CHAPTER 1

INTRODUCTION

1
1.1 INTRODUCTION TO HOME LOAN

Home is a dream of a person that shows the quantity of efforts, sacrifices luxuries and above all gathering

funds little by little to afford one’s dream. Home is one of the things that everyone one wants to own.

Home is a shelter to person where he rests and feel comfortable. Many banks providing home loans

whether commercial banks or financial institutions to the people who want to have a home.

HDFC- (Housing Development and Finance Corporation) Home Loan, India have been serving

the people for around three decades and providing various housing loan according to their varied

needs at attractive & reasonable interest rates. Owing to their wide network of financing, HDFC

Housing Loans provides services at your doorstep and helps you find a home as per your

requirements.

Many banks are providing home loans at cheapest rate to attract consumers towards them. The

more customer friendly attitude of these banks, currently offer to consumer cheapest loan over

homes. In view of acute housing shortage in the country, and keeping in mind the social –

economic role of commercial banks in the present times, the RBI advised banks to encourage the

flow of credit for housing finance.

With the RBI reducing bank rate, the home loan market rates nose-diving by 50 basis points. The

HDFC Bank and Standard chartered bank has become the first player in this sector to announce a

housing loan for a 20 years period. Floating rate No doubt it will enhance the end cost people to

plan their house over longer duration now; it has been made easy for a person to buy that dream

house which he dreamt of long ago.

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HDFC also provides with Home Improvement Loan for internal and external repairs and other structural

improvements like painting, waterproofing, plumbing and electric works, tiling and flooring, grills and

aluminium windows. HDFC finances up to85% of the cost of renovation (100% for existing customers)

Current status is that HDFC reduced home loan rates by 50 basis points for all its existing customers.

The various benefits of home loans arising to the customers are: -

• Home Loan is secured Loan with lower interest rate

• Home loans amount totally depends on the requirement

• 20 years is the maximum loan tenure offered for home loan.

• You can go for Home Loan Balance Transfer

• Increases the probability of acquiring a house. Many, especially in India will not be able

to buy a house will full cash readily available. This is where home loan creates an

opportunity for low-class and middle-class community to have a home of their own.

• This helps in capital appreciation; there is no doubt property prices have boomed in the

past 5 years. Investment in home is always a safe and smart move. The value of land

always increases and thus appreciation for your investment can be visibly seen within

few years.

• Applicants can avail tax benefit from home loans. Under Section 80CCE of the Income

Tax Act, 1961 repayment of principal up to Rs 100,000 on home loan is subject for tax

deduction. Once all prescribed conditions are met, this benefit can be availed.

Disadvantages of Home Loan

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 • Home Loan you need some Cosigner  Tenure of Loan is long period.

1.2Profile of HDFC Bank

About HDFC BANK, HDFC Bank was incorporated in August 1994, and, currently has a

nationwide network of 2,544 Branches and 9,709 ATM's in1,399 Indian towns and cities.

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to

receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the

private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The

bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered

office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank

in January 1995.

HDFC is India's premier housing finance company and enjoys an impeccable track record in

India as well as in international markets. Since its inception in 1977, the Corporation has

maintained a consistent and healthy growth in its operations to remain the market leader in

mortgages. Its outstanding loan portfolio covers well over a million dwelling units. HDFC has

developed significant expertise in retail mortgage loans to different market segments and also has

a large corporate client base for its housing related credit facilities. With its experience in the

financial markets, a strong market reputation, large shareholder base and unique consumer

franchise, HDFC was ideally positioned to promote a bank in the Indian environment.

4
HDFC Bank is headquartered in Mumbai. The Bank at present has an enviable network of over

1416 branches spread over 550 cities across India. All branches are linked on an online real–time

basis. Customers in over 500 locations are also serviced through Telephone Banking. The Bank

also has a network of about over 3382 networked ATMs across these cities.

The promoter of the company HDFC was incepted in 1977 is India's premier housing finance

company and enjoys an impeccable track record in India as well as in international markets.

HDFC has developed significant expertise in retail mortgage loans to different market segments

and also has a large corporate client base for its housing related credit facilities. With its

experience in the financial markets, a strong market reputation, large shareholder base and

unique consumer franchise, HDFC was ideally positioned to promote a bank in the Indian

environment.

The shares are listed on the Bombay Stock Exchange Limited and The National Stock Exchange

of India Limited. The Bank's American Depository Shares (ADS) are listed on the New York

Stock Exchange (NYSE) under the symbol 'HDB' and the Bank's Global Depository Receipts

(GDRs) are listed on Luxembourg Stock Exchange.

On May 23, 2008, the amalgamation of Centurion Bank of Punjab with HDFC Bank was

formally approved by Reserve Bank of India to complete the statutory and regulatory approval

process. As per the scheme of amalgamation, shareholders of Cop received 1 share of HDFC

Bank for every 29 shares of Cop.

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The merged entity now holds a strong deposit base of around Rs. 1,22,000crore and net advances

of around Rs. 89,000 crores. The balance sheet size of the combined entity would be over Rs.

1,63,000crore. The amalgamation added significant value to HDFC Bank in terms of increased

branch network, geographic reach, and customer base, and a bigger pool of skilled manpower.

In a milestone transaction in the Indian banking industry, Times Bank Limited (another new

private sector bank promoted by Bennett, Coleman & Co. / Times Group) was merged with

HDFC Bank Ltd., effective February 26, 2000. This was the first merger of two private banks in

the New Generation Private Sector Banks. As per the scheme of amalgamation approved by the

shareholders of both banks and the Reserve Bank of India, shareholders of Times Bank received

1 share of HDFC Bank for every 5.75 shares of Times Bank.

HDFC Bank offers a wide range of commercial and transactional banking services and treasury

products to wholesale and retail customers. The bank has three key business segments:

Wholesale Banking Services – The Bank's target market ranges from large, blue–chip

manufacturing companies in the Indian corporate to small & mid–sized corporates and Agri–

based businesses.

