INTRODUCTION TO THE BANKING

BANKING IN INDIA

Banking in India originated in the first decade of 18th century with The General Bank of India coming into
existence in 1786. This was followed by Bank of Hindustan. Both these banks are now defunct. The oldest bank
in existence in India is the State Bank of India being established as "The Bank of Bengal" in Calcutta in
June1806. A couple of decades later, foreign banks like Credit Lyonnais is started their Calcutta operations in
the 1850s. At that point of time, Calcutta was the most active trading port, mainly due to the trade of the British
Empire, and due to which banking activity took roots there and prospered. The first fully Indian owned bank
was the Allahabad Bank, which was established in 1865. By the 1900s, the market expanded with the
establishment of banks such as Punjab National Bank, in 1895 in Lahore and Bank of India, in 1906, in
Mumbai- both of which were founded under private ownership. The Reserve Bank of India formally took on the
responsibility of regulating the Indian banking sector from 1935.After India's independence in 1947;
the Reserve Bank was nationalized and given broader powers.
Definition of the Bank

Financial institutions, whose primary activity is to act as a payment agent for customers and to borrow and lend
money, Banks are important players of the market and offer services as loans and funds.

 Banking was originated in 18th century

 First bank were General Bank of India and Bank of Hindustan, now defunct.
 Punjab National Bank and Bank of India was the only private bank in 1906.
 Allahabad bank first fully India owned bank in 1865.

Types of banking

Commercial bank has two meanings:

 Commercial bank is the term used for a normal bank to distinguish it from an investment bank. (After
the great depression, the U.S. Congress required that banks only engage in banking activities, whereas
investment banks were limited to capital markets activities. This separation is no longer mandatory.)

 Commercial bank can also refer to a bank or a division of a bank that mostly deals with deposits and
loans from corporations or large businesses, as opposed to normal individual members of the public
(retail banking). It is the most successful department of banking.

• Community development bank are regulated banks that provide financial services and credit to underserved
markets or populations.

• Private Banks manages the assets of high net worth individuals.

• Offshore banks are banks located in jurisdictions with low taxation and regulation. Many offshore banks are
essentially private banks.

•Savings banks accept savings deposits.

• Postal savings banks are savings banks associated with national postal systems.

There are some examples of banks in India:-

 Private sector bank
 HDFC, ICICI, Axis bank, Yes bank, Kotak Mahindra bank, Bank of Rajasthan.
 Rural bank
 United bank of India, Syndicate bank, National bank for agriculture and rural development
(NABARD)
 Commercial bank
 State Bank ,Central Bank, Punjab National Bank, HSBC, ICICI,HDFC etc.
 Retail bank
 BOB, PNB
 Universal bank
 Deutsche bank
SERVICES PROVIDED BY THE BANK
Banks provide two types of services:

1. Fund Based
2. Non-Fund Based

BANKING
SERVICES

NON-FUND
FUND-BASED
BASED
SERVICES
SERVICES

 FUND BASED AND NON-FUND BASED FUNCTIONS

The difference between fund-based and non-fund based credit assistance lies mainly in the cash outflow. While
the former involves all immediate cash outflow, the latter may or may not involve cash outflow from a
banker. In other words, a fund based credit facility to a borrower would result in depletion of actual liquidity of
a banker immediately whereas grant of non-fund based credit facilities to a borrower may or may not affect the
banker’s liquidity.
  FUND BASED FACILITY

Fund based functions of a bank are those in which banks make deployment of their funds either by granting
advances or by making investments for meeting gaps in funds requirements of their customers/ borrowers.
Fund-based functions of a bank may be classified into two parts:-

o Granting of Loans and Advances

o Making Investments in shares/ debentures/ bonds.

FUND BASED SREVICES

I. LOANS AND ADVANCES

1. Commercial Loans Segment

A. WORKING CAPITAL :-

Working Capital is Current assets minus current liabilities. Working capital measure show much in liquid
assets acompany hasavailable to build its business.The number can be positive or negative, depending on
how much debt the company is carrying. In general, companies that have a lot of working capital will be
more successful since they can expand and improve their operations. Companies with negative working
capital may lack the funds necessary for growth, also called net current assets or current capital.

A loan whose purpose is to finance everyday operation of a company. A working capital loan is not used to buy
long term assets or investments. Instead it's used to clear up accounts payable, wages, etc.

a) Cash Credit :-
This facility is given by the banker to the customer by way of ascertain amount of credit facility. Its limit
is fixed on the basis of security of the company`s current assets.

b) Overdraft:-
Banks allow selected customers to write cheques in excess of the balance in their current account, i.e., to
overdraw. Overdrafts are arranged up to limits which depend on the customer's credit standing and
the bank manager's humor. The arrangements allow flexibility in the amount spent and, equally, allow
flexibility in repayments (although technically a bank can demand repayment of an overdraft within 24
hours). In that respect overdrafts are unlike personal loans, which are structured with regular
repayments. Interest on overdrafts is charged on the fluctuating daily balance.

c) Bills Finance
d) Bills Purchase
e) Bills Discounting :-
This is the most important form in which a bank lends without any collateral security. The seller draws
bills of exchange on the buyer of goods on credit. Such a bill may either be a clean bill or documentary
bill which is accompanied by documents to title to goods, viz Railway Receipts. The bank purchase bills
payable on demand and credit the customer’s account with the amount of bills less the discount. On
maturity of the bills, the bank presents them to its acceptor for payment. In case the discounted bill is
dishonored by the non- payment, the bank can recovers the full amount from the customer along with
the expense in that connection.
 B. TERM LOANS

A bank loan to a company, with a fixed maturity and often featuring amortization of principal. If this loan is in
the form of a line of credit, the funds are drawn down shortly after the agreement is signed. Otherwise,
the borrower usually uses the funds from the loan soon after they become available. Bank term loans are very a
common kind of lending.

a) .Capital Expenditure:-
Money spent to acquire or upgrade physical assets such as buildings and machinery also called capital
spending or capital expense.

b) Fixed Assets Finance.

c) Project Finance:-
Financing arrangements where the funds are made available for a specific purpose (the project), with the
loan repayments geared to the project’s cash flow. Project finance is used in connection with raising
large amounts of money for big-ticket, energy-related facilities. The term has come to be loosely applied
to various forms of financing. 'A financing of a particular economic unit in which a lender is satisfied to
look initially to the cash flows and earnings of that economic unit as the source of funds from which a
loan will be repaid and to the assets of the economic unit as collateral for the loan.

d) Consumer Loans Advance against Shares.

e) Housing Loans.

f) Education Loans.

2. Personal Loans Segment :-

Loan granted for personal, family, or household use, as distinguished from a loan financing a business.
Though, in some situations the lender may require a co-signer or guarantor. If unsecured, the loan is
made on the basis of the borrower's integrity and ability to pay. Generally, these loans are used for debt
consolidation, or to pay for vacations, education expenses, or medical bills, and are amortized over a
fixed term with regular payments of principal and interest.
 NON FUND BASED SERVICES

The credit facilities given by the banks where actual bank funds are not involved are termed as 'non-fund based
facilities'. These facilities are divided in three broad categories as under:

 Letters of credit
 Guarantees
 Co-acceptance of-bills/deferred payment guarantees.

Units for the above facilities are also simultaneously sanctioned by banks while sanctioning other fund based
credit limits.

Facilities for co-acceptance of bills/deferred payment guarantees are generally required for acquiring plant and
machinery and may, technically be taken as a substitute for term loan which would require detailed appraisal of
the borrower's needs and financial position in the same manner as in case of any other term loan proposal. The
co-acceptance limits may also be sanctioned under IDBI's Bill Rediscounting Scheme.

