1

3
CONTENTS

CHAPTER -1
1.
INTRODUCTION.......................................................................
....................................... 7
1.1.
ABSTRACT ..........................................................................
..................................... 7
1.2. OBJECTIVES OF THE
STUDY .............................................................................
. 9
1.3. NEED OF THE
STUDY .............................................................................
............10
1.4. SCOPE OF THE
STUDY .............................................................................
..........10
1.5. RESEARCH
METHODOLOGY........................................................................
....11
1.6. TOOLS AND TECHNOLOGIES
USED...............................................................11
1.7. LIMITATIONS OF THE
STUDY..........................................................................12
CHAPTER -2
2. LITRTATURE
SURVEY.............................................................................
...................13
CHAPTER -3
3. COMPANY
PROFILE ...........................................................................
.........................20
CHAPTER - 4
4. HOME LOAN PRODUCTS OFFERED BY
SBI..........................................................28
CHAPTER -5
5. TERMS AND
NORMS .............................................................................
......................38
CHAPTER - 6
6. SYSTEMS AND
PROCEDURES ........................................................................
..........64
CHAPTER -7
7. PERFORMANCE
EVALUATION ........................................................................
........75
CHAPTER -8
8.
RECOMMENDATIONS ...................................................................
..............................90
9. UPDATE ON HOME
LOANS .............................................................................
..........92
C O N C L U S I O
N..................................................................................
........................97
BIBLIOGRAPHY ......................................................................
...............................................98
APPENDIX ..........................................................................
.....................................................99
QUESTIONNAIRE .....................................................................
.........................................99

4
LIST OF FIGURES

Figure 1: Housing in
India .............................................................................
..............................13
Figure 2: Demographics in
Housing............................................................................
................14
Figure 3: Housing Finance
Timeline ..........................................................................
.................14
Figure 4: Penetration of Housing Finance in the
World ............................................................15
Figure 5: Improved
Affordability .....................................................................
...........................15
Figure 6: Market
features ..........................................................................
...................................16
Figure 7: Issues in Affordable Housing in
India.........................................................................17
Figure 8: Shareholders of
SBI................................................................................
......................26
Figure 9: Software Interface for EMI
calculation.......................................................................4
9
Figure 10: demand
trends ............................................................................
.................................76
Figure 11: number of sanctions and
disbursals ........................................................................
...77
Figure 12: customer
portfolio .........................................................................
.............................78
Figure 13: purpose
portfolio..........................................................................
...............................79
Figure 14: Loan amount
portfolio..........................................................................
......................80
Figure 15: Home loan book
sizes .............................................................................
...................81
Figure 16: credit growth
trend .............................................................................
.......................82
Figure 17: share of home loan segment in the retail
portfolio ...................................................83
Figure 18: Quality of
Assets ............................................................................
............................86
Figure 19: customer
complaints.........................................................................
..........................88

5
LIST OF TABLES
Table 1: major home loan
providers .........................................................................
...................16
Table 2: Associate Banks of
SBI ...............................................................................
..................23
Table 3: SBI Group
Comapnies .........................................................................
..........................24
Table 4: Best Practices in
SBI................................................................................
......................26
Table 5: SBI Hi-Five
Loan...............................................................................
............................28
Table 6: Processing
fee................................................................................
.................................28
Table 7: loan amount in SBI easy home
loan .............................................................................2
9
Table 8: : loan amount in SBI advantage home
loan..................................................................30
Table 9: criteria and documents required for
individuals ..........................................................39
Table 10: Criteria for Loan
Amount ............................................................................
................46
Table 11: Determination of Repayment
capacity .......................................................................47
Table 12: Enhancing Repayment capacity
options.....................................................................49
Table 13: EMI calculation in the flat rate
system .......................................................................50
Table 14: EMI calculation in Reduced balanced
system ...........................................................51
Table 15: monetary
ceilings ..........................................................................
...............................53
Table 16: criteria of margin
amount ............................................................................
................54
Table 17:
Securitization.....................................................................
...........................................55
Table 18: Processing fee
amounts ...........................................................................
....................55
Table 19: Rate of
interests..........................................................................
..................................58
Table 20: valuation
policies ..........................................................................
...............................62
Table 21: Systems and procedures in lending
process ...............................................................64
Table 22:
competitors .......................................................................
............................................75
Table 23: strengths and
weaknesses ........................................................................
....................75
Table 24: demand
trend .............................................................................
...................................76
Table 25: customer capacity
profile ...........................................................................
.................77
Table 26: sanctions and
disbursals ........................................................................
......................77
Table 27: customer
portfolio .........................................................................
...............................78
Table 28: lending
purposes ..........................................................................
................................79
Table 29: amounts of loans
sanctioned ........................................................................
...............80
Table 30: loan book
size...............................................................................
................................81
Table 31: credit growth
trend .............................................................................
..........................82
Table 32: share of home loan segment in the retail
portfolio ....................................................83
Table 33: take
overs..............................................................................
........................................84
Table 34: outstanding
amounts ...........................................................................
.........................85
Table 35: Quality of
Assets ............................................................................
..............................86
Table 36: income
generated .........................................................................
................................87
Table 37: customer
complaints ........................................................................
............................88

6
CHAPTER -1
1. INTRODUCTION
1.1. ABSTRACT
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
feels comfortable. Many banks providing home loans, whether commercial banks or
financial
institutions, to the people who want to have a home. 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 consumers 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
ICICI
Bank and Standard chartered bank has
become the first player in this sector to announce a housing loan for a 20 years
period. No
doubt it will enhance the end cost of the home but it will facilitate 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.
A home loan is a loan taken for buying or constructing a home or to make
improvements to a residential property. You can get a loan from banks and
registered housing
finance companies.
The Home loan sector in India is the pivotal role player in the growth of the real
estate
scenario in India. With tax incentives given to the housing finance sector in the
annual budget
of 2001, transactions related to buying and selling of residential properties
increased.
7
considerably and was much higher as compared to previous years. Since the new class
of
buyers are relatively younger set of customers who are more aware about legal
documentation and approvals, buyers are now more 'end-users' rather than investors;
the
property market in India undergoes transformation to align itself with global
standards with
an increased emphasis on quality & cost control and documentation methods. In the
current
economy of India, the real estate sector has the maximum propensity to generate
income and
demand for materials, equipment and services. It can be said that housing finance
companies
were formed for co-existing with buyer's requirements of housing loans for
investing in
properties. Home loans are made available by financial institutions to both Indian
and NRI
customers at floating and fixed rate of interest and also at attractive EMI
options.
The realty boom in India has given a new dimension to the finance sector in India -

both in Home Loans and Home Insurance segments. This has not only given a
competitive
edge to the finance companies to provide attractive options to customers but has
also
contributed to the increased investments in the real estate sector. This has
resulted in 13 new
institutions foraying into the housing finance business in the last three years.

8
1.2. OBJECTIVES OF THE STUDY

1.2.1. Identification Of The Problem

 To study and learn the various systems and procedures used by the bank in
lending to housing sector.
 To identify the problems faced by the bank in attracting more customers to use
its
home loan products.
 To identify the problems faced by the bank at various stages of undertaking the
home loans.
 To understand and identify difficulties in the home loan asset management
practices of the bank.
 To study the valuation of collateral security method followed by the bank while
lending the home loans.

1.2.2. Offer A Solution To The Problem

 To suggest better alternative organizational and operational practices.

 To enhance its capacity to tap potential market in the home loan sector.
 To reduce credit risk
 To enhance the recovery system in the bank giving the home loans.

9
1.3. NEED OF THE STUDY

It has been felt very useful in future –

 To study the roles of the staff and the decision making processes in lending to
the
home loan borrowers.
 To learn and comprehend thoroughly the systems and Procedures used in
financing the segment.
 To analyze the issues relating to various financial aspects of lending.
 To calculate the risk involved and how the risk and uncertainty to be assessed
and
managed by the bank while lending the home loans.
 To study the valuation of collateral security method followed by bank while
lending the home loans.

1.4. SCOPE OF THE STUDY

 The present study is confined to Home loan products offered by the

domestic operations of State Bank of India.
 The study is also confined to the internal functional and operational
aspects of the lending process.
 The data collected here, is specific to:
 The selected branch as said before.
 The time period covering the financial years: FY08-09-Q1FY10.
 The data and the information could be collected here has been taken from
the record books maintained by the branch and from the oral communication
with the branch manager.

10
1.5. RESEARCH METHODOLOGY
1.5.1. Research Design
 The study done is exploratory in nature.
 The branch of the bank was selected by convenience and for the sake of access
to the qualitative information.
 For the latest information and focus, the study is confined to the systems and
procedures in lending and the time period as said above.

1.5.2. SOURCES OF DATA

The data and the information presented here have been collected mainly from
two kinds of resources:
1.5.2.1. Primary sources

♀ Direct and oral interaction with the Bank officials, particularly, the
branch manager via a Questionnaire, a copy of which is made available
in the APPENDIX.
♀ The Record books maintained at the branch office.

1.5.2.2. Secondary sources

Several secondary resources have been referred for collecting first hand
information and literature on the subject that includes:

 The Training and Guidance Material supplied to the staff of the Branch.
 Annual Reports of RBI.
 Online Annual Reports by Consultancy and Research companies.
 Online Content of the Bank‟s Website.
 The material supplied by the Faculty Guide.
 Several websites on personal loans and
 Daily News Papers like Economic Times of India and Business
Standard.
The details of which have been presented in Bibliography.

1.6. TOOLS AND TECHNOLOGIES USED

1.6.1. Statistical techniques:
 Percentages.
 Averages and
 Tools like
 Tables,
 Bar Charts and
 Pie charts

1.6.2. Hardware and Software Technologies:

 Home PC with Internet access
 MS Word and Excel-2003.
 World Wide Web or Internet
11
1.7. LIMITATIONS OF THE STUDY

Some of the limitations of the project that were encountered during the study are:

 In case of interaction with the representative of a particular bank it happens

many a
time that the representative cannot disclose all the data because of certain
reasons like
banks privacy policy etc. thus getting clear picture about the service provided is
not
possible.

 Due to paucity of time, only important factors have been analyzed and discussed.

 To collect the data from various banks was quite difficult due to non-cooperation

of some banks. This proved to be major limitation of the study.

 To access such a large number of customers was difficult because of non-

cooperative
attitude of respondents.

 Lack of data was also the other limitation of the study as some of banks do not
have
proper data on topic.

 There was limitation of time to conduct such a big survey in limited available
time.

 Generally the data on the websites of the banks are not fully disclosed i.e.
other than
the charges mentioned on the website there are many hidden charges which increases
the cost like service charge etc

 Ignorance and reluctant attitude of customers was also a major limitation in this
study.

I have tried a lot to overcome the above mentioned limitations as far as possible.

12
CHAPTER -2

2. LITRTATURE SURVEY

2.1. HOME LOAN INDUSTRY IN INDIA

After going through pervious studies of Home loans in India I came to conclude the
following indicated in different forms:

Figure 1: Housing in India

13
Figure 2: Demographics in Housing

Figure 3: Housing Finance Timeline

14
Figure 4: Penetration of Housing Finance in the World

Figure 5: Improved Affordability

15
Figure 6: Market features

Major Home Loan Providers

Banks & State Bank of India, Corporation Bank, Punjab National Bank,
Public Sector Central Bank, Dena Bank, Allahabad Bank, Bank of Maharashtra,
Housing Bank of Baroda Housing Finance, Can Fin Homes, GIC Housing
Finance Finance, LIC Housing Finance, PNB Housing Finance, SBI Home
Companies Finance, Centbank Home Finance, HUDCO, LIC, etc.
Financial HDFC, ICICI Ltd, Citibank, HSBC, Standard Chartered- Grindlays,
Institutions IDBI Bank, etc
Table 1: major home loan providers
16
Figure 7: Issues in Affordable Housing in India
 17
2.2. LATEST TRENDS IN THE INDUSTRY

2.2.1. GDP ratio at 7% provides room for further growth

The ratio of mortgage to GDP in India has remained low at 7%, as against 12%
for china, 41% for Hong-Kong and more than 80%foor developed countries, thus
providing for further growth in the housing sector during the coming years. While
the
housing finance companies (HFC), which are regulated by National housing Board (a
wholly-owned subsidiary of RBI) were pre – dominantly catering to mortgage needs.
Over the past few years, banks too have started in increasing their exposure to
real estate,
especially Home loans. This is evident from the fact that the market share of HFCs
has
decreased from 65% if FYO1 to present 55%. Banks, on other hand have been
constantly
increasing their market share, there by intensifying competition.