Retail Banking Services – The objective of the Retail Bank is to provide its target market

customers a full range of financial products and banking services, giving the customer a one–

stop window for all his/her banking requirements.

Treasury – Within this business, the bank has three main product areas – Foreign Exchange and

Derivatives, Local Currency Money Market & Debt Securities, and Equities. The Treasury

business is responsible for managing the returns and market risk on this investment portfolio.

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HDFC Securities (HSL) and HDB Financial Services (HDBFSL) are its subsidiaries.

Services offered by the company:

Personal Banking

• Accounts & Deposits

• Loans

• Cards  Forex

• Investments & Insurance

NRI Banking

• Accounts & Deposits

• Remittances

• Investments & Insurance Loans Payment Services

Wholesale Banking

• Corporate

• Small & Medium Enterprises

• Financial Institutions & Trusts

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 • Government Sector

Home Loans offered by HDFC Bank encompasses a wide range of loan options which are

subject to various parameters like term of loan, financial status of the individual seeking loan and

the purpose of loan. Owing to these diversifications, HDFC Home Loans have grown in

popularity over the years. DFC Bank, India, announced the arrival of the new generation,

technology driven commercial banks in India. HDFC Bank in India was set up in August 1994

with the approval of Reserve Bank of India. The bank was promoted by Housing Development

Finance Corporation Limited, a premier housing finance company of India (set up in 1977).
Loans for Resident Indians:

With HDFC Home Loan, one can buy a self-contained flat in an existing or proposed cooperative

society, in an apartment owner's association or even an independent single-family or multi-

family bunglow anywhere as in India. DFC Home Loans are easy to arrange and can be

customized according to the individual's needs and repayment capabilities.

• This category can be further subdivided into:

• Home Loans

• Home Improvement Loans

• Home Extension Loans

• Short Term Bridging Loans

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 • Land Purchase Loans

• Professional Loan or Loan for Non-residential Premises

• Home Equity Loan

Loans for Non-Resident Indians

Like Resident Indians, HDFC Home Loans feature similar categories of loans for Non-Resident

Indians as well. They include:

• Home Loan

• Home Improvement Loan

• Home Extension Loan

• Land Purchase Loan

Advantages of HDFC Home Loans

• An individual can undergo a Home Loan Counselling where HDFC shares its experiences

of providing Home Loans for 29 years.

• Wide range of products which offers multiple choices to an individual to choose the loan

plan that suits him/her the best.

• Multiple Repayment Options gives a customer a wider scope of repayment according to

his/her financial situations.

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 • Wide network of financing also enables the individual to get his/her loan sanctioned from

a place of his/her choice and also pay the instalments duly no matter where he/she is.

1.3 THE LOAN PROCEDURE FOLLOWED AT HDFC

The procedures involve in the disbursement of home loan by any bank entails the following steps:

• Home loan application form is first submitted by the customer covering all details.

• Checklist of requirements is requested for from the customer, and all documents are required

to be submitted (copies), they are then verified whether the details are failed in correctly and

whether all the documents are submitted.

• Additional loans, if any are applicable. Many banks provide for supplementary loan as a part

of the comprehensive home loan scheme.

1.4 RISK CAPTURING MECHANISM

One of the important aspects in the home loan financing is to ensure that the loan seeker is

worthy and credible. HDFC follows the credit score model to male home loan

disbursements. Credit score model is a risk capturing mechanism, which is used to assess the

risk perspective of the loan seekers.

The prospective loan seeker is assessed on a number of parameters which helps in the

evaluation of his profile and each parameter is assigned a score based on which the decision

10
 is taken. A score of 100 is fixed, and a score of 75 is considered to be good, score of 55 is

considered above average and score of 25 to be average. The prospective loan seeker on a

scale of 100 is expected to get 55 avail the home loan.

1.5 DOCUMENTS INVOLVED IN EVALUATION OF HOME LOAN:

The documentation requirement for various categories of applicants depends on their status. For

this purpose, all HFIs segregate their employees in different categories. They are:

• Salaried

• Professional or Businessman

The criteria of evaluation changes according to their status. The general documents, which

remain same for all the categories, are as follows:

1. Proof of age

Any one of the following is considered for proof of age, they are:

• Passport
• Voter’s ID card
• PAN card
• Ration card
• Employer’s identity card
• School leaving Certificate
• Birth Certificate

2. Copy of bank statements for the last six months;

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Bank statement for the last six months of all operating and salary accounts. Bank statements for

the last six months of all current accounts, if self-employed. Any other photocopies of

investments held, if required by the HFIs

3. Copy of latest credit card statement.

4. Passport size photograph

5. Signature verification by your bankers.

6. Proof of residence:
• Ration Card
• PAN Card
• Passport

Rent agreement if any, if you are currently staying on rent.

• Allotment letter from your company if you are residing in company Quarters.

The documents required to be provided by the salaried class are as follows:

• Salary slips for the last one month.

• Appointment letter
• Salary certificate
• Retainer ship agreement, if appointed as consultant.

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 • From-16 issued by the employer in your name.

HDFC offers:

• Attractive loan interest rates.

• Home Loan amounts starting from Rs.2 lacks and ends up to 20lakhs.
• Tern loans up to 20 years.
• Free personal Accident Insurance (Terms & Conditions).
• Insurance options for your home loan at attractive premium.
• Special 100% funding for select properties

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 CHAPTER -2

LITERATURE REVIEW

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 LITERATURE REVIEW

Housing finance all over the world are undergoing tremendous changes and have acquired great

significance in the present-day context of liberalization, globalization and modernization of the

society. A good number of research works have been undertaken by individual researchers and

institutions invariably dealing with different aspects of housing finance. A brief review of the

major studies which are particularly pertinent for the present study is attempted here.

