DISBURSEMENT OF HOME LOANS

BY COMMERCIAL BANKS
A STUDY OF LUDHIANA CITY
Submitted to Lovely Professional University
In partial fulfillment of the requirements for the award of degree of
MASTER OF BUSINESS ADMINISTRATION

Submitted by:

MEHAK PURI

2020070070

Supervisor:

MISS BHARTI AGGARWAL

LECTURER
DEPARTMENT OF MANAGEMENT
LOVELY PROFESSIONAL UNIVERSITY
PHAGWARA
(2007-09

DEPARTMENT OF MANAGEMENT
DISBURSEMENT OF HOME LOANS
BY COMMERCIAL BANKS
A STUDY OF LUDHIANA CITY
Submitted to Lovely Professional University
In partial fulfillment of the requirements for the award of degree of
MASTER OF BUSINESS ADMINISTRATION

Submitted by:

MEHAK PURI

2020070070

Supervisor:

MISS BHARTI AGGARWAL

LECTURER
 DEPARTMENT OF MANAGEMENT
LOVELY PROFESSIONAL UNIVERSITY
PHAGWARA
(2007-09)

Page 2
TO WHOMSOEVER IT MAY CONCERN
This is to certify that the project report titled “DISBURSEEMNT OF HOME LOANS BY COMMERCIAL

BANKS – ASTUDY OF LUDHIANA CITY” carried out by Miss Mehak Puri D/o MR Ajay Puri has been

accomplished under my guidance & supervision as a duly registered MBA student of the Lovely

Professional University, Phagwara. This project is being submitted by him/her in the partial fulfilment of

the requirements for the award of the Master of Business Administration from Lovely Professional

University.
Her dissertation represents his original work and is worthy of consideration for the award
of the degree of Master of Business Administration.
___________________________________

(Name & Signature of the Faculty Advisor) Title:______________________________

Date:_______________ _______________
Date:

TO WHOMSOEVER IT MAY CONCERN

This is to certify that the project report titled “DISBURSEEMNT OF HOME LOANS BY COMMERCIAL

BANKS – ASTUDY OF LUDHIANA CITY” carried out by Miss Mehak Puri D/o MR Ajay Puri has been

accomplished under my guidance & supervision as a duly registered MBA student of the Lovely

Professional University, Phagwara. This project is being submitted by him/her in the partial fulfilment of

the requirements for the award of the Master of Business Administration from Lovely Professional

University.
Her dissertation represents his original work and is worthy of consideration for the award
of the degree of Master of Business Administration.
___________________________________

(Name & Signature of the Faculty Advisor) Title:______________________________

Date:_______________ _______________
Date:

Page 3
DECLARATION
I,"MEHAK PURI”, hereby declare that the work presented herein is genuine work done

originally by me and has not been published or submitted elsewhere for the requirement

of a degree programme. Any literature, data or works done by others and cited within this

dissertation has been given due acknowledgement and listed in the reference section.
_______________________
(Student's name & Signature)
_______________________
(Registration No.)
Date:__________________
Page 4
PREFACE

Research work in management is extremely important for it gives a close view of the

real business world and bridges the gap between theory and practical. For any MBA student

who is striving to perform outstanding, it is of paramount importance that apart form theoretical

knowledge one must also gain practical knowledge. which in turn widely influence their

conceptions and perceptions.

This project was undertaken towards the partial fulfillment of the requirementsL ovel y
professional university ,Phagwara. This really provided me an opportunity to

demonstrate my ability in applying theory to practical business situations.

The study undertaken by me is "disbursement of home loans by commericial banks " In

this, I have tried to perform my best.In the forthcoming pages an attempt has been made

to present comprehensive report concerning different aspects of my project.

Page 5
ACKNOWLEDGEMENT
"Gratitude is not a thing of expression, it is more matter of feeling."
There is always a sense of gratitude which one express towards others for their
help and supervision in achieving the goals.
 This formal piece of acknowledgement is an attempt to express the feeling of

gratitude towards people who helpful me in successfully completing of my

training.

I would like to express my deep gratitude to Miss bharti Aggarwal my training

coordinator for their constant co-operation. she was always there with his competent

guidance and valuable suggestion through out the pursuance of this research project.

Special thanks to Miss Bharti Aggarwal who guided me to work honestly and to give

valuable suggestion for improving my work

Last but not least I would also like to place of appreciation to all the respondents whose

responses were of utmost importance for the project.

