Indian Home Mortgage Overview

Indian Economy is growing at a nice pace (8% p.a) which is also driving per capita
income rise. The demand of real estate has reached at a new peak according to ninth five
year plan there is a shortage of 42million houses .But in India the figures to GDP are
smaller in comparison to the other countries
Contribution of housing to GDP is close to 8%. Sources: NHB

Indian Market for Home loans is more than Rs.500,000 crore

Today, not only the metros are witnessing the housing crunch even the second tier cities
like- Jaipur, Bhubneshwar, Lucknow, Trivendrum etc. are falling into the dearth of living
space and wanting for more expansion.

India Report:
Indian credit report in comparison to the other Asian countries is shown in the statistics
below, which is among the lowest. It is Indian psyche that credit is termed bad, Indian are
traditionally not inclined to take credit this reflects in the figures below

sources:RBI
Indian Mortgage Industry
Indian Home Mortgage industry is growing at a fast pace 30% per annum, this can be
seen in the stats shown below with average ticket size(loan size) and Amount disbursed is
rising every year the opportunities have become more dominant for different organization
in India . The demand drivers are fast growing middle class population, rise in working
women workforce, bigger aspirations of youth, Tax saving, Transparency in the real
estate market .

sources: ICICI bank

Still in comparison to other nations India has a long way to go, The figures shown below
shows that even the GDP/mortgage ratio is low which indicates that credit is not well
sought as figure below shows the average percentage of mortgage to GDP
.
 sources: ICICI bank

Comparison with other nations India fall behind in terms of Mortgage Penetration which
directly demonstrates the potential in Indian market for Housing mortgage finance
companies

Sources: RBI
Real Estate is currently sought of as a great means of Investment, the prices of residents
have shot up very high which is clearly shown in the figure below , the major cities have
witnesses lot of development and price appreciation which demonstrates the growing
demand . more and more people are migrating to cities for work / business . More and
more jobs are created and price index rise becomes inevitable.

Price Index:

Sources:DB research
the above figure shows the rise in prices of space per sq feet in different major cities
 Segmentation

Housing shortage in India

Sources:ICICI bank

The above figure shows the ever-increasing demand for houses in India and also
mentioned here is the Rural and urban requirement. Banks are driving new strategies to
tap both the markets in a different way – Rural/Urban.
There are categories with Indian loan demand, which is shown in this figure

Sources:ICICI bank
The loan size vary accordingly
1) Mass – loan amlount upto $22,000
2) Middle-Loan amount ($22,000-$60,000)
3) Rich- Loan amount ($60,000-166,000)
4) Luxury- Loan amount(over $166,000)

Mortgage Sector structure

 The mortgage sector is fragmented with an unorganized part playing a big role ,
especially to the lower strata
There is regulatory body called National housing bank which controls the housing sector
in India the basic structure is given below in the diagram

Households, Corporations, Trusts, Provident Funds

Government Reserve Bank External

of India of India Sources

Scheduled
Banks
State LIC/
Governments GIC

NHB

State Apex CHFS

Housing &
Urban Devpt. Housing Finance
Corporation Public, Pvt. Agencies/ Companies
SHGs/MFIs
Primary CHFS

Households & Corporations

LIC : Life Insurance Corporation of India GIC : General Insurance Corporation of India CHFS : Co-operative Housing
Finance Societies

The green arrows had shown in the above diagram shows the incoming funds from
various resources to NHB which is disbursed and directed to different bodies.

The Red Arrows indicate the disbursement of funds to different bodies ( )

On part of government allocation , there are state housing bodies which finance various
housing projects , along with the LIC / GIC they provide funds to banks for housing
projects in return they charge interests .
A housing Loan Customer goes to retail bodies like (Banks, Scheduled banks, Co-
operative societies, housing Finance Companies etc.) for loans these agencies get
funded from NHB, State government or LIC/GIC who get funded from government ,
state treasury, Government treasury , Market , Asian Development banks, World bank
etc.