 RBI GUIDEUNES ON NON-FUND BASED FACIUTIES

Reserve Bank of India has also issued detailed guidelines to commercial banks in respect of non-fund based
credit facilities. Some of the important points to be kept in view in this regard are discussed below:

 Letters of Credit

 Bank should normally open letters of credit for their own customers who enjoy credit facilities with
them Customers maintaining current account only and not enjoying any credit limits should not be
granted L/C facilities except in cases where no other credit facility is needed by the customer.
 The request of such customer for sanctioning and opening of letter of credit should be properly
scrutinised to establish the genuine need of the customer. The customer may be, required to submit a
complete loan proposal Including financial statements to satisfy the bank about his, needs and also
his financial resources, to mire the bills drawn under
 Where a customer enjoys credit facilities with some other bank, the reasons for his approaching the bank
for sanctioning L/C limits have to be clearly stated. The bank opening L/C on behalf of such customer
should invariably make a reference to the, existing banker of the customer.
 In all cases of opening of letters of credit, the bank has to ensure that the customer is able to retire the
bills drawn under L/C as per the financial arrangement already finalised.
 Guarantees

 The conditions relating to obligate being a customer of the bank enjoying credit facilities as discussed in
case of letters of credit are equally applicable for guarantees also. In fact, guarantee facilities also cannot
be sanctioned in isolation.
 Financial guarantees will be issued by the banks only if they are satisfied that the customer will be in a
position to reimburse the bank in case the guarantee is invoked and the bank is required to make the
payment in terms of guarantee.
 Performance guarantee will be issued by the banks only on behalf of those customers with whom the
bank has sufficient experience and is satisfied that the customer has the necessary experience and means
to perform the obligations under the contract and is not likely to commit any default.
 As a rule, banks will guarantee shorter maturities and leave longer maturities to be guaranteed by other
institutions. Accordingly, no bank guarantee will normally have a maturity of more than 10 years.
 Banks should not normally issue guarantees on behalf of those customers who enjoy credit facilities
with other banks.

 Co-acceptance of Bills

 Limits for co-acceptance of bills will be sanctioned by the banks after detailed appraisal of customer's
requirement is completed and the bank is fully satisfied about the genuineness of the need of the
customer. Further customers who enjoy other limits with the bank should be extended such limits.
 Only genuine trade bills shall be co-accepted and the banks should ensure that the goods covered by
bills co-accepted are actually received in the stock accounts of the borrowers. The valuation of goods as
mentioned in the accompanying invoice should be verified to see that there is no overvaluation of
stocks.
 The banks shall not extend their co-acceptance to house bills/ accommodation bills drawn by group
concerns on one another.
 Before discounting/purchasing bills co-accepted by other banks for Rs.2 lakh and above from a single
party, the bank should obtain written confirmation of the concerned controlling office of the accepting
bank.
 When the value of total bills discounted/purchased (which have been co-accepted by other banks)
exceed Rs.20 lakh for a single borrower/ group of borrowers prior approval of the Head Office of the
co-accepting bank shall be obtained by the discounting bank in writing.
 Banks are precluded from co-accepting bills drawn under Buyer's Line of Credit schemes of financial
institutions like IDBI, SIDBI, PFC etc. Similarly banks should not co-accept bills drawn by NBFCs.
Further, banks should not extend co-acceptance on behalf of their buyers/constituents under the SIDBI
scheme.
 However, banks may co-accept bills drawn, under Seller's Line of Credit schemes for Bill Discounting
operated by the financial institutions like IDBI, SIDBI, PFC etc. without any limit subject to buyer's
capacity to pay and the compliance with exposure norms applicable to the borrower.
  Where banks open L/C and also co-accept bills drawn under such L/C, the discounting banks, before
discounting such co-accepted bills, must ascertain the reason for co-acceptance of bills and satisfy
themselves about the genuineness of the transaction.
 Co-acceptance facilities will normally not be sanctioned to customers enjoying credit limit with other
banks.
 Operational aspects of IDBI bills rediscounting scheme have already been discussed and similar
procedure shall be adopted while allowing co acceptance facilities which are not covered under the
scheme. Important operational aspects in respect of letter of credit facilities and issuance of guarantees
will be discussed in this chapter.

Four Different Types of Services by BANKS

BANKS
PROVIDE

INDIVIDUAL BUSINESS DIGITAL

LOANS
BANKING BANKING BANKING

A bank’s job is to provide customers with financial services that help people better manage their lives. As
technology advances and competition increases, banks are offering different types of services to stay current
and attract customers.

Whether you are opening your first bank account or have managed a checking account for years, it helps to
know the different types of banking services available. This ensures you get the most out of your current
financial institution. Deciding which services are most important can lead you to the bank that best fits your
needs.
Different Types of Services | Bank Accounts

 Individual Banking— Banks typically offer a variety of services to assist individuals in managing their
finances, including:
 Checking accounts
 Savings accounts
 Debit & credit cards
 Insurance
 Wealth management

 Business Banking— Most banks offer financial services for business owners who need to differentiate
professional and personal finances. Different types of business banking services include:
 Business loans
 Checking accounts
 Savings accounts
 Debit and credit cards
 Merchant services (credit card processing, reconciliation and reporting, check collection)
 Cash management (payroll services, deposit services, etc.)

 Digital Banking— The ability to manage your finances online from your computer, tablet, or
smartphone is becoming more and more important to consumers. Banks will typically offer digital
banking services that include:
 Online, mobile, and tablet banking
 Mobile check deposit
 Text alerts
 EStatements
 Online bill pay

 Loans—Loans are a common banking service offered, and they come in all shapes and sizes. Some
common types of loans that banks provide include:
 Personal loans
 Home equity loans
 Home equity lines of credit
 Home loans
 Business loans
 HOME LOANS
INTRODUCTION

Home is an integral part of an individual, who since his / her birth and childhood, dreams to have living space
of his / her own. Once in a lifetime investment requires loan to accomplish it and that is how the home loan
comes into scheme of things. Buying a home is dream for everyone. Owing to the rising price of properties, it
has almost become impossible for an average earning person to buy a home on a lump sum payment. Therefore,
the concept of home loan has come in existence. There are plethora of housing finance companies and equal
number of banks that offer home loans. The task of selecting one company and one offer for home loan amidst
the thousands available options have become a very complex task owing to the burgeoning housing finance
market in the country. Apart from this, there are intricate business jargons and technicalities that make this task
more difficult. In this study, I propose t o give the basic information of home loan technicalities, so that when a
person applies for the home loan, he / she can understand the basics and help themselves remain away from the
duping elements in the market.

BENEFITS OF HOME LOAN

High real estate prices make it difficult for many to buy their dream home but home loan it easy by funding up
to 80% of the cost of the property. Home loan is a loan that is extended to an individual to buy a house. The
property is mortgaged with the bank or non-banking financial institution till the repayment of the loan. The
lender will hold the tittle deed of the house till the housing loan amount is repaid in full along with the due
interest in time. The home loan can not only be taken for the purchase of the property but also the construction
or renovation of the house.

1. Tax benefits: – To encourage more and more people buy their own house, government of India provides
tax deduction on the principal as well as interest paid on home loan. An individual is eligible to claim a
deduction of up to Rs 1.5 lakh under Section 80C of Income Tax of India 1971 Act in a financial
year. While a deduction of up to Rs 2 lakh is allowed on the interest portion under Section 24B of
Income Tax of India Act. The deductions under income tax are only available after the construction of
the house is complete. You can’t claim the income tax deductions while the property is under
construction. Read: to know more about home loan deductions.
2. Tax benefits on second house:- In case of second house, you are eligible to claim deduction for the
entire amount of housing loan interest paid under Section 24B of Income Tax Act.
3. No prepayment charges: – Unlike other loans where lenders charge prepayment penalties on payment
made towards home loan , there are no prepayment penalties on floating rate home loans . So, whenever
you have surplus money, you can utilize it for making part payment towards your home loan and lower
your burden. However, there will be prepayment charges in case of floating rate home loan.
4. Balance Transfer Facility: – In case of home loan you have the facility to transfer your home loan to
different lender if he is giving you loan at a lower interest rate. Check out our Balance Transfer
Calculator to know how beneficial it will be for you to transfer your loan amount.
5. Makes it easy to buy dream home :- For many people buying house with own money is not possible,
home loan as it can be repaid in easy monthly installments makes it easier to buy a house.
6. High repayment Tenure:- Among all types of loan, home loan has the longest repayment tenure which
goes up to 30 years, so one can reduce the burden of equated monthly installments by extending the
tenure. Use our home loan EMI calculator to know how EMI change as you change your home loan
tenure
7. Enjoy capital appreciation: – You will also benefit from the rise in prices of the property over time.
8. Saves you from paying rent: – As rent in metro cities is quite high they put strain on your monthly
budget. It is better to pay the EMIs and own a house.