2.2.2. Revival in real estate prices in the initial period of the year and low
interest rate

The correction in the real-estate prices in the initial period of the year and low
interest rate schemes announced by the banks/HFCs have resulted in significant
surge
in volumes especially in the “Affordable housing segment”.

2.2.3. Sluggish credit demand; banks increase their exposure to housing

sector.

Due to the sluggish credit demand (up 10.1% yoy for the fortnight ended
November
20, 2009), banks have been diverting their funds towards housing loans. According
to the
figures revealed by RBI, the non-food credit growth during April-august 2009 has
remained
muted at 0.8%. On the other hand, lending to the home loan segment during this
period
increased 2.8%. Since February 2009, banks have been aggressively pricing interest
rates on
home loans (including both floating and fixed rates). Subsidies have also been
provided to the
form of reduced processing fees and minimal/no penalty on early re-payments. SBIs s
home
loan book has increased by rs117bn or ar2.5% CQGR in the last four quarters. With
credit
demand to revive in coming period, banks are likely to divert their funds to high
yielding
assets thereby reducing their exposure to the housing sector.
18
2.2.4. HFCs continue to do business as usual

HFCs foresee the increasing share of banks exposure towards home loan
segment as a temporary phenomenon. In our view, banks are likely to face asset-
liability
miss-match as these loans have a long gestation period. Further, these loans are a
zero-sum
game in the initial period due to lower interest rate offered. HFCs, on the other
hand typically
raise money that match their requirements and thus minimize their ALM mismatch

2.2.5. Differential interest rate may not remain for long

While the discounted / special scheme rates are offered to new home loans,
existing customers continue to ply higher rate of interest. The Indian Bank‟s
Association
has planned to introduce a uniform rate for all borrowers.

2.2.6. India's mortgage market scores over West

 In India, the borrower contributes a higher share of his own funds (24-46% of
house value) at the time of purchasing a house.
 The loan installments too eat away a smaller portion of the borrowers‟ income.
 The installment to income ratio-ranged between 34% and 40%, in India is lower
than some countries in the West.
 This is based on an analysis by rating agency Fitch of the home loan asset pool
that it rates.
 This is because borrowers‟ income has kept pace with rise in property prices.
 The extent of second houses purchased is also limited and most borrowers stick
to their repurchase schedules.
 The figures computed by Fitch based on the asset pool that it rates implies that

on an average, the borrower funds up to 30% of the house value through his own
capital
 This among other things increases the borrower‟s willingness to repay.
 Some bankers say the black money component is also high in the Indian realty
market, resulting in higher borrower equity.
 Another notable factor is that delinquencies have remained range-bound in the
last 33 months, according to residential mortgage index launched by the ratings
firm.
 The index which tracks home loans that have not repaid for over 90 days has
moved in a narrow range between 0.90% and 1.07%.
19
CHAPTER -3
3. COMPANY PROFILE
3.1. Introduction:
State Bank of India (SBI) has history of more than 200 years of existence. SBI is
the largest
commercial bank in India and accounts for approximately 18% of the total Indian
banking
business and the group account for 25% of the total Indian banking business. The
central bank,
Reserve Bank of India (RBI) is the largest shareholder in the bank with 59.7% stake
followed
by overseas investors including GDRs with 19.78% shareholding as on September 06.
RBIs
stake in the bank is likely to be transferred to the Government of India (GOI).
SBI has the largest distribution network in India spread across every nook and
corner of
India. As on September 06, the bank has 14,061 branches which include 4,755
branches of its
associated banks. The bank also has the largest network of 5,624 ATMs. Since the
last 5 years
the bank has showed continued growth in its core business. The total asset size of
the bank
reported a CAGR of 9.4% during the period FY01 –FY06 and stood at Rs. 4,938.69 bn
as of
September 2006. In HIFY07, the bank reported net interest income (NII) of Rs.
182.14bn,
representing a growth of 2.74% over HIFY06 while the bank reported a net profit of
Rs.19.8bn, registering a decline of 18.67% during the same period. Credit off take
of the bank
has been lower than the
State Bank of India (SBI) is India's largest commercial bank. SBI has a vast
domestic
network of over 9000 branches (approximately 14% of all bank branches) and commands

one-fifth of deposits and loans of all scheduled commercial banks in India.

The origins of State Bank of India date back to 1806 when the Bank of
Calcutta (later
called the Bank of Bengal) was established. In 1921, the Bank of Bengal and two
other
Presidency banks (Bank of Madras and Bank of Bombay) were amalgamated to form the
Imperial Bank of India. In 1955, the controlling interest in the Imperial Bank of
India was
acquired by the Reserve Bank of India and the State Bank of India (SBI) came into
existence
20
by an act of Parliament as successor to the Imperial Bank of India.

Today, State Bank of India (SBI) has spread its arms around the world and has a
network of branches spanning all time zones. SBI's International Banking Group
delivers the
full range of cross-border finance solutions through its four wings - the Domestic
division,
the Foreign Offices division, the Foreign Department and the International Services
division.
If one measures by the number of branch offices and employees,
SBI is the
largest bank in the world. Established in 1806 as Bank of Calcutta, it is the
oldest commercial
bank in the Indian subcontinent. SBI provides various domestic, international and
NRI
products and services, through its vast network in India and overseas. With an
asset base of
$126 billion and its reach, it is a regional banking behemoth. The government
nationalized
the bank in 1955, with the Reserve Bank of India taking a 60% ownership stake.
In recent years the bank has focused on three priorities:
1), reducing its huge staff through Golden handshake schemes known as the
Voluntary Retirement Scheme, which saw many of its best and brightest defects to
the private
sector,
2), computerizing its operations and
3), changing the attitude of its employees (through an ambitious programme aptly
named 'Parivartan' which means change) as a large number of employees are very rude
to
customers.
 21
3.2 Roots:
The State Bank of India traces its roots to the first decade of
19th century, when
the Bank of Calcutta, later renamed the Bank of Bengal, was established on 2 June
1806. The
government amalgamated Bank of Bengal and two other Presidency banks, namely, the
Bank
of Bombay (incorporated on 15 April 1840) and the Bank of Madras on 27 January
1921, and
named the reorganized banking entity the Imperial Bank of India. All these
Presidency banks
had been incorporated as joint stock companies, and were the result of the royal
charters. The
Imperial Bank of India continued as a joint stock company. Until the establishment
of a
central bank in India the Imperial Bank and its early predecessors served as
India's central
bank, at least in terms of issuing the currency. The State Bank of India Act 1955,
enacted by
the Parliament of India, authorized the Reserve Bank of India, which is the central
banking
organization of India, to acquire a controlling interest in the Imperial Bank of
India, which
was renamed the State Bank of India on 30 April 1955.
3.3 Timeline:

June 2, 1806: The Bank of Calcutta established.

January 2, 1809: This became the Bank of Bengal.
April 15, 1840: Bank of Bombay established.
July 1, 1843: Bank of Madras established.
1861: Paper Currency Act passed.
January 27, 1921: all three banks amalgamated to form Imperial Bank of India.
July 1, 1955: State Bank of India formed; becomes the first Indian bank to be
nationalized.
1959: State Bank of India (Subsidiary Banks) Act passed, enabling the State Bank of
India to
take over eight former State-associated banks as its subsidiaries.
1980s When Bank of Cochin in Kerala faced a financial crisis, the government merged
it with
State Bank of India.
22
June 29, 2007: The Government of India today acquired the entire Reserve Bank of
India
(RBI) shareholding in State Bank of India (SBI), consisting of over 314 million
equity shares
at a total amount of over 355 billion rupees.

3.4 Associate banks:

There are seven other associate banks that fall under SBI. They all
use the "State
Bank of" name followed by the regional headquarters' name. These were originally
banks
belonging to princely states before the government nationalized them in 1959. In
tune with
the first Five Year Plan, emphasizing the development of rural India, the
government
integrated these banks with the State Bank of India to expand its rural outreach.
The State
Bank group refers to the seven associates and the parent bank. All the banks use
the same
logo of a blue keyhole. Currently, the group is merging all the associate banks
into SBI,
which will create a "mega bank", and one hopes, streamline operations and unlock
value.

State Bank of Bikaner & Jaipur

State Bank of Hyderabad
State Bank of Indore
State Bank of Mysore
State Bank of Patiala
State Bank of Saurashtra
State Bank of Travancore
Table 2: Associate Banks of SBI

3.5 Foreign Offices:

State Bank of India is present in 32 countries, where it has 84 offices

serving the
international needs of the bank's foreign customers, and in some cases conducts
retail
operations. The focus of these offices is India-related business.

23
3.6 Growth:

State Bank of India has often acted as guarantor to the Indian Government, most
notably during Chandra Shekhar's tenure as Prime Minister of India. With more than
9400
branches and a further 4000+ associate bank branches, the SBI has extensive
coverage.
Following its arch-rival ICICI Bank, State Bank of India has electronically
networked most
of its metropolitan, urban and semi-urban branches under its Core Banking System
(CBS),
with over 4500 branches being incorporated so far. The bank has the largest ATM
network in
the country having more than 5600 ATMs [1]. The State Bank of India has had steady
growth
over its history, though the Harshad Mehta scam in 1992 marred its image. In recent
years,
the bank has sought to expand its overseas operations by buying foreign banks. It
is the only
Indian bank to feature in the top 100 world banks in the Fortune Global 500 rating
and
various other rankings. According to the Forbes 2000 listing it tops all Indian
companies.

3.7 Fortune Global 500 Ranking – 2007:

 SBI debuted in the Fortune Global 500[2] at 498 in 2006. In 2007 it moved up to
495.
 As per fortune 500-2007 following are the data for SBI in $ million. Revenues
15,119.4. Profits 1,407.3. Assets 187,547.1. Stockholders' Equity 9,786.2
 "THE MOST PREFERRED HOME LOAN PROVIDER" voted in AWAAZ
Consumer Awards
 The MOST PREFERRED BANK AWARD in a survey conducted by TV 18 in
association with AC Nielsen-ORG Marg in 21 cities across India.

3.8 Group Companies:

SBI Capital Markets Ltd

SBI Mutual Fund (A Trust)

SBI Factors and Commercial Services Ltd

SBI DFHI Ltd

SBI Cards and Payment Services Pvt Ltd

SBI Life Insurance Co. Ltd - Bancassurance (Life

Insurance)

SBI Funds Management Pvt Ltd

SBI Canada

Table 3: SBI Group Comapnies

24
3.9 The main activities of SBI are into -

 Personal Banking.
 NRI Services.
 Agriculture.
 International.
 Corporate.
 SME.
 Domestic Treasury.

3.10 State Bank of India offers the following services to its customers –

 Domestic Treasury.
 SBI Vishwa Yatra Foreign Travel Card.
 Broking Services
 Revised Service Charge.
 ATM Services.
 Internet Banking.
 E-Pay.
 E-Rail.
 RBIEFT.
 Safe Deposit Lockers.
 Gift Cheques.
 MICR Codes.
 Foreign Inward Remittances.

Moreover, State Bank of India has Colleges/Institutes/Training Centers that are the
seats
of learning and research and development. It caters not only to the employees of
State Bank
of India but also other banks/establishments in India and abroad.

25
3.11 Performance:

 SBI Bank India had Total Income of Rs 68376.83 cr for the financial year 2006
-07.
 State Bank of India has posted Net Income to the tune of Rs 6364.38 crore or the
financial year 2006 -07.

3.12 Organization:

State Bank of India is headed by Mr. Shri O. P. Bhatt, Chairman.

3.13 The Bank stands for Best Practices as it claims itself as under:

Best practices followed in SBI

People dealing with End to End service by Permanent employees of SBI who are
you
accountable to you.
SBI branch of your choice will service your loan account. You can
Place
always meet our employees face to face.
Complete transparency.
Price
Interest charged on the daily reducing balance.
No penalty for prepayments made, out of bonafide savings or windfall
Prepayment charges
gains for which evidence is produced.
Costs hidden in fine
No hidden costs
print
Complete transparency. All the features of our product, including
Transparency
interest rates, are in the public domain.
Table 4: Best Practices in SBI

3.14 Share Holders:

Figure 8: Shareholders of SBI

 26
3.15. Unique features of SBI Home Loan Products:

 Provision for on the spot "In principle" approval.

