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Comparative study of interest rates on housing loan
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Comparative study of interest rates on housing loan



Comparative study of interest rates on housing loan

Comparative study of interest rates on housing loan



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Comparative study of interest rates on housing loan Comparative study of interest rates on housing loan Document Transcript

  • CONTENTS Chapter No. Title Page No. 01 INTRODUCTION 1.1 Introduction 1.2 Research Design  Statement of the Problem  Objective of Study  Research methodology  Limitations of Study  Layout of Chapters 02 REVIEW OF LITERATURE 1
  • 03 PROFILE OF INDUSTRY/ COMPANY 3.1 Introduction: Banking sector 3.2 Growth Of Bank 3.3 Functions of Banking 3.4 Nationalization of Financial Institutions 3.5 Nationalization of 14 major commercial banks in 1969 3.6 Commercial bank 3.7 Scheduled banks 3.8 Non Scheduled Banks 3.9 History of PNB 3.10 Profile of PNB 3.10 Outlook 3.12 Vision, Mission ,Values and Ethics 3.13 Products and Services 3.14 Awards 04 Analysis of Data Trends In Housing Loan Interest Rates Comparison Of Banking Facilities Comparison Of Interest Rates Of Different Banks Housing Loan Best Interest Rates Market Share Of Major Players Comparison Of Major Players 2
  • 05 FINDINGS, SUGGESTIONS AND CONCLUSION Findings Suggestions Conclusion BIBLIOGRAPHY 3 View slide
  • LIST OF TABLE & CHARTS LIST OF TABLES TABLE NO. TITLE OF TABLES PAGE NO. T1 The table Showing PNB special Housing Loan Scheme for new accounts under fixed option with re-set clause of five years T2 Table showing guidelines of medical examination based on clarifications received from Life Insurance Corporation of India (LIC) T3 Table showing comparison of banking facilities T4 The table showing comparison of interest rates of different banks T5 The table showing housing loan best interest rates 4 View slide
  • List of Charts CHART NO. TITLE OF CHARTS PAGE NO. C1 The chart showing structure of Indian banking system C2 The chart showing trends in housing loan interest rates C3 The chart showing market share of major players Executive summary 5
  • Few decades back, buying a home was not a very easy task as there were hardly any lenders available to loan the ever increasing astronomical lump sum of money. However, with time, the rising property prices and the burgeoning housing finance market in the country, made the phenomenon of the home loans easy and the dream of buying a home possible. Also, the HFC’s (Housing Finance Companies) and banks have come up with so many home loan plans that they have become an answer to every customer’s necessity. Apart from this, the changing equation of market has also provided customers with several reasons to opt for a home loan. Here are few reasons to why home loans have gradually became a necessity in the society. The need for home loans arises not because property prices are heading upwards all the time but because home loans make great sense from a long-term savings perspective. Not only are home loans a handy tool for the common man to own a roof over his head but they also help save money in the long run. With skyrocketing real estate prices, people are increasingly opting for housing loans to acquire their dream home. Interest rates are coming down all the time and the housing finance companies are literally falling over each other to lure the prospective home-seekers. Like all other commercial banks PNB is also having home loans in their portfolio. Frequent changes in regulation made by central bank affect the banks to a larger extent because banks have to follow according to the directions given by the central bank which reduces the profit of the bank. Now a days banks cannot charge their own management interest rates they are force to look the market and follow according to the RBI rules and regulations, this has unable them to balance both the income and expenses, for eg., now the fixed deposit interest rate is 10.5% and is housing loan interest rate is 8.5%, they have the bear the loss of -2% which the banks have to pay themselves. Middle class people cannot afford to the current interest rate, it is too expensive for them. To broaden the customer base the vast middle income strata should be fully exploited who are very sentimental about house property in India Simplify the procedure, reduce service 6
  • charges, and demand only the basic essential proof. Most banks are reluctant to advance loan to the service class e.g. lawyers, police officers etc.. This aspect must be exploited. 7
  • INTRODUCTION Housing loan means any loan or advance granted to an individual or any other entity which may be specified by RBI from time to time for the purpose of construction/ repairs/ upgradation of a house or residential property or acquisition of a house or residential property or both i.e.house and residential property. A roof over one's head and ground beneath one's feet count as the bare necessities of life. There’s nothing quite like owning a home, however humble, to give one that warm and glowing feeling. But when one buys a home, one has much more than a feel-good purchase in mind: it’s also a crucial investment decision, perhaps the biggest spending decision of one's life. There are ample opportunities today for young salaried investors to plan their moves early and buy a house at the right time — and at the right price. In the process, not only do they fulfill that cherished dream of owning a house, but also put themselves on the path to acquiring property that would meet the needs and aspirations of their growing family, even as it leads to wealth creation. Every individual aspires to own a home. But many either spend a lifetime saving to purchase a house or exhaust money on monthly house rents. Take a house loan and let the monthly rent (easily converted into affordable EMIs) build dream home. 1.1Profitable Proposition “The overall demand in the residential sector has grown by about 7-8 per cent in the past few months as compared to the same period last year. The growth is on account of two main factors:  One, income-tax exemption;  Two, with no similar rebates available for individuals in the high-income group, they are creating a second asset. 9
  • Add to this the stable property prices over the last year and plunging interest rates, planning for dream home could not have been better timed. Rock-bottom interest rates, standardization of the periodicity of interest calculation across lenders (which makes it easier to compare loans), lower interest charges, waiver of loan application processing fees and, a customer-friendly attitude is reason enough to celebrate the ascension of the home loan consumer as the king. 10
  • RESEARCH DESIGN  Statement of the problem: A strong banking sector is important for flourishing economy. The failures of the banking sector may have an adverse impact on other sectors. This Study will help us to understand the housing loan about banking services and products. In this background this study tries to analyze the housing loan interest rate towards banking services.  OBJECTIVE OF THE STUDY: The objective of this study is • To analyze the history of Punjab national bank. • To analyse the home loans with a view to arrive at the most popular loan schemes offered by the banks under study • Conclude from the analysis the best possible housing loan schemes which would keep the bank ahead of competition. • The reasons being the features that the scheme provides are not being provided by many of the housing finance companies. 11
  • RESEARCH METHODOLOGY: Research Methodology is an important part of every project. Because it help in knowing how to select representative sample from the world or the general population, the right research tools and techniques to complete the research. To satisfy the customer the study of consumer behavior is important because he is the king. The Research Process is based on survey method, so in order to implement the survey we go to Service Provider and the Services user which is the customers. The research involves the following steps :- ♦ Define the problem & research objective - The problem and objective is to assess the services offered by various service provider and what the consumer wants. ♦ Developing the research Plan - The second stage of research methodology is to develop a research plan.The research plan desigined to take decesion on the data soruces, research approaches, research, instruments, sampling plan and contact methods. ♥ Survey Research – It was a descriptive research. ♦ Research Instrument – The use of an effective research instrument is very important. Because through this instrument we collect data. In this project through observations & personal interviews were conducted. ♦ Personal Interview – As we were doing direct selling. we interacted with my customers are asked about there views in selecting a service and what are there wants and expectations from a service provider ♥ Sampling Plan - After finalizing the research approch and instruments a sampling must be designed. ♦ Sampling Unit –data have been collected from banks ♦ Sample size – It has been collected from four banks. 12
  • • Sampling Procedure :- What process should be used to collect the sample. So, representation samples, convenience sampling is used. ♦ Collect the Information :-After completing all the steps, the data are collected from different sources. Primary data: Information is collected through direct interview with employees and other banks. Secondary data: • Website. • Bank old record books. • PNBO’s compliments ♦Analyze the Information:-After the data is collected they are analyzed to Know the findings. The data is then tabulated to develop frequency distribution. ♦Present the findings:-As the last step, the findings are presented that are relevant to the major marketing decisions.  Limitation of the study: • Because of heavy work, the external guide cannot spend more time for interaction. • This study is limited to Hassan branch of PNB. • Since the bank is so wide so it was not possible for me to cover all the branches of PNB.  Layout of Chapters 1. Introduction 2. Profile of Industry 3. Research methodology 13
  • 4. Data analysis and interpretation 5. Findings ,suggestions and Conclusion CHAPTER-02 REVIEW OF LITERATURE 14
  • Review of Literature PNB FOR HOUSING NEEDS HOUSING FINANCE SCHEME In terms of RBI guidelines, banks can deploy their funds under the Housing Finance allocation in any of the three categories i.e:- i. Direct finance; ii. Indirect finance or; iii. Investment in bonds of NHB/HUDCO or combination thereof. Direct Housing Finance:- Direct Housing Finance refers to the finance provided to individuals or groups of individuals including cooperative societies. In view of freedom granted by RBI to banks to evolve their own guidelines on the terms and conditions as regards security, margin, age of the dwelling units and repayment period for direct housing loans, bank has in place Direct Housing Finance Scheme for individuals which is given as under: 1) ELIGIBILITY:- Individuals. Joint owners are also eligible. 2) PURPOSE:- a) For construction of house or purchase of house/ flat. Loan can also be extended for purchase of land/ plot for house building. Under- construction houses/ flats of private builders- finance be permitted for purchase of under- construction houses/ flats of only those private builders’ projects/ private builders, which have been approved by Circle Heads, as per criteria given in this circular. 15
  • b) For purchase of house/ flat from the original allottee, i.e. on first power of attorney basis, where the Housing Board/ Development Agencies, such as DDA,GDA, etc., permit conversion of leasehold property into freehold to the allottee of property. However, advance is not permitted against plots purchased on power of attorney basis. c) For carrying out repairs/ renovation/ additions/ alterations/ cost of furnishing to the house/ flat. 3) EXTENT OF LOAN:- a) Need- based loan for construction of house/ flat or purchase of house/ flat depending upon the project cost and repaying capacity of the borrower. However, maximum amount of Rs. 20 lacs can be sanctioned for purchase of land/ plot for house building. Circle Heads & above may consider loan for purchase of plot/ land maximum upto Rs. 50 lacs depending on merits/ genuineness of each case/ repaying capacity and after fully satisfying about the realistic valuation of the land/ plot. b) In respect of purchase of built up/ complete houses/ flats from private builders, where valid mortgage is created, finance be permitted by the officers at various levels as per their normal powers for sanction of term loan, under the scheme, across all centres, after due diligence, proper valuation as per Bank’s guidelines, and subject to compliance of directives of Hon. High Court of Delhi (reiterated in subsequent paragraphs in this circular) and other guidelines, applicable under the scheme. Compliance of Apartment Ownership Act passed by the state, wherever applicable, be also ensured. c) Circle Heads & above may allow Housing Loan on pari passu or second charge basis only to confirmed employees of central/ state government/ Public Sector Undertakings (PSUs) maximum upto Rs. 20 lacs. The quantum of loan be decided taking into account the amount of earlier loan availed and repaying capacity of the borrower. 16
  • d) For repairs/ renovation/ additions/ alterations, the maximum amount of loan shall not exceed Rs. 20 lacs. e) Cost of furnishing may be included in the project cost maximum upto 10% of the amount of loan permissible for the purpose of repair/ renovations/ additions/ alterations which is maximum Rs. 20 lacs (i.e. maximum amount of loan for cost of furnishing shall be upto Rs.2 lacs). f) Cost of car parking:- if the car parking place is located in the same building/ society/ compound, the cost of car parking upto maximum extent of 5% of the cost of flat/ house) can be reckoned with/ included for granting housing loan. However, it is to be noted that car parking area should be identifiable, specific and be clearly mentioned in the sale agreement/ allotment letter. (RBDA- 40 dt 04.08.09). 4) MARGIN: a)For construction of house or purchase of house/ flat or for carrying out repairs/ renovation/ additions/ alterations to existing house/ flat as well as for furnishing ---- 25%*. (increased from 20% w.e.f.11.10.2007 –RBD Advances Circular 45/07) *(Acquisition cost of plot including stamp duty and registration charges, if any, paid by the borrower be also considered towards margin money). b) for purchase of land/ plot for house building: ---- 40%. 5) RATE OF INTEREST (effective from 01.08.2008):- 9.25% 6) SECURITY:- a) Equitable/ registered mortgage of the property. b) Where mortgage cannot be created immediately in situations like house/ flat is being purchased/ allotted by the Housing Board, Development Authorities or Co-operative Society, and title/ conveyance deed are executed in favour of purchaser only after completion of construction & possession/ making full payment of the cost of house/ flat, a stamped tripartite agreement be executed amongst Housing Board/ Development Authority/ Co-operative Society/ Builder, the intending borrower and the bank before release of the loan. ( By 17
  • entering into tripartite agreement among authority/ seller, allottee/ purchaser and bank, bank gets direct privity with the authority/ seller.) To secure such loan, guarantee of person(s) acceptable to the bank be obtained. Circle heads & above are, however, authorized to waive the guarantee on merits of each case for the projects of highly reputed approved private builders. c) In respect of purchase of house/ flat on first power of attorney basis, equitable/ registered mortgage of some other property/ pledge of govt. security, NSCs, KVPs, IVPs/PSU bonds (where interest is being serviced regularly)/ banks’ FDR/LIC policies (surrender value), etc., equal to 125%* of the loan amount be obtained. *In respect of loan for purchase of house/ flat on first power of attorney basis, Circle Heads (irrespective of any scale/ officers in Circle offices of the scale of V and above may permit obtention of above referred security equal to 50% of the loan amount. d) In situations where: i. The mortgage by deposit of Title Deeds is not possible, the property being an Ancestral Property (without Title Deeds) or Lal Dora Land, OR ii. There is delay in execution/ unwillingness to execute a stamped Tripartite Agreement by Housing Board/ Development Authority/ Cooperative Society, the sanctioning authority may accept, at its discretion, equitable/ registered mortgage of some other property/ pledge of government security, NSCs, KVPs, IVPs/ PSU bonds (where interest is being serviced regularly)/ banks’ FDR/ LIC policies (surrender value) etc. the value of such security so obtained should be equal to 125% of the loan amount. The details of such situations, along with reasons of obtaining alternative security as detailed above, must clearly be specified in the sanction note by sanctioning authority. e) Security verification to be carried out once in two years for regular accounts after initial end use verification and on half yearly basis in case of NPA accounts. In case of two continuous default in repayment, inspection should be carried out immediately. 18
