A PROJECT ON

ANALYSIS OF PREPAYMENTS

SUBMITTED BY
ELIZA LOBO

SUBMITTED TO XAVIER’S INSTITUTE OF MANAGEMENT AND

RESEARCH

IN PARTIAL FULFILMENT OF MASTERS OF MANAGEMENT

STUDIES OF THE UNIVERSITY OF MUMBAI
[YEAR: 2021-2023]

XAVIER INSTITUTE OF MANAGEMENT AND RESEARCH

5, MAHAPALIKA
MARG, MUMBAI – 400001

1
 DECLARATION

I, Eliza Lobo, student of Xavier’s Institute of Management and Research affiliated to

Mumbai University, hereby declare that this project report titled “Analysis of
Prepayments” carried out under the guidance of “Dr Sameer Lakhani” at Xavier’s
Institute of Management and Research is the record of authentic work carried out by me
during the period 2021-2023.

_______________________ ________________________
Eliza Lobo Dr. Sameer Lakhani

2
 CERTIFICATE OF APPROVAL

The following project titled

Analysis of Prepayments

at

Xavier’s Institute of Management and Research

Is hereby approved as a certified study in the management carried out and presented in
the manner satisfactory to warrant its acceptance as a prerequisite for the award of
Masters of Management Studies (MMS) for which it has been submitted. It is understood
that by the approval, the undersigned do not necessarily endorse or approve any statement
made, opinion or conclusion drawn therein but approve the project report for the purpose
it is submitted.

________________________
Dr. KN Vaidyanathan
Director
XIMR

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 ACKNOWLEDGEMENT

It is an honor and pleasure to express my gratitude to everyone who has inspired,

supported and assisted me in the making of this dissertation.
First and foremost, I would like to convey my gratitude to Dr. Sameer Lakhani, Head of
the Department of Finance at XIMR, for giving me the privilege to carry out this
dissertation in this prestigious institution under his leadership. I wholeheartedly express
my gratitude to him for his valuable contribution, constant support, supervision, guidance
and valuable advice for my work that made him the backbone of this project. It was his
unflinching encouragement and support that helped me through this entire project.
I would also like to express my sincere thanks to the Department of
Marketing/Finance/Human Resources and the Administrative Office for taking the
trouble towards ensuring that I had all the necessary requirements to carry out this
project. My gratitude goes out to all members for their valuable inputs and forever-
willing and prompt technical assistance.
I thank my college for their continuous cooperation and support throughout the project. I
express my deepest gratitude to Dr. Vaidyanathan, Director of Xavier Institute of
Management and Research, and Dr. (Fr.) Conrad Pesso, S.J., Chairman of Xavier
Institute of Management and Research who allowed me to carry out this project at XIMR.
I would also like to thank everyone else who has helped me. I do express my apology that
I cannot mention each one personally.
Last but not the least; I would like to thank my family, for their undying support
towards the completion of my dissertation.

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 EXECUTIVE SUMMARY

As a part of the MBA curriculum, I was doing my Summer Internship Program (SIP) at

Housing Development Corporation Limited (HDFC Ltd). As being new to the practical

and corporate world, every hour spent in the internship was a new learning experience.

The report here is regarding my task performed in the company for 2 months (starting

from 1st May 2022)

I worked with the operations department; I was assigned the project Analysis Of

Prepayments. During this period, I understood the basics of prepayments and how it’s

done, why borrowers make a prepayment, what is process prepayments, the various

documents or forms needed, what they are rules about them, and the charges applicable to

prepayments and the prepayment module and how to make a prepayment in the

prepayment module.

The research presented includes a holistic view of the whole working of the home loan

industry, with special reference to HDFC Ltd. HDFC’s various products catering

different customers’ needs, how a loan is sanctioned, how a customer’s eligibility is

determined, how a property is approved, legal and technical approvals are given, how the

tenures and EMI, and Interest are set according to a borrower’s eligibility and product,

and finally the disbursement process and closure of the loan.

The study also the past and the current scenario of the home loan industry, the analysis of

the working of Banks and NBFCs or HCFs, the affordability of real estate in India, and

how all of these factors are affected by inflation and government policies.

Another stage of the SIP is the competitor’s analysis, the task was to identify the

competitors of HDFC Ltd in both government as well as the private sector. A

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comparative study was done on ICICI Bank, AXIS Bank, State Bank of India, YES Bank,

Bajaj Housing Finance, Kotak Mahindra Bank, Citi Bank, and HSBC posed as potential

customers, which helped to understand major competitors, their strategies, and also the

various facilities offered and the best products offered by them along with the

prepayment facilities offered by them.

This study also presents data about the retention department of HDFC Ltd and the ways a

retention system is triggered, how the customers are approached via call or email, how a

customer issue is solved and what benefits or reductions are given to the customers to

retain them.

As a part of Customer Behavior, a survey was done to study the perception of customers

towards prepayments. This survey was done through questionnaires from a sample size of

40 respondents, proved to be a great aid in knowing the customer’s attributes and

preferences, and accordingly helped to understand prepayments more efficiently.

It also includes analyses of prepayment reports for the last 3 months (March, April, and

May 2022) prepayments data, which analyses the different funds used by borrowers to

prepay, the maximum tenure of a loan, and major competition to HDFC.

Lastly, this study also includes findings, suggestions, and the conclusion given at the end

of the report summarizing the project and its sync with the research problems and the

objectives mentioned in the report.

Overall, it was a great experience to be a part of HDFC Ltd. This internship was a

critically learning curve in my MBA period, my inclination for learning and development

would now continue to grow.

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 TABLE OF CONTENTS

CHAPTER TITLE
PAGE NO
NO

1 INTRODUCTION 1-5
1.1 Home loans 1- 3
1.2 Pros and Cons of Home loans 3-4
1.3 Objectives 5

2 INDUSTRY ANALYSIS 6–
29
2.1 The Evolution of home loans in India 6-7
2.2 Current scenario of home loans in India 7
2.3 Growth of home loans over the year 8-9
2.4 Segment breakup of Loan Taken 9
2.5 Real estate market in India 9 - 12
2.6 Interest Rate 12 -
14
2.7 EMI 14 -
15
2.8 Lending Norms 15 -
17
2.9 Loan Amortization 17 -
18
2.10 Tax benefits on home loans 18 -
19

7
 2.11 Loan portfolio growth 20 -
21
2.12 Key Players in the home loan industry 21 -
23
2.13 Rules and Regulations about Home loans 23 -
25
2.14 Emerging Trends 25 -
27
2.15 SWOT Analysis 27 -
29
2.16 Conclusion 29

3 COMPANY PROFILE 30 - 46
3.1 About HDFC Ltd 30 -
33
3.2 HDFC Groups 33 -
35
3.3 HDFC products 36 -
38
3.4 Rate of Interest 39
3.5 Stages of Home Loans 40
3.6 Distribution Channels 40
3.7 Sourcing of loans 41
3.8 Lending Operations 41
3.9 Repayment Facilities 41 -
42

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 3.10 Value Chain 43
3.11 Financial Highlights 44
3.12 SWOT Analysis 45 -
46

4 PREPAYMENTS 47 - 72
4.1 About Prepayments 47 -
48
4.2 Advantages and Disadvantages of Prepayments 49 -
50
4.3 RBI Guidelines regarding prepayments 50 -
52
4.4 Prepayments Charges 52 -
53
4.5 HDFC Prepayment guidelines 53 - 55
4.6 Prepayment Inquiry 55 -
57
4.7 Retention Department 57 -
62
4.8 Competitive Analysis 63 -
72

5 LITERATURE REVIEW 73 -
78

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6 RESEARCH METHODOLOGY 79 -
82
6.1 Introduction 79
6.2 Objectives 79
6.3 Scope Of Study 79 -
80
6.4 Limitations 80
6.5 Research Design 80
6.6 Research Methodology 80
6.7 Nature Of Data 81
6.8 Tools For Data Collection 81
6.9 Sample Design 81
6.10 Population Of The Study 82
6.11 Sample Size 82
6.12 Questionnaire Design 82
6.13 Tabulation And Classification Of Data 82

7 DATA ANALYSIS 83 -
95

8 FINDINGS AND CONCLUSION 96 -

98

9 RECOMMENDATIONS/SUGGESTIONS 99 -
100

10 BIOGRAPHY 101 -
102

11 ANNEXURE 103 -
104

10
FIGUR TITLE PAGE
E NO
NO.
CHAPTER 7
7.1 Classification of respondents based on their gender 84
7.2 Classification of respondents based on their profession 85

7.3 Classification of respondents based on their profession 86

7.4 Classification of respondents based on their preference 87

7.7 EMI alternations have chosen by borrowers 90

7.8 Maximum loan tenure 91

7.9.1 Balance transfer (BT) done for March 2022 92

7.9.2 Balance Transfer (BT) done for April & May 2022 93

7.10 Other investment options chosen by respondents 94

7.11 Respondents’ perception about HDFC 95
LIST OF FIGURES

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TABL TITLE PAGE
E NO
NO.
CHAPTER 7
7.1 Classification of respondents based on their gender 83
7.2 Classification of respondents based on their profession 84

7.5 Sources of funds for prepayment 88

7.6 Sources of Funds for Full Prepayment 89

7.7 EMI alternations chosen by borrowers 90

7.8 Maximum loan tenure 91

LIST OF TABLES

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CHAPTER 1
INTRODUCTION
1.1 HOME LOANS

The roof over one’s head and the ground beneath one’s foot count as a bare necessity of

life. When one buys a home, one has much more than a feel-good purchase in mind. It’s

one crucial investment decision, perhaps one of the biggest spending decisions of one’s

life.

Housing is a primary necessity in every economy and is a basic indicator of growth and

social well-being. Development of housing is not just important to economic growth but

is also one of the economic developments considering the accelerator impact it has on

various industries including for construction and infrastructure sector; it generates

demand for supporting industries and leads to the creation of job opportunities. The

development of housing in a country is a sign of economic welfare. For any emerging

economy, the development of the housing sector has its challenges.

The biggest of these challenges is access to finance. In India, access to finance for

housing needs is largely concentric and focused on higher income groups, where lending

is the easiest and where there is formal evidence of income such as salary slips or income

tax returns, the lower segments of the population pyramid will remain unserved or

underserved if the system was left entirely to itself.

The development of the housing sector can have a direct impact on employment

generation, GDP growth, and consumption pattern in the economy. To help develop

housing in the country, there is a need to have a well-developed housing finance market.

In India, the housing finance market is still in its nascent stage compared to other

countries.

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The government, both at the center and state, is a facilitator and is assisted by two

regulators, the Reserve Bank of India (RBI) and the National Housing Bank (NHB). The

housing finance market is dominated by commercial banks, both domestic and foreign. In

addition, there are cooperative banks and housing finance companies, micro-finance, and

NGOs.

The RBI regulates commercial banks and partially cooperative banks (which are mainly

governed by the State Governments under State Cooperative Acts) while the NHB

regulates housing finance companies. The others are not regulated by any authority in the

country. The financial sector reforms initiated in 1985 and 1991 unleashed development

forces in the economy. This resulted in higher employment, increased income levels,

faster urbanization, and higher demand for houses, especially in urban areas. Therefore,

concerted efforts were made by the Government and the Reserve Bank to encourage

housing during the 1990s.

The demand for home loans has increased manifold in the last decade the reasons being,

changing mindset with globalization and integration with the developed economies,

where mortgages rule the roost, income sops in the Union Budgets, and a substantial rise

in the income generation capacity of Indian youth. So, the present scenario of home loans

shows a good amount of growth.

Similarly, the interest rate cycle is finally on its way up due to multi-year high global and

domestic inflation. To control this inflation, RBI has raised the repo rate twice in May

and June by a total of 0.9%, due to which the borrower would end up paying higher EMIs

as the interest portion will go up sharply, leading the majority of borrowers to make

partial payments to reduce their outstanding amount.

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The present paper is an attempt to give us an idea about the home loan sector, forcing on

working of HDFC Ltd and in-depth knowledge about its prepayments-related guidelines

and facilities provided by HDFC Ltd.

Pros of availing of a Home Loan

1. Making buying a home affordable for all especially average middle-class salaried

person

2. A cost-effective way of availing credit

One of the major benefits of home loans is that it comes with lower interest rates

as compared to other borrowings such as personal loans or gold loan.

3. Capital Growth

Over the past decades, the cost of real estate properties in India has been on the

rise consistently. Many experts suggest that the capital appreciation of real estate

properties has been much higher than the interest one pays on their home loan.

4. Guarantees safety of property

When a person’s approach a lender for a housing loan, the lender will do a full

background check of the credibility of the builder as well as the property itself.

They will review the paper associated with the property and ensure that the

building is legal and that the builder has obtained all the clearance certificates

from the local authorities. Hence, making sure the property is safe to purchase

5. Tax Benefits through 80C.

3
Cons of availing of a Home Loan
1. Home Loans can carry risk

The duration of home loans typically ranges from 10 to 20 years. During this

period, unforeseen circumstances such as divorce, death, loss of job, and illness

can put in tremendous financial turmoil and affect one’s ability to cope with the

burden of the loan.

2. Loss of investment opportunities such as mutual funds, insurance, fixed deposit,

etc. giving a valuable return in long run.

3. Loss of tax benefit on HRA component:

The employers pay housing Rent Allowance or HRA to the employees as part of

their salary. The HRA allows the employees to claim a tax deduction for the rent

they pay for the housing. Thus, if one is living in their own house, they can lose the

opportunity to claim the HRA exemption and the entire amount will be considered

a taxable income.