Above all no words can express my feelings to my parents, friends all those persons who

supported me during my project. I am also thankful to all the respondents whose cooperation

& support has helped me a lot in collecting

necessary information.
I would also like to thank almighty God for his blessings showered on me during the
completion of project report

EXECUTIVE SUMMARY
Home is a dream of a person that shows the quantity of efforts, sacrifices luxuries and

above all gathering funds little by little to afford one’s dream. Home is one of the things

that everyone one wants to own. Home is a shelter to person where he rests and feel

comfortable. Many banks providing home loans whether commercial banks or financial

institutions to the people who want to had a home. The housing sector plays an important

role in the economic development of the country

My project title is “disbusremnt o f home loans by commericial banks “ a study o f

ludhiana city. I selected this topic because The Indian housing finance industry has grown

by leaps and bound in few years.Total home loans disbursements by banks has risen

which witnesses phenomenal growth from last 5 years. There are greater number of

borrowers of home loans.so by this study we can find out satisfaction level of customers

and problems faced by them in obtaining home loans.

My objectives of study are-
•

To make comparative study of Disbursement of home loans by commercial banks.

•

To study the satisfaction level of customers about home loans.

•

To study the problems faced by customers in obtaining the home loans.

For this I had taken four commercial Banks in Ludhiana city namely ICICI Bank, PNB,

standard chartered Bank, SBI. It includes two public sector banks and two private sector

banks. The period of study is five years commencing from 2004-2008.

In the research methodologyI had taken both primary data as well as secondary data , in

the primary data I had make a questionnaire to check the satisfaction level of customers

about home loans . in the secondary data I had studied the annual reports of RBI

,commercial banks & broachers of these bank

For the first objective I had collected the information about the number of account

holders of specified banks, no of disbursement of home loans and recovery of these loans.
After analysis I came to following findings
In the comparative study of specified banks Its found that

Some of the suggestions are

 To increase their customers, the banks should provide specialized services

in this sector. These services can be such as proper guidance to the

customer regarding the processing of loans, especially for the customers

who are illiterate.

 To satisfy their customers and for good dealings in future, the banks
should make prompt disbursement of loan amount to the customers so that
they can buy or construct their dream home as early as possible.
 The Banks should use easy procedure, or say, less lengthy procedure for

the sanctioning of loan to the customer. There should be less number of legal formalities, in

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

attracting more customers.

 Although the interest rates on specific norms, yet customers seek less

interest rate which can lower their cost of house. So banks should try to lower their interest

rates. Needles to say, that the bank which is having lower interest rates, have the maximum

clients for loans.

 The public sector banks should improve their overall services to increase
the number of customers for home loans. They should recruit
professionals to provide such services and to satisfy the customers .

CHAPTER - 1
INTRODUCTION
1.1 INTRODUCTION TO HOME LOANS
Home is a dream of a person that shows the quantity of efforts, sacrifices
luxuries and above all gathering funds little by little to afford one’s dream.

Home is one of the things that everyone one wants to own. Home is a shelter

to person where he rests and feel comfortable. Many banks providing home loans whether

commercial banks or financial institutions to the people who want to have a home.

Many banks are providing home loans at cheapest rate to attract consumers

towards them. The more customer friendly attitude of these banks, currently offer to

consumers cheapest loan over homes.

In view of acute housing shortage in the country, and keeping in mind the

social – economic role of commercial banks in the present times, the RBI advised banks to

encourage the flow of credit for housing finance.

With the RBI reducing bank rate, the home loan market rates nose- diving by

50 basis points. The ICICI Bank and Standard chartered bank has become the first player in

this sector to announce a housing loan for a 20 years period. No doubt it will enhance the

end cost of the home but it will facilitate people to plan their house over longer duration Now,

it has been made easy for a person to buy that dream house which he dreamt of long ago.
1.1
ADVANTAGES OF HOME LOANS
The various benefits of home loans arising to the customers are:-
(i)
Attractive interest rates
 The various banks offer attractive interest rates to boost and help their

customers. Many banks provide loans on fixed or floating rates to facilitate consumers as per

their needs.
(ii)
Help in owning a home

The home availed by a person with the help of banks, because they provide

technical and financial assistance to customers for owning their dream home.
(iii) No requirement of guarantor

The commercial banks now a days, liberlise their laws regarding home loans.

Some of banks don’t even require the guarantor to grant loan to their consumers. They also

make consumers free by reliving him to find a guarantor to complete the proceedings of

availing loan.
(iv)
Door-Step Services

These door to step services are provided from enquiry stage to the final

disbursement takes place such services are beneficial for customers in present busy life.