  • Loan on pari passu or second charge basis f)Circle Heads and above are empowered to consider requests only from confirmed employees of central/ state govts. /public sector undertakings foe an amount of loan of maximum upto Rs. 20 lacs and extend credit to such employees, who might have raised funds for construction/ acquisition of accommodation from other sources and need supplementary finance after obtaining pari passu or second charge over the property mortgaged in favour of other lender. Disbursement:- a. For outright purchase of house/ flat & plot, the loan will be paid in lump sum to the vendor at the time of registration after satisfying that borrower has paid/ provided for the balance amount/ his contribution. b. For house/ flat under construction, the loan amount will be disbursed in stages depending on progress of construction i.e. at stage like completion of plinth, construction upto lintel level, completion of roof etc. and/or demand raised by selling agency after ensuring that the borrower has invested his pro-rata share towards required margin. Request for down payment can be permitted by sanctioning authority, in respect of under- construction houses/ flats of builder/ developers of national repute, subject to availability of tangible collateral security of the value of at least 50% of the down payment to be disbursed. (Names of builders/ developers of national repute will be finalized with the approval of Field General Managers/ General Manager RBD: HO). {RBDA/40 dt 04.08.09} c. In case of repairs/ renovation/ addition/ alteration, incumbents to ensure that after having disbursed 50% of the amount sanctioned, the subsequent disbursement (s) should be after proper verification that the amount earlier disbursed has been utilized as per estimates submitted by the borrower and that he has invested his pro-rata share towards required margin. d. On completion, a certificate be obtained from approved architect/ qualified engineer, certifying the end use of funds granted by the bank. 19
  • e. a) A clause be put in the Sanction letter that any third party liability coming on the bank due to wrong information/ detail given by the borrower, will be his/ her responsibility; b) Building plan duly approved by competent authority be made a pre- condition for considering housing loans (LA 65 DT 27.05.09). 8) Insurance:- The property will be kept insured for reconstruction cost ( and not the market value or the limit sanctioned for houses/ flats as the reconstruction cost will be higher as compared to limit sanctioned) in respect of fire, riots and wherever required, against other appropriate hazards, such as earthquake, flood etc by the borrower, with usual bank clause. However, the BMs should ascertain by reviewing on an ongoing basis that the adequate coverage of insurance is available for reconstruction cost at all times, as the cost may increase during the period of insurance policy, which generally is being taken for a period of 10 years. Subsidiaries of General Corporation are issuing insurance policy, specifically to cover risks relating to housing. These policies are called “Fire Police A”, which cover risks such as fire, lightening, riot, strike, terrorism, storm, cyclone, typhoon, hurricane, tornado, flood, inundation, earthquake, fire & shock. These policies can also be issued on one time basis for a period of 10 years at a reduced premium i.e. 50% of the normal premium. The value of the property is based on rate of construction of the building as per the PWD rates for that particular region and the same is suitably loaded for extra fittings and fixtures, superior constructions and other relevant details. In fire insurance, building above the plinth and foundation is covered. However, when the policy is extended to cover the risk of earthquake then the cost of plinth and foundation can be included in the sum insured. IFFCO TOKIO GENERAL INSURANCE CO. LTD.- the coverage for accidental death and permanent total disability ( due to an accident) bundled with the mandatory insurance ‘Fire Policy- including earthquake’ is also offered in tie up arrangement with Iffco Tokio General Insurance O. Ltd., to all existing as well as new Housing Loan borrowers who are individuals (single or joint). Reference may be made to the relevant circulars issued by Retail Banking Division on the subject. 20
  • Grah raksha kavach- life insurance cover (both due to natural and accidental death) to bank’s existing as well as new housing loan borrowers is also offered in tie up arrangement with TATA-AIG, in the shape of a single premium reducing term assurance policy. Reference may be made to the relevant circulars issued by Retail Banking Division on the subject. 9) Repayment:- a) Loan alongwith interest is to be re-paid in equated monthly installments within a period of 25 years (10 years in case of repair/ renovation/ addition/ alteration), inclusive of moratorium period, if any. Moratorium or repayment holiday may be permitted where the house is constructed till completion of construction or 18 months (6 months in case of repair/ renovation/ addition/ alteration) from the date of disbursement of first instalment of the loan, whichever is earlier. However, Circle Head and above may further relax the moratorium period by six months. (RBDA/40 dt 04.08.09) Further, in those cases where a moratorium period is allowed by the sanctioning authority, where loan is allowed for construction purposes, It may be ensured that the amount of expected accrued interest, on monthly compounded basis, for the period of moratorium is added to the loan (principal) amount presuming that the entire loan is disbursed on the date of first disbursal itself and EMI calculated accordingly. However, there may be situations where Sanctioning Authority is required to quote EMI matching to the EMI quoted by our competitors, this is on account of recovery of interest component chargeable in the account, during the period of moratorium, by some of the Housing Financial Institutions/ Banks. Therefore, it is desirable that the prospective borrower is suitably advised and given the option, at his/ her specific request, of either: I. Repaying the interest component chargeable in the account during the period of moratorium and EMI thereafter OR II. In case borrower exercises the option of not paying interest during the moratorium period, interest component chargeable in the account for the moratorium period would be spread over the EMIs for the entire repayment 21
  • period. The EMI in such cases be appropriately worked out and advised presuming that the entire loan is disbursed on the date of first disbursal itself. In case of loans to individual members of Group Housing Societies, the repayment shall start form immediate subsequent month after the final disbursement of the loan. b) In case of purchase of ready built house/ flat or land/ plot, the repayment to start after the date of possession or 3 months from the date of advance whichever is earlier. c) i) Repayment should be fixed on a realistic basis, which should not normally exceed 50% of gross income. For this purpose, all deductions including the proposed Housing Loan instalment should not exceed 50% of gross income. ii) However, in cases where gross monthly salary is above Rs.50,000, deductions can be permitted upto 60%. Circle Head & above may, however, permit salary deductions upto 70% in case of person whose gross monthly salary is minimum Rs.1.00 lac. (This provision is, however, not applicable in respect of Housing Loans to NRIs/ PIOs). iii) The relaxation in salary criteria of the prospective Housing Loan borrower, as above, will be permitted only on a very selective basis after assessing in detail the domestic requirements of his/ her family/ dependent members, including future obligations and recording complete justifications. iv) The income of the spouse and earning children (whether married or unmarried) should be taken into account for determining the income for the purpose of borrowers’ repaying capacity. The income of the joint owners of the property may also be added for determining the repaying capacity. In such cases, they should be made co-borrower. v) Father/ mother can also be made as co-borrower in cases where property is in the single name of his/her son and also clubbing of their income be permitted for the purpose of eligibility/ repayment of loan. In case of self employed individuals the gross income may be arrived at by adding amount of depreciation to the net profit amount and repaying capacity be assessed accordingly. 22
  • Likely rental income, if the property is to be let out be also considered for determining the repaying capacity. The same be assessed on the basis of the rental value in the locality in which the house/ flat is located. The market report may be gathered from the property dealers of the locality and a mention of the same way clearly be made in the sanction note. d) Sanctioning authority may consider fixing the monthly installments on graduated basis, if there is reasonable expectation of growth in the income in the coming years on specific request from the borrower. e) Repayment of the loan along with interest should not ordinarily extend beyond the age of 65 years of borrower. Hub Incharge in the rank of scale iv & above/ Circle Head may relax repayment period upto the age of 70 years. In case loan is allowed to joint owners, it should be ensured that at least one of the joint owners should be able to repay the loan along with interest maximum upto the age of 65 years. The Hub Incharge in the rank of iv & above/ Circle Head may consider repayment tenor according to the age of co-borrower (who is not co-owner), maximum upto his/ her age of 70 years, based on due diligence/ merits of each case. f) In order to ensure that regular installments are received and defaults are minimized it be ensured as under: minimum 24 advance cheques signed by borrower towards repayment of monthly instalments along with Letter of Deposit be obtained. However, when the number of cheques with the branch reaches six (6), the borrower to give additional 24 cheques duly signed. This system of giving additional cheques shall continue till the adjustment of the loan. The guidelines for safe custody of advance cheques circularized by Inspection & Control Division be followed. OR Irrevocable Letter of Authority from the borrower to the employer for either remitting the salary to the bank or for remitting the monthly instalment for repayment of loan to the bank. An acknowledgement of the said letter of authority from the employer be kept on record. Further, in cases where employer remits the salary to the bank, an irrevocable letter of authority from the borrower be obtained for debiting the amount of instalment to the SF account. 23
  • Illustrative charts indicating EMI to cover repayment of principal and interest on ‘upfront / advance basis’ and on ‘arrear basis’ are available as at proforma-I of the circular. Effect of upward revision in interest rates on repayment:- the borrower always has one of the following options to exercise for repayment of loan:- a) To pay increased amount of EMI; b) To continue to pay the existing amount of EMI with condition that the balance outstanding in the account would be paid in one go with last EMI of the originally applicable repayment tenor; c) To prolong the repayment period. In case no option is given by the borrower, the option (c) i.e. to prolong the repayment period appropriately be implemented, subject to the condition that in the event of revision in interest rate to be charged in the account, if a borrower shifts to the next higher bracket of repayment tenor, the applicable rate of interest will be charged for the original repayment bracket/ tenor. The borrower should, however, invariably be intimated about the change in the interest rates, as and when it takes place. Necessary changes in repayment period of loan also be made in the system every time any change In interest rate is effected, so that account does not show any irregularity in regular repayment of the loan, due to above adjustment/ reschedulement. 10) Upfront fee & documentation charges:- in the data analysis chapter, its specified below. 11) Loaning powers:. 12) Pre payment charge: to avoid take over/ shifting of housing loan accounts by other banks/ financial institutions a flat per-payment charge of 2% be recovered from all those borrowers who intend to shift their Housing Loan Accounts to some other banks/ financial institutions by way of availment of loan from such banks/financial institutions. This pre-payment charge is recoverable on all fresh loans sanctioned under the scheme on or after 5.12.2001 or in those existing accounts where facility of lower rate of interest is allowed. However, no prepayment charges are to be levied in the following cases:- 24
  • i. where the loans are prepaid by the borrowers from their own sources. ii. Where the borrower shifts to other bank within 30 days from the date of issuance of circular for upward revision in the rate of interest to be charged in his account or change in other terms of sanction. Penal interest for non- construction of house (RBDA/ 40 dt 04.08.09):- Existing guidelines:- Further, to avoid speculative activity, a flat pre-payment charge of 2% be recovered from all those Housing Loan borrowers, who avail Housing Loans for purchase of plot/ land and pre-pay the loan before 5 years without undertaking construction. This pre- payment charge is recoverable on al fresh loans sanctioned under the scheme on or after 1.9.2004. Revised guidelines:-In case construction of the house is not completed within 3 years from date of disbursement of the loan or in case the plot/ land is sold, penal interest at 2% over & above the prescribed rate of interest will be charged. Circle Heads & above may, however, reduce penal rate of interest, maximum by 1% p.a. on merits of each case like general/ real constraints faced by the borrower in construction of house on account of lack of infrastructure development, no development in locality/ colony/ area etc where plot/ land is located (RBDA/40 dt 04.08.09). 13) Expression of interest (in principle sanction):- to facilitate the prospective Housing Loan borrowers who are interested in knowing what amount of loan he/ she is entitled and to help them to take a decision on purchase of the property, branches may issue a letter to the prospective borrower conveying “expression of interest” (in- principle sanction) on the prescribed proforma (Annexure-18). The introduction of such a facility is with an objective to provide greater flexibility in negotiations/selection of property to the prospective borrowers. To safeguard the bank’s interests, it be clearly specified while conveying the ‘expression of interest’ that though bank conveys’ its ‘expression of interest’, the bank is under no commitment or obligation to sanction/ disburse loan. The actual sanction or disbursal will depend upon receipt of application complete with all particulars, the value and acceptability of the security offered (i.e. the house/ flat to be financed), legal and technical clearances and the creation of the valid equitable mortgage etc. further, ‘expression of interest’ shall be valid for a period of three months from the date of its issue. 25
  • 14) Issuance of interest certificates:- an interest certificate may be issued to the borrower(s) who have availed housing loan from the bank for availing benefits under the provisions of income tax act on the prescribed proforma (Annexure-19). 15) Other guidelines:- a) Circle Heads & above will have full discretion with regard to moratorium period, insurance. b) Need- based bank credit (within the overall limit of Rs.20 lacs) as housing finance can be extended for repairs, additions, etc. to a building/ house/ flat irrespective of whether it is occupied or tenant occupied. For this purpose, estimate of cost of repair, addition, etc., and the certificate of completion of work done be obtained from qualified engineer/ architect. c) Requests for additional finance may also be considered for carrying out alterations/ additions/ repairs to the house/ flat already financed by the bank. d) There is no bar in providing finance to a person who or whose spouse already having house or flat in his/ her name. e) In case of default in repayment of loan, the borrower shall be liable to pay penal interest as per the guidelines circulated through L&A Circulars from time to time. (As per present provision, it is to be charged @ 2% on the entire outstanding amount as per L & A Circular No. 191 dated 26.12.2007.) f) In case of finance for purchase of plot/ land/ flat/ house, sanctioning authority to ensure that the title of the same is marketable and free from encumbrances. g) Sanctioning Authority may permit takeover of Housing Loan accounts from other financial institutions/ banks. Further, Circle Heads and above may allow takeover of Housing Loan accounts from other FIs/ banks, on individual merits of the case(s), subject to the condition that the loan allowed by employer has been for the ‘purpose’ of housing activity only. However, Sanctioning Authority, while taking over the loans shall ensure that housing loan accounts with other financial institutions/ banks are running regular with no defaults in payment of interest/ installments. 26