 Loan sanctioned within 6 days of submission of required documents.
 Option to avail Home Loan as a Term Loan or as an Overdraft facility to save on
interest and maximise gains.
 Option to club income of your spouse and children to compute eligible loan
amount.
 Provision to club depreciation, expected rent accruals from property proposed to
compute eligible loan amount.
 Provision to finance cost of furnishing and consumer durables as part of project
cost.
 Repayment permitted upto 70 years of age.
 Free personal accident insurance covers upto Rs.40 Lac.
 Optional Group Insurance from SBI Life at concessional premium (Upfront
premium).

27
CHAPTER - 4
4. HOME LOAN PRODUCTS OFFERED BY SBI

1. SBI HI-FIVE LOAN

SBI Hi-Five is available up to 31st March 2010
Amount Maximum Rs.5 Lacs
Term Maximum 120 months (i.e. 10 years) including moratorium
period.
Interest Rates 8% p.a. Fixed interest rate during first 60 months.
61st month Onwards - floating at 2.75% below SBAR

Or

Fixed interest at 1.25% below SBAR

Table 5: SBI Hi-Five Loan
Processing Fee
The revised processing fee structure (including service tax) from 9th November 2009
is as
under:

Processing
Loan Amount
Fee(Revised)
Upto Rs.5 Lac Rs.1000/-
Table 6: Processing fee

2. SBI EASY HOME LOAN

FOR LOAN AMOUNT UPTO Rs. 50 Lacs

SBI Easy is available up to 31st March 2010

Getting your dream home has become easier with SBI Easy Home Loan. With low
interest
rates for home loan under Rs. 50 lakhs category, SBI Easy ensures that you are not
burdened
with high interest for your home loan. Plus with over 12000 SBI branches nationwide
you
can get your Home Loan account parked at a branch nearest to your present or
proposed
residence.
Interest Rate:
Interest rate during the first year (i.e. till first anniversary date from the date
of first
disbursement) is fixed at 8% p.a.
28
Interest rate during next two years is fixed at 8.5% p. a
Interest rate after three years may be Fixed or Floating as per the borrower‟s
choice made at
the time of sanction. If floating rate option is chosen, then the rate will be
2.75% below
SBAR. If fixed rate option is chosen, then the rate will be 1.25% below SBAR
prevailing on
the third anniversary date from the date of first disbursement, and shall have a
reset frequency
of 5 years from the third anniversary date of the loan. Fixed interest rate shall
be subject to
force-majeure clause.

Processing Fee:

The revised processing fee structure (including service tax) from 9th November 2009
is as
under:
Processing
Loan Amount
Fee(Revised)
Upto Rs.5 Lac Rs.1000/-
Above Rs.5 Lac and upto Rs.10 Lac Rs.2000/-
Above Rs.10 Lac and upto Rs.20
Rs.5000/-
Lac
Above Rs.20 Lac and upto Rs.50
Rs.7,000/-
Lac
Table 7: loan amount in SBI easy home loan

3. SBI ADVANTAGE HOME LOAN

FOR LOAN AMOUNT ABOVE Rs. 50 Lacs

SBI Advantage is available up to 31st March 2010

SBI Advantage Home Loan with competitive rates of interest is available for home
loans
above Rs.50 lakhs. Plus with over 12000 SBI branches nationwide you can get your
Home
Loan account parked at a branch nearest to your present or proposed residence.

29
Interest Rate:
Interest rate during the first year (i.e. till first anniversary date from the date
of first
disbursement) is fixed at 8% p.a.
Interest rate during next two years is fixed at 9% p. a
Interest rate after three years may be Fixed or Floating as per the borrower‟s
choice made at
the time of sanction. If floating rate option is chosen, then the rate will be
1.75% below
SBAR. If fixed rate option is chosen, then the rate will be 0.75% below SBAR
prevailing on
the third anniversary date from the date of first disbursement, and shall have a
reset frequency
of 5 years from the third anniversary date of the loan. Fixed interest rate shall
be subject to
force-major clause.
Processing Fee

The revised processing fee structure (including service tax) from 9th November 2009
is as
under:
Loan Amount Processing Fee(Revised)
Above Rs.50 Lac and
Rs.8,000/-
up to Rs.1 Cr
Above Rs.1 Cr and up
Rs.10,000/-
to Rs.5 Cr
Above Rs.5 Cr Rs.20,000/-
Table 8: : loan amount in SBI advantage home loan

4. HOME LOAN PRODUCT VARIANTS

i) SBI Max Gain

HOME LOAN AS AN OVERDRAFT

An innovative and customer-friendly product to enable you to earn optimal yield on
your savings and minimize interest burden on Home Loans, with no extra cost.
The loan is granted as an Overdraft facility with the added flexibility for you to
operate your
Home Loan Account like your SB or Current Account.
30
The product serves to minimize your interest cost by enabling you to park your
surplus funds
in „SBI-Maxgain‟ (with the benefit to withdraw the surplus funds whenever you
require),
specially in the wake of low yields from other deposit/ investment avenues.

Minimum Loan Amount: Rs.5 lacs

ii) SBI Freedom

A revolutionary product designed for customers who are on the look out for a source
of
finance for a property they want to invest in without mortgaging the same. All you
have to do
is pledge any financial security that you have and you will get a Home Loan for
your dream
home.

A must-take for those who do not want to pay stamp duty for mortgage of their
property or go
through the hassles of creation of mortgage.

You also have an option to take the loan by way of mortgage of the property and
pledge
financial securities in lieu of margin money.

Repayment is highly customized, giving you the option to repay through regular EMIs
or
through maturity proceeds of the securities pledged.

ii) SBI Realty

HOME LOANS FOR PURCHASE OF PLOT OF LAND FOR THE PURPOSE OF

CONSTRUCTION OF A DWELLING UNIT
A unique product if you are on the lookout for a loan to purchase a plot of land
for house
construction. The loan is available for a maximum amount of Rs.1 crore* and with a
comfortable repayment period of upto 15 years.
31
Customers are also eligible to avail another Housing Loan for construction of house
on the
plot financed above with the benefit of running both the loans concurrently.
(House construction should commence within 2 years from the date of availment of
„SBI-
Realty‟ Housing Loan)
(Other terms and conditions – as applicable to regular Home Loans)
(* relaxation considered on case to case basis)

iv) SBI Flexi

HOME LOANS WITH A COMBINATION OF FIXED AND FLOATING INTEREST
RATES
Home Loans with an option to choose a combination of floating interest rate and
fixed
interest rate, in a pre determined ratio.
Minimum Loan Amount Rs.5.00 lacs.
A customized product designed to enable borrowers to hedge their Home Loan against
unfavourable movement in interest rates. The product gives you a onetime
irrevocable option
to choose one of the three customized combinations of fixed and floating interest
rates and
also to choose the order in which the fixed and floating rate will be availed.
v) NRI Home Loans
HOME LOANS TO NON RESIDENT INDIANS (NRIs) AND PERSONS OF INDIAN
ORIGIN (PIOs HOLDING A FOREIGN PASSPORT)
Eligibility
Individual(s) over 18years of age with a steady source of income who
 Are Non Resident Indians (NRIs) holding a valid Indian passport.
 Are persons of Indian origin (PIOs) holding a foreign passport.
 Minimum employment tenure in India/abroad not less than 2 years.

32
Loan Amount
The loan amount is to be determined on the basis of repayment capacity taking into
account
income, age, assets and liabilities, qualifications, stability of occupation, and
employment
prospects on return. The loan amount is subject to the following:
Minimum: Rs. 3 lacs
Maximum: Maximum permissible loan amount would be determined by EMI/NMI ratio
criteria as applicable to regular Home Loans scheme for Resident Indian customers,
which is
40% for Net Annual Income (NAI) upto Rs.2 Lac, 50% for NAI above Rs..2 Lac and upto

Rs.5 Lac, 55% for NAI above Rs.5 Lacs.

vi) SBI Optima

Innovative and value added products extended to existing Home loan borrowers with a

satisfactory repayment record of 3 years and whose loan is Standard Asset, with a
view to
reinforce the customer loyalty and to maintain long term relationship with the
borrowers. In
case of take-over of Home Loans from other Banks/HFCs, the borrower should have
fulfilled
the above conditions with the present Bank/HFC.
Vii) SBI Tribal Plus
SPECIAL HOME LOAN SCHEME FOR HILLY/TRIBAL AREAS
'SBI-Tribal Plus' Home Loans, a Special Scheme designed for Hill/Tribal areas for
extending
financial assistance to individuals in such areas to:
a. Purchase or construction of a new house / flat (without mortgage of land)
33
b. Purchase of an existing (old) house / flat which is not more than 10 years old
(In such
cases, valuation report from our empanelled valuer and a certificate on the
condition of the
house to be given by a structural engineer or Govt. approved architect should be
taken);
c. Repair /Renovation/extension of an existing house or flat.

viii) Gram Niwas

HOME LOANS TO FARMING AND POOREST OF THE POOR IN RURAL AREAS
The Scheme covers all rural and sEMI-urban centres. “Rural Area” for the purpose of
the
Scheme is the area comprised in any village including the area comprised in any
town, the
population of which does not exceed 50000 as per 2001 census.The scheme seeks to
provide
home loans to farming and poorest of the poor in rural areas for the purpose of
purchase or
construction of a house, repairs and renovation, purchase of plot for the purpose
of
construction of a house/shed etc.

ix) Sahyog Niwas

RURAL HOME LOANS TO SELF HELP GROUPS
The Sahyog Niwas scheme has been instituted to finance the self help groups with a
good
track of payment record for 2 years, for on lending to members for housing in rural
areas,
covering the following purposes.
i) For the purchase or construction of a house exclusively or including the housing
needs of
activities carried by them. (Dairy shed, tailoring shed/shop, grocery stores etc.)
ii) For the renovation or repair of an existing house / shed
iii) For the purchase of a plot of land for the purpose of house construction.
iv) For the extension of existing house / work space to existing house / shed.

34
x) SBI Happy Home Loans
HOME LOANS AT 8% P.A

The SBI Happy Home Loans scheme enables the genuine needy buyers to buy dwelling
units
by freezing interest rate at 8% p.a. for a period of one year from the date of
disbursement on
new Home Loans including SBI Special Home Loans scheme.

xi) SBI Green Home Loan

State Bank of India has adopted a Green Banking Policy with an objective of
contributing
towards the fight against the adverse climate change. One of the initiatives
approved by the
Board for this purpose is incentivizing customers who go in for Green Projects,
i.e. those
projects which reduce Carbon Emissions and promote Renewable Energy. “Green
Housing”
or “Green Home” is one of the types of projects identified for this purpose.

At present State Bank of India is the only Bank in the country supporting the cause
of Green
Buildings by offering a 5% concession in margin, 0.25% concession in interest rate
and
waiver of processing fees, on the existing home loan products to customers who go
in for
Green Projects.

