INTRODUCTION TO HOME LOAN

The sun at home warms better than sun elsewhere.

True isnt it, where else do you find that comfort that makes you feel so special everyday.
Undoubtedly owning a house is the most important phase in ones life. Not long ago, turning
this dream into a reality was a daunting task for the common man with property rates going
north all the time. But now, thanks to the proliferation of home loans and housing finance
companies, one can aspire to own a roof over one's head. Many think it is an expensive affair
and beyond reach. Well, thats not always true. It takes a little planning and awareness to get
to that home you want to call your own.
Buying a home for the first time can be daunting to any person but in todays time various
banks are lending a helping hand to the people to purchase their dream house. Thus people
look forward towards choosing a

home loan.

The primary concern of a housing finance

company is to determine the loan amount that the borrower is comfortably able to repay. The
most popular method of financing a home purchase is with a mortgage. This is a loan that is
secured over the home. There are a number of different mortgage suppliers and people will
have to shop around in order to get the best deal.
Home Loan is one of the fastest growing retail and mass banking area. It forms an important
part of the countrys priority in 5 year plans. Almost all public and private sector banks are
offering home loans at attractive rates for purchasing their dream home. Home loan usually
cover a variety of types. All Banks have come out with home loan products studded with
features and value additions that make the schemes not only attractive but also serve as a
substantial source to the borrowers for owning their dream home.

Significant of study
Research Design
The research design of this project is exploratory. Though each research study
has its own specific purpose but the research design of this project on ICICI is
exploratory in nature as the objective is the development of the hypothesis
rather than their testing.
Methodology
Research methodology is a strategy that guides a research in providing answers
to research questions and for this, research survey is being done. Accuracy of
the study depends on the systematic application of the method. The researcher
has to decide the method to be used that helps him to get a desired direction a
systematic way. This study in the following manner.
Questionnaire Design
The questions were designed in an easily understandable way. That the
respondents may not have any difficulty in answering them. The questionnaire
also contained a comments section. This section was included so as to get
opinion of the people regarding the SBI HOME LOAN.
Random Sampling
Sampling can be defined as a part of population. This random sampling may be
defined as the selection of the portion from the whole population in which each
elements of the population has equal chance of being selected. A more please
definition is that each element in the population has a non-zero and known
probability of selection a randomly drawn sample is an unbiased sample. In this
research survey 50 people were surveyed at random to get the relevant
information.
Sample Size
The sampling techniques used in this project are probability sampling
techniques and the methods used in cluster sampling.

TYPES OF HOME LOANS

Lending institutions like banks offer different types of home loans for a wide gamut of
housing activities. Some of the popular home loans are:
Home Purchase Loans: There are the basic home loans for the purchase of a new home.
Home Improvement Loans: These loans are given for implementing repair works and
renovations in a home that has already been purchased by the borrower.
Home Construction Loans: These loans are available for the construction of a new home.
Home Extension Loans: These are given for expanding or extending an existing home. For
example addition of an extra room, etc.
Land Purchase Loans: These loans are available for purchase of land for both home
construction or investment purposes.
Bridge Loans: Bridge Loans are designed for people who wish to sell the existing home and
purchase another. The bridge loan helps finance the new home, until a buyer is found for the
old home.
Balance Transfer: Balance Transfer loans help the borrower to pay off an existing home loan
and avail the option of a loan with a lower rate of interest.
Refinance Loans: These loans helps to pay off the debt the borrower have incurred from
private sources such as relatives and friends, for the purchase of your present home.
Home Conversion Loans: These loans are for those people 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 new home
including the extra amount required, eliminating need for pre-payment of the previous loan.
Stamp Duty Loans: These loans are sanctioned to pay the stamp duty amount that needs to
be paid on the purchase of property.
Loans to NRIs: These loans are given to the 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.
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Reviews of Literature
A literature review is an account of what has been published on a topic by
accredited scholars and researches. Occasionally you will be asked to write one
as a separate assignment, but more often it is part of the introduction to an essay,
research report, or thesis. In writing the literature review, your purpose is to
convey to your reader what knowledge and ideas have been established on topic,
and what their strengths and weaknesses are. As a piece of writing, the literature
review must be defined by a guiding concept (e.g., your research objective, the
problem or issue you are discussing, or your argumentative thesis). It is not just a
descriptive list of the material available, or a set of summaries.
The rural middle class constitutes a potential market lying to be tapped by any
industry. There are 16.4 million urban middle-class households in the country, but
the latter had a better purchasing power because they do not incur any
expenditure on rent, transport and school fees, compared to their urban
counterparts, who spend a sizable portion of their income on these items.
A literature review is a text of a scholarly paper, which includes the current
knowledge including substantive findings, as well as theoretical or
methodological contributions to a particular topic. Literature reviews use
secondary sources, and do not report new or original experimental work. Most
associated with academic oriented literature, such as a thesis, dissertation or a
peer-reviewed journal article, a literature review generally precedes the
methodology and results section although this is not always the case. Literature
reviews are also common in a research proposal or prospectus (the document that
is approved before a student formally begins a dissertation or thesis). Its main
goals are to situate current study within the body of literature and provide context
for the particular reader. Literature reviews are a basis for research in nearly
academic field. A systematic review is a literature review focused on a research
question, trying to identify, appraise, select and synthesize all high quality
research evidence and arguments relevant to that question. A meta-analysis is
typically a systematic review using statistical methods to effectively combine the
data used on all selected studies to produce a more reliable result.