  • h) The following types of bank finance may be included under Direct Housing Finance:- I. Bank finance extended to a person who is already owning a house in the town/ village where he resides for buying/ constructing a second house in the same town/ village or in other town/ village for the purpose of self occupation. II. Bank finance extended for purchase of house/ borrower who proposes to let it out on rental basis on account of his posting outside the Head Quarter or because he has been provided accommodation by his employer. III. Bank finance extended to a person who proposes to buy an old house wherein he is presently residing as a tenant. IV. Bank finance granted only for purchase of a plot, provided a declaration is obtained from the borrower that he intends to construct a house on the said plot, with the help of bank finance or otherwise, within such a period as laid down by the bank. V. Supplementary finance:- a) Bank finance for carrying out alterations/ additions/ repairs to the house/ flat already financed by the bank. b) Bank finance to individuals for construction/ acquisition of accommodation, against pari passu or second charge basis or against such securities as specified under item 6. i) Reschedulement in Housing loans may be allowed by an authority one step higher, maximum upto a total period of 7 years over and above the repayment period as prescribed in the original sanction by the sanctioning authority. This shall also be applicable in case of takeover of housing loan accounts provided the accounts are running regular. However, incase of NPA accounts guidelines as issued by the bank from time to time shall be applicable. It has now been decided that for a limited period upto 31.3.2009, the sanctioning authority, can restructure housing loans at their level, as per guidelines contained in RBD Advances Circular No. 58/08 sated 10.12.2008.(RBD 63 dt 27.12.08) 27
  • j) Statement of account of prospective borrower(s) minimum for last six months be obtained. In case of salaried employees, statement of account should be of that account in which their salary is being credited. In other cases it should be of an count whose declaration has been made in the income tax returns. This is to facilitate ascertaining general conduct of the account including other borrowings. k) Housing loans with multi-location scenario of customer (RBDA/26 dt 26.05.09):- Frequent complaints are being received from various quarters regarding non- compliance of guidelines regarding the process of dealing/ sanctioning housing loans with multi- location scenario of customer e.g. customer working in Delhi wants to buy housing property at Agra, as contained in RBD Advances Circular No.40 dated 12.09.2008. It is reiterated that the housing loan should be sanctioned at the Hub/ CCPC; which is near the present place of work/ posting/ residence of prospective borrower. For security verification/ NEC, the sanctioning Hub/ CCPC should, however, take the help of Hub/ CCPC, which is located near the housing property. Further, it is advised that the Hub/ CCPC at the place of the housing property must get the job of security verification/ NEC done promptly, so that there should be no complaint on this count. Circle Head of the area where housing property is located is, however, empowered to give administrative clearance for considering sanction of Housing Loan at Hub/ CCPC falling in his/ her area, on merits. l) The regularity of income of the borrower over the entire span of loan should be clearly established before sanction of loan. Latest salary slip, ITR (for the last three years) etc. be taken. For business class of borrower, repaying capacity be arrived at on the basis of net income of last three years, as given in ITRs. m) Bank’s existing customers, preferably with a minimum dealing of six months, be considered for sanction of Housing Loans. In respect of customers of other banks, their track records and past dealings, for the last one year, with the existing bank, be thoroughly verified before making the advance. n) Post dated cheques of the bank whose statement of account is furnished be obtained and not of our bank where a shadow account is opened just for getting cheque book. o) Where the PDCs are nearing exhaustion, the branch should insist for fresh PDCs and non- submission of the same be treated as violation of terms and conditions. 28
  • p) Spot verification of plot/ house to be purchased/ constructed is must and the incumbent should give his comments on the location/ valuation of the house/ plot while according sanction. q) Other sources of income of the applicant should be verified carefully. r) Take over cases from other banks be entertained only after ensuring that the account in other bank is running regular and strictly in terms of banks’ extant guidelines for take-over of a/cs. s) Identify proof of the applicant, his credentials, stability of employment and residence of customer, be checked properly. t) Assessment of other liabilities of the customer be done carefully. u) Proper selection of borrowers and improvement of diligence level; v) Immediate contact be made with the borrower on delay/ default of any installment. w) Contact/ liaison with the employer to put pressure on the borrower. x) Other KYC norms be meticulously followed. y) Chain of title deeds should be complete and all the previous original title deeds should be kept on record. z) Wherever possible action under Securitization Act and/or u/s 138 of the Negotiable Instrument Act be taken after complying with the requirement of law. aa) All guidelines circulated by the bank from time to time in respect of i. Fair practice code. ii. Loan documents and iii. Drawing of credit information reports (CIRs) from ‘Credit Information Bureau (India) Ltd. (CIBIL) be also followed. 29
  • Reiterate ion of the following important guidelines (RBDA/28 dt 29.05.09) keeping in view the increasing incidence of frauds, we reiterate the following important guidelines for compliance by the field functionaries:- i. That the officials of the branch/Hub/CCPC should exercise extra caution to ensure that they have in their possession detailed plans of the building (duly approved by the competent authority) to be taken as security, duly confirming that it is constructed as per admissible laws and rules and that there is no likelihood of its being demolished at a later date on the demolished at a later date on the grounds that the construction was unauthorized/illegal; ii. That the services of only those advocates/ lawyers be taken for verification purposes, who are of good standing and are experienced persons; iii. That a clause be put in sanction letters that any third party liability coming on the bank due to wrong information/declaration given by borrower, will be his/ her responsibility; iv. That the directives of High Court of Delhi, as circulated vide RBD Advances Circular No.40 dated 12.9.2008, inter alia, requiring the bank to obtain the sanctioned Building Plan, be strictly adhered to. Prudential guidelines on restructuring of advances by banks- restructuring of Housing Loans:- (RBDA/58 dt 10/12/08):- it has been observed by RBI that the aforesaid ceiling of 10 years would make many of the housing loans ineligible for special regulatory treatment, since housing loans are normally granted with much longer repayment period. The matter has been reviewed by RBI and it has been decided that the aforesaid ceiling of 10 years over the repayment period of the restricted advances, would not be applicable for restricted housing loans, subject to compliance with all other laid down guidelines on the subject. Bank’s decision:-Further, the bank’s board has approved following parameters for restructuring of housing loan advances a) The repayment period of restructures housing loan will be fixed depending upon the repaying capacity of the borrower but should not exceed 30 years or till the borrower attains the age of 65 years, whichever is earlier. Circle Head may relax the period till the borrower attains the age of 70 years. 30
  • b) The rate of interest would be charged as applicable for total tenor of the loan (i.e. from the date of original sanction to the terminal date in terms of restructuring package) prevailing on the date of sanction of the package. 16) Directives of High Court of Delhi- the following directives be compiled with meticulously (RBD Advances Circular Nos.39 dated 22.11.2006 & 49 dated 24.10.2007, 13 dt 13.02.09) A. Housing Loan for building construction I. In cases where the applicant owns a plot/ land and approaches the banks/ FIs for a credit facility to construct a house, a copy of the sanctioned plan by competent authority in the name of a person applying for such credit facility must be obtained by the banks/FIs before sanctioning the home loan. II. An affidavit-cum-undertaking must be obtained from the person applying for such credit facility that he shall not violate the sanctioned plan, construction shall be strictly as per the sanctioned plan and it shall be the sole responsibility of the executants to obtain completion certificate within three months of completion of construction, failing which the bank shall have the power and the authority to recall the entire loan with interest, costs and other usual bank charges. III. An architect appointed by the bank must also certify at various stages of construction of building that the construction of the building is strictly as per sanctioned plan and shall also certify at a particular point of time that the completion certificate of the building issued by the competent authority has been obtained. B. Housing Loan for purchase of constructed property/ built up property. i. In cases where the applicant approaches the bank/FIs for a credit facility to purchase the built up house/ flat, it should be mandatory for him to declare by way of an affidavit- cum undertaking that the built up property has been constructed as per the sanctioned plan and/ or building bye-laws and as far as possible has a completion certificate also. 31
  • ii. An architect appointed by the bank must also certify before disbursement of the loan that the built up property is strictly as per sanctioned plan and/or building bye-laws. C. Unauthorized colonies- no loan should be given in respect of those properties which fall in the category of unauthorized colonies unless and until they have been regularized and development and other charges paid. D. Commercial property- no loan should be given in respect of properties meant for residential use but which the applicant intends to use for commercial purposes and declares so while applying for loan. E. Building plan (LA 65 dt 27.05.09):- i. A clause be put in the sanction letter that any third party liability coming on the bank due to wrong information/ detail given by the borrower, will be his/ her responsibility; ii. Building plan duly approved by competent authority be made a pre- condition for considering housing loans. It has been decided that in cases where built up IPs are proposed to be accepted as primary/ collateral security including mortgage loan/ loan against tangible security/ lease rentals, etc. besides adhering to the laid down guidelines, the following guidelines be meticulously followed with immediate effect: a) An affidavit-cum-undertaking be obtained from the proposed borrower applying for such credit facility that the built up property has been constructed as per sanctioned plan, and/ or building bye-laws; b) An architect/ valuer appointed by the bank shall also certify while giving valuation of proposed IP that the built up property is strictly as per sanctioned plan and/or building bye-laws; c) In case deviations are reported in the construction, by an architect/ valuer appointed by the bank and/ or noticed by incumbent incharge/ dealing official, in light of provisions of the building laws of a particular area/state and if the violation is compoundable, then payment of compounding, merits in the case 32
  • and value of the account on case to case basis. However, in case of deviation which is not compoundable, then the concerned architect and the sanctioning authority has to examine each case as there may be demolition to the extent of extra construction, thus such cases should be avoided for bank finance unless there are compelling merits in the account. Value of IP financed in such cases should at least be 250% of the loan amount (LA 126 dt 03.10.09). 7) Guidelines for entrusting work to architects/ advocates for prevention of frauds in the housing loan sector- approving of advocates/ architects (RBD Advances Circular No.22 dated 27.4.2007) I. Guidelines for valuation of property under Housing Finance Sector:- a) Guidelines for valuation of properties and empanelment of valuers, as contained in L&A Circular No. 12/2007 dated 5.2.2007 followed by other relevant circulars on the subject, be made applicable mutatis mutandis to all housing loan borrowal accounts, irrespective of any loan limit/ valuation of house/ flat/ plot mortgaged to the bank. b) In addition to above, the valuer shall also be required to perform the following work in cases of construction of houses/ flats:- i. Check the estimate submitted by the applicant keeping in view location of the project and rates prevailing in the market for construction material and confirm genuineness; ii. Verify the compliance of various requirements for implementation of the project such as approval of map, permission of an authority required to implement the project and give necessary report/ confirmation pertaining thereto; iii. Give a certificate at various stages of construction (but necessarily at initial stage. Plinth level and on completion) that the construction is strictly as per the sanctioned plan. 33
  • c) Fee structure for valuation of property, as prescribed vide L&A Circular No. 12/2007 dated 5.2.2007 followed by other relevant circulars, if any, shall remain unchanged. However, for valuation of property less than Rs.20 lacs, the fee payable shall be maximum Rs.1500/- II. Guidelines for Housing Loans processing related work to be performed by advocates/ appointment of advocates:- Circle offices will approve the advocates and shortlist the panel of 4-5 advocates exclusively for the Housing Loans processing related work. The advocates shall be required to do the following job: i. Verification of the Income Tax return from the Income Tax Department. Verification of salary certificate from the employer’s office; ii. Compliance of guidelines with regard to verification of genuineness of the title deeds and obtention of search report in respect of non- encumbrance of the property as circulated vide Law Division Circular No.5/2003 and 3/2004; iii. Verification having field the deed of apartment in case the property is sold by way of apartments by the promoter and its contents. Verification of the certified copy of the deed of apartment with the original, kept with the promoter. Verification of the endorsement on the certified copy of deed of apartment and the bye laws of the association of apartment owners. Verification of completion of the apartment, name of the occupant of the flat and capacity under which he/she is residing in the flat; iv. If the sale deed is being executed by power of attorney holder, verification form the principal having executed the PA and principal is alive. Verification of identity of power of attorney holder; original power of attorney must be a part of the chain of title deeds; v. Verification of execution of tripartite agreement by private builder/ authority/ society. 34