Types of Retail Loans

1) Home Loan

Home Loan is available for Purchase of new / old dwelling unit, Construction of house, Purchase of plot
of land for construction of a house. Customers are repaying a loan already taken from other Housing
Finance Company / Bank. Repayment period up to 25 years (floating rate option) also for Repairs /
Renovations / Improvement / Extension of Home and for Furniture, Fittings & Fixtures.

2) Home Loans to NRIs / PIOs

Banks have also designed housing loan facility for NRI / PIO. Customer opt for Flexi Rate plan to hedge
the interest rate risk by breaking the loan into two separate accounts, Free property insurance and
personal accident insurance. Borrower does not pay pre-payment / foreclosure charges for part as well as
full prepayment (when repaid from own sources by the borrower).

3) Interest Subsidy Scheme For Housing The Urban Poor (ISHUP)

“Affordable Housing for all” is an important policy agenda of Government of India and accordingly the
Ministry of Housing and Urban Poverty Alleviation (MH & 78 UPA) has designed an Interest Subsidy
Scheme as an additional instrument for addressing the housing needs of Economic Weaker Section
(EWS) and Low Income Group (LIG) segment in urban areas. The scheme envisages the provision of
interest subsidy to EWS and LIG segments to enable them to buy or construct houses.
4) Loan Against Future Rent Receivables

Loan against future rent receivables has been developed considering the growth potential in the real
estate in various metros and urban areas, where many commercial properties / shopping malls are being
developed and the owners approach banks for loans against securitization of future rent receivables from
such properties. Loan covers the target groups, viz. owners of immoveable properties and the minimum
and maximum loan limits are based on actual rent income received during the particular year.

5) Mortgage Loan

Bank gives loan to the customer an innovative combination of a loan and over draft facility with flexible
repayment options against the security of customer is immovable property. Benefits of this loan are ideal
use of idle property - generate additional income from idle property, customer withdraw money as per
their need and save on interest cost, deposit surplus money / regular income / salary and save interest,
flexibility to withdraw money deposited earlier. Banks also provide either as overdraft or demand loan
as per the customer’s need.

6) Education Loan
Education is the most important investment one makes in life. Higher studies and specialization in
certain fields call for additional financial support from time to time. Whether customers are planning for
their child for school education (nursery to standard XII) pursuing a graduate or post-graduate degree,
the bank gives Education Loans, to fulfill customers’ ambitions and goals.

7) Car Loan

In today's fast paced world, a vehicle is a necessity. Yet other expenses and plans in life take priority and
the dream of owning a car takes a back seat. Whether as a comfortable and dependable means of
transport or as a status symbol in society, it is believed that customer deserve ownership of a vehicle.
Benefits of this loan are - available up to ` 15 Lakhs for any car make/model (Inclusive of Gas-Kit),
Loans can be availed for new and second-hand vehicles (Not more than 3 years old). Repayment period
of loan is as long as 7 years.

8) Two Wheeler Loan

For those individuals who prefer to travel more conservatively or to get to their destinations faster, a
two-wheeler is as much a boon as it is to a car owner. With newer models coming out each year, the
options available to the customer are both attractive as well as convenient. All resident Indians, salaried
people, professionals, self-employed, businessmen and farmers can apply for this loan.
9) Loan to Professional

Banks give loan to professional persons like doctor, engineer, CA. This loan is designed specially to
cater to the financial needs of the professional. The loan can be availed as a demand / term loan or
overdraft as per customer’s preference. The loan is available for Purchase of office equipments viz.
computers, fax, air-conditioners and furniture, etc. Also, loan is available for Expansion / renovation /
modernization of existing premises.

10) Traders Loan

Traders Loan facility enables individuals, proprietorships, bodies such as partnership firms and co-
operative societies to avail of working capital or undertake development of shop by way of loan /
overdraft. Dealers in gold / silver jewelry are get benefit of this loan. The loan is provided against the
security of tangible collateral Securities in the form of mortgage of land (not agricultural land) and
building. Also National Savings Certificates, Government Bonds, Bank's Term Deposits, Assignment of
Life Insurance Policies, standing in the name of the borrower/proprietor/partner/director.

11) Personal Loan

There is wedding in the family. May be its high time for the person to surprise the spouse with a
priceless gift. The people simply need to pamper his family with an 80 extended vacation. These are the
times when a person may need a helping hand. Bank offers personal loan to meet the personal
requirements. Bank helps customer to take care of all kinds of expenses at a short notice. The Loan may
be availed to meet expenses related to marriage, travel, honeymoon, holiday and medical expenditure or
for any other personal use. It is also available to Pensioners / Defense Pensioners. Loan is also available
for Earnest Money Deposits for buyers of home / flat / plot.

12) Loan for financing Individuals for subscription to Public Issues / IPO

Loan for financing Individuals for subscription to Public Issues / IPO for the person to take smart
investment decisions and avail of the benefits. Customer can avail loan up to `10 Lakhs for subscribing
to new issues. Loan is offered at affordable / competitive interest rate. Customer can invest to pay within
maximum period of 90 days. Banks give option to continue the loan thereafter by availing loan against
the allotted shares.

13) Reverse Mortgage Loan

Reverse mortgage loan aims at making financial assistance available to senior citizens. Customer should
be Senior Citizen of India, above 60 years of age. Married couples will be eligible as joint borrowers
provided one of them is above 60 years of age and age of spouse is not below 55 years at the time of
application. Customer should be the owner of a residential property (house or flat) located in India in
his/her own name. Residential property should be used as permanent primary residence (fully self
occupied property). The Commercial property will not be taken as a security under the product.
 Types of Home Loan

Various kinds of home loans are available in India. They are described below:-

 Home Purchase Loan

These are the basic home loans for the purchase of a new home. These loans are given for purchase of a
new or already built flat/bungalow/row-house.

 Home Improvement Loan

These loans are given for implementing repair works and renovations in a home that has already been
purchased by the customer. It may be requested for external works like structural repairs, waterproofing
or internal works like tiling and flooring, plumbing, electrical work, painting, etc.

 Home Construction Loan

These loans are available for the construction of a new home. The documents required by the banks or
bank for granting customer a home construction loans are slightly different from the home purchase
loans. Depending upon the fact that when customer bought the land, the lending party would or would
not include the land cost as a component, to value the total cost of the property.

 Home Extension Loan

Home Extension Loans are given for expanding or extending an existing home. For example addition of
an extra room, etc. For this kind of loan, customer needs to have requisite approvals from the relevant
municipal corporation.

 Land Purchase Loan

Land Purchase Loans are available for purchase of land for both home construction or investment
purposes. Therefore, customer can be granted this loan even if customer is not planning to construct any
building on it in the near future. However, customer has to complete construction within tenure of three
years on the same land.

 Bridge Loan

Bridge Loans are designed for people who wish to sell the existing home and purchase another. The
bridge loan helps finance the new home, until a buyer is found for the old home.
  Balance Transfer

Balance Transfer loans help customer to pay off an existing home loan and avail the option of a loan
with a lower rate of interest. Customer can transfer the balance of the existing home loan to either the
same banks or any another banks.

 Stamp Duty Loan

These loans are sanctioned to pay the stamp duty amount that needs to be paid on the purchase of
property.

 NRI Home Loan

This is a special home loan scheme for the Non-Resident Indians (NRI) who wish to build or buy a
home or land property in India. They are offered attractive housing finance plans with suitable
reimbursement options by many banks in the country.

Banks, Housing Finance Companies and Co-operative Banks provide Home Loans in India

All the nationalized banks, private sector banks, foreign banks and housing finance companies provide home
loan in India. Even a number of co-operative banks provide the home loan in India. It is not possible to mention
the names of all the co-operative banks in India because their Act and Registrar are different in different states.

 Basic Process of Availing Home Loan in India

After deciding for availing home loan one should go through the process of home loan which is applicable to
customers as well as banks.