35
5. HOME LOAN TOP-UP PRODUCTS
i) SBI Home Line
SBI Home Line Special Personal Loans come with inbuilt provision to sanction
personal
loans to home loans borrowers with a satisfactory repayment record of 3 years. The
rate of
interest charged on these personal loans is only 50 bps above the Home Loan
interest rate
applicable to the repayment tenure opted by the borrower (floating rates only),
prevailing as
on the date of sanction of „SBI-Home Line‟ Special Personal Loans.

ii) SBI Home Plus

SBI Home plus is scheme is launched for granting personal loans to the banks home
loans
customers against the security of their house property. All home loans customers
with a
satisfactory repayment record of at least one year and who maintain a Savings bank
or current
account with us.
The loan can be used for any purpose, viz. extension/repair of house, purchase of
car/
consumer durables, education / medical expenses of family members, personal
expenses, etc.
There will be no need to obtain documentary evidence for the end-use of funds.
However a
certificate from the customer in the application to the effect that the loan will
not be used for
speculative purposes would be obtained.

iii) SBI Life style Loan

LOANS TO MEET LIFE STYLE NEEDS OF HOME LOANS CUSTOMERS
State Bank Of India launched the SBI Life Style Loans to help home loan customers
meet
any short term expenditure, (Vacation travel, purchase of Gold, Lifestyle goods)
except
speculative investments, which adds comfort to the life style of the borrower with
satisfactory
repayment record. SBI has tie up with various reputed travel houses, lifestyle
product
companies for discounts to our customers.
36
6. RELATED HOME LOAN PRODUCTS
i) Earnest Money Deposit (EMD) Scheme
Many Government agencies, like Urban Development Authorities and Housing Boards,
periodically come out with schemes for sale of plots/houses, wherein applicants
have to
submit 10-20% of the cost of plot/house as Earnest Money Deposit (EMD) and
allotments are
made by draw of lots.
The SBI EMD scheme is designed for financing against earnest money for allotment of
a
house/plot. Individuals above 21 years of age and with a steady source of income
are eligible
to avail loans under this scheme.
ii) SBI Reverse Mortgage Loan
LOAN FOR WELFARE OF SENIOR CITIZENS IN INDIA
SBI Reverse Mortgage Loan Enables house-owning Senior Citizens having inadequate
income to meet their financial needs for renovation/repairs to house, medical &
other
personal purposes. There is no compulsion for the borrower to repay a RML during
his or her
lifetime or till such time he or she continues to stay in the house.
The borrower continues to retain ownership of the house. Also, the borrower will
have the
option to prepay the loan at any time during the loan tenure and there will be no
pre-payment
penalty.
7) Other schemes:
The bank offers loans schemes known as 'Prashasan Plus', 'Teacher Plus' and
'Oil
Plus' to Government Employees, Teachers and employees of public sector oil
companies etc at consessional rates. These „plus‟ schemes offer concessional
interest
rate of 0.25% below the applicable interest rates on Home Loans to niche client
groups like Government Employees, Teachers, employees of public sector oil
companies and so on

37
CHAPTER -5

5. TERMS AND NORMS

5.1. ELIGIBILITY

If one is a resident or non-resident individual who is planning to buy a house in

India,
one can apply for a home loan. If a person has decided to buy a property in the
near future,
he/she can apply for a loan before even selecting the property. Once the maximum
amount to
put into the property has been decided, the Housing Finance Institutions or Banks
will let the
customer know that how much he/she is eligible for and this helps to plan out the
budget.
Conditions regarding co-applicants:
All Housing Finance Institutions lay down conditions on who can be co-applicants.
All co-
owners of the property need to be co-applicants to the loan necessarily. These
institutions do
not permit minors to join in as either co-owner or as co-applicants because a minor
is not
eligible to enter into a contact as per law. They do not permit even friends or
relatives who
are not blood relatives to take a property jointly. However, Income of co-
applicants can be
clubbed together to get higher loan eligibility. Given below is a Table that throws
light on
acceptable relationship of a co-applicant for clubbing of income.

Minimum age: 18 years as on the date of sanction

Maximum age: limit for a Home Loan borrower is fixed at 70 years, i.e. the age by
which
the loan should be fully repaid, subject to availability of sufficient, regular and
continuous
source of income for servicing the loan repayment.

38
Eligibility Criteria & Documentation required for Individuals:

Salaried Self employed

Age 21years to 60years 21years to 70years
Income Rs.1,20,000 (p.a.) Rs.2,00,000 (p.a.)
Loan Amount
5,00,000 - 1,00,00000 5,00,000 - 2,00,00000
Offered
Tenure 5years-20years 5years-20years
Current
2years 3years
Experience
1) Application form with photograph
1) Application form with
2) Identity & residence proof
photograph
3) Education qualifications certificate &
2) Identity & residence proof
proof of business existence
3) Last 3 months salary slip
Documentation 4) Business profile,
4) Form 16
5) Last 3 years profit/loss & balance
5) Last 6 months bank salaried
sheet
credit statements
6) Last 6 months bank statements
6) Processing fee cheque
7) Processing fee cheque
Table 9: criteria and documents required for individuals

5.2. DOCUMENTS

(1) ADVOCATE Check List: (Prepare separate set)

 Copies of Mother deed/parent document link deeds, allotment letter, Khatha

certificate/endorsement, up to date encumbrance & tax paid receipts. (In
case of flats, if the project is already approved by SBI panel advocate then
this is not required).
 Copies of Agreement for sale, Construction Agreement
 ORIGINAL Sub Registrar certified copy of the Sale Deed(for takeover
loans )
 ORIGINAL of updated encumbrance certificate.
 Copy of Plan sanction.
 Copies of latest Khata certificate,Khata extract etc.
 Upto date Tax paid receipts (Form-16).
 Copies of Sanction letter of other bank/institution & Letter of original
documents held in their custody ( applicable In case of takeover loans from
other banks/institutions)
39
(2) ENGINEER Check List:

(Kindly take the Engineer Telephone Nos from the bank to co-ordinate with him for
inspection of your property)
 Photo copy of Sale Deed.
 Plan Sanction Copy.
 Interior Estimate, if any, for approval by Engineer.
(3) Builders/Sellers Check List
 Allotment Letter & detail split up cost of the project.
 In case of completed projects, a letter from the builder stating that the
property is ready for registration.
 Letter from the builder/seller the property is not mortgaged to any bank/
financial institution. If mortgaged then an NOC from the concerned
bank/institution.
 Advance Receipt / Paid Receipts from Builder/Seller, If any.
 Due diligence on Builders and Seller KYC Norms : Proof of Identity (PAN
copy) & Residence proof (Telephone/electricity bill - both self attested and
originals verified & attested by the bank) along with the duly filled in KYC
form (form to collect from the bank)

(4) Other Bank/Institution Check List ( In case of Takeover Loans)

 Sanction Letter of the other bank/institution.
 Loan account statement from the date of sanction till date.
 Pre-closure letter inclusive of penalty from the other bank/institution.
 Letter of original documents held in their custody.
 Receipts for the total amount of the project issued by builder/seller to the
purchaser/bank/institution.
40
(5) PERSONAL DOCUMENTS Check List
(From the Applicant / Co- applicant and Guarantor, if any)
SELF ATTESTED COPIES OF DOCUMENTS Sl.No.1 to 6:
1) Proof of Identity (passport/pan card)
2) Proof of Residence (telephone/electricity
bill/ company letter)
3) Salary Slip - last 3 months. (Attested by
the employer)
4) Salary account bank statement - last 6 months
(bank attested)
5) Form 16 for the last two years.
6) Income Tax Saral copy for the last two years.

7) Photograph - 2 nos.
8) Application Form
9) Company Profile – details of company
(6) Check list by the Purpose
Confirmation of Income
 If you are a salaried person, please provide two recent consecutive pay slips or
a copy
of your employment contract or a letter from your employer.
 If you are self-employed, please provide copies of your last two Financial
Accounts as
prepared by your accountant.
 Appointment Letter
 Salary Certificate
 Retainer ship Agreement, if appointed as a consultant
 FORM 16 issued by the employer in your name.
 Last three years income tax returns duly filed and certified by the Income Tax
Authorities
41
 Similar Document -separately for each co-applicant.
Employment Proof
 Identity card issued by your employer
 Visiting card
Age Proof
 Passport
 Voter's ID card
 PAN card
 Ration card
 Employer's Identity card
 School leaving certificate
 Birth certificate
Residence Proof
 Ration card
 Passport
 PAN card
 Rent agreement, if you are staying currently on rent
 Bank Pass book
 Allotment letter from your company if you are residing in company quarters.

42
Name Change Proof (If Applicable)
a. A copy of the official gazette
b. A copy of a newspaper advertisement publicizing the name change
c. Marriage certificate
Investment Proof (If Applicable)
 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 Bank
Property Title Proof
 Original Sale agreement with Builder/Developer duly registered, Registration
receipt
 Tripartite agreement from builder/developer
 Land documents indicating ownership, e.g.- Photocopies of title deeds, if
applicable
 A certificate by the legal advisor of the builder to the effect that the builder
has a good
reputation and it is free from encumbrance and other charges.
 A certificate from builder's Chartered Accountant certifying that the builder has
not
mortgaged the property anywhere else.
 Certified true copy of approved plan.
 Copies of receipts of payments made to builder/developer.
 Allotment letter
 Possession letter
 Lease agreement, if applicable (Property bought from a development authority)
 Mortgage deed if the Bank opts for a registered mortgage.
43
 No Objection Certificate from the developer, society or development authority as
applicable
 Personal Guarantees, if applicable.
 In case of alternate or additional security, documents for the same depending
upon the
security details.
 For self-construction: Approved plans and clearance certificates along with
estimates
 Post dated cheques for the EMIs.
Confirmation of Rental Income
Copy of the existing tenancy agreement, or a rental appraisal, from a local real
estate agent
signed by branch manager, or rental manager.
Deposit or Investments
 Evidence of your deposit or investment funds, i.e. a bank statement or term
deposit
receipt.
 For low equity loans (5-19% deposit), copy of your savings account statements
over
the last six months.
Sale and Purchase Agreement
 If you are planning to buy a property, please provide a copy of the successful
sale and
purchase agreement signed by both you and the vendor.
 If you are planning to sell or have already sold your existing property, please
provide
a copy of that property's sales and purchase agreement.

44
New Customer to the banks of India
 If you are refinancing from another bank please provide copies of your loan
statements covering the last six months.
 Please provide copies of your account statements covering the last six months
from
your current bank.
 Please provide copies of your identification and if you have arrived in the
country
within the last 5 years, please provide a copy of your passport.
Government Valuation and rating System
A copy of the latest Government or Ratings Valuation is to be provided. Depending
on the
age and value indicated in conjunction with the amount required to borrow, the Bank
may
require a Registered Valuation and your Banker will advise you.
5.3. PURPOSE
The bank offers home loans for purchase and/or construction of house property as
well as plot loans.
It offers loans for:
 Purchase/ Construction of new House/ Flat
 Purchase of an existing House/ Flat
 Purchase of a plot of land for construction of House
 Extension/ repair/ renovation/ alteration of an existing House/ Flat
 Purchase of Furnishings and Consumer Durables as a part of the project
cost
 Takeover of an existing loan from other Banks/ Housing Finance
Companies
45
5.4. QUANTUM OF LOAN
Actual loan amount will be determined taking into consideration such factors as
applicant‟s income and repaying capacity, age, assets and liabilities, cost of the
proposed
house/flat etc.
Applicants aged between 18 and 45 years, can get 60 times Net Monthly Income
(NMI) or 5 times Net Annual Income (NAI) and for applicants aged over 45 years of
age,
it is 48 times NMI or 4 times NAI.
This will be subject to a maximum EMI/NMI ratio as under:

Net Annual Income EMI/NMI Ratio

Upto Rs.2 lacs 40%

Above Rs.2 lac to Rs. 5 lacs 50%

Above Rs. 5 lacs 55%

Table 10: Criteria for Loan Amount

 Increase upto 5% in the EMI/NMI ratio may be permitted by the sanctioning

authority, depending on the availability of disposable surplus income after
meeting expenditure towards maintenance of family.
 Judgment regarding repayment capacity on the basis of income:

To understand how the income of a customer is considered to arrive at his repayment

capacity, it is first necessary to classify customers into salaried and self

employed
individuals.

46
a) The income of the salaried individual is considered in the following manner:
Gross monthly income as it appears on the salary slip
Less:- Any non regular variable income appearing on the salary slip (including
overtime, etc.)
Add: - 50 per cent of the average variable income of the last six months.
Add: - Any fixed cash/voucher payments for which proof can be submitted.
Add: - 50 per cent of the average variable cash/voucher payments with proof like
traveling
reimbursement etc.
Add: - HRA receivable if not being received already in the salary slip.
The above income calculated for the calculation of eligibility using IIR and FOIR
norms. For calculation of FOIR, the installments of all the loans that one has
availed
of currently for which repayment is being made is taken into account as well. The
lower of the two eligibilities is considered as the maximum repayment capacity.
E.g.: Determination of loan amount eligibility of a salaried individual:

Net Monthly Income i.e. Take home salary 85,000/-

Expected rental from proposed property 15,000/-
Add any other monthly regular income -
Total Net Monthly Income 1, 00,000/-
Take 55% of this for total loan EMI provision i.e. 55,000/-
Subtract all existing loan EMI‟s being paid now: (other loans) 15,000/ -
Net EMI available for the present loan 40,000/-
Now, for repayment period 15 yrs @ 9 % the EMI/ lakh is 1,014/-
To arrive at your eligibility Divide 40,000/ by 1014 39.44 lacs
Table 11: Determination of Repayment capacity

i.e. 39.44 lacs or 80% of project cost whichever is lower.