  • Appointment of advocates- Eligibility (for Housing Loan processing related work):- advocate must be in the approved list of the Circle Office, having practice of not less than five years. Fee structure- the fee to be charged from the borrower and paid to the advocate for the aforesaid assigned work is 0.125% of the loan amount with minimum of Rs. 1000/- and maximum of Rs. 3000/-. III. An agreement on the prescribed format, as prescribed vide L& A Circular No.12/2007 dated 5.2.2007, be got executed by the valuer. The advocate also to give consent/ undertaking to the effect that the bank will be free to take appropriate legal action including filing/ lodging complaint to the professional body, if there is any misconduct on the part of the advocate or information submitted by advocate to the bank is found incorrect/ false, without prejudice to bank’s right to delist/ depanel the advocate from its panel. IV. All Circle Offices are advised to prepare the list of professionals and circulate the same to the branches/ hubs working under the respective jurisdiction for utilization of their services for performance of housing loan processing related work, as specified above. The professionals be given a time period of 3 working days to complete the assigned job and submit the report in each case. The applicant borrower found otherwise eligible for sanction of loan be given in principal sanction only after he/ she deposits the charges/ fee payable to professionals, along with the undertaking that these charges/fee will not be refunded in case any document submitted by his/ her is found deficient in any manner. Upfront fee/ documentation charges will be levied as per extant guidelines. V. In all cases, branches to adhere to KYC norms, other extant guidelines and properly verify the identity and credentials of each of the borrower, guarantor, builder, seller, officials of Group Housing Society etc. and verify the documents to their satisfaction, before disbursement of loan. 18) Criteria for approval of private builders and their projects (RBD Advances Circular No.33 dated 28.5.2007). 19) Risk weight on Housing finance. 35
  • 20) Checklist/ Documentation. 21) Classification of Housing finance under priority sector direct finance:- i. Housing loans:- Loans up to Rs. 20 lakhs to individuals for purchase/ construction of dwelling unit per family, (excluding loans granted by banks to their own employees) and loans given for repairs to the damaged dwelling units of families up to Rs. 1 lakh in rural and semi-urban areas and up to Rs. 2 lakhs in urban and metropolitan areas. ii. Indirect finance:- a) Assistance given to any governmental agency for construction of houses, exclusively for the benefit of SC/STs, where the loan component does not exceed Rs.5 lacs per unit and all advances for slum clearance and rehabilitation of slum dwellers. b) Assistance given to a non-governmental agency approved by the National Housing Bank (NHB) for the purpose of refinance will also be eligible for all the categories of borrowers as applicable to governmental agencies as priority sector advances. c) Investment in bonds issued by NHB/ HUDCO on or after April 1,2007, shall not be eligible for classification under priority sector lending. 23) Indirect Housing finance: general:- in terms of RBI guidelines, bank should ensure that their indirect housing finance is channeled by way of term loans to housing finance institutions, housing boards, other public housing agencies, etc., primarily for augmenting the supply of services land and constructed units, it should also be ensured that the supply of plots/ houses is time bound and public agencies do not utilize the bank loans merely for acquisition of land. Similarly served plots should be sold by these agencies to co-operative societies, professional developers and individuals with a stipulation that the houses should be constructed thereon within a reasonable time, not exceeding three years. For this purpose, the banks may take advantage of various guidelines issued by NHB for augmenting the supply of serviced land and constructed units. 36
  • B. Lending to Housing intermediary agencies a) Lending to housing finance institutions:- I. Banks may grant term loans to housing finance institutions taking in to account (long term) debt equity ratio, track record, recovery performance and other relevant factors. II. In terms of NHB guidelines, housing finance companies’ total borrowings, whether by way of deposits, issue of debentures/ bonds, loans and advances from banks or from financial institutions but including any loans obtained from NHB, should not exceed 16 times of their net owned funds (i.e. paid-up capital and free reserves less accumulated balance of loss, deferred revenue expenditure and intangible assets). III. In respect of housing finance companies, which are eligible to draw refinance from NHB, the quantum of term loan to be sanctioned to them will not be linked to net owned funds as NHB has already prescribed the above referred ceiling on total borrowings of housing finance companies. A list of housing finance companies approved by NHB for the purpose of refinance may be obtained directly from NHB or downloaded from www.nhb.org.in b) Lending to housing boards and other agencies:- the bank may extend term loans to state level Housing Boards and other public agencies. While extending the loans, bank must not only keep in view the past performance of these agencies in the matter of recovery from the beneficiaries but they should also stipulate that the Board will ensure prompt and regular recovery of loan installments from the beneficiaries. c) Financing of land acquisition:- the bank may extend finance to public agencies and not private builders for acquisition and development of land, provided it is a part of the complete project including development of infrastructure such as water systems, drainage, roads, provision of electricity, etc. such credit may be extended by way of term loans. The project should be completed as early as possible and, in any case, within three years, so as to ensure quick re-cycling of bank funds for optimum results. If the project covers construction of houses, credit extended thereof in respect of individual beneficiaries should be on the same terms and conditions as stipulated for direct finance. 37
  • d) Terms and conditions for lending to Housing intermediary agencies:- I. In order to enhance the flow of resources to housing sector, term loans may be granted by banks to housing intermediary agencies against the direct loan sanctioned/ proposed to be sanctioned by the latter, irrespective of the per borrower size of the loan extended by these agencies and such term loans would be reckoned for the purpose of achievement of their housing finance allocation. II. Banks can grant term loans to housing intermediary agencies against the direct loans sanctioned/ proposed to be sanctioned by them to Non-Resident Indians also. However, banks should ensure that housing finance intermediary agencies being financed by them are authorized by RBI to grant housing loans to NRI as all housing finance intermediaries are not authorized by RBI to provide housing finance to NRIs. Further, such finance granted by banks to housing finance intermediary agencies against the latters’ on –lending to NRIs will not be treated as housing finance for the purpose of scheme of yearly allocation of housing finance applicable to banks. III. The rate of interest on term loans extended by bank to housing finance intermediary agencies for on lending to Indian residents through L & A Circular from time to time. C. Term loans to private builders:- In view of the important role played by professional builders as providers of construction services in the housing field, especially where land is acquired and developed by State Housing Boards and other public agencies, bank may extend credit to private builders on commercial terms by way of loans linked to each specific project. However, the banks are not permitted to extend fund based or non-fund based facilities to private builders for acquisition of land even as a part of housing project. The period of credit for loans extended by bank to private builders may be decided by banks themselves based on their commercial judgement subject to usual safeguards and after obtaining such security as banks may deem appropriate. Such credit may be extended to builders of repute, employing professionally qualified personnel. It should be ensured, through close monitoring, that no part of such funds is used for any speculation in land. Care should be taken to see that prices charged from the ultimate beneficiaries do not include any speculative element, that is, prices should be based only on the documented price of land, the actual cost of construction and a reasonable profit margin. Bank may adhere to the National Building Code (NBC) formulated 38
  • by the Bureau of Indian Standards (BIS) in view of the important of safety of buildings especially against natural disasters. 24) Construction activities eligible for bank credit as finance:- The following types of bank credit will be eligible for being treated as housing finance:- i. Loans to individuals for purchase/ construction of dwelling unit per family and loans given for repairs to the damaged dwelling units of families. ii. Finance provided for construction of residential houses to be constructed by public housing agencies like HUDCO, Housing Boards, local bodies, individuals, cooperative societies, employers, priority being accorded for financing construction of houses meant for economically weaker sections, low income group and middle income group. iii. Finance for construction of educational, health, social, cultural or other institutions/ centres, which are part of a housing project and which are necessary for the development of settlements or townships. iv. Finance for shopping complexes, markets and such other centres catering to the day to day needs of the residents of the housing colonies and forming part of a housing project and; v. Finance for construction meant for improving the conditions in slum areas for which credit may be extended directly to the slum-dwellers on the guarantee of the government or indirectly to them through the state governments. vi. Bank credit given for slum improvement schemes to be implemented by Slum Clearance Boards and other public agencies. vii. Finance provided to- a. The bodies constituted for undertaking repairs to houses, and b. Owners of building/ house/ flat, whether occupied by themselves or by tenants, to meet the need based requirements for their repairs/ additions, after satisfying themselves regarding the estimated cost (for which requisite certificate should be obtained from an engineer/ architect, wherever necessary) and obtaining such security as deemed appropriate; 39
  • c. Housing finance provided by banks for which refinance is availed of from National Housing Bank. d. Investment in the guarantee/ non-guaranteed bonds and debentures of NHB/HUDCO in the primary market, provided investment in non- guaranteed bonds is made only if guaranteed bonds are not available. 25. Construction activities not eligible for bank credit:- I. Banks should not grant finance for construction of buildings meant purely for government/ semi-government offices, including Municipal and Panchayat Offices. However, banks may grant loans for activities, which will be refinanced by institutions like NABARD. II. Projects undertaken by public sector entities which are not corporate bodies (i.e. public sector undertakings which are not registered under Companies Act or which are not corporations established under the relevant statute) may not be financed by banks. Even in respect of projects undertaken by corporate bodies, as defined above, banks should satisfy themselves that the project is run on commercial lines and that bank finance is not in lieu of or to substitute budgetary resources envisaged for the project. The loan could, however, supplement budgetary resources if such supplementing was contemplate in the project design. Thus in the case of a housing project, where the project is run on commercial lines, and the government is interested in promoting the project either for the benefit of the weaker sections of the society or otherwise, and a part of the project cost is met by the government through subsidies made available and/or contributions to the capital of the institutions taking up the project, the bank finance should be restricted to an amount arrived at after reducing from the total project cost the amount of subsidy/ capital contribution receivable from the government and any other resources proposed to be made available by the government. III. Banks had, in the past, sanctioned term loans to corporations set up by government like State Police Housing Corporation, for construction of residential quarters for allotment to employees where the loans were envisaged to be repaid out of budgetary allocations. As these projects cannot be considered to be run on commercial lines, it would be in order for banks to grant loans to such projects. 40
  • 26) General:- While financing housing projects, if any need arises for obtaining a particular type of agreement, the same may be got approved by legal retainer locally available in consultation with respective Circle Head, and if necessary, by Law Department, HO New Delhi. 27) Tie up with PNB Housing Finance Ltd:- (RBDA/ 61 dt 26/12/08, 7 dt 19.01.09):- To avoid competition between PNB and PNB Housing Finance Ltd. (PNBHFL), the bank’s Board of Directors, in its meeting held on 16.12.2008, passed the following resolution: “resolved that PNB to enter into a tie up arrangement with PNB Housing Finance Ltd. Whereby Housing Loans upto Rs.30 lacs sourced by the branches of the bank will be passed to PNB Housing Finance for sanction and disbursement. This tie up between PNB and PNB Housing Finance Ltd. Shall be applicable only on the centres where the PNB Housing Finance Ltd. is present. On the remaining centres and for housing loans above Rs.30 lacs, the existing arrangement shall continue.” As per understanding reached between the two institutions, the branches at the centres where PNBHFL is present, will be passing on the housing loans upto Rs. 30 lacs, sourced by them, to the respective designate local branches of PNBHFL only. List containing addresses of PNBHFL is available at Annexure I of the Circular. Role of PNB branches as well as our Circle Offices for making this tie up success is also contained in Annexure ii of the circular. Clarification (RBDA 7 dt 19.01.09):- In this context, it is clarified that additional housing loans for additions/ repairs/ renovations etc. will, however, continue to be considered by our bank under ‘Hub & Spoke Model’ in cases where plot/ property is already mortgaged with the bank. Consideration of Housing Loan proposals by our branches through Hub & Spoke Model:- (RBDA/15 dt 19.02.09). In terms of RBD Advances Circular No.61 dated 26.12.2008, it is, inter alia, stipulated that the branches at centres where PNB Housing Finance Ltd. (PNBHFL) is present, would pass on the housing loans upto Rs.30 lacs, sourced by them, to the respective designate local branches of PNBHFL only, for sanction and disbursement. Further, in terms of RBD Advances Circular No.10 dated 28.01.2009, it was advised that advances under Special Housing Loan Scheme can be considered by all our branches (including branches at centres where PNB Housing Finance Ltd. Is present) under bank’s ‘Hub & Spoke Model’. Based on the references received from the field, it has now been decided that advances (including advances upto Rs.30 lacs) under bank’s regular Housing Finance 41
  • Scheme for public can also be considered by our branches through ‘Hub & Spoke Model’ at all centres (including centres where PNBHFL is present) for the period upto 30.6.2009. Accordingly, the leads generated at the branches for advances under the bank’s regular Housing Finance Scheme can now be forwarded to respective Hub/CCPC for consideration. Consideration of Housing Loan proposals by our branches through Hub & Spoke Model:- (RBD/35 dt 09.07.09):- Attention of all the concerned is invited towards RBD Adv.Cir.No.15 dated 19.2.2009 advising that advances (including advances up to Rs.30 lac) under bank’s regular Housing Finance Scheme for public can also be considered by our branches through Hub & Spoke Model at all centres (including centres where PNB HFL is present) for the period up to 30.6.2009. it has now been decided that housing finance (irrespective of any amount) may continue to be extended by our branches at all centres (including centres where PNB HFL is present) under bank’s ‘Hub & Spoke Model/CCPC’ Takeover of Housing Loans from PNBHL not to be done (RBDA/66 dt 31.12.08):- It has been decided that henceforth housing loan of PNB Housing Finance Ltd. will not be taken over by our branches. All concerned are advised to note the above guidelines for meticulous compliance. Takeover of housing loans from PNB Housing Finance Ltd to be done: (RBDA/25 dt 06.05.09):- Based on the feedback received from the field, the matter has been reviewed and it has been decided to permit take over of quality housing loans of PNB Housing Finance Ltd. as per extant guidelines. 42