National housing Board

The National Housing Bank (NHB) was established on 9th July 1988 under an Act of the
Parliament viz. the National Housing Bank Act, 1987 to function as a principal agency to
promote Housing Finance Institutions and to provide financial and other support to such
institutions. The Act, inter alia, empowers NHB to:

• Issue directions to housing finance institutions to ensure their growth on sound

lines
• Make loans and advances and render any other form of financial assistance to
scheduled banks and housing finance institutions or to any authority established
by or under any Central, State or Provincial Act and engaged in slum
improvement and
• Formulate schemes for the purpose of mobilisation of resources and extension of
credit for housing

It regulates and supervisies housing finance in India and it’s a fully RBUI owned body
It also provides finance to Projects, Refinance operations, Provision of guarantees and
securitisation .

Its main objectives are as follows :

• To promote a sound, healthy, viable and cost effective housing finance system to
cater to all segments of the population and to integrate the housing finance system
with the overall financial system
• To promote a network of dedicated housing finance institutions to adequately
serve various regions and different income groups
• To augment resources for the sector and channelise them for housing
• To make housing credit more affordable.
• To regulate the activities of housing finance companies based on regulatory and
supervisory authority derived under the Act.
• To encourage augmentation of supply of buildable land and also building
materials for housing and to upgrade the housing stock in the country.
• To encourage public agencies to emerge as facilitators and suppliers of serviced
land, for housing
 • To promote a network of dedicated housing finance institutions to adequately
serve various regions and different income groups.

IT raises revenues through bonds and RBI funding , central government has allowed it to
raise bonds and debentures

How do they raise funds?

NHB raises resources for the housing sector towards increasing new housing stock and
provides refinance to a large set of retail lending institutions. These include scheduled
commercial banks, scheduled state cooperative banks, scheduled urban cooperative
banks, specialised housing finance institutions, apex co-operative housing finance
societies and agriculture and rural development banks. Refinance is provided by NHB
under various schemes, which are formulated taking into account, several aspects of the
National Housing Policy, the constraints facing the sector etc. NHB has also a window
for direct lending to Public Agencies such as, State Level Housing Boards and Area
Development Authorities for large scale integrated housing projects and slum
redevelopment projects.

NHB is also operating a special window for extending financial assistance to the people
affected by natural calamities viz. eaerthquake, cyclone etc.

Mr. S. Sridhar is Chairman and MD of National Housing Bank

Indian Mortgage Market

The major lenders in India are

1) ICICI Bank
 2) HDFC
3) SBI
4) LIC housing finance Ltd.
5) GIC housing finance
6) BOB Housing finance Ltd.
7) CanFin home Ltd.
8) Allahabad Bank
9) PNB housing ltd.
10) ABN Amro
11) Citibank

Apart from these there are various agencies who give loans for home e.g. AB home
finance, Birla home Finance., Mercantile housing finance ltd etc.

ICICI is leading the Home mortgage loan Industry with HDFC following it , SBI /LIC
come after that
foreign banks have started operating in India like ABN Amro, CitiBank , GE money etc.
all have set up special units for catering to the Home loan market

It is estimated that more than 35 % of market share is taken by ICICI bank and HDFC
combine in home mortgage loans category .

Mortgage Banking solutions

Banks in India are adopting technology really fast to be abreast with the demands.
The market of Banking solutions is growing at a rapid pace in India with the Increase in
adoption of technology there are many players in the market today .
A new landscape pf banking solutions has- Core banking software, mortgage banking
software, Transaction based softwares, Asset/treasury management softwares
Mortgage softwares like-Loan Origination softwares , Loan servicing softwares, Loan
collection softwares etc.
Mortgage banking sofwares are Installed in many banks currently – HDFC, ICICI , SBI
all have there IT system of LOS placed whereas International banks like Citibank, HSBC,
ABN Amro are using there systems already in use in other countries such as USA, UK
etc.