By analysing the question of housing in the country, Ananda Bose, C.V (1996) emphasized the

need for propagating cost-effective and environment friendly building technology. He also

underlined the need for bringing out a new design and construction culture, avoiding costs and

eliminating wrong notions.

Lahiri, S.C (1996) observed that the rising cost has a dampening effect in the housing sector and

the need of the hour is to promote low cost and environment friendly technology and use of

indigenous products. He opined that the housing concept has undergone drastic changes and as

12 such the skills of the people to take-up new housing technologies have to be developed.

Kurama, M.L (1998) analysed the magnitude of the housing problem, housing finance

companies, legal aspects of housing cooperatives and procedural simplification of housing loans.

He suggested the necessity for education and training for the members of the housing

15
cooperatives and also the legal aspects including the adoption of model law formed by the

Central Government.

Krishna, R.R and Vyvanse Murthy (1998) observed the views that there is a vast scope for

housing promotion in India and the banks and housing finance companies can play a vital role in

the promotion of housing. They suggested that reduction in the housing loan interest and

simplified procedure for sanctioning housing loan will boost the construction of houses.

Lalama Kuruvilla (1999) throws light on National Housing Policy and new initiatives in housing

finance. She suggested that the change in the legal frame-work, simplifying the procedure for

housing finance and the active involvements of the Government in the housing sector will

definitely mitigate the housing problem.

Mohinder Singh (1999) states the magnitude of the housing problem in the country and various

national housing policies of the Government. He reviewed the detailed statistical data and

suggested the following: a) sufficient loan amount free from corruption and a low rate of interest,

b) a country-wide survey to find out the real housing storage, c) standardization for low-cost

housing and d) regular monitoring and follow-up action.

Parimal.H.Vyas and Sandip.K.Bhat (1999) who analyze the major housing finance institutions,

critical issues of housing finance, interest rates and the repayment techniques observed that the

16
restructuring of housing finance institutions by developing appropriate marketing orientation

programmes are necessary to face the challenges in the present-day world of liberalisation and

globalisation.

Sharma,A.K.(1996) highlights the fact that the challenges of homelessness and urban slums are

largely the spillover problems of inadequate rural habitat. He stated that the housing is closely

connected with growth of population, modernisation, poverty, development and information and

the poor people of India, lack all basic facilities as they are incapable of meeting the rising cost

of building materials. He also opined that Indians cannot solve the housing problem without a

strong political will and properly designed strategies.

Nair,K.N.S and S.G. Jayachandra Raj (1994) observed that Kerala stands unique in the realm of

growth and development. But, even in the wake of state’s rapid expansion in the social sector, it

is to be observed that Kerala projects a dichotomy picture of development comprising of feeble

economic structure along with developed social culture.

Mathurn (1993) opined that the financial burden of investment in housing is generally very heavy

when the owner does not have sufficient funds available to pay for the site and the entire cost of

construction. Hence, he must make arrangements to obtain funds from some other sources.

Naik (1981) revealed that housing loans are usually advanced against the security of mortgage of

land and the building to be constructed with the loan. Housing finance is therefore mortgage

finance.

17
 According to Hari Chandran (1989), the objective of the National Housing Policy include

motivation to help people particularly the houseless to secure for themselves affordable shelter

and to promote investment in housing in order to achieve a sustained growth of nation’s housing

stock.

Parekh (1988) reported that the future of housing finance is to enhance the loan origination

process for housing throughout the country to develop an institutional network that would

facilitate the origination process, to identify the potential resource base for the system as a whole

and to simplify the legal system with respect to risk management of housing finance institutions.

Usha Patel (1996) explained that at present housing through bank finance was a part of bank’s

priority sector lending. Besides, every nationalized bank is expected to allocate every year a

specified percentage of deposits and plan for its deployment for financing direct as well as

indirect housing programmes.

Thomas Paulose (1988) in his study narrated a true picture of housing policies and programmes

in Kerala.

Deepak Razdan (1990) reported that the sources of informal savings are seen to be cash and bank

deposits, assets like jewellery, loans from friends and relatives and to a small portion of funds

from money lenders. The Government plan to bring about appropriate changes in the 16

approaches of the existing financial institutions so as to make them more responsible and

accessible to households.

18
Muthuram,P (1999) opined that housing finance, particularly retail housing finance is acquiring

great importance because of government’s incentives and stability in prices. Housing finance

offers safe, secured, profitable and diversified asset portfolio.

Leland and Leo Greller (1977) in their study on Government schemes on housing stated that the

housing boards and development authorities are the only responsible agencies to care for

housing.

Keith and John (1980) brought out a new picture of housing problems. They said that public

housing policy of one sort or another is obviously of great importance in advanced capitalist

systems.

Ball (1980) reported that housing is unavoidably expensive to produce. Even the most minimal

dwelling occupies land and relatively large amounts of materials and labour for its production.

Holmans (1987) stated that most people cannot afford to pay the full cost of suitable

accommodation from income or savings, but neither have they postponed their consumption

even if they cannot afford to buy outright.

Paul Diamond, T (1998) observed the housing shortage in the country and highlighted the role of

the HFIs in national housing. His observations include introducing flexibility in designing

19
products and systems, development of mortgage market and development of suitable products to

satisfy wide range needs of borrowers.

Whitehead (1983) observed that housing is essentially a private good with few externalities.

Again, the advantages and disadvantages of housing largely accrue to the individual owner or

user of the property, rather than to the community at large. Whitehead concluded that, housing is

a readily marketable commodity suitable for private provision in a mixed economy.

Hadly and Hatch(1981) advocated a change of emphasis away from the traditional objectives of

state provided social services of uniformity, hierarchical, accountability and administrative

standardization to a system relying on community based organization and designed for

flexibility, accountability, to the consumer and dis professionalization.