OBJECTIVES
Broad objectives of the SBI are:
To assist in the creation, expansion and modernisation of HOME loans;
To encourage the participation of internal and external capital
To encourage private ownership of industrial investment.
To create an awareness about loan and policies.
To identify the potential policy holders among end users and to create a
relationship between the companies and potential customers/
To find out the awareness of the people about home loan
To offer suggestions based on findings.

HYPOTHESIS
The hypothesis being put forth for this study about home loans is that the awareness of home
loans is 100% but after the survey the conclusion can be put that there are still many people
who do not know about home loans. Banks are coming up with new innovative home loans
schemes for increasing their customer base.

RESEARCH METHODOLOGY
The research methodology is data collection through

Primary Sources

Secondary Sources

Primary Sources: Survey by distributing questionnaire to the people taking sample size of
100. Interviews conducted with bankers.
Secondary Sources: Data collection through books, magazines, websites, journals, etc.

EXPECTED CONTRIBUTION
Expectations from the study are that it may contribute to the real scenario of home loans
demand and accordingly the banks can go for new innovative schemes. It will also specify
some recommendations and based on that banks can make suitable arrangements in a
particular sector. It will also make people aware about the various home loan schemes and its
various procedures and formalities.

PROCEDURE OF HOME LOAN

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Home loan procedure caters to processes right from the time the customer walks into the
bank with a request for home loan till the time the loan is finally repaid by the customer. The
three major phases in the home loan procedure are the information acquisition, credit
appraisal and sanction, and disbursement. Tracking the performance of the process is an
underlying phase that runs across the application processing cycle and is critical for
monitoring and profitability for the Bank/ Financial Institution.
The procedure for availing a home loan can be explained with the help of the following flow
chart:
Submission of application form
Personal Discussion with customer
Field Investigation by the bank/FI
Credit Appraisal and loan sanction
Issue of offer letter to the customer
Submission of property / legal documents
Legal check on the property by the bank
Technical check on the property by the bank
Disbursement
Repayment
Interest tax certificate
Prepayment by the customer

A. Submission of application form: The application is submitted along with photographs,

credit documents and a cheque for processing, documentation and administration fees by the
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customer. The credit documents comprise documents to establish income, age, residence,
employment, investments, etc. During this stage, the bank/financial institution checks the
repayment capacity of the customer. The repayment capacity is determined by taking into
consideration factors such as income, age, qualifications, number of dependants, spouse's
income, assets, liabilities, stability and continuity of occupation and savings history.
B. Personal Discussion with customer: Some banks/FIs require the customer be present at
the time of the

credit

appraisal. Some banks/FIs 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. For the personal discussion the customer needs to take with him all
documents pertaining to the information provided by him on the application form.
C. Field Investigation by the bank/FI: The bank/FI validates information provided by the
customer on the application form. This stage revolves around two key aspects. Critically
appraising the credit worthiness of the customer and analyzing the risk in lending. It is
necessary to capture all the information required to cater to these aspects. It is important to
verify that the information supplied by the customer is correct and authentic. Banks achieve
this mostly through external agencies. Also the validity and authenticity of information can be
done through conducting checks on the residential address of the customer, the place of
employment of the customer, and credentials of the employer, verification of documentary
proofs of income, age and other information. To minimize the risk, it is necessary to check
that the customer is not a fraud or black listed within the bank or other institutions.
D. Credit Appraisal and loan sanction: The next phase in the home loan process is the
credit appraisal and loan sanction. After

checking

the customer's repayment capacity, the

bank/FI sets norms that define the customer's eligibility for a loan amount. The loan then gets
sanctioned along with certain terms and conditions. When evaluating the measurable aspects
of home loan requests, an analyst addresses the following issues: the character of the
borrower, the use of loan proceeds, the amount needed, and the primary and secondary
sources of repayment. Therefore, the bank has to base its decisions more on qualitative
parameters rather than quantitative aspects. Credit analysis therefore is distinct for each type
of home loan scheme. Credit analysis is the most popular methods of evaluating home loans.