  • T1 PNB special Housing Loan Scheme for new accounts under fixed option with re-set clause of five years (valid from 01.01.2009 to 30.06.2009):- (RBDA/64 dt 31.12.08, 8 dt 22.01.09, 14 dt 18.02.09):- A special housing loan scheme covering the following parameters has been approved by the bank:- Parameter Details Purpose The loan under the captioned scheme will be made available for all housing needs of borrowers e.g. construction of house or purchase of house/ flat and for carrying out repairs/ renovation/ additions/ alterations/ furnishing to the house/ flat. Cost of furnishing may, however, be included in the project cost maximum upto 10% of the amount of loan permissible for the purpose of repairs/ renovations/ additions/ alterations. Branches (RBDA 10 dt 28.01.09) Can be considered by all the branches (incl. branches at centres where PNB Housing Finance Ltd. Is present) under bank’s ‘Hub & Spoke Model’. Accordingly, the leads generated at the branches for advances under the above scheme can be forwarded to respective Hub/CCPC for consideration Min. amount of loan Rs.1.00 lac Max. amount of loan Rs.20 lacs Margin For loans with limit upto Rs.5 lacs -10% For loans with limit above Rs.5 lacs & upto Rs.20 lacs -15% Min. entry age 18 years Max. entry age 57 years Min. repayment tenor/ term 03 years Max. repayment tenor/ term 20 years 43
  • Max. repayment age 60 years (no power at any level to fix the repayment period beyond the borrower’s age of 60 years) Rate of interest (under fixed For loans with limit upto Rs. 5 lacs -8.50% p.a. option) For loans with limit above Rs. 5 lacs & upto Rs. 20 lacs -9.25% p.a. These rates are fixed for first five years. Re-set of interest rates will uniformly be on 01.07.2014 and thereafter every five years. The applicable interest rate will be 150 bps higher than the applicable interest rate for five years’ deposit or peak interest rate of deposit, whichever is higher prevailing at that time. Upfront/ Processing fee As applicable to bank’s regular Housing Finance Scheme (can be waived fully by sanctioning authority) Documentation charges As applicable to bank’s regular Housing Finance i.e. Rs.1350/- (excl. service tax)(can be waived fully by sanctioning authority) Life insurance Life insurance cover to be provided to borrower at bank’s cost, as per tie up arrangement entered into between the bank and LIC of India under Group Mortgage Redemption Insurance Scheme (GMRIS), as per details set out in Annexure i. the insurance cost is on one time single premium basis. The premium to be credited to a/c no.0153002100568733 “LIC Insurance Premium- PNB Special Housing Scheme” maintained in CBS system at BO Sansad Marg, New Delhi. Co-borrower To be permitted, only in case co-borrower agrees to go in for life insurance cover from LIC of India at his/her own cost under the aforesaid GMRIS. Bank will bear the cost of life insurance cover of only youngest person in joint accounts. Enhancement/ additional limit Not permitted. 44
  • Age proof Municipal Birth Certificate, School Leaving Certificate, Baptism Certificate, LIC Policy where age is admitted. Declaration of good health (DGH) Required in all cases (to be obtained in duplicate on format as per Annexure ii). One copy to be sent on the same day to controlling LIC branch (i.e. LIC of India, Divisional Office1, Pension & Group Schemes Unit, Jeevan Prakash, 6th Floor, 25- Kasthurba Gandhi Marg, New Delhi-110001 Tel No. 011-23354037, Fax 23350832 Contact Person: Shri Sunil Kumar: Mobile No. 9718282823) e-mail Id bo_g103@licindia.com and another copy be kept with Loan documents at the disbursing branch. Pre-payment charges NIL Take over/ swapping of loan Not allowed. documentation As per extant guidelines. However, Housing Loan Agreement under the captioned Scheme will be obtained/ got executed, as per the revised format available as per Annexure iii. Validity of the scheme 01.01.2009 to 30.06.2009.it should be ensured that all the cases including those requiring medical examination are sanctioned and disbursed before 30.06.2009. MIS Information as per Annexure iv to be sent to the aforesaid controlling office of LIC on weekly basis on every Friday. In case of NIL information, MIS need not be sent. (failure to observe this time schedule will invite penal action). Other terms & conditions/ guidelines of the scheme for providing housing loans to public, as contained in RBD Advances Circular No.40 dated 12.09.2008 followed by various 45
  • circulars on the subject, shall remain unchanged and are applicable to the captioned scheme as well. The captioned scheme is for new accounts sanctioned and availed from 01.01.2009 to 30.06.2009 and will run concurrently with the existing regular Housing Loan Schemes. Hence, any account not fulfilling to the norms of the captioned scheme can be covered in bank’s existing Housing Loan Schemes, on the terms and conditions set out therein. The sanctioning authority will ensure due diligence for sanction of loan. The detailed terms of the aforesaid Insurance Plan of LIC along with premium rates per Rs.10000/- of loan amount (separate for rate of interest 8.50% & 9.25%) are available as per Annexure V & VI of the circular. T2 Guidelines of medical examination:- (RBDA/8 dt 22.01.09):- based on clarifications received from Life Insurance Corporation of India (LIC), guidelines under the head ‘medical examination’ have been revised as under:- Loan amount/ sum assured Upto age 55 years Above age 55 years to 57 years Upto Rs.5 lacs Medical examination not Medical examination not required. Only required. Only DGH be Declaration of Good obtained along with Health (DGH) be information as per Short 46
  • obtained. Medical Questionnaire (SMQ) proforma attached. Above Rs.5 lacs & upto -do- Medical examination will be Rs.10 lacs mandatory, before sanction & disbursement of loan as per LIC rules. This medical examination includes full medical report from LIC examiner and FBS & ECG from any qualified doctor. Above Rs. 10 lacs & upto -do- Medical examination will be Rs. 20 lacs mandatory, before sanction & disbursement of loan as per LIC rules. This medical examination includes full medical report from LIC examiner and FBS, TMT & Lipid Profile from any qualified doctor. In case applicant is not found medically fit, as per the rules of LIC, he/ she will not be eligible for housing loan under the scheme. Functional guidelines regarding opening of account with new interest rate code:- (RBDA/14 dt 18.02.09):- Functional guidelines regarding opening of account with new “interest rate code”. Under the above scheme in the system and debit of Insurance premium were also advised in terms of IT Division Circular No. ITD/CBS/03/2009 dated 09.01.2009. In terms of the said circular of IT Division, it is, inter alia, advised as under:- That while opening the account under scheme code ‘TLPHL’ one of the following two interest codes (according to sanctioned limit of housing loan) will be assigned in “int. rate code’ field in general details: 47
  • 1) SHR05- loan with sanctioned limit upto Rs.5.00 lacs (8.50%); 2) SHR20- loan with sanctioned limit above Rs.5 lac & upto Rs.20 lacs (9.25%) That the new mode of Advance “DIHRS’ (DIRECT ADV. UNDER PNB SPL. HOUSING RATE SCHEME)” will be assigned in the ‘v’ details of the a/c, besides other mandatory codes. It has been noticed that the above guidelines regarding assignment of new interest rate codes and the new mode of advance code, as above, are not being followed meticulously, leading to generation of wrong MIS reports/ opening of accounts with wrong interest codes. Since interest rates under the above scheme are subject to reset on 01.07.2014 and thereafter every five years, opening of accounts under the captioned scheme with wrong interest codes will create avoidable problems at later stage. EARNEST MONEY DEPOSIT SCHEME (RBD 8/02, 17/04, 25/04, 42 DT 7/12/06) PURPOSE: For meeting earnest money deposit (EMD) requirements to apply for allotment of plot/ flat/ house under the schemes floated by State Housing Boards (SHB)/ Urban Development Authorities (UDA) ELIGIBILITY: Individuals/ joint owners, where SHB/ UDA undertakes to give Refund order/ allotment letter/ Forfeited amount in full to our bank subject to eligibility of the applicant for the proposed loan and future requirement for housing loan under our existing Housing Loan Scheme. 48
  • AMOUNT: 90% of EMD in case of House/ flat/ plot/ land, subject to maximum of Rs.2.00 lacs (25/04) ROI: BPLR minus 1.75%. Further, ZM & above may reduce it further maximum by 1% on merits of specific proposals of State Housing Boards/ urban development authorities etc. (Power for reduction not specified vide RBD 32/08). REPAYMENT: I. Unsuccessful applicants- by refund order. II. Successful applicants, a. Eligible and interested for housing loan- by housing loan, b. For others- through bullet payment. GUARANTEE: Clause deleted vide RBD 5/05 dt 12/1/05 DISBURSEMENT: Direct to SHB/ UDA along with application on behalf of borrowers. LOANING POWERS: Incumbents of authorized branches (station wise) as per orders of Circle Head after entering into MOU with SHB/ UDA. DOCUMENTS: i. Application- 1054, with suitable amendments, ii. Agreement – Annexure-24, iii. Guarantee deed- 58, iv. Consent letter for refund- annexure-25 v. UPFRONT FEE/ REMITTING CHARGES. 49
  • vi. MULTIPLE FINANCING: (RBDA/42 dt 7/12/06):- Recently, cases of multiple financing under the scheme have come to notice, thereby permitting finance by the branches for more than one application to individual applicant under the same Housing scheme of State Housing Board/ Development Authority. The issue has been examined at RBI’s level and it is felt that it is not prudent on the part of any bank to sanction multiple loans to an individual for applying for the same plot/ flat. RBI has, therefore, advised that necessary care be exercised in respect of such matters in future. OD FACILITY TO EXISTING HOUSING LOAN BORROWERS FOR PERSONAL NEEDS (RBD 19 dt 8/8/05, 10/07, 45/07, 9/08, 47/08, 43/09) Offer of the scheme: existing borrowers fulfilling the criteria be offered to avail the facility as per their eligibility on execution of documents. ELIGIBILITY: All existing housing loan borrowers having satisfactory repayment track record of minimum of past 24 months. All terms & conditions of sanction should have been fulfilled and no IR irregularity should be outstanding which has been identified as serious in nature. 50
  • NATURE: For personal needs in the shape of OD limit. AMOUNT: Minimum Rs 50000/- & maximum Rs 5.00 lacs. Subject to additional OD limit proposed and current outstanding in existing housing loan account should be maximum 75% is the current realizable value of the house so as to maintain a minimum margin of 25%. (RBD 45/07). It is clarified that the current realizable value of the housing property is to be taken into account, for the above purpose--- RBD 9 dt 03.03.08. Continuation of OD limit after adjustment of housing loan:- (RBD/ 47 dt 23.09.08):- References have been received from the field enquiring as to whether the said overdraft facility can be continued/ renewed even after adjustment of Housing loan a/c in full. In this context, it is clarified that after the Housing loan is paid fully, the overdraft facility can be continued/ renewed, provided the sanctioning authority us satisfied about the repaying capacity of the borrower and the value of security. RATE OF INTEREST: BPLR minus 1%. SECURITY: Extension of charge on existing IP mortgaged. REVIEW: The facility be reviewed annually. OD be set up in such a manner that take home salary should not be less than 40%of net salary after servicing of interest in case of salaried borrowers. In others cases, income should be sufficient to service the interest. Income of co- borrowers/ joint borrower etc taken for the purpose of eligibility at the time of sanction of housing loan should also be considered for this purpose. Upfront fee/ Documentation charges. LOANING POWERS: Small- NIL; MB- 4 lacs; LB- 5 lacs; CM & above- 5 lacs. The powers can be exercised even if existing facilities have been sanctioned by a higher authority. Documentation: i. Offer letter- Annexure- I duly acknowledged and accepted on the “terms and conditions of the sanction; ii. OD agreement- Annexure- ii; iii. Mortgage deed- Annexure iii; iv. EM for enhanced amount of OD. 51
  • Other guidelines: In case interest is not serviced within 7 days of the close of the close of the month, the borrower shall be liable to pay penal interest @ of 2% over and above the applicable rate on the amount of default and for the period of default. An undertaking to this effect be obtained from the borrower. Borrower shall be allowed to route his surplus funds from the OD account upto the extent of the limit. OD to borrowers where construction has not yet completed” (RBDA/43 dt 21.08.09):- Reference has been received seeking clarification whether the above- said facility can be extended to the existing housing loan borrower who has availed the housing loan for purchase of plot but construction thereon has not yet been commenced/ completed. It is clarified that overdraft facility for personal use should not be sanctioned to the borrowers, who have availed loan for purchase of plot, construction on which is yet to be completed. Marketing efforts: (RBDA/ 10 dt 13/2/07) Under “overdraft facility to existing housing loan borrowers”, branches will, however, make the offer in writing to all the existing housing loan borrowers, who fulfill the relevant criteria of the said offer, that an overdraft limit has been set up in his/ her/ their favour as per eligibility, which can be availed after execution of documents. PNB FLEXIBLE HOUSING LOAN (RBD 33/04 DT 18/10/04, 45/07) OBJECTIVE: The objective of the scheme is to offer attractive variant to the customer in which he will deposit his savings and withdraw it at his choice upto the extent of OD limit. All terms and conditions of housing loan scheme for public, except as detailed hereunder shall be complied with. ELIGIBILITY: Customers under 50 year of age are eligible. The existing customers are also permitted for changeover if eligible for the variant and pay the upfront fee and documentation 52
  • charges. Earlier loan be adjusted through the proceeds of this loan & present outstanding be taken into consideration for conversion of loan under this variant. PURPOSE: Purposes specified under Housing Loan scheme for public except for purchase of land/ plot. However, when the borrower is having undertaken construction, loan be allowed on his request. MARGIN: 25% (RBD 45 dt 11.10.07). EXTENT OF LOAN: 20% increase in original total limit be allowed for personal needs after 5 years on written request of the borrower subject to his repaying capacity and good repayment track record. The increase will be subject to market value of the property and margin of 25% shall be maintained at all levels. The increase can be allowed in the form of TL or OD facility as per the choice of the borrower in writing but the OD component in totality should not exceed 50% of the total limit. NATURE OF FACILITY: TL- 80%; OD- 20%. Two separate accounts be opened for both the facilities, suitable EMI be prescribed and EMI cheques be obtained. If 20% increase after 5 years is allowed in the shape of Term Loan, 2nd TL account be opened and separate EMI cheques be obtained. Similarly EMI cheques covering interest component of this limit be obtained. Separate documents be obtained for enhanced portion. Maintenance of separate account for personal needs is also necessary to ensure that interest component on Housing Loans is calculated easily for the purpose of issuance of Interest Certificate required by the borrower for claiming the benefit available under Income Tax Provisions. Further on attaining the age of 55 years the OD facility shall be allowed on monthly reducing DP basis with reduction commences from the month following the month when the customer attains the age of 55 years so as to ensure that whole of the OD limit including TL is adjusted by the age of 65 years. Other conditions: I. Over the period of the loan, the OD limit will be enhanced on regular basis at yearly intervals. II. The enhancement in OD be allowed upto the reduction of term loan. 53
  • III. Such revision be allowed after a period of 3 years and thereafter on yearly basis, at the request of borrower only, IV. Aggregate of limits under TL and OD shall not exceed the original total limit sanctioned for the 1st 5 years. V. MX OD limit under no circumstances should exceed 50% of the total limit. VI. The borrower shall be required to service only interest component only on the OD limit. VII. The EMI shall be calculated on TL component and interest on OD component. VIII. The borrower be allowed to deposit his surplus funds in the OD account and withdrew upto the extent of OD limit. IX. Existing housing loans borrower are also allowed for switchover on fulfilling of all terms and conditions and payment of upfront fee and documentation charges afresh. Rate of interest. Documentation: besides taking the usual documents, as per the purpose of the loan and prescribed and circulated vide various circulars under the extant guidelines of the Housing Finance Scheme, the agreement enclosed with the RBD: Advances Circular No.25 dated 20.09.2005 and numbered as PNB 1120 be obtained for allowing loan under this variant of the scheme. It is a composite agreement and will take care of both the parts of the Housing Loan i.e. Term Loan and Overdraft. Important:- i. It may be noted that in para numbered ‘1’ of the agreement, the limit to be secured by security, in respect of the overdraft, shall be the full housing loan limit sanctioned. This has to be ensured at the time of filling of the said agreement since the scheme provides for raising of the overdraft limit on year to year basis (for personal needs), with first such increase commencing after a period of three years from the date of sanction of the loan. 54