47
b) To consider income of Self-employed individuals we further classify them into
Professionals and non-professionals.
• Professionals: - Comprising doctors, chartered accountants, lawyers, architects,
etc.
For calculation of eligibility of professional's income is computed by most HFIs
using the
gross professional receipts instead of the Net profit as in the case of self-
employed non-
professionals.
• Non-Professionals: - The income of non-professionals is normally calculated by
HFIs in the following manner: -
Average of the net profits of last 2 years as it appears in the profit and loss
account (Returns need to be filed for the same. They should be filed regularly
before
the due date is over).
Less: - Any income, which is unusual and non-recurring in nature like sale of some
asset, etc
which affects profits substantially,
Add: - Any expense that is unusual and non-recurring in nature like repairs and
maintenance
that has not been capitalized and effect profit adversely.
Add: - 50 per cent of the average depreciation of the last two years. The above
income is
calculated for the calculation of eligibility using IIR and FOIR norms.

For calculation of FOIR the installments of all the loans that one has availed of
currently for which repayment is being made is taken into account and the
eligibility is
worked out. The lower of the two eligibilities is considered as the maximum
repayment
capacity.

48
To enhance loan eligibility you have option to add:
1) Income of your spouse/ your son/ daughter living with you, provided they
have a steady income and his/ her salary account is maintained with SBI.
2) Expected rent accruals (less taxes, cess, etc.) if the house/ flat being
purchased are proposed to be rented out.
3) Depreciation, subject to some conditions.
4) Regular income from all sources.
Table 12: Enhancing Repayment capacity options

5.5. Equated Monthly Installment Calculation:

The staff at the selected Branch did not want to reveal the actual method adopted
by
SBI as they used to have a computer software Application for the purpose that looks
just
as below:

Calculate EMI For

36398.28
EMI Calculated: Rs.
3000000
Amount

1367793.6
120
Duration
Total Interest: Rs.
Months
8
Interest Rate
%
Calculate Reset

Figure 9: Software Interface for EMI calculation

 49
However, the actual calculation model for EMI could be as follows:
From various resources, it is found that:
1) The EMI break up, for SBI is:
 68% - Principal Component and
 32% - Interest Component
2) The way EMI is calculated can be broadly categorized under two heads:
 Flat rate system and
 Reducing balance system.
The flat rate system:
The rate of interest on the loan amount is calculated over the full duration of
the loan,
the principal and the interest is divided over the number of installments and the
value arrived
is your EMI. Let us understand this better:

Table 13: EMI calculation in the flat rate system

A flat rate loan is the most expensive as in this case the interest is calculated
on the entire
loan amount and no principal deduction is taken into account. Thus the effective
rate of
interest works out to be much higher.

50
Reducing balance system:
The interest is charged on the outstanding balance of the loan, which goes on
reducing. Hence the cost of the same loan amount on an annual reducing balance
method
works out to 29% and 35% on a monthly reducing balance method. Again in case of
reducing system, there are three types:

Table 14: EMI calculation in Reduced balanced system

Daily reducing balance method (Used by SBI)

Here, there is immediate reduction in principal thereby reducing the interest
calculated on it. If you have taken a loan of Rs.1, 00,000/- at 21% interest for 3
years and
you pay Rs.3, 760/- on Jan 10, the lender will consider total outstanding principal
as
Rs.96, 240/- from Jan 11. The interest will be calculated on Rs.1,00,000/- from Jan
1 to
Jan 10 and from Jan 11, interest will be calculated on Rs.96,240/-. With a lower
outstanding principal, the total interest paid out reduces and so does the EMI.
Monthly reducing balance method
Here, the principal component is deducted at the end of every month and then the
interest
is calculated on this new outstanding reduced principal. The above table gives the
cash
outflow on a loan of Rs.1, 00,000/- at 21% interest for 3 years, when interest is
calculated
by monthly reducing balance method.
51
Annual reducing balance method
Here the principal component of EMI though reduced every month, is summated
annually. Therefore, the interest is calculated on the original loan amount for the

entire year. At the end of the year, the accumulated principal component is
deducted
from the original loan amount and the interest for the next year is on this reduced
loan
amount. If you have taken a loan of Rs.1,00,000/- at 21% interest for 3 years, the
EMI
will be Rs.4,018/-.

Which EMI plan to choose?

Payment of EMIs in advance or in arrears?
Paying the EMI at the beginning of the month (EMI in advance) means that
you lock your money for the month; while paying in arrears, (i.e. at the end of the

month) gives you an extra month before the payout. The effective rate of interest
on
the loan also goes up when you pay the EMI at the beginning of the month. Hence if
two schemes offer the same EMI, choose the one, which allows payment in arrears.

Advance EMI payment

In advance EMI schemes a certain number of EMIs are collected from the
borrower in advance. The number of EMIs that have to be paid out in advance varies
with the interest charged on the loan. The more you pay in advance the lesser
should
be the interest charges.

Also in 100% financed loans, some EMIs have to be paid upfront as advance.
This effectively reduces the loan amount and in real terms the financier has not
given
you 100% finance but charges interest on the entire cost of the asset.

52
Deposit linked plan
Here, the financier offers a lower rate of interest, provided the borrower
invests 20% to 25% of the asset cost as a fixed deposit with the financier. The
interest
on this deposit is usually lower than the interest charged on the loan. Here again
you
must consider the cost of parking your funds in the deposit as the returns on it
may
not weigh favorably with the low interest charged on the loan.
In the end, the thumb rule of EMI to remember: EMI is lowest, when interest
is calculated on a daily reducing basis. The reason why EMI varies for the same
loan
amount, tenure and interest rate is the difference in the compounding frequency of
interest rates.
We can remember that one liner joke - “Why sharks never take lenders?” The
answer is “Professional courtesy”.
Pre-EMI:
In case of part of disbursement of the loan, monthly interest is payable
only on the disbursement amount. This interest is payable monthly till the final
disbursement is made, after the EMIs would commence.
5.6. MONETARY CEILINGS
The Maximum Permissible Loan Amount is subject to following monetary ceilings:
Repairs/Renovation Rs. 10 lacs Above Rs.10 lacs require prior
administrative clearance of network
GM
Furnishings and consumer 10% of the Whichever is less where additional
durables Project Cost security is available
(or)
3 lacs
Table 15: monetary ceilings

53
5.7. TOTAL PROJECT COST
The total value house or flat or the project cost includes:
 The cost of undivided share of the flat/land /construction cost,
 Additional Amenities like Car Parking, KEB & BWSSB deposits,
 Insurance premium
 VAT & service taxes,
 Maintenance cost &
 Stamp duty and Registration expenses subject to your eligibility as calculated
above whichever is lower for purchase /construction of new or old property.
5.8. MARGIN
 Purchase/ Construction of a new House/ Flat/ Plot of land:
The SBI home loan borrower should pay 20% of the cost of home for loans up to Rs 1
crore and 25% for loans above Rs 1 crore.
*
Loan Amount Margin (Min.) Maximum LTV Ratio (Max.)

Upto Rs. 75 Lacs 20% 80%

Above Rs. 75 Lacs. 25% 75%

Table 16: criteria of margin amount

 Repairs/ Renovation of an existing House/ Flat: 20%

 *LTV ratio - Loan to value ratio=Loan amount/Value(project)

54
5.9. SECURITIZATION

In most cases, the property to be purchased itself becomes the security and is
mortgaged to the bank till the entire loan is repaid.

Equitable or Registered mortgage of property

(or) Other tangible security of adequate value like NSCs, Life Insurance policies
etc., if the property cannot be mortgaged
Table 17: Securitization

5.10. FEES OR CHARGES

5.10.1. Pre-Sanction Fees
(i) Processing Fee:
The revised processing fee structure (including service tax) from 9th November
2009 is as under:
Loan Amount Processing Fee (Revised):
Upto Rs.5 Lac Rs.1000/
Above Rs.5 Lac and upto Rs.10 Lac Rs.2000/
Above Rs.10 Lac and upto Rs.20 Lac Rs.5000/
Above Rs.20 Lac and upto Rs.50 Lac Rs.7,000/
Above Rs.50 Lac and upto Rs.1 Cr Rs.8,000/
Above Rs.1 Cr and upto Rs.5 Cr Rs.10,000/
Above Rs.5 Cr Rs.20,000/
Table 18: Processing fee amounts
 55
 Processing Fee: 0.50% of loan amount or Max.Rs.10,000/-
(Waived for loans partially/fully disbursed before
30/09/2009)

Note: 75 % of the processing fee may be refunded in the following

cases:

(a) Rejection of loan application on account of unsatisfactory pre-sanction

survey report.
(b) Rejection of loan application on account of unsatisfactory
legal/valuation reports.

In cases where applications are sanctioned or rejected after complete loan

processing,
fee will not be refunded.

(ii) Legal Charges:

Advocate's fee for property search and the title investigation

report.
Legal Fee/charges: Rs.1500/-
(iii) Govt. Stamp duty : 0.25% of loan amount as stamp duty at the time of
equitable
mortgage creation at the Bank.
(iv) Approx Govt. Stamp papers of Rs.1500/-(approx) for execution of
loan documents at
the time of sanction
(Legal/Engineer/Processing fee cheques to be paid at the time of
submission of application
form to the bank. Govt Stamp duty of 0.25 %( prevailing now) of the loan amount and
Rs750/- approx
to be paid at the time of documentation of loan. Insurance will be done after the
registration of the
property.)

56
(iii) Valuation Charges:
Valuer's fee for valuation report.
Engineer's Valuation fee: Rs.1, 500/-

5.10.2. Post-sanction Fees

(i) Stamp duty payable for Loan agreement & mortgage.
(ii) Property insurance premium:
Insurance: Insurance of property building against fire/earthquake etc with
New India Assurance Company to be done.
(iii) Service Charges
Payable to builders who have been engaged as Marketing Associates.
5.11. RATE OF INTEREST

Interest Rates w.e.f. 29.06.2009

a) Floating Rates linked to SBAR
SBAR w.e.f. 29.06.2009 = 11.75 % p.a.

Loans (i.e. Sanctioned limits) upto Rs.30 Lacs

Loan amount Loan Tenure -> Upto 5 Above 5 Above 15
Yrs Yrs & upto Yrs & upto
15 Yrs 25 Yrs
Loans upto Rs.30 lacs Linkage with SBAR in the loan 2.25% 2.00 below 1.75%
for new loans sanctioned document below SBAR below SBAR
on or after 29.06.2009 SBAR,
Special product level discount which 0.25% 0.25% 0.25%
may be withdrawn/revised solely at
the discretion of the Bank.
Effective 9.50% 9.75% p.a. 10.00% p.a.
Rate p.a.

Loans (i.e. Sanctioned limits) above Rs.30 Lacs and upto Rs.75 Lacs
Loan Upto 5 Yrs Above 5 Yrs Above 15 Yrs
Tenure -> & upto 15 & upto 25
Yrs Yrs
Above Rs.30 lacs and Linkage 2.00% below 1.75% below 1.50% below
upto Rs.75 Lacs w.e.f. with SBAR SBAR SBAR SBAR
29.06.2009
Effective 9.75%p.a. 10.00% p.a. 10.25% p.a.
rate

Loans (i.e. Sanctioned limits) above Rs.75 Lacs

Above Rs.75 Lacs w.e.f. Linkage with 2.00% below 1.75% below 1.25% below
29.06.2009 SBAR SBAR SBAR SBAR

Effective rate 9.75% p.a. 10.00% p.a. 10.50% p.a.

57
b) Fixed rates - Re-payment Upto 10 Years
(w.e.f. 29.06.2009):
Fixed rates (subject to ‘force majeure’ clause and interest rate reset at the end
of every
two years on the basis of fixed interest rates prevailing at that time)
Upto Rs. 30 Lacs 11.25% p.a.
Above Rs. 30 Lacs 12.25% p.a.

c) Loans for deposit of earnest money for allotment of a plot / house / flat

(Floating rates only)- w.e.f. 29.06.2009 - 1% above SBAR, Min. 12.75% p.a.