G. Legal check on the property by the bank: The bank/FI sends all the documents to their
empanelled

lawyer

for a thorough scrutiny. On receiving the lawyer's report that the

documents are clear, the bank/FI decides to disburse the

loan

to the customer. If the

documents sent to the lawyer are not enough to arrive at a judgment, the bank/FI requests the
customer to furnish additional documents.
H. Technical check on the property by the bank/financial institution: Prior to
disbursement, the bank/FI conduct a site visit to the customer's property to verify the
following:
In case of under construction property:

Quality of construction

Stage of construction: Whether it is the same as mentioned in the payment notice given to
the customer by the builder

Progress of work

Layout of flats and area of property is within permission granted by the governing
authority

Requisite certificates have been received by the builder to start construction at the site

In case of ready construction/ resale:

Age of the structure

Quality of construction

Whether the structure will last the tenure of the loan

External maintenance of the property

Internal maintenance of the property

Surrounding area (development)

Required certificates from the governing authority have been received by the builder for
handing over possession of the flat

There is no existing lien or mortgage on the property

I. Disbursement: After verifying that the property is legally and technically clear, the
bank/FI disburses the loan amount on the basis of the stage of construction of the property.
The customer needs to pay the margin money from his own contribution prior to the
disbursement.
J. Repayment: The repayment of the loan by the customer starts only after the full
disbursement of the loan amount has been made by the bank/FI. The loan is always repaid by
way of EMIs. The mode of repayment, however, differs from case to case. In case of a loan
repayment done through Deduction Against Salary (DAS), Post Dated Cheques (PDCs),
Standing Instructions (SI) and cash / Demand Draft (accepted only by some banks/FIs). The
customer can deposit the amount of his EMI every month at the bank/FIs office.
K. Interest tax certificate: This certificate is given by the bank/FI to the customer to avail of
tax benefits that accrue through a home loan. The customer can submit this to his employer or
Chartered Accountant

to account it while calculating the customer's tax liability.

L. Prepayment by the customer: The customer can either partly or fully prepay his loan at
any given point of time. The loan could be partly or fully disbursed when the customer
wishes to prepay his loan. Most banks/FIs, however, have a limit on the number of times that
a person can prepay his loan. There is, normally, also a minimum amount that a customer

PARAMETERS IN RELATION TO HOME LOANS

ELIGIBILITY CRITERIA
1) For Resident Indians
Home loan eligibility for Resident Indians depends upon the repayment capacity of the loan
applicant. The maximum loan that can be sanctioned varies with the banks and other housing
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finance companies (HFC) and generally, the maximum loan amount granted is 80 to 85% of
the cost of the home.
Home loan eligibility corresponding to repayment option is based on the following factors.
Even though, the eligibility criteria may vary according to the HFCs regulations:

Age (Minimum)
Age (Maximum)
Qualification

21 Years
58(salaried),

60(Public

limited/Government

Employees), 65 (self employed)

Graduation

Income
Stable source of income and saving history
Dependents
Number of dependents, assets, liabilities
Other income sources
Spouse's income
As home loan rates increase, the loan eligibility for a borrower becomes stiffer. In such a
scenario, some home loan borrowers might have to re-evaluate their options (in terms of loan
amount) on account of the new eligibility criteria. Home loan eligibility can be enhanced by:
i) Increasing the Home loan tenure: One of the basic process of enhancing the home loan
eligibility is by opting for a higher tenure. This is so because the EMI, which an individual
has to pay, starts to decline as the tenure increases while the interest rate as well as the
principal amount remains the same. What changes though, is the net interest outgo, which
rises with a rise in tenure. And since the individual is paying a lower EMI now, his 'ability to
pay' and therefore his loan eligibility automatically increase.
ii) Repaying other outstanding loans: There might be adverse effect on home loan
eligibility for individuals with outstanding loans like car loans or personal loans. Industry
standards suggest that existing loans with over 12 unpaid installments are taken into account
while iii).
2) For Non- Resident Indians
The eligibility criteria of NRIs differ from Resident Indians based on a few parameters. The
parameters include:
Age: The loan applicant has to be 21 years of age.
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Qualification: The NRI loan seeker has to be a graduate.