  • Mentioning of the full Housing Loan limit sanctioned will only ensure that when the year to year increase in the overdraft limit is allowed, it will not necessitate fresh creation of security. ii. The increase in the overdraft limit will be allowed on receiving request/ application from the borrower for enhancement in drawing power. iii. The disbursement of the drawing power increased in the overdraft limit, for personal needs of borrowers, has to be allowed by opening a separate overdraft account i.e. overdraft account ii (for personal needs) (in the name of the concerned borrower(s). iv. The documentation in respect of 20% increase in the loan amount, for personal needs of borrower(s), to be allowed/ considered after a period of 5 years, has to be granted by way of a separate personal loan either in the shape of term loan or overdraft as per the request/ application of the borrower(s). v. In case the request is by way of an overdraft facility, the drawing power of the existing separate overdraft account (personal needs) be enhanced and documents for enhancement obtained. vi. In case the request is for term loan, fresh documents of term loan agreement be obtained. The mortgage of the property be extended to the increased 20% overdraft/ additional term loan limit allowed after a period of five years. vii. At the end the tenor of the housing loan the OD account (housing loan) shall be merged with the separate OD account (personal needs) opened, at the time allowing first enhancement, for personal needs of the borrower. General: I. CBS branch customer will additionally be issued Debit Card to operate their OD account. II. EMI shall be worked out for both Term Loan and OD. As pe r the example-ii given in the circular the EMI will be marginally higher than the EMI worked for the entire term loan. 55
  • HOUSING FINANCE SCHEME FOR NRI’S FOR ACQUISITION OF FLAT/ HOUSE (REF. RBDA/7 DT 25/1/07, RBD 36 DT 06/08/08) ELIGIBILITY: All Non- Resident Indians (NRIs)/ persons of Indian Origin (PIOs) are eligible for loan under the scheme. 56
  • JOINT BORROWERS: branches may also consider granting loans where NRI/PIO is a principal borrower with resident close relative(s) (as defined in Section 6 of Companies Act 1956) as co-obligant/ guarantor or where the land is owned jointly by NRI/PIO borrower with resident close relative, subject to the condition mentioned as above. There will be no objection to loans being granted to residents with NRI/PIO as a co- obligant. ‘Close relative’ is as defined in Section 6 of Companies Act 1956. AUTHORIZED BRANCHES: Hosing Loan to NRIs should be allowed at branches authorized to deal in foreign exchange or the branches permitted by Circle Head. Centralized HUB for sanction (RBD 36 dt 06/08/08):- On a review, it has been decided that from now onward, all proposals for housing finance under the above scheme, forwarded by our overseas offices, will be processed centrally at sanctioning Hub at A-9, Connaught Place, New Delhi. The loan will, however, continue to be disbursed, as per the convenience of the customer concerned, at branches authorized to deal in foreign exchange or the branches permitted by Circle Head, as per guidelines. For security verification/ Non- encumbrance certificate etc., the above- said sanctioning Hub will take the help of branch/ Hub, which is located near the housing property. The loan proposal of above nature beyond the powers of Hub will, however, be forwarded by the Hub to Circle Office, Delhi for consideration/ sanction. PURPOSE: Loan will be sanctioned for acquisition/ construction/ repairs/ renovation/ improvement of flat/ house owned by NRIs/ PIOs in India as also for the purpose of purchase of PLOT. This flat/ house, acquired by utilization of the loan, will be used for self- occupation/ letting out. SECURITY: The loan should be fully secured by creating equitable mortgage of the concerned property and, if necessary, lien on borrower’s other assets in India. REPAYMENT: i. Repayment of the loan should be made by the borrower within a period not exceeding 25 years (including moratorium period, if any) and EMI comprising of principal plus interest including all charges by remittances from abroad through normal banking channels or out of funds in his/ her NRE/ FCNR/ NRNR/ NRO/ NRSR account in 57
  • India or out of rental income derived from renting out the property acquired by utilization of the loan. ii. Close relatives of the borrower in India shall also be allowed to repay such loans, interest and other charges through their bank account directly to the borrower’s loan account with the authorized dealer/ identified branch. iii. If the house/ flat is rented out, the entire rental income, even it is more than the prescribed installment, should be adjusted towards repayment of the loan. If the rental income is less than the prescribed installment, the borrower should remit the amount to the extent of shortfall form abroad or pay the differences out of his/ her NRE/ FCNR/ NRO/ NRNR account in India. iv. In the case of person who has returned to India for permanent settlement, the repayment of the outstanding loan may be allowed in rupee. DISBURSEMENT: Loan should not be credited to NRE/ FCNR/ NRNR account of the borrower. Housing Loan disbursement should be routed/ monitored through NRO (Non- Resident Ordinary) a/cs. Other guidelines: Guidelines regarding rate of interest, guarantee clause, quantum/ extent of loan, margin requirement, obtention of insurance cover, repayment, age criteria, verification of end- use, and service charges shall be as per the Housing Finance Scheme for Public, applicable to resident Indians, circulated vide RBD Advances Circular No. 40 dated 12.09.2008 followed by relevant circulars/ circular letters issued on the subject. Loaning powers. Housing Finance Allocation: Housing Loans under the above scheme will be outside the purview of Housing Finance allocation prescribed for providing finance to resident Indians. MIS: The concerned branches will maintain a separate record of such loans will fill details, such as, name and address of the borrower, amount of margin money paid, amount of loan, period of loan, payment schedule, details of repayments received and manner of such payments for verification by the inspecting officials of RBI as well as bank’s internal inspectors. 58
  • Documents: Loan documents be obtained as prescribed under Housing Finance Scheme for public, applicable to resident Indians. However, the Housing Loan Agreement under the scheme “Housing Finance Scheme for NRIs/ PIOs” be obtained as per proforma “A” and proforma ‘B’ annexured, as per the requirements of each case. A draft of power of Attorney to be executed by the NRI/ PIO in favour of any person to facilitate loan transaction in his absence is also available as per proforma ‘C’. Further, a copy of passport, copy of visa, work permit, company details, copy of current overseas residential proof etc. be also obtained additionally. Time frame: Further, maximum time frame of three weeks has been decide for disposal of housing loan application, received from overseas office, under the above scheme. MORTGAGE REDUCING TERM ASSURANCE (MRTA) SCHEME- IN TIE ARRANGEMENT WITH TATA-AIG (RBDA 21 dt 21/8/06,6/07,12/07) 59
  • Bank has entered into a tie up arrangement with TATA AIG to offer Life Insurance (both due to natural and accidental death) covers in the shape of a single premium reducing term assurance policy. As per the tie up arrangement: I. The premium shall be borne by the customer as the single premium for life insurance; II. The one time premium can be financed by the bank. (however, the borrower has the option to pay from his own sources); III. The option of availing Life Insurance Cover is on voluntary basis. However, borrowers need to be informed that the bank is making this facility available on competitive terms and conditions, besides the fact that the premium is one of the lowest, as compared with some of the major players; IV. The premium works out approximately at 2.5% of the loan amount at age 40 and tenor 15 years. It is lower for younger age group customers and correspondingly higher for the older age group customers. Other salient features of the product are as under: i. The proposed term of coverage shall not be less than 1 year or more than 20 years; ii. The initial sum insured shall not be less than Rs10,000 or more than Rs.1,00,00,000. If the initial sum insured exceeds Rs.80,00,000 special approval from the company is required; iii. A maximum of two borrowers may become eligible for joint- life insurance with respect to any one single housing loan if they are spouses or the immediate next- of- kin of the family excluding aunts, uncles and grandparents; iv. A term insurance policy is purely risk cover with no saving element. Benefit is payable only, if death occurs during the term of insurance, which will be as per the amortization table for a specific sum insured for certain repayment tenor taking the rate of interest at 9% p.a; v. Insurer has not provided any moratorium while preparing amortization table, hence amortization table assumes that repayment will start from next month of the disbursement; 60
  • vi. Actual outstanding in the respective house loan account will differ with some amount being shown in the amortization table at a particular point of time due to the reason that actual applicable rate of interest may differ marginally from 9% stipulated by the insurer and no moratorium is being considered while calculating the amortization table, whereas a moratorium is allowed under the scheme up to 18 months, wherever applicable; vii. Full repayment of the housing loan by insured, before expiry of the original duration of the loan shall not terminate the insurance coverage. Coverage shall continue based on the original sum insured reducing schedule for the remaining term of the original duration of coverage; viii. No death benefit will be payable if an insured member commits suicide, while sane or insane within one year from the effective date of coverage or date of any reinstatement whichever is later. Premium paid in respect of such insured member will be refunded after deducting the joint life discount applied, if any, without interest. In such a case, insurance on the surviving joint insured member, if any shall be remain in force. Financing of premium by the bank (RBDA/43 dt 16/12/06):- Cost of one time insurance premium be financed at the option of the customer and the same shall be over and above the extent of loan, at 20% margin, for which the customer is otherwise eligible and subject to repaying capacity of the customer. In respect of existing accounts, branch to, however, ensure as under:- a) That the account is running regular; b) That recovery of amount of EMI shall be ensured by way of replacing/ obtaining fresh mandate/ standing instruction for debiting borrower’s a/c/ECS/PDS etc. It is clarified that all cases of finance for payment of one time insurance premium, pertaining to existing Housing Loan borrowers will be sanctioned and disbursed at the relevant branch itself and the Hub will have no role in even sanction of such cases(RBDA/6 dt 11/1/07). 61
  • Simplification of loan documents: (RBDA/12 dt 22/2/07): On the basis of feedback gathered from the field, it has been decided to do away with the requirement of obtaining following documents, for securing the additional loan granted for payment of insurance premium to enable the existing Housing Loan borrowers to seek life insurance cover under the aforesaid MRTA product:- a) Supplementary agreement; b) Fresh guarantee deed; c) Letter for extension of mortgage for the enhanced amount of loan. In place of above documents, the branches will, however, obtain an undertaking/ request letter from all the existing Housing Loan borrowers for granting of finance/ loan for insurance premium to be paid under the MRTA product, on the format prescribed as per annexure I to this circular. Operational procedure (RBDA/12 dt 22/2/07): In order to facilitate easy and early reconciliation of insurance payments from Housing Loan borrowers and also to ensure timely issuance of certificate of insurance upon successful completion of underwriting process, the operational procedure is explained in the circular. SPECIAL RURAL HOUSING SCHEME OF NATIONAL HOUSING BANK (PSLB: LB: 32/00, 2/01, and 31/02) 62
  • LOCATION OF NEW HOUSE area comprised in any village including the area comprised in any or existing dwelling unit town, the population of which does not exceed 50000/- as per 1991 census. QUANTUM OF LOAN Upto Rs. 5 lakhs for construction of new dwelling unit and upto Rs.3 lacs for up gradataion/ major repairs. MARGIN: 33.33% of cost of construction. RATES OF INTT.: As per RBI guidelines. SECURITY: Mortgage of property or any appropriate security as per RBI guidelines including collaterals. PEROID OF REPAYMENT: Maximum of 15 years. It is clarified that NHB has not prescribed any ceiling on amount of loan, interest, margin and period of loan, to be eligible for inclusion under the captioned scheme. Advances up to Rs. 15 lacs for acquiring/ construction of houses and upto Rs. One lacs for repair/up- gradation of an existing house, are eligible for reporting under priority sector, therefore, it is advised that all housing loans (except staff housing loans) sanctioned by branches in the conglomerates with population up to 50000 as per 1991 census under normal housing loan scheme of the bank, are eligible for reporting progress under Golden Jubliee Rural Housing Finance Scheme (PSLB/LB/31/02). NATIONAL HOUSING BANK (NHB)- REFINANCE SCHEMES Eligible loans: I. Individual housing loans not exceeding Rs.50 lacs each, for acquisition/ construction of new dwelling units only, will be eligible for refinance in terms of this scheme. 63
  • II. Loans upto Rs. 5 lacs each for upgradation/ major repairs will also be eligible for refinance in terms of this scheme. Refinance in respect of upgradation/ major repairs will, however, be restricted to 25% of the total refinance released in a year. III. Overdue loans are not eligible for refinance under this scheme. IV. Refinance provided by NHB will be additional to and separate from the housing loans granted under the annual housing finance allocation made by the Reserve Bank of India. The refinance from NHB to scheduled commercial banks in public and private sector shall not exceed 100% of their outstanding housing loans ( including loans not refinanced by NHB). Interest rates: The rates of interest charged on refinance shall be the rates prevailing on the date of disbursal of refinance by NHB, irrespective of the rates charged by the scheduled commercial banks while sanctioning the housing loans to the ultimate beneficiaries. Period of refinance:- NHB has given the option to choose the repayment period between 5 years to weighted average period of housing loans (WAPOL) subject to maximum of 15 years in respect of individual housing loans covered with each refinance application. The option for repayment period rounded off to the nearest complete year has to be indicated in the claim form. Further, considering the maturity linked cost profile and demand for medium term funds in the housing finance sector at competitive rates, it has been decided by NHB to charge interest rate, lower by an additional 25 basis points across the board, where repayment period opted by the SCB is between 5 years and upto and inclusive of 7 years. Wherever the repayment period opted by the SCB is above 7 years and upto and inclusive of 15 years, interest rate communicated by the NHB/ bank would apply. In case, if no option for repayment period is given, refinance will be made available based on WAPOL and corresponding interest rates would apply. Repayment of refinance:- Repayment of refinance shall be handled by BO: PNB house, Mumbai. Security:-The branch will obtain security in respect of the housing loans extended by them, in accordance with the guidelines prescribed by the bank. 64
  • REFINANCE SCHEME FOR INDIRECT HOSUING FINANCE SCHEMES Eligibility for refinance:- Refinance from NHB will be available to the extent of 100% of the loans granted under the following Land Development and Shelter Projects (LDSPs) schemes of NHB:- 65