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1.2 OBJECTIVES

My main objective is to analyze prepayments of HDFC Ltd.’s home loan customers-

1. To understand how prepayments are done

2. To get acquainted with the charges levied by HDFC Ltd on prepayments

3. To know about the facilities provided by HDFC Ltd to its customers prepaying its

loan

4. To suggest ways to reduce prepayments

Further, the overall objectives of this study are as follows

1. To understand the housing finance industry in India.

2. To study the company profile of HDFC Ltd.

3. To study the various products and facilities that the company provides to the

customers

4. To collect first-hand knowledge about the loan procedure, sanctioning, and

disbursement in HDFC Ltd.

CHAPTER 2
5
INDUSTRY ANALYSIS

2.1 THE EVOLUTION OF HOME LOANS IN INDIA

In the early 1970s, there was no concept of a housing finance market. If an individual

wanted to build a house, he would go to a bank or a wealthy lender. People’s mentality

was to save and purchase, or dip money into provident funds or other retirement benefits

in order to raise money to fund a house. Taking a loan was an alien concept, partly

because access to a loan was difficult and moreover, availing of a loan would increase the

borrowers’ financial burden. Banks on the other hand were reluctant to finance homes a

there was no recovery mechanism, with the only option left being filing a file a civil suit,

which in turn would cost the bank a charge higher than the loan amount itself.

In 1977, HDFC was formed as the first specialized mortgage company in India. D B

Remedios was the first HDFC borrower and the first organized player in the home loan

market. Remedios took a Rs 30,000 loan at a fixed rate of 10.5% in 1978. The amount

was less than the total amount of Rs 70,000 that he spent on a house in Malad.

In the earlier days of home loans, the interest was as high as 11% - 14% up to 1994. The

average age of the borrower was about 42 years with the average amount of loan being

Rs.39,000 and the LTV ratio used less than 50%. The increase in the competition saw the

LTV ratio go up from 110% to 120%. Subsequently, the RBI capped it at 80%, which can

even go up to 90% in case the loan amount is less than 30 lakhs. The Indian home loan

market was largely a tale of three institutions: HDFC in 1977, ICICI Ltd (now merged

with ICICI Bank) in 1999, and State Bank of India in 2009. All the 3 turned the market

on its head. While HDFC introduced the concept of housing finance, ICICI brought in the

floating rate concept rate in 2000 and SBI pushed its teaser rate (fixed-cum-floating)

6
through its branches.

2.2 CURRENT SCENARIO OF HOME LOANS IN INDIA

India’s home loan market has seen a drastic change. Home loan rates are at a 16 year low.

Many banks are charging interest rates as low as 7%. Why are they doing this? A simple

answer is housing finance companies want to improve homebuyers’ confidence. The

demand for real estate has surged up, according to Anarock, real estate sales have risen to

93% YOY in Q2 of 2021, and sales across many cities will grow faster. Additionally,

corporate credit growth has stalled for many lenders (especially the banks).

Overall, Home loans witnessed 32% growth in Origination by Value and 15% growth by

volume from FY17 to FY21. 16% increase in average Ticket Size for home loans from

Rs.24.6 Lakhs to Rs. 28.5 lakhs in FY21.

The maximum loan taken by borrowers between the Age group 36-50 years was almost

46.9%, followed by 34% by the Age group 26 – 35 years, and the lowest at 3.3% taken

by the Age group below 25 years.

The home loans applications percentage for the amount below Rs 25 lakh was 47.5%.

The amount between Rs 50 – 75 lakhs spiked to 24.6% and the amount between Rs 25 –

50 lakhs rose to 22.6%

2.3 GROWTH OF HOME LOANS OVER THE YEAR

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Source: supervisory report, RBI

The growth rate during the period June 2020 – Sept 2021, has relatively decreased due to

a halt in the fresh disbursement as a result of the liquidity crisis caused with Covid 19.

Investor’s confidence dipped post-March 2020, with the lenders witnessing a huge fall in

their loan disbursement and corresponding rise in NPA’s. Subsequently, home loan

lenders witnessed a portfolio growth at 8-10 percent in the current fiscal and 9-11 percent

in FY 2022-23 due to low-interest rates and reviving of the economy.

At the end of FY-2021, the home loan portfolio in India stood at a whopping ₹22.6 lakh

crore, compared with ₹20.31 lakh crore as of FY 2020. Of this, the banking sector

accounted for a lion share at 60 %, followed by HFCs at 38%, both growing 12.1% since

their size in FY-20.

Between FY-17 and FY-21, the Indian home loan market industry grew by 32% CAGR.

8
The industry gets 93% of its business from the top 15 states, Maharashtra tops the list

with a 23% share, followed by Karnataka at 10%, Tamil Nadu grabbing 9%, Gujarat and

Telangana backing 8%, and 6% respectively. These top four states cumulatively account

for slightly more than 50% of the total home loan industry.

2.4 SEGMENT BREAK OF LOAN TAKEN

Source: CRIF High Mark Report.

2.5 REAL ESTATE MARKET IN INDIA

Real estate investors in India have had a tough time over the last decade. With inflation

rising, the residential property prices across major cities did not even appreciate by the

same percent. This trend got worsened in 2020 when prices of major cities had fallen

9
Source: Knight-Frank Research, 2020

Property investment is based on location, location, and location. An investment made in

Gurugram which has the highest supplies of unsold inventories fared much worse than an

investment in Panvel, Navi Mumbai where the airport is coming up. Real estate prices are

driven by two factors the demand side and the supply side.

 Demand-side includes the following factors:

1. Interest Rate and Credit Availability: interest is 16 years low in India, especially

during COVID, the ROI was as low as 6.65%, leading to an increase in demand

which led to a rise in prices

2. Rising Income levels

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 3. Urbanization: shift of population from rural to urban, however, this trend has

changed, during the COVID times India witnessed the large-scale reverse migration

from urban to rural.

 Supply-side includes the following factors:

1. Low-interest rates: this can decrease the supplies of home properties as the debt

burden on the existing homeowner goes down. When the Rate of Interest is high the

EMI and interest payment goes up, forcing a homeowner to sell off the property

which is in contrast to if ROI is low, they will try to hold on to their property. Hence

low ROI reduces supply and increases prices.

2. Existing unsold inventories: low returns on real estate property over the last decade

that led to this problem. While this problem is slowly resolved, cities like Mumbai,

Delhi, and Kolkata are still grappling with this issue. To overcome this problem of

oversupplies, developers are starting to level with buyers by finally offering them

better pricing deals both in the form of direct price discounts as well as other non-

price deals.

Housing in cities like Mumbai and NCR are less affordable (more expensive) and

property prices in cities like Kolkata and Ahmedabad are more affordable (less

expensive). The general rule of thumb in finance is to buy cheap and sell expensive. And

the fact that in India as a whole, property prices are once again starting to become more

affordable compared to income levels is positive for real estate investments.

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Property Affordability in India

Source: RBI Publication

Source: 2021-knight-frank

Rising income and affordable mortgage rates have made home buying easier for common

Indians but the affordability ratio fell to a record low of 3.7 in March 2018 from 22 in

1995. This is because even though average income levels have grown, the property prices

of the last 15 years have also grown at par with the income levels.

2.6 INTEREST RATES

A home loan interest rate is an amount charged on the principal loan amount by a home

loan provider to a borrower. A housing loan interest rate determines one monthly payable

EMI against your home loan.

The interest rate on homes has drastically fallen from 12% – 10% to 6.5% - 7%. Since,

12
interest rates going down, home loan applications are increasing. The interest rate

available is of two different types.

 Fixed-rate loan: In a fixed-rate loan, whatever interest is fixed at the start of the loan is

carried on for the complete tenure of the loan period.

 Floating rate loan: here, the interest rate is not fixed, and as the interest rate goes up or

the person who is taking the loan.

How is Interest Rate calculated?

The interest rate is calculated based on RPLR (Retail Prime Lending Rate) minus the

spread.

RPLR is decided by the bank and NBFC or HFCs from time to time. The RBI announces

the Repo Rate, which influences the cost of raising new funds for the housing finance.

RBI has no role to play in the decision of the RPLR. HFCs or NBFCs may or may not

have decided to change their RPLR rate in response to changes in RBIs Repo rate.

Effective 1st April 2016 banks have been directed by RBI to fix their loan interest rates

benchmarked to the MCLR (Marginal cost of funds based on lending rate) rate which is

based on its marginal cost of funds which was earlier base rates, it is the minimum rate at

which a financial institution can extend loans to its customer.

Spread on other hand is the discounting factor, a margin based on customer product

specificity factors.

Factors affecting Home Loan Interest Rates

 Income: The industry you work in and your employer both have a say along with the

income factor. A stable and high income, sufficient enough to afford the loan will be

rewarded with a lower interest rate.

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 Credit Score: When you apply, the processing involves thorough scrutiny of your

credit report. It involves checks on your past and current credit. If an individual is up

to date with a good credit score, you’re likely to get a competitive rate. Good credit

history also gives you the confidence to negotiate a good deal.

 Location of the Property: The location and vicinity have a bearing too. If the property

is situated in a prime location or is being procured from a trusted builder/agency, you

can look forward to an optimal charge on the interest rate front.

 Loan Amount: The proposed loan amount can influence the rate. The thumb rule is,

that the higher the loan amount, the chances you will get the lower rate.

 Types of Loan: The rates offered also depend on the types of home loan you’re

availing of. Standard loans such as home purchasing will come at standard rates while

their counterparts like home improvement can be charged a higher rate.

 Loan Tenure: The loan tenure opted for has a say when the bank decides the interest

rate to be offered to you. Chances are that if you’re willing to opt for a longer-term,

the interest rate offered is lower.

 Ongoing Promo Offers: Lookout for promo offers made by lenders on multiple fronts,

made locally and some at the national level. In their quest to come up with the most

customer-centric schemes, lenders will tie up with multiple partners such as builders,

and aggregators to offer tailor-made deals that include competitive rates.

2.7 EMI (EQUATED MONTHLY INSTALMENT)

EMI consists of two components repayment of principal amount and payment of interest

on the outstanding loan amount.  A longer loan tenure (for a maximum period of 30

years) helps in reducing the EMI. EMI calculation helps an individual make an informed

14
 decision about buying a new house. The EMI calculator is useful in planning cashflows

for servicing a home loan.

Formula for EMI Calculation is: P x R x (1+R) ^ N / [(1+R) ^ N-1] where-

P – Principal

N – loan tenure in months

R – Monthly interest rate

2.8 LENDING NORMS

Banks or HFCs always check the repayment capacity of an individual, because there is a

chance that the bank or HFC might incur losses due to non-repayment, resulting in NPA

bad debts. To avoid these financial companies, perform thorough background checks of the

applicant including their income, credit history, assets, other liabilities, etc.

The following are the 3 deciding factors or ratios that financial companies use to determine

loan eligibility:

1. FOIR: Fixed Obligation to Income Ratio is derived by considering all the fixed monthly

obligations an individual has to meet such as rent, and his or her debts- existing and

new, without including the statutory deductions such as Provident Fund, Investment

Deductions or professional tax. FOIR ratio differs from lender to lender, the banks range

from 40% to 60%. however, it can go up to 65% to 70% for a customer of a high

network.

The formula for calculating the FOIR of a person:

FOIR = (Summation Of All Existing Obligations/Net Monthly Salary) *100

 Less than 45%: Normal level within an acceptable range

 46%-50%: Medium risk, the debt level is high

15
  Greater than 50%: High-level risk, requires counseling and discussion with the

customer

E.g.: Mr. A is earning Rs. 1 lac per month. He is interested in a loan of Rs. 30 lacs for 15

years term.

Per Lac EMI @ 9.45% ROI for 15 years term is Rs. 949, hence for Rs. 30 Lacs, EMI will

be Rs. 28470 PM. Apart from this application has an auto loan with an EMI of Rs. 7000

PM for 3 years.

Hence, FOIR = (Rs. 28470 + Rs 7000) / Rs. 100,000 = 35% only

2. IIR: Instalment to Income Ratio indicates the proportion of EMI payable as % of the

customer’s gross monthly income. lenders assume that usually, a person can pay a

maximum installment per month up to 33.33% to 40% of his total salary.

IIR = EMI of the current loan

Gross monthly income appraised
 Less than 40%: Normal level within an acceptable range

 41%-50%: Medium risk, the debt level is high

 Greater than 50%: High-level risk, requires counselling and discussion with the

customer

E.g.: Mr. A is earning Rs. 1 lac per month. He is interested in a loan of Rs. 30 lacs
for 20 years term.
Therefore, his EMI per lac @ 9.75% ROI for 20 years term is Rs. 949.
hence for Rs. 30 lacs, EMI will be = Rs. 28470 (949*30)
Hence IIR = Rs. 28470/Rs 100,000 = 28% only

16
3. LTV & LCR: LCR stands for loan to Cost Ratio and LTV stands for Loan to Value

Ratio

 Helps in defining the maximum exposure.

 Risk associated with a product & the loan amount being offered.

LCR = Loan
. Total property cost/ Architect estimate amount duly approved by the
technical team of the bank

LTV = Loan
Total Market value of the property.
Most of the lenders offer the lowest possible interest rate when the LTV is at or below

75%

e.g., 1. Mr. X is interested to purchase a property costing Rs. 60 lacs as per builder

agreement, while the loan required is Rs. 40 lacs only.

LCR = Rs. 40 lacs/ Rs. 60 lacs = 67%

e.g., 2. Mr. X is interested to purchase a resale property costing Rs. 60 lacs as per

agreement to sale, while the loan required is Rs. 40 lacs only. The market Valuation of

the property is Rs. 80 lacs as assessed by the lender.

LTV= Rs. 40 lacs/ Rs. 80 lacs = 50%, LCR = Rs. 40 lacs/ 60 lacs = 67%

2.9 LOAN AMORTIZATION SCHEDULE

Loan amortization is the process of reducing the debt with regular payments over the loan

period. A home loan amortization schedule is a table giving the details of the repayment

amount, principal, and interest component, with the first portion of the payment going

towards interest and the remaining amount paid against the outstanding loan principal.