Income: The loan applicant has to have a minimum monthly income of $ 2,000 (although,
this criterion may differ across HFCs).The eligibility is also determined by the stability and
continuity of your employment or business.
Payment options: The NRI also has to route his EMI (Equated Monthly Installments)
cheques through his NRE/ NRO account. He cannot make payments from another source say,
his savings account in India.
Number of dependants: The eligibility of the applicant is also determined by the number of
dependents, assets and liabilities.
An NRI applicant is eligible to get a home loan ranging from a minimum of Rs 5 lakhs to a
maximum of Rs 1 crore, based on the repayment capacity and the cost of the property, which
although is variable by the priorities of the home loan provider. Also Home Loan Tenure for
NRIs is different from Resident Indians. An applicant will be eligible for a maximum of 85%
of the cost of the property or the cost of construction as applicable and 75% of the cost of
land in case of purchase of land, based on the repayment capacity of the borrower.

QUANTUM OF LOAN
The quantum of loan is assessed based on the net monthly/ net annual income with a direct
bearing on age factor of the borrower. A person of age in the range of 21 to 45 years is
eligible for a maximum amount of 60 times of his Net Monthly Income (NMI)/ five times of
Net Annual Income. In case the age is above 45 years the quantum will be restricted to 48
times of NMI/ four times of Net Annual Income. Many banks have put a ceiling on the
maximum amount of home loan at Rs.50 lakhs. In order to assess the quantum of finance
income of spouse or close relative can also be reckoned, provided that person becomes a co
applicant.

DOCUMENTATION
Loan Documentation refers to the documents needed to legally enforce the loan agreement
and properly analyze the borrowers financial capacity. Documentation is an essential
component from the point of view of the safety of an advance. The ability to control arises
from the documentation of provisions, which confirm understanding on the basis of which a
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credit facility has been sanctioned. Documents should be properly drafted, stamped and
executed with necessary legal formalities, if any. An effective loan approval process
establishes minimum requirements for the information and analysis upon which a credit
decision is based.
There are certain sets of documents that need to be submitted at the time of application for a
home loan. The document sets will vary according to the individual status - either resident or
non resident in India, as also the type of loan that the borrower may want to avail of.
Resident Indians

Non Resident Indians

Income documents

Income documents

Property documents

Property documents

Personal documents

Personal documents

1) For Resident Indians

Documentation refers to the specific documents to be submitted by Resident Indians as they
apply for home loan. These documents are very much necessary for the banks to avoid any
dispute and uncertainty. The documents to be provided by the resident Indians include
income proof, property documents and personal identification documents, etc. which of
course varies based on the borrowers financial status and the type of loan he want to avail.
And of course every resident Indian should follow some eligibility criteria before applying
for Home Loans in India.
However, there are some standard documents made mandatory for a loan applicant to
produce such as the loan applicant's profile, earning life of the applicant and present financial
status proof etc.

The Applicant's Profile refers to the bio-data of the applicant, mentioning his address,
age, family background and detail information.

The Earning Life of the Applicants' proof clarifies the capability of the loan payment.
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The Present Financial status gives the present capability of handling the own contribution
and other expenditures. This includes the mortgage to be deposited against the loan
amount.

1) Income documents

If you are employed

Verification of Employment form

Latest salary slip/salary certificate showing all deductions for at least the past 6 months

Form 16 from your employer for the past 3 years.

If your job is transferable, permanent address where correspondence relating to the

application can be mailed.

If you have been in your present employment / business or profession for less than a year,
mention details of occupation for previous 5 years, giving position held reasons for
change and period of the same

If you are self employed

Balance sheet and profit and loss account of the business/profession along with copies of
individual income tax returns for the past 3 years as certified by a chartered accountant.

A note giving information on the nature of the business/profession, year of establishment,

present bankers, form of organisation, clients, suppliers etc.

Your net worth as an applicant/co-applicant.

2) Property documents

Purchase of a flat or apartment from a builder/promoter

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Title deeds of the builder/land owner for a period of at least 13 years.

Development agreement between the builder and land owner if applicable.

Power of Attorney executed in favour of the builder, if applicable.

An encumbrance certificate for the past 13 years.

The khata certificate. (Basic document indicating ownership of property as entered in the
register of the government authorities.)

Up-to-date tax paid receipts of the property.

A sanctioned plan and license.