Banks like ICICI bank and standard chartered bank provide door to step services to

customers to borrow loan.

(v)
Loan period

There are many banks which provide maximum loan tenures upto 15-20 years

based on the loan amount and the creatibility of customers. This relieves the customers to

repay loan amount till a long period.

(vi)
For accidental death insurance
Some banks provide free accidental death insurance with housing
loan which is also beneficial for the customers.

These benefits or advantages of home loans are responsible for making than

so popular among customer that a person who don’t have their home and want to buy, they

do it with home loan. Home loans help such persons in making their dream home.
1.2
DISADVANTAGES OF HOME LOANS
The main disadvantages of home loans are high lightened as below:
(i)
Delays in processing
 Many times, there are huge delays in processing of providing home loans

because various formulations to be fulfilled in this process. Due to these delays customers

feel mentally as well as financially weak.

(ii)
Fluctuating interest rates

Some banks give home loans at floating rates, which fluctuate at different

intervals due to some reasons. These changes sometimes, may lead to increase in interest

rate which will increase the cost of home loans to the customers.
(iii) High Cost

The public sector banks charge high processing cost for home loan’s

sanctioning. They are forced to pay serious charges at various stage to fulfil the requirements.

Some consumers are not able to pay such charges so such people could not avail the benefits

of home loan schemes.

(iii) Problems in disbursement

There are many problems in disbursement of home loan amount. There are

some delay in disbursement of loan amount to the customers due to legal formalities. This

causes problems to the customers.

These are limitations or disadvantages of home loans. But some times some

banks charges high installments to repay loan amount. Such also causes problem to

customers. These limitations can be removed by providing good and promote services to the

customers.
1.3
DISBURSEMENT OF HOME LOANS

The every bank has its own procedure to disburse the loan amount among

customers. After choosing your right home, the next step is disbursement of home loans. The

loan amount is disbursed after identifying and selecting the property or home that are

purchased and submit the requisite legal documents.

In the disbursement of home loans a clear title and full verification to ensure

that a person has full rights on his house. The 230A clearance of seller and /or 371 clearances

from the appropriate authority of income tax is also needed.

(i) Eligibility criteria
However, if one is a resident or non-resident individual who is
Page 15

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

a property in the near future, he/she can apply for a loan before even selecting the property.

Once the maximum amount to put into the property has been decided, the Housing Finance

Institutions or Banks will let the customer know that how much he/she is eligible for and this

helps to plan out the budget.

(ii) Conditions regarding co-applicants

All Housing Finance Institutions lay down conditions on who can be co-

applicants. All co-owners to the property. need to be co-applicants to the loan necessarily.

These institutions do not permit minors to join in as either co- owner or as co-applicants

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

friends or relatives who are not blood relatives to take a property jointly.

However, Income of co-applicants can be clubbed together to get higher loan

eligibility. Given below is a Table that throw light on acceptable relationship of a co-applicant

for clubbing of income.

Income Clubbing of Co-applicants:- It is as follows:-
Combination Income Clubbing: -

Husband-Wife:- Income of husband-wife can be clubbed.

Parent-son: - It can be clubbed if only son is there but not if any male
sibling exist.

Brother-Brother: - If they are currently staying together and intend to
stay together in the new property, then only, their income-can be clubbed
for above purposes.

Brother-Sister: - No clubbing-is possible.

Sister-Sister: No clubbing is possible.

Parent-Minor- Child: - No clubbing is possible in this case also.
(iii) General Terms and Conditions
The following are the terms and conditions applicable to the basic
home loan product only. These are likely to change on the basis of the variations
Page 16
of the home loan product. Typically, in a general home loans, the following
conditions are applicable: -
a)
The loan to value ratio (LTV) cannot exceed a particular percentage. This differs from

product to product and from one Housing Finance Institutional Bank (HFI/B) to another. The

components of the value of the property calculated here are covered under cost of property.
b)

The maximum tenure of the bank is nominally fixed by HFI/Bs. However, HFls/Bs do provide

for different tenures with different terms and conditions.

c)
The installment that one pay is normally restricted to about-50-per cent of
the monthly-gross income of the candidate.
d)

The total monthly outflow towards all the loans that have been availed of, including the

current loan is normally restricted to 50% of the gross monthly income.

e)

One will be eligible for a loan amount which is the lowest as per one's eligibility. This is

calculated as per the LTV norms, the HR, norms and the FOIR norms as mentioned above.
f)

