A

DISSERTATION ON
“A STUDY OF HOME LOAN INDUSTRY GROWTH IN INDIA”

At

Submitted to
Savitribai Phule Pune University
In partial fulfillment of
Master of Business Administration
MBA

Submited By
(VAISHALI PRALHADRAO KAPURE)

Roll No: 148

Under the Guidance of
(DR. SWAPNIL FUSE)

All India Shri Shivaji Memorial Society’s

Institute of Management

Pune

2018-2019
 Declaration

I, Mr. Vaishali Pralhadrao Kapure studying in the 2nd year

student of Masters of Business Administration course in the
academic year 2017-2019 at Department Of Management
Sciences, Savitribai Phule Pune University, hereby declare that
I have completed the Dissertation on “A Study of home loan
industry growth in India” as a part of the course requirements
of Masters Business Administration course of Savitribai Phule
Pune University.
I further declare that the information presented in this project
is true & original to best of my knowledge

Place: Pune
Date:18th March 2019
 ACKNOWLEDGEMENT
It gives me immense pleasure to convey my heartfelt
appreciation to the institution. I sincerely thank All India Shri
Shivaji Memorial Society’s Institute of Management, Pune for
providing me with adequate knowledge and ideas to take on
this interesting task.
I express my gratitude towards my project guide DR
.Swapnil fuse Sir for her consistent support and time guidance
towards the completion of this dissertation . I would sincerely
thank Dr. Abhijeet Mancharkar (Director) of, All India Shri
Shivaji Memorial Society’s Institute of Management, Pune, for
his valuable support.
Finally, I would have not been able to finish my report
without the support of my Guide as well as my friend’s co-
operation and efforts. I thank them all from the
core of my heart.
 Table Of Content

Chapter
Content Page No.
No
1. Executive Summary 1
2. Introduction
3. Literature Review
4. Data analysis and Interpretation
5. Finding
6. Recommendation
7. Conclusion
8. Appendix
Chapter NO 1

Exclusive Summary
These Dissertation is done on “A Study of Home Loan Industry
Growth in India” .
Dissertation is an ideal way to Study and gain knowledge about an
Home Loan industry In India and Study the challenges in front of
home loan sector in India from last one Decades. Acquiring the
same however would not be possible without proper guidance.
Therefore, I would like to take this opportunity to acknowledge a
debt of deep gratitude to many people for their valuable assistance
and continuous support during the course of my summer internship
program.
I would like to put forth my earnest thanks to my internal project
guide Dr Swapnil Fuse Sir for his valuable advice and guidance
throughout this project.
Chapter NO .2
Introduction
1.1. Introduction of Housing Finance
Industry in India:

Banking in India is very old. Nationalised banks are in existence

since 1969. However, Home Loans are a comparatively new
product. In the 1970s, there was no concept of Home Loans in India.

Shelter is a basic human need. Securing ownership of a house can raise the
welfare of the household that lives in it and it enhances productivity, efficiency and
creativity. But housing development has been slow. Because housing is a large
investment, it requires long-term finance. Other factors hindering housing
development are inflation, interest rate controls, instability of financial markets and
the inadequate legal system. Housing in India has been one of the important economic
activities which serve to fulfill many of the plan objectives: providing shelter to the
needy, raising an environment conduct for better health and sanitation, creating
additional employment and achieving urban, rural and interpersonal equity in terms of
standard of living. Further, housing could lead to the generation of additional savings
at all levels. Shelter, like food and clothing, is one of the most important inputs which
have a profound impact on the socio-economic and physio-psychological
development of human beings. Housing is important service development in both
economic and welfare terms. It is not only consumption good but also a productive
investment
In the past, the mentality of the people was to save and purchase.
People used to dip into their Provident Fund savings and retirement
benefits to raise money for constructing houses. HDFC started the
trend of Home Loans in 1978. Banks were reluctant to finance Home
Loans because there was no recovery mechanism in place. The only
recourse available to banks was to file a civil suit in the court of law.
The litigation expenses were higher than the actual loan amount.

It can surprise you that the Home Loan interest rates were around 11-14% up to 1994.The average
age of the Home Loan borrower was about 42 years with the average amount of loan being 39,000
(Source HDFC).

With the opening of the economy in 1991, banks started to enter the Home Loan market. ICICI Ltd
(later on merged with ICICI Bank) ventured into the Home Loan market in 1999. The year 2000
saw the introduction of the floating rate concept by ICICI Bank. The rates started plummeting from
around 2003-04 when floating rates for Home Loans were in the range of 7% to 7.25%. The fixed
rates were around 7.5-8%.