More of each payment goes toward principal and less towards interest until the loan is paid

17
off.

2.10 TAX BENEFITS ON HOME LOANS

A home Loan offers tax benefits. The principal component of EMI is treated as an

investment under section 80C. The interest component is also deducted from the taxable

income under Section 24. The annual deduction in respect of the interest component of a

18
housing loan, for a self-occupied house is limited to Rs 2 Lakh per annum. A person

falling under the highest tax bracket can reduce taxes by around Rs. 60000in a year. For

first-time home buyers, there is an additional deduction of up to Rs. 50,000 under section

80EE, towards the interest component, over and above the deduction of Rs 2 lakhs. On

the principal component of the EMI, section 80 C offers benefits of up to Rs. 1.5 lakhs

sour
ce: The Mint

19
2.11 LOAN PORTFOLIO GROWTH – FY20

Share of HFCs in housing loan

Source: CRIF High Mark Report.

HFCs having strong parents (either bank or public sector undertaking or large

conglomerate group) have recorded faster growth in the home loan industry than other

HFCs have in the first half of fiscal 2020 as they continued to receive funds when market

borrowings had dried up. These HFCs were also able to sell down their portfolio easily as

the backing parent was mostly a bank that was also an investor for such instruments.

Market Share of Banks in Housing Loan

Sour

20
ce: Indian-Share-Tips.com
SBI being a government bank can provide home loans at a lower rate as compared to

others, thus gaining a bigger share. HDFC Ltd with a few percent down than SBI also has a

good hold on the market. Then comes ICICI, LIC (yet again a government company)

followed by others. Hence, private banks also have a good hold in the market as compared

to some Government banks.

2.12 KEY PLAYERS IN THE HOME LOAN INDUSTRY

1. SBI HOME FINANCE LTD

21
 SBI home loans are the largest mortgage lender in India, helping over 30 Lakhs India

to achieve their dream of owning a house

Total Sales: 1.12 lakh cr

2. HDFC Ltd

Housing Development Finance Corporation Ltd is a leading market player in Indian

housing finance. The company has an extensive distribution network of 593 outlets

with outreach programs in several cities all over India. 3 representative offices in

Dubai, London, and Singapore offer Home Loan products to Non-Resident Indians

and Persons of Indian Origin.

Total Sales: 1,39,033 cr

Profit: 13,566 cr

3. ICICI HOME FINANCE LTD

ICICI Home Finance is a part of the 66-year-old ICICI Group with a vision to make

the dream of owning a new home come true, for millions of Indians. The primary

business of the company is to provide a range of home loans and home improvement

loans, office premises loans, home equity loans, loans against property to customers,

and construction finance to developers. It also offers services related to these loans like

home and commercial property search in select cities. Starting with 6 branches in

2017, the company has grown its footprint to 135+ branches, including 16 zonal

offices.

Total Sales: 169,731.7 cr

Profit: 216.7 cr

4. LIC HOUSING FINANCE LIMITED

22
 LIC housing finance ltd is one of the largest housing finance companies in India with

the key objective of providing long-term finance to individuals for the purchase or

construction of houses/flats in India. The company also provides finance on existing

property for business or personal needs and also gives loans to professionals for

buying their offices and equipment. Incorporated in 1989, it is one of the industry’s

most extensive marketing networks working in India with 282 marketing offices. It

also has its operations running in Dubai, Kuwait, Qatar, and Saudi Arabia.

Total Sales: 19,881 cr

Profit: 2,741 cr

5. INDIABULLS HOUSING FINANCE LIMITED

Founded in 2000, Indiabulls Housing Finance Ltd. (IBHFL) is India’s second-largest

private housing finance company. The company provides finance for construction and

maintenance work of any apartments, houses, flats, etc. It also provides plot loans and

loans against residential, commercial, and rental property along with Financial advisories

and consultancy services.

Total Sales: 9,927 cr

Profit: 1,201 cr

2.13 RULES AND REGULATIONS FOLLOWED BY HOME LOANS

PROVIDERS

Every lender, be it bank, HCFs, or NBFC is expected to follow certain policies framed by

23
the RBI. These policies/guidelines are also amended by the RBI from time to time on the

bases of micro and macro-economic parameters.

1. General guidelines for lenders and borrowers

As per RBI guidelines, lenders may approve home applications of borrowers who meet

the eligibility criteria, can display their repayment capacity, and have a CIBIL or credit

score of 750 and above. Borrowers should submit all necessary documents including

personal and income documents and those who agree to sign a document stating the loan

repayment rules laid down by lenders.

2. Guidelines on the loan-to-value ratio

In 2015, the RBI made amendments that impacted the loan amount that a borrower can

avail. As per the new rules and regulations for home loans in India, borrowers may

avail of a loan amount of 90% of the actual value of the property if the property is

valued at 30 lakhs or less. In the case of loan amounts exceeding 30 lakhs but up to 75

lakhs, the maximum LTV ratio can be 80%. In case an individual decides to purchase

a home valued at 75 lakhs and above by taking out a home loan, then the maximum

LTV can be 75%.

3. Guidelines on prepayment charges

Home loans are typically high-value loans that last for durations lasting from 10 to 30

years and borrowers must pay an interest rate on the principal loan amount. The

interest component is generally a huge amount but this can be significantly reduced if

one can prepay the loan, partially or completely before the chosen loan tenure. As per

24
 the latest rules and regulations on home loans, the RBI waived the prepayment

charges. Lenders are prohibited from charging a prepayment penalty for home loan

prepayments in case of floating interest rates. Earlier, lenders could levy a 2% to 5%

prepayment penalty.

4. Guidelines on home loan balance transfer

A home loan balance transfer allows the borrower to transfer from an expensive loan

procured in the past (but still being repaid) to a loan that loan with a lower interest

rate. As such, a borrower may foreclose an existing loan and take on a new one for the

unpaid principal loan amount. With the prepayment charges being waived off, a

borrower may switch to a new loan without worrying about incurring penalties. But it

is important to note that this applies only to home loans with floating interest rates.

Lenders may continue to charge a prepayment penalty ranging from 1% to 3% in the

case of home loans with fixed interest rates.

The RBI also recommends that individuals take on a home loan option for home

insurance to secure the financial future of their family in the unfortunate event of their

passing before the loan repayment process is completed. While this is not enforced by

the RBI, it is recommended that the dependents do not have to worry about not having

a roof over their head in case of the passing of the borrower before the loan is repaid.

2.14 EMERGING TRENDS IN THE HOME LOAN SECTOR IN INDIA

1. Digitalization of home loans in India

As the demand for home loans among millennials is increasing and the pandemic has

25
 made HFC make most of its processes digital to help customers secure loans faster and

go ahead with their homebuying decision. According to a Lead Squared survey, nearly

42% of home loan businesses stated that the majority of their new inquiries come from

digital channels. Hence, lenders need to accommodate digital-savvy borrowers and

provide convenient journeys for them.

2. Modernization of system

With the advent of technology, several systems and processes have seen significant

changes. A borrower need not wait in long queues for a representative to explain the

home loan process and the documentation. Now, all the information right from home

eligibility, documentation, process and even EMI calculation is available online

3. Self-service on rising

Transitioning to self-serve application portals is another way of adding accessibility

for the customer. Customers can fill out their applications at their convenience, thus

enhancing the experience. Due to their digital nature, the document collection process

also becomes highly simplified. On the other hand, lenders can track the application

journey for their prospective customers and reduce the chances of drop-offs

significantly. Based on another Lead Squared survey, nearly 44% of the lenders have

already employed self-serve forms in their customer onboarding journeys.

4. Pradhan Mantri Awas Yojana (PMAY)

Pradhan Mantri Awas Yojana – Urban (PMAY-U), a flagship mission of the

Government of India being implemented by the Ministry of Housing and Urban

Affairs (MOHUA), was launched on the 25th of June 2015. The need for housing has

26
 been felt quite starkly so much so that the government has declared a mission to

provide housing for all by the year 2022. This is one trend that means a lot to the home

loan industry as the government has announced various incentives for the weaker

sections to help them to acquire a roof over their heads through its PMAY promising

up to Rs 2,67,000 per home as interest subsidy under the credit-linked subsidy scheme

(CLSS).

5. Indian women are taking more home loans

Indian women are availing of more home loans, In the calendar year 2020, women in

the age group of 26-35 accounted for 40.49 percent of the total loans disbursed (41.10

percent in 2019), followed by those in the 36-50 age bracket (34.75 percent vs 34.86

percent), 22-25 age bracket (10.47 percent vs 10.55 percent) and 51-60 age bracket

(9.49 percent vs 8.74 percent). Women borrowers from southern States have a higher

credit book size compared to western and northern States, Maharashtra is on the top,

followed by Karnataka and Tamil Nadu.

6. Growth in small centers

According to the CIRF report, the smaller center orders a higher growth rate than the

metros. A large part of the growth has come from affordable and middle management.

The flip side of this development is large NPA because of high default cases in the

affordable category and cases of younger borrowers.

2.15 SWOT ANALYSIS

Strengths

27
1. Huge demand for home loans in India especially among millennials.

2. Great brand image especially of HFCs like HDFC, ICICI, India bulls, LIC, and so

on.

3. Customer-oriented – customers are given the top priority in all the system processes;

personnel are given the necessary training to serve customers better.

4. Successful track record of developing new products- innovations

5. Digitalization of activities brought in consistency and efficiency in services.

6. Low Rate of interest and improved facilities have brought in more demand.

7. Widespread branches also among the rural areas, have brought in development in

rural India

Weakness

1. High cost of operations: funding of loans.

2. The marketing of the products left a lot to be desired. Even though the product is a

success in terms of sales but its positioning and unique selling proposition are not

clearly defined.

3. Delay in upgrading – digitalization only in limited areas.

4. Limited access to a rural area

OPPORTUNITY

28
1. New trends in consumer behavior can open up a new market for Home loans. It

provides a great opportunity for the industry to build new revenue streams and

diversify into new product categories too.

2. New environmental policies – The new opportunities will create a level playing field

for all the players in the industry. It represents a great opportunity for Home loans to

drive home their advantage in new technology and gain market share in the new

product category.

3. Opening new branches in rural areas, will help in developing a wider rural base.

4. With the migration of the rural population to the urban areas, heavy investments will

be required in the construction of additional dwellings.

5. Providing multifarious products according to the increasing demands of customers

and the market.

6. Growing in international market

THREATS

1.There is a risk of losing customers to foreign competitors.

2.Very high competition is widespread in the industry.

3. Changing consumer buying behavior from online channels could be a threat to

the existing physical infrastructure-driven supply chain model.

4.Unable to expand market share due to risk of NPA

5.Strict Legislation could impact its functioning.

6. Liability laws in different countries are different, therefore Indian players may be

exposed to various liability claims given changes in policies in those markets.

29
7.Changing policies can discourage customers from taking home loans.

2.16 CONCLUSION

As the NBFCs and banks have started feeling comfortable giving home loans and the

demand for real estate is been on the rise, more and more customers began availing them.

More over home loan industry has developed to a greater extent. The interest rates have

also been all-time low, subject to inflation and repo rates. Customers have also realized

that buying a home through home loans 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 through 80C. Banks and NBFCs have

come with various new and innovative products which helped to cater to various

customers’ needs. The home loan industry in India is booming more than ever.

CHAPTER 3
COMPANY PROFILE

3.1 About HDFC Ltd

HDFC is the brainchild of its founder, the late Mr. Hasmukh Bhai Parekh. Housing

Development Finance Corporation Limited (‘the Corporation’ or ‘HDFC’) was promoted

in October 1977 as a public limited company specializing in providing housing finance to

primarily households and corporates for the purchase and construction of residential

housing.

Before 1977, retail mortgage finance was unknown in India. There were no foreclosure

30
norms, no credit bureau, and no easy access to finance in India. HDFC is India’s first

retail housing finance company and is currently one of the largest originators of housing

loans in the country. HDFC has financed over 5.8 million homes in 2021.

The HDFC group is considered a financial conglomerate in the Indian capital market with

the presence of housing finance, banking, life, and general insurance, Asset Management,

Venture Capital, and Education loan. As a part of development initiatives, HDFC has

promoted institutions in various fields including credit rating, consumer finance, leasing,

infrastructure, and IT-enabled services. HDFC’s distribution network spreads 593 outlets

which include 203 offices of its distribution company, HDFC sales private limited

(HSPL).

In addition, HDFC covers several locations through its outrage programs. Distribution

channels form an integral part of the distribution network with the home loan being

sourced through HDFC Sales Private Ltd, HDFC bank limited, and other third-party

direct selling associates.

The company registered as a Housing Finance Company with the National Housing Bank

(‘NHB’) under the NHB Act, 1987. The equity shares of the Corporation are listed on the

Bombay Stock Exchange Limited and the National Stock Exchange of India Limited.

HDFC is a public limited company with its stocks listed on BSE and NSE.

Leadership at HDFC Ltd

Name Designation
MR. DEEPAK PAREKH Chairman
MR. KEKI M. MISTRY Vice-Chairman & CEO
MS. RENU SUD KARNAD Managing Director
MR. V. SRINIVASA RANGAN Executive Director
MR. AJAY AGARWAL Company Secretary

31
Mission, Vision, Goals, and Core Values

 Mission: To enhance the residential housing stock in the country through the

provision of Housing Finance systematically and professionally, and to promote

home ownership

 Vision: A socially conscious and responsible organization with larger and long-

term impact projects across the sector.

 Goal:

• Increase the flow of resources to the housing sector by integrating the housing

finance sector with the overall domestic financial markets.

• Develop close relationships with individual households,

• Maintain its position as the premier housing finance institution in the country,

• Transform ideas into viable and creative solutions,

• Provide consistently high returns to shareholders, and

• To grow through diversification by leveraging off the existing client base.