The evolution of IT services outsourcing in the Indian banks has presently moved on to
the level of Facilities Management (FM). Banks now looking at business process
management (BPM) to increase returns on investment, improve customer relationship
management (CRM) and employee productivity
A recent study by Nasscom- Mckinsey states that BFSI segment will be the biggest driver
for software Industry. Gartner report states that banking software will grow at 13.5 % by
2005

There are many Indian organization in the Mortgage Lending solution space is vertical-
I flex, Polaris, Infosys, Wipro, TCS, Nucleus, Indus Software(R systems), IGATE,
3iInfotech etc. apart from mortgage lending the organizations are ther who are into
different softwares making such as – transaction business management service- suntec
( trivendrum) and cheque processing softwares- JD ( Chennai).

Nucleus software is among those organization who provide mortgage solutions (LOS) to
many banks such as – HDFC, ICICI CITIBANK, HSBC etc in India
Its suite called FinnOne has a distinction of being a leading and universal banking
solution . The solution was also ranked top 10 backoffice banking solution as per report
of IBS

• Standard charted uses Indus Softwares loan origination system

• Syndicate bank/Union Bank are biggest customer of I FLEX

• UTI bank uses INFOSYS banking softwares

• ABN Amro uses “Input Accel” from Captiva ( EMC)/ Fiserv lending solutions for
LOS in USA

The mortgage process requires document scanning, Processing, capturing the exceptions
these scanned document are easily processed, stored, transferred and interpreted.
The paper cheques are practiced a lot but the manual remittance process is slow and takes
time .
Outgoing payment is done electronically but the incoming is Cheque based henceforth
the adoption to an integrated solution for mortgage is slow .
 Bank Mortgage Software Software used Banking Software
ICICI bank Finnone(Nucleus ) Polaris
HDFC Finnone(Nucleus )
Bank of Baroda Flexcube (I Flex)
PNB Finacle(Infosys )
Abn Amro UniFi pro( Fiserv)
Deutsche Bank Emagine (GFT technologies)
CITI bank Equinox solutions (IFLEX)
SBI Banc(TCS)
Standard Charted
Loan Origination (Indus Softwares)

Category of softwares used in Indian banking systems :

The IT Packages and services available in India can be broadly classified into the
following 6 types:

(I) Stand-alone branch-level packages- These are usually written in FoxPro, C or

Dbase and handle specific functions at branches; these are sometimes networked
on a LAN to simulate a TBA environment. But there are also high-end packages
with a central Server (which can be a Pentium PC or NT or a MINI or even a Main
Frame, supported by multiple (dumb or intelligent) terminals. Some of them use
sophisticated RDBMS like ORACLE as back-end and provide user-friendly front-
end with Windows GUI.

(ii) Multi-branch solutions - These are used to network a cluster of branches in a

city (or spread over several cities); the account maintenance can be central (where
facilities like Anywhere Banking are required) or can be distributed, networking
being achieved through Wide Area Network (WAN) on terrestrial lines / high
speed lines/ satellite networks - and now even wireless.

(iii) Foreign Packages - Examples are Bank Master, Kappiti, Sanchez etc. These
need to be extensively customised to suit Indian requirements - but their strength
lie in their proven capabilities in developing and offering modern / global banking
products / services that India is just ushering in.
(iv) Packages for specialized niche areas -Like Asset Liability Management
(ALM), Treasury Management, Trading / Dealing Room activities, Custodial
Services/ Depository Participant etc. These are high-end packages with
sophisticated analytical and decision tools.

(v) Service Branch / high-volume transaction processing packages - These

include, clearing, drafts issue/ payments / reconciliation (Remittances), Bills
(payments/ collection/ purchases), Dividend Warrant Processing, inter-branch
reconciliation etc. These are often developed and implemented by service
providers to whom the work is outsourced.

