or are you planning on retiring in this home? You shouldn’t buy with
expectations of a profit on your sale. And you shouldn’t buy just for a short-term solution. You can’t
predict what will happen to the market 3-5 years from now, much less your job, health or family
situation, so if you only need a short-term housing, then why not rent? We’ll talk about renting
shortly.

Can you afford to buy a home?

Well, duh, can you afford the monthly payments? Lenders are now looking at your mortgage to be no
more than 28% of your gross monthly income, but in reality, you need to look at the rest of your
monthly obligations and debt to determine how much breathing room will be left over after the bank
takes its cut of your paycheck.

When we bought our home, the total mortgage, with principal, interest, taxes and insurance (PITI)
took about 29% of our gross paycheck, or about 37% of our take-home pay. Tack on our minimum
debt payments (car, credit card and student loans), and we we only had about 30% left to pay for
utilities, groceries, gas, tithing and every other incidental. We weren’t hurting, but we didn’t have
nearly as much room as we have now.

Currently, our numbers are 20% gross pay, 30% take-home pay and 57% left after our minimum debt
payments. However, we couldn’t have known what we would be making in 3 years, so it was a
gamble whether we could continue to afford the home.
 60
Are you buying because everyone else is buying?

We jumped on the bandwagon. We didn’t want to be left out, and everyone was talking about rates
increasing (they already had been). We were scared and uneducated. We bought our first home
without researching very well. Luckily, it turned out alright, and we love our home and location. But
why did we listen to gossip, rumors and other uneducated buyers instead of being patient and taking
our time to find the right place at the right price at the right time?

Because I was in charge! Actually, we were nearing the end of our lease, rent was going up $200 a
month (we had a discount for the first year), and we liked the idea of owning our own home. Ignore
the fact that we spent hundreds of thousands of dollars of someone else’s money (the bank’s). Ignore
the fact that that we don’t use 2 of the 3 bedrooms except for storage (see the next question). We
seriously got a house because people said that’s what you normally do. You get married, buy a home
and have kids.

Oh, and you’d be throwing your money away by renting! Aww, that’s a bunch of crap. Give me a
calculator and I can prove that renting is cheaper than owning our home in the long term. Why?
Because you can usually rent for less than the total cost of your mortgage PLUS home repairs.
Ahhhh, you didn’t think about that one, did you? Yep, home repairs can cost hundreds or thousands
per year, and by renting, your landlord is responsible for those (unless you pushed your roommate
through the wall). Oh, and don’t forget about homeowners association or condo fees. We don’t pay
them in our community, but others pay up to $400-500 extra per month!

Are you buying because you need more room?

I look around our house and ask myself “Where did I get all this junk and why do I need it?”.
Honestly, we could still be living in our one-bedroom apartment from 5 years ago had it not had mold
in the vents. We could have stayed in our rental townhouse, but we jumped on the single family home
bandwagon because we thought we needed it. Then when we moved in, we had all these extra rooms,
and nothing with which to fill them up. Oh, the horror of an empty space!

Take a look around your home. Do you REALLY need more room? C’mon, look again. Can’t you
just get rid of that old desk you found in the dumpster, or that coffee table you keep banging your
shin on? Isn’t it just another place to put junk? Would being more organized and efficient cancel
your need for more room? Stacie and I actually talk about how we liked the old place and wouldn’t
mind living there again. But with all this crap in our house, we could never find room in an 1100 sq.
ft. apartment! Sometimes, you just need to take stock of what you need and don’t need, and take
control of your stuff!

What can owning a home offer to you that renting can’t?

This is your last line of defense. Ask yourself why you really need to OWN that townhouse instead of
RENTing one. Do you really need to have a place you can paint purple? Can you paint your
existing rental as long as you paint it white when you leave? Do you really just have the itch to do
home improvements? How about joining Habitat for Humanity and working on someone else’s
home? Do you really think renting is throwing your money away? Do some research into home
costs (including repairs) versus renting.

Don’t just buy a home because your friends are doing it, or you’re afraid of missing something, or
because you “want freedom and stability”. Home ownership is not a financial investment. It’s an
emotional investment. You probably want to buy a home because you’re imagining your kids running
through the house for years to come, or doing whatever you want to the walls, but in the end, you’re
really tying up a lot of money into a single material possession when you have other options.
 61
After being homeowners for a few years now, I’d be lying if I said that I would never own a home
again. But in the future, we would ask ourselves more questions about our motives for owning the
home, and be more patient with the process. We lucked out with our first home purchase, but it could
have gone totally wrong. We didn’t educate ourselves about the loans we were purchasing, or the
risks and costs of home ownership.

Oh, and our last rental was $700 less per month than our current mortgage (with PITI). That’s a little
more than what we get back in taxes each year on our interest paid. We have more room, a yard, a
pool, and a better location, but is it worth the hassle of maintaining the home ourselves? Time will
tell.