Most HFls/Bs consider the profile before they judge the repayment capacity. The judgement is

based on age, qualifications, number of dependents, employment details, employer credentials,

work experience, previous track record of repayment of any loans that have been availed of,

occupation, the industry to which the candidate's business relates to, if he/she is self-

employed, then the turnover in the last 3-4 years etc.

g)

Some HFIs/Bs insist on guarantees from other individuals for the repayment of the loan. In

such cases, the customers has to arrange for the personal guarantee before the

disbursement of the loan takes place.

h)
The property should be technically clear before the HFIs/Bs disburses the loans amount. Most
of institutions and banks have a teams of technical experts who visit the site to get a technical
report before the disbursement of loan. This is also beneficial to the customer as they check
for the technical quality and compliance with local laws.

i)

The property should be legally clear before one can avail of a disbursement of the loan

amount. Housing-Finance Institutions /Banks (HFIs/Bs) take legal clearance from their lawyers
before the disbursement of amount. This proves to be beneficial to the customers as a legal

expert checks his/her documentation to ensure that he/she get a proper title to the property.
j)

The disbursement of the loan is as per the progress of construction of the property unless it

is a ready property in which case the disbursement will be by one single cheque. PEMI or

simple interest on the loan amount disbursed to the customer in case of a part disbursement

will be payable by the customer on the disbursement.

k)

The disbursement in most cases will be favoring the builder or the seller or the society or the

development authority as the case may be. The disbursement will come in the customer's

favour under special circumstances only.

l)

The repayment of loan can be made either through deduction against salary, post-dated

cheques, standing instructions or Auto debit instructions to bank.

m)
The principle is amortized either on annual reducing or monthly reducing
basis as the case may be.

The above terms and conditions are generally true for most Housing Finance

Institutions/Banks with respect to the general Home Loans. However, the specific terms and

conditions vary with respect to special Housing Finance Institutions or Banks.

(iv) Charges applicable to home loans
The different kinds of charges applicable to home loans are
discussed below:
a)
Processing fees
First of all, comes the process fee. This is a charge that is levied by
Page 18

most HFls/Bs. This has to be paid at the time of submission of the application form. It's

normally charged as a percentage of the loan amount sanctioned. Some HFls also charge a

flat fee based on the loan amount instead of a percentage. When a lower amount is

sanctioned the excess fees paid at the time of submission of the application is adjusted with

the charges, which one make to the HFI/B subsequently. Most HFls/Bs refund the processing

fee if the loan application is rejected.

b)
Administrative fees
 This charge is again, normally, a percentage of the loan amount sanctioned. It

is collected by the HFI/B for the maintenance of customer's records, issuing interest

certificates, legal charges, technical charges, etc. though the tenure of the loan. It is payable

by the customer when he/she accepts the offer letter given by the HFI/B. This payment has to

be made before the availment of the disbursement. The mode of collection of these fees varies

from one HFI/B to another.

c)
Rate of interest

This is the rate of interest applicable on the loan amount through the tenure of

the loan. It is charged on the principal monthly reducing method. Most HFIs/Bs give an option

to select either a Fixed rate of interest or a variable rate of interest.

d)
Legal Charges
Some HFIs/Bs mainly Public Sector Banks levy legal charges that
they incur on getting the property documents vetted by their panel of lawyers.
e)
Technical Charges

These charges are also levied by certain Housing Finance Institutions/Banks

(HFIs/Bs) to meet their expenses on the technical site visits to the customer's property. This

ensures quality of construction and construction within the norms as stipulated by the

respective approval authority.

f)
Stamp duty and registration charges
HFIs that go in for a registered mortgage, pass these charges on to
Page 19
the customer. These are rather heavy in certain states depending on the laws laid
down by the state where one buy a property.
g)
Personal Guarantee from Charges

Since the personal guarantee provided by the customer need to be stamped,

these charges are also recovered from the customer. They are charged to him by HFIs who

demand for Guarantees.

h)
Cheque Bounce Charges

In case the cheques through which one make a payment to HFls get

dishonored, some minimum charges are levied by the HFI. The same are recovered from the

customer.
i)
Delayed payment charges
HFls/Bs charge delayed payment charges from the customer if
he/she delays the payment of installments beyond the due date.
j)
Additional charges

These are levied as a percentage on the delayed payment charges by most

HFls. They are levied if one fail to pay the dues within the stipulated time after a delay has

taken place.
k)
Incidental charge

This is payable in case the HFI/B sends a representative from their

organization to collect their outstanding dues. It is normally charged at a flat rate per visit.

These charges are levied by most HFls/Bs.

l)
Prepayment Charges .