Wilson and Aslam (1991) highlighted the problem of housing especially in Kerala. They made an

attempt to assess the outflow of 18 money from the state for construction. The financial problems

for salaried individuals in relation to investment on housing were also analysed.

Josen Alex (1991) made an attempt to analyse the attitudes of the people towards low-cost

housing. He also dealt with housing situations and problems and cost reduction aspects of low-

cost houses.

20
Reji Kumar (1992) in his study stressed the relevance of low-cost housing schemes, techniques

and building materials. He also analysed the technical feasibility and financial viability of the

unit.

Kaul (1994) deals with a number of building materials and technologies which came up as a

result of continuous R & D efforts in the country. He argued that by adopting such innovative

methods of construction, cost of construction will come down and speed of construction will

increase.

Narayan and MohanKumar (1994) presented a paper analysing the housing problem from the

resource base point of view and attempts to highlight the need for evolving contextual

technologies that use locally available materials that can act as alternative to the presently

popular building materials.

• HDFC comes at the top among all the institutions as far as loan sanctioned, disbursements and

the loan outstanding are concerned, PNB has the last rank for both loans sanctioned and

disbursed. However, the compound growth rate for the loan sanctioned, disbursement and

outstanding has been highest in the case of LICHF.

It stood at 26.49%, 30.89%, 36.16%. Against PNB showed the lowest compound growth rates of

21
18.62% and 19.90%, for the loan sanctioned and 52 disbursements over the same period.

However, the compound growth rate of the loan outstanding in the case of PNBHF was higher

than the growth rate of HDFC.

• The ratio of loan disbursed to loan sanctioned shows that the ratio of PNBHF showed the

highest variations from 53.37% to 96.52 % over the given period, followed by LICHF for

which the ratio varied from 56.88% to 95.65%. On the other hand, the ratio for HDFC showed

the lowest range of variation from 81.07% to 88.19 in the same period.

• Number of housing units assisted by the selected institutions and its percentage to the total

units financed during the year showed that HDFC and PNBHF financed more than 64% and

less than 3% of the total units financed during the entire period of the study, respectively.

• HDFC has provided the highest proportion of loans to individuals. The highest variation in the

composition of loan outstanding has been in the PNBHF. The loan outstanding to individuals

in the case of HDFC ranged from 66.89% to 81.99% whereas it ranged from 89.58% to 100%

for

LICHF for the same period.

• HDFC has been a major market share holder among the HFIs selected under study. PNBHF

has disbursed less than 4% of the total loan disbursed by HFIs.

22
• It is found that during almost all the years under study, all the HFCs earned more than 80% of

their interest income from the interest on housing loans.

• LICHF earned the maximum proportion of total income from the interest on housing loans.

Itas followed by PNBHF and HDFC.

• As far as ratio of interest expense to total expenses is concerned, it ranged from 89.15% to

93.13% for HDFC over the period 1990-91 to 2002-03. It ranged from 65.74% to 92.45% for

PNBHF and from 83.39% to 94.31% in case of LICHF over the same period.

• PNBHF spent in the range of 0.63% to 4.57% of the total expense on establishment over the

period of the study which was the highest among all the institutions. LICHF spent the lowest

proportion ranging from 0.42% to 0.89% on establishment expenses during the same period

and the ratio showed a declining trend in the case of HDFC cover the same period.

Birla Institute of Scientific Research (1981)1 in its study makes a comparative assessment of the

performance of public sector banks and major private sector banks since nationalisation. They

find that the performance of public sector banks is not satisfactory in rural development activities

when compared to the private sector banks.

23
Jain, Pinson and Malhotra (1987)2 in their study “Customer loyalty as a construct in the

marketing of bank services” feel that customer loyalty is a very useful construct. Their

contention is that the human aspect of banking should be given utmost importance by the loyal

segment for the marketing of bank services.

R Jayakumar (1993)3 in his study of “Performance of private sector banks in Kerala” makes a

comparative examination of performance of public sector banks and private sector banks in

Kerala. He finds that in Kerala private sector banks perform better than their public sector

counterparts.

Delvin James (1995)4 makes a case study of the retail banking services in UK using First Direct,

a subsidiary of Midland Bank. He concludes that banks can increase their market share through

proper communication and prompt delivery of their products.

Govinda rajalu (1996) 5 in his article “Satisfaction and dissatisfaction with bank services” views

that the Indian banks have lost the quality of customer service. The dissatisfaction of customers

with bank services is an important issue to be considered by banks and policy makers for the

development of banking sector.

Sarkar and Das (1997)6 make a comparison of the performance of the three bank sectors public,

private and foreign - for the year 1995-1996. These banks are compared in terms of profitability,

productivity and financial management. They find that the public sector banks are very poor in

performance on the basis of these variables than the other two sectors.

24
D Mishra (1997)7 makes a study on the performance of commercial banks in India choosing

relevant parameters like quality of service, risk management, profitability etc. His conclusion is

that the banks should try to increase quality, balance risk management, and optimise profitability

in order to survive and succeed. He identifies four challenges for the bank namely competition,

credit, customer and control.

Gaganjot Singh (1998)8 in his study “New innovations in banking industry – a study of new

private sector banks” views that the new private sector banks in India are using better technology

and are offering better services to the customers. The new private banks have emerged as a

model to the banking industry in terms of service levels, ambience, technology etc. As the public

sector banks have already established a huge customer base, they become complacent and are

slow to become customer friendly. They are also less innovative in the use of technology-assisted

customer service. Because of their huge customer base they feel that they can withstand

competitions from new generation banks.

N. S. Varghese (2000)9 is of the opinion that new generation private sector banks with their latest

technology are able to implement e-banking and are highly preferred by investors in the stock

market. He also points out that prominent new generation private sector banks like HDFC and

ICICI have entered into internet banking through which greater convenience is offered with

lower transaction cost.