Loan amount Margin

Upto Rs.30 Lacs 20%
Above Rs.30 Lacs and upto Rs.75 Lac 20%
Above Rs.75 Lac 25%

d) Current Rate of Interest by Products:

2nd and 3rd

Loan Schemes 1st Year After 3rd Year
year
9.00% (p.a.) 9.00% (p.a.)
Floating Interest Floating Interest
SBI HI-FIVE Loan 8.00% (p.a.) Rates Rates
Loan Amount upto Rs. 5 Fixed interest OR OR
Lacs rate 10.50% (p.a.) 10.50% (p.a.)
Fixed Interest Fixed Interest
Rates Rates
9.00% (p.a.)
Floating Interest
SBI Easy Home Loan 8.00% (p.a.) 8.50% (p.a.) Rate
Loan Amount upto Rs. 50 Fixed interest Fixed Interest OR
Lacs rate Rate 10.50% (p.a.)
Fixed Interest
Rate
10.00% (p.a.)
Floating Interest
SBI Advantage Home
8.00% (p.a.) 9.00% (p.a.) Rate
Loan
Fixed interest Fixed Interest OR
Loan Amount Above Rs.
rate Rates 11.00% (p.a.)
50 Lacs
Fixed Interest
Rate
Table 19: Rate of interests

Note: - Interest rate after three years may be Fixed or Floating as per the
borrower’s choice made at the time of sanction.
58
5.12. MORATORIUM

Upto 18 months from the date of disbursement of first instalment or 2

months after final disbursement in respect of loans for construction of new
house/ flat (moratorium period will be included in the maximum repayment
period)

5.13. GUARANTOR :

 The bank insists on a Guarantor till the property is registered/title

transferred on your name and Equitable Mortgage registered in favour
of the bank.
 Guarantor details in the application with Assets & Liabilities duly
filled in along with the above mentioned documents are required.

 For Takeover Loans From Other Banks – Guarantor Is A Must

 An eligibility criterion of guarantor is that: 80% of the net credit

worthiness of the guarantor should be more than the loan amount
(takeover amount).

 The Title holders of the property should ONLY be the borrowers. If

the agreement is on the joint names (maximum three persons), then the
Sale deed also should be on the joint names and the loan also will be
on the joint names. The same is also applicable for take over loans.

i.e. Joint Owners then Joint name in the loan application / Single
Owner then Single name in the loan application.
 59
5.14. TAX BENEFITS

 Both principal as well as interest of home loans attract tax benefits. With
effect from
1st April 2005 (i.e. assessment year 2005-07) under section 80C of the Income Tax
Act 1965:
 Principal amount of repayment of loan along with other savings such as PF, PPF,
Life Insurance premium etc up to a maximum of Rs 1, 00,000/- will be eligible for
deduction from gross income.
 Interest paid on loan after completion of construction will be deductible from
income
from property
 For self occupied - Income will be treated as nil and interest payment will be
treated
as minus income which will be adjusted against other income.
For rental property - It will be adjusted against rental income.

5.15. PACKAGE OF EXCLUSIVE BENEFITS

 Complimentary international ATM-Debit card.

 Complimentary SBI Classic/ International Credit Card with waiver of joining and
first year's fees.
 Option for E-banking.
 Concessional package under 'Credit Khazana' for prospective car loan borrowers
whose accounts are conducted satisfactorily.
 50% concession in charges in respect of all personal remittances/ collection of
outstation cheques.

60
5.16. INSURANCE COVER

Compulsory insurance of property. Optional life cover from SBI Life & free
accident insurance cover for borrower available. The house/flat to be insured
against
the risk of fire/riots/earthquake/lighting/floods etc. in the joint names of the
borrower
and the bank for the actual project cost after netting off the cost of land, stamp
duty
an registration charges.
People seeking home loan often encounter such worries like what if anything

happens to them in that case what would happen to the home loan? Naturally, their
main concern is that should something happen to them their folks would have to
encounter the problem of facing the impact of repaying the loan debt. Home loan
insurance is completely different from home insurance.
This type of insurance covers the amount of home loan you owe to the bank.
This doesn't include the amount you have already paid but the amount still to be
paid
and evidently your family members will not face the problem of paying the amount
being owed to the bank but the insurance provider will bear the brunt of the same.
The insurance companies are not very impending about how much amount is to be
paid as part of the insurance premium as the premium amount varies depending on
the case.
 The premium amount broadly relies on conditions like - age of the person
availing the loan (the younger the person, the lower the premium amount); loan
amount (the lesser the loan amount, the lower the premium); period of the loan (the

more the loan repayment period, more is the premium); another important factor is
the health of the loan taker (the premium amount would be low in case of good
health of the individual). SBI offers mortgage life insurance policy to the SBI
home
loan applicants thereby consolidating the insurance premium along with the EMIs.
61
The State Bank of India offers a free personal accident insurance cover to their
clients
availing home loan so that the client's family doesn't have to face any problem if
he/she meets
an accident that proves to be fatal.

5.17. VALUATION POLICIES

The existing valuation policy was reviewed, and ECCB approved the following
valuation and re valuation policy w.e.f. 01.04.08 for individual home loans (IHLS):

(1) Asset Valuation Policy for IHLS:

Purpose Of Home Loan Valuation Policy

Valuation of land plus project cost i.e.stae-wise
estimated expenditure obtained from the
empanelled architect / engineer irrespective of
loan amount. Disbursement to be made
according to the stage of construction.
For loans unto rs 2 laces at rural /semi-urban
Construction of new dwelling unit
branches, the sanctioning authority may waive
valuation as above and my assess the valuation
based on market prices by enquiry and a
certificate by the contractor/engineer involved
in construction.
Valuation report obtained from the empanelled
Purchase of second sale plot
architect/engineer/valuer irrespective of the
/dwelling units
loan amount and age of the property.
For loans up to rs 20 lacks, reasonableness of
the price mentioned in the underlying sale
did/agreement to sale etc.ascertained by the
sanctioning authority as per prevailing market
Purchase of new dwelling units
prices. For loans above rs 20 lacks, valuation
report obtained from an external empanelled
architect/ engineer / valuer.
Property valued at cost price as per the
Purchase of plot for constructions of
dwelling unit from regional
agreement of sale/lease.
govt.housing development
authorities/boards/
Table 20: valuation policies
62
(2) Asset Revaluation Policy for IHLs:
 Loans above rs.1 crore are given up to an LTV ratio of 75% only, and as such
will not attract the higher CRW (Credit Ratio Weight).
 Loans of Rs 1 crore and below were given up to a LTV of 85 %( now reduced to
80%), which attract higher CRW of 100%.
 However, for a regular loan, a part of the principal gets repaid, and over a
period
of about 2.5 years from commencement of repayment, the LTV ratio comes
down to 75%.
 Therefore,higher CRW would be applicable only during this period.
 There could also be appreciation in value of the property during this initial
repayment period of 2.5 years, which could bring down the LTV ratio below
75%.
 To have the benefit of lower CRW, the appreciation through a proper
revaluation of the property.
 The revaluation is to be carried in such cases by the Asst/Dy.manager
(advances)/appraisal officer at the branch/RACPC. The process need not be as
detailed as n the case of a fresh loan sanction.

 In case of all home loans with out standings above Rs 1 crore that are standard
assets, the underlying properties should be revalued once after the expiry of
3years by engaging an empanelled architect / engineer / value. The cost of such
valuation will be borne by borrower.
 The first revaluation, in terms of this policy is due in January 2009 for loans
(standard assets having an LTV ratio of more than 75%) sanctioned during last
3 years. (A format for valuation is enclosed.)
 Concessionary capital risk weight (CRW) on home loans is available to banks
under Basel 2 frame work, provided the assets are valued/revalued in
accordance with a collateral valuation policy approved by banks board. Risk
weights on home loans based on loan to value ratio (LTV) as per the Basel 2
final guide lines issued by RBI are as under.
63
CHAPTER - 6

6. SYSTEMS AND PROCEDURES

6.1. STAFF INVLOVED AND THEIR ROLES

How
STAFF
Stage Operations/Considerations many days
MEMBER(S)
it takes
 Advertisements in Print Media  MAs
Promotion
 Demos at Home Fairs  Builders
 Field Officers
Guidance to  Demos at Home Fairs
1
prospective
 At Home Fairs
Application submission
 To the Field Officers at Branch
 Document verification Field Officer
Inspections
 Bank's Field Investigation 2

 Documents sent to RACPC.

Credit  Customer‟s worthiness is evaluated. Branch
2-3
Pre- appraisal Manager/RACPC
Sanction  The title deed investigation An advocate from As per the
Process Legal  Search report may be required from Bank‟s External visit of
Sanctions Registry office Panel legal
advisor
 Estimation of market value of the An Engineer from
Valuation 2-3
property or construction the Bank‟s Panel
 Loan sanction Branch
Manager/RACPC
Sanction 1
 Offer Letter to the customer
 Eligibility Certificate to the
customer.
 Property/Construction inspections
Post-Sanction Process  Signing of Agreements
4-5
 Submitting post-dated cheques .
 Progress of the work is considered.
 Complete execution of documents.
Disbursement  Creation of valid mortgage.
Field Officer In different
 Cheques are given directly to the
proportions
suppliers/builders
in different
 Property inspection is carried out
phases as
and recorded in the Inspection
per the
Register at each stage of
progress of
disbursement.
Post-Disbursement
the work.
Process  Registration of Property documents.
(3-15)
 After disbursal, once every 3 years
for standard assets.
Table 21: Systems and procedures in lending process

64
6.2. PROMOTION AND DISTRIBUTION OF THE PRODUCTS

(a) PROMOTION:

 State Bank of India, has come up with a non-conventional method to promote

its home loan business.
 SBI promotes home loan segment at its „Home Fair Melas’ at each circle
level.
 SBI also use to enter into an agreement with the known builders to promote its
home loan segment.
 The bank is looking forward to develop special processing channels so as to
provide quick services to home loan customers.
 There would be no processing fees on loans, adding that the home loans
approved at the fair would bear 0.25 per cent less interest than the nominal rate
from the
start of fourth year of repayment.
 Around 24 property dealers and builders were present at the fair.
 Several kinds of staff are involved in these Fairs, who include:
♀ Marketing Associates
♀ Field Officers
♀ Associated Builders and
♀ The staff from respective Retail Asset Central Processing Cells
(RACPC).
 The staff do undertake several initiatives with the prospective customers at
these Fairs itself like:
 Enquiries
 Guidance
 Instructions
 Requirement Specifications
 Application forms distribution
 Application Approvals and
 Customer Services

(b) DISTRIBUTION:

State Bank of India supplies and sells its home loan products through its over
11,440 branches nation-wide and associated RACPCs.
65
6.3. PROCESS UNDERTAKEN

6.3.1. APPLICATION SUBMISSION

 The home loan application form of SBI is rather lengthy compared to the
forms at other private sector lenders.
 Completely filled in Form along with the necessary documents.
 Need to submit the documents from builder.
 In my case, the project had APF no in SBI (basically already approved by
SBI); so not much documentation was required.
 Otherwise they would make a surge report, which can consume some time. I
guess they are quite strict about it.

6.3.2. PRE-SANCTION PROCESS

 The Field Officers hold Personal Discussion with the prospect customer regarding

Interest Rate, Eligibility, EMI and all the terms and conditions
 The prospect customer’s options and acceptance are ascertained and recorded.
 Necessary documents are collected from the customer.
 Pre-Inspection Sheet is maintained along with the documents to record inspection
by the
Bank‟s staff (or) outsourced agency.
 Bank's Field Investigation for address proof/Employment etc.
 All the documents are sent to Retail Assets Central Processing Cell (RACPC) for
credit
appraisal based on the customer‟s financial capacities.
 All the terms are conditions including Loan amount, interest rate, tenure, EMI
etc are
determined.
 The RACPC would submit its credit appraisal report on the customer to the branch.

66
 Legal Opinion:

 Empanelled Lawyer(s) does submit the Title Deed verification and the
search report for 30 years in respect of properties of the customer.
 The legal clearances/ opinion of the flat/property which you are buying /
staying /constructing have to be obtained from an advocate from Bank panel.
 Submission of legal documents & legal check.
 The search report reveals encumbrance on the property based on which the
grant of loan can be avoided and the prospect borrower may be asked to
rectify it.
 Valuation check:
 The Engineer‟s valuation of the property and estimate for the construction to
be obtained with bank panel engineer.
 In case of takeover loans, two panel engineer valuation is required and the
least value between them should be more than the takeover amount.

PRECAUTIONS TO BE TAKEN :

 Applications form to be complete in all respects.

