project in hdfc bank

ACKNOWLEDGEMENT

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 helped me in successful completion of my training.

I am highly indebted to Mr. Prabhujeev Singh Bajaj, Manager Business Development, HDFC LTD. Chandigarh for his very personalized and invaluable help, advice, guidance and encouragement which culminated in this project. His constructive comments and contributions had been of immense help for giving a tangible shape to this project. It was a real value added experience for having worked under his stewardship. At last, I am thankful to all respondents who cooperated with me by providing information for the compilation of this project.

I am extremely thankful to Prof. Smita Sovani, Faculty Guide, SINHGAD INSTITUTE OF MANAGEMENT, for his timely guidance and support throughout the Final Report work.

It was an indeed a learning experience for me.

Student name: HARISH PREMCHANDRAN

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ABSTRACT

During My summer internship in HDFC LTD., Chandigarh, I was assigned a project regarding Home Loans. This project has been completed in two parts. First part consists of “Comparative Analysis of HDFC Home Loans with other financial institutions and the second part consists of Financial Analysis of HDFC LTD. for the financial years 2009-10 and 2010-11”

This was a step wise process including collection of data, Company Profile, Product Features, Analysis of data, and finally concluding the data while putting some suggestions. The whole study was done with a view that it would help HDFC maintain its expansion path and improvise their schemes to perform better than other financial institutions.

It was the best platform being provided as it has increased my horizons and has given me the opportunity to apply my theoretical knowledge and managerial concepts practically in the real business.

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STUDENT DECLARATION

I, Harish Premchandran, student of “Sinhgad Institute of Management” hereby declare that I have

completed this project on the title of “Comparative Analysis of HDFC Home loans with other financial institutions and Financial Analysis of HDFC Ltd. for the financial years 2009-10 and 2010-11” and it is my own hard work and effort under the guidance of Mr. Prabhujeev Singh

Bajaj, Business Development Manager, HDFC LTD. Chandigarh, in the academic year 2010-2012. I declare that the information submitted is true and original to best of my knowledge.

Date_______________ Signature_______________

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TABLE OF CONTENTS

S.NO CHAPTERS PAGE NO.

1. Introduction 5-72. Company Profile 8-193. Objective of the Study 20-214. Procedure of Home Loan 22-315. Credit Appraisal 32-436. Market players 44-467. Research Methodology 47-488. Data Analysis & Interpretation 49-508(A) Comparative Analysis 51-568(B) Financial Analysis 57-789. Limitations 79-8010. Suggestions & Recommendations 81-8211. Webliography 83-84

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CHAPTER-1

INTRODUCTIONINTRODUCTION

INTRODUCTION TO HOME LOANS

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Your Home is a place where you relax after coming back from your day’s tiring work, it is that place where you can give time to your family & spend beautiful moments with them. To acquire a home which can be christened your “Own House” is a life-time decision & has to be taken with a lot of planning & requires huge finances. Your Dream Home is not very far away with a Home Loan which will fulfill your Dream into a reality

What is a home loan?

Home Loan is a Secured Loan offered against the security of a house/property which is funded by the bank’s loan, the property could be a personal property or a commercial one. The Home Loan is a loan taken by a borrower from the bank issued against the property/security intended to be bought on the part by the borrower giving the banker a conditional ownership over the property i.e. if the borrower is failed to pay back the loan, the banker can retrieve the lent money by selling the property.

Types of home loans:

There are different types of home loans available in the market to cater borrower’s different needs:

Home Purchase Loan: This is a basic type of a home loan which has the purpose of purchasing a new house.

Home Improvement Loan: This type of home loan is for the renovation or repair of the home which is already bought.

Home Extension Loan: This type of loan serves the purpose when the borrower wants to extend or expand an existing home, like adding an extra room etc.

Home Conversion Loan: It is that loan wherein the borrower has already taken a home loan to finance his current home, but now wants to move to another home. The Conversion Home Loan helps the borrower to transfer the existing loan to the new home which requires extra funds, so that the new loan pays the previous loan and fulfills the money required for new home.

Bridge Loan : This type of loan helps finance the new home of the borrower when he wants to sell the existing home, this is normally a short term loan to the borrower and helps during the interim period when he wants to sell the old home, and wants to buy a new one. It is given till the time a buyer is found for the old home.

Home Construction Loan : This type of loan is taken when the borrower wants to construct a new house.

Land Purchase Loan: It is that loan which is taken to purchase a land for construction and investment purposes.

Stamp Duty Loans: This loan is sanctioned to pay the stamp duty amount that needs to be paid on the purchase of property.

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Balance Transfer Loans: Balance transfer is the transfer of the balance of an existing home loan that you availed at a higher rate of interest to either the same HFC or another HFC at the current or a lower ROI.

Re-finance Loans: These are taken in case when a loan for your house from a HFI at a particular ROI you have taken drops over the years and you stand to lose. In such cases you may opt to swap your loan. This could be done from either the same HFI or another HFI at the current rates of interest, whichever is lower.

NRI Home Loans: This is tailored for the requirements of Non-Resident Indians who wish to build or buy a home or property in India. The HFCs offer attractive housing finance plans for NRI investors with suitable repayment option.

Not only are the home loans easily available, with intense competition in the housing finance industry, companies are also pulling out all the stops to lure the potential customers. Interest rates have drastically come down over the years and innovative home loan products have swamped the market.

HOUSING FINANCE SECTOR:

Against the milieu of rapid urbanization and a changing socio-economic scenario, the demand for housing has grown explosively. The importance of the housing sector in the economy can be illustrated by a few key statistics. According to the National Building Organization (NBO), the total demand for housing is estimated at 2 million units per year and the total housing shortfall is estimated to be 19.4 million units, of which 12.76 million units is from rural areas and 6.64 million units from urban areas. The housing industry is the second largest employment generator in the country. It is estimated that the budgeted 2 million units would lead to the creation of an additional 10 million man-years of direct employment and another 15 million man-years of indirect employment.

Having identified housing as a priority area in the Ninth Five Year Plan (1997-2002), the National Housing Policy has envisaged an investment target of Rs. 1,500 billion for this sector. In order to achieve this investment target, the Government needs to make low cost funds easily available and enforce legal and regulatory reforms.

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CHAPTER-2

COMPANYCOMPANY

PROFILEPROFILE

HDFC LTD.

INTRODUCTION:

HDFC was incorporated in 1977 with the primary objective of meeting a social need - that of promoting home ownership by providing long-term finance to households for their housing needs. HDFC was promoted with an initial share capital of Rs. 100 million.

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Their objective, from the beginning, has been to enhance residential housing stock and promote home ownership.

Now, their offerings range from hassle-free home loans and deposit products, to property related services and a training facility. They also offer specialized financial services to their customer base through partnerships with some of the best financial institutions worldwide.

BUSINESS OBJECTIVES:

“Helping Indians experience the joy of home ownership.”

The primary objective of HDFC is to enhance residential housing stock in the country through the provision of housing finance in a systematic and professional manner, and to promote home ownership.

Another objective is to increase the flow of resources to the housing sector by integrating the housing finance sector with the overall domestic financial markets.

As they found out nearly three decades ago, in 1977, the solution for success is customer satisfaction. All you need is the courage to innovate, the skill to understand your clientele and the desire to give them your best. Today, nearly three million satisfied customers whose dream they helped realize, stand testimony to their success.

ORGANISATION GOALS:

Develop close relationships with individual households.

Maintain our position as the premier housing finance institution in the country.

Transform ideas into viable and creative solutions.

To grow through diversification by gaining leverage from our existing client base.

To nurture the values and ethos of Brand HDFC through all its Subsidiaries and Associate

Companies. HDFC FOUNDER:

MAN WITH A MISSIO N: Hasmukhbhai Parekh

If ever there was a man with a mission it was --Hasmukhbhai Parekh, their Founder and Chairman-Emeritus, who left this earthly abode on November 18, 1994.

Born in a traditional banking family in Surat, Gujarat, Mr. Parekh started his financial career at Harkisandass Lukhmidass - a leading stock broking firm. The firm closed down in the late seventies, but, long before that, he went on to become a towering figure on the Indian financial scene.

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In 1956 he began his lifelong financial affair with the economic world, as General Manager of the newly-formed Industrial Credit and Investment Corporation of India (ICICI). He rose to become Chairman and continued so till his retirement in 1972.

At the ripe age of 60, Hasmukhbhai started his second dynamic life, even more illustrious than his first. His vision for mortgage finance for housing gave birth to the Housing Development Finance Corporation - it was a trend-setter for housing finance in the whole Asian continent.

He was a true development banker. His building up HDFC without any government assistance is itself a brilliant chapter in financial history. His wisdom and warmth drew people from all walks of life to him, for advice, guidance and inspiration soft spoken man of few words, Mr. Parekh nevertheless held strong and definite views with a quiet conviction. He was always concerned with building bridges, improving and encouraging communication between people.

ORGANISATION AND MANAGEMENT:

HDFC is a professionally managed organization with a board of directors consisting of eminent persons, professionals who represent various fields including finance, taxation, construction and urban policy & development. The board primarily focuses on strategy formulation, policy and control, designed to deliver increasing value to stakeholders.

HDFC has a staff strength of 1490 (as on 31st March, 2009), which includes professionals from the fields of finance, law, accountancy, engineering and marketing.

HDFC HOME LOAN ADVANTAGES:

1. Home loan counseling sharing over 29 years of home loan experience2. Door step service3. Helps in finding Dream home4. Wide Product Range5. Multiple Repayment Option6. Wide Network of financing7. Post disbursement service8. Loan repayment option

SUBSIDIARIES AND ASSOCIATE COMPANIES

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HDFC BankHDFC LifeHDFC Mutual FundHDFC ERGO General Insurance HDFC SalesHDFC RealtyCREDILAHDFC Red

HOLDINGS

H

HDFC Bank was incorporated in August 1994.

Among the first in new generation commercial banks Registered office in Mumbai, India

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Promoted by HDFC, the parent company IPO in India in 1995 Listed in NSE, BSE, NYSE (ADR).

NETWORK:

1416 branches 3570 ATM’s in the country 550 cities in India All branches are OLRT connected 500 locations serviced through TeleBanking Representative offices in Hong Kong, New York, London & Singapore.

BUSINESS FOCUS:

World Class Indian Bank Benchmarking against international standards. Best practices in terms of ethical standards, professional integrity, corporate governance

and regulatory compliance. To build sound customer franchises across distinct businesses. Four core values - Operational Excellence, Customer Focus, Product Leadership and

People.

OFFERINGS:

Wholesale Banking Services Retail Banking Services Treasury.

HDFC AMC Incorporated on 10th December, 1999. Approved as AMC for HDFC Mutual Fund on 3rd July, 2000.

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Particulars % of Paid Up Equity CapitalHDFC Limited 60Standard Life Investments Ltd. 40

Zurich India Mutual Fund divested its Asset Management business in India. HDFC AMC acquired Zurich’s Schemes on 19th June, 2003.

Joint Venture between:

Company Name % holdingHDFC Ltd. 72.43Standard Life( Mauritius) 2006 26.00

Financial Expertise Range of Solutions Track Record So Far is:

Gross Premium Income – Rs. 5564.69 crs 27 lakh policies in force.

HDFC ERGO GENERAL INSURANCE

74:26 Joint Venture between HDFC Ltd. & ERGO International AG. “Right Insurance Solution” for ALL 46 cities with 52 branch offices with an employee strength of 650 professionals.

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HDFC REALTY - Wholly Owned Subsidiary of HDFC Ltd.

Facilitating Buying, Selling or Leasing of Residential/Commercial Property Geographic Reach - Mumbai, Navi Mumbai, Pune, Bangalore, Delhi / NCR, Kolkata,

Kochi & Hyderabad.