The study carried out by P Verma (2000)10 is in tune with the findings of Varghese. Analysing

the impact of information technology on new generation banks Verma feels that new generation

25
banks are far ahead of traditional public sector banks. He finds that information technology is

posing a threat to the public sector banks. He observes that the business per employee of major

public sector banks in India is a mere fraction of the business per employee of new generation

banks. So, the public sector banks have to improve their productivity and efficiency to compete

with the new generation banks which are fully computerized. But Eapen Varghese (2001)11 finds

no such difference between the services rendered by public sector and private sector banks.

Mini Joseph’s (2001)12 view is that new generation banks have created a spirit of competition in

the banking industry by fully utilizing the facilities and amenities available from technology and

computerization, and by accepting customer satisfaction as the core aspect. For preventing the

erosion in the market share of old private sector banks and public sector banks, they are also

providing quality service now in a competitive spirit.

Anantha Swamy (2001)13 makes an appraisal of the performance of different bank groups in

India in the backdrop of competition, deregulation and changes in the field of banking. He

classifies banks into public sector, old private sector, new Review of Literature 20 private sector

and foreign banks. His focus has been on profitability, NPA, contingent liabilities, spread etc. for

the last five years and arrives at the conclusion that the new private sector banks are performing

better than the banks in other sectors.

Jamal and Naser (2002) 14 makes a study on “The factors influencing customer satisfaction in

the retail banking sector of Abu Dhabi”. He collected the necessary data using structured

questionnaire. Customer response to questionnaire shows that the customer expectations from the

26
bank and service quality provided by the banks are the major determinants of customer

satisfaction. Their investigation on factors influencing customer satisfaction in the Pakistan retail

banking sector15 also reveals that service quality is the important determinant of customer

satisfaction.

P. D. Jeromi (2002)16 who studied “The trends and issues of bank credit in Kerala” finds that the

absolute rate of growth of credit is reasonably good. But in relation to deposits, per capita credit,

credit per account, disbursement by all India Financial Institutions the level of credit is lower. He

also observes that more attention should be given to mobilization of deposits than to expansion

of credit.

Pushpangadharan’s (2002)17 study on “The quality of customer service in public sector banks”

also shows that public sector banks lag behind private sector banks in customer service. The

parameters he used in the study are facilities and amenities, speed in completing transactions and

providing deposit related and credit related services. The customers of public sector banks are

not much satisfied with branch managers’ and employees’ attitudes. The public sector banks are

very poor in respect of customer feedback system and redress of grievances.

BharathiPathak (2003)18 makes a study of “The financial operations of new generation private

sector banks in India”. Five banks (IndusInd bank, Centurion bank, HDFC bank, ICICI bank and

UTI bank) are taken up for financial analysis for a period of five years from 1996-97 to 2000-01.

Their financial performance is studied under four different parameters – financial, operating,

27
profitability and productivity. His conclusion is that the working of all banks is satisfactory but

HDFC bank comes at the top closely followed by ICICI bank.

Bikram De (2003)19 makes a study on the effects of ownership on bank performance. He

compared old private sector banks and new generation banks in terms of profitability, efficiency,

liquidity etc.

Galhotra (2003)20, in his study on retail lending, views that the success of retail lending of a

bank depends on factors like marketing efficiency, proper appraisal and follow-up. He also finds

that HDFC has become very excellent in housing finance solely due to the long-term strategies

adopted by them.

RKumar (2003)21 in his study “Retail banking growth drivers and analysis of associated risks”

views that banks should review the retail loan portfolio at periodical intervals in a structured

manner for identifying the risks and upgrading the strategies for the reduction of risk.

V.S. Murthy (2003)22 in his study views that in India the banking industry has very high

competition particularly in the retail sector. In this competition only the fittest will survive. It is

expected that the banks are well equipped to succeed in the retail journey.

28
Qamar (2003) 23 has done a comparative study on the “Profitability and resource use efficiency

in scheduled commercial banks in India”. He finds that efficiency of new private banks and

foreign banks is better though marginally than the old private sector banks and public sector

banks.

Velayudham (2003)24 in his article “Banking for corporate new directions” reminds banks to

ensure that for a balanced asset portfolio retail banking has to go along with wholesale banking.

Besides, for better management of customer’s needs and consultative selling of products,

commercial banks should have customer relationship management department.

Filomina’s (2004)25 survey on expectations of customer from retail banks shows that none of the

banks are able to meet the diverse needs of customers. As a result the customers are not so loyal

to a particular bank and go for multiple banking. Customers are aware of the variety of products

and services that are available in the banking sector and demand them from their banks. The

aggressive banking of new generation banks makes customers dislike them.

Groeneveld and Wavemakers (2004) 26 in their article “Retail banking strategies in Europe”

analyse retail banking strategy with special emphasis on retail banking in the broadest sense of

the word. He finds that many banks rediscovered retail banking after the collapse of investment

and corporate banking activities and the fall in the stock prices in the last few years. The retail

banking strategies in general and the strategic positioning of Rabobank group in particular are

described in the study.

29
 CHAPTER – 3

OBJECTIVES

AND

RESEARCH METHODOLOGY

30
3.1 OBJECTIVES OF THE STUDY

 The main objective of the study is to know the customers perception about home

loans of HDFC housing development Finance Corporation limited.

 To study the satisfaction level of customers about home loans.

 To study the problems faced by customers in obtaining the home loans.

3.2 SCOPE OF THE STUDY

The Indian housing finance industry has grown by leaps and bound in few years. Total home

loans disbursements by banks have risen which witnesses phenomenal growth from last 5

years. There are greater number of borrowers of home loans. so, by this study we can find

out satisfaction level of customers and problems faced by them in obtaining home.