 Market information about the potential borrower should be gathered.
 Pre-sanction survey should be conducted wherever required.
 The authenticity of salary slip, form 16 return, and proof of identification,
address
and income etc. should be cross checked.
 Income from all sources is to be considered, wherever applicable, when the
sanctioning authority is satisfied about the quantum and uninterrupted flow thereof

during the tenure of the loan.

6.3.3. SANCTION STAGE

67
 The branch manager would consider the credit appraisal report of RACPC and will
take
a decision whether to sanction or not the loan to the customer.
 The decision is informed to the prospect customer the decision so taken via Field

Officer.
 If the decision is “sanctioned”, the Field Officer would issue Offer letter to
the prospect.

6.3.4. POST-SANCTION PROCESS

 Registration of Property documents

 Signing of Agreements and submitting post-dated cheques
 SBI insists on all the margin money contributions to have been made to the
seller and
the money receipts to be handed over to them prior to the loan disbursement.
 The customer needs to submit the cash amount for various stamps, mortgage fee
etc.
 They would take 12 cheques of SBI a/c for security.
 You can link your SBI savings a/c to have standing instruction to deduct EMI.
Normally, almost all home purchase transactions will entail payment of an advance
to
the seller and on the day of registration, the remaining contribution from the
buyer and the
loan amount from the bank are exchanged with the property documents. Not with SBI.
And once the registration is done, the loan applicant needs to get the latest
Encumberance Certificate (EC) from the Registrar‟s Office and submit it to SBI.
Subsequent
to this process, SBI will create an equitable mortgage on the property in favour of
the bank as
collateral. This entails a fee of Rs 7000 (I understand that this is a percentage
of the registered
value of the property) to the loan applicant. Only after all this is done, will the
process be
complete. I never saw this equitable mortgage fee being mentioned anywhere in the
high
decibel advertisements from SBI.

68
6.3.5. DISBURSEMENT

 The disbursement is made in phases correlating to the actual progress made in the

construction.
 The proper end-use of funds is ensured by visits to the sites.
 Certificate from the engineer may be required to be submitted by the borrower
stating the status of the project.
 By BC/DD crossed A/c Payee only incorporating the builder‟s/seller‟s A/c No. and
banker‟s name and sent directly to builder/seller by Regd. AD/Speed Post.

6.3.6. POST- DISBURSEMENT PROCESS

 Property inspection is carried out and recorded in the Inspection Register at

each stage
of disbursement by the field officers.
 The installments are disbursed in different proportions in different phases as
per the
progress of the work.

6.3.7. REPAYMENT

 Loan repayment options:

 SBI lays down certain rules and regulations pertaining to the repayment of
loans.
 The loan applicants can repay the amount in the form of equated monthly
installments.
 The repayment is allowed up to the age of 70 years.
 Repayment period:
Maximum 25 years (or) Up to the age of 70 years (the age by which the loan
should be fully repaid) of the borrower, whichever is early.

69
MAXIMUM REPAYMENT PERIOD:
 For applicants upto 45 years of age: 25 years
 For applicants over 45 years of age: 15 years

 Moratorium period (Repayment holiday): The moratorium period is included

within the maximum repayment period.

6.3.8. PRE-CLOSURE

 Pre-closure is allowed by the Bank at any time after the complete disbursal and
before
the actual tenure.
 If the loan is pre-closed from own resources for which proof is submitted by the
customer, penalty is not levied irrespective of period for which the a/c has run.
Pre-closure Penalty:
 No penalty if the loan is pre-closed from own savings/windfall gains for which
documentary evidence is produced by the customer.
 In case, such proof is not produced by the borrower, penalty @2% on the amount
prepaid in excess of normal EMI dues shall be levied if the loan is pre closed
within 3
years from the date of commencement of repayment
6.3.9. NON-PERFORMAING ASSET FORMATION

When a loan or an advance does become an NPA:

The main business of a bank is through loans and advances section the bank
accept deposits from the public and certain amount they keep it as reserve balance
and
the rest of it they lend it to the needed customers who require it in the form of
loans
and advances. The customer who deposits the money they get interest and the person
who takes the loan pays interest and the difference between is the profit of the
bank.

70
Suppose the customer who took loan could not pay back the loan amount or
the installment money which consist of the interest amount and the principal amount

continuously for some specific period of time they are then converted to probable
NPA and then comes the role of recovery team which put their maximum effort to get
back the amount back which they have given as a loan or advances and at the end if
they fail to get back the money then finally the amount is converted as Non
Performing Assets.
 If the installment is overdue or pending for more then 90 days then a bank can
convert
the loan amount to probable NPA and
 If it could not be recovered by the recovery management team then it is converted
into
NPA.
 An asset becomes non-performing when it ceases to generate income for the Bank.
As from 31st March 2006, a non-performing Asset (NPA) is an advance
Where:
(i) Interest and/or installment of principal remain „overdue‟ for a period of more
than
90 days in respect of a Term Loan,
(ii) The account remains „out of order‟ for a period of more than 90 days, in
respect of
an Overdraft/Cash Credit (OD/CC),
(iii) The bill remains „overdue‟ for a period of more than 90 days in the case of
bills
purchased and discounted,
(iv) Any amount to be received remains „overdue‟ for a period of more than 90 days
in respect of other accounts.
(v) A loan granted for short duration crops is treated as NPA, if the installment
of
principal or interest thereon remains overdue for two crop seasons and a loan
granted for long
duration crops is treated as NPA, if installment of principal or interest thereon
remains
overdue for one crop season.
vi) An account would be classified as NPA only if the interest charged during any
quarter is not serviced fully within 90 days from the end of the quarter.
 71
6.3.10. RECOVERY MECHANISM

The following debt collection practices will be applied to all debts (rates and
sundry debtors) over $200 that is not in dispute which have been outstanding for 90
days:
 First reminder letter will be forwarded, requesting payment within 14 days
or to contact Council to enter into an arrangement.
 Where no response is received, second reminder letter will be forwarded
requesting payment within 14 days or to contact Council to enter into an
arrangement.
 Where no response has been received a letter of demand for payment within
7 days will be forwarded. The letter will state that failure to make payment
in full or to enter into an arrangement will result in the commencement of
legal action.
 Where no response has been received, outstanding debt will be forwarded to
Council‟s debt collection agent.

 Various Recovery Procedures

State Bank of India adopts various recovery procedures to recover the debt from its

defaulters.
The various recovery procedures are mentioned below:
 Reasons For Default :
There are various reasons for default like mismanagement, diversification of
fund, short fall in investment, will fall default etc. So a credit manager should
take
various factors into account before lending a loan.
 Demand Notice:
When a defaulter does not repays loan a demand notice is issued to him that he
has to repay his loan with a stipulate time period.
72
 Legal Notice:
When a defaulter does not respond to the demand notice a direct notice is
issued to him that if he does not repay the loan action would be taken against him
legally and the court notice is issued against him.
 Transfer To NPA Account:
When a defaulter does not respond to respond to any legal notice or he
becomes bankrupt the Whole account is transferred to NPA account.

6.3.11. CUSTOMER CARE

SBI home loan customer care services can be accessed from everywhere and at any
time using the toll-free helpline numbers or the Internet. The bank has extensively
covered
all major cities of the country while at the same time not overlooking the customer
care
requirements of people residing in rural and semi-urban areas. You can get instant
solutions
to all your home loans related queries the moment you get in touch with the staff
working
in a local SBI home loan customer care center.

State Bank of India is undoubtedly the largest financial institution among all the
public and private sector banks operational in India. As a result, it receives an
extremely
large number of requests seeking home loans and other types of financial
assistance. With
an extensive customer base spanning all across the country and also at some
locations
abroad, SBI has emerged as the largest provider of home loans in India. Thus it is
not
uncommon to see an SBI branch at a remotely located rural or semi-urban area, no
matter
where it lies on the geographical map of the country.

The customers can talk to SBI executives in a friendly environment and obtain
information regarding the types of home loans, current interest rates, repayment
options,
maximum loan terms, EMI calculation and so on. Moreover, you can use SBI home loan
73
customer care service for registering your complaints and grievances, which ensure
a swift
remedial action by the concerned authority of the bank. Furthermore, it is also
possible to
meet an SBI senior official directly through a special service known as Public
Grievance
Cell Facility and get solutions instantly. This facility is available at all SBI
branches across
the nation and to avail the same you need not take prior appointment or permission.

You can access SBI home loan customer care service through toll-free numbers and
also through Internet. Though the customer care toll free numbers are different for
each
city, the services provided there remain the same, comprehensive, instant and
bearing the
quality standard of State Bank of India.

SBI Home Loans Customer Care Number (Toll Free):

Ahmedabad: 1800 233 7933

Bangalore: 1800 425 8002
Bhopal: 1800-233-7551
Chennai: 1800 425 4424
Delhi: 1800 11 4545
Guwahati: 1800-345-3631
Hyderabad: 1800 425 3888
Kolkata: 1800 345 3455
Lucknow: 1800 180 5201
Mumbai: 1600 22 8866
Patna: 1800 345 6100

SBI Customer Care Mail ID:

Ahmedabad: helpline.lhoahm@sbi.co.in
Bangalore: sbihelpline.lhoblr@vsnl.net
Bhopal: mysbi@sbi.co.in
Chennai: helpline.lhoche@sbi.co.in
Delhi: helpline.lhodel@sbi.co.in
Guwahati: luithelp@sify.com
Hyderabad: helpline.lhohyd@sbi.co.in
Kolkata: sbihelpline.lhokol@sbi.co.in
Lucknow: sbihelp@sancharnet.in
Mumbai: helpline.lhomum@sbi.co.in

74
CHAPTER -7

7. PERFORMANCE EVALUATION

7.1. COMPETITORS

S.No. Competitor Severity of Competition

(Low/moderate/High)?
1 ICICI low
2 HDFC moderate
3 Andhra Bank low
Table 22: competitors

Interpretation:

 Majority of the competitors for the bank are from private sector in region.
 The closest competitor for the bank is HDFC .Virtually; there was an “ad war”
with
teasing rates between the two banks.
 Others include the local player Andhra bank and the private giant ICICI.

7.2. STRENGTHS AND WEAKNESSES

S.NO. Strengths Weaknesses

1 Able Work Force Long Turnaround Time
2 Network Multiple Visits
3 Innovative Schemes Documentation Needs
4 Loan Pricing Competition
5 Lack Of Prepayment Penalty, Varied Customer Demands
6 Transparency Shortage Of Staff
7 The Interest Rates
Table 23: strengths and weaknesses

Interpretation:

 The biggest strength of the bank has been its large distribution network and able

workforce.
 The weakest elements of the institution are the long processing times and the
shortage of staff.

75
7.3. DEMAND TREND:

Financial Year Number of

Enquiries
2006-07 65

2007-08 40
2008-09 60
2009-10 48

Table 24: demand trend

Enquiries for Home loans

70
65
60 60
50
48
40 40
30
20
10
0
2006-07 2007-08 2008-09 2009-10

Figure 10: demand trends

Interpretation:

 There has been instability in the demand for home loans in the region.
 Back in 2006-07, there were enquiries for the home loan from 65 individuals at
the
branch.
 Later on, the figure came down slightly to 40 and then rose to 60 in the next
year.
 However, there has been an increasing demand in the current year.

76
Demand
7.4. CUSTOMER CAPACITY

NMI Range No. of Borrowers Total Amount (Rs.)

Upto Rs.2 Lacs 48 5.25 crore
Between Rs.2 Lacs and Rs. 5 Lacs 0
Above Rs.5 Lacs 0
Table 25: customer capacity profile

Interpretation:

 The repayment capacity of all of the existing customers was just below Rs.2 lacs
p.a.
 There were no customers with repayment capacity more than Rs.2 lacs p.a.

7.5. SANCTIONS-DISBURSEMENTS

Customers (2008-09) Number of

Proposals
Enquiries 60
Applied(Applications) 50
Approved 48
Sanctioned 48
Disbursed 48
Table 26: sanctions and disbursals

Number of Applications
80
65
60
53
60
50
48
45
40
38
40 32
20
0
2006-07 2007-08 2008-09
65 40 60
Enquiries
53 38 50
Approved
45 32 48
Sanctioned and
Disbursed
Financial Year

Figure 11: number of sanctions and disbursals

77
Interpretation:

 There has been an increase in the Approvals to Enquiries Ratio from the year
2006-
07(81.5%) to the year 2008-09 (95%) and a slight decrease in the next year to
83.3%.
 However, there has been huge improvement in Sanction-Disbursal to Approvals ratio

to 96% in 2008-09 from average Ratio of 83.3% in the preceding years.