 Determination of Loan amounts

Loan eligibility is based on two separate calculations:

1. The amount of Loan repayment that a customer can afford to make every month.
2. A specified percentage of the cost of the property. The amount of the loan sanctioned will be the lower
of the two figures arrived at after making this two calculation.

It is possible that while the customer’s income (and hence, customer’s ability to repay) could make
customer eligible for a higher loan, the bank will almost always cap the sanctioned loan amount at 80 to
90 per cent of the property cost.

i. Repayment Ability - The Most Important Determination

Customer’s ability to repay is based on income and expenditure pattern. For instants, if a customer’s
monthly income is ` 10,000 and his monthly expenses is ` 8,000 the customer can certainly pay ` 2,000
towards any potential home loan he can take. This amount can now be used as the installment amount
 and the customer’s eligibility can be reverse – calculated. The larger customer’s repayment capability,
the higher will be customer’s loan eligibility.

ii. Determination of Income

Banks need to be sure about income stability of customer. Which is why, they may not consider the
following categories of income while calculating loan eligibility:

 Performance bonus, medical reimbursements or leave travel allowance, as these are not certain,
any case annual perks are not available every month to help in monthly repayments. Some banks,
however, are willing to consider these amounts either partially or fully as ‘income’.

 Overtime may be of temporary nature. Again, if the overtime is shown as being received
consistently for a long period of time, some banks may consider at least a part of this as
‘income’.

 Interest income since the underlying investments on which these incomes are earned may be
liquidated to pay for customer contribution required towards the cost of the house. But if a
customer can convince some bank that the interest income will remain even after customer have
bought the house, the bank may be persuaded to include the interest income while calculating
loan eligibility.

 Conveyance or entertainment / other allowances paid in cash through vouchers, unless customer
regularly deposits the cash reimbursement in his/her salary account. Banks will hesitate to
consider it for a loan since they have no document to verify whether such an allowance is indeed
paid.

 Earnings from non-verifiable sources such as tuition / tailoring are not considered as ‘income’ by
the banks unless business of this kind is carried on in a verifiable manner.

 Agricultural income, since this is non-taxable and non-stable as well, most banks do not give this
any weightage or give significantly lower weightage.

 Rental income is being consistently received and shown in the income tax (IT) returns and copies
of the rental agreements are available, banks may consider part or whole of this as ‘income’.

If a customer is a salaried employee, some banks apply the normative percentage on the gross salary, while
some apply it on customer’s net salary. Having said that, most banks go by gross salary as the net salary varies
from month to month (deduction of festival advances, medical reimbursements given, or grant of leave travel
allowance that month). These banks allow a smaller percentage of customer income as available for payment of
loan installment; while those applying it on net salary allow a higher percentage of the salary.
iii. Clubbing of Incomes of Relatives

Eligibility is also calculated by clubbing the customer’s income with that of his relatives. All banks
allow clubbing of the spouse’s income to work out the loan eligibility. In such cases, they insist on
making the spouse a joint borrower (or co-borrower). The basic premise behind using pooled incomes
for calculating eligibility is that both parties will actually combine their income and pay off all expenses
(including the home loan installment). However, banks are selective in extending this concept of pooling
of incomes to other relations. Some banks allow parents, children and brothers to be joint borrowers.

iv. Cost of the Property

The bank naturally wants customer to put in a contribution towards the cost of the house so that
customer has a stake in its continued maintenance. This also ensures that if the value of the house goes
down in future, the bank’s outstanding loan amount is lower than the market value of the property. The
amount the customer is expected to put in is called ‘margin money’ or ‘down payment’. Generally bank
gives loan amount of 85% to 90% of the agreement value of the property. Even if a customer’s income
is enough to justify a higher loan, the bank will give a maximum loan based on its margin requirements.

DOCUMENTS REQUIRED FOR HOME LOAN

With an easy process of documentation involved, the dream of owning a house has become even
simpler. Though the documents required for a home loan are more or less uniform among various banks, a few
specific requirements may vary from bank to bank, depending on the loan amount, purpose of the loan, tenure
etc.

The following are a few factors on which the sanctioned loan amount depends:

 Type of borrower
 Age of the applicant
 Income of applicant
 Agreement value of the property to be purchased
 The purpose of the loan
 Nature of property
CHECKLIST OF DOCUMENTS REQUIRED FOR HOME LOAN:

1. Completed Loan Application

2. Proof of Identification:

 Driving license
 Ration card
 Passport
 PAN card
 Voter’s ID card
 Employee ID
 Bank passbook

3. Proof of Age:

 PAN card
 Birth certificate
 10th class mark sheet
 Bank passbook
 Passport
 Driving license

4. Address Proof:

 Bank passbook or Bank account statement

 Voter’s ID
 Ration card
 Passport
 Utility bill (telephone, electricity, water, gas) – less than 2 months old
 LIC policy/ receipt
 Letter from a recognized public authority verifying the customer’s residence address

5. Income Documents:

 Salaried individuals (any one of the following):

 Form 16
 Certified letter from Employer
 Pay slip (Last 2 months)
 Increment or Promotion letter
 IT returns (for 3 years)

Apart from the proof of income of the salaried individual, he would also have to furnish any investment proofs
(like fixed deposits, shares, etc) and his passport-size photographs.
  Self Employed or businessman (any one of the following):

 Last 3 years Income tax returns of the applicant along with computation of income duly attested by a
Chartered Accountant
 Last 2 years Balance Sheet and Profit & Loss account of the firm- duly attested by a Chartered
Accountant

 Apart from these, a self-employed individual also has to submit:

 A brief introduction of his profession/business

 Passport size photographs
 Photocopy of Registration Certificate of establishment under Shops and Establishments Act/Factories
Act
 Photocopy of Registration Certificate for deduction of Profession Tax
 Proof of investments
 Certificate of Practice
 Receipts of advance tax payments (if any)

6. Property Documents:

 Sale deed, agreement of sale with the builder (original copy)

 Land and building tax paid receipts, location sketch of the property certified by the revenue authorities,
possession certificate
 Letter of allotment given by the Housing Board/Society/Private builder
 Original receipts of the advance payments that are made towards the purchase of flat
 An approved copy of the building plan (key plan/floor plan in case of purchase of flats)
 Original of the land tax paid receipt and possession certificate as issued by the revenue authority
 Original No objection certificate (NOC) from the housing society or builder
 Detailed estimate of the cost of construction of house
 Letter from the builder/society/housing board, stating their account number and name of their bankers
for the remittance of installments.
Home Loan Eligibility Criteria

Home Loan Eligibility Criteria Salaried Self-employed Professionals

Age Criteria 21 Years – 60 Years 24 Years – 65 Years

Employment Min. 2 Years of experience Min. 5 Years of experience

Not Mandatory – Only Family Not Mandatory – Only Family

Co-Applicant(s)
Members as co-applicants Members as co-applicants

Credit Score 750 or above 750 or above

Max. Loan on Property Value Upto 90% Upto 90%

Max. EMI – Per Income % Upto 65% Upto 65%

Before applying for a home loan, check the eligibility criteria as it may vary from one lending institution to the
other, but there are some common requirements:

 Any salaried, self-employed or business person with Indian nationality can apply for a home loan.
 You must be aged 21 years or above.
 You should have a regular source of income for timely repayment of the loan.
 Your professional stability and savings history will help in quick loan approval.
 Ensure that you do not have bad credit history for at least the three months prior to applying for a home
loan.
 If you are a salaried professionals, about 40% of your monthly gross income can be considered as your
monthly EMI against the loan.
 For self-employed individuals, profit earned by you majorly determines the loan value you are eligible
for.
 CREDIT PROPOSAL

Whenever you discuss personal loans or read about loans in general, you may have come across the term ‘credit
appraisal’. Credit appraisal basically refers to assessing a particular loan application or proposal in a thorough
manner in order to gauge the repayment ability of the loan applicant. A lender conducts a credit appraisal
chiefly to make certain that the bank gets back the money that it lends to its customers.

Whether one applies individually or as a corporate entity, a lender always conducts a detailed and systematic
credit appraisal process. The credit appraisal process before giving a loan to entities is comprehensive in nature
as it appraises or evaluates management, market, technical, and financial elements.