3.3 RESEARCH DESIGN

The research design refers to the overall strategy that you choose to integrate the different

components of the study in a coherent and logical way, thereby, ensuring you will effectively

address the research problem; it constitutes the blueprint for the collection, measurement, and

analysis of data.

31
A research design is the set of methods and procedures used in collecting and analysing

measures of the variables specified in the research problem research. The design of a study

defines the study type (descriptive, correlational, semi-experimental, experimental, review,

metanalytic) and sub-type (e.g., descriptive-longitudinal case study),research problem,

hypotheses, independent and dependent variables, experimental design, and, if applicable, data

collection methods and a statistical analysis plan. Research design is the framework that has been

created to find answers to research questions.

Type of research design:

I. Exploratory research

Exploratory research on the other hand seeks to generate a posteriori hypothesis by examining

a data-set and looking for potential relations between variables. It is also possible to have an idea

about a relation between variables but to lack knowledge of the direction and strength of the

relation. If the researcher does not have any specific hypotheses beforehand, the study is

exploratory with respect to the variables in question (although it might be confirmatory for

others).

The advantage of exploratory research is that it is easier to make new discoveries due to the less

stringent methodological restrictions.

32
Here, the researcher does not want to miss a potentially interesting relation and therefore aims to

minimize the probability of rejecting a real effect or relation; this probability is sometimes

referred to as β and the associated error is of type II. In other words, if the researcher simply

wants to see whether some measured variables could be related, he would want to increase the

chances of finding a significant result by lowering the threshold of what is deemed to be

significant.

The results of exploratory research are not usually useful for decision-making by themselves, but

they can provide significant insight into a given situation. Although the results of qualitative

research can give some indication as to the "why", "how" and "when" something occurs, they

cannot reveal "how often" or "how many".

Exploratory research is not typically generalizable to the population at large.

Social exploratory research "seeks to find out how people get along in the setting under question,

what meanings they give to their actions, and what issues concern them. The goal is to learn

'what is going on here?' and to investigate social phenomena without explicit expectations.

"This methodology is also at times referred to as a grounded theory approach to qualitative

research or interpretive research, and is an attempt to unearth a theory from the data itself rather

than from a predisposed hypothesis.

Even as children we have a natural curiosity about the world around us. We ask questions like:

Why is the sky blue? Why do birds fly? Questions like these are often the foundation of

exploratory research because they reveal our desire to understand the world around us.

33
Exploratory research (or ER) is an examination into a subject in an attempt to gain further

insight. With ER, a researcher starts with a general idea and uses research as a tool to identify

issues that could be the focus of future research.

Look at how ER is used in business. For instance, let's say you own a bakery called The Cupcake

King. If you wanted to improve your sales, but weren't sure where to start, you might employ ER

to find out the areas of your business that need improvement.

It's important to note that the point of exploratory research is not to gain a definitive answer, like

you would with a math problem. For instance, you know that no matter how many different ways

you look at the math problem 1 + 1, the answer is always.

Exploratory Research Methods

You may wonder how you can explore a topic if there is little information about it. There are

several methods that are used in exploratory research. Researchers may use primary or secondary

research, or a combination of both types of research.

Primary research is data that someone collects personally, usually from a group of people

gathered specifically for the study. Primary research is collected through the use of interviews,

focus groups, customer surveys, or any way that organizations are able to obtain feedback. For

34
instance, social media and blogs are a great way for business owners to obtain customer

feedback.

Secondary research is the analysis and synthesis of primary research that was compiled at a

previous date. Secondary research can be gathered from marketing research data, magazines, old

reports, or any other source where relevant information has been stored.

DATA COLLECTION

Primary data collection method is used because the study does not permit to apply observational

method. In survey approach questionnaire method had been selected consisting of a sample size

of 50 which is done randomly with the help of snow ball sampling technique.

35
 CHAPTER – 4

DATA ANALYSIS
&
DATA INTERPRETATION

36
 4.1 Perception of people.

1)What is your Age?

2)What is your occupation?

37
3) What is your Qualification?

4) Have you ever taken loan before?

38
5) Are you satisfied with the services provided?

6) While taking home loan which things attract you the most?

39
7) Even if the Interest rate is high for the personal loans, you will go for it?

8) How much loan amount you took?

40
9) Even if the Interest rate is high for the home loan, you will go for it?

10) Do you own a home?

41
11) Have you got it financed?

12) What is the reason of getting it financed?

42
13) From where have you got information about home loan schemes?

14) What problem did you face while getting home loan?

43
15) Did you face any problem while taking loan?

44
4.2 Customer Perception & Satisfaction.

A survey of HDFC home loan customers indicates:

Positive Aspects: Customers appreciate the competitive interest rates, transparent loan
procedures, and wide range of financing options.

Challenges Faced: Some borrowers reported lengthy processing times, high documentation
requirements, and strict eligibility norms.

Interest Rate Concerns: While HDFC's rates are competitive, some customers feel that
government-backed housing loans offer better affordability. Perception & Satisfaction with
HDFC Home Loans

Customer perception of HDFC home loans is shaped by factors such as interest rates, service
quality, loan approval processes, and repayment flexibility. Many borrowers appreciate HDFC’s
strong market reputation, competitive loan offerings, and transparent processes, which make
home financing more accessible. The bank's wide network and digital services further enhance
convenience.

However, several customers face challenges in loan processing and service delivery. Some report
delays in documentation and approval, particularly for self-employed individuals. Others feel
that HDFC’s eligibility criteria and credit score requirements are strict, making it difficult for
low-income borrowers to secure loans. Interest rates, though competitive, are perceived as high
compared to government-backed housing finance schemes.

Satisfaction levels vary among customers. While many appreciate the structured loan
disbursement process and long repayment tenures, others express dissatisfaction with customer
service, citing non-cooperative staff and lack of personalized assistance. Awareness about loan
options, tax benefits, and repayment flexibility remains limited, leading to confusion among first-
time borrowers.