  • i. Scheme for land development and shelter projects undertaken by Public Housing and Development Agencies; ii. Scheme for land development and shelter projects of primary Cooperative Housing Societies; iii. Scheme for land development and shelter projects of Professional Developers; iv. Scheme for Rental Housing Projects. Interest rates:- i. In respect of housing finance granted to public Housing and Development Agencies, Primary Co-operative Housing Societies and Professional Developers, the rate of interest on refinance shall be determined by NHB. On the basis of different rates of interest applicable to the loans for different components, the weighted average rate of interest for the project loan as a whole will be worked out by NHB for being charged by the bank. The rate of interest on refinance from NHB will be 1% below this weighted average rate. On completion of the project, if it is observed that the composition of the project or the loan amounts for different components have undergone a change, the weighted average rate will be revised on the basis of the actuals and the rate of interest on refinance would also be revised correspondingly. ii. Rate of interest on refinance for housing finance granted to employers under the scheme Rental Housing Projects shall be 1% lower than the rate of interest charged by the bank. Period of refinance:- The term of refinance granted by NHB will be co- terminus with the period as given under the schemes for which finance is extended by the bank. The entire refinance with the accumulated interest which will be calculated at quarterly rests shall be repayable to NHB on completion of the project or at the end of period of refinance whichever is earlier. Repayment of refinance:- Repayment of refinance shall be as per repayment schedule laid down by NHB at the time of sanction of refinance. 66
  • Security:- Security for the refinance amount shall be the same as obtained against the loan granted in terms of various schemes already circularized. Lodging of application:- Branches should lodge applications for refinance, as per proformae prescribed by NHB, with the respective Circle Offices. Circle Officers, after due scrutiny, shall forward the applications for refinance to BO: PNB House, Mumbai in duplicate who shall lodge the same with NHB, Mumbai for availing of refinance. REFINANCE SCHEME FOR DIRECT HOUSING LOANS TO ALLOTTEES OF PLOTS/ DWELLING UNITS UNDER LAND DEVELOPMENT AND SHELTER PROJECTS (LDSPs). A. 67
  • i. Eligibility for refinance:- Refinance shall be available to the extent of 100% of the housing loans granted to allottees under NHB assisted LDSPs for acquisition of developed plots/ dwelling units. ii. Availability of refinance shall be subject to the following terms and conditions:- a. The concerned LDSP should have been refinanced by NHB; b. There will be no ceiling on the housing loans for refinance purposes. Loans should, however, be granted after taking into consideration the allottee’s repaying capacity. In the case of allottees who are members of HLAS, their contributions to HLAS deposits should be reckoned for the purpose of judging their repaying capacity. The gap, it any, between the cost of plot/ dwelling unit and loan sanctioned should be met by the allottees; c. Housing loans should be granted subject to maintenance of margins as prescribed by the Reserve Bank of India (RBI); d. Proceeds of housing loans should be adjusted strictly towards repayment of term loans for the relative LDSPs, whether extended by the same bank or some other bank/ HFIs and remitted directly to the concerned banks/ HFIs. Interest rates: Interest rates to be charged on housing loans shall be strictly in accordance with those prescribed by Reserve Bank of India/ bank. Refinance from NHB will be available as per instructions conveyed to the field from time to time by the bank. Period of refinance:- Refinance from NHB will be available for a period of fifteen years, irrespective of the actual repayment period prescribed or moratorium allowed in individual cases. However, it is expected that normally a repayment schedule of 15 years is to be stipulated in respect of housing loans ( including a moratorium or repayment holiday at the option of the beneficiary). 68
  • Repayment of refinance:- Repayment of refinance shall be handled by bO: PNB House, Mumbai. Security:- The security for the advance shall be mortgage of property or Govt. Guarantee, as per the existing guidelines. Where neither is feasible, branches can accept, at their discretion, security of adequate value in the form of life insurance policies, Govt. Promissory Notes, Shares and Debentures, Gold ornaments or such other security as they may deem appropriate. REFINANCE SCHEME FOR HOUSING INFRASTRUCTURE DEVELOPMENT PROJECT (HIDP) Eligibility for refinance:- Refinance shall be available to the extent of 100% of loans for HIDPs undertaken by Public Agencies, O-operative Housing Societies, Professional Developers, etc. subject to following: 69
  • a) The agency seeking assistance under the Refinance Scheme has necessary provision in its constitution/ bye- laws allowing it to implement such projects, b) The proposals conforms to the master/ development plan of the area and has the approval of the competent authorities, c) The standards and specifications of HIDP meet the requirements of local authorities, d) The land is in physical possession of the concerned agency, without encroachment and encumbrance, e) The project site has proper linkage to the existing external road network, and f) The off- site/ trunk infrastructural services are available at the site before the on- site infrastructural works are completed by the agency and developed land becomes saleable. Interest rates:- Interest rates to be charged on housing loans shall be strictly in accordance with those prescribed by Reserve Bank of India / bank. Refinance from NHB will be available as per instructions conveyed to the field from time to time by the bank. Period of refinance:- The term of refinance granted by NHB will be co- terminus with the period for which finance is extended by a bank to the agencies. However, the total period shall not exceed 5 years. Repayment of refinance:- The entire refinance with the accumulated interest, which will be calculated at quarterly rests, shall be repayable to NHB on completion of the project or at the end of the period of refinance, whichever is earlier. Repayment of refinance shall be handled by BO PNB House, Mumbai. Security:- The branch will obtain appropriate security against its loan. While in the case of Public Housing Agencies, the loan can be secured by Govt. guarantee. In other cases such as Co-operative Housing Societies, Professional Developers, etc., as Govt. guarantee may not be available, the branch will obtain mortgage of property, fixed assets, etc. or any other collateral security as it may deem appropriate. The branch availing of refinance from NHB will assume full responsibility in regard to the loan extended by it. 70
  • Lodging of application:- Branches should lodge applications for refinance, as per proforma prescribed by NHB, with the respective Circle Offices. Circle Offices, after due scrutiny, shall forward the applications for refinance to BO: PNB House, Mumbai in duplicate who shall lodge the same with NHB, Mumbai for availing of refinance. 71
  • CHAPTER-03 PROFILE OF INDUSTRY/ COMPANY Profile of the Industry 3.1 Introduction: Banking sector In the recent past banks have diversified into many related areas such as merchant banking, mutual funds, venture capital, equipment leasing, housing finance, hire purchase, credit card, 72
  • securities trading, equity participation either on their own or through setting up of special subsidiaries. The key areas in banking operations and development at present are consolidation with moderate and selective expansion in social banking with improvement in financial viability, selective modernization, mechanization and computerization, privatization, better customer service, effective managerial culture, adequate profitability, strong and healthy organization structure and effective system of internal supervision, control. Definition of Bank “A person or corporation who holds itself out to receive from public deposits payable on demand or by cheque.” - WALTER LEAF 1) A financial institution that accepts deposits and channels the money into lending activity, “he cashed a check at the bank”, “that bank holds the mortgage on my home”. 2) A fund form deposits or contributions; to be used in transacting business; a joint stock or capital. Authorities and banking are divided in their opinion regarding the origin of the terms “bank”. According to some other the English term “bank” is derived from the Italian word “Banco” and French word “Banque” which means bench used as a counter for banking activities. Their opinion is that the medieval European bankers transacted their banking activities that is money changing and money lending by displaying coins of different denominations, in big on the benches in the market place, as such the word “Bank” should be associated with the Italian word “Banco”. According to other the term bank is derived from the German word “Bank” which means a joint stock fund or common fund raised from a large number of member from the public. They argue that early European bankers raised a common funds or heaps of money raised from the public; the term bank should be traced with the German word bank. Banking, in its crude firm is an age old phenomenon it was in existence even in accident times. Revil Poudt, a French writer for instance mention about bank notes, in Babylon in 6000 B.C. In Indian, the reference to money lending business are funds in the Manusmrithi 73
  • also chaldeon Egyptian, and Phencian, history also record the existence of rudimentary banking in early days. Pro. Marshall in this book , money credit and commerce (1923) written about the activity of money changes in the temple of Olympic and other sacred placed in Greece around 2000 B.C. To quote him, “ private money changes began with the task of reducing many metallic currencies , more or less exactly, to a common unit of value and even to expect money on deposit at interest and to lend it out at higher interest permitting mean while draft to be drawn on them”. Another factor that supports the emergence of bank in the early period was the need for borrowing by the monarchial government form finance companies. In the middle age, in Italy the first bank called the “Bank of Venice” was established in 1157, in this ground when the authorities of the State of Venice were in financial trouble due to war. In England, however the Banks of Lombardy has taken the initiative to that modern banking along with riding activities in London but, commercial banking began there only after 1640, when goldsmith started receiving deposits from the public for custody and issue receipts for the acknowledgment which were used as bear demand notes later on. In England, initially the bank of England was established in 1664 on Italian lines to support government with finance. Modern joint stock commercial banks, however came into the picture which the passage of banking act 1833 in England. In India, however modern banking started when the English agency in Calcutta and Bombay began to serve as bankers to the East Indian Company and the Hindustan Bank was the first banking institution to be established in 1779. Commercial banks are the most important source of financial institutions/ credit in the money market. A bank is a profit seeking business firm, dealing in money and credit, it is a financial institution dealing in money in the sense that it accepts from the public to keep them in its custody for safety. So also it deals with credit that it creates credit by making advance out of the funds received as deposit to the needy people, thus function as a mobilizes of saving in the economy. C.1 STRUCTURE OF INDIAN BANKING SYSTEM Reserve Bank of India 74
  • Scheduled banks Non-scheduled banks State co-operative Commercial Central co-operative Commercial Banks Banks Banks & primary Banks credit societies Public sector Banks Private sector Banks Indian Banks Foreign Banks State Bank of India Other Nationalized Regional rural and its subsidiaries Banks Banks 3.2 GROWTH OF BANK: Merchant Bankers issued ‘Hundis’ to remit funds in India such Merchant bankers were known as Seth’s. The next stage in the growth of banking was the Goldsmith he started charging something for taking care of the money and bullion. The next stage in the growth of banking is the money lenders, the goldsmith found that on an average the withdrawal of coins were much less than the deposits with him. So he started advancing the coins on loan by charging interest as a safeguard he kept some money in the 75
  • reserve thus the goldsmith –money lenders became a banker who started performing the 2 functions of modern banking that of accepting deposit and advancing loan. Meaning of Banking : Transacting business with a bank; depositing or withdrawing funds or requesting a loan etc. or Engaging in the business of banking, maintaining saving and checking accounts and issuing loans and credit. 3.3 Functions of Banking: The most important functions of banking may be classified follows.  To assemble capital and make it effectively.  To receive deposits and make collections.  To check out and transfer funds.  To discount or lend.  To exercise fiduciary or trust powers.  To issue circulating notes. Primary Function of Banking: 1) Safeguarding: Bank keeps our money safe. And takes decision wisely about making loans and investment because these are supervised by government for safety and stability of money.  Keeps record of transition. 76
  •  Identify the culprit and take legal action when theft / fraud / loan defaulter takes place  Transfers our money safety to other accounts and branches in cash and electronically.  Central bank is the government banks that manage, regulate and protect both the money supply and banks themselves. 2) Transferring and exchanging money: Bank provide us the facility to make payment to some one get payment from someone using check, draft and electronically. This makes our life easy because we need not to carry money every time with us. And this money transferring or exchanging is done by the bank for us. Customer can have multiple cities to transfer money form one account to another account. 3) Lending: Banks takes decision wisely about making loans and investment. Banks give loan only to those who qualify to get according to banks parameters. In this way risk of loosing money by the bank gets minimized. 3.4 Nationalization of Financial Institutions: RBI is the leader of the financial system but it was established as private Institutions in 1935. It was nationalized in 1948. It was followed by nationalization of the imperial bank of India in 1950 by renaming as the state bank of India. In the same year 245 life insurance companies were brought under government control by merging all of them into a single corporation called “life insurance Corporation of India”. Another significant development in our financial system was the nationalization of 14 major commercial banks in 1969 again 6 banks were 77
  • nationalization in 1980. Thus, the important financial institutions were brought under public control. 3.5 Nationalization of 14 major commercial banks in 1969: According to the ordinance, those banks which had deposits of more than Rs.50 crores were taken over by the government. The foreign banks and India banks with less than Rs 50 crores of deposits were excluded from the purview of nationalization. The major 14 banks which were nationalized are 1) Central Bank of India 2) Bank of India. 3) Punjab national bank, 4) Bank of Baroda 5) United Commercial Bank 6) Canara Bank 7) United Bank of India. 8) Dena Bank. 9) Syndicate Bank. 10) Union Bank of India. 11) Allahabad Bank. 12) Indian Bank. 13) Bank of Maharashtra 14) India Overseas Bank. Nationalization of six more Banks in 1980: The government of India nationalized six more commercial banks on April 5, 1980. These banks are 1) Vijay Bank. 2) Corporation Bank. 3) Andhra Bank 78
  • 4) New Bank of India 5) Oriental Bank of Commerce 6) Punjab and Sind Bank. The reasons given for the nationalization of these banks are as follows; 1) The deposits of each of these banks were more than Rs. 50crores. 2) Their nationalization was felt necessary for effective implementation of the 20-point programme. 3) Their nationalization would help in raising the share of advances to priority sectors from 33.3 percent to 40 percent over the period of next 5 years. 4) The government would able to ensure that a large percentage of deposits would be better utilized to fulfill the socio-economic objectives. 5) There was a greater need for more effective control of the government over the credit policy implemented by the banking system .the deposits in each of these six banks exceeded Rs 200crores. 3.6 Commercial bank: Is a type of financial intermediary and a type of bank. Commercial banking is also known as business banking. It is a bank that provide checking accounts, saving account and money market account and that accepts time deposits. 79