 Core Values:

Trust, Integrity, Transparency, and Professional Services

 Growth Strategies:

• Increase the Return on Equity each year to maximize shareholder value

• Consistently grow the loan book.

• Maintain low Gross Non – Performing Assets (NPAs).

• Maintain a low cost to income ratio by improving operational efficiency.

3.2 HDFC Group

32
 HDFC has a strong closely knitted family approach, yet aspirational in its purpose. While

housing finance continues to be its core business, over the years, they have grown into a

large financial conglomerate with diversified businesses. Their key associate and

subsidiary companies hold leadership positions in their respective categories and our

newer ventures are fast emerging, thus enabling HDFC to offer a wide range of financial

products and services to cater to needs across different stages of life.

Source: Finpedie

3.3 HDFC Ltd Products

33
 Housing Loans

1. Housing Loans

For salaried and Self-employed individuals for buying a new or existing property or for

construction home of their own.

2. Plot Loans

Loans for the purchase of new or existing residential/commercial plots.

3. Rural Housing Finance

Home loans for Agriculturists, Dairy Farmers & Horticulturists.

4. Self-Construction Loans

Loans for to construct a customer’s home, way on a freehold/lease plot or on a plot

allotted by a Development Authority with Self Construction Loans.

Other Home loans Products

5. Home Improvement loans

For upgrading the existing home to a contemporary design and a more comfortable

living space with Home Improvement loans.

6. Home Extension Loans

This loan particularly helps can customers to comfortably accommodate the need for

extra space for a growing family.

7. Top UP Loans

This loan is provided on the home loan, if a customer needs additional funds, may it be

for personal or professional milestones such as marriage, a dream vacation, business

expansion, debt consolidation, etc. with great ease.

Affordable Housing

34
 8. Reach Home Loans:

This product is availed with minimal income documentation to buy a new or existing

home, construct a home or refinance an existing home loan and is best suited for

individuals from the informal sector.

Non-Housing Loans

9. Commercial Property loans

HDFC offers Non-Residential Premise Loans exclusively for professionals such as

doctors, lawyers, Chartered Accountants, and self-employed businessmen for the

purchase, construction, extension, or renovation of their clinic or office.

10. Loan Against Property

LAP helps customers leverage the economic worth of their property while continuing to

enjoy occupancy of the same.

NRI Housing Loans

11. Loans to Non-Resident Indians (NRIs & OCIs)

HDFC provides easy finance to NRIs & OCIs for the purchase of property across India.

Loans can be availed for purchase and construction on a plot of land.

12. Step Up Repayment Facility (Easy EMI Loans)

This loan enables a customer to own their first home at a younger age, without waiting

to earn more, which will be beneficial due to higher loan amount eligibility, longer

tenure of up to 30 years, and smaller EMIs.

35
 3.4 Rate Of Interest
HDFC Interest over the years:

Source: The Mint

Repo has a big influence on the Retail Prime Lending rate, RPLR was 16.05%, whereas

the repo rate was 4% till April, then in May 4th RBI increased its repo rate by 40 bps to

4.40% leading to an increase in the RPLR rate to 16.45%, further in June again the repo

rates were increased by 50 bps, leading in increasing in the RPLR rate to 16.95%. which

eventually lead to a rise in the interest rates.

An HDFC home loan customer is provided with two types of interest rate options while

availing of a home loan. These are as follows:

36
Adjustable-Rate Home Loan (ARHL): An Adjustable-Rate Home Loan is also known

as a floating or a variable rate loan. The interest rate in an ARHL is linked to HDFC’s

benchmark rate i.e., Retail Prime Lending Rate (RPLR). Any movement in HDFC’s

RPLR may effectuate a change in the applicable interest rates.

TruFixed Loan: In a TruFixed loan, the home loan interest rate remains fixed for a

specified period (e.g., for the first 2 or 3 years of the loan tenure) after which it

automatically converts to an Adjustable-Rate Home Loan with the then applicable

interest rates. HDFC currently offers a TruFixed loan where the interest rate is fixed for

the first two years of the loan tenure.

The following rates shall be applicable for Home Loans, House Renovation Loans, HEL,

Plot Loans, And Plot + Constructions Loans

Retail Prime Lending Rate: 16.95%

Credit Score Negotiated Rate Special Rate with Additional Fee +
W/O Fees Fees GST
800 & above 7.55% 7.50% 0.05%
730 – 799 7.65% 7.60% 0.05%
700 – 729 7.75% 7.70% 0.05%
Below 700 7.85% 7.80% 0.05%

Slab Women / Employed Self - Employed

Others 730 & Below 730 730 & Below 730
above above
Up to 30 lakhs Woman 7.65 7.80 7.75 7.90
Others 7.70 7.85 7.80 7.95
Above 30 – 75 Woman 7.90 8.05 8.00 8.15
lakhs Others 7.95 8.10 8.05 8.20

37
 Above 75 Woman 8.00 8.25 8.10 8.25
Lakhs Others 8.05 8.20 8.15 8.30

Value Plus Home Loans

Credit Score Slab Rate
730 & above Loans with LTV < = 50 % 8.05%
Loans with LTV > = 50% 8.10%
Below 730 All loans 8.25%
A special rate of 8.15% can be offered for credit scores below 730 with an additional
fee of 0.10% only with branch manager / operational head approval

TRU – FIXED RATE FOR HOME LOANS EFFECTIVE FOR 2 YEARS

Salaried Self Salaried / Self
/ SEP Employed SEP Employed
Home / HIL / Plot and Plot
HEL / Refinance Applicable Interest + Applicable Interest
Rate Construction Rate
Loans
Up to 30 Lacs % % Up to 30 Lacs % %

Women 8.75 8.9 Women 8.85 9

Others 8.8 8.95 Others 8.9 9.05

30.01 Lacs – 75 30.01 Lacs –

Lacs 75 Lacs
Women 8.9 9.05 Women 9 9.15
Others 8.95 9.1 Others 9.05 9.2

75.01 Lacs & 75.01 Lacs &

Above Above

38
 Women 9 9.15 Women 9.1 9.25
Others 9.05 9.2 Others 9.15 9.3
Concession of 10 bps can be offered for borrowers with credit scores above 750, only
with BM / Ops Head approval

TOP-UP loans 9.5

Source: HDFC Ltd website

3.5 Stages of Home Loan

Data Entry
Application Login
Scanning

Recommendation
over (ROVR)
Double
Sanctioning Checking Over
(DC)

Prepayment or
Disbursement
Repayment of
of the Loan
loan

39 Closure of loan
 After Sales
Services

3.6 Distribution Channels

HDFC Corporation’s distribution channels include Sales Private Limited (HSPL), HDFC

bank and third-party direct selling associates (DSAs), BSAs agents, and the Call center

sales team. The call center team also includes the inbound team and the outbound team.

The inbound team connects with a lead that comes from a potential customer of HDFC

inquiring about the products or services. The outbound team reaches out with a prospect

to offer them the services/products by calling or cold emailing, both play an important

role in sourcing home loans. HDFC has third-party distribution tie-ups with commercial

banks, small finance banks, non-banking financial companies, and other e-portals.

3.7 Sourcing of loans

Out of the quantum of loans sourced

in FY 2021 which amounted to

Rs.5,69,894 crore, HDFC Sales

Private Ltd brought the most

business at 54%, followed by HDFC

bank at 27%, with third-party agents

being at 17%, Direct walk-ins only

accounted for 2% of its overall sales. 40

83% of the corporation’s individual

 Source: HDFC LTD, Annual Report 2021

3.8 Lending operations

The average ticket size of individual loans stood at 29.5 lakhs from both affordable

housing and higher-end properties. Based on loans disbursed, 78% were salaried

customers while 22% were self-employed. Out of the total loan disbursed, 55% were

first-purchase homes i.e., directly from the builder, 37% were through resale, and 8 %

self-construction. As of March 31, 2021, cumulatively, the corporation had funded 8.4

million housing units.

Housing loans approval to customers based on their income slab in FY21

41
Source: HDFC LTD, Annual Report 21

3.9 Repayment Facilities

The loan is repaid in EMI comprising principal and interest. EMI commences from the

first of the month following the month in which the disbursement of the loan has been

completed. The due date of payment of the first EMI is the 5th day of the month

following such a month.

Interest is paid on the portion of the loan disbursed which is called Pre-EMI. Pre-EMI

interest is payable every month from the date of each disbursement up to the date of the

commencement of EMI.

Customers may opt to pay the EMIs by direct deduction from their monthly salary. They

can also issue post-dated cheques and can also issue a standing instruction to their

bankers or can pay the installment at any of the HDFC collection centers.

Flexibility in Repayment
Following are the repayment option features being offered by HDFC to their customers:

 Step-up Repayment Facility (SURF): This scheme helps the young executive to take a

bigger loan today based on an increase in their future income, this will help executives

to buy a bigger home today. In this EMI’s of the customer increases in the future.

42
  Flexible Loan Instalment Plan (FLIP): Often customers, parents, and their children

wish to purchase property together. The parents are near retirement and their children

just started work. This option help customers combine their income and take a long-

term home loan wherein the instalment reduces.

 Tranching: To help the customers save their interest, HDFC introduced a special

facility known as Tranching. In this customer has the option to start their EMIs even

before the full disbursement of the loan. With this facility, customer can repay their

loan faster

 Accelerated Repayment Scheme: Provides borrowers the opportunity to repay the loan

faster by increasing the EMI. Whenever the borrower gets an increment, increase in

disposable income or have lump sum funds for loan repayment, they can benefit by

saving interest because of faster loan repayment.

3.10 Value chain

The value chain of HDFC Ltd are broadly two generic categories of activities – Primary
activities and

Primary Activities FIRM INFRASTRUCTURE

(e.g., Planning, Financing, Sanctioning, Disbursing)
HUMAN RESOURCE MANAGEMENT

43 Value
What
customers
are
willing to
 (e.g., Recruiting, Training, Compensation System)
TECHNOLOGY DEVELOPMENT
(e.g., Website, Process Design, Market Research)
PROCUREMENT
(e.g., Services, Machines, Advertising, Data)
INBOUND OPERATIONS OUTBOUN MARKETING AFTER-
LOGISTIC (e.g., Branch D LOGISTIC & SALES SALES
(e.g., operations, (e.g., (e.g., sales SERVICE
customer Assembly, customer force, (e.g.,
access, data component calling) Promotion, Installation,
collection, fabrications) Advertising, Customer
income Proposal support,
material writing, Complain
storage, website) resolution,
service) Repair)

Support Activities

3.11 Financial Highlights

Source: Annual Report

2011- 2012- 2013- 2014- 2015- 2016- 2017- 2018- 2019- 2020-
12 13 14 15 16 17 18 19 20 21

Profit After 4123 4848 5440 5990 7093 7443 10959 9632 17770 12027
Tax

44
Loans From 40697 17824 32952 26194 42802 37270 46802 77548 10490 10517
Banks and 9 9
Financial
Institute
Market 62138 89071 94443 11631 12084 15669 18164 18306 18186 18605
Borrowings 7 5 0 5 7 8 5
Deposits 36293 51933 56578 66706 74670 86574 91264 10559 13232 15013
9 4 1
Loans Under 15543 18701 21776 25333 29153 33847 40288 46191 51677 59689
Management 1 0 3 3 1 8 0 3 3 4
Loans 14087 17004 19710 22818 25922 29647 36281 40660 46090 49829
Outstanding 5 6 0 1 4 2 1 7 3 8
NPA 1069 1199 1357 1542 1833 1077.3 2052.3 2154.7 4249.8 5337.7
4 2 0 4

45
 Market Leader: HDFC enjoys great brand image with a
strong customer base.

Merger of HDFC-HDFC BANK- leading into 2nd largest

lender in India

No employer-employee Relationship: The working

Strength environment is such that all issues are dealt with as if family
matter, going the extra mile to give that personal touch
.
Successful track record of developing new products

OpportunitiesInnovative practices followed: With respect to giving the

front management the tools to deal with adverse situations
efficiently, a formal and systematic feedback mechanism is
MM kkfollowed
High cost of operations:
which further helpsThe
in business involves
augmenting high
the capability
and
administration
hassle-free procedures
cost and management
help to win expenses.
customers.As selling
Weakness needs some investment and hence there is a continuous
Digitalization
cash flow goingof activities brought
out in order Consistency
to do business &
development
Efficiency
K Delay in Service
Customer upgrading: Digitalization
is Best in the marketonly–inThe
limited areas.
customer
Threats service offered by the business is exceptionally good and
Highitrates
hence helpsof
in Interest
building than
branditsreputation
competitor

Fluctuation share price:

Strong fundamentals ForThe share price
Growth: frequent
As HDFC has better
fluctuation, causes investors to be uncertain.
quality parameters the other bank or HFC, profit is
expected to increase.
Limited
Foreign rural
Market:reach:
HDFC In rural areas,
has very HDFC
good does not enjoy
opporunities to
first-mover advantage as compared to
expand has its base in foreign markets.banking institutes.
New trends in the consumer behavior can open up new
Strength market providing a great opportunity for the HDFC to
Strength build new revenue streams and diversify into new product
categories too.
Migration of rural population to urban arears, will bring
Opportunities in more demands for home loans.
Stable cash flow provides ample opportunities to invest in
Opportunities new products and lastest technologies.
Social Media: There has been an increase in the number
Weakness of social media users worldwide. The three social media
platforms; Facebook, Twitter, LinkedIn and Instagram,
Weakness have shown the greatest number of increases in monthly
active users. HDFC Ltd can use social media to promote
its products, interact with customers and collect
Threats feedback from them.