State Bank of India entered the market in a big way and introduced the teaser rate concept. They
could afford to do so because of the high proportion of CASA (Current Account Savings Account)
deposits. Other banks did not have this advantage. They resorted to measures like maintaining high
Loan to Value (LTV) ratios to attract customers.

During the early days of Home Loans, the LTV ratio used to be less than 50%. The increase in the
competition saw the LTV ratios go up to even 120%. Subsequently, the Reserve Bank of India
(RBI) capped it at 80%. Banks have the freedom to go up to 90% in case the loan is for less than 30
Lakhs

With the opening of the economy, the RBI gave banks the freedom
to fix their rates of interest on Home Loans depending on the cost of
funds. It blew out into an interest rate war with banks competing
against each other to offer the best rates to the customers. There
was a spate of Home Loan offers from banks trying to entice
customers.

Even today, the floating rate regime is prevalent in the industry. Some banks offer fixed rates but
only for a specific period, after which they convert to the floating rate concept
OBJECTIVES OF STUDY

Pradhan Mantri Awas Yojana :

1.4.1 Pradhan Mantri Awas Yojana (PMAY) - Credit Linked Subsidy

Scheme (CLSS)

The "Credit Linked Subsidy Scheme” (CLSS) under Pradhan Mantri Awas
Yojana (PMAY) was announced by our Honourable Prime Minister Shri
Narendra Modi. The scheme envisages the vision of housing for all by the
year 2022. ICICI Bank offers "Credit Linked Subsidy Scheme" under
Pradhan Mantri Awas Yojana

Under this scheme, interest subsidy on purchase/ construction/ extension/

improvement of house is provided to customers belonging to Economical
Weaker Section (EWS)/Lower Income Group (LIG)/Middle Income Group
(MIG)
The growing affordability for the first time home buyer supported by government’s incentives such
as the Pradhan Mantri Awas Yojana (PMAY), is expected to push housing credit growth to 17
percent to 19 percent in the financial year 2019, says ICRA in its latest research update on Housing
Finance Companies.
 Scheme
EWS/LIG MIG – I MIG – II
Type

Eligibility EWS – Rs. 0 to

Family Rs. 3, 00,000 Rs. 6,00,001 to Rs.12,00,001 to
Income LIG – Rs. 3,00,001 to Rs.12,00,000 Rs.18,00,000
(Rs.) Rs. 6,00,000

Carpet
Area-Max 30 sqm** / 60 sqm** 160 200
(sq. m.)

Subsidy
calculated
Rs. 6,00,000 Rs. 9,00,000 Rs. 12,00,000
on a max
loan of

Interest
Subsidy 6.50 4.00 3.00
(%)

Max
Subsidy 2.67 Lakh 2.35 Lakh 2.30 Lakh
(Rs.)

Validity of
31 March 2022 31 March 2019 31 March 2019
scheme

Woman
Mandatory* Non Mandatory Non Mandatory
Ownership

2.Real Estate Regulation And

Development Act
The real estate (regulation and development) Act, 2016
(RERA) has been implemented across all the states from 1
May 2017. Many of the states have established a
Regulatory Authority, except West Bengal.
Builders tried to get for Occupancy Certificates to duck the
new Real Estate law in early 2017. A plausible reason
could be that they may not project to fall under the purview
of RERA.
Setting up a robust IT Infrastructure for RERA along with
effective monitoring structure and quick redressal of
RERA has two major goals:-
complaints in case of violation is necessary for the success
(1) Bringing
of the in transparency
legislation. Regulationsinhave
the marketed projects
given it the status in
ofall
an
aspects
Industry:-governed
Title, Plans, Approvals,
by RERA Unit regulations
and state plans, Amenities
areas in standard measures.
Carpet Area:- definition of carpet area and prices to be
quoted of Carpet area not Super area.
Earlier the area of a property was often calculated in
three different ways :-
(a) carpet area,
(b) built-up area and
(c)super built-up area.
Hence, when it comes to buying a property, this can lead to
a lot of disconnect, between what you pay and what you
actually get. Not surprisingly, the maximum number of
cases registered in the consumer courts, are against
developers on the issue of cheating, vis-à-vis the size of the
flat. According to the provisions of the Real Estate
(Regulation and Development) Act, 2016 (RERA), it is now
the duty of the developer, to make buyers aware of the
carpet area and quote prices based on this and not the super
built-up area.
(2) Mortgage Details:- In a publicly available digital
platform/website of RERA and also in company website.
Products of HDFC:
1.1. Home Loan:

Customer wants to buy a house or construct a house

Applicable: Both (Resident Indian) RI and (Non-resident Indians) NRI

Primary (Buying from builder)

Secondary (Resale)

Refinance (Balance Transfer)

1.2 Home Improvement Loan:

Customer wants to upgrade/modify the existing amenities in the house and

thereby increase the life of the asset

Home Improvement Loan for repairs and renovations like painting,

flooring, water proofing, tiling, etc.
 Applicable: Both RI and NRI

1.3 Home Extension Loan:

1. Need:
Due to increase in the size of family, customer wants additional
space/area in the same property
2. Solution: Home Extension Loan for constructing additional area
 vertically or horizontally on the existing house
3. Applicable: Both RI and NRI

4. End Use:
5. Increase in Value of the House
6. Technical:
7. Estimate: Self /Engineer

8. Valuation + Visit

9. Reimbursement

1.4 Plot Loan:

 Risk Perception:

 What can be funded

o DA / Good Developer

o Municipal Limits (LTV)

 Conditions
o Min Size: 100 sq. Mtr

o Max 2 plot loans

o Cant fund SDR

 Norms
o FOIR < 50
 Types:
o Residential /NRP

o NRI /RI
 o First Purchase /Resale/Refinance
 Special Condition
o 2 % increase in ROI if not constructed in 5 yrs.

1.5 Plot + Construction Loan:

 Norms:
o Only for Housing

o Construction to commence in 6 months

Page NO 20

o Max 60% of total loan to be released for plot

o Spread Change

1.6 Top up loan

 Need:
o Customer wants funds for purposes like:
o Sending children abroad for higher studies
o For medical expenses in the family
o Marriage etc.
 Solution:
o Top up loan (only for existing customers) against security of

already funded properly

 Conditions:
o Existing customer – HL/HIL/HEL
o 12 months RTR
o No cheque bounce in last 1 yr.
o End use
o Single disbursement
o Team – 15 year
 Norms:
 oLimit per person: 35lakh
oLimit sanction amount of original loan
oCombined LTV of 70%
oMax 3 live loan
 Top up + Equity
 Property End Use
 Balance Transfer + Top Up

1.7 Home Equity Loan:

 Need:
Customer wants funds for purposes like
o Business purpose
o Sending children abroad for higher studies
o For medical expenses in the family etc.
 Solutions:
o Home equity loan against security of property
 Precaution:
o End User- Increase profitability
o BT + Additional Loan
o Ever greening
o 50% or 60% LTV
o 15 Years
 Negative Profiles
o Stock Brokers/Money Lenders/Chit Fund
 Plot Equity
o LVR 40%
o Location of Plot

1.8 Non Residential Purpose Loans:

 Target Segment:
o Prefessionals However, can extend to other good profiles and
 properties
o Rural NRP product also available
 Terms
o Tenure: 15 Yrs.
o Can fund under construction
o Not for NRI/PIO

1.9 Balance Transfer

 Need:

o Customer needs a Loan facility which enables The transfer of

the unpaid portion of the home loan to another lender

 Solution:

o The balance transfer facility enables the customer to

move the loan to current interest rates

The Housing Finance Company is an additional form of Non-

Banking Financial Company (NBFC) which is involved in the principal

business of financing of acquisition or construction of

houses that comprises the development of plots of lands for
the construction of new houses.

General Problems of Housing Finance Sector in India

Housing finance is relatively a new idea in the finance sector of India. It is developed rapidly during
the last two decades due to the enthusiastic interest of Government of India to cut-short the housing
problem of the country. Some of the general problems of Housing Finance Sector are as under:
 • Government Policies for Housing Finance Sector
In the present circumstance, the Government of India is trying to play the role of facilitator by
offering a number of housing schemes for different sections of the society, but due to poor
administrative control & lack of strong will-power most of the schemes are squeezed only up to the
primary levels & are never attained its ultimate objectives.

• Role Of Housing Finance Regulatory Authority

The word Regulation refers to the specific constraints in the natural growth of a sector & the
Regulatory Body is considered as a group of people who always indulge in search of the ways
which could create checks & balances to hinder the unplanned & improper growth of the related
area.