HDFC SALES- Wholly owned subsidiary of HDFC Ltd.

The company has been floated as a distribution arm of HDFC with an objective of offering doorstep service to prospective clients of HDFC group.

It offers financial management solutions to individuals encompassing among other products Home Loans, Life Insurance, Mutual Funds, Fixed Deposits and property solutions.

HDFC Sales is present over 100 locations across the country with 55 offices and over 1750 employees.

CREDILA:

Credila is a Non Bank Finance Company Credila is the only lender which is exclusively focused on Education Loans Credila is a Subsidiary of HDFC Ltd.

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Over 45,000 students & parents have already applied to Credila

HDFC RED- HDFC RED is a digital information hub that helps you through every stage of the house purchasing process. Right from providing you with detailed information on properties to guiding you through home loan application processes.

HDFC Limited, India’s leading mortgage lender and a well-established financial conglomerate, has launched a new venture called HDFCRED.com under the wings of its wholly owned subsidiary, HDFC Developers Limited.

Other Companies Co-Promoted By HDFC:

HDFC Trustee Company Ltd. GRUH Finance Ltd. HDFC Developers Ltd. HDFC Property Ventures Ltd. HDFC Venture Trustee Company Ltd. HDFC Investments Ltd. HDFC Holdings Ltd. Credit Information Bureau (India) Ltd.

HDFC HOME LOAN PRODUCTS

Home Loan Home Improvement Loan Home Extension Loan Land purchase loan Short Term Bridging Loan Loan to Professionals for Non Residential Premises Home Equity Loan

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HOME LOAN:

HDFC offers loans to individuals to purchase (fresh/resale) or construct houses. Home loan be applied individually or jointly. Proposed owner of the property will have to be co-applicants. However the co-applicants need not to be the co-owners.

PURPOSE

Purchase of flat, row house, bungalow from developers. Existing freehold properties. Property in an existing or proposed cooperative society or apartment. Self construction.

MAXIMUM LOAN

85% of the cost of property (including the cost of land) and based on the repayment capacity of the customers.

MAXIMUM TERM

20 years subject to the retirement age.

ELIGIBILITY

Salaried employees Self employed professionals Self employed businessman Applicants can either be Resident or Non-Resident Age of the applicant should not be more than 65 years

HOME IMPROVEMENT LOAN:

Home improvement loan facilitates internal and external repairs and other structural improvements like paintings, water proofing, plumbing and electric works, tilling and flooring, grills and aluminium windows.

PURPOSE

External repairs Tilling & flooring

Internal & external flooring Waterproofing and roofing

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Plumbing & electric work Grills & aluminium windows

Construction of underground/ upper water tank Paving of compound walls (with stone/tiles etc)

Bore well Waterproofing on terrace

MAXIMUM LOANS

For Existing customers : 100% of the cost of improvement For New customers : 85% of the cost of improvement

MAXIMUM TERM 15 years subject to retirement age.

HOME EXTENSION LOAN:

Home extention loan facilitates the extension of an existing dwelling unit. This type of loan makes it convinient to extend or add space to home.

PURPOSE

This loan is specifically for the extension purpopse. Be it an additional room, a larger bathroom or even enclosing an open balcony.

MAXIMUM LOAN

85% of the cost of extention.

MAXIMUM TERM

20 years subject to retirement age.

LAND PURCHASE LOAN:

PURPOSE

HDFC Land purchase loan is a convenient loan facility to purchase land, whether it be to build a house or an investment.

MAXIMUM LOAN

85% of cost of land and based upon the repayment capacity of the customer.

MAXIMUM TERM

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15 years subject to customer retirement age.

SHORT TERM BRIDGING LOAN:

PURPOSE

Short Term Bridging loan makes customer realize their dreams of buying a bigger and better home and give them time to sell their existing property to pay off the loan. This is a short term loan to help customers with the interim period between the sale of their old homes and the purchase of a new home. Customers repay the loan by paying monthlyinstallment or interest on the loan with the lump sum payments within 2 years. Hence customers gets 2 years to sell the property repay the loan.

MAXIMUM LOAN

90% of the cost of new property

MAXIMUM TERM

2 years

LOAN TO PROFESSIONALS FOR NON RESIDENTIAL PREMISES:

This loan facilitates professional to purchase and construct their own office premises or even renovate their existing office premises.

PURPOSE

Purchase Constuction Improvement of office

MAXIMUM LOAN

85% of the cost of property

MAXIMUM TERM

15 years subject to customer retirement age.

HOME EQUITY LOANS:

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HDFC Home equity loans helps to encash the present market value of the property by taking a loan by mortgaging the property.

PURPOSE

Higher eduation of the children Marriage expenses Medical expenses Business purpose

MAXIMUM LOAN

For Existing customers: 60% of the market value and present loan outstanding. For new customers: 50% of the market value of the property.

MAXIMUM TERMS

PROPERTY TYPE REPAYMENT OPTION NO. OF YEARS

Residential EMI Based 15

Non Residential EMI Based 10

Residential & Non Residential Simple Interest 2

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CHAPTER-3 CHAPTER-3

OBJECTIVE OF OBJECTIVE OF

THE STUDYTHE STUDY

MAJOR OBJECTIVES

To know about the HDFC home loan and its products. To have the first hand information on loan procedure, sanctioning and disbursement in

HDFC ltd. To compare the performance of HDFC with other market players. To study about the financial position for the financial year 2010-11 in comparison with

position in financial year 2009-10.

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CHAPTER-4

PROCEDURE OF PROCEDURE OF

HOME LOANHOME LOAN

THE HOME LOAN PROCESS

A home loan is not something which we can obtain by just walking right into any market or any place like that. It is a systematic process where a loan application file goes through the hands of many experienced employees of HDFC. The applicant has to submit the original or photocopies of a few documents, he also has to correctly fill and give certain forms to state his requirements very clearly and to also communicate the information demanded by HDFC .

SOURCE OF LOAN APPLICANTS:

WALK IN:

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This refers to the Applicants who apply for the loan by going to the service centre or regional branch office .They may have come to know about HDFC s home loan service from any source but this is their first contact with HDFC in absence of any intermediary like friends, sales men etc. The applicants who contact through or by the Website are also included in the walk in category.

Walk In applicants are given concessions on fees and charges which is applicable from time to time.

CALLCENTRE LEADS:

The call centre leads refer to the applicants that come in contact with HDFC through HDFC Bank or through HLSIL. HDFC bank is the banking section of HDFC which informs HDFC Ltd about persons who it thinks to need a loan .HLSIL which has been started by HDFC Ltd and refers to Housing Loan Services India Limited.

This organization has been especially started by HDFC to assist persons searching for home loans at easy rates and good service. HLSIL contacts probable needful of home loan ,contacts them, explains them the various advantages of an HDFC home loan and get their loan application filled.

Every HDFC service centre has its own team which is managed by leader who reports directly to the Branch Manager .In the India habitat centre the HLSIL team is under the leadership of a team leader who reports directly to Mr. Prashant Malik (Branch Mgr IHC /Ranked 2nd in the prestigious National Corporate Challenge 2005 conducted annually by HDFC ).

DSAs AND BSAs:These are respectively the Direct Selling Agents and the Business Selling Agents. The DSAs refer to organizations which work in agreement with HDFC and forwards them the loan requests of applicants they contact or those that contact them.

On the other hand BSAs usually forward loan requests and assist HDFC by forwarding them the names, addresses, contact numbers etc of various probable needful of home loans .BSAs usually are Builders who book houses for sale in the future. They may also include brokers.

STAGES OF HOME LOAN

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Application Login ScanningData Entry

FCI

The representation shown above is not a perfect copy of the actual process. This is because these stages are taking place simultaneously and one application is being taken care for by the experienced employees of both HDFC Ltd service centre. Also the applicant may be asked to send information or may be asked questions regarding his requirement and/or his documents for his own convenience

Hence the loan application may or may not shuttle through different stages.

APPLICATION:

This is the stage where the Application Form first reaches the concerned Service Centre/ workstation. Here all the documents in the application are reviewed by the experienced staff present at the workstation. The HDFC Ltd employee who reviews the file checks to see whether all documents are present and in their proper place, if the documents are duly filled, not fake,

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Recommendation

Over (ROVR)

LAR (legal appraisal report, TAR (technical appraisal report)

DCOV (double checking over)

DISBURSEMENTSANCTIONING

attested by authority and present in order. In case any document is missing the applicant is contacted electronically or by mail or by telephone and requested for the document to be submitted. This exercise is called FOLLOW UP. The credit appraisal of the loan application starts at this stage. The workstation employees compute the gross salary, IIR, FOIR, Loan Eligibility ratio etc. The credit worthiness of the applicant is calculated here.

It is also at this stage that the QUICK DATA ENTRY of the loan application is done to create a serial no. of the application. After that another page appears and more data is entered .It is now that a special and unique LOAN A/C NO. is created under which all the loan processes will be carried out. The number that has been generated is communicated to the applicant by means of a letter and/or electronic communication. The system of electronically recording the data helps to create ready reference, a proof, helps in quick and easy processing of the data. It also helps to very easily and quickly share data with other employees of HDFC.

The next and important processing performed at the workstation is that of filling up a document known as the INTERVIEW SHEET for processing individual loans. It contains various simple entries like

1. Name of borrower2. Name of co-borrower3. Income details4. Family background and permanent address etc5. Gross Salary6. Rental7. Other incomes8. Obligations9. Remarks: This column contains the various findings that the employee has found

out after thorough review of the applicants documents such as bank statement, salary slip etc.

Hence the interview sheet contains the important findings which the employee has collected after careful review of the various documents .The interview sheet helps to cut corners and helps save time by not having other employees to go through the documents again and again. It hence acts as a source of quick reference.

After all this has been performed well enough the loan application will be arranged in a file and all it will be given its loan a/c no which also acts as its file number.

Personal Discussion: face to face

After you have formally and successfully completed the application process, some organizations insist on meeting you after receiving the application form, and before the loan sanction. This is to gather more details about you that may not be mentioned in the application form and to reassure them of your repayment capacity.

After the discussion the file is now ready to be sent to the HUB (Senior Officers) where further processing will take place. Next step is scanning of the documents.

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SCANNING:

In this stage the various important documents of the applicant are scanned. This helps to create their electronic copy which acts as a ready reference, a proof, and can also be shared and utilized by other employees of HDFC Ltd.

DATA ENTRY:

The file has been sent to the bank head office or the HUB. At HUB there are many experts with their own specializations. These officials review the various parts of the file again and perform many specialized tasks.

Data entry is also one of these tasks .This entry is much more different and complex as compared to the earlier performed Quick Data Entry. An exhaustive amount and type of information has to be entered into the ILPS system ranging from Personal Details, Employment Details to Property Rate History and Customer Interactions.

FCI (FIELD CREDIT INVESTIGATION) :

Thousands of people apply for loan every day. And however eager an organization is to complete its targets, every loan is a risk. So, it is natural that it will confirm or validate the details you provide. Currently HDFC LTD. is having three agencies namely Astute, InfoTech and CSPL to carry out this field credit investigation.

These agencies checks all your information including your existing residential address, your place of employment, employer credentials( if you work for a small organization), your residence and your telephone numbers. Representatives are sent to your workplace or residence to verify all the details.

Even the references you have provided in the application form are checked out. While this might be irritating and an invasion of your privacy, company is forced to undertake validation in the absence of any credit bureau. Once your credentials are validated, it helps establish trust between you and the organization.

This is the make – or – break stage. If the organization is not convinced about your credentials, your application may be rejected.