To improve customer satisfaction, HDFC should simplify loan processing, enhance customer
support, and offer better financial education programs. Reducing procedural complexities and
improving transparency will further strengthen customer trust and position HDFC as a preferred
home loan provider

45
4.3 PROBLEMS FACED BY CUSTOMERS IN AVAILING HOME LOAN.

There is everything in the world has good or bad points. No doubt banking industry/ company

has made many efforts to enhance the customer

satisfaction but customer still faced some problems. These are high lightened as below:

1) The customer does not have proper knowledge about different

home loan products so they face problem in making a good deal.

2) There are procedural delays, which harass the customer’s lot. This will crush the curtsy of

customers to avail the home loan.

3) The attitude of bank employees sometimes non cooperative and it

creates a hurdle in building trust and Confidence among customers about banks.

4) The banks do not take into account the paying capacity of customers. So, some customers

are not able to get amount of loan needed by them.

So above discussed are the problems which faced by customers while availing home loans.

46
Despite its strong market presence, customers face some challenges, including: Lack of

Awareness: Many customers are unfamiliar with HDFC’s loan products and benefits .Procedural

Delays: Loan processing can sometimes take longer than expected .Stringent Loan Eligibility:

Loan approvals are based on strict financial assessments, limiting access for some borrowers.

High-Interest Rates for Certain Borrowers: Customers with low credit scores may be offered

higher interest rates.

Despite HDFC's strong presence in the home loan market, many customers encounter various

challenges during the loan application and repayment process. The key issues faced by borrowers

include:

1. Lengthy Processing & Documentation Delays:Customers report that the loan approval and

disbursement process takes longer than expected, especially for self-employed individuals who

need extensive financial documentation.The requirement for multiple documents, such as income

proofs, bank statements, and property papers, can be overwhelming.

47
2. Strict Eligibility Criteria:HDFC follows a stringent credit assessment process, requiring a

minimum credit score of 55 out of 100 for approval.Many applicants, especially those with low

credit scores or irregular income sources, struggle to qualify for home loans.

3. High Interest Rates for Certain Borrowers:While HDFC offers competitive rates, borrowers

with lower credit scores often receive higher interest rates, making repayments more

expensive.Some customers feel that government-backed housing finance schemes provide more

affordable options.

4. Customer Service & Support Issues:Borrowers have reported that bank representatives are

sometimes unresponsive or not well-informed, leading to confusion during the application

process.Lack of personalized assistance for first-time homebuyers results in a frustrating

experience.

48
Reduce processing time by automating documentation verification.Improve customer support

with better-trained representatives and digital assistance.Offer flexible loan eligibility criteria for

low-income or first-time homebuyers.Increase awareness through educational programs and

clearer communication about loan benefits.Addressing these issues can help HDFC enhance its

customer satisfaction and maintain its position as a market leader in housing finance.

49
4.4 Loan Application Process & Risk Assessment.

The home loan application process at HDFC includes:

1. Application Submission: Borrowers submit their application with required documents, such as
income proof, property papers, and identity verification.

2. Creditworthiness Assessment: HDFC evaluates applicants based on credit score, repayment

history, and income stability.

3. Loan Sanction & Disbursement: If approved, the sanctioned amount is disbursed directly to
the property seller or builder.

HDFC employs a credit score-based risk assessment mechanism, where a minimum score of 55
out of 100 is necessary for loan approval.

Loan Application Process & Risk Assessment in HDFC Home Loans

HDFC follows a structured home loan application and risk assessment process to ensure that
loans are granted to eligible and creditworthy individuals. The process involves several key
steps:
1. Loan Application Process
1. Submission of Application:
o Applicants need to fill out a loan application form and submit it along with
necessary documents, including identity proof, income proof, property details,
and bank statements.
2. Document Verification:

50
 o HDFC evaluates the authenticity of submitted documents, including employment
status, financial stability, and property ownership papers.
o Salaried individuals need to provide salary slips and Form-16, while self-
employed applicants must submit business financials and IT returns.
3. Credit Score & Financial Evaluation:
o HDFC assesses the applicant’s credit score (CIBIL score) to determine financial
credibility.
o A minimum credit score of 55 out of 100 is required for loan approval. A higher
score ensures better interest rates and easier approval.
4. Loan Sanctioning & Offer Letter:
o Based on eligibility, the loan amount and interest rate are decided.

o An official sanction letter is issued, detailing the loan terms, interest rate, EMI,
and tenure.
5. Legal & Technical Verification of Property:
o HDFC conducts legal and technical checks on the property to ensure clear
ownership, proper approvals, and valuation.
6. Loan Disbursement:
o After verification, the sanctioned loan amount is disbursed either in full or in
installments, depending on the property status (ready-to-move or under
construction).
2. Risk Assessment in HDFC Home Loans
To minimize defaults, HDFC employs a risk assessment framework that includes:
 Creditworthiness Analysis: Evaluating an applicant’s income stability, repayment
history, and existing debts.
 Debt-to-Income Ratio (DTI): Ensuring that EMI payments do not exceed 40-50% of
the borrower’s monthly income.
 Loan-to-Value (LTV) Ratio: Financing up to 85% of the property cost, with borrowers
required to contribute the remaining amount.
 Employment & Income Stability: Preference for applicants with stable jobs, reputable
employers, or steady business income.

51
  Property Risk Evaluation: Checking for legal disputes, property valuation, and clear
title deeds.
Challenges in the Process
 Lengthy documentation requirements delay approvals.
 Strict eligibility criteria prevent some borrowers from qualifying.
 High dependency on credit scores limits accessibility for first-time borrowers.
Suggestions for Improvement
 Simplify documentation by digitizing the application process.
 Offer more flexibility for self-employed individuals and first-time borrowers.
 Increase transparency in loan terms and eligibility criteria.
By refining these processes, HDFC can further enhance efficiency, reduce risks, and improve
customer experience in home loan approvals.