No lender approves and sanctions anybody’s personal loan application instantly without an evaluation. It is
absolutely important for a lender to carry out a credit appraisal process in order to ensure that the borrower has
the capacity to repay the entire loan amount on time without missing any payment deadlines. This is very
crucial for a bank as this determines the interest income and the capital of the bank. The repayment behavior of
a borrower directly affects the performance of the bank.

Both banks and non-banking financial corporations (NBFCs) utilize credit appraisal procedures before
approving a personal loan application or any other loan application. Each lender will have its own techniques
for performing credit appraisal processes. A lender will have certain norms, rules, and standards to assess the
creditworthiness of a particular loan applicant. If a borrower has a high creditworthiness, there is high
probability that his or her loan application will be accepted by the bank. A credit appraisal is done to avoid the
risk of default on loans.

How Does a Lender Assess the Creditworthiness of an Individual Borrower?

In the context of loans and credit, creditworthiness broadly refers to the financial character of a particular
individual. When a person applies for a loan, the lender will check this financial character to get an idea of how
the applicant treats his or her debts.
The lender will check the borrower’s credit history. This will comprise checking his or her repayment behavior,
time taken to pay different equated monthly installments (EMIs), how a borrower has treated his or her different
debt obligations, etc.

What is Credit Score?

In order to compute the creditworthiness of a borrower, a credit analysis needs to be performed. Apart from
checking the credit history of a borrower, a lender will also evaluate his or her credit score. A credit score refers
to a particular score that is given to a borrower depending on his or her credit history. This score is provided by
credit bureaus who will evaluate one’s full repayment behaviour and give them a score. It will be based on
credit reports created by credit bureaus. Hence, if one is interested in applying for a personal loan, a car loan or
any other loan, he or she should make sure that their credit score is good. In India, the credit score of any loan
applicant should ideally be 750 and above.
In India, CIBIL is the leading credit bureau that takes care of observing your credit behaviour and preparing a
credit report with details of your credit score. You can check your CIBIL report to get an idea of your credit
history.
In case your credit score is high, you can be positive that your loan application will be approved, provided you
meet other eligibility criteria set by your lender. If your credit score is low, you can take specific measures in
order to increase it. When you incorporate good measures to enhance your credit score, you widen your scope to
get your loan approved by the bank. You will have to be extremely financially disciplined to increase your
credit score.

Loans are not provided easily by the banks. Before giving loans the lenders make complete investigation about
the person asking for the loan. Banks basically consider the below mentioned Five C’s of credit before giving a
loan to any person.

FIVE C’s of CREDIT APPRAISAL

Character

The first C is a character. The character usually includes behavior and past profile of the company as well as the
owner demanding loan. For example, before giving a loan, banks may evaluate the address of the person,
previous years records of paying debts. It is the impression which a person makes on the lender. The lender will
check your profile and background that how trustworthy you are to repay the loan.

Capacity

The second C is capacity. What’s your capacity to repay is considered as most important by various lenders
before giving credit. The bank sees that from where the loan payment will come. Bank wants that loan payment
should come from business operating activities. Cash flow position of the business is taken into consideration
with the time period for repayment of the loan. Banks are interested in giving loan to those persons or
companies who show some growth when compared to previous years and those businesses that are able to retain
some profit every year. This is one of the most important aspects of giving credit.

Capital

Now come the real fact of money. Banks are interested to know company’s net worth. Net worth is your assets
minus your liabilities. In other words, it means what you own minus what you owe. If a person is making a huge
investment in business, then banks believe that the person will do anything to make their business successful.
So, higher the investment in business higher will be the chances of getting credit from banks.

Collateral

Before asking for a loan every individual must have a certain amount of collateral. Collateral is the asset of the
person demanding for the loan. The collateral is demanded by the banks to keep it as security in case the
individual in future do not pay back. In case the business is not in a condition to repay back the loan so there
must be certain security for banks. Assets such as vehicle, property, buildings are mostly put by the person as
collateral so that if in future he is not able to pay, the bank will earn the cash by the sale of these assets.

Conditions

Last but not the least comes the fifth C which is a condition. Before giving credit to any person, lender
considers various outside sources which may affect business. If a business firm is asking for a loan, the lender
will evaluate its market, its competitors to be safe under any circumstances.

The above mentioned Five C’s are taken into consideration by the lender before giving the loan. These must be
kept in mind by every lender whether a bank or any financial institution.
CREDIT APPRAISAL PROCESS
Factors Evaluated During a Credit Appraisal Process

A lender’s credit appraisal process will typically check and evaluate the following important factors:

 Income
 Age
 Repayment ability
 Work experience
 Present and former loans
 Nature of employment
 Other monthly expenses
 Future liabilities
 Previous loan records
 Tax history
 Financing pattern
 Assets owned

How Does a Lender Evaluate the Eligibility of a Borrower Through Credit Appraisal?

A lender typically compares your loan amount, income, EMIs, repayment capacity, and your overall expenses
in order to determine if you are eligible or not to get a personal loan or any other loan. Generally, banks and
NBFCs take a look at certain ratios in order to check your loan eligibility. These are some of the ratios that are
useful in the credit appraisal process:

 Fixed obligation to income ratio (FOIR): This ratio refers to how one deals with his or her debts and
how often they repay their debts. It refers to the ratio of the loan obligations and other expenses to the
income that they earn on a monthly basis. The bank will assess if a certain portion of your income is
sufficient to manage your EMIs for the loan that you have applied for and for your other liabilities. If the
ratio is higher than the benchmark fixed by the lender, then the lender may not accept the application.
 Installment to income ratio (IIR): This ratio considers the equated monthly installments (EMIs) of
your loan to the income that you earn. It will indicate the amount you will be required to take from your
income to pay your personal loan EMI.
 Loan to cost ratio: This ratio indicates the maximum amount that a particular borrower is eligible to
take. This will depend on the cost of the car if you are taking a car loan and on the cost of the house if
you are taking a home loan. For a personal loan, it will depend on your personal requirement. Usually,
the ratio will range from 70 to 90% of the cost of the car or house.

Finding out the loan eligibility of a loan applicant will assist a lender in fixing the loan amount that needs to be
offered to the applicant.

Submission of Documents for Proving Your Bankability

Bankability is a very important aspect that is a part of credit appraisal. Bankability refers to what will be
accepted by a particular bank. A lender will assess if a loan given to a particular person will result in future cash
flow and profitability.

When you apply for a personal loan or any other loan from a bank or an NBFC, you will be required to
mandatorily furnish certain government-approved documents, reports, and other documents in order to prove
your income, age, and other aspects. These norms will vary from lender to lender. While applying for your loan,
your lender will specify the norms and you will be required to follow them so that they can decide if the loan
can be approved or not. Let us take a look at some of the common norms that are set by lenders for the credit
appraisal process:

Proof of income
In order to prove your monthly income, you will be required to submit certain documents and they include:

 Most recent bank statements for 3 to 6 months

 Most recent salary slips
 Most recent Income Tax Return (for self-employed individuals)
 Audited financials for the previous 2 years

Proof of address

To prove your residential address, you will have to furnish any one of the following documents:

 Leave and license agreement

 Latest electricity bills or utility bills
 Aadhaar card
 Driving license
 Passport

Proof of identity

To prove your identity and date of birth, you will be required to submit any one of the following documents:

 Aadhaar
 PAN card
 Voter ID
 Driving license
 Passport-size photographs

Proof of employment

To prove your employment information, you will be required to give certain documents regarding your
employer or your own company (if you are self-employed):

 Letter from your employer

 Offer letter or appointment letter provided by your employer
 Office address proof
 Employment certificate from your present employer
  Certificate of experience or relieving letter from your previous employer(s) to show your overall work
experience

Proof of creditworthiness

To prove your creditworthiness, you can show your credit score to your new lender. This can be done by
submitting your CIBIL report. When you are furnishing your CIBIL report, you should be sure about the details
of your credit score. You should also ensure that your credit score is 750 and above.

With the help of your CIBIL report, your lender will check if you have been prompt while making your
repayments and while clearing your credit card bills. Your lender will also be able to see if you have defaulted
any loan during your entire credit history and if you have made many enquiries. Hence, you need to be very
particular about how your credit report looks.