An agreement for sale and a construction agreement with the borrower.

In case purchase of house from second owner

Title deeds of land owner for a period of at least 13 years.

Encumberance certificate for the past 13 years.

Khata certificate (Basic document indicating ownership of property as entered in the

register of the government authorities).

Up to date tax paid receipts of the property.

Sanctioned plan and license.

Agreement for sale in favour of the applicant/applicants.

Valuation report from qualified valuers.

3) Personal documents

1 passport size photograph,

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1 copy of your passport/PAN card/Driving License//School Leaving Certificate/Birth

Certificate/LIC Policy/Bankers sign verification,

1 copy of last month's telephone bill/electricity bill/ ration card (first and last
page)/Title deed of property/rental agreement/driving license)

INTEREST RATES FOR HOME LOANS & THEIR CALCULATION

Interest rates charged by housing finance companies vary depending upon your individual
status - either resident or non resident in India, the loan amount, scheme type, and are
sometimes even based on the tenure of the loan.
The way banks / FIs charge interest to arrive at the value of EMI can be broadly classified
into Flat rate system and Reducing balance rate system. In the flat rate system, the rate of
interest on the loan amount is calculated over the entire duration of the loan and the principal
plus the interest is divided over the number of installments and the value arrived is the EMI.
But in case of 'Reducing Balance system, the interest is charged on the outstanding balance
of the loan, which goes on reducing.
The reducing balance can be further classified into monthly reducing, quarterly reducing and
annual reducing methods based on the number of times the principal is reduced/credited in a
year. Suppose the principal is reduced 12 times a year, it is termed as monthly reducing
balance method, if the principal is reduced 4 time a year, it termed as quarterly reducing
balance method and if the principal is reduced 1 time a year, it known as annual reducing
balance method. Annual reducing balance method is very common with Indian banks and
monthly reducing balance method is popular among the foreign banks and nationalized
banks, engaged in the activity of housing finance.

Resident Indians
Buying a new house

Non-Resident Indians
Buying a new house

Buying an existing house

Buying an existing house

House improvement

House improvement

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1) Interest rates for Resident Indians

Buying a new house from a builder/promoter

Banks and FIs offer resident Indians loans upto Rs 10,000,000 for upto 30 years for buying a
new flat from a builder. The flat may be under construction at the time of application.
The table below offers a comparison of loan ranges and corresponding interest rates
applicable under this scheme.

Company

Loan amount (Rs.)

Floating rate (%)

Fixed rate (%)

HDFC (Monthly)

For all loan amounts

11.25

13.25

HSBC

For all loan amounts

12.00

13.50

ICICI

For all loan amounts

13.75

14.00

RBI

For all loan amounts

11.25

12.75

Buying a house from a second owner

Banks and FIs offer resident Indians loans upto Rs 10,000,000 for upto 30 years under this
scheme.
The table below offers a comparison of loan ranges and corresponding interest rates
applicable under this scheme.

Company

Loan amount (Rs.)

Floating rate (%)

Fixed rate (%)

HDFC (Monthly)

For all loan amounts

11.25

13.25

HSBC

For all loan amounts

12.00

13.50

ICICI

For all loan amounts

13.75

14.00

Home Improvement

Banks and financial institutions offer non resident Indians loans upto Rs 1,000,000 for
periods ranging from 1 to 10 years under this scheme.
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Home improvement schemes allow the borrower to finance internal and external repairs and
other structural improvements in your home. Some of the home improvements one can
finance under this scheme are:

External repairs

Waterproofing and roofing

Internal and external painting

Plumbing and electrical works

Tiling and flooring

Grills and aluminium windows

The table below offers a comparison of loan ranges and corresponding interest rates
applicable under this scheme.

Company

Loan amount (Rs.)

Floating rate (%)

Fixed rate (%)

HDFC (Monthly)

For all loan amounts

11.25

13.25

HSBC

For all loan amounts

12.00

13.50

ICICI

For all loan amounts

13.75

14.00

RBI

For all loan amounts

11.25

12.75

MARGIN AMOUNT FOR HOME LOANS

The difference in the total cost of the property and the loan amount sanctioned is the margin
amount. This money has to be invested by the borrower of the property prior to the release of
the loan amount in case of construction of a house. In case it is for purchase of a ready house,
the loan amount is released on the day of registration of the property and the margin money
has to be invested by the borrower prior to the release. In case of purchase of flats also, the
release will be made only on investment of the margin money by the borrower. A margin
amount is the amount that the applicant pays through his/her pocket. As far as home loans are
concerned a bank usually pays 85% of the total cost of the house to be purchased by the
borrower. The margin is usually the amount not covered by the bank for the payment of the
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essential and necessary fees for the purchase of the house. In most of the cases, the margin
amount of 25% of the purchase consideration has to be borne by the borrower in the case of
purchase of old houses/approved plots and 15% of the project cost in the case of loans for
construction/purchase of new house/flat.