Welcome to Indiabulls group

Indibulls Group is one of India’s top Business houses with businesses spread over
Real Estate, Infrastructure, Financial Services, Securities and Power sectors. The
group companies are listed on important Indian and Overseas markets.
Indiabulls has been conferred the status of a “Business Superbrand” by The Brand
Council, Superbrands India.
About Indiabulls

Indiabulls Group is one of the top business houses in the country with business
interests in Real Estate, Infrastructure, Financial Services, Retail, Multiplex and
Power sectors. Indiabulls Group companies are listed in Indian and overseas
financial markets. The Networth of the Group exceeds USD 3 billion. Indiabulls
has been conferred the status of a “Business Superbrand” by The Brand Council,
Superbrands India.

Indiabulls Financial Services is an integrated financial services powerhouse

providing Consumer Finance, Housing Finance, Commercial Loans, Life
Insurance, Asset Management and Advisory services. Indiabulls Financial
Services Ltd is amongst 68 companies constituting MSCI - Morgan Stanley India
Index. Indiabulls Financial is also part of CLSA’s model portfolio of 30 Best
Companies in Asia. Indiabulls Financial Services in partnership with MMTC
Limited, the largest commodity trading company in India, has set up India’s 4th
Multi-Commodities Exchange.

Indiabulls Real Estate Limited is India’s third largest property company with
development projects spread across residential projects, commercial offices,
hotels, malls, and Special Economic Zones (SEZs) infrastructure development.
 62
Indiabulls Real Estate partnered with Farallon Capital Management LLC of USA
to bring the first FDI into real estate. Indiabulls Real Estate is transforming 14
million sqft in 16 cities into premium quality, high-end commercial, residential
and retail spaces. Indiabulls Real Estate has diversified significantly in the
following business verticals within the real estate space: Real Estate
Development, Project Advisory & Facilities Management: Residential,
Commercial (Office and Malls) and SEZ Development. Power: Thermal and
Hydro Power Generation.

Indiabulls Securities Limited is India’s leading capital markets company with All-
India Presence and an extensive client base. Indiabulls Securities possesses state
of the art trading platform, best broking practices and is the pioneer in trading
product innovations. Power Indiabulls, in-house trading platform, is one of the
fastest and most efficient trading platforms in the country. Indiabulls Securities
Limited is the first brokerage house to be assigned the highest rating BQ – 1 by
CRISIL.

Indiabulls Home Loans

At Indiabulls Housing Finance Limited, we understand how special creating a

new home is for you, and Indiabulls Home Loans helps you lay the foundation for
your dream home.

Consider yourself at home with Indiabulls Home Loans. While owning a house of
one’s own is a cherished dream for most individuals, it is also a major decision
involving a large investment, a responsibility for which Indiabulls is ever ready to
provide the best financial help.

Indiabulls Home Loans helps you realize your ultimate dream of creating your
own haven by a simple, sure and safe home loan scheme. At Indiabulls, We
understand how it feels to have a place to cherish as your own home.
 63

The benefits of taking a Home Loan.

The income tax authorities look with favour 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.

Let's start with Section 24 of the Income Tax Act.

Interest paid on capital borrowed for the acquisition, construction, repair,

renewal or reconstruction of property is entitled to a deduction. Rs 1,50,000 is the
maximum amount eligible for deduction in the case of self-occupied property
and for Rented out property there is no limit of amount of deduction.

That brings us to Section 80C of the Income Tax Act.

You get a maximum Rs.1,00,000 deduction from the Income, on repayment of

principal during a financial year. Stamp duty, registration fee or other such
expenses paid for the purpose of transfer of such house property to the assessee is
also considered under this amount.

Prevailing Rate of interest on HOME LOANS.

Home loans for Salaried

Upto
Upto April’11 3rd year onwards
April’12
(Fixed) (variable)
(Fixed)
8.25% 9.25% 9.25%

Home loans for Self Employed

Upto April’11 Upto April’12

3rd year onwards (variable)
(Fixed) (Fixed)

upto 20 8.25% 9.25% 9.50%

lacs

> 20-30 8.75% 9.25% 9.50%

lacs
 64

8.75% 9.50% 9.75%

> 30 lacs

Key Features of Home Loan

 Attractive Interest Rates.
 Tenure can range upto 20 years for Housing Loan.
 Easy Monthly repayment mode.
 Loans to salaried and self employed.
 For purchase of house, residential plot & construction.
 Insurance Option available for your house loan.
 Speedy Loan Approvals

Loans Against Property-

Indiabulls brings to you Loan Against Property. You can now take a loan against
your residential or commercial property, to finance your business, plan a dream
wedding, fund your child's education and much more.

You can depend on us to meet all your business/personal requirements. Finance

your dreams with Loan Against Property. You can use your self occupied
residential property or commercial property to avail of Loans Against Property.
Key Features of Loan Against Property
 Attractive Interest Rates.
 Tenure can range upto 15 year for Loan against Property .
 Easy Monthly repayment mode.
 Loans to salaried and self employed.
 Insurance Option available for your house loan.
 Speedy Loan Approvals