RECOMMENDATION OVER( ROVR):

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The Recommendation over is also referred to as the First Appraisal. At this stage certain specially appointed persons have been given the responsibility of recommending a loan.

These people have to take special care of reviewing the FCI report (the remarks given by the agencies regarding the applicant’s credentials), the documents, and all the small details that need to be considered before considering the loan application to be valid.

LEGAL APPRAISAL:

Now, the focus of the company’s activities shifts from you to the property you intend to buy. Once you select your property, you need to hand over the entire set of documents pertaining to your property to the organization/financial institution so that it can keep them as security for the loan amount given to you.

This normally includes:

The Title Documents of the seller which prove the seller’s title including the chain title documents if he/she is not the first owner.

NOCs from the legal owners such as the co-operative housing societies, statutory development authorities, and the lessor of the land in case of leasehold land, etc.

NOCs are not required where the property is situated on the freehold land and the entire land is being transferred along with the structure.

These documents remain in the organization’s custody until the loan is repaid.

Legal Check: Every organization conducts a legal check on your documents to validate their authenticity. Even the draft sale documents that you will be entering into the seller will be scrutinized.

The documents are sent to a lawyer in their panel (either in-house or outsourced) for a thorough scrutiny. The lawyer’s report either gives go ahead if the documents are clear, or it may ask for a further set of documents. In the latter case, you are expected to hand over the additional documents to the bank for a clear title. So, if an organization decides to disburse your housing loan you have every right to smile, you can safely assume that your property documents are clear and the transaction is safe.

Valuation: Reality check- Since housing loans are cheaper than other loans, there have been cases where individuals have shown purchase of properties from related entities at inflated prices to obtain cheap loans. Since the risk associated with diversion of funds is higher than if the loan was used for genuine purposes, banks carry out an independent valuation to find out whether the transaction is in line with the existing market price of the area.

Valuation of real estate as a profession is still in its infancy in India and is still non-standardized. In many cases, the valuer determines the value of the property at an amount that is lower than the documented cost of the property and this would result in the loan amount being lower, since the bank funds a certain percentage of the cost or valuation of the property, whichever is lower.

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http://www.apnaloan.com/home-loan-india/

The valuation issue rarely arises when a property is purchased through a reputed builder directly or if the property is pre approved. In both the cases, the banks would have already completed the valuation and therefore, applicant can safely assume that there is no difference between the documented cost of the property and the bank's valuation amount.

TECHNICAL APPRAISAL:

Organizations are extremely careful about the property they plan to finance. They send an expert to visit the premises you intend to purchase. This expert could either be a company’s employee or he could belong to a firm of architects or civil engineers.

Site visit-

In case of under construction property:

Stage of construction is the same as that mentioned in the payment notice given to you by the builder.

Quality of construction. Satisfactory progress of work. Layout of flats and the area of property are within permissions granted by the governing

authority. The builder has the requisite certificates to start construction at the site. Valuation of the property in relation to other deals in the surrounding areas.

In case of ready/resale construction:

External/Internal maintenance of the property. Age of the building Will the building last the loan tenure?

This has a direct bearing on your loan eligibility, since the loan tenure will be restricted to the maximum age of the property as decided by the bank’s engineer and this impacts your loan eligibility.

Quality of construction Surrounding area (development) Whether the builder has received the requisite certificates for handling over possession of

the flat. There is no existing lien or mortgage on the property. Valuation of the property in relation to other deals in the surrounding areas.

These inspections are carried out to protect consumer interests in terms of construction quality, adherence to local laws, approved building plans, etc.

A technical inspection also lets the organization understands the progress of the construction so as to release the staggered disbursements.

DCOV ( DOUBLE CHECKING OVER):

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As the name suggests at this stage a specially appointed person will double check all the past proceedings. They will examine the Loan file for any discrepancies, any missing and /or misplaced documents, the Credit Appraisal results, etc.

This is a very important stage and must be handled with exceptional care. This is because a mistake at this stage can cause a great loss to the company. The Double checker is responsible for the ultimate sanctioning of the loan .If any mistake is done at this stage there is no going back and hence no protection. HDFC takes great care while appointing double checkers .They should have completed a selected number of years with the company and should have shown exemplary performance and must possess experience.

SANCTIONING:

An authorized sanctioning authority within HDFC itself will review the remarks of Double Checker. If it considers the loan suitable to be sanctioned it gives its approval. After it has given its approval stamp the ILPS system will automatically send a letter to the Applicant that his loan has been sanctioned, containing the following details:

Loan amount Rate of Interest Whether fixed or variable rate of interest linked to a reference rate Tenure of the loan Mode of repayment If the loan is under some special scheme, then the details of the scheme General terms and conditions of the loan, specific conditions, if any.

Acceptance copy: If applicant agree with what is mentioned in the offer letter from the bank, applicant will have to sign a duplicate letter of the same for the bank's records. Earlier, banks used to charge administrative fees along with the offer letter. However, with rising competition, administrative fees have virtually disappeared from the home loan market.

Signing the home loan agreement: All the borrowers need to sign the home loan agreement. Applicant also needs to submit post-dated cheques for the first 36 months (if that is the agreed mode of repayment). Some banks also create a document recording the handing over of the property documents to them as security for the due repayment of the home loan.

This document is also called a memorandum of entry and attracts significant stamp duty depending on the amount of the loan in some states. The stamp duty payable on such a memorandum is naturally recovered from applicant.

Not all banks create this memorandum and hence the stamp duty may or may not be payable, depending on the practice of the specific bank. However, even where no such memorandum of entry is created, the state government concerned may, in the future, demand a stamp duty on the loan transaction, which naturally is recoverable from applicant as per the home loan agreement signed by applicant.

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SPECIAL CASE: A special case can arise if the applicant has not mentioned the property for which he wants to take a loan. In that case the applicant can let the case be remain pending. This means that the Applicants loan request will be considered to be complete even though he has not decided the property. However the Applicant is expected to finalize the property in a short time

A Property Address is necessary to:

1. Get the loan disbursed2. Process the Legal and Technical Appraisal of the property and its Papers.

DISBURSEMENT:

The last and final stage in the Home Loan process is that of disbursement. After the bank has ensured that the property is legally and technically clear, all the original documents pertaining to transfer of ownership of property in applicant’s favor have been submitted and all the necessary loan agreements have been executed. Applicant will now actually receive the cheque in his/her hand. Before the big moment arrives, applicant need to submit documents to prove that applicant has paid his/her personal contribution towards the property, since banks normally finance only up to 85-90 % of the total cost of the house.

In case applicant is expecting money from other sources to fund his/her own contribution, need to provide sufficient evidence for the same. It is only after submitting this proof that the bank will release part-disbursement of the loan.

The cheque will be in the name of the reseller (for resale flats), builder, society or the development authority. It is only in exceptional circumstances, that is, if applicant provides documents to support that he/she has made an excess payment from his/her own account then, the cheque will be handed over to applicant directly by the bank.

Disbursement in stages:

Usually, loans are disbursed on the basis of the stage of construction of the property. So, in case of resale or ready possession properties, the disbursement is full and final. However, in case of under-construction properties, the payment is made in parts, also known as part-disbursement. Each option would have different disbursement processes.

1. Part disbursement: When a loan is partly disbursed, the bank does not start EMIs immediately, since it is calculated on the total loan amount at a particular rate of interest and for a given tenure. Moreover, it normally does not start breaking up the installments into its principal and interest components until the entire loan amount is disbursed.

To overcome this difficulty, banks charge simple interest on the partly disbursed loan amount. For instance, if applicant have a sanctioned loan of Rs 10 lakhs, but the property is under construction and the bank has disbursed only Rs 4 lakhs, applicant will be charged a simple interest only on the disbursed amount. This process continues until the final disbursement takes place. The simple interest paid is called Pre-EMI interest or PEMI.

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At this stage, banks may take only around three to six post-dated cheques on account of PEMI.

2. Full and final disbursement: If it is a ready-possession property, the bank disburses the entire loan amount in favor of either the reseller or the builder.

CHAPTER-5

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CREDIT APPRAISAL OFCREDIT APPRAISAL OF A LOAN APPLICANTA LOAN APPLICANT

CREDIT APPRAISAL

Credit appraisal is one of the most important and significant step in the Home Loan process. In case of home loans we either create new accounts or maintain pre existing ones. Credit appraisal is however a part of sanctioning new loans or enhancing the existing one.

Credit Appraisal starts from the moment, the documents for Loan from the customers has taken, which is then sent to back office for processing which is called HUB.

CATEGORIES

In case of Credit appraisal there are three main categories:

1. SALARIED PERSON:

Here the Credit Appraisal is done for a salaried person .HDFC try to compute the credit worthiness of a salaried person .It means that the person should be employed as an employee in a

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recognized organization. The organization may be public or private. The person must have proof to prove his employment like credit documents etc.

2. SELF EMPLOYED PERSON:

The nature of Credit Appraisal done for a self employed applicant is slightly more complex. This is due to the presence of enormous bank statements as well as transactions involved in business. As conducting Business in modern times is a capital intensive process the bank statements of self employed persons are large and much more complex. The statement runs into a large number of pages due to the multiple numbers of transactions. Apart from that their income statements are also quite complex due to presence of many components.

Hence in the case of a self employed person demanding a loan the credit appraisal has to be done very carefully .For this very purpose HDFC Ltd has appointed Specialized Credit Appraisers and a specialized Self employed Committee. These consist mainly of Chartered Accountants. They handle the important job of appraising the credit worthiness of the self employed applicants.

3. SELF EMPLOYED PROFESSIONAL:

The self employed professionals include people like Doctors, Chartered accountants, Engineers etc. Only HDFC recognizes these professionals as a separate category and has hence developed a comparatively smoother procedure for their Credit Appraisal and sanctioning of loan.

REQUIRED DOCUMENTS:

The Credit Appraisal is an important step in sanctioning loan applications .Hence the Credit Appraiser needs to have certain important documents to compute the credit worthiness of the applicant.

(1) In the case of salaried person these include the following:

1. SALARY SLIPS (3 MONTHS CURRENT):The salary slip is usually a printed sheet of paper that contains 2 components:

A. Income/Earnings column:It contains an exhaustive list of the various components that are added to the person’s salary. They contain various components like Basic pay, HRA etc.

B. Deductions:

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It contains an exhaustive list of various components that are deducted from the persons Earnings. They contain various components like Income tax, Provident fund, Employee loans etc.

2. BANK STATEMENTS (6 MONTHS CURRENT):The bank statement contains the various transactions that the applicant performs in his bank account. It has 3 components:

Date Description: It contains the brief and standardized description of the activity or the

account related to the transaction. E.g. clearing cheque Rs166129, Transfer deposit. Deposit: It contains the amounts that were credited to the account Withdrawal: It contains the amounts that were debited to the account. This is carefully

studied to find out about any regular withdrawals or a series of checks so that any existing loans may be revealed and there can be a correct estimate of the repayment capacity.

Balance: It shows effect of transaction on the pre existing account balance. Special feature: HDFC will not consider any loans with outstanding EMI of or below 6

months.

3. FORM 16:It is form given by Employer which states the income earned from that company during the full financial year, and gives the details of Tax deducted at source.

4. COPY OF INCOME TAX RETURN(SARAL):The SARAL tax return form reveals the structure of incomes and/or the various earnings of the tax returnee. It also shows the various deductions that will not be included and it also contains the Rebates on which he earns tax benefit.