This is a penalty charged by HFls/Bs from when one makes either a part

prepayment or a full repayment of the loan. This charge is levied only on lump sum payments

and not on the EMls that one pays. This charge is levied on the amount prepaid by one and

not on the entire outstanding principal. These charges are gradually being discount.

So, these are the charges levied by most Housing Finance Institutions and

Banks while granting home loan to the customers. Now, the decision on the repayment

capacity shall be talked about as follows: -

Page 20
(iv)* Judgement regarding repayment capacity on the basis of income

To understand how the income of a customer is considered to arrive at his

repayment capacity, it is first necessary to classify customers into salaried and self employed

individuals.
a)
The income of the salaried individual is considered in the following
manner:
Gross monthly income as it appears on the salary slip
Less:- Any non regular variable income appearing on the salary slip (including

overtime, etc.)

Add: - 50 per cent of the average variable income of the last six months.

Add: - Any fixed cash/voucher payments for which proof can be submitted.
Add: - 50 per cent of the average variable cash/voucher payments with proof like

traveling reimbursement etc.

Add:- HRA receivable if not being received already in the salary slip.

The above income calculated for the calculation of eligibility using IIR and FOIR norms. For

calculation of FOIR, the installments of all the loans that one has availed of currently for

which repayment is being made is taken into account as well. The lower of the two

eligibilities is considered as the maximum repayment capacity.

b)
To consider income of Self-employed individuals we further classify them
into Professionals and non-professionals.
•

Professionals: - Comprising doctors, chartered accountants, lawyers,

architects, etc. For calculation of eligibility of professional's income is computed by most

HFIs using the gross professional receipts instead of the Net profit as in the case of self-

employed non-professionals.
•

Non-Professionals: - The income of non-professionals is normally

calculated by HFIs in the following manner: -
Average of the net profits of last 2 years as it appears in the profit and loss
account (Returns need to be filed for the same. They should be filed regularly
Page 21
before the due date is over).
Less: - Any income, which is unusual and non-recurring in nature like sale of
some asset, etc which affects profits substantially,
Add: - Any expense that is unusual and non-recurring in nature like repairs and
maintenance that has not been capitalized and effect profit adversely.

Add: - 50 per cent of the average depreciation of the last two years. The above income is

calculated for the calculation of eligibility using IIR and FOIR norms. For calculation of FOIR

the installments of all the loans that one has availed of currently for which repayment is

being made is taken into account and the eligibility is worked out. The lower of the two

eligibilities is considered as the maximum repayment capacity.

(v) Credit documentation

Given below is the exhaustive list of credit documents- that need to be

submitted for a general home loan product. The documents vary from one HFI/B to another

based on one's employer, qualifications experience etc. The general requirements are as

follows: -
a)
Income Documents: - For salaried slips for the last three months-
appointments letter-salary certificate-retainership agreement, if appointed as a consultant-

Form 16 issued by the employer in customer's name income document for self employee -

last three years profit and loss account statement duly attested by Chartered Accountants.

Last three years Balance Sheets duly attested by Chartered Accountant, last three years

Income Tax Returns with computation chart duly filed and certified by the Income Tax

authorities.
b)
Proof of employment: - Identify card issued by the employer- Visiting
card.
c)
Employer's details (In case of private limited companies): -
Profile of employer on employers letterhead (to be signed by a senior
person in the organization) comprising
•

Name of promoter/directors
•

Background of promoters/directors
Page 22
•

Nature of business activity of your employer

•

Number of employees
•

List of branches/factories
•

List of suppliers
•

List of clients/customers
•

Turnover of employer
•

Annual reports of the employer for the last two to three years.
d)
Proof of age (Anyone of the following): - Passport- Voter's ID card-PAN
card-Ration card-Employer's identity card-School leaving certificate-Birth
certificate.
e)
Proof of residence (Anyone of the following): - Ration card-Passport-

PAN card-Rent agreement, if the customer is staying currently on rent- Bank Pass book-

Allotment letter from the company if he/she is residing in company quarters.

f)
Proof of name change (If applicable): - A copy of the official gazette -A
copy of a newspaper advertisement publicizing the name change-Marriage
certificates.
g)
Proof if investment (If required): - Bank statement for the last six

months of all operating and salary accounts - Bank statements for the last six months of all

current accounts, if self-employed-any other photocopies of investments held, if required by

the HFC.
(vi) Legal documentation

Legal Documentation the typical legal documents that need to be submitted

to the HFC arc discussed here. Given below is a list of legal property documents that need to

be submitted to the HFC for mortgage of the property. The name and the list of documents

vary from state to state and also depend on the type of property being financed. A broad

outline of the documents required is given below.