• Development of Fundamental Infrastructure for Housing &

Technological Innovations
Housing is primarily an urban phenomenon. It needs some basic infrastructural facilities like roads
development, electricity & water supply, proper drainage system etc. to grow. Most of these
facilities depend upon Government efforts & interest. However, the technical inventions in the part
of housing construction also support & promote housing market in the country through the cut
down the cost of construction up to a reasonable level.
Both of these factors affect the housing finance market of the country directly. It is a noble symbol
that the Central & the State Governments of India are concerned enough about housing schemes
frequently. But due to the unstable political environment, like the other areas, most of the housing
schemes are limited up to paperwork or within its primary stage. The elementary infra-structural
amenities for housing development are not available in most of the areas of the country. Thus the
constant efforts are done from the side of Indian Government but these are not enough to give a
boost to the housing industry. The higher income group of society is depending on the private
Company for infra-structural development of residential areas by paying more amounts. What about
the middle or lower income group? They are obligatory to live in non-authorized & non-developed
zones where housing finance facilities are generally not provided by housing finance companies.

• Distribution of National Capital among Population

The distribution of national capital among the population of the country affects the housing finance
sector directly. If the capital of the nation is distributed among the population in a rational manner,
the most of the population of the country will be in a position to dream for their own houses & the
chances of growth of the housing finance sector of the country will remain higher.

• Non-Availability of Funds
Financing in any area depends on the availability of funds for the purpose. Housing finance is a
long-term investment, which requires plenty of funds. One of the main problems of housing finance
sector of India is non-availability of long-term capital for investment. Conventionally, the funds for
the housing sector have originated from the individuals themselves by way of their own savings or
from the financial institutions that are primarily engaged in the intermediation process of
channelizing funds from the savers to the borrowers. But, the funds so organized through the formal
sector financial institutions remain much lower than what is required to tackle the problems of
housing finance in India

• Higher Cost of Acquisition of Land

It needs not to be mentioned that in present time the supply of l& is perfectly inelastic for a country.
The availability of l& in adequate quantity at the right place & at an affordable price by the
individual is more important for housing finance sector. The inelastic supply of suitable l& results
in a spurious increase in the cost of real estate. Besides, the very high stamp duty payable at the
time of purchase of property also causes an increase in the cost of l& significantly. It gets priced out
many potential housing finance customers in owning a house.

• Static Culture of the Society

Among Indian society, housing is a lifetime dream of an individual & a newly employed person
cannot even imagine for his own house due to his social & cultural backgrounds. Although this
attitude of society is changing from last decade due to development of nuclear families tax rebate on
housing loans. Secondly, the debt is considered as an evil in Indian society & the concept of ‘Deficit
Financing’ is not appreciated by the masses. This type of thinking discourages a person to avail the
facility of housing finance & ultimately hurts the housing finance market of country remarkably.
Although this concept is now changing, which is evident from the fact that the average age of
borrower is around 40 years. The joint family culture of Indian society also legs the housing finance
market to some extent.

Common problems faced by home loan borrowers in India

The volatility in interest rates in India has affected
borrowers of all types of loans. However, home loan
borrowers are the most affected, as home loans are by far
the biggest loans quantum-wise. Discrepancy in interest
rates between existing borrowers and new borrowers,
porting of home loan, stringent rules by lenders and clauses
on fixed rate home loans are some of the issues faced by
home loan borrowers in the country.

Let's look at them in ..

One of the most common issues faced by existing home loan borrowers is the discrepancy
in interest rates paid by them vis-à-vis a new borrower. While this is a valid complaint, let's
first see what causes this discrepancy. Interest rates on home loans are usually linked to
the benchmark rate of the bank (be it the Prime Lending Rate - PLR or the more recently
introduced Base Rate, as the case may be). From this benchmark rate, a fixed rate is
either deducted (in the case of a PLR) or marked up ( ..
to arrive at the floating rate on the home loan. Any changes in the benchmark rate will thus
automatically result in a change in the interest rate on the home loan as well.

For example, consider a borrower who has taken a home loan from a Housing Finance
Company (HFC) at terms which state that his interest rate will be 300bps lower than the
prevailing PLR. This was the agreement entered into with the bank at the time of availing
the loan. The PLR at the time of granting the loan was 15% ..
and the interest rate on the home loan thus stands at 12%. Now, if after 2 years, the PLR
is reduced by 50 bps to 14.5%, then the interest on his home loan also automatically falls
to 11.5%. On the other hand, in order to attract customers, a new borrower may be offered
terms with a mark down of 350 bps. As a result, the interest rate he gets on his home loan
will be 11% only. This is the reason for the discrepancy in interest rates.

Borrowers also sometimes face the issue of the inflexibility on the bank's part to adjust the
EMI amount or tenure in case of an interest rate revision. The hassle of reworking EMIs as
well as changing ECS mandates may deter banks from changing the EMI amount.
However, from the customer point of view, it must always be remembered that reducing
the tenure is a better option compared to reducing the EMI amount in case of a downward
interest revision, to save on interest costs.