(vi) IT Services - These are not Packages in the sense, these are developed to
handle specific problems like disaster recovery, virus protection, security handling,
linking / networking multiple legacy systems between themselves or to new
platforms or to new delivery channels like ATMs, etc.

About India’s leader

ICICI bank
The largest private sector bank in India , it also provides largest consumer credit .The
bank is having over 15million retail customers accounts and it has asset base of over $45
billion
The bank at present has a market share of about 27 per cent of the total market of home
loan
The bank offers different products and type of loans for mortgage . It gives following
services:

• Adjustable Rate Home Loan

• Fixed Rate Home Loan
• Part fixed
• Part Floating Rate Home Loan
• Smartfix Home Loan
• MaxMoney Home Loan and also a Balance Transfer of your existing home loan
from other banks

It charges 9% Interest for floating home loan it features

ICICI bank has 35% growth plan and is the biggest lender in India for consumer credit
It has a base of Rs.250000 crore

Annexure
How to obtain Home Mortgage ?

Home mortgage is obtained after the selection of land/ house/space and certification
obtainment of Infrastructure plans by a government body. Certifying the ownership of
seller (incase it’s a second hand property), legal documents and planning the fund pool

The features of home mortgage

• Maximum loan
85% of the cost of the property (including the cost of the land) and based on the
repayment capacity of the customer.

• Maximum Term
20 years subject to your retirement age.

• Applicant and Co- Applicant to the loan

Home Loans can be applied for either individually or jointly. Proposed owners of
the property, will have to be co-applicants. However, the co-applicants need not
be coowners.

• Adjustable Rate Home Loan

Loan under Adjustable Rate is linked to Retail Prime Lending Rate (RPLR). The
rate on your loan will be revised every three months from the date of first
disbursement, if there is a change in RPLR, the interest rate on your loan may
change. However, the EMI on the home loan disbursed will not change*. If the
interest rate increases, the interest component in an EMI will increase and the
principal component will reduce resulting in an extension of term of the loan, and
vice versa when the interest rate decreases.

• Fixed Rate
Types of loan offered :

• Home Purchase Loans

• Existing Home Improvement Loans
• Home Construction Loans
• Home Extension Loans
• Home Conversion Loans
• Land Purchase Loans
• Bridge Loans
• Balance Transfer Loans
• Refinance Loans
• Stamp Duty Loans
• Loans to NRIs

It takes around fifteen days for processing of one's application if the documentd are in
order.

Purpose:

• Purchase of
o Flat, row house, bungalow from developers
o Existing freehold properties
o Properties in an existing or proposed co-operative housing society or
apartment
owner's association
o First Power of Attorney purchases in Delhi for DDA flats allotted before
1992.

• Self Construction

Fees:

1% of the loan amount applied plus applicable service taxes and cess.

No Charges for
 • Part or Full Prepayment of loan under Adjustable Rate (except in case of
prepayment through a refinance from other bank or institutions prepayment
charges will be applicable)
• Fixed Rate - Part prepayment upto 25% of opening loan outstanding in a financial
year
• Replacement of cheques
• Income Tax Certificates
• Accelerated Repayment Option

Other facilities provided are :

• Flexible Loan installments Plan

The categories for giving loan are:

Salaried
Self Employed Professionals Self Employed Businessman
Customers
Application form Application form with
Application form with photograph
with photograph photograph
Identity and
Identity and Residence Proof Identity and Residence Proof
Residence Proof
Education Qualifications Education Qualifications
Latest Salary-slip Certificate and Proof of business Certificate and Proof of business
existence existence
Last 3 years Income Tax returns
Form 16 Business profile
(self and business)
Last 3 years Income Tax returns
Last 6 months bank Last 3 years Profit /Loss and (self and business)
statements Balance Sheet Last 3 years Profit /Loss and
Balance Sheet
Last 6 months bank statements
Processing fee Last 6 months bank statements
(self and business)
cheque
Processing fee cheque Processing fee cheque
According to the requirement the loan amount generally in India is limited to 5 times of
annual pay package on average