SECURITY FOR HOME LOANS

In most cases, the property to be purchased itself becomes the security and is mortgaged to
the lending institution till the entire loan is repaid. Interim security may be additionally
required, if the property is under construction Some companies may also require additional
securities which are called collateral securities like the assignment of life insurance policies,
pledge of shares, NSCs, units of mutual funds, bank deposits or other investments.

GUARANTOR FOR HOME LOANS

Guarantors are essential for sanctioning of loans. Usually, a guarantor is required so that if
the applicant fails or becomes incapable of repaying, the guarantor will be responsible for
clearing the debt. Generally most banks do not insist on a guarantor when giving home loans
but some might insist for 1 or 2 guarantors in certain cases. A guarantor is equally liable to
pay up the loan in case the borrower misses out on repayments. By seeking a guarantor, the
lender tries to enforce a moral check that prevents the borrower from defaulting.

REPAYMENT OPTIONS
1) For Resident Indians
Every bank/ FI have customized repayment options to suit every individual's requirement and
also repaying capacity with some tax benefits. They have thereby come up with more flexible
and Multiple Repayment Option. A few among them are:
Step-up Repayment Facility: The objective of step-up repayment is to provide the borrower
with a repayment schedule, which is linked to expected growth in income. It not only helps a
customer get a larger amount of loan as compared to the loan under the normal housing loan;

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but the customer can avail of a higher amount of loan and pay lower EMIs in the initial years,
which is subsequently accelerated proportionately with the assumed increase in his income.
Flexible Loan Installments Plan: This repayment option offers a customized solution to suit
the needs of customers whose repayment capacity is likely to alter during the term of the
loan. In cases when a borrower is nearing retirement, the loan is structured in such a way that
the EMI is higher during the initial years and subsequently decreases in the latter part
proportionate to the reduced income of the customer

REPAYMENT TENURE
1)

For Resident Indians

Home loan tenures fixed by RBI are available up to a term of 15 years. Some financial
institutions have home loan tenures in the range extending up to 20, 25 and 30 years if the
applicant fulfills certain criteria. However, one cannot opt for a term that extends beyond
attaining retirement age or 60 years of age (whichever is earlier).
Home loan Tenure:
Type of Property
Residential
Plot of Land
Against Existing Plot of Land

Salaried
15 years
10 years
15 years

Self-Employed
10 years
10 years
10 years

HOME LOAN WITH INSURANCE COVER

Home loan insurance plans, also known as mortgage redemption plans are policies that cover
the home loan liability. This insurance is much like the term plan or pure risk cover plan that
is available from various insurance companies. There are exceptions like ICICI Bank
(through their tie-ups with ICICI Lombard) home insurance loan where the sum insured
remains constant. And in the event of death of the life assured, the outstanding home loan is
cleared off and the rest is paid to the family. Some characteristics of such plans include:
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Low premiums, high cover

No maturity amount on survival of the term

Choice of one time premium or regular premiums

However, the cover in term plans available in India are level term plans where the cover
remains the same whereas in the case of home loan covers, the amount keeps falling as the
home loan liability decreases. Also it is important to know that while most term plans can be
bought till the age of 55, home loan insurance plans can be bought till the age of 60.
However, the medical
Age of the life insured: The premium increases with age. Medical tests increase with age
and are mandatory above 40 years. Below this age, a simple declaration is good enough
though this depends on each insurance company.
Medical record: If the borrower of the loan is in a good health, the premiums will be regular
but if the insurance company's prognosis about the life assured is at higher risk, then the
premiums will be higher. A past family history of early death or critical illness will also
increase the premiums.
Loan tenure: The premium will increase with the duration of the loan. A cover of Rs 50 lakh
for five years and a cover of Rs 50 lakh for 20 years will attract different premiums, with the
latter being more expensive.