5. RESIDENCE PROOF: The residence proof includes the Electricity bill, Telephone bill, Ration Card, Passport.

6. PHOTO ID PROOF: The photo proof includes the Pan Card, Voter ID card, Employee ID card, Passport etc.

7. AGE PROOF: The age proof includes the Pan card, Passport, Photo ID.

8. LOAN APPLICATION FORM DULY FILLED: It can also be downloaded from HDFCs user friendly web based portal.

9. CHARGES FOR PROCESSING FEES: This is a standard and nominal fees to be paid at the time of applying for loan

Fees structure 0.5% of loan amount +Service tax of 12%

(less)Education cess of 3%

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OR 5618/-

HDFC takes from applicant whichever is less. This is applicable time to time.

10. PROPERTY Documents: Copies of all title documents Approved plan Construction/Improvement estimate

11. REFINANCE DOCUMENTS: Outstanding loan account statement List of documents held by previous institution Copy of loan agreements

Special Case:

In the event that the applicant has only recently joined an organization or there is a recent increase in the salary he will not be able to produce the afore mentioned documents. In that case to not give inconvenience to Borrower HDFC will demand only the following:

Copy of appointment letter Increment letter

(2) Self Employed Professional/Businessman: Application form with photo Identity and residence proof Educational Qualifications Certificate and Proof of Business Existence Last 3 years Income Tax returns (self and business) Last 3 years Profit and Loss and Balance Sheet Last 6 months Bank Statements Processing Fee Cheque Business profile.

NON RESIDENT INDIAN

SALARIED/EMPLOYED: An NRI is a person with Indian citizenship but residing in another country. An NRI can take a housing loan from HDFC . He is however not eligible for a

Top Up loans Home Equity Loans

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Non Residential Premises Loans

He is however eligible for Home Improvement and Home Extension Loans from HDFC. An NRI Loan is appraised on the Net Salary . This is the take home pay package obtained after reducing the deductions from the earnings .As this salary is low it reduces their loan eligibility .However the salary is converted into Indian Currency for computing credit worthiness. The figure obtained is higher in Indian currency hence the loan eligibility raises. Eg 5,487$ American dollars will mean 2,46,915 Rupees.

SELF EMPLOYED PROFESSIONALS: An NRI applicant can also be a Doctor, Engineer etc. In these cases HDFC will put them in the special category of Self Employed Professionals. Their credit appraisal is carried out as followsTheir latest available Profit and Loss A/c is reviewed by the credit appraiser. This account has two sides a Profit side which reveals all earnings and gains .There is also a Loss side which shows all taxes, liabilities and losses.

We refer to the Profit side and the Gross Receipts. These include components revealing the nature and amount of the Prime income and other earnings. Eg Consultation fees in case of Doctor. From the Gross Receipts we calculate the Gross Profits and thereon move to calculate Loan eligibility .Which is the loan amount that can be conveniently sanctioned to the applicant.

Loan Eligibility = Gross Profit * 2

Another important consideration is that the Annual outflow of EMIs should not exceed the NET PROFIT. The Net Profit is computed by deducting the various costs and losses from the Gross profit.

REQUIRED DOCUMENTS for NRI:

1. SALARIED:1. Pay Stubs/Salary slips (3 months current)2. Bank statement (6 months current)3. W2, Form 16,TDS from employer (tax deducted at source)4. Credit report5. Tax report6. Employment contract/Appointment letter7. Past occupational history8. Work permit9. Visa stamped on passport10. ID from Employer11. Continuous Discharge Certificates for (Merchant Navy Employees)

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In case of PIO .The PIO card copy else

Photocopy of current passport Photocopy of Indian passport held earlier

12. Power of Attorney

2. SELF EMPLOYED:

All of the above required except items1, 3, 6, 10, 11

PROCESS OF CREDIT APPRAISAL:

The process of Credit Appraisal involves the calculation of three important ratios: Installment to Income ratio Fixed Obligation to Income ratio Loan to Cost ratio

However ahead of that we need to compute the actual salary we are going to consider for appraisal. Along with that we will compute the deductions that need to be reduced from the salary.

STEP 1:

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The income slip of the applicant has many components .We first calculate the GROSS SALARY of the applicant .It is a simple process of adding the various incomes and/or earnings of the applicant. However in HDFC the aim is to provide convenience to the customer through every stage .Hence a special procedure is followed in calculation of this salary.

We will add various standard and uniform components. That means that in the calculation of Gross Salary we shall consider 100 percent of these components .This is because these Earnings will always be a part of his take home pay package .Hence they are going to always be a fixed constituent of his REPAYMENT CAPACITY.

After we have added the fixed components we will search for those items that do not appear as standard components in the Income Slip of the current 3 months. These can be

Regular Items:These items are present in all the income slips. However their amount is variable. This is because they are linked to performance or their amount depends on the discretion of the Employer.

E.g. Additional HRA, Vehicle allowance etc.

We first calculate the Average amount of these items. We then divide this Average amount by two. This is because they are variable components of the REPAYMENT CAPACITY.

Profit Allowances OR = Average of 3 months

Some other 2

Non regular Items:These items are not present in all the income slips. At HDFC for sake of the Applicant these items are not considered to be affecting the REPAYMENT CAPACITY of the Applicant. They only affect it temporarily.

STEP 2:

This step is the calculation of the 1. Installment to Income Ratio2. Fixed Obligation to Income Ratio

INSTALLMENT TO INCOME RATIO (IIR):

This ratio reveals the available repayment capacity that HDFC can consider from the gross salary of the applicant. It is affected by the following:

A. IncomeB. Obligations-Towards family, no of children, spending habits

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C. Profile-The Applicants profession If he currently receives less income but his profile is such that there is large scope of increments and/or he receives many variable amounts like Profit allowances ,certain fees, etc .Then in that case it positively affects his IIR and it is increased. E.g. Director, Principal.etc..

IIR = EMI *100

INCOME

The percentage revealed in this calculation tells us what amount of the Gross Salary the applicant has to repay to HDFC. Usually, the banks fix 33.33 to 40 percent as the ratio. It is assumed that in normal circumstances, a person can pay an installment up to 33.33 to 40 percent of his salary.

For example: Assume the IIR is 33.33 percent and the gross income is Rs 30,000 per month. According to the IIR ratio, the applicant is eligible for a loan where the installment does not exceed Rs 10,000 per month.

FIXED OBLIGATION TO INCOME RATIO (FOIR):

This ratio is an extension of IIR. The nature of information revealed by this ratio is the same as IIR. However this ratio also shows the effect of the various Obligations/Liabilities on the repayment capacity of the applicant.

FOIR = EMI+OBLIGN * 1OO

INCOME

For example, assume the income is Rs 30,000 per month, there is a car loan installment of Rs 4,000, a TV loan installment of Rs 1,000, and the proposed housing loan installment is Rs 10,000.

Accordingly, the FOIR is 50 percent - 50 percent of the monthly income. The bank may have a standard of 40 percent of FOIR. So, the total installments the person can pay, as per the bank's FOIR standard is Rs 12,000 per month. As he is already paying Rs 5,000 towards the car and TV loans, he has Rs 7,000 left and the loan eligibility is taken as Rs 7000 per month as the basis of housing loan repayment capacity of the customer. Thus, a backward calculation of the repayment capacity is made to find out the amount to be given as loan.

LOAN TO COST RATIO (LCR):

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A bank also computes eligibility on the basis of a loan-to-cost ratio (LCR). This ratio is used to calculate the loan amount that an applicant is eligible for on the basis of the total cost of the property. This sets the upper limit or the maximum loan amount that a person is eligible for irrespective of the loan eligibility under other criteria. The maximum amount of loan eligible is pegged to the cost or value of the property.

While the loan eligibility as per the other parameters may be higher, the loan amount can't exceed the cost or value of the property. The ratio varies between 70 to 90 percent of the registered value of the property. Loan eligibility is computed on the basis of these parameters that act as a guide to determine the loan amount. Generally, the lowest of these is taken as the loan amount that the applicant is eligible for.

LCR = Amount of the loan applied *100

Total cost of the property

STEP UP REPAYMENT FACILITY (SURF):

HDFC Ltd has a hitherto “with you ,right through” .This statement HDFC proves time and again by developing close relationship with individual customers and by constantly developing and marketing in the market new and innovative products that increase the comfort level of the customers.

Along the same philosophy HDFC came up with Step up Repayment Facility which once again reassures customers that HDFC helps you achieve your dream.

This facility is especially helpful to those customers who want to get a loan on an amount that is not falling within the permissible limit of their repayment capacity. It also is in line with HDFCs

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aim to provide greater degree of personalization in service and the tools. Hence there can be the situation wherein the applicant is not in the position to pay the required EMI which is calculated by the ILPS (Individual loan processing system).

HDFC in this case offers to let the applicant use one of the two plans to repay the loan amount.

The EMI Chooser 1: In this plan the applicant gets the advantage from HDFC to select the amount that he wants to pay as his first EMI. This means that HDFC will let the applicant decide what amount he can comfortably pay to HDFC in the first term of his Loan Repayment Schedule. The system will calculate the next two EMIs for the next two terms.

The customer can hence decide when he wants to repay the maximum amount of the Loan to HDFC and when he wants to repay minimum leftover or remaining amount of the loan in the form of still smaller EMIs.

The EMI Chooser 2: This plan is an extension of the above mentioned plan .In this plan HDFC helps the Applicant by letting him choose two EMIs .This means that the Applicant can select the amount that he wants two pay for both the First and the Second terms of his repayment schedule. This translates into more help and more convenience to the Applicant

However the benefits of these plans don’t stop here.

A. The Applicant can also allocate the term length for which he wants to pay what amount. This translates into a great advantage to the Applicant .He can now link

1. His current salary2. The rate of average increment.3. His existing and expected obligations.4. His existing and expected expenses5. The length of the term among others.

HDFC can hence assist the Applicant in developing a much more personalized loan plan as compared to its competitors in the Housing Loan market.

B. The Applicant can also save money by using these plans .This is because the total outflow in case of a regular plan is more as compared to these special plans.

The Applicant will hence obtain more benefit in case of Prepayment and elsewhere.

C. All Loans from HDFC Ltd are subject to Tax exemption and be treated as Rebate. Hence HDFC lets the customer save their hard earned money.

FLEXIBLE LOAN INSTALMENT PLAN (FLIP):

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Another First of its kind product from HDFC .This is also to assist the Applicant to easily secure a loan in the following condition. FLIP is used when the applicant and co-applicant want to jointly repay the loan. There is however a problem in the situation which would otherwise not allow the loan to be sanctioned. There are two applicants hence two incomes .Therefore in the joint payment they can combine their income to repay the loan.

Let there are Mr. A and B who want to take a loan for 14 years. A is the father and B is the son of A .Now consider the situation in which A and B want to take a loan and jointly repay it .But A is 52 years old and B is only 25 .Hence A will retire after 8 years and will not be repaying the EMI but B can continue to repay the loan. In that case although there will be a problem at other places but in HDFC this is solved by taking different incomes in the terms. Hence the income that will be considered earlier will be the father’s income and at his retirement or at any other selected stage of repayment we will begin to consider only the income of the son.

The advantage of FLIP in terms of the Applicant is that of joint payment, personalization, easy repayment, and freedom from many possible problems.

In the Illustration the father is going to pay only for 105 months and after that we are to consider the son’s salary only for the next remaining 60 months.

TRANCHING: To help the customers save their interest, HDFC introduced a special facility known as Tranching. In this customer has the option to start their EMI’s even before the full disbursement of the loan. By this facility customer can repays their loan faster.

PRECAUTIONS:

The credit appraisal is an important step for both the borrower and HDFC. Hence it necessary for us to take all precautions:

1. All calculations must be done with correct figures. The data entry in the system must match the actual data; also care should be taken in places like the decimals and rounding off. The data entries should not be going outside the space provided to them.

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2. The source of the data should be mentioned so that another person may easily verify the facts and figures.