Threats
46
 High competition
Increase in NPA: NPA Of HDFC is increased
significantly since the last 2 years is not a healthy sign.
New banks or HFCs are entering into the home loan
industry such as NAVI home loans which probably
Strength could be a threat to HDFC Ltd
Changing Policies hinders the operations of HDFC.
Comply with many rules and regulations framed by
RBI.
Opportunities Changing consumer buying behavior to the online
channel could be a threat to the existing physical
infrastructure driven supply chain model.
Different laws or policies followed in different
Weakness countries can restrict the functioning of HDFC in
foreign markets
Economic instability and Global Crisis: India are a
developing country and hence the economic condition
Threats
is instable. Talking about the recent crisis due to
CORONA VIRUS the World’s economy have slowed
CHAPTER 4

PRE-PAYMENTS OF HOME LOANS

4.1 Introduction

As Indians, most people think that debt is potentially troublesome. A loan is a debt that

one should typically repay at the earliest

A home loan part or pre-payments is the act of repaying a significant portion of or all the

outstanding principal of the Home Loan amount that they owe a financial institution.

Usually, a customer opts for this when they have surplus funds and want to get out of the

debt earlier than they had originally planned.

Important Factors to be considered before Pre-Payment of loans

o Considerations of one’s cash needs for goals, emergencies, etc.

o Compare return from an investment versus the cost of a home loan

47
 o Repay higher-cost Loans first

o Consider the stage of one Home Loan tenure

o Consider prepayment charges, if any

Pre Payments can be either:

● Partial Prepayment: Paying a part of the outstanding loan amount leading to a

reduction of tenure and saving on the interest amount.

● Full Prepayment: making a full payment of outstanding loan amount and freedom

from home loan debt.

While making pre-payment customers are given the following options:

 Same EMI (reduction of tenure)

 Increase EMI

 Reduce EMI

While making a prepayment additional simple interest is levied on the amount so been

pre-paid

The formula of Simple Interest:

Amount be pre-paid x Rate of Interest x Day on which prepayment is made

100 365 Days

HDFC offices are divided into 3 regions:

48
And each region is given a monthly budget for Disbursement and Prepayment

(in crores)

Western Suburbs 32

Central Suburbs 195

Navi Mumbai 110

630

The regions are not usually not allowed to exceed the given limit but if they do it gets

adjusted in the next month.

4.2 Advantages and disadvantages of Prepayment

Advantages of Pre-Payment

1. Liability relief

Paying off a part payment of home loans earlier removes the burden of defaults in a

bad economic period. It also frees up funds that can be invested in other instruments to

earn higher returns.

2. Shorten tenure length

Whenever a person’s make a pre-payment and maintain the same EMI, the tenure

period falls accordingly. With a reduced tenure, one can enjoy other benefits like saving

interest payments, lowering the principal, financial stability, and maintaining a good

49
 credit score.

3. EMI Alternations

With Part–Payment of home loans, a person has an option to change one’s EMI

according to one’s financial situation. One can increase the EMIs, if there is any salary

raise and finish the loan faster similar one can reduce the EMI.

Disadvantages of Pre-Payment

1. Pre-Payment Penalties

Banks and HFCs are not allowed to charge any penalties for prepayment. However, if

the loan has a fixed rate of interest, then a 2% prepayment charges is levied on it.

2. Lose out on tax benefits

The biggest disadvantage will be the loss of tax deductions under 80C. As per law, the

principal of up to Rs. 1.5 lakhs and interest up to Rs. 2 lakhs are tax-deductible on the

home loan.

3. Losing an opportunity to invest in other lucrative instruments

When one receives a big bonus or salary increment, the second option is to invest that

money in lucrative securities, getting an average return rate between 8% - 10% on

investments such as mutual funds, stocks, or debts. But choosing to prepay leaves one

with a huge loan prepayment disadvantage.

4. Lower Saving

To prepay the loan, one may end up exhausting all savings or income and may not

have any retirement fund or contingency fund in case something unexpected happens.

50
 According to industry insiders, medical expenses were one of the key reasons for

defaults among home loan borrowers. The situation was compounded by the loss of

jobs and regular income.

5. Prepayment during the later phase of loan tenure

  In the repayment schedule, the principal component is low in the initial phase and

increases towards the end of the tenure. It does not make sense to prepay the loan in

case it is close to being paid off as most of the interest payments are already done and

the current EMI charged is covering mostly the loan principal. In such cases, it is

better to avoid prepayment and invest the money in other more lucrative avenues

4.3 RBI Guidelines for Home Loan Prepayment

RBI in conjunction with the National Housing Bank (NHB) has laid a set of guidelines

about home loan prepayment, as a way to safeguard the interest of the borrowers. The

guidelines allow them to prepay their Housing Loans most efficiently and cost-

effectively.

While the RBI rules primarily apply to banks, the NBH rules are drafted for Housing

Finance Companies.

Banks and HFCs cannot levy prepayments fees in the following situations:

 For Floating Rate Home Loan

Banks and HFCs are not allowed to charge a Prepayment fee, either part or full

51
 prepayment.

 For Fixed Rate Home from HFCs

Prepayments for Fixed Rate Home Loans are made from their borrower’s own

sources of income, HFC is not allowed to charge a prepayment fee.

 Dual Rate Home loan

In a case where Home Loan has been shifted from a fixed rate to a variable rate, the

Bank or HFC cannot levy prepayment charges.

Banks and HFCs can levy prepayment charges in the following situations

 Loans taken by Non-Individuals

When non-individuals such as a company or a firm act as the borrower or co-

borrower of the loan, then banks or HFCs can levy prepayment charges in both

fixed or variable rate.

 Fixed Rate Home Loans

Banks and HFCs are allowed to charge a prepayment fee, both part or full

prepayment in case of refinancing.

 Dual Rate Home loans

In this case, the interest rate on a housing loan is fixed for the initial few years and

turned variable later on, banks and HFCs can levy a prepayment penalty if the

prepayment is made during the period when the loan attracts a fixed interest rate.

4.4 Pre-Payment Charges

52
 For Housing Loan

A. Adjustable-Rate Home Loan [ARDL]

No prepayment charges shall be payable for partial or full prepayment irrespective of

the source of funds.

B. Fixed-Rate Home Loan [FRHL] / Fixed First Home Loans (During initial fixed-rate

period)

No prepayment charges shall be payable for partial or full payments made from your

own sources. The expression “own sources” for this purpose means any source other

than borrowing from a Bank/HFC/NBFC or Financial Institution.

The prepayment charges shall be 2%, plus applicable service tax and surcharge, of the

outstanding amounts being so prepaid through refinance from any Bank/ HFC / NBFC

or Financial Institution (such amounts shall include all amounts prepaid during the given

financial year)

For Non-Housing Loans and Loans classified as business loans

(lease rental discounting, LAP / Home Equity Loan for Business Purposes, NRI Loans,

NRI Equity Loans, Top-up Loan)

A. Adjustable-Rate Home Loan [ARDL]

Prepayment charges shall be levied at a rate of 2% plus applicable taxes / statutory

levied on the amount being prepaid within 6 months; above 6 months, the borrower has

the option to prepay up to 25% (above 25% attracts 2% prepayment fee) of the opening

principal amount every financial year without any prepayment charges. After 36 months,

no prepayment charges

No prepayment charges shall be payable on account of part or full prepayments on loans

53
 against Property / Home equity loans sanctioned to individuals for other than business

purposes.

B. Fixed-Rate Loans (FRHL) and Combination Rate Home Loan (CRHL) during the period

of applicability of fixed Rate of interest

Prepayment charges shall be levied at a rate of 2% plus applicable taxes / statutory levies

of the amounts being so prepaid on account of part or full payments in case of

refinancing. No charges on prepayment through own fund

4.5 HDFC Prepayments Guidelines

General Guidelines

1. Prepayment can be done any time after the clearance of the 1st EMI.

2. Prepayment should be made for an amount that is greater than twice the EMI

3. Prepayment can be made only through Cheque, demand draft, or online.

4. Prepayment window remains closed for the last 3 days of the month.

5. A customer needs to submit a prepayment request letter along with copies of the

customer 3 months bank statement or any other documents that HDFC deems necessary

to ascertain the source of prepayment.

6. Prepayments are accepted by only Borrower, Co-Borrower, Power of authority,

or a third party (only with the authority letter of the borrower)

7. Prepayment effect is given as on the first of every month. Therefore, there is a

simple interest component charged on the amount be prepaid based on the date of

prepayment.

E.g., if a customer wishes to make a prepayment of Rs. 1,00,000 on the 16 th of June

54
 2022 with an ongoing ROI of 7.55%. The effect for this prepayment is been as of 1 st

June 2022 and hence the total amount collected shall be Rs. 1,00,331 including SI of

Rs. 331.

For Online Prepayment

1. Online Prepayment can be done only once a calendar month, the link for the

same will be sent to the customer via email or SMS upon request – valid for a day.

2. Maximum only 25% of outstanding principal can be prepaid online for the year

2022-23.

3. link can be sent to the customer for a maximum amount of Rs. 20 lakhs

4. For prepayment or full closure of greater than 25% or Rs. 20 lakhs, customer has

to visit the branch.

5. No online prepayment facilities are available for partially disbursed customers.

6. Once the customer is fully disbursed, online prepayment can be made after 1

EMI is debited.

For Offline Prepayment

1. There is no maximum limit for offline prepayments.

2. Can be made multiple times a month.

3. Next Prepayment can be processed only after 10 working days have passed from

the previous Prepayment.

4.6 Prepayments Inquiry

In case the customer requests for prepaying a part amount of the loan or foreclosure of

55
the full amount of the loan, the customer has to put in their loan account number on the

screen – Accounting – Prepayments

Once the customer is called out, the appraisal checks upon the following things.

1. Whether the customer is Partly disbursed or fully disbursed.

2. The type of Loan – Home Loan, NRI Loan, or Reach.

Then, use EMI Worksheet and Letters Option for the prepayment worksheet.

Obtain the duly signed prepayment request letter containing the file number, amount,

cheque details, and source of funds.

While declaring the source of funds, the following proof or documents need to submit for

verification of funds

Sources of funds Proofs or documents needed to be submitted

Savings – Indian Resident 3 months bank statements

Savings – NRI 3 months bank statements along with an NRI declaration

Sale of Property Index 2

Provident Fund Bank Statement showing the PF amount is been credited

or a letter from the employer

Fixed Deposit Bank Statements showing FD has been credited

Transfer of Insurance Insurance Re-assignment statement

amount to Home Loan

Go to EMI Worksheet and Letters Option Input File Number Enter

56
The effective date is today, enter the amount to be prepaid, and the system takes the

prepaid effective date as the 1st of the month, hence simple interest for the period when

principal funds are utilized has to be paid along with the prepayment amount.

By default, it decreases the tenure of the loan by opting to keep the EMI same

Or

It can decrease the EMI of the loan and keeps the tenure of the loan the same.

Or

It can increase the EMI by 50% leading to a decrease in the tenure of the loan.

For alterations in the EMI, customers’ ACH (Automated Clearing House) mandate is

checked to know the date of the EMI to collect or refund the differential amount if any,

for this month’s EMI.

E.g., If the customer wants to increase its EMI from Rs. 25000 to Rs. 30000 and he is

doing a prepayment 1 week before his EMI date, a differential amount of Rs. 5000 is

collected from customers as EMI auto-debit instruction is already given to the system one

week before the EMI date.

This case does not apply when the customer is doing a prepayment after his EMI gets

debited or there is a gap of more than a week from his EMI date.

Case Study: If the customer does a prepayment of the principal amount of Rs. 100000 on

20/06/2022 and ROI is 7.65%, then the effective date of prepayment of the principal

amount would be 01/06/2022 and 25 days simple interest of Rs. 419 + Rs. 100000 = Rs.

100419/- will be the amount for which the cheque should be drawn by the customer.

57
Enter the payment as “B”, cheque number, amount, bank code, and a cheque drawn by

me.

Print the prepayment letter and provide the same to the customer.

Attach the cheque deposit slip along with the cheque to be deposited with the bank.

4.7 Retention Department

The retention team is a set of people dedicated to retaining the existing customers.

The retention system gets triggered for the following reasons:

If a customer calls for-

1. Enquiry for prepayment or outstanding balance

2. Request for a list of documents (LOD)

3. Balance Transfer (BT)

Following actions are taken to retain the customers:

 The Customer is called and if not possible to connect, then an email is sent to the

concerned customer.

 For prepayment:

The customer is asked whether it’s a partial or full prepayment.

 For List of documents or Balance Transfer

Customers are asked for a reason for the above request.

 Conversion of Rate is also offered to the customer, i.e., they can shift to a lower

ROI by paying a conversion fee

As per Conversion Module

Conversion Rates are given as the customer’s CIBIL

58
CIBIL

Below 700 Front line or Level 1 rates

700 – 730 Retain Rate

730 + Special Retention Rates

Prepayments Module

59
60
61
Prepayment Acknowledgment

The Prepayment acknowledgment is given after a customer prepays, his/her loan.

62
Prepayment Request letter

This request letter is filled by the customer when he/she, comes to the branch to make a

prepayment.

63
4.8 Competitive Analysis

A competitive analysis is a strategy where one can identify major competitors and

research their products, sales, and marketing strategies. By doing this, one can create

solid business strategies that improve upon their competitors.

The purpose of the competitive analysis is to determine the strengths and weaknesses of

the competitors within the market, strategies that will provide a distinct advantage, the

barriers that can be developed to prevent competition from entering the market, and any

weaknesses that can be exploited within the product development cycle.

Competitors Profile

ICICI Home Finance

ICICI home finance company limited is an HFC regulated by the Reserve Bank of India

and is a wholly-owned subsidiary of ICICI Bank Ltd. They cater to salaried professionals

working with big or small organization set-up, be it, Proprietorship, Partnership, LLP,

Private or Public sector companies, or MNCs and self-employed.