The policies that one may consider other than a home insurance are as
follows:
1) Fire policy for a householder
Suitability
A householder can cover his movable and immovable properties against fire and allied perils.
Apart from persons owning a house, people staying in a Rented/Leased house can take this
policy, if they are responsible for its safety by any covenant. An individual can also insure

21

household contents not belonging to him, but held in trust or belonging to relatives
permanently staying with him.
Salient Features
The Fire Policy can be taken to cover any property within the country. The policy offers
cover on loss and/or damage on account of:

Accidental fires

Lightning

Explosion & implosion 'due' to pressure vessels (used for domestic purposes)

By rioting mob, striking workers, malicious acts by third parties and damage by terrorists

Benefits

Claims are payable at the market value of the property damaged at the time of loss.

If the individual value if assets is not furnished then the value of each property is
considered as not more than 5% of the total sum insured.

Long term policy may be taken.

2) All risk Insurance

Suitability
This policy is suitable for people owning things, which are prone to accidental loss or
damages.
Salient Features

22

It covers valuables like jewelry, work of art and similar artifacts of sentimental values. The
scope of the cover is limited to loss or damage due to fire, riot & strike, terrorist act, burglary,
larceny or theft and accidental loss or damages
Benefits
The policy pays for any loss to the property insured against by insured perils. The amount of
claim payable is limited to the sum insured or the market value at the time of loss, whichever
is lower.

3) Householders Package Policy

Suitability
This is a single package policy offered at economical rates of premium through which all of
the householder's needs are addressed.
Salient Features
The package includes the following policies:

Fire Insurance

Burglary

All Risks Insurance

Plate Glass Insurance

Break down of Domestic Appliances (Electrical and mechanical failures)

Television including VCR & VCP and music systems

TABULATED

COMPARISON

BETWEEN

HOME

LOAN

SCHEMES PROVIDED BY RBI BANK & ICICI BANK

1. ELIGIBILITY
Scheme

Min

23

Age

Max

Age

Min Income

Max Income

RBI Optima Additional Home Loans/RBI

Loan-RI/RBI

Housing

Freedom

(years)
21

(years)
45

(Rs/mth)
1

(Rs/mth)
_

21

65

21

65

Home

Loans(NRI)

ICICI

Home

Loans

(for

Resident

Indians)
ICICI Home Loans (for NRIs)

2. FEES
Scheme

Processing Fees (%)

Administrative

RBI Freedom Home Loans(NRI)/RBI Housing Loan-

0.50

(%)
_

_
0.50

_
5.00

RI/RBI Optima Additional Home Loans

ICICI Home Loans (for NRIs)

ICICI Home Loans (for Resident Indians)

Fees

3. INTEREST
Scheme

RBI Optima Additional Home

From

To

From

To (Rs)

Interest

(years)

(year

(Rs)

s)
5

500,00,000

9.50

10

500,00,000

9.75

500,00,000

9.50

10

500,00,000

9.75

Rate (%)

Loans
RBI Optima Additional Home
Loans
RBI

Housing

Loan-RI/

RBI

Freedom Home Loans

RBI Housing Loan-RI

ANALYSIS
ICICI and RBI are the pioneers in the home loan sector in private and public sector
respectively in India. These banks offer home loans with attractive and unique features for the
benefits of their customers. As per the eligibility criteria ICICI bank holds a better position as
24

compared to RBI bank because it provides home loan to maximum age limit of 65 years as
compared to the maximum age limit of 45 years offered by RBI bank. With respect to the fees
RBI stands ahead of ICCI because it has less processing fees and administrative charges.
Interest rates offered by ICICI are up to 11% whereas in case of RBI the loans are offered
below 10%. RBI has an upper hand over ICICI because the maximum limit is Rs. 5, 00,
00,000. By analyzing the home loan schemes offered by both the banks RBI can be placed at
a better position as compared to ICICI because of the advantages stated above.

SURVEY
I had conducted a survey taking the sample size of 20 people including all groups of people. I
had done the survey at different places considering all income groups of people. The
questionnaire of the survey in enclosed in the annexure.
It was a very good experience while conducting this survey. It developed a sense of
confidence and augmented the data collection skills within me. It enabled me to develop a
skill of getting primary data from the common people and then analyzing it and presenting it
in a systemic manner. Most importantly it made me think logically and practically and
thereby improved my research ability. The information collected is analyzed and represented
below with all possible diagrams.