a)
Acceptance copy of the offer letter issued by the HFC/B.
b)
Title documents of the property that include -sale agreement duly
Page 23

registered-Own contribution receipts - Allotment letter-Registration receipt-Land documents

indicating ownership, if applicable- Possession letter-Lease agreement, if applicable (Property

bought from a development authority) - Mortgage deed if the HFC opts for a registered

mortgage.
c)
No Objection Certificate from the developer, society or development
authority as applicable.
d)
Personal Guarantees, if applicable.
e)
In case of alternator additional security, documents for the same
depending upon the security details.
f)
Post dated cheques for the EMls.

The above documents are only indicative in nature and do not cover the entire

list. It may, also be noted that in a resale case, the previous chain of agreement also need to

be taken.
(vii) The tax benefits that are applicable to housing loans for individuals

Currently Tax Benefits to individuals are available only for the Home Loans

and Home Extension Loans products. The benefits available are covered under these

sections.
Property Insurance :- Is it compulsory to insure the property? Some HFls

insist on a mortgage redemption life insurance policy. In this case the customer gets a

benefit of an interest rate reduction. Though the HFI may not insist, it is better to go in for

property insurance to safeguard the asset against any sort of damage or loss. The customer

can select the tenure for the property insurance. The insurance premium is changed up front.
Most insurance companies provide for huge discounts on the rate of premium for larger

tenures. The premium charged currently is seventy-seven for every lakh of property for a

year.

So a customer has to fulfil various conditions to be eligible for availing home

loan from a Housing Finance Institution/Bank After fulfiling these conditions, a customer can

avail loan at low interest rate i.e. fixed rate or

Page 24

floating rate. A decision on whether one should go in for a fixed-rate loan or a floating-rate loan

now is a function of two factors i.e. One's perception of where interest rates in the economy

are headed and one' capacity to ride the interest rate changes.

A floating-rate loan let one take advantage of further falls in interest rates but

one stand to loose if interest rate, rise again. However this decision is based on the

perception of the consumer.

1.2
OBJECTIVES OF STUDY

There is no strongest foundation for your dream home, than a cheap loan. Home loans

have become that stronger foundations for people who want to own a home. The main

objectives of the study are as follows:-

i)
To make comparative study of Disbursement of home loans by
commercial banks.
ii)
To study the satisfaction level of customers about home loans.
iii)
To study the problems faced by customers in obtaining the home loans.
1.3 NEED OF STUDY

The Indian housing finance industry has grown by leaps and bound in few years.Total home loans

disbursements by banks has risen which witnesses phenomenal growth from last 5 years. There are

greater number of borrowers of home loans.so by this study we can find out satisfaction level of

customers and problems faced by them in obtaining home loans.

1.4 SCOPE OF STUDY
The present study will be confined to four commercial Banks in Ludhiana city namely

ICICI Bank, PNB, standard chartered Bank, SBI. It includes two public sector banks and

two private sector banks. The period of study is five years commencing from 2004-2008
Page 26
1.5 RESEARCH METHODOLOGY
Research Methodology

Research methodology is a way to systematically show the research problem.

It may be understood as a science of studying how research is done scientifically. It is

necessary for the researcher to know not only the research methods but also the

methodology.

This Section includes the methodology which includes. The research design, objectives of

study, scope of study along with research methodology and limitations of study etc. To study

the disbursement of home loans by commercial banks, the study shall be conducted in the

manner enumerated below-

1.5.1 Research Design

This project is based on exploratory study as well descriptive study. It was an

exploratory study when the customer satisfaction level was studied to suggest new methods

to improve the services of banks in providing home loans and it was descriptive study when

detailed study was made for comparison of disbursement of home loans by commercial

banks.
1.5.2 SOURCES OF DATA
To fulfill the information need of the study. The data is collected from primary as well as
secondary sources-
A -Primary source-
I decided primary data collection method because our study nature does not permit to
apply observational method.

Page 27

In survey approach we had selected a questionnaire method for taking a customer view

because it is feasible from the point of view of our subject & survey purpose. We

conducted 100 sample of survey in our project to judge the satisfaction level of customers

which took home loans.

•

Sample size
For the questionnaire I have taken the sample size of 100 customers of selected banks
B - Secondary source
Secondary data is taken from such as:
•

Information collected from customers.

•

Annual published report of RBI

•

The various reports and journals published by RBI concerned with banking
•

Different brochure of banks.