Proof of investment

If you have made any investment, you will be required to provide proofs. This can be done by giving documents
of your investments such as fixed deposits, shares, mutual funds, fixed assets, gold, etc.

When the lender takes a look at your income proof, age proof, and employment proof, the lender gets an idea
about your overall profile and the bank can determine if you will be able to repay your loan promptly without
any financial struggles.

Credit Appraisal for Project Financing for Organisations

If a lender is approached by a company for project financing or a loan, then the lender will need to consider
financial, technical, commercial, market, and managerial aspects of the organisation.

 Under credit appraisal, to evaluate financial aspects, the bank will have to check the organisation’s costs,
expenses, and estimated revenues in order to understand if the company will be able to repay the loan
without any trouble.
 To assess technical aspects of a company, the bank will have to evaluate the nature of the business and
the industry or sector of the borrower. The lender will have to observe the company’s raw materials,
capital, labour, transportation, selling plans, etc.
 To evaluate the market of the borrower, the bank will have to evaluate its demand and supply. If the
demand-supply gap is high, then it is great news for the lender. This is because it indicates that the
company will enjoy good sales and hence, can repay the loan efficiently.
 The bank also needs to assess the managerial aspects of an organisation before giving a loan to them.
The bank should understand the goals, plans, and commitment of the company to the particular project.
The organisation’s management style and ways of handling subordinates should be observed by the
lender.
 Banks will assess both financial and non-financial aspects in order to determine the borrower’s
creditworthiness while conducting the credit appraisal process.

The intensity of the credit appraisal will depend on the loan quantum and the purpose of the loan. According to
these aspects, the appraisal process can be simple or complex for both individuals and entities.
PROFILE OF HDFC BANK

 History of the Bank

The HDFC Bank was incorporated on August 1994 by the name of 'HDFC Bank Limited', with
its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled
Commercial Bank in January 1995. The Housing Development Finance Corporation (HDFC)
was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI)
to set up a bank in the private sector, as part of the RBI's liberalization of the Indian Banking
Industry in 1994.

HDFC Bank is headquartered in Mumbai. The promoter of the company HDFC was incepted in
1977 is India's premier housing finance company and enjoys an impeccable track record in India
as well as in international markets. HDFC has developed significant expertise in retail mortgage
loans to different market segments and also has a large corporate client base for its housing-
related credit facilities. With its experience in the financial markets, a strong market reputation,
large shareholder base and unique consumer franchise, HDFC is ideally positioned to promote a
bank in the Indian environment.

The shares are listed on the Bombay Stock Exchange Limited and The National Stock Exchange
of India Limited. The Bank's American Depository Shares ( ADS ) are listed on the New York
Stock Exchange (NYSE) under the symbol 'HDB' and the Bank's Global Depository Receipts
(GDRs) are listed on Luxembourg Stock Exchange.

On May 23, 2008, the amalgamation of Centurion Bank of Punjab with HDFC Bank was
formally approved by Reserve Bank of India to complete the statutory and regulatory approval
process. As per the scheme of amalgamation, shareholders of Centurion bank of Punjab received
1 share of HDFC Bank for every 29 shares.

The merged entity now holds a strong deposit base of around Rs. 1, 22,000crore and net
advances of around Rs. 89,000 crore. The balance sheet size of the combined entity would be
over Rs. 163,000crore. The amalgamation added significant value to HDFC Bank in terms of
increased branch network, geographic reach, and customer base, and a bigger pool of skilled
manpower.

In a milestone transaction in the Indian banking industry, Times Bank Limited (another new
private sector bank promoted by Bennett, Coleman & Co. / Times Group) was merged with
HDFC Bank Ltd., effective February 26, 2000. This was the first merger of two private banks in
the New Generation Private Sector Banks. As per the scheme of amalgamation approved by the
 shareholders of both banks and the Reserve Bank of India, the shareholders of Times Bank
received 1 share of HDFC Bank for every 5.75 shares of Times Bank.

 Technology

HDFC Bank operates in a highly automated environment in terms of information technology and
communication systems. All the bank’s branches have online connectivity, which enables the
bank to offer speedy funds transfer facilities to its customers. Multi-branch access is also
provided to retail customers through the branch network and Automated Teller Machines
(ATMs).

The Bank has made substantial efforts and investments in acquiring the best technology available
internationally, to build the infrastructure for a world class bank. In terms of core banking
software, the Corporate Banking business is supported by Flex cube, while the Retail Banking
business by Fin ware, both from i-flex Solutions Ltd. The systems are open, scalable and web-
enabled.

The Bank has prioritized its engagement in technology and the internet as one of its key goals
and has already made significant progress in web-enabling its core businesses. In each of its
businesses, the Bank has succeeded in leveraging its market position, expertise and technology to
create a competitive advantage and build market share.

 PRODUCTS AND SERVICES OF HDFC BANK

The HDFC bank offers lots of products and services to its customers. They are given below as follows:
 ACCOUNTS AND DEPOSITS

1. SAVINGS ACCOUNT
2. CURRENT ACCOUNT
3. SALARY ACCOUNT
4. DEPOSITS
5. SAFE DEPOSIT LOCKER
6. RURAL ACCOUNTS

 LOANS

HDFC Bank offers many types of loans that make it possible to make its customers’’ dreams true.
HDFC Bank offers some of the best loans in India, at attractive interest rates and with flexible pay back
options.

1. Personal Loan

HDFC Bank personal loans can help to meet all the financial needs of the customers effectively. With
simplified documentation and speedy approvals, availing of personal loans couldn't get easier.
 2. Business Loan

The business loan is another important loan offered by the bank. No collateral/ guarantor / security is required
for this loan. The funds are available for business expansion, working capital, child's education and home
renovation.

3. Loans for Professionals

These loans are allowed to doctors and other professionals. The important features of these loans are:

a) Convenience of contacting through SMS, Web chat, Phone Banking and across all Branches.
b) Professional Loan eligibility in 1 minute is available online and across all branches.
c) Special loan offers for Doctors.
d) Best in offerings on loan amount, interest rates and charges, for HDFC bank A/c customers.

4. Home Loan

The range of Housing Finance products includes Home Loans, Home Improvement/Renovation Loans and
Home Extension Loans. The HDFC is the pioneer in the home loan industry and having 4.4 Million satisfied
home owners. Faster processing of loan with door step service is available in HDFC banking services.

5. Car Loans

There are quick, competitive and transparent car loans offered from HDFC Bank. HDFC Bank offers great car
loan deals with up to 100 percentage finance. Whether it is a new car, a pre-owner car or even a loan against a
car, the bank offers car loan at attractive interest rates and flexible repayment tenures. Fast approvals,
personalized service and utmost transparency make HDFC the leader in car loans in India.

6. Two Wheeler Loans

 Two Wheeler Loan

The HDFC bank offers two wheeler loans for 2percentage lower rate and 50 percentage lower Processing Fees
for A/c holders and there is a savings upto Rs 2375/- . Loan approval is given within 4 hours by the bank.

 Super Bike Loan

The banks also offers another two-wheeler loan Super Bike Loan to its account holders on all brands and enjoy
0.5 percentages lower interest rate with 0.25 percentage discount on processing fee.

7. Gold Loan

The important feature of this loan is that, it is very safe to the customer and it gives unique triple layered
security for their gold. Spot sanction and disbursal is available and it is very easy to get this loan.
 8. Loans against assets

The HDFC bank offers loan against its assets. The important loan against assets products are:

 Loan against securities

 Loan Against property

9. Educational Loan

The HDFC bank allows educational loan to the customers for their educational development. The educational
loan products are:

 Education Loan for Indian Education

Through this educational loan the customers can pursue their dream education in India and abroad. The
Education Loan is given uptoRs.10 lakh and unsecured lending upto Rs. 7.5 lakh. No collateral will be required
for loans upto Rs. 7.5 lakh. The maximum repayment tenure is upto 15 years post moratorium period

 Central Government Interest Subsidy Scheme

The eligibility of this scheme is that the annual gross income from all sources including parental income should
be at an upper limit of Rs 4.5 lakh. This interest subsidy scheme has been established by the Department of
Education, Ministry of Human Resource Development, and Government of India.