ANAYLSIS
AWARENESS OF HOME LOAN

5%
Aw are

95%

Not aw are

The survey indicates that nearly 95% of the people are aware about the Home loan facilities
offered by different banks. But there are still 5% of people who are not much educated and
are unaware about the different types of home loan facility. For this banks should also target
their lower income group while making the publicity of their home loan products and their
should also be a direct selling concept of marketing their product and by this banks can
25

increase their customer base by providing loan to this particular section of people by making
them aware of it. Security and comfort in life is a top priority for everyone. So everyone
should be made aware of this facility and enable them to take advantage of it for which banks
and financial institutions should take care of.
DEMAND FOR HOME LOANS

30%
70% to Pursue
Dont want

Want to Pursue

The survey conducted by me shows that 70% of the people want to pursue home loan facility
in the future if required. This shows there is an increase in the demand for home loans. The
reason behind this could be the boom in the home loan sector in India. The real estate boom
has added new dimensions to the housing finance sector. The new class of young buyers,
whose affordability are high, is spending a little more on paying Equated Monthly
Installments (EMIs) rather than spending huge amounts on the rents, thereby, owns a house.
Hence the reasons for the growth of the home loans market has been mainly fuelled by
certainfiscal,socialandregulatorydriverssuchas:

Changesindemographicprofileincludingincreaseintherateofhouseholdformationdue
tostructuralshiftfromjointfamilysystemtonuclearfamily

Ever increasing middle class, migration of population and increasing urbanization

resultinginacuteshortageofhousingunits

Increaseindisposableincomelevelsduetodecreaseinmarginaltaxratesandincreasein
totalincomelevels

Tax benefits and other fiscal incentives announced in the Union Budgets thereby
encouragingthesector

Increasingaffordabilityofhousingpropertypurchaseduetodeclininginterestratesand
stablepropertyprices

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PREFERENCE FOR TYPE OF HOME LOAN

50%
40%
30%

No. of people

20%
10%
0%
Home purchase
Land Purchase
Home Extension

Others

Type of loan preferred

According to the survey 42% of the people would prefer to take loan for home purchase, 33%
for purchasing land, 14% for home extension/improvement/renovation, while only 11% for
other type of loan. Due to the hike in the property rates the demand for loan for home
purchase is increasing and the same is so for the purchase of land property. Due to
affordability factor and less amount of money required for home extension or improvement
or renovation people prefer less to opt for loan for these purposes. The other type of loans
such

as

Bridge

Loans,

Balance Transfer, Refinance Loans, Home Conversion Loans, Stamp Duty Loans and Loans
to NRIs, are not much in demand
HOME LOAN PROCESS
According to the survey 25% of the people feel that home loan process is convenient.
Maximum number of people i.e. 75% says that the process is lengthy as banks requires time
for processing the loan application, verification of various documents, appraising the credit
and other formalities takes a longer time in sanctioning of the loan.

CONCLUSION
In view of its backward and forward linkages with other sectors of the economy,
housing finance in developing countries is seen as a social good. In India, growth of housing
27

finance segment has accelerated in recent years. Several supporting policy measures (like tax
benefits) and the supervisory incentives instituted had played a major role in this market.
The housing finance industry is getting increasingly commoditised. Competition
within the sector is ensuring that players offer consumers flexibility and features to choose
from. Features such as adjustable rate plans, lower processing fees/monthly rest/interest
rates/EMI/margin money, no pre- payment penalty have become common across the industry.
There is a growing trend among Banks and FIs to include the cost of registration, stamp duty,
society charges and other associated costs while sanctioning loans to differentiate and make
the home loans products more attractive. This has resulted in further lowering the threshold
limit for buying a house. For differentiation of their home loan products, banks are also
resorting to offering of free add-ons such as life insurance, credit cards and consumer loans at
reduced rates for furnishing the house.
Some of the major players in the housing finance industry have started organizing
property fairs, wherein the projects of different construction companies are brought together
and bundled with a lower than normal interest rate loan product. Such initiatives are expected
to result in a more organized housing market and more value for the customer. On the
services front the banks/ FIs have begun addressing concerns of borrowers through
counseling .

BIBLIOGRAPHY
MAGAZINES
28

Professional Banker (The ICFAI University Press Release, June 2007 Publication)

BOOKS FOR REFERENCE

Merchant Banker by H. R. Suneja

OTHER SOURCES

Interview with Mr. Depesh Jadhav (Assistant Manager), ICICI Bank, Andheri (West)
Branch

Brochures of ICICI Bank and RBI Bank.

WEBSITES

www.economictimes.com
www.indiainfoline.com

www.icicibank.com
www.surfindia.com
www.hindustanlinks.com
www.myiris.com
www.moneycontrol.com
www.bankofindia.com
www.hdfc.com
www.RBI.co.in
www.bankof

baroda.com

www.sundaramfinance.com
www.harmonyindia.org

www.obc.com

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