Prepayments charges

For Home Loan, Land Loan, and Home Improvement Loan

Charges

Floating Rate of Interest NIL

Fixed-Rate of Interest 2% plus applicable taxes on principal

outstanding

Top-up used for business purposes 2% plus applicable taxes on principal

outstanding

64
 For Non-Housing Loans: Home Equity Loan/Home Equity Enhancement Loan,

Office Premises Loan, And Lease Rental Discounting Loan

Floating Rate of Interest (other than NIL

business purpose)

Floating Rate of Interest (business 4% plus applicable taxes on principal

purpose) outstanding

Fixed-Rate of Interest 4% plus applicable taxes on principal

outstanding

Prepayment charges above are applicable only on full repayment.

Applicable only for Non-Individual borrowers (Private Ltd, Public Ltd, Partnership

Firms, Proprietorship firms, HUF).

Nil charges on part pre-payment of the loan.

General Guidelines for Prepayment

1. Prepayments can be both online and offline.

2. Prepayment can be done any time after the clearance of the 1st EMI.

3. Prepayment can be made after deduction of 1 EMI.

4. Minimum Prepayment should be more than 1 EMI.

5. Prepayments can be made through Cheque or Cash

For online Prepayment

1. Mandatory ICICI saving accounts are needed.

2. Can be done through ICICI internet banking (ICICI saving account has to be

linked to the home loan account)

3. Part payments should be a minimum of 1 EMI or a maximum of 6 EMI.

65
 4. Part payments can be done once a calendar month through NEFT.

5. An authority for direct debit form has to fill which will debit the prepayment

amount on or prior to (within 15 days) of the date mentioned.

For offline Prepayment

1. There is no maximum limit.

2. Can be done multiple times a month

SBI Home Loan

SBI Home Loans is the largest mortgage lender in India, which has helped over 30 lakh

families to achieve their dream homes.

Prepayment charges

 No pre-payment/ Pre-closure penalty will be levied on Home Loans irrespective of the

period for which the account has run or source of funds.

 SBI attracts up to 3% SBI Home Loan prepayment charges if one wants to pay off

their loan early or does a balance transfer.

General Guidelines

1. Prepayment should be more than 1 EMI.

2. Prepayment can be done any time after the clearance of the 1st EMI.

3. Prepayments can be done both online and offline

4. Prepayments are accepted through cheque, demand draft, or cash

5. For online prepayment one should mandatory have an SBI account.

6. For offline prepayment there is no upper limit.

66
AXIS Bank Home Loans

Axis bank provides affordable and flexible home loans designed to take customers closer

to their dream homes. Their Home Loan affordability calculator is based on the

customer’s requirements, such as tenure, loan amount, and interest rates to give an

estimate of their EMI.

Prepayment charges

 Prepayment charges including part payment for floating rate loan is NIL

 Prepayment charges including part payment for a fixed-rate loan are 2% of

outstanding principal/amount prepaid.

General guidelines

1. Prepayment can be made of a minimum of 1 EMI

2. Prepayment can be done any time after the clearance of the 1st EMI.

3. Prepayments are accepted in cheque and demand draft

4. There are no online facilities for prepayments, only offline options are available.

YES Bank Home Loan

YES, Bank home loans are available for both salaried and self-employed individuals. In

addition to this, YES BANK also offers home loans to Non-Resident Indians (NRIs) as a

part of its special Global Indian Banking Program for Non-Resident Indians.

Prepayments Charges

 Prepayment charges including part payment for floating-rate loans are NIL.

67
  Prepayment charges including part payment for a fixed-rate or semi-fixed rate

loan are 4% of outstanding principal/amount prepaid.

General guidelines

1. Prepayments are only accepted offline online prepayment facilities are available.

2. Prepayment can be done any time after the clearance of the 1st EMI.

3. Prepayments are accepted only by cash or cheque.

4. There is no maximum limit for prepayments

Bajaj Housing Finance Limited

Bajaj Housing Finance Limited has been incorporated as a housing finance company

under the Companies Act, 1956, regulated by the National Housing Bank. Bajaj Housing

Finance Limited (BHFL) is a 100% subsidiary of Bajaj Finance Limited. Bajaj Housing

Finance Limited offers finance to individuals as well as corporate entities for the

purchase, construction, and renovation of homes or commercial spaces. It also provides

loans against property for business or personal needs as well as offers working capital for

business expansion purposes. It also offers finance to builders and developers engaged in

the construction of homes.

68
Prepayments Charges

Floating Rate Loans to Individuals / Non-Individual except for business purposes

Term loan Flex Term loan Flexi Hybrid Loan

Period (months) >1 >1 >1

Part Prepayment NIL NIL NIL

Charges

Full Prepayment NIL NIL NIL

Charges

Floating Rate Loans to Individuals / Non-Individuals for business purposes

Fixed-rate loans for All Borrowers (including Individuals) **

Period (months) >1 >1 >1

Part Prepayment 2% on part NIL NIL

Charges payment

Full Prepayment 4% on Principal 4% on the available 4% on sanctioned

Charges outstanding Flexi loan limit amount during

Flexi interest-only

loan repayment

tenure and

4% on the available

Flexi loan limit

during Flexi term

loan tenure

69
GST is applicable in addition to the prepayment charges.

** NIL for Housing loan closed by the individual by own funds.

Guidelines

1. Prepayments can be done both online and offline.

2. Prepayment can be done any time after the clearance of the 1st EMI.

3. Prepayments made should be at least equal to or greater than 1 EMI.

4. Prepayments are accepted by cheques or Demand Draft.

5. Prepayments made through cheques or Demand Draft are not accepted from the

25th day of the current month to the 3rd day of the subsequent month.

Kotak Mahindra Bank

Kotak Mahindra Bank provides several home financing solutions to satisfy customers’

needs, be it the purchase of a house, construction, or renovation of it, it provides a smooth

and efficient home loan process enabling them to achieve their goals.

Prepayments charges

For floating rates of Interest

NIL for Term Loans given to Individual Borrowers for non-business end-use.

Others (Individual borrowers for business end-users and Non-individual borrowers):

• No prepayment/foreclosure is allowed until a Lock-in Period of 6 months after EMI

Commencement

• Post-lock-in period, part prepayment of minimum Rs. 25,000 and a maximum of up to

25% of the outstanding loan amount can be made without any prepayment charges every

6 months

70
• The minimum period between any two prepayments shall be at least 6 months

• For any Part Prepayment over 25% of the outstanding loan amount: 3% (plus taxes and

any other applicable statutory dues) of the excess prepayment amount

• For Full Prepayment any time after the Lock-in Period: 3% (plus taxes and any other

applicable statutory dues) of the Foreclosure Loan amount plus amounts prepaid during

the last 12 months.

General Guidelines

1. Prepayment can be done any time after the clearance of the 1st EMI.

2. Prepayments can be made both online and offline.

3. Prepayments are accepted in cash or cheque

Citi Bank

“Innovative mortgage solutions for your life’s changing needs”

Citibank provides different types of mortgage products at different stages of life. A

mortgage loan goes a long way in financing one’s aspirations, so Citibank mortgage

products are packed with a new house, renovation, investment in property, or transferring

of existing loans, Citibank presents a widest range of mortgage loans solutions with

different mortgage loan rates.

71
Prepayment charges

Home Loans

Loan type Charges

Fixed-Rate home loan NA

Floating rate Home Loans OR Semi Fixed NIL

Rate Home Loans during the period when the

rate of interest is variable

Semi-fixed rate Home Loans during the  Nil for part prepayments less than 25% of

period when the rate of interest on the loan the sanctioned loan amount in a financial

is fixed. year (i.e., April 1 to March 31).

 In the event the loan is closed within 12

months of the part prepayment date,

the part prepayment will also be subject

to foreclosure charges.

 During the Semi Fixed period, for part

prepayments of more than 25% of the

sanctioned amount in a financial year,

charges will be levied at the rate of 2%

Prepayment Penalty Charges, if applicable + taxes

General Guidelines

1. Prepayment can be done any time after the clearance of the 1st EMI.

2. Prepayments can be made both online and offline.

3. Prepayments are accepted in draft or cheque or NEFT.

72
 4. Prepayments made should be at least equal to or greater than 1 EMI

HSBC

HSBC’s origins in India date back to 1853 when the Mercantile Bank of India was

established in Mumbai. The bank has grown steadily and now offers products and

services to corporate and commercial banking clients and retail customers. The

Mercantile Bank was bought in 1959 by The Hongkong and Shanghai Banking

Corporation Limited.  Loans are available to Resident Indians and Non-Resident Indians

(NRIs) for ready properties and select under-construction properties approved by HSBC.

NRI applicants must have a local co-applicant or a local contact person.

Prepayment Charges

Type Charges

For Floating Rate of Interest NIL

For Fixed Rate of Interest Up to 25% of the loan amount sanctioned

in every financial year: NIL

For amounts more than 25% of the loan

amount sanctioned in every financial

year: 3% of the amount prepaid

General Guidelines

For processing pre-payment requests, one has to send HSBC a written instruction

communicating their desire to pre-pay with the intent of wanting to reduce the loan tenure

or EMI. In case no clear instruction is received to reduce loan tenure or EMI, we will by

73
default reduce the loan tenure basis the pre-payment amount received.

CHAPTER 5

LITERATURE REVIEW

Every human being aspires to have his/her own home, it’s a fundamental need of human

beings and an essential prerequisite for physical, intellectual, and mental development.

The term “Housing Loan” is a loan of finance for buying or modifying a house. The

paper aims to study the behavior of consumers toward home financing. Several factors

include the socioeconomic profile of respondents, the number of earning members in the

applicant house, to increase their eligibility for getting loans, the type, and purpose of

loan seeker, average general loan amount, tenure seeker’s preference, and customer

awareness regarding their CIBIL scores. (Jain, 2018)

According to the census of 2011, 377.1 million Indians comprising 31.14 % of the

country’s population live in urban areas, which is projected to grow to more than 600

million by 2031, According to the National Association of home builders, the housing

industry as a whole contributes 17% to 18% of India’s GDP, offering huge untapped

potential, especially in the affordable housing segment. A comparative study on

consumer preference between the public sector and private sector banks/housing finance

companies for taking a home loan was carried out, which inferred that about 81.8% of

Government/Public sector employees and 66.7% of Private sector employees choose the

Public sector banks because they provide a low rate of interests, transparency, low

penalty and hidden charges, the majority around 35.9% select a particular Bank/HFC

which provides the lowest rate of interest. It also reveals that the Public Sector Banks are

74
at par with the Private Sector Banks but the Housing Finance Companies are better at

providing housing loan products and related services. (Agrawal, Jul-Sep2021)

Prime Minister Modi, drive to bring affordable homes to the country’s 1.3 billion people

by investing $1.3 trillion in the housing sector over the next seven-year, which help in

building 60 million new homes between 2018 and 2024 but also create 2 million jobs

annually and will give a tailwind of as much as 75 basis points to India’s gross domestic

product. (Archana Chaudhary, 2017)

The Indian government has decided to lower the tax rate on unfinished residential

buildings and affordable houses (i.e., houses with a carpet area of up to 60 square meters

in metro cities and 90 square meters in non-metro locations with the value of up to 4.5

million rupees) to boost real estate sector as well as to ease the financial burden on home

buyers, especially to a middle class, neo middle class, and the aspirational middle class.

The tax rate cuts are likely to cover 90 – 95 percent of houses in Tier two and three cities

and about a third of the top-tier ones. (Beniwal, 2019)

During COVID-19, central banks all over the globe used three key tools to make the most

out of the housing situation: Open market operations, interest rates, and reserve

requirements. RBI had also slashed repo rates, reaching a two-decade low at 4.4%, the

reverse repo rate to 3.75%, and the cash reserve ratio to 3%. New policies were

formulated, and tax benefits were given to home loans more affordable to middle and

lower-income groups. COVID-19 gave rise to many problems: with migrants wanting to

return to their villages, there was non-availability of a workforce was an immediate

concern. In addition, new housing projects required a lot more time, with builders

75
mobilizing their resources to ensure completion. Hence, the general impact has been

somewhat negative yet optimistic when it came to demands. (Finance, 2021)

The Indian government has subsidized interest costs for small borrowers who have

availed of a six-month loan repayment holiday to survive as the pandemic has affected

their cash flows. The government had paid the “interest on interest” on loans of as much

as 20 million rupees up to August.31. The proposed plan will benefit small borrowers and

will include those who have cleared their dues, for a range of loans between March and

August. (Trivedi, 2020)

The liquidity crunch facing property firms and their lenders in India has deepened after

the NHB restricted certain mortgage payments plans such as subvention plans where the

builder pays interest on the buyer’s home loan for under-construction projects until the

property is ready, which allowed the home purchasers to delay interest payments while

the developers would get steady funding at lower interest rates, which was typically used

by them to push sales. The removal of that funding avenue has impacted small and

medium-sized developers in particular who had access to low-cost funding as opposed to

more expensive construction financing. (Pandya & Satija, 2019)

The two schemes, Pradhan Mantri Awaas Yojana – Grahim (PMAY-G) and Pradhan

Mantri Awaas Yojana – Urban (PMAY-U) seek to achieve their target of housing for all

by 2022. Under PMAY-G, the number of houses completed in a year increased by more

than four times, from 11.95 Lakh in 2014-15 to 47.33 Lakh in 2018-19. Under PMAY-U,

11.2 million houses have been sanctioned and 4.8 million houses have been completed.