 One can understand the trend in terms of transforming the stringent system to
hassle-
free system.

7.6. CUSROMER PORTFOLIO

Existing customers Number of accounts Amount (Rs.)

Individuals from Weaker sections 119 23.8 lacs
Salaried individuals 44 4.7crores
Self-Employed individuals 4 5 lacs
Realtors 0 -
Staff of the Branch 0 -
Table 27: customer portfolio

% of Borrowers for the Year 2008-09

Salaried Individuals 92%
Business men
0% 0%
Realtors
8%
Staff

Figure 12: customer portfolio

78
Interpretation:

 Majority of the customers are salaried individuals in the region.

 The other section of customers is local self- employed.
 There is no housing finance to the normal individuals and the weaker sections.

7.7. PURPOSE PORTFOLIO

Purpose Number of Amount(Rs.)

Accounts
To Pay for First homes 40 5 crore
To Purchase second homes - -
To Improve/renovate existing homes 8 25 lacs
Table 28: lending purposes

Purpose as a % of borrowers for the Year 2008-09

17%
First Home
Renovation
83%

Figure 13: purpose portfolio

Interpretation:

 Most of the existing customers have availed the loans for construction/purchasing

their first homes.

 The minority of the customers have sought the loans for
repairs/renovation/improvement of their existing houses/properties.
 I was told that the branch is not interested in approving the loans for
purchasing/constructing second houses.
79
7.8. QUANTUM OF LOAN

Loan Amount sanctioned No. of Borrowers

Upto Rs.5 Lac 25
Above Rs.5 Lac and upto Rs.10 Lac 19
Above Rs.10 Lac and upto Rs.20 Lac 04
Above Rs.20 Lac and upto Rs.50 Lac -
Table 29: amounts of loans sanctioned

Loan amount break up as a % of Total Borrowers

for the Year 2008-09
8%
<5 lacs
5-10 lacs
10-20 lacs
52%
40%

Figure 14: Loan amount portfolio

Interpretation:

 More than half of the existing customers are sanctioned loan amount not exceeding

Rs. 5 lacs.
 The second majority of the customers are sanctioned loan amount above Rs.5 lacs
to
Rs. 10 lacs.
 The low repayment capacity of the customers in the region could be the main
reason
for the sanction of smaller quantities of loan.
 This implies that there was a demand for the lower weight products like SBI HI-
FIVE LOANS in the region.

80
7.9. SIZE OF HOME LOAN BOOK

Financial Year Amount(Rs.

crores) lent
2006-07 2.50
2007-08 3.62
2008-09 5.25
Table 30: loan book size

Home Loan Book Size

6
5
4
Book Size of
3
Home loan
2
1
0
2006-07 2007-08 2008-09
Financial Year

Figure 15: Home loan book sizes

Interpretation:

 There has been steady increase in the home loan book size of the branch.
 In the year 2008-09, the size had grown to 5.25 cr from 2.50 cr in the year 2006-
07,
which implies the size had doubled in two years.

81
Amount(Crores)
7.10. CREDIT GROWTH TREND

Financial Year % Growth rate

2007-08 44.8
2008-09 45.02
Table 31: credit growth trend

YoY Credit Growth Rate

45.1
45.02
45
44.9
44.8
44.8
44.7
44.6
2007-08 2008-09
44.8 45.02
Growth Rate
Financial Year

Figure 16: credit growth trend

Interpretation:

 There has been a slight growth trend seen from the year 2007-08 to 2008-09.
 The growth rate of 44.8 of the year 2007-08 was almost sustained in the year
2008-
09.
 The trend can be attributed to the reflection of decrease in demand and the
impact of
global recessional sentiments in the banking sector.

82
7.11. SHARE OF HOME LOANS in retail portfolio
Retail Credit segment Amount in Rs. crores
Home loans 5.25
Other advances 4.725
Total retail advances 52.5
Table 32: share of home loan segment in the retail portfolio

Share of Home Loans in Retail PortFolio for 2008-09

home loans
10%
others
90%

Figure 17: share of home loan segment in the retail portfolio

Interpretation:

 The home loan segment had got a very small i.e., 10% share in the total retail
segment of advances by the branch in the year 2008-09.
 The other retail advances like car loans, educational loans, personal loans etc
got the
90% share of total retail advances of Rs.52.5 crores in the year.

83
7.12. TAKE OVERS

Name of the Bank Number of Accounts Amount (Rs.)

Dewan Housing Finance Ltd. 06 50 lacs.
- - -
Table 33: take overs

Interpretation:

 There was less demand for the take over of advances from other banks in the
region
from the customers of other banks in the home loan segment.
 It was found from the collected complaints from the customers that the Bank
itself
follows stringent mechanisms to entertain the take over requests of the customers
of
other banks in the rest of the regions and that, may be the reason for the low
level
accounts of such requests to avert risks.
 The branch could entertain the transfer of only six such accounts from Dewan
Housing Finance Ltd of total amount Rs. 50 lacs.
 84
7.13. OUTSTANDINGS

Number of Accounts Outstanding 94

Total Amount Outstanding(Rs.) 5.25 crore
Total Outstanding/Total Advances (%) 10%
Table 34: outstanding amounts

Outstanding as % of Total Home loans

150%
100%
50%
0%
2006-09 2009-10
10% 100%
Outstanding
90% 0%
Recovered
Financial Year

Interpretation:

 90% of the short-term loans lent during the period 2006-09 have been recovered
leaving rest of 10% yet to be recovered or repaid by the customers in installments
i.e.,
94 accounts.
 Of Course, all the advances lent in the current year have been pending i.e.,
outstanding amount of Rs.5.25 cr.

85
7.14. QUALITY OF ASSETS

Total Assets Non Performing Total Advances NPAs/Total Assets NPAs/Total

Assets in Home loan Advances
Segment
52.57 crores 5.257 lacs 52.57crore 1% 1%
Table 35: Quality of Assets

NPAs as a % of Total Home loans for Year 2008-09

NPAs
1%
Standard
Assets
99%

Figure 18: Quality of Assets

Interpretation:

 Advances amounting to Rs.52.25 lacs went default out of the total advances in the

year 2008-09.
 That implies the ratio of NPAs to total Advances is 1%, Of course well within the

limits.

86
7.15. INCOME GENERATED

Net Interest Income generated Total Net Interest Income % of Total Net Income
on Home Loans
3.31 lacs 8.34 lacs 39.7
Table 36: income generated

Income Generated for the Year 2008-09

from Home
from other
loans
advances
45%
55%
Figure 19: income generated
Interpretation:

 The branch could generate 45% of its interest income for the year 2008-09 from
home loan segment.
 The interest income from the segment is Rs .3.31 lacs.

87
7.16. CUSTOMER SERVICE

7.16.1. NATURE OF COMPLAINTS collected from Online Consumer Forums:

Number of
Nature of Complaints
Complaints
Tedious Procedures 11
Delays in Processing 14
Transparency 10
Negligence by staff 9
Lack of/improper guidance 5
Insurance cover 2
Teasing interest rates 8
Hidden charges 3
On Take-overs 5
Table 37: customer complaints

Nature of Complaints(% of total) for the year 2008-09

tedious procedures
8%
delays
17%
13%
transperancy
negligent staff
3%
improper guidance 8%
21%
insurance cover
14%
teasing rates
16%
take overs

Figure 19: customer complaints

Interpretation:

 Majority of the customers are very much concern about the unreasonable delays in
processing.
 Operational systems used by SBI are so complex.
 The transparency level of the bank is maintained low.
 Most of the existing customers are demanding for uniform rates.

88
7.17. AWARDS AND REWARDS
 “Best Home Loan Provider 2008” by Outlook Money NDTV-Profit.
 “The Most Preferred Home Loan Provider” by CNBC AWAAZ Consumer
Awards for 3 years consecutively.

89
CHAPTER -8
8. RECOMMENDATIONS

On the basis of the collected data and the analysis along with detailed discussion
made in
conclusion of this report, some suggestions can be made to the bank which will be
helpful to
them in improving their services operational and financial performance.
These suggestions have been discussed as follows:
 Using Information Technology and Electronic Data Interchange at various stages of

lending process would definitely give an edge to the bank in fighting competition
and
arrive at a more realistic lending decision. E.g.:
 Online availability and Submission of Applications.
 Use of Central Mortgage Registry (proposed in the Budget-2010 to be set up)
for Title/Deed verification, which will ensure that no two borrowers in the
country will be able to raise institutional loans against the same asset. This
would help the bank in reducing NPAs.
 Use of credit appraisal reports from CIBIL or Credit Information Companies
(CIC) to avoid frauds.
 Online Processing for various inspections and verifications etc.
 Online Disbursals and Repayments.
 The Bank should make sufficient provisioning for bad loans and in this regard,
the
bank should strictly, abide by the guidelines of RBI.
 To increase their customers, the bank 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.

 To satisfy their customers and for good dealings in future, the bank should make
prompt disbursement of loan amount to the customers so that they can buy or
construct their dream home as early as possible.
 90
 The Bank should use easy procedure, or say, less lengthy procedure for the
sanctioning of loan to the customer. There should be less number of legal
formalities,
in case this exists, then, these should be completed in less time. This will be
helpful in
attracting more customers.
 Although the interest rates on specific norms, yet customers seek uniform
interest rate
giving equal justice to both the existing as well as new customers.
 The bank should improve their overall services to increase the number of
customers
for home loans. They should recruit professionals to provide such services and to
satisfy the customers.
 Although SBI Bank is a market leader in 'home loans' sector but they should
innovate
their services, viewing the- increasing competitions from other banks such as HDFC.

 The Bank should drop its tease rates as early as possible as their customers face

problems in future paying high installment due to their financial problem.

 As the banks 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 banks should soften their norms regarding the loan amount.
 The Banks 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.
 So, above are the main suggestions provided to the banks. By considering these
suggestions, the banks can strengthen their customer base in home loans sector.
 They should improve their services and reduce legal proceedings and should be
friendly to their customers.
 The bank needs to take serious and sincere steps in reducing the processing times
by
taking certain measures like using Information Technology to process the documents.

91
9. UPDATE ON HOME LOANS
News Paper Clippings from Economic Times of India and Business Standard:

25-3-10:

20-3-10:

16-03-10:

10-3-10:
 92
5-3-10:

93
3-3-2010:
.

24-02-10:

94
23-02-10:

10-02-10:

95
09-02-10:

06-02-10:

12-01-10
 96
C O N C L U S I O N

 The ratio of mortgage to GDP in India has remained low at 7%, as

against 12% for china, 41% for Hong-Kong and more than 80%foor
developed countries, thus providing for further growth in the housing
sector during the coming years. Hence, the banks shall have more
opportunities to tap the market.

 Banks have been constantly increasing their market share, there by

intensifying competition from other banks as well as Housing Finance
Companies.

 While the discounted / special scheme rates are offered to new home
loans, existing customers continue to ply higher rate of interest. The
Indian Bank’s Association has planned to introduce a uniform rate for
all borrowers. As being a Largest Lender in the segment SBI needs to
carry the same spirit and the move is in the right direction is certainly
expected from all the banks. We need to watch how banks / HFCs
adjust their lending portfolios to this effect in future.

 Last, but not the least, you may be the ‘King’ in the Market, but, the
Indian customer is your ‘Boss’ by whom, finally, your decision has to
be moulded.
97
BIBLIOGRAPHY

1. The Training and Guidance Material supplied to the staff of the

Branch.
2. The material supplied by the Faculty Guide.
3. Annual Reports of RBI(made available on its website
(www.rbi.org.in)
4. Daily News Papers: Economic Times of India and Business Standard.
5. Indian Journal of Finance
6. Magazines like Business India etc.
7. WEB RESOURCES:
a. www.statebankofindia.com
b. www.onlinesbi.com
c. www.apnaloan.com
d. www.consumercomplaints.in
e. www.Consumercourt.in
f. www.lendingtree.com
g. www.guide2homeloan.com
h. www.indiahousing.com
i. www.deal4loans.com
j. Many other online Books and Documents available on
 Scribd.com
 Docstoc.com