52
 CHAPTER – 5

Analysis and Insights.

53
5.1 FINDINGS

 Most of the people are not aware of the products of HDFC home loans.

 HDFC LTD providing good services to their customers

 Customer’s awareness is medium about HDFC products.

 Some of the customers felt that the interest rates are somewhat high.

 The customer does not have proper knowledge about products so they face problem in

making a good deal.

 The attitude of bank employees sometimes non-cooperative and it creates hurdle in

building trust and confidence among customers about bank.

54
5.2 RECOMMENDATIONS

1) To increase their customers, the HDFC LTD should provide specialized services in this

sector. These services can be such as proper guidance to the customer regarding the

processing of loans, especially for the customers who are illiterate.

2) To satisfy their customers and for good dealings in future, the HDFC LTD should make

prompt disbursement of loan amount to the customers so that they can buy

or construct their dream home as early as possible.

3) The HDFC LTD should use easy procedure, or say, less lengthy procedure for the

sanctioning of loan to the customer. There should be a smaller number of legal formalities,

incise this exists, then, these should be completed in less time. This will be helpful in

attracting more customers.

4) Although the interest rates on specific norms, yet customers seek less interest rate which can

lower their cost of house. So, banks should try to lower their interest rates. Needless to say,

that the bank which is having lower interest rates, have the maximum clients for loans.

5) HDFC LTD provide loan according to the repaying capacity of the customer and his/her

eligibility. Due to which, some customers are not able to get amount of loan needed by them.

So, the HDFC LTD should soften their norms regarding the loan amount.

6) Create awareness: The Company has to take care of awareness creation about the products

and services among the customers.

7) Charges: The Company has to reduce the mortality and administration charges.

55
8) The company has to reduce their interest rates on home loan products

and services.

9) The company has to identify the potential customers.10) Company should consider the

present competition and should act according to the customer needs.

11) The HDFC LTD should try to provide proper knowledge regarding their home loan schemes,

even to people who don't know about such schemes and their benefits especially in rural areas.

So, they should provide knowledge to the ignorant customers, especially in rural areas and

backward urban area.

5.3 LIMITATIONS

• The study was restricted in understanding the home loan as concept so the practical implications

of the study have been difficult.

• The Take Over home loans of high interest rate for low interest rates and their inherent risks on

the banks’ lending profile has not been undertaken in the study.

56
 • The mortgage home loans and its scope on the home loan lending portfolio were not studied as

this would lead into a relatively new kind of home loan segment.

5.4 CONCLUSION

 In my study we came to know that many peoples are interested to

take a home loan from HDFC LTD to construct their home.

 Home loans have long period when compare to other personal loans and other loans.

So, peoples are confused to take a home loan.

 Even though the interest rates are high peoples are willing to take a loan from

HDFCLTD due to some reasons.

 The interest rates also somewhat high when compare to other banks The loan sanction
process is low when compare to other banks.
 For disbursement process is also it will take low time when compare to other banks.

Finally, the whole research was carried out in a systematic way to reach at exact results. The

whole research and findings were based on the objectives. However, the study had some

limitations also such as lack of time, lack of data, non-response, reluctant attitude and

illiteracy of respondents, which posed problems in carrying out the research. But proper attention

was made to Carry out research in proper way and to make accurate conclusion for the HDFC

LTD which may beneficial for banks to enhance their customer base.

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5.5 BIBLIOGRAPHY

1. http://www.hdfcindia.com

2. www.HDFCbank.com.

3. http://www.HDFCbank.com/pfsuser/loans/homeloans/hlhomepage.htm

4. http://www.hdfc.com.mv/faq.htm

5. Brochure of home loan from HDFC

6. Dr. Rangarajan C. (2001),” A simple error correction model of house price”

7. Beristain David (2008), “Home equity loans and private mortgage insurance: recent

trends and potential Implications”

8. Godse (1983), “looking a fresh at banking productivity.”

9. Kulkarni (1979), “Development responsibility and profitability of banks.”

58
5.6 ANNEXURE

Questionnaire:

Part I: Demographic Information

Name:

Age:

Gender: Male Female

Occupation:

Professional Self employed

Salaried Land Labor

Others
Education:

Illiterate Below SSC

SSC HSC

Graduate Post graduate

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Annual Income:

Below Rs. 2 lakh Rs. 2 lakh – 4 lakhs

Rs. 4-6 lakh Rs. 6 lakhs & above

Part II: perception and satisfaction of people

1 Have you ever taken loan before?

Yes No
2 Are you satisfied with the services provided?

Highly satisfied Satisfied

Neutral Dissatisfied

Highly dissatisfied
3 While taking home loan which things attract you the most?

Interest rate service provide

Payback period Schemes

Others
4 Even if the Interest rate is high for the personal loans, you will go for it?

Yes No
5 How much loan amount you took?

Less than 1 lakh 1-5 lakh

5-10 lakh more than 10 lakh

7 Even if the interest rate is high for the home loan, you will go for it?

Yes No
8 Do you own a home…?

Yes No

If yes, then, proceed…

9 Have you got it financed?

60
 Yes No

If yes, then proceed…

10 What is the reason for getting it financed?

Non- availability of funds

Reluctancy to pay cash in one go

Tax benefits

Any other
11 From where have you got information about home loans schemes?

Newspaper

Magazines

Banners/hoardings/pamphlets

Word of mouth

Any other source

12 What problem did you face while getting the home loan?

Lack of knowledge

Procedural delays and non-cooperation

Any other (please specify) …………………………..

13 Did you face any problem after sanction of loan?

……………………………………………………………………………………………..

…………………………………………………………………………………………….
14 What suggestions do you want to give for improvements in home loans Scheme?

……………………………………………………………………………………………..

……………………………………………………………………………………………..

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