Reports of various study group or working groups appointed by Government from time to

time
1.5.3 Tools of Analysis
The analysis of data is done on the basis of following statistical techniques:-
•

Percentages.
•

Averages
•

Charts
• 1.5.4 Limitations of the study
This study also includes some limitations which have been discussed as follows:
i)
The sample size of 100 customers and 4 banks might prove a limitation
because of difficulty in generalization of results.
ii)
To collect the data from various banks was quite difficult due to non-
cooperation of some banks. This proved to be major limitation of the
Page 28
study.
iii)
To access such a large number of customers was difficult because of non-
cooperative attitude of respondents.
iv)
Lack of data was also the other limitation of the study as some of banks
do not have proper data on topic.
v)
There was limitation of time to conduct such a big survey in limited
available time.
vi)
Ignorance and reluctant attitude of customers was also a major limitation
in this study.
Thus above all were the limitations in this research study. The
maximum efforts were made to overcome these limitations in the study
CHAPTER - 2
REVIEW OF LITERATURE
SUMMARY
•

After going through pervious studies of Home loans I came to conclude that-
•

There is growth of home loans after 2001

•

Home loans have an inverse relation with interest rates i.e. when interest rate low
the demand of home loans increase. (Ojha 1987)
•

People are going more towards home loans than private mortgage insurance
(Berstain 2008)
•
Government taking various steps to encourage people to go toward home loans
(Haavio, Kauppi 2000)
•

Growth of home loans are due to increase of living standard of people, shifting
from joint family to nuclear family (La courr, Micheal 2007)
•

There are some problems also attach with these home loans such as time i.e filling of application of loan

to closing ,people have their own specified needs from these home loans which are not fulfilling. (La cour

Micheal 2006)
•

SBI provide a very low interest rate on home loans as compared to other banks.
(SBI May 2000)
Now after this conclusion the details of reviews are below-
Berstain David (2008) examined in his study taken from 2001 to 2007 that in this period

there is increase use of home loans as compared to private mortgage insurance (PMI).he have divided

his study into four sections. Section 1 describes why people are going more for home loans than PMI. the

main reason for this that now home loans market provide Piggybank loans for those people who don’t

have 20% of down payment. Section 2 tells the factors responsible for the growth of home loans and the

risks on shifting toward

CHAPTER - 2
REVIEW OF LITERATURE
SUMMARY
•

After going through pervious studies of Home loans I came to conclude that-
•

There is growth of home loans after 2001

•

Home loans have an inverse relation with interest rates i.e. when interest rate low
the demand of home loans increase. (Ojha 1987)
•

People are going more towards home loans than private mortgage insurance
(Berstain 2008)
•

Government taking various steps to encourage people to go toward home loans

(Haavio, Kauppi 2000)
•

Growth of home loans are due to increase of living standard of people, shifting
from joint family to nuclear family (La courr, Micheal 2007)
•

There are some problems also attach with these home loans such as time i.e filling of application of loan

to closing ,people have their own specified needs from these home loans which are not fulfilling. (La cour

Micheal 2006)
•

SBI provide a very low interest rate on home loans as compared to other banks.
(SBI May 2000)
Now after this conclusion the details of reviews are below-
Berstain David (2008) examined in his study taken from 2001 to 2007 that in this period

there is increase use of home loans as compared to private mortgage insurance (PMI).he have divided

his study into four sections. Section 1 describes why people are going more for home loans than PMI. the

main reason for this that now home loans market provide Piggybank loans for those people who don’t

have 20% of down payment. Section 2 tells the factors responsible for the growth of home loans and the

risks on shifting toward

Page 31

home equity market without any PMI coverage. PMI can protect lenders from most losses up to 80% of

LTV and the absence of PMI will result in considerable losses in an environment. Section 3 tells the

measures in changes of type of loans. For this he have taken the data from the 2001 and 2007 AHS a

joint project by HUD and CensusThe results of this analysis presented in Table One reveal a sharp

increase in the Prevalence of owner-occupied properties with multiple mortgages among properties

withNewly originated first mortgages. Section 4 describe the Financial status of single-lien and multiple-

lien households and for this he have taken the survey of consumer finance and show that financial

position is more weaker in multiple loans than the single loans

Vandell ,kerry D (2008) analysis the sharp rise and than suddenly drop down home

prices from the period 1998- 2008. changes in prices are for the reasons as such economic fundamentals