10. Rural Loans

These loans are issued for the development of the rural people and their standard of living. The rural loan
products are

 Retail Agri Loans-Kisan Gold Card

Through this loan services Indian farmers can now swipe a Kisan Gold Card to use their loan for meeting
agricultural and production expenses. The customers can avail any time of banking and hassle free credit
options and get an Accident Insurance Cover of Rs. 2 lakh absolutely free with this card. 114

 Tractor loans

The customer can choose HDFC Bank's Tractor Loans to purchase tractor for farming or commercial purposes.
The eligible person gets upto 90 percentages finance on the tractor they want to buy
 HDFC HOME LOAN
HDFC (Housing Development Finance Corporation) bank is one of the leading provider of Housing Finance to
customers nationwide. With a customer base of 4.4 million satisfied customers, HDFC is a pioneer in the home
loan industry with over 35 years of experience in the lending sector. Loans offered by HDFC bank are of
different categories which can be compared and picked, as per the customer’s requirements. HDFC home loan
can be used for various purposes, such as purchase or construction of a house, home renovation or
improvement, home extension, or transfer of an existing home loan from other banks, financial institutions or
NBFCs. The rates of interest on HDFC Housing Loans are competitive and quite attractive with relatively lower
interest rate for female applicants or co-owners. HDFC has reportedly raised the Retail Prime Lending Rate
(RPLR) on which all its adjustable interest rate housing loans are benchmarked by 0.10% or 10 basis points
(bps). The new effective rates will be applicable from 01 October 2018.

HDFC Home Loan Interest Rate 2018

Interest Rate 8.80% onwards
Processing Charges 0.5% of loan amount or Rs 3,000 whichever is higher, plus
applicable taxes
Loan Tenure Up to 30 years
Loan Amount Max amount depends on applicant profile and other
factors.
Cheque Bounce Charges Rs.200 per instance
Cheque / Instrument Swap Rs.200 per instance
Charges
Prepayment or Foreclosure Nil
Charges

HDFC Bank Home Loan Interest Rates for Salaried & Self-Employed

Rates for Salaried Individuals and Self-Employed Professionals

Loan Slabs Interest Rates (For Interest Rates (For Self–
Salaried) Employed)
For Women (Up to Rs 8.80% to 9.30% 8.80% to 9.30%
30 lakhs)
For Others (Up to Rs 30 8.85% to 9.35% 8.85% to 9.35%
lakhs)
For Women (Above Rs 8.95% to 9.45% 8.95% to 9.45%
30 lakhs)
For Others (Above Rs 9.00% to 9.50% 9.00% to 9.50%
30 lakhs)
 TruFixed Home Loans – 2 years Fixed Rate Variant
Loan Slabs Interest Rates (For Salaried) Interest Rates (For Self–
Employed)
For Women (Up to Rs 30 9.30% to 9.80% 9.30% to 9.80%
lakhs)

For Others (Up to Rs 30 lakhs) 9.35% to 9.85% 9.35% to 9.85%

For Women (Above Rs 30 9.45% to 9.95% 9.45% to 9.95%

lakhs)

For Others (Above Rs 30 9.50% to 10.00% 9.50% to 10.00%

lakhs)

HDFC Limited Home Loan Applicable Charges

Description of Charges Fees & Charges

Late Payment Penalty Up to 24% annually

Cheque Swapping Charges Rs. 500

Bounce Cheque Charges Rs. 500

PDC Swapping Charges Rs. 200

Per statement charge for Duplicate Statement NIL

Issue of Amortization Schedule in duplicate NIL

Switch from Variable to Fixed or Vice Versa Not Applicable

List/Photocopy of Documents Rs. 500

Increase/Decrease in Loan Term Up to Rs. 500 + Applicable taxes

With effect from 31st March 2012, as per RBI’s directive foreclosure charges for Floating Rate Home
Loans have been waived and are applicable only for Fixed Rate Home Loans. The applicable Fixed Rate
Home Loans foreclosure charges are mentioned in the table above. If you have any query regarding
home loan you can contact customer care team of HDFC home loan.
Types of HDFC Home Loan
Home Loans from HDFC Bank are offered in various variants to suit the needs and requirements of
its customers. Mentioned below is a wide variety of HDFC Bank Home Loan products offered to the customers:

 HDFC Home Loan

This type of HDFC Bank home loan is issued to individuals who wish to purchase a house or construct a
house. If it is taken for a purchase of the house, it can be both for a newly constructed one or previously
occupied, which is now being bought by the customer. The customer can avail the home loan solely on
his/her name or under the names of two or more people, jointly.

 HDFC Home Improvement Loans

HDFC home improvement loans are sanctioned specifically for home improvement purpose sought by the
applicant. Generally, home owners tend to regularly and constantly refurbish or redecorate their homes or make
improvements in their homes, as per their liking and interest. Refurbishing or improving your home is not a
matter of small proportions, as large investments are needed for the same. Knowing this, HDFC Bank offers the
specially designed Home Improvement Loans, so that their customers can improve homes as per
the requirements without worrying much about the availability of necessary funds.

 HDFC Home Extension Loans

There are chances that the dream home that you have bought long time back has become cramped up and
lacking space with respect to the growing family’s requirements. Moreover, individuals may choose to build an
extra room or an extra feature in their homes. This also calls for necessary funds, as building anything
requires money. The HDFC home extension loan offered by the bank comes in useful in those scenarios where
an extension to an existing home is required. Home Extension is different from Home Improvement as
extension involves increasing the total area of your house.

 HDFC Home Loan for Farmers and Rural Areas

The bank also offers specialized home loans for the farmers and people living in rural areas. These loans are
specifically designed for agriculturists, planters, horticulturists and dairy farmers. HDFC Rural Home loan is
offered for construction of houses on residential plots, purchase of a new house and extension or renovation of
an existing houses. So, individuals living in the rural areas who are involved in farming of any kind can avail
home loan schemes from the bank either for purchasing a home, or for construction of a new home on a
residential area and also for renovation or extension of an existing home.

 HDFC Home Loan for Agriculturists

HDFC Home Loans scheme are offered for farmers so that they are able to buy or construct their homes or
apartments in cities and towns, as per their choice. This specific home loan is granted for the construction of
houses only in the residential areas of villages. The loan eligibility depends on the total agricultural land owned
by the farmer and the types of crops cultivated on the owned land. The farmers are not asked to mortgage their
land for availing the home loan and even the Income Tax Returns are not mandatory to be submitted while
applying for the loan.
  HDFC Rural Housing Finance for Salaried & Self-Employed

This home loan scheme is designed for Government and private sector employees for buying a property in a
rural residential area. Loans are also granted to businessmen, traders, etc. who have been filing the Income Tax
Return for at least last 3 years, for buying properties in rural residential areas. Furthermore, HDFC NRI Home
Loan is also available under this scheme for buying a property in the residential area of a rural sector.

 ADVANTAGES OF HDFC HOME LOAN

Home loan offered by HDFC Bank has various features which are mentioned below:

The home loan offered by the bank includes the normal home loan, loan for purchase of a house from a builder,
loan for purchase of a home which is for resale, loan for purchasing a house from Society and Development
Authorities like MHADA, CIDCO, etc. loan for construction of home by the individual customer, transfer of an
existing home loan from another bank or financial institution, loans for the improvement of home, a top-up loan
facility for existing customers who have been continually servicing a home loan from the bank for some years
and also home loans to NRIs for buying or constructing a property.