3. Sometimes it may happen that the Applicant has intentionally or by mistake not mentioned the full status of his obligations. The common situations in this case are

A. He has not revealed of any loans that he may be paying off from an undisclosed Bank account in any other bank.

B. He is disclosing information related to any defaults, revolving accounts such as Debit card, Credit card.etc.

In these conditions it is difficult to correctly compute the credit worthiness of the person. As a result an unscrupulous element might get a loan .This will lead to loss of both HDFC and its customers.

The precaution taken by HDFC in this case is that it contacts CIBIL (Credit Investigation Bureau of India Ltd) which is the mega Repository of financial data in India. HDFC electronically requests CIBIL to reveal information it possesses pertaining to the persons financial obligations. CIBIL passes on the information by means of a fax containing all revolving accounts, loans and liabilities.

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CHAPTER-6

MARKET PLAYERSMARKET PLAYERS

OTHER MARKET PLAYERS

1. State Bank of India2. ICICI Bank3. Axis Bank4. LIC Housing Finance5. PNB Housing Finance6. IDBI Bank7. Bank of India

SBI - STATE BANK OF INDIA:

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State Bank of India(SBI), the country largest and oldest commercial bank with a branch network of over 11000 branches and six associate banks located even in the remotest parts of India. SBI offers a wide range of banking products and services to corporate and retail customers.

ICICI- INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA:

ICICI Bank (Industrial Credit and Investment Corporation of India) is a major banking and financial services organization in India. It is the 4th largest bank in India and the largest private sector bank in India by market capitalization. The bank also has a network of 2014+ branches (as on 31 March 2010) and about 5219 ATMs in India and presence in 19 countries. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and specialization subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset management. (This data is dynamic.) ICICI Bank is also the largest issuer of credit cards in India.

AXIS BANK:

Axis Bank Ltd was incorporated in the year 1994 as ‘UTI Bank Ltd’ which provided corporate and retail banking products and was the first private banks to have begun operations in 1994, after the Government of India allowed new private banks to be established. At present the bank is the third largest private sector bank comprising of 1000 branch offices and extension counters and 4055 ATMs.

Axis bank was formed as UTI when it was incorporated in 1994 when government of India allowed private players in the banking sector. The bank was sponsored together by the administrator of the specified undertaking of the Unit Trust of India, Life Insurance Corporation (LIC) And General Insurance Corporation Ltd and its subsidiaries namely National Insurance Company Ltd, New India Insurance Company, The Oriental Insurance Corporation and the United Insurance Company Ltd. However the name of the UTI was changed because of the disagreement on terms and conditions of the bank authority over certain stipulations including royalty charged over the name from UTI AMC. The bank was also wanted to have a new name from its Pan-Indian as well as international business perspective. So from July 30, 2007 onwards the UTI Bank was named as Axis Bank.

LIC HOUSING FINANCE:

The Company was incorporated on 19th June, 1989 as a public limited company. It was promoted by LIC of India. The Company provides housing loans to individuals, builders, development authorities, employer’s organization etc. In 2002 LIC Housing Finance has approved for the takeover of Individual Housing loan portfolio of GLFL Housing Finance and signed a deed of assignment to take over individual housing loan portfolio of Citibank N A. In same year UTI and IFCI has been removed from the list of promoters of LIC Housing Finance.

PNB HOUSING FINANCE:

PNB Housing Finance Ltd. is a public limited company incorporated under Companies Act

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1956, subsidiary of Punjab National Bank and governed by the directives of National Housing Bank.

IDBI- INDUSTRIAL DEVELOPMENTBANK OF INDIA:

IDBI Home Finance Ltd is 100% subsidiary of IDBI Bank Ltd. acquired the entire shareholding of Tata Finance Ltd. in Tata Home finance Ltd. in September 2003. The name of the company was changed to IDBI Home finance Ltd. Over the years, the company has taken steps to enhance its retail reach, strengthen brand image, improve asset quality, thereby achieving business growth.

BANK OF INDIA:

Bank of India was founded on 7th September, 1906 by a group of eminent businessmen from Mumbai. The bank was under ownership and control till July 1969 when it was nationalized along with 13 other banks. The bank has 1301 branches in India spread over all states/union territories including 141 specialized branches. These branches are controlled through 48 Zonal offices. There are 29 branches/offices (including three representative offices) abroad.

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CHAPTER- 7

RESEARCHRESEARCH METHODOLOGYMETHODOLOGY

RESEARCH METHODOLOGY

SCOPE OF THE STUDY:

The study focuses on prevailing rate of interest, percentage of funding, tenure of home loan, fee etc being charged by other banks in comparison to HDFC.

From this study, HDFC can identify the difference between the schemes and charges charged in comparison to with its competitors. Hence HDFC can change their schemes to perform better than other banks and can attract more customers. The present study focuses on analyzing the balance sheet and profit and loss statement of HDFC for the last two years.

METHODS OF COLLECTION OF DATA:

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For the project number one i.e. The Comparative Study of Home Loans provided by HDFC LTD. With other financial institutions various banks like SBI, ICICI, AXIS Bank, LIC Housing Finance, India Bulls, IDBI Bank etc were surveyed. The whole procedure of the disbursement of loan, various schemes, interests rates etc. Factors were obtained from various banks. The whole data was the organized in excel files and later on considering all the factors the whole data was analyzed. SECONDARY DATA-

Secondary data refers to the one which has already been collected by someone else .The secondary data was collected from the office account records and annual report of the company. Secondary data sources for this study are:

Websites of HDFC and other financial institutions Pamphlets/Brochures/Magazines Annual report Newspaper/ Articles Mangers of different banks deal in housing loans.

PRIMARY DATA-

Primary data is collected from different banks of Chandigarh (shown above as Major Players) regarding the comparative analysis of housing loan schemes offered by different financial institutions.

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CHAPTER - 8

DATA ANALYSIS ANDDATA ANALYSIS AND

INTERPRETATIONINTERPRETATION

DATA ANALYSIS AND FINDINGS

A) COMPARISION OF HOME LOANS:

The comparative study of HDFC home loan products and process was conducted with similar services offered by other financial institutions. The study was done on the leading market players like ICICI, SBI, AXIS Bank, LIC Housing Finance Ltd, PNB Housing Finance, Bank of India, IDBI Bank etc. The study illustrates prevailing rate of interests, percentage of funding, tenure of home loan and fee, documentation and repayment options features etc being launched in other banks.

From this study, HDFC can identify the difference between their schemes and charges charged by other banks. Therefore this can help HDFC to change their schemes accordingly so as to perform better than other financial institutions.

B) FINANCIAL ANALYSIS:

The study of Balance Sheet and Profit and loss A/c of HDFC Ltd. for two years i.e. 2009-10 and 2010-11.The financial statements for these two years help me out in preparation of Ratio Analysis and Cash Flow Statement of HDFC Ltd.

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From this study of Ratio Analysis and Cash Flow Statements we interpret the results that the future of HDFC Ltd. is bright.

CHAPTER- 8 (A)

COMPARATIVECOMPARATIVE

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ANALYSISANALYSIS

TABLES SHOWING COMPARISION OF VARIOUS HOUSING FINANCE INSTITUTIONS:

FLOATING RATE OF INTEREST:

AMOUNT OF LOAN

HDFC Bank

ICICI Bank

SBI AXIS Bank

LIC Housing Finance

PNB Housing Finance

IDBI Bank of India

Up to 25 lakhs

10.25% 10.25% 10.5% 10.5% 10.15% 10% 10.25%-11%

10%

25-30 lakhs

10.25% 10.75% 10.5% 10.75% 10.15% 10% 10.75%-11.5%

10.25%

30-75 lakhs

10.5% 10.75% 10.75% 10.75% 10.60% 10.25% 11%-11.5%

10.25%

Above 75 lakhs

11% 11% 11.25% 11% 11% 10.50% 11.5%-12%

10.75%

PROCESSING FEE:

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HDFC LTD.

ICICI Bank

SBI AXIS Bank

LIC Housing Finance

PNB Housing Finance

IDBI Bank of India

0.5% plus applicable service tax and cess.

0.50% of loan amount upto 1 crore

0.50% of loan amount with a cap of Rs.10,000 + service tax

1% of the loan amount + applicable taxes.

0.5 % -1% 0.5% Up to 1%of loan amount

(Rs 2500 to be collected at login and balance at the time of sanction ).

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 Lacs upto Rs.50 lacs – One time flat Rs.15,000/-For Loan over Rs.50 Lacs upto Rs.1.00 crore – One time flat Rs.20,000/-

PREPAYMENT CHARGES:

HDFC LTD.

ICICI Bank

SBI AXIS Bank

LIC Housing Finance

PNB Housing Finance

IDBI Bank of India

If 25% of outstanding amount is paid within 3 years - No Penalty , otherwise 2% of outstanding amount

Rs.10,000/- above 1 crore If Full Payment - 2% of outstanding amount If Part Payment - No Penalty.

N.A Nil 2% of outstanding Payment.

2% If Balance Transfer then 2% Otherwise Nil.

2.25% of outstanding loan amount.

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MAXIMUM LOAN AMOUNT:

HDFC LTD.

ICICI Bank

SBI AXIS Bank

LIC Housing Finance

PNB Housing Finance

IDBI Bank

Bank of India

85% of the cost of property.

85% of the cost of property or 100% of the amount of registry.

85% of the cost of property OR 4 times the amount of income (Avg of 3 years' income).


85% of total Cost of the property including Stamp Duty and Registration Charges.


85% of the cost of property ( below 30 lakhs) OR 80% of the cost of property (above 30 lakhs).

75% of the cost of Property or four times the avg income of last three years.

REQUIREMENT OF GUARANTOR FOR HFC:

HDFC LTD.

ICICI Bank

SBI AXIS Bank

LIC Housing Finance

PNB Housing Finance

IDBI Bank of India

Depends upon case to case.

Not required

Guarantor is required (one who is an Income Tax Assessee and he/she has to have an account in State bank of India).

Optional One guarantor

Optional Not required

local guarantor in case of outside tricity. Might require a guarantor in tricity keeping property into consideration.

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AREA OF FUNDING OF THE INSTITUTIONS:

HDFC LTD.

ICICI Bank

SBI AXIS Bank

LIC Housing Finance

PNB Housing Finance

IDBI Bank of India

Approved Projects only & Flats transferable on GPA & also funded with additional security i.e 1.5 times the GPA property.

Any area inside or outside tricity the condition being it should not have been given on GPA or through Share transfer.






Any area inside or outside tricity the condition being it should not have been given on GPA.

INSURANCE OF THE PROPERTY BEFORE TAKING UP A LOAN:

HDFC LTD.

ICICI Bank

SBI AXIS Bank

LIC Housing Finance

PNB Housing Finance

IDBI Bank

Bank of India.

Yes (optional)

Yes (optional)

Yes (optional)

Yes (optional)

Existing or new

Yes Yes (optional)

0.65%

MAXIMUM LOAN TENURE:

HDFC LTD.

ICICI Bank

SBI AXIS Bank

LIC Housing Finance

PNB Housing Finance

IDBI Bank of India.

25 years 20 years 25 years 25 years 25 years 20 years 25 years 20 years

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ADDITIONAL SECURITY:

HDFC LTD.

ICICI Bank

SBI AXIS Bank

LIC PNB IDBI Bank of India

In case of GPA

N.A N.A Not required

1. Equitable Mortgage of Residential House/Flat/Plot2. Demand Promissory Note.

Depends upon case

Depends upon case

Required for building

DOCUMENTS REQUIRED:

For self-employed:

Documents Required

HDFC LTD.