, the problem was not sub prime lending per se, but the Fed‘s dramatic reductions, then increases in

interest rates during the early- mid-2000 , the housing ―boom was concentrated in those markets with

significant supply-side restrictions, which tend to be more price-volatile; he problem was not in the excess

supply of credit in aggregate, or the increase in sub prime per se, but rather in the increased or reduced

presence of certain other mortgage products

La courr, Micheal(2007) analysis in his study the factors affected the increase in the

level of Annual percentages rates (APR) spread reporting during 2005 over 2004. the three main factors

are changes in lender business practices; (2) changes in the risk profile of borrowers; and (3) changes in

the yield curve environment. The result show that after controlling for the mix of loan types, credit risk

factors, and the yield curve, there was no statistically significant increase in reportable volume for loans

originated directly by lenders during 2005, though indirect, wholesale originations did significantly

increase. Finally, given a model of the factors affecting results for 2004-2005, we predict that 2006 results
will continue to show an increase in the percentage of loans that are higher priced when final numbers

are released in September 2007.

La cour Micheal (2006) examined the home purchase mortgage product preferences of
LMI households. Objectives of his study to analysis the factors that determined factors
their choice of mortgage product , is different income groups have some specified need to
Page 32

met particular product. The role pricing and product substitution play in this segment of the market and do

results vary when loans are originated through mortgage brokers? For this they have use the regression

analysis and the results are high interest risk reduce loan value. Self employed borrower chooses reduce

documented loans than salaried workers. use of this product type seems to be more prevalent among

borrowers with substantial funds for down payment and better credit scores. In case of pricing Multi

families requires price premium and larger loans carry lower rate. And the role of time, particularly, the

time required for the loan to proceed from application to closing it is find that government lending taking

the longest time and Nonprime loans the shortest time. Multi family properties take longer time in closing.

And during peak season take longer time to close. And for last objective it is find that broker originated

loans close faster. The effect of mortgage brokers on pricing and other market outcomes is fertile ground

for additional research.

Dr. Rangarajan C. (2001) said that the financial system of India built a vast network of
financial institutions and markets over times and the sector is dominated by banking
sector which accounts for about two-third of the assets of organized financial sector.
Haavio, Kauppi (2000) stated that countries where a large proportion of the population

lives in owner – occupied housing are experiencing higher unemployment rates. Than countries where

the majority of people live in private rental housing, which might suggest that rental housing enhances

labour mobility. In this paper, they develop a simple inter temporal two region model that allow us to

compare owner occupied housing markets to rental markets and to analyze how these alternative

arrangements allocate people in space and time. announced that it will offer loans for Rs. 2-10 lakh at

12.5 percent the lowest rate offered by any housing finance provider, big brother SBI has taken the rate

war in the home loans category to new heights. This is because, apart from the low rate, the interest on

these loan is calculated on principal, which is reduced every month unlike other housing finance

companies which calculate interest on annually reducing basis.

Narasimham Committee (1991) points out that although the banking system in our
country has made rapid progress during the last two decades, there is decline in
productivity and efficiency and erosion of profitability. The committee strongly make
Page 33
indications of liberlising, deregulating economy to make Indian baking system more
competitive and efficient.
Ojha (1987) in his paper "modern international caparison of productivity and

profitability of pubic sector banks of India" making Comparison on the basis of per employee indicators

and taking examples of state bank group and Punjab National bank noted that Indian banks are the

lowest in all accounts. However such international comparison will not be fair for numbers of reasons.
Godse (1983) in his essay, “looking a fresh at banking productivity” observe that

productivity aspect is only at the Conceptualization stage in banking industry. He suggested improvement

in productivity and procedures, costing of operations and capital expenditure etc.

Fanning (1982), while examining bank productivity of British banks observed that
although the productivity of the UK clearing banks is improving, they are still heavily
over manned as compared with similar banks else where.
Kulkarni (1979) in his study “Development responsibility and profitability of banks”

stated that while considering banks costs and profits, social benefits arising out of it cannot be ignored.

He suggested that while meeting social responsibility banks should try to make developmental business

as successful as possible.

Varde and Singh (1979) in a study "profitability of commercial banks" over 15 years gave consideration

to two types of factors that effects interest rates levels i.e. internal factors (including operational and

managerial efficiency of individual basis).

Banking Commission (1972) reviewed bank operating methods and procedures and

made recommendations for improving and modernizing these, particularly relating to customers services,

credit procedure and internal control systems. It observed that present methods of working out branch

profitability are not appropriate and an integrated costing and financial reporting system is needed.
Department of Banking operations and development, RBI : Bombay observed that the
rapid expansion of banks activities since 1970 called for a phase of consolidations to
improve the quality of banks operational efficiency, productivity and customer services.