 OTHER FEATURES OF HDFC HOUSING LOAN

The HDFC Bank Housing Loan not only varies in terms of its variants, but there are also some important facets
of the loan which are often missed in enumerating the salient features of the loan. The documents pertaining to
the property which the borrower submits with the bank are maintained by the bank with utmost care and
security. Such features too deserve a mention and written underneath are some of these points:

 If the individual wants to avoid the unnecessary hassle of paying the installments through post-dated
cheques, automated repayment options are also available which can be done either through ECS or
Standing Instructions facility.
 Though the bank allows for the grant of the loan up to the maximum amount, every application is
scrutinized by the bank by assessing the applicant’s creditworthiness, repayment capacity, income,
existing loans, etc. and then the amount which is allowed as loan is determined.
 The loan can be fixed as partly fixed and partly floating rather than choosing the completely fixed and
completely floating rate.
 The loan is disbursed in tranches and interest is payable on the portion of the loan disbursed before the
total loan is disbursed and EMI payments start. This portion of interest paid is called pre-EMI interest
and it is payable every month following the date when the loan portion is disbursed and till the date the
actual repayment of the EMI starts.
 Though HDFC home loans are offered at fixed rates of interest, there are two types of fixed interest rates
option. One is the rate which is fixed throughout the tenure of the loan and the other is the one which is
open for review by the bank.
HDFC Bank Home Loan Eligibility Checklist

An applicant who is desirous of availing a HDFC Home Loan form the bank first needs to be eligible for the
loan as per the bank’s requirements. Checking the home loan eligibility has been simplified where the
prospective client can simply log on to our website and check his eligibility under the Home Loan application
tab. If he/she decides to apply for the loan, the same can be done online too.

The following are the required documents for HDFC home loans under the scheme:

HDFC Home Loan Eligibility

Agriculturists Salaried Customers Businessmen – Professionals

Application Form with Application Form Application Form with photograph

photograph with photograph

Identity Proof and Residence Identity Proof and Identity Proof and Residence Proof
Proof Residence Proof

Bank Statements of the last 6 Bank Statements of the Bank Statements of the last 6
months last 6 months months

Cheque for Processing Fee Cheque for Processing Fee Cheque for Processing Fee

Copies of Title Documents of Latest Salary Slip Education Qualifications Certificate

Agricultural Land depicting Land and Proof of Business
Holding

Copies of Title Documents of Form 16 Business Profile, Income Tax

Agricultural Land depicting Return of the last 3 years of self
crops being cultivated and also of the business

Statement of the last 2 years Last 3 years’ Profit and Loss

giving the details of the loans Statement and Balance Sheet
availed
REASONS TO CHOOSE HDFC HOME LOAN

 HDFC is considered one of the leading providers of home loans in the Housing Finance sector with over
30 years of experience in the said sector.

 The people engaged in the sanctioning of the loan process generally are largely experienced which
enables them to offer great service, and making the processing of the loan smooth and hassle free for the
customer.

 This loan involves no hidden charges and all the charges applicable are clearly mentioned upfront to
anyone seeking a loan.

 These loans from HDFC bank are pre-approved, means that the loans are sanctioned even before the
property selection by the applicant.

 HDFC bank offers its home loan to build a house without any bars on the geographical region anywhere
in the country.

 The bank offers flexible repayment options to all its customers which guarantee peace of mind to them
till repayment terms are concerned.

 The bank provides the facility of HDFC home loan transfer. Also, it ensures safe and secure storage of
the required documents without the risk of getting damaged, soiled or stolen thus proving to be helpful
for the customer’s peace of mind.
Berstain David (2009) examined in his study taken from 2001 to 2008 that in this period there is increased use
of home loans as compared to private mortgage insurance (PMI).he have divided his study into four
sections. Section 1 describes why people are going more for home loans than PMI. the main reason for this that
now home loans market provide Piggybank loans for those people who don’t have 20% of down payment.
Section2 tells the factors responsible for the growth of home loans and the risks on shifting toward home equity
market without any PMI coverage. PMI can protect lenders from most losses up to 80% of LTV and the absence
of PMI will result in considerable losses in an environment. Section 3 tells the measures in changes of type of
loans. For this he have taken the data from the 2001 and 2007 AHS a joint project by HUD and Census The
results of this analysis presented in Table One reveal a sharp increase in the Prevalence of owner-occupied
properties with multiple mortgages among properties with Newly originated
firstmortgages. Section 4 describe the Financial status of single-lien and multiple-lienhouseholds and for this he
have taken the survey of consumer finance and show that financial position is more weaker in multiple loans
than the single loans.

Vandell, Kerry D (2008) analysis the sharp rises and then suddenly drop down home prices from the period
1998- 2008. changes in prices are for the reasons as such economic fundamentals , the problem was not
subprime lending per se, but the Fed‘s dramatic reductions, then increases in interest rates during the early-
mid-2000 , the housing ―boom was concentrated in those markets with significant supply-side restrictions,
which tend to be more price-volatile; he problem was not in the excess supply of credit in aggregate, or the
increase in sub prime per se, but rather in the increased or reduced presence of certain other mortgage products.

La courr, Micheal (2007) analysis in his study the factors affected the increase in the level of Annual
percentages rates (APR) spread reporting during 2005 over 2004. the three
mainfactors are changes in lender business practices; (2) changes in the risk profile of borrowers; and (3)
changes in the yield curve environment. The result show that after controlling for the mix of loan types, credit
risk factors, and the yield curve, there was no statistically significant increase in reportable volume for loans
originated directly blenders during 2005, though indirect, wholesale originations did significantly increase.
Finally, given a model of the factors affecting results for 2004-2005, we predict that 2006results will continue
to show an increase in the percentage of loans that are higher priced when final numbers are released in
September 2007.

La cour Micheal (2006) examined the home purchase mortgage product preferences of LMI households.
Objectives of his study to analysis the factors that determined factors their choice of mortgage product , is
different income groups have some specified need tome particular product. The role pricing and product
substitution play in this segment of the market and do results vary when loans are originated through mortgage
brokers? For this they have use the regression analysis and the results are high interest risk reduce loan value.
Self-employed borrower chooses reduce documented loans than salaried workers.useof this product type seems
to be more prevalent among borrowers with substantial funds for down payment and better credit scores. In case
of pricing Multi families requires price premium and larger loans carry lower rate. And the role of time,
particularly, the time required for the loan to proceed from application to closing it is find that
governmentRukmini Devi Institute of Advanced Studies.

Lending taking the longest time and Nonprime loans the shortest time.Multi family properties take longer time
in closing. And during peak season take longer time to close. And for last objective it is find that broker
originated loans close faster. The effect of mortgage brokers on pricing and other market outcomes is fertile
ground for additional research.
Dr. Rangarajan C. (2001) said that the financial system of India built a vast network of financial institutions
and markets over times and the sector is dominated by banking sector which accounts for about two-third of the
assets of organized financial sector.

Haavio, Kauppi (2000) stated that countries where a large proportion of the population lives in owner –
occupied housing are experiencing higher unemployment rates. Than countries where the majority of people
live in private rental housing, which might suggest that rental housing enhances labor mobility. In this paper,
they develop a simple inter temporal two region model that allow us to compare owner occupied housing
markets to rental markets and to analyze how these alternative arrangements allocate people in space and time.
announced that it will offer loans for Rs. 2-10 lakh at 12.5 percent the lowest rate offered by any housing
finance provider, big brother SBI has taken the rate war in the home loans category to new heights. This is
because, apart from the low rate, the interest on these loans is calculated on principal, which is reduced every
month unlike other housing finance companies which calculate interest on annually reducing basis.

Narasimham Committee (1991) points out that although the banking system in
our country has made rapid progress during the last two decades, there is decline in productivity and efficiency
and erosion of profitability. The committee strongly makeindications of liberlising, deregulating economy to ma
ke Indian baking system more competitive and efficient.

Ojha (1987) in his paper "modern international caparison of productivity and Profitability of public sector
banks of India" making Comparison on the basis of per employee indicators and taking examples of state bank
group and Punjab National bank noted that Indian banks are the lowest in all accounts. However
such international comparison will not be fair for numbers of reasons.

Godse (1983) in his essay, “looking a fresh at banking productivity” observe that productivity aspect is only
at the Conceptualization stage in banking industry. He suggested improvement in productivity and procedures,
costing of operations and capital expenditure etc.

Fanning (1982), while examining bank productivity of British banks observed thatalthough the productivity of
the UK clearing banks is improving, they are still heavily over manned as compared with similar banks
elsewhere.

Kulkarni (1979) in his study “Development responsibility and profitability of banks “stated that while
considering banks costs and profits, social benefits arising out of it cannot
Rukmini Devi Institute of Advanced Studies