ICICI Bank

SBI AXIS Bank


Photographs ID Proof Residence Proof Business Profile Bank Statements(saving& current,6 months)

B/S & P/L A/c(last 3 years)

ITR(last 3 years) Property papers Sale deed Legal search report

55

Valuation report Estimate of construction

For salaried/employed:

Documents Required*

HDFC LTD.

ICICI Bank

SBI AXIS Bank


Salary slip(last 3 months)

Form-16 Salary account statement(last 12 months)

*note- rest documents are same as that of self employed.

CHAPTER- 8 (B)

56

FINANCIALFINANCIAL

ANALYSISANALYSIS

HOUSING DEVELOPMENT FINANCE CORPORATION

RATIO ANALYSIS

For the year ending March 31, 2011

1. CURRENT RATIO = CURRENT ASSETS

CURRENT LIABILITIES

For the Year 2009-10

57

Rs.53, 59, 17, 46,262 = 2.018:1

Rs.26, 56, 16, 40,847

For the year 2010-11

Rs.65, 59, 52, 17,530 = 1.985:1

Rs.33, 02, 99, 38,973

Note: 1.Current Assets Are Taken Except Loans and Advances

2. Current Liabilities Are Taken Except Provisions

2. ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID ASSETS

CURRENT LIABILITIES


= Rs.52, 24, 08, 90,459 = 1.97:1

Rs.26, 56, 16, 40,847


Rs.64, 05, 19, 43,612 = 1.94:1

Rs. 33,02,99,38,973

Note: 1.Absolute Liquid Assets =Cash and Bank Balance Except Cash With RBI

2. Current Liabilities Are Taken Except Provisions

58

3.RATIOS OF LONG TERM DEBT TO SHAREHOLDERS’ FUND = LONGTERM DEBT

SHAREHOLDER’S FUNDS


Rs.8, 77, 71, 97, 08,058 = 5.78:1

Rs.1, 51,97,65,86,590


Rs.10, 83,21,77,58,437 = 6.25:1

Rs.1, 73,16,51,78,704

Note: 1.Long Term Debt Are Taken Except Following:

A) Short Term Foreign Currency Borrowings From BanksB) Unsecured Foreign Currency Convertible BondsC) Loans From Scheduled Banks (Unsecured)-Short TermD) Commercial Paper(Unsecured)E) Interest Accrued And Due 2. Shareholders’ Fund=Share Capital + Reserves And Surplus

4. PROPRIETORY RATIO : SHAREHOLDERS’ FUND

TOTAL ASSETS


Rs.1, 51,97,65,86,590

Rs.11, 17, 62, 96, 74,904+ Rs.48, 78, 46, 89,701

59

= Rs.1, 51,97,65,86,590 = 0.130:1

Rs.11, 66,41,43,64,605


= Rs.1, 73,16,51,78,704 = 0.124:1

Rs.13, 90,53,98,48,806

Note: 1.Shareholders’ Fund=Share Capital As Per Schedule 1 + Reserves And

Surplus As Per Schedule 2

2. Total Assets= Loans And Advances As Per Schedule4 + Investment As Per

Schedule 5 + Current Assets, Loans And Advances Schedule 6 +

Fixed Assets As Per Schedule 8

5. FUNDED DEBT TO TOTAL CAPITALIZATION = FUNDED DEBT * 100

TOTAL CAPITALISATION


Rs.9, 65,65,30,88,314 = 0.864:1

Rs.11, 17,62,96,74,904


Rs.11, 54,10,48,33,103 = 0.87:1

Rs.13, 27,27,00,11,807

Note: 1.Funded Debt= Loans As Per Schedule 3

60

2. Total Capitalization =Share Capital As Per Schedule 1+ Reserve And Surplus As Per Schedule 2+ Loans As Per Schedule 3


Rs.9, 65,65,30,88,314 = 6.35:1

Rs.1, 51,97,65,86,590


Rs.11, 54,10,48,33,103 = 6.66:1

Rs.1, 73,16,51,78,704

Note: 1. Outsiders’ Fund= Loans As Per Schedule 3

2. Shareholders’ Fund=Share Capital As Per Schedule 1 + Reserves And Surplus As Per Schedule 2

7. SOLVENCY RATIO = TOTAL LIABILITIES TO OUTSIDERS

TOTAL ASSETS


61

6.DEBT/EQUITY RATIO = OUTSIDERS’ FUND

SHAREHOLDER’s FUNDS

OR EXTERNAL EQUITIES/INTERNAL EQUITIES

Rs.9, 92,21,47,29,161 = 0.851:1

Rs.11, 66,41,43,64,605


Rs.11, 87,13,47,72,076 = 0.854:1

Rs.13, 90,53,98,48,806

Note: 1.Total Liabilities To Outsiders= Loan Funds As Per Schedule 3 +Current Liabilities And Provisions As Per Schedule 7 (Except Provisions Under Schedule 7)

2. Total Assets= Loans And Advances As Per Schedule 4 + Investment As Per

Schedule 5 + Current Assets, Loans And Advances Schedule 6 +

Fixed Assets As Per Schedule 8

8. FIXED ASSETS TO NET WORTH RATIO = FIXED ASSETS (AFTER DEP.)

SHAREHOLDER’s FUNDS


Rs.2, 22, 11, 41,613 = 0.0146:1

Rs.1, 51,97,65,86,590


Rs 2,33,95,15,645 = 0.0135:1

Rs.1, 73,16,51,78,704

Note: 1.Fixed Assets= Net Block As Per Schedule 8

2.Shareholders’ Fund=Share Capital As Per Schedule 1 + Reserves And Surplus As Per Schedule 2

62

9.FIXED ASSET RATIO OR FIXED ASSET TO LONG TERM FUNDS

=FIXED ASSETS (AFTER DEP.)

TOTAL LONG TERM FUNDS


Rs.2, 22, 14, 11,613 = 0.0022:1

Rs.10, 29,69,62,94,648


Rs 2,33,95,15,645 = 0.0018:1

Rs.12, 56,38,29,37,141


2. Total Long Term Funds= Share Capital As Per Schedule 1+ Reserves And Surplus As Per Schedule 2+ Loan Funds As Per Schedule 3

But Loan Funds Are Taken Except Following:

A)Short Term Foreign Currency Borrowings From Banks

B)Unsecured Foreign Currency Convertible Bonds

C)Loans From Scheduled Banks (Unsecured)-Short Term

D)Commercial Paper(Unsecured)

E)Interest Accrued And Due

6310.RATIO OF CUURENT ASSETS TO PROPRIETORS’ FUND= CURRENT ASSETS

SHAREHOLDERS’ FUNDS


Rs.53, 59, 17, 46,262 = 0.353:1

Rs.1, 51,97,65,86,590


Rs.65, 59, 52, 17,530 = 0.378:1

Rs.1, 73,16,51,78,704

Note: .1.Current Assets Are Taken Except Loans And Advances


11.RETURN ON SHAREHOLDERS’ INVESTMENT OR NET WORTH=

NET PROFIT AFTER INTEREST AND TAX * 100

SHAREHOLDERS’ FUNDS


Rs.28, 26, 48, 98,200*100 =18.60%

Rs.1, 51,97,65,86,590


64

Rs.35, 34, 95, 81,311*100 =20.41%

Rs.1, 73,16,51,78,704

Note:1. Net Profit = Net Profit After Interest And Tax Taken As Per Profit And Loss Account.


12.EARNING PER SHARE (EPS)= EARNING AVAILABLE TO EQUITY SHAREHOLDER

NUMBER OF EQUITY SHARES


Rs.28, 26, 48, 98,200 =Rs.98.45 Per Share

28, 71, 10,222 Shares


Rs.35, 34, 95, 81,311 =Rs.123.12 Per Share

28, 71, 10,222 Shares

Note: 1.Earning Available To Equity Shareholders’= Net Profit After Interest And Tax Taken As Per Profit And Loss Account.

2. Number of Equity Shares= No. Of. Equity Shares Are Given In Share Capital As Per Schedule 1

13.DIVIDEND PER SHARE = PROPOSED DIVIDEND

NUMBER OF EQUITY SHARES

65


Rs.10, 33, 59, 67,992 = Rs.36 per Share

28, 71, 10,222 Shares


Rs.13, 20, 19, 80,210 =Rs.45.98 per Share

28, 71, 10,222 Shares

Note:1.Proposed Dividend Is Taken As Per Profit And Loss Account.

2.Number Of Equity Shares= No. Of. Equity Shares Are Given In Share Capital As Per Schedule 1

14.DIVIDEND YIELD RATIO = DIVIDEND PER SHARE

MARKET PRICE PER SHARE


Rs.36*100 = 6.33%

Rs. 569


Rs.45.98*100 = 6.57%

Rs. 700

Note: 1. Dividend Per Share Is Taken As Per Above Calculations.

2. Market Price Per Share Is Taken As Per Balance Sheet.

66

15.DIVIDEND PAYOUT RATIO = DIVIDEND PER SHARE

EARNING PER SHARE


Rs.36*100 = 36.57%

Rs.98.45


Rs.45.98*100 = 37.34%

Rs.123.12

Note: 1. Dividend Per Share Is Taken As Per Above Calculations.

2.Earning Per Share Is Taken As Per Above Calculations.

16.PRICE EARNING RATIO = MARKET PRICE PER SHARE

EARNING PER SHARE


Rs.569 = 5.78:1

Rs.98.45

67


Rs.700 = 5.69:1

Rs.123.12

Note: 1.Market Price Per Share Is Taken As Per Balance Sheet.

2.Earning Per Share Is Taken As Per Above Calculations.

17.RATIO OF FIXED ASSET TO FUNDED DEBT = FIXED ASSETS (AFTER DEP.)

FUNDED DEBT


Rs.2, 22, 11, 41,613 = 0.0025:1

Rs.8, 77,71,97,08,058


Rs 2,33,95,15,645 = 0.0022:1

Rs.10, 83,21,77,58,437


2.Funded Debt= Loans As Per Schedule 3

18.RATIO OF FIXED ASSET TO FUNDED DEBT = FIXED ASSETS (BEFORE DEP.)

FUNDED DEBT

68


Rs.5, 24, 45, 57,998 = 0.0060:1

Rs.8, 77,71,97,08,058


Rs.5, 47, 54, 77,143 = 0.0051:1

Rs.10, 83,21,77,58,437

Note: 1.Fixed Assets= Gross Block As Per Schedule 8

2.Funded Debt= Loans As Per Schedule 3

19.RATIO OF RESERVE TO EQUITY CAPITAL = RESERVES AND SURPLUS

EQUITY CAPITAL


Rs.1, 49, 10, 55, 23,520*100 = 98.11%

Rs.1, 51,97,65,86,590


Rs.1, 70, 23, 14, 44,474*100 = 98.30%

Rs.1, 73,16,51,78,704

Note: 1.Reserve And Surplus Are Taken Per Schedule 2 Of The Balance Sheet.