(Ace Analyser: Company News., 2020)

76
HDFC is one of the top Housing finance lenders with a capital adequacy ratio of 17.6%

and has been able to skirt a festering shadow banking crisis that has weakened most of

India’s financial sector, which is already struggling with the highest bad-loan ratio among

major economies. Housing Development Finance Corporation plans to raise 140 Billion

rupees through the sale of shares or bonds to boost buffers amid the coronavirus

pandemic. The raised money is been used for purposes including organic growth,

acquisitions and to maintain sufficient liquidity. (Ghosh, 2020)

India’s largest mortgage lender HDFC has announced that it will merge with the

country’s largest private sector lender, HDFC Bank, creating one of India’s largest

financial conglomerates able to cross-sells its products to more than 68 million

customers, with a balance sheet of 17.87 trillion rupees and net worth of 3.3 trillion

rupees. HDFC Bank’s mortgages recorded a CAGR of 24.5% and reached a total of

702.2 billion rupees in 2021. In this deal, HDFC’s shareholders will receive 42 shares in

HDFC Bank for every 25 shares held. HDFC Bank will be wholly owned by the public

and existing shareholders of HDFC will own 41% of HDFC Bank after the merger is

completed, which could come as late as the third quarter of 2024. (Rosendar, 2022)

RBI has increased its Repo rate by 50 basis points (bps) to 4.9 %, which is the second

hike in a month, which eventually led to an increase in lending rates. The RBI kept its

growth forecast unchanged at 7.2 percent for FY23. With rising inflation, it has been

forecasted that it will raise by 100 bps to 6.7 % for this fiscal year. However, the present

Repo Rate is lower than the pre-covid rate which was 5.15%. About 53% of loans in the

banking system are linked to the marginal cost of fund-based lending rate (MCLR),

which has also increased its MCLR after the 40-bps repo rate hike in May. This proves

77
the lending rates are largely affected by inflation. (Saha, 2022)

HDFC Ltd. has increased its Retail Prime Lending Rate (RPLR) on housing loans, a day

after the RBI increased the repo rate by 50 basis points (bps). The new rate starts from

7.55% at the mortgage lender, effective from June 10, 2022. (Hindu, 2022)

Whenever an individual procures a home loan, he/she claims Income tax deductions on

the HRA component in their salary and home loan repayments. A borrower can get an

Rs, 2 lakh deduction under section 24b of the Income-tax Act, 1961 on the interest

payment and Rs. 1.5 lakh on principal repayment under section 80C. In case a borrower

lets – out of their house, they can claim benefits only on interest payment of their home

loan, however, a self-occupied house lets an individual claim a tax deduction on the

interest payment along with on repayment of principal.

Earlier, when individuals had two self-occupied houses, they could claim only one as a

self-occupied house and the second house, to be considered as a let-out and pay taxes on

the rent. However, with effect from Financial Year 2019-20, the Finance Act permitted

individuals to claim 2 houses as self-occupied property.

The government has set new rules for individuals having two self-occupied houses to

save tax

1. Two self-occupied houses in different cities and living on rent in any of these two

cities

Here, a borrower can claim both deductions HRA (for the rented property) and home

loan repayment (for the self-occupied property), provided the individuals cannot

occupy their due to employment reasons only.

78
2. Two self–occupied houses in different cities and living on rent in a third city

An individual living on rent in a third city, other than the cities where they have their

two self-occupied houses, can claim tax HRA and home loan interest tax benefits.

Provided, they do not own a house in the city of employment and hence live on rent.

3. Two self-occupied houses in one city and living on rent in the same

An individual, despite having 2 houses in the same city, stays in a rented property to

move closer to their job locations or business place, are eligible to claim an exemption

for HRA as well as claim deduction for interest paid on house and deduction for

principal repayment. Provided the reason being only for employment purposes.

4. Two self-occupied houses in one city and living on rent in any other city

Similar to the above case, if individual lives on rent in another city, can claim HRA

and other deductions.

5. Let ‘sets out one or both the houses in different cities and live on rent in a third city

If an individual lets out one of the houses, he/she will not be able to claim for

deductions with regard to principal repayment, however, can claim deductions with

regard to interest payment. (Kumar, 2022)

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CHAPTER 6

RESEARCH METHODOLOGY

6.1 Introduction
Data are an essential input to the effective analysis of the perception of the customer
towards prepayment of their home loans. Hence, we have applied Research Methodology.
Research Methodology provides a way to solve a problem scientifically by using
different steps.
J.W. Best (1999) defined that Research is well thought-out to be a properly organized,
exhaustive process of carrying on the scientific method of study. It involves a more
organized arrangement of analysis usually resulting in some form; record of procedures
and report of results or conclusions.
This chapter focuses on the research design which includes the justification of the
research methods, objectives, and the design of the data collection.

6.2 Objectives
1. To have an in-depth understanding about prepayments.
2. To identify any pattern in prepayments.
3. To understand the perception of a borrower towards its home loan.
4. To understand the preferred source of prepayments done by a borrower.
5. To identify the top competitors of HDFC Ltd.
6. To find out the maximum tenure of a home loan.

6.3 Scope of study

The scope of this is to get acquainted with prepayments, the pros and cons of
prepayments. The prepayment charges applicable for different rates of loans. The
different processes or schemes provided by HDFC Ltd and various other banks or HFC
for prepayments. The various guidelines set by RBI for prepayments for banks and
housing finance companies.
This study focuses on understanding borrowers’ different perception about prepayments,

80
the reason and the source of funds by which a borrower is prepaying a loan. If an
alternate investment option is given instead of prepayment will a borrower opt for it.
This study also attempts to study the maximum tenure (in years) a borrower holds on to
its home loan. The top competitors of HDFC Ltd. The study also included to understand
the company profile of HDFC and its other competitors and in general the overall home
loan industry.

6.4 Limitations
1. The results are pertaining to the available 3 months data only.
2. The study is not covering the past financial records
3. The study based on limited understanding of prepayments.
4. The study period covers only limited hours of research work.
5. The study is not taking into account the administered expenses.
6. Answer to the questionnaire depends upon the beliefs and prejudices by the
traders and self-employed persons.
7. It is assumed that respondents are true and honest in expressing their views and have
filled the questionnaire honestly and without any bias.
8. The present study is restricted to information collected about the prepayment with
the help of questionnaire and secondary data.

6.5 Research Design

The research design is based on the theoretical structure within which research is
conducted. It constitutes the plan for the collection, arrangement, and analysis of data. A
research design includes operational implications for the final analysis of the data. In this
study, we are applying a descriptive research design strategy.

6.6 Research Methodology

The methodology is the key aspect that governs the outcome of the research. It
encompasses and directs the researcher to conduct the research in a systematic process
that ensures and facilitates the accuracy of the outcomes. The methodology deals with the
population of the study, method of data collection, sampling plan, sample size, the
technique of data collection, types of data used for the research, and statistical tools

81
applied.

6.7 Nature of Data

The research study consists of primary as well as secondary data.
Primary data is the first handed data collected by the researcher and it is original in
nature. Primary data has been collected through questionnaires and interviews. Statistical
techniques are used to interpret the data as per the requirement and also for data analysis
with help of Bar Diagrams, Pie chart etc.
Secondary data is second handed data, it’s a data that has been collected by someone else.
Secondary data can be collected through newspaper, magazines, journals, articles,
documents from websites, government sites and other sources of information.

6.8 Tools for Data Collection

The study considers both the types of data i.e., primary source as well as secondary
source of data. Primary data was collected through a structured questionnaire. The
questionnaire consists of two divisions. The first part included questions related to profile
background of the respondent whereas the second part relates to the questions regarding
prepayments, its source, preferable mode of payment, alternative investments instead of
prepayments in all their perception and reasons behind their prepayments. The data was
collected by personal interviewing them in the branch. Sample respondents were
requested to give free and frank respondents and not on bias bases.

Secondary data includes 3 months i.e., March, April and May prepayment data from
internal source.

6.9 Sample Design

Simple sampling method is used to collect data. Forty respondents each were taken from
Andheri-Kurla Road. A structured questionnaire was given to respondents which
consisted of both open ended and close ended questions.

82
6.10 Population of the study
The populations of the study constitutes both:
i. Employed: including individuals, Chartered Accountants, Doctors,
Lawyers, Architects, Qualified Consultants, Engineers, Company Secretary.
ii. Self-employed: including Traders and Dealers, Manufacturers, Professionals

6.11 Sample Size

The sample size of 40 respondents was taken. Total 40 respondents were asked to fill up
the questionnaire.

6.12 Questionnaire Design

A Structured questionnaire was prepared and distributed among salaried and self-
employed persons to know their perception and preferences regarding the prepayments.

6.13 Tabulation and Classification of Data

The data was collected through a standardized questionnaire and tabulated. The data
has been classified on the basis of gender, loan identification, preferable mode of
prepayment, alternate investment options preferred by the customers.

83
CHAPTER 7

DATA ANALYSIS

This work focuses on the perception of customers regarding prepayment via a

questionnaire from 40 respondent and the past 3 months’ data of March 2022, April 2022,
and May 2022.

The questionnaire has two parts. The first section relates to the demographic profile of

the respondents i.e., gender, loan identity i.e., borrower, co-borrower, or third party. In

the latter part, the respondent was asked questions regarding their preferred mode of

prepayment, the changes made, the sources of funds, reasons for choosing HDFC, and

their overall satisfaction with HDFC.

The secondary data is obtained from internal sources. The data is studied as borrowers’

perceptions and trends in prepayments if any during the financial year-end and the

following months.

1. Gender of the Borrowers:

The below data is a primary data collected via questionnaire from sample size of 40

respondents.

Table 7.1 Classification of respondent based on their gender

Gender Total
Male 31
Female 9
Total 40

Figure 7.1 Classification of respondent based on their gender

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 Interpretations:

Table depicts that majority of borrowers coming for prepayments are Male and

remaining 22.5% are Female. One of the reasons could be, usually men in their houses

take the financial decisions and are cognizant about it, where as many women are not

aware about know-how of their home loans as compare to the women who are coming

to make a prepayment.

2. Classification of borrowers

The borrowers are classified as two types:

iii. Employed: including Individuals, Chartered Accountants, Doctors, Lawyers,

Architects, Qualified Consultants, Engineers, Company Secretary.

iv. Self-employed: including Traders and Dealers, Manufacturers, Professionals

Table 7.2 Classification of respondent based on their profession

Total
Employed
5149
Self Employed 827

Total 5976
Figure 7.2 Classification of respondent based on their profession

85
 Chart Title
6000

5000

4000

3000

2000

1000

0
Self Employed

Interpretation:

Table shows in total 5976 customers have made the prepayment in the calender month of

March and April 2022, out of which majority i.e 86% were employed borrowers

and the remaining 14% by self employed. This reveals that self employed borrowers opt

to hold on to their home loan for a longer tenure instead of prepaying the outstanding

principal as compare to employed borrowers. One of the reasons behind this can be, the

self emlpoyed individuals wants to enjoy the benefits of tax deductions, in order to save

in more profits.

3. Identification of borrower

The below data is a primary source, collected via questionnaire from sample size of 40

respondent. A borrower can be the Main Applicant/Borrower of the loan, Co-applicant

/ Co-Borrower or can be a Power of Attorney.

86
 Figure 7.3 Classification of respondent based on their identification

5%

Interpretation: i

Majority of main applicant i.e., borrower come to make their prepayments, followed by

the POA and then the co-borrower. One of the reasons behind is majority of borrowers

and their POA’s are male who are aware but their home loan process, which is seen less

in case of women, who most of them are the co-borrower.

4. The most preferred mode for prepayments

The below data is a primary source, collected via questionnaire from sample size of

40 respondent. There are two modes that HDFC offers to their customer for

prepayment: Online and Offline

Figure 7.4 Classification of respondent based on their preference

87
 Interpretations:

Figure shows that majority of borrowers prefer offline as compare to online

prepayments. Reasons being some of customers are from lower income groups who

do not have the facilities or are not comfortable doing online prepayments, some of

customers who face difficulty paying online come to the branches to do so and the

last being there is limit for online prepayments, any amount excess to limit the

borrower has to come to the branch. In case of full prepayments, the customer has to

mandatory do it from branch.

5. Sources of prepayments for Full Prepayments

There are many sources of funds through which a borrowers used for prepaying his

loans. The data shows the most preffered source. The below data is of the the calender

month of March, April and May 2022

Table 7.5 Sources of funds for prepayment

88
 End of a New
financial Financial
year year
SOURCE OF PREPAYMENT March April &
May
DEATH CASE 5 4
LOAN CALLED BACK / SARFAESI 1 -
LOAN FROM EMPLOYER 10 6
LOAN FROM OTHER FINANCIAL INSTITUTION 102 1
PROCEEDS FROM LIC 1 4
PROVIDENT FUND PROCEEDS 3 1
RETIREMENT BENEFITS 2 -
SALE OF FLAT 12 -
SALE OF FLAT – OTHER PROPERTY 16 12
SALE OF MORTGAGE PROPERTY 89 14
SAVINGS 1588 1886
STRETCHED LOAN 1 -
SUPPORT FROM FAMILY/FRIENDS 6 3
Total 1836 1931

Intrepretations

Table shows that majority of borrowers usually make a prepayment by using their

savings, this also reveals most of the borrowers have prepaid their loans in March being

the financial year end as compare to April and May combined, followed by loans from

other financial instutions, this is most used by self employed borrowers as the year end

approachs they apply for more loans to avail tax benefits but this source has been used

the least during the new financial year. In the new financial year, borrowers are selling of

their mortgage property to prepay their loans. Proceeds from LIC and Provident fund is

the least preffered.

6. Sources of prepayments for Full Prepayments

There are making sources of funds through which a borrowers pays of his loans. The

data shows the most preffered source. The data is a comparisons between March- the

financial year and the subsquent months i.e., is April and May.