Scope
The growth of the Home Loan sector

As banks started feeling comfortable giving Home Loans, customers began availing them. Hence,
the average age of the Home Loan borrower began reducing. Today, the average age is around 32
years. Customers have realised that taking a Home Loan to buy a house is better than doing so
with their savings. The Government of India has played the role of the catalyst in the growth of the
Home Loan sector by introducing concessions in income tax for home loan borrowers.

Today, these concessions are one of the principal reasons why people opt for home loans. Banks
have also come up with various new products like Home Loan Balance Transfers, loans for
purchase of plots, loans for home renovation and improvement, and so forth.Today, home loans
constitute a significant portion of the bank’s loan portfolio.

Government incentives to boost the residential real estate sector, especially budget housing, may
push housing credit growth to 17-19 per cent in the current fiscal year, according to a report.

"Growing affordability for the first-time home buyers, supported by government incentives like the
PM's Awas Yojana are expected to result in a rise in primary home purchases, especially in the
affordable housing segment, which will help segmental loan growth to 17-19 per cent,"the Icra
report s ..

Housing credit grew 16 per cent in FY18, taking the mortgage penetration (housing credit as a
percentage of GDP) to double-digit mark of 10 per cent for the first time in FY18, up from 9.5 per
cent in FY17.

Overall housing credit grew 39 per cent in the year to March 2018, which was pushed by new
mortgage players in the affordable housing segment.

"We expect mortgage penetration level to go up by 300 -500 bps over the next five years," the
report said.

However, gross NPAs in the sub-segment deteriorated from 3.3 per cent in FY17 to 4.1 per cent in
FY18, driven by greater portfolio seasoning, entity-specific factors in some cases and external
events such as note-ban and GST rollout, which have impacted cash flows of borrowers.

On the funding side, the report said HFCs would need to tie-up for Rs 4 trillion of incremental
funds to meet the growth plans as well as replacing the maturing liabilities in FY19.

In this section, it is proposed to briefly discuss the studies made in the past
relation to housing and housing finance both at National level and State level. Studies
relating to housing and housing finance were indeed, a subject of great importance
and draw attention both from the government and from the academic community as
well.
The research literature relating to housing finance is very limited, due to
growing literature on industrial and commercial undertakings. The area of housing
finance is of recent emergence and there is acute shortage of written work in this field.
The literature available in this area is mostly by way of contributions in the form of
statements by leading authorities heading various institutions like HUDCO and
National Housing Bank. The shortage of literature in this vital area is evident by the
Central Government thrust in formulating National Housing Bank in 1988.
Bhardwaj6 is one of the studies tried to bring out meaningful conclusion

regarding human settlement problem.

REVIEW OF LITERATURE

In this section, it is proposed to briefly discuss the studies made in the past
relation to housing and housing finance both at National level and State level. Studies
relating to housing and housing finance were indeed, a subject of great importance
and draw attention both from the government and from the academic community as
well.
The research literature relating to housing finance is very limited, due to
growing literature on industrial and commercial undertakings. The area of housing
finance is of recent emergence and there is acute shortage of written work in this field.
The literature available in this area is mostly by way of contributions in the form of
statements by leading authorities heading various institutions like HUDCO and
National Housing Bank. The shortage of literature in this vital area is evident by the
Central Government thrust in formulating National Housing Bank in 1988.
Bhardwaj6 is one of the studies tried to bring out meaningful conclusion
regarding human settlement problem. After analyzing the nature of problems and
renewing the present efforts, he discussed the interaction involved between human
settlements and family well- being.
Rama Rao7, in his study stressed upon the need to strengthen the policy with
regard to house construction materials and building services in Andhra Pradesh.
Khodaji8 has stated that process of urban renewal that includes replanting,
redevelopment, conservation and rehabilitation. In order to solve the urban crisis,
there is an urgent need for Urban Renewal Programmes to be taken up by the
developing countries. He viewed that people’s participation is a perquisite for the
successes of Urban Renewal Programme.
Prabahavathi9 and Sharma, are of the opinion that development programme for
the weaker section housing is not implemented in an effective manner as the innocent
poor, who are really deserving are deprived by the relatively educated, rich and well
50
placed people. These people have access to great deal of social and political systems

both within and outside slums.

Collection of Data:
The researcher depended on the primary and secondary data for the purpose of
carrying out the study. The secondary data was taken from the sources like Census
data from the office of the Registrar General of India, HUDCO reports, NHB reports,
Greater Hyderabad Municipal Corporation (GHMC) and materials from commercial
banks and housing finance companies. Annual Reports of LICHFL & HDFC