2. Equity Capital=Share Capital As Per Schedule 1 + Reserves And Surplus As Per Schedule 2

69

20.RATIO OF CURRENT LIABILITIES TO PROPRIETORS’ FUND =

CURRENT LIABILTIES

PROPREITORS’ FUNDS


Rs.26, 56, 16, 40,847 = 0.175:1

Rs.1, 51,97,65,86,590


Rs.33, 02, 99, 38,973 = 0.191:1

Rs.1, 73,16,51,78,704

Note: 1. Current Liabilities Are Taken Except Provisions

2. Proprietors’ Fund=Share Capital As Per Schedule 1 + Reserves And Surplus As Per Schedule 2

21.TOTAL INVESTMENT TO LONG TERM LIABILITIES =

SHAREHOLDERS’ FUND + LONG TERM LIABILITIES

LONG TERM LIABILITIES’

70


Rs.1,51,97,65,86,590+ Rs.8,77,71,97,08,058

Rs.8, 77,71,97,08,058

= 1.173:1


Rs.1,73,16,51,78,704+Rs.10,83,21,77,58,437 =1.159:1

Rs.10, 83,21,77,58,437

Note: 1. Shareholders’ Fund=Share Capital As Per Schedule 1 + Reserves And Surplus As Per Schedule 2

2.Long Term Liabilities Are Taken Except Following:

A)Short Term Foreign Currency Borrowings From Banks

B)Unsecured Foreign Currency Convertible Bonds

C)Loans From Scheduled Banks (Unsecured)-Short Term

D)Commercial Paper(Unsecured)

E)Interest Accrued And Due

22 .FREE RESERVES PER SHARE = ALL FREE RESERVES

NO. OF EQUITY SHARES

71


Rs.37, 20, 87, 54,723+ Rs.5, 20, 45, 78,000

28, 44, 53,910

= Rs.42, 41, 33, 32,723 = Rs.149.10 per share

28, 44, 53,910


Rs.44, 15, 89, 06,746+ Rs.9, 52, 45, 78,000

28, 71, 10,222

= Rs.53, 68, 34, 84,746 = Rs186.98 per share

28, 71, 10,222

Note: 1.Free Reserves= General Reserve As Per Schedule 2+ Balance Of Profit And Loss Account As Per Schedule 2

2. Number Of Equity Shares= No. Of. Equity Shares Are Given In Share Capital As Per Schedule 1

23.RETURN ON GROSS CAPITAL EMPLOYED =

NET PROFIT AFTER TAX and PREFERENCE DIVIDEND *100

GROSS CAPITAL EMPLOYED


Rs. 28, 26, 48, 98,200*100 = 18.60%

Rs. 1, 51,97,65,86,590


Rs. 35, 34, 95, 81,311*100 = 20.41%

72

Rs. 1, 73,16,51,78,704

Note: 1.Net Profit = Net Profit After Tax And Preference Dividend Taken As Per Profit And Loss Account.

2. Preference Dividend Is Nil Because There Are No Preference Shares

3. Gross Capital Employed= Share Capital As Per Schedule 1 + Reserves And Surplus As Per Schedule 2

24.RETURN ON NET CAPITAL EMPLOYED =

NET PROFIT AFTER TAX and PREFERENCE DIVIDEND *100

NET CAPITAL EMPLOYED


Rs. 28, 26, 48, 98,200*100 = 22.54%

Rs. 1, 25,41,49,45,743


Rs. 35, 34, 95, 81,311*100 = 25.23%

Rs. 1, 40,13,52,39,731

Note: 1.Net Profit = Net Profit After Interest And Tax Taken As Per Profit And Loss Account.

2. Preference Dividend Is Nil Because There Are No Preference Shares

3. Net Capital Employed= Share Capital As Per Schedule 1 + Reserves And Surplus As Per Schedule 2 – Current Liabilities As Per Schedule 7 Except Provisions.

Ratios Of HDFC LTD. For The Financial Year

Year

2009-10

Year

2010-11

1.Current Ratio 2.018:1 1.985:1

73

2. Absolute Liquid Ratio 1.97:1 1.94:1

3.Ratios Of Long Term Debt To Shareholders’ Fund 5.78:1 6.25:1

4. Proprietary Ratio 0.130:1 0.124:1

5. Funded Debt To Total Capitalization 0.864:1 0.870:1

6. Debt/Equity Ratio 6.35:1 6.66:1

7. Solvency Ratio 0.851:1 0.854:1

8. Fixed Assets To Net Worth Ratio 0.0146:1 0.0135:1

9. Fixed Asset Ratio 0.0022:1 0.0018:1

10. Ratio Of Current Assets To Proprietors’ Fund 0.353:1 0.378:1

11. Return On Shareholders’ Investment Or Net Worth (In %Age) 18.6 20.41

12. Earning Per Share (EPS) (In Rs.) 98.45 123.12

13. Dividend Per Share (In Rs.) 36 45.98

14. Dividend Yield Ratio (In %Age) 6.33% 6.57%

15. Dividend Payout Ratio 36.57 37.34

16. Price Earnings Ratio 5.78:1 5.69:1

17. Ratio Of Fixed Asset To Funded Debt(after dep) 0.0025:1 0.0022:1

18. Ratio Of Fixed Asset To Funded Debt(before dep) 0.0060:1 0.0051:1

19. Ratio Of Reserve To Equity Capital (In %Age) 98.11 98.30

20. Ratio Of Current Liabilities To Proprietors’ Fund 0.175:1 0.191:1

21. Total Investment To Long Term Liabilities 1.173:1 1.159:1

22. Free Reserves Per Share Rs.149.10 Rs. 186.98

23.Return On Gross Capital Employed 18.60% 20.41%

24. Return On Net Capital Employed 22.54% 25.23%

RATIO ANALYSIS for the year ending March 31, 2011

74

INVESTMENT VALUATION RATIOS:

Dividend per Share:

Dividend is the return to shareholders for their investment in the company. Higher the dividend, higher is the satisfaction & thus higher the confidence. In the given case of HDFC, in year 2011 & 2010, the Company has provided dividend of Rs.45.98 & Rs.36 per share against face value of Rs. 10 per share. This proves that the company has paid dividend at rate of 459% &360% in year 2011 & 2010 resp. this shows company is making huge profits & investors are also satisfied.

Free Reserves per Share:

It shows the amount of free reserves available per share. In the given case, in year 2011 & 2010, the free reserves per share are Rs. 186.98 & Rs. 149.10 resp. which shows company has surplus money to use in case of any contingent & other liabilities.

Ratio of Reserves to Equity Capital:

This ratio shows how much reserves are available against equity capital. Higher the percentage, higher is the satisfaction of shareholders & thus higher the stability. In the case of HDFC, in Year 2011 & 2010, the percentage was 98.3% & 98.11%. This shows that the company’s ratio has increased & the stability has also been increased because of higher reserves available with the company.

PROFITABILITY RATIOS:

Fixed Assets Ratio & Fixed Assets to Net Worth Ratio:

These ratios show the relationship of fixed assets with Long Term Funds & ShareHolders Funds. In Year 2011 & 2010 the fixed assets ratio was 0.0018:1 & 0.0022:1 respectively while fixed assets to net worth ratio was 0.0135:1& 0.0146:1. This shows in 2011 both ratios have been decreased as compared to Year 2010. This is a bad situation for the company.

Ratio of Current Assets to Proprietors Funds:

This ratio shows that how much current assets are there to cover the proprietors’ funds. Higher the ratio higher is the solvency. In the case of HDFC, this ratio in Year 2011 & 2010 was 0.378:1 & 0.353:1resp. As we can see that ratio has increased from Year 2010 to 2011 which shows company’s future is bright.

Ratio of Current Liabilities to Proprietors’ Fund:

75

This ratio shows the number of times current liabilities are to the proprietors’ funds. Lower the ratio, it is beneficial for the company. In Year 2011 & 2010, it was 0.191:1 & 0.175:1. This shows that ratio has increased from 2010 to 2011 which is bad for the company.

Total Investment to Long Term Liability Ratio:

This ratio shows that how much Long Term Liabilities are covered with our Investments. Higher the ratio means higher the capacity of company to pay back the Long Term Liabilities. In the given case of HDFC, the ratio in Year 2011 & 2010 was 1.159:1 & 1.173:1. As the ratio has decreased, it shows that the capacity of the company has reduced.

Return on Gross Capital Employed & Return On Net Capital Employed:

These ratios establish the relationship between Profits & Capital Employed. It is the primary ratio to measure the overall profitability of the company. Higher the ratio means higher the efficiency of the company. In the given case, in year 2011 & 2010, Return on Gross Capital Employed was 20.41% & 18.6% resp while Return on Net Capital Employed was 25.23% & 22.54% resp which show higher efficiency of the company, the company is highly efficient.

Return on Net Worth:

This ratio establishes the relationship between Profits after interest & taxes & Net Worth. It is the primary ratio to measure the overall profitability of the company. Higher the ratio means higher the efficiency of the company. In the given case, in year 2011 & 2010, the ratio is 20.41% & 18.60% which shows high efficiency of the company.

LIQUIDITY RATIOS:

Current Ratio:

As per rule of thumb, the best current ratio is 2:1, this means current assets should be twice of current liabilities but in case of HDFC, the current ratios in year 2011 & 2010 are 1.985:1 & 2.018:1 resp. this shows that company has sufficient current assets to meet its current liabilities, which shows high working capital.

Absolute Liquid Ratio:

As per rule of thumb, the best quick ratio is 1:1, this means absolute liquid assets should be equal to current liabilities but in case of HDFC, the liquid ratios in year 2011 & 2010 are 1.94:1 & 1.97:1 resp. this shows that company has more liquid assets over current liabilities. This will help the company to pay any debt or contingencies, as per their time period.

DEBT COVERAGE RATIOS:

76

Ratios of Long Term Debt to Shareholders’ Fund:

This ratio shows the claims of funds to the outsiders. In case of HDFC, Ratios of Long Term Debt to Shareholders’ Fund in year 2011 & 2010 are 6.25:1 & 5.78:1 resp. which shows that the claims are more than the funds; this is a bad situation for the company.

LONG TERM SOLVENCY RATIOS:

Ratio of Fixed Asset (after dep.) To Funded Debt & Ratio Of Fixed Asset (before dep.) To Funded Debt:

These ratios show the relationship of Fixed Assets with the Funded Debt. Higher the ratio higher the chances of stability because in case of failure, fixed assets will cover the funded debt. In the given case, in year 2011 & 2010 the Ratio Of Fixed Asset (after dep.) To Funded Debt is 0.0022:1 & 0.0025:1 resp. while Ratio of Fixed Asset (before dep.) To Funded Debt is 0.0051:1 & 0.0060:1 resp. which shows that company assets are much less than the funded debt.

Proprietary Ratio:

This ratio shows the relationship of shareholder funds with that of total assets. In the case of HDFC, in year 2011 & 2010 it was 0.124:1 & 0.130:1 resp, this shows the ratio has decreased from the previous year.

Debt Equity Ratios:

This ratio shows the claims of outsiders to the claims of owners i.e. shareholders. In case of HDFC, the debt equity ratio in 2011 & 2010 are 6.66:1 & 6.35:1 resp. which shows that the claims are more than the equity; this is a bad situation for the company.

Funded Debt to Total Capitalization:

This ratio shows the claims of outsiders to the claims of total capital. In case of HDFC, the funded debt to total capitalization ratio in 2011 & 2010 are 0.870:1 & 0.864:1 resp. which shows that the claims are less than the total capital; this is a good situation for the company & company’s future is bright.

Solvency Ratio:

This ratio shows the solvency of the company by comparing total liability to outsiders with total assets. In HDFC case, this ratio in 2011 & 2010 was 0.854:1 & 0.851:1. As we have seen the ratio has increased from year 2010 to 2011, this shows company’s status is nice.

CASH FLOW INDICATOR RATIOS

77

Dividend Payout Ratio:

This ratio shows the ratio of dividend paid out of profits. Higher the ratio higher is the investor’s satisfaction & interest. This is very beneficial for the company because company can’t lose confidence of investors. In the given case, in year 2011 & 2010, the ratios are 37.34 & 36.57 resp., which are very high. This shows company is capable to give higher returns to its investors.

Dividend Yield Ratio:

This ratio shows the ratio of Dividend Paid per Share & Market Price per Share. Higher the ratio higher is the investor’s satisfaction. In the case of HDFC, in year 2010 & 2009, the ratio was 1.12% & 1.25%. As the ratio this year has decreased this shows company is at a loss.