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 Table 7.6 Sources of Funds for Full Prepayment
End of a New
financial Financial
year year
SOURCE OF PREPAYMENT March April &
2022 May 2022
DEATH CASE 5 10
LOAN CALLED BACK / SARFAESI - 1
LOAN FROM EMPLOYER 9 21
LOAN FROM OTHER FINANCIAL INSTITUTION 57 177
PROVIDENT FUND PROCEEDS - 8
RETIREMENT BENEFITS 2 3
SALE OF FLAT 14 100
SALE OF FLAT - OTHER PROPERTY 15 16
SALE OF MORTGAGE PROPERTY 58 288
SAVINGS 892 1562
SUPPORT FROM FAMILY/FRIENDS 5 7
STRETCHED LOAN 1 -
Total 1058 2193

Intrepretations:

As it’s the end of a financial year many people prefer to clear the debts and the majority of the

borrowers in both the cases have cleared off their loans through savings. The difference comes in

the 2nd most preferance of the borrowers, borrowers are clearnig off their loans in March have

done it through Loans other financial institutes which also reveals most of them have transferred

their balance to other banks or HFC resulting into loss to competitions to HDFC Ltd or availed a

new loan. In new financial year i.e., in April and May most borrowers are selling of their

mortgage property either to opt for new investments or to get rid of the debt burden.

7. EMI alterantions done by the borrower while prepayments.

The below data is a primary source, collected via questionnaire from sample size of 29

respondent. A borrower making prepayments are given an option to make changes in

their EMI. They can either keep their EMI same (that will automatically reduce their

90
 tenure) or increase or decrease their EMI.

Figure 7.7 EMI alternations chosen by borrowers

Total
Same EMI 23
Increase in EMI 3
Decrease in EMI 3
Total 29

Figure 7.7 EMI alternations chosen by borrowers

10.3%

Interpretation

Table reveals that majority of borrowers are opting to keep their EMI same which will

automatically reduces their tenure, due to which they be will able to clear their home

faster, similar is the case when a borrower wants to increase their EMI. Borrowers

opting for reduction in EMI, see a raise in their tenure which is chosen by limited

borrowers.

8. Maximum loan tenure.

The below data shows the maximum tenure a borrower holds on to their home loan

after which they pay off their home loan

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 Table 7.8 Maximum loan tenure
Years Employed Self employed
0–3 345 297
4–6 324 169
7–9 140 64
10 – 13 75 10
14 – 16 21 6
17 – 19 17 -
Total 922 546

Figure 7.8 Maximum loan tenure

16
14
12
No Of Years

10
8
6
4
2
0
Employed Self Employed
Types of Borrower

Interpretation:

Table shows majority of employed borrower pay off their loan in first 3 years from

their disbursement and a hand full of them keep their home loan going till 19 years.

Similarly, in case of self-employed borrower, minimum holding period is 3 years to

maximum 16 years. The diagram shows the average tenure an employed and self-

employed holds on to their home loan. The data also reveals that there are borrowers

who clear of their loans within 1 year of their disbursement.

92
9. Balance transfer done by borrowers
Balance transfer done by any customer is a lost for HDFC. The below table shows the

top competitors to HDFC.

Figure 7.9.1 Balance transfer (BT) done for March 2022

TATA CAPITAL HOUSING FINANCE LIMITED

STATE BANK OF INDIA
SHINHAN BANK
SARASWAT COOP BANK
PIRAMAL HOUSING FINANCE LTD
NKGSB CO-OP BANK LTD
LIC HOUSING FINANCE LTD
KOTAK MAHINDRA BANK LTD
IDFC BANK LTD
IDBI BANK LTD.
ICICI HOME FINANCE COMPANY LTD
ICICI BANK LTD
institution

HSBC LTD
HDB FINANCIAL SERVICES LTD
FEDERAL BANK LTD
DEVELOPMENT BANK OF SINGAPORE
CITIZEN CO-OP BANK LTD
BANK OF INDIA
BANK OF BARODA
BAJAJ FINANCE LTD
AXIS BANK LTD
ABHYUDAYA CO-OPERATIVE BANK LTD
0 5 10 15 20 25

Total No of BT

93
 Figure 7.9.2 Balance Transfer (BT) done for April & May 2022
YES BANK LTD
UNION BANK OF INDIA
SVC CO-OP BANK LTD
STATE BANK OF INDIA
SARASWAT COOP BANK
PUNJAB NATIONAL BANK
LIC HOUSING FINANCE LTD
L&T HOUSING FINANCE LTD
KOTAK MAHINDRA BANK LTD
INDIAN BANK
IDFC BANK LTD
IDBI BANK LTD.
ICICI HOME FINANCE COMPANY LTD
Institutions

ICICI BANK LTD

HSBC LTD
HERO HOUSING FINANCE CO LTD
HDFC BANK LTD
FEDERAL BANK LTD
CITIBANK N.A.
CHOLAMANDALAM INVESTMENT AND FINANCE LIMITED
BANK OF MAHARASHTRA
BANK OF INDIA
BANK OF BARODA
BAJAJ ALLIANZE
BAJAJ FINANCE LTD
AXIS BANK LTD
AADHAR HOUSING FINANCE LTD
0 5 10 15 20 25 30 35
Total No of BT

Interpretations

Table shows during the end of the financial year in March, most the borrowers did a

balance transfer from HDFC to SBI, due their end to season offer in which they waived

off the processing fee. Then second comes Bajaj finance followed by ICICI bank and

94
Axis Bank. In the new financial year, in the month of April and May, borrowers did a

balance transfer to BAJAJ Finance Ltd from HDFC, followed by ICICI Bank, Axis bank

and a new emerging competitor HSBC. We can conclude the top 5 competitors of HDFC

Ltd are Bajaj finance, followed by SBI, ICICI bank and the remaining two Axis bank and

HSBC.

10. Investment option preferred by borrowers instead of prepayments

The below data is a primary source, collected via questionnaire from sample size of

40 respondent.

Figure 7.10 Other investment options chosen by respondents

2.6%
2.6%

Interpretations:

Table shows that majority of the borrowers would prefer to make a prepayment,

instead of delaying it. The reasons being that the customer has already come for the

prepayments and at that moment trying to convince the borrower to delay their

prepayment is not possible. This should do at an earlier stage. However, there are a

few borrowers who were open to this idea.

95
11. The most preferred reason why borrowers selected HDFC Ltd

The below data is a primary source, collected via questionnaire from sample size of

40 respondent.

Figure 7.11 Respondents perception about HDFC

25

20

15

10

0
better facilities desirable ROI having HDFC bank Referred by Convenience
Account friends / Relatives

Interpretations

Figure reveals that most of the customers chose HDFC Ltd for their excellent customer

services and they get their desirable ROI. Customized products to cater the customer

needs and personalized service is always been the way HDFC ltd works.

96
CHAPTER 8

CONCLUSION
This study on Prepayments is an effort to study a borrower’s perception behind

prepayments, the sources he is using to make the prepayments, the maximum tenure a

borrower holds on to their home loan, and their level of satisfaction with HDFC. This

study is based on the analysis of the data collected by 40 respondents through a structured

questionnaire. This chapter presents the findings based on the analysis of data,

suggestions, and the conclusion.

8.1 FINDINGS

1. Majority of borrowers or their Power of attorney (77.5%) who come to make their

prepayment then women

2. Majority of employed borrowers like individuals, Chartered Accountants, Doctors,

Lawyers, Architects, Qualified Consultants, Engineers, and Company Secretary come

to make a prepayment as compared to self-employed business borrowers.

3. Majority of borrowers felt it convenient to make prepayment offline over the counter

4. Savings is a major source of funds used by borrowers either to make a part or full

prepayments, the next being through loans from other institutions and the sale of

mortgage flats.

5. While making prepayments, most of the borrowers choose to maintain the same EMI,

which means the tenure will get reduced, leading to faster clearing off the loans.

6. In the case of majority employed borrowers hold their loan for a maximum of 3 years

but there is a hand full of borrowers holding their loan for up to 19 years.

97
7. In the case of majority self-employed borrowers hold their loan for a maximum of 3

years but there is a hand full of borrowers holding their loan for up to 16 years.

8. We can conclude the top 5 competitors of HDFC Ltd are Bajaj finance, followed by

SBI, ICICI Bank, Axis Bank, and HSBC.

9. Majority of borrowers if given an option to delay their prepayment and invest their

excess money in other alternative investments were not willing to do so, however,

some were open to it but lacked proper knowledge.

10. Most of the borrowers chose HDFC Ltd for their better facilities and services

following a desirable rate of interest.

8.2 CONCLUSION

From the above study, I can conclude that there is immense development in the home

loan industry in India as compared to the former years, be it in policies, rules, rate of

interest, Lending norms, etc. The Indian housing finance market cannot be looked at

independently of the government’s role in the overall financial sector, which is nowadays

characterized by a process of liberalization. However, the Indian government has tried

and is still trying, to stimulate economic development by controlling interest rates and

directing credit to priority sectors. Furthermore, private sector housing finance has been

developed since 1977 and the creation of the National Housing Bank has helped the

sector to develop further. In addition to specific guidelines and directions of HFCs,

lending regulations, refinance facilities and the Home Loan Account scheme were set up

with the particular intention of serving the small man. However, the intentions conflict

with reality.

COVID – 19 also brought drastic changes in the home loan industry- the major change

98
was Interest Rate fell to an all-time low of 6.40% and COVID also hit hard the lenders

such as Banks and NBFC which saw huge NPA’s in their accounts due to non-payment

by their customers. Housing developers faced a liquidity crisis as cash flows dry up due

to reduced demand and financing for end borrowers as well as reduced access to

construction finance.

However, during Post COVID period, things are slow going back place, the Rate of

Interest is rising from 6.40% to 7.55% and the housing finance market is booming, which

witnessed a growth in its millennial customer base.

The project helped to study HDFC Ltd and its general management practices and insights

in depth by understanding the policies, standards, decision-making process and lending

norms, and rate of interest.

For Prepayments, there is a vast difference in perception, preferences, and the source of

funds when an Employed individual makes a prepayment as compared to a Self-

Employed individual. The majority of employed borrowers make a prepayment as

compared to self-employed borrowers, the reason being for tax deduction purposes and

opted for offline prepayments. There is also a use difference when a borrower

irrespective of its classification makes a prepayment at the end of a financial year i.e.,

March and at the beginning of a financial year April and May. Borrowers making a full

prepayment, and transferring their balance to other banks or HCF, we conclude that the

top competitor of HDFC Ltd is Bajaj Finance, SBI, ICICI Bank, Axis Bank, and HSBC.

Lastly, this research study can be concluded based on the primary and secondary data

acquired, which showcases the different perceptions of borrowers making a prepayment.

99
CHAPTER 9

RECOMMENDATIONS / SUGGESTIONS

For Prepayments
1. Whenever a customer asks for an outstanding balance, the retention team should do the

following

Ask the Customer about the amount that they want to Prepay

should suggest the customer alternate investment options about the exact amount of

prepayment through which the customer will earn interest

E.g., if a customer wants to prepay Rs.1,00,000, the customer should be suggested an

alternate investment such as a Mutual Fund where if a customer invests the 1,00,000 for 1

year at 12% interest, he will be eligible for a return of Rs. 1,12,000.

2. Before a customer’s disbursement, they should be guided to hold on to their home loan

for a longer tenure, for availing benefits such as tax deductions, top-up benefits, and so

on.

3. The Part Disbursement Customers should be discouraged from doing prepayments

instead should be guided to dispose of the additional fund to their builder instead of

prepaying.

100
4. Borrowers coming to prepayment after the 20th of a month should be encouraged to do

their prepayment on the 1st of next month.

For HDFC Ltd

1. KYC change intimations should be mailed to the

customer along with the issue in their KYC.

E.g., a customer who has to submit their update KYC should be sent a detailed email

about the issue with their previously submitted KYC, and should also be intimated that

their updated KYC should be on their communication address given at the time of their

disbursement and should update the same on their co-applicant KYC and should be

submitted with a self-attested photocopy.

2. HDFC Home Loan app should be maintained

properly, to avoid any glitches.

3. Customers should be intimated about their rate revision cycle.

4. Customers should be able to rate their executives and appraiser so that HDFC can

identify and recertify inefficiencies on their part.

5. Appraisers’ system maintenance should properly monitor and avoidance of system

glitches.

101
CHAPTER 10

BIOLOGRAPHY

"Affordable housing finance companies loan book to grow 17-20% in FY23". (2022,

May 3rd)The Economics Times.

(2021). "Non-Banking Financial Institutions". RBI Publications.

Ace Analyser: Company News. (2020, December 1). "47.33 lakh houses completed per

year in 2018-19 under Pradhan Mantri Awaas Yojana- Gramin over 11.95 lakh houses in

2014-15." Retrieved from Ebsco: https://web.s.ebscohost.com/

Agrawal, N. G. (Jul-Sep2021). "Empirical Study of Consumer Preference w.r.t. Home

Loan using Data Analytics." Global Journal of Enterprise Information System.

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CHAPTER 11

ANNEXURE

(Questionnaire)

1. Gender
 Male
 Female

2. Who are you?

 Borrower
 Co-Borrower
 Third–party

3. Are you making?

 Part Payment
 Full Closure
 Bank Transfer (specify the bank and the reason for transfer)
 Close to the end of tenure
 Sale of property

4. If full prepayment, what is the age of your loan?

5. While making a prepayment, which mode of payment do you most

prefer?
 Online
 Offline
 Both

6. While making a prepayment, what options do you choose?

 Same EMI / Reduction in tenure

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  Increase EMI
 Decrease EMI

7. What is your source of prepayments?

 Saving Account
 Sale of property
 FD through saving account
 Provident Fund
 Transfer of insurance amount to home loan

8. If given an option, instead of prepayment would you prefer to invest

your money in
 Fixed Deposit
 Mutual Fund
 Insurance

9. Why did you select HDFC home loan?

 Better Facilities
 Desirable Rate of Interest
 Having an HDFC bank account
 Referred by friends / Relatives
 Convenience
 Any other reason (please specify)

10. Any suggestions for us?

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