Price Earnings Ratio:

This ratio shows how many times the Market Price of Share is of the Earnings per Share. In HDFC case in Year 2011 & 2010 the ratio was 33.47% & 29.21% resp. which shows that this year there are fewer earnings as compared to last year.

Earnings per Share:

It represents the earnings of shareholders from the company in the year. Higher the earnings per share, higher is the confidence of shareholders & higher the company’s reputation. In the given case, in year 2011 & 2010, the earnings per share are 123.12 & 98.45 resp., which shows high returns to shareholders. Hence, company is highly stable.

CONCLUSION

I have studied the attached Balance Sheet of HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED (“the Corporation”) as at March 31, 2011, the Profit and Loss Account and the Cash Flow Statement of the Corporation for the year ended on that date, both annexed thereto & have made an interpretation of the company via ratio analysis.

I have come to the conclusion that the company is on the high level of success. It is growing day by day. Its long term as well as short term stability is solid. It is capable of generating more & more returns in coming future. After analyzing, I have no doubt that if in coming future any contingent liability raises before company, it is able to face the challenge. Moreover the investors & creditors (short & Long Term) both are satisfied by the company because it is declaring high profits & returns & repaying creditors in time.

So, the company’s future is Bright.

78

Cash Flow Statement of HDFC LTD. for the year ended March 31,2011

Previous Year

(2009-10)

Current Year

(2010-11)

Rupees Rupees

A] CASH FLOW FROM OPERATING ACTIVITIES

Profit Before Tax 3915,98,98,200

4866,95,81,311

Adjustment For:

Depreciation And Amortization 18,20,23,071 19,19,77,401

Provision For Contingencies 58,00,00,000 70,00,00,000

(Gains)/Loss On Translation Of Foreign Currency Monetary Assets

And Liabilities And Mark To Market Derivatives (29,57,03,919) 27,58,91,634

Employee Stock Option Expense(Net Of Options Exercised) (43,790) --

Provisions For Employees Benefits 8,03,82,284 13,58,12,100

Profit On Sale Of Investments (224,83,03,068) (379,63,82,567)

Surplus From Deployment In Cash Management Schemes Of Mutual Funds (189,84,42,2169) (217,53,39,542)

Profit In Sale Of Fixed Assets (Net) (45,87,887) (3,43,28,500)

Operating Profit Before Working Capital Changes 3555,52,22,675 4396,72,11,837

Adjustments For:

Current Assets (84,07,19,487) (182,45,65,974)

Current Liabilities 55,28,21,112 571,88,07,747

Cash Generated From Operations 3526,73,24,300 4786,14,53,610

Advance Tax Paid (1101,06,19,403) (1431,79,41,971)

Net Cash From Operations 2425,67,04,897 3354,35,11,639

Loans Disbursed(Net) (12877,26,20,312) (19199,70,34,070)

Corporate Deposits 718,94,13,000 (1099,61,00,000)

Net Cash Used In Operating Activities (9732,65,02,415) (16944,96,22,431)

79

B] CASH FLOW FROM INVESTING ACTIVITIES

Purchase Of Fixed Assets (34,83,09,049) (29,66,02,244)

Sale Of Fixed Assets 1,07,08,086 4,49,54,366

(33,76,00,963) (25,16,47,878)

Investment In Subsidiaries (286,38,00,000) (282,08,38,050)

Investment In Cash Management Schemes Of Mutual Funds (134945,59,87,700)(158571,68,04,835)

Other Investments (8904,64,47,459) (1786,57,89,891)

Sale Proceeds Of Investments:

In Cash Management Schemes Of Mutual Funds 138859,80,00,886 158789,21,44,377

In Other Companies And Properties 5422,87,32,324 1348,42,62,116

Net Cash From/(Used)In Investing Activities 112,28,97,088 (527,86,74,161)

C] CASH FLOW FROM FINANCING ACTIVITIES

Share Capital- Equity 265,63,120 626,71,160

QIP Warrants 301,22,69,150 -

Securities Premium 324,20,77,645 877,58,99,791

Securities Issue Expenses (641,47,933) -

Borrowings 13515,45,24,943 18995,56,71,141

Dividend Paid- Equity Shares (853,6810,620) (1047,42,46,908)

Tax Paid On Dividend (125,57,98,590) (175,03,01,680)

Shelter Assistance Reserve- Utilization (8,48,45,183) (11,47,63,981)

Net Cash From Financing Activities 13149,38,32,532 18645,49,29,523

Net Increase In Cash And Cash Equivalents 3529,02,27,205 1172,66,32,931

Cash And Cash Equivalents As At The Beginning Of The Year[As Per Note 8(i)] 1695,60,82,911 5224,63,10,116

Cash And Cash Equivalents As At The End Of The Year[As Per Note 8(i)]

224,63,10,116 6397,29,43,047

80

CHAPTER- 9

LIMITATIONSLIMITATIONS

Every study conducted may have certain shortcomings and unfortunately mine is also a similar case. These are in terms of certain problems faced by customers which are acting as limitations for them.

81

COMMON PROBLEMS FACED BY HDFC HOME LOAN CUSTOMERS:

Rejection at the first stage due to incompatibility between the borrower’s qualifications and lenders requirements. It could be the age criteria, income criteria, improper documents, the institution not being able to verify the customer’s details properly etc.

With every application form for home loans, HDFC require about 0.25% to 1% of the loan amount to be submitted as the processing fees. The processing fees are generally non-refundable. In simple words this means that for whatever reasons, if the institution finds that customer doesn’t deserve the home loan this fee won’t be returned.

Another limitation is that desired loan is usually not sanctioned. The loan amount sanctioned is mostly based on repayment capacity of the borrower. The monthly income, financial history or other unpaid loans with the borrower, past payment record, credit card usage history, if any bounced cheque, average balance with the banks, total years in employment etc. These factors all clubbed together help in the institution to decide whether it will be able to recover its money satisfactorily or not.

The interest rate dilemma Another major limitation is Difference in property valuation. The company has its own

experts for legal, technical and financial appraisal of the property in question. It evaluates the property on its established parameters and assigns a value to it .This value can be significantly lower than the price the customer quoted for the property. This can cause a significant gap between what is needed and what the company is willing to lend.

Another is the Title deeds and NOC Documentation Problem. The Title deeds and NOC Documents have to be furnished in the bank’s format. Borrower’s who don’t provide them in proper format, will ruin the entire exercise and won’t get any loan.

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CHAPTER-10

SUGGESSTIONS &SUGGESSTIONS &

RECOMMENDATIONSRECOMMENDATIONS

SUGGESTIONS AND RECOMMENDATIONS

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All one need is the courage to innovate, the skill to understand clientele and the desire to give them the best. Likewise following are some of the suggestions which would help HDFC in improvising their working styles and performance.

Most of the customers face problems regarding the rate of interest. HDFC must inform its customers about the change in ROI. It automatically changes but if there is decrease in rate of interest, it doesn’t change automatically.

Any change in the policies must be intimated to all the customers .HDFC should provide proper information to its customers.

There is lot of formalities in the loan disbursement process .Too much documentation is done. Customer is not aware of all the formalities. Therefore paperwork should be more friendly and clear.

Customers should be given proper information about EMI. They are generally not told how their EMI are calculated they should know EMI is calculated and of what amount.

After sale service is an issue of concern. Customers facing problems are not attended on time. Employees are generally cooperative only when the loan is sanctioned and disbursed. Therefore after sale service should be improved up to the satisfaction level of the customer.

Website of HDFC should give more options and features to customers so that they get maximum information sitting at home

Employees of HDFC should be more prompt towards customer’s grievances and problems HDFC should provide personalized services to customers. Comparative pricing in terms of lower interest rates and front end changes should be

adopted. Company should enter into tie ups with reputed builders and development authorities. HDFC should increase their reach by penetrating into rural and semi urban areas. They

should also capitalize on present customer base by generating referrals. Aggressive marketing and great publicity through newspapers, hoarding, websites and other

Medias should be done.

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CHAPTER- 11

WEBLIOGRAPHYWEBLIOGRAPHY

WEBLIOGRAPHY

www.wikipedia.org www.google.com

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www.hdfc.com www.ansalapi.com www.moneycontrol.com www.hdfcbank.com www.hdfcinsurance.com www.hdfcfund.com www.hdfcergo.com www.hdfcrealty.com www.credila.com

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http://www.credila.com/

ANNEXURESANNEXURES

Balance Sheet as at March 31, 2011

Schedule March 31, 2011 March 31,2010

Rupees Rupees Rupees

SOURCES OF FUNDS

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SHAREHOLDERS' FUNDS

Share Capital 1 293,37,34,230 287,10,63,070

Reserves and Surplus 2 1 7023,14,44,474 1 4910,55,23,520

17316,5178,704 15197,65,86,590

LOAN FUNDS 3115410,48,33,10

3 96565,30,88,314

132727,00,11,807 111762,96,74,904

APPLICATION OF FUNDS

LOANS 4117126,61,83,90

3 97966,99,05,923

INVESTMENTS 51

11832,39,42,685 10727,45,45,227

DEFERRED TAX ASSEST[Note 26] 448,13,49,715 285,72,80,715

CURRENT ASSETS, LOANS AND ADVANCES 6 9861,02,06,573 7439,14,91,127

Less: CURRENT LIABILITIES AND PROVISIONS 7 6775,11,86,714 4878,46,89,701

NET CURRENT ASSESTS 3085,90,19,859 2560,68,01,426

FIXED ASSESTS 8

Gross Block 547,54,77,143 524,45,57,998

Less: Depreciation 313,59,61,498 302,34,16,385

Net Block 233,95,15,645 2 22,11,41,613

132727,00,11,807 111762,96,74,904

Profit and Loss Account for the year ended March 31, 2011

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Schedule Previous Year

Rupees RupeesINCOMEOperating Income 9 12272,82,91,829 10897,22,47,078Fees and Other Charges [Note I I(iv)] 220,35,62,722 231,65,61,077Profit On Sale Of Investments [ Note I I(i)] 359,74,01,913 209,40,04,966Other Income 25,14,20,979 22,55,41,385

12878,06,77,443 11360,83,54,506EXPENDITURE AND OTHER CHARGESInterest And Other Charges 10 7559,94,07,614 7063,08,16,887Staff Expenses 11 175,52,98,830 146,65,28,901Establishment Charges 12 44,65,54,224 41,35,47,891Other Expenses 13 141,78,58,063 117,55,39,556Depreciation And Amortization 19,19,77,401 18,20,23,071Provision For Contingencies [Note 18(ii)] 70,00,00,000 58,00,00,000

8011,10,96,132 7444,84,56,306PROFIT BEFORE TAX 4866,95,81,311 3915,98,98,200Less: Provision for Tax [Note 27] 1332,00,00,000 1089,50,00,000PROFIT AFTER TAX AVAILABLE FOR APPROPRIATION 3534,95,81,311 2826,48,98,200

APPROPRIATIONSSpecial Reserve No II 625,00,00,000 500,00,00,000General Reserve 816,40,04,349 695,01,52,023Additional Reserve 530,00,00,000 432,00,00,000Shelter Assistance Reserve 12,00,00,000 9,00,00,000Proposed Dividend 1320,19,80,210 1033,59,67,992Additional Tax on Proposed Dividend 214,16,91,240 171,66,75,084Additional Tax on Dividend 2009-10 [ Note No. 32(i)] 1,06,60,197 (15,16,32,924)Dividend [(including tax of Rs. 2,29,66,339) (Previous Year Rs. 5,42,705)]pertaining to Previous Year paid during the year[Note No. 32(ii)] 16,12,45,315 37,36,025

3534,95,81,311 2826,48,98,200

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