  • Commercial bank to refer to a bank or a division of a bank primarily dealing with deposits and loans from corporation or large business. Role of commercial banks: Commercial banks engages in the following activities  Processing of payments by way of telegraphic, transfer, internet banking.  Issuing bank drafts and bank cheques.  Accepting money on term deposits.  Lending money by overdraft, installment loan or other means.  Providing documentary and stand by letter of credit guarantees, performance bonds.  Safe keeping of documents and other items in safe deposits box. 3.7 Scheduled banks: Scheduled banks are the big banks which have a paid- up capital and reserve of Rs. 5 lakh and above. Their names appear on the special list called schedule kept by the reserve bank of India. On June 30, 2000 the total number of schedule banks in India was 299. They have a large number of branches spread in all the parts of the country . the total number of the branches of both scheduled and non scheduled banks rose from 4,151 in 1995 to over 65.930 by the end of the june 2001. 3.8 Non Scheduled Banks: The non scheduled banks are the small banks whose paid- up capital and reserve are less than Rs. 5lakh .They financial local trade and small industries. They have very few branches. The number of non schedule banks as on June 30, 2000 was only 3. 3.9 History of PNB: • 1895: PNB commenced its operations in Lahore. PNB has the distinction of being the first Indian bank to have been started solely with Indian capital that has survived to the present. (The first entirely Indian bank, the Oudh Commercial Bank, was 80
  • established in 1881 in Faizabad, but failed in 1958.) PNB's founders included several leaders of the Swadeshi movement such as Dyal Singh Majithia and Lala HarKishen Lal, Lala Lalchand, Shri Kali Prosanna Roy, Shri E.C. Jessawala, Shri Prabhu Dayal, Bakshi Jaishi Ram, and Lala Dholan Dass. Lala Lajpat Rai was actively associated with the management of the Bank in its early years. • 1904: PNB established branches in Karachi and Peshawar. • 1940: PNB absorbed Bhagwan Dass Bank, a scheduled bank located in Delhi circle. • 1947: Partition of India and Pakistan at Independence. PNB lost its premises in Lahore, but continued to operate in Pakistan. • 1951: PNB acquired the 39 branches of Bharat Bank (est. 1942); Bharat Bank became Bharat Nidhi Ltd. • 1961: PNB acquired Universal Bank of India. • 1963: The Government of Burma nationalized PNB's branch in Rangoon (Yangon). • September 1965: After the Indo-Pak war the government of Pakistan seized all the offices in Pakistan of Indian banks, including PNB's headoffice, which may have moved to Karachi. PNB also had one or more branches in East Pakistan (Bangladesh). • 1960s: PNB amalgamated Indo Commercial Bank (est. 1933) in a rescue. • 1969: The Government of India (GOI) nationalized PNB and 13 other major commercial banks, on July 19, 1969. • 1976 or 1978: PNB opened a branch in London. • 1986 The Reserve Bank of India required PNB to transfer its London branch to State Bank of India after the branch was involved in a fraud scandal. • 1986: PNB acquired Hindustan Commercial Bank (est. 1943) in a rescue. The acquisition added Hindustan's 142 branches to PNB's network. • 1993: PNB acquired New Bank of India, which the GOI had nationalized in 1980. • 1998: PNB set up a representative office in Almaty, Kazakhstan. • 2003: PNB took over Nedungadi Bank, the oldest private sector bank in Kerala. At the time of the merger with PNB, Nedungadi Bank's shares had zero value, with the result that its shareholders received no payment for their shares. PNB also opened a representative office in London. • 2004: PNB established a branch in Kabul, Afghanistan. PNB also opened a representative office in Shanghai. 81
  • PNB established an alliance with Everest Bank in Nepal that permits migrants to transfer funds easily between India and Everest Bank's 12 branches in Nepal. • 2005: PNB opened a representative office in Dubai. • 2007: PNB established PNBIL - Punjab National Bank (International) - in the UK, with two offices, one in London, and one in South Hall. Since then it has opened a third branch in Leicester, and is planning a fourth in Birmingham. • 2008: PNB opened a branch in Hong Kong. • 2009: PNB opened a representative office in Oslo, Norway, and a second branch in Hong Kong, this in Kowloon. • 2010: PNB received permission to upgrade its representative office in the Dubai International Financial Centre to a branch. 3.10 PROFILE OF PNB Established in 1895 in Lahore, Punjab National Bank is one of the oldest banks in India having a virtual presence in every important center of the country. The bank has over 35 82
  • million customers through 4540 offices including 421 extension counters, out of which 2/3 of its branches in rural and semi rural areas-the largest among nationalized banks, which makes it enjoy one of the highest penetration rate of banking activities in the country. Punjab National Bank caters to a wide variety of audience through spectrum of services including corporate and personal banking, industrial finance, agricultural finance and international finance. Sitting on a vast banking resources and significant presence in almost every lending sphere, the bank has a capital adequacy ratio (CAR), well above the Basel-2 regulatory requirement, at 12.96% as on June 2008, despite being exposed to numerous market and credit risk elements. Constantly strengthening the capital adequacy ratio through internal accruals and a regular increase in Tier 1 capital has put the bank on a very comfortable and formidable position. Punjab National Bank has a net interest margin (NIM) higher than the industry average due to a mix of improving yields and low cost funding base and has one of the healthiest low cost current account saving account (CASA) ratio of 41.31%. It also enjoys the highest rating by all four domestic rating agencies and one of the few banks to boast a AAA rating on its perpetual debt issue. The bank has ambitious plans of major technological up-gradation to establish capability of having 100,000 terminals under the Core Banking Solutions (CBS) with a greater thrust on increasing international footprints.The bank has successfully migrated to the Basel 2 accord in February this year. 3.11 Outlook: Punjab National Bank has always stood with the time even in the most dire of circumstances. The bank is facing stiff challenges from its private sector counterparts. According to the RBI 83
  • data, the banking business composition breakup between private sector banks and nationalized banks stood at 4% and 60% respectively, But the equation has taken a paradigm shift in favour of private sector banks owing to phased liberalisation of the BFSI sector, the composition stood at 21% as against nationalised banks share with reduced 49% in 2007. In a macro-prudential analysis of the Indian economy, it seems as the Indian banking industry has come a long way and entered in its ever challenging growth phase in a very prominent time as more than 49% of population financially excluded offers immense opportunity to the bank. Pursuing its financial inclusion, Punjab National Bank has opened more than 7.86 lakh No frills Accounts and intends to cover 30,000 villages, 75 million people by 2010 through Biometric Technology apart from comprehensive scheme launched for covering finance and insurance (health and life) for rickshaw pullers, project for empowering women weavers, vegetables vendors, etc. The core focus of the bank will be on retaining and further improving low cost deposits, lending to agriculture and small and medium enterprises and repositioning of subsidiaries and joint ventures. At the time of global financial turmoil, where the banks all over the world are creeping under tremendous pressure, Punjab National Bank has managed to insulate itself away from fatal transactions and has strictly adhered to the RBI guidelines. 3.12 Vision, Mission ,Values and Ethics: Vision: 84
  • ” To evolve and position the bank as a world class progressive, cost effective and customer friendly institution providing comprehensive financial and related services; integrating frontiers of technology and serving various segments of society especially the weaker sections; committed to excellence in serving the public and also excelling in corporate values” Mission: “To provide excellent professional services and improve its position as a leader in financial and related services; build and maintain a team of motivated and committed workforce with high work ethos; use latest technology aimed at the customer satisfaction and act as an effective catalyst for socio economic development” Values & Ethics: Ethical conduct. Bonding and integrity. Compliance with Periodic disclosures. (specially in conflicts of interest). Confidentiality and fair dealing. Rules and regulations. 3.13 PRODUCTS AND SERVICES: 85
  • Savings Fund Account - Total Freedom Salary Account, PNB Prudent Sweep, PNB Vidyarthi SF Account, PNB Mitra SF Account Current Account - PNB Vaibhav, PNB Gaurav, PNB Smart Roamer Fixed Deposit Schemes - Spectrum Fixed Deposit Scheme, Anupam Account, Mahabachat Schemes, Multi Benefit Deposit Scheme Credit Schemes - Flexible Housing Loan, Car Finanace, Personal Loan, Credit Cards Social Banking - Mahila Udyam Nidhi Scheme, Krishi Card, PNB Farmers Welfare Trust Corporate Banking - Gold Card scheme for exporters, EXIM finance Business Sector - PNB Karigar credit card, PNB Kushal Udhami, PNB Pragati Udhami, PNB Vikas Udhami Apart from these, the PNB also offers locker facilities, senior citizens schemes, PPF schemes and various E-services. 86
  • • Industrial finance • Agricultural finance • Financing of trade • International banking • Personal banking • Home loan • Auto loan • ATM/ Debit card • Deposit interest rate • Credit interest rate • Other services: • Locker facilities, senior citizen schemes, merchant banking, electronic fund transfer & clearing services, etc. 3.14 Awards: • National Award for Excellence in SSI Lending- Ranked 2nd for four consecutive years from 2002 to 2005 • The Banker's Almanac - Ranked 3rd amongst banking sector in India and 323rd rank in the world in 2006 • The Banker, London- Ranked 386 amongst Top 1000 Global Banks in July 2005 • AC Nielson Survey - 9th amongst Top 50 Most Trusted Services Brands in India • Golden Peacock Award- for excellence in corporate governance in 2005 • Ranked among top 50 companies by the leading financial daily, Economic Times. • FICCI's Rural Development Award for Excellence in Rural Development – 2005 SWOT ANALYSIS: STRENGTHS: • Wide network. 87
  • • Large number of customers. • Fast adaptability to technology. • Brand recognition. • Excellent training. • Providing better services. • Building long term customer relationships WEAKNESS: • Casual behavior. • Product is very good but it is mainly suitable for the higher income group and is not suitable for the middle income group. OPPORTUNITIES: • Fast growing Indian economy. • High growth in banking sector. • Liberal markets. • Micro financing. • Ample scope for financing flats and apartments for the salaried class in the higher income group. • Offering Home loans with reduced interest rates for the personnel in the armed forces. THREATS: • Large number of market players. • Most of the higher salary population go for private banks for housing and other loans because of flexibility in lending terms and norms. 88
  • Name of the Tenure Fixed Floating Prepayment Foreclosure Processing Fee Institution (yrs) ROI (%) EMI ROI (%) EMI Fee Charges If Pre-payment is 5 41,760 9.25 41,274 5000/- +10.2% ST* 9.5 made from own PUNJAB 26,430 sources its NIL NATIONAL 10 10 9.25 25,335 5000/- +10.2% ST* 2%* BANK If Pre-payment is 15 10.25 22,108 9.25 20,584 5000/- +10.2% ST* made from other 20 10.25 19,968 9.25 18,317 5000/- +10.2% ST* HFI's its 2% 0.5% - 1.00% + 5 11 43,985 9.5 40,553 10.2% ST* If Pre-payment is 0.5% - 1.00% + made from own 10 11.25 28,694 10 24,797 10.2% ST* sources its NIL SYNDIACTE 2%* BANK 0.5% - 1.00% + 15 - - 10.25 19,989 If Pre-payment is 10.2% ST* made from other 17,674 0.5% - 1.00% + 20 - - 10.25 HFI's its 2% 10.2% ST* 46,796 In fixed ROI, 5 12.5 prepayment charges 10.5 41,274 will be 2% of principal outstanding amount 10 12.5 31,355 10.5 25,065 1% of the loan In floating ROI, amount +applicable after 1 year of HDFC 2%* 15 12.5 26,972 10.5 19,989 service taxes and taking loan, there cess) will be no charges, but if it is a 20 12.5 25,234 17,674 refinance case, then it will be 2% of 10.5 principal outstanding amt 92
  • 13.75 48,636 5 11.25 41,274 1% of loan amount If Pre-payment is 13.75 33,503 25,065 10 11.25 1% of loan amount made from own sources its NIL ICICI 13.75 29,374 2%* Bank 15 11.25 19,989 1% of loan amount If Pre-payment is made from other HFI's its 2% 20 27,825 11.25 17,674 1% of loan amount 13.75 0.25% after file 5 10 43,236 9.5 41,760 booking +10.2% ST* If Pre-payment is 0.25% after file made from own 10 - 10.25 25,880 booking +10.2% sources its NIL VIJAYA ST* 2%* Bank 0.25% after file If Pre-payment is 15 - 10.5 21,187 booking +10.2% made from other ST* HFI's its 2% 0.25% after file 20 - 11 19,300 booking +10.2% ST* 5 12 43,485 11.25 41,274 0.5% +10.2% ST* If Pre-payment is made from own 10 12 27,834 10.5 25,335 0.5% +10.2% ST* sources its NIL CANARA 15 12 23,364 10.75 20,584 0.5% +10.2% ST* 2%* BANK If Pre-payment is 20 12 21,329 10.75 18,317 0.5% +10.2% ST* made from other HFI's its 2% ST*-service tax 93
  • The above information is computed from publicly available sources. Whilst all care is taken in its compilation, Apnaloan is not responsible for any errors or mistakes therein. The rates are on Monthly Rest basis. The effective interest rate does not include other charges given above. INTREPRETATION: The home loans provided by various banks are more or less same at a basic level. The banks generally try to go ahead of other banks in terms of attracting number of customers. For this they are trying to offer some unique services as per the unique requirements of the unique and important customers. T5 HOUSING LOAN BEST INTEREST RATES Tenure 1 lakh 5 lakhs 20 lakhs 40 lakhs 5 yrs 9% 9% 9% 9% 10 yrs 9% 9% 9% 9% 15 yrs 9% 9% 9% 9% 20 yrs 9% 9% 9% 9% 94
  • C3 MARKET SHARE OF MAJOR PLAYERS Market Share of Players 8 5 32 Punjab national bank Canara bank SBM HDFC ICICI OTHERS 5 45 10 INTERPRATATION: COMPARISON OF MAJOR PLAYERS A floating interest rate allows customer to take advantage of interest rate movements --they get immunity from adverse movements and reap the benefits of any fall in interest rate. But a floating rate loan makes sense only when interest rates are high, so that they can take advantage of a possible fall. But predicting interest rate movements could confound even seasoned market- watchers. 95
  • If they are looking for a home loan, be prepared to cough up a pretty sum as down payment. The Reserve Bank of India, in a recent meeting with bankers, cautioned banks against lending 100 per cent of the property value. That’s because given the increasing competition in home loans, some banks have been funding even 110 per cent of the agreement value. This means your loan not only pays for the property, it helps with stamp duty and registration charges, and even furnishings. It’s been a sweet deal so far, as borrowers not only need have no access to other funds, they also get tax breaks. The RBI’s position is that lending such sums will mean additional risk for the bank. In case of default, the bank may not have sufficient collateral to recover dues, and may have to write off the additional borrowings. However, bankers do not seem unduly worried. Non-performing assets in the housing segment are quite low--below 1 per cent--and that, say bankers, is due to the high asset quality. The general economy apart, lenders have been forced to cut rates to keep up with competition. More players want to enter the home loan market, and existing players are fighting for a larger share. Fixed rate products are not widely available now; lenders like PNB and Syndicate bank do not offer fixed rate home loans. Others like SBM are not extending fixed rates loans beyond a 10-year period. This is good in the short- term, but if rates go up, floating rate borrowers may be in for a tough time. 96
  • Findings: 1. Frequent changes in regulation made by central bank affect the banks to a larger extent because banks has to follow according to the directions given by the central bank which reduces the profit of the bank. 2. Now a days banks cannot charge their own management interest rates they are force to look the market and follow according to the RBI rules and regulations, this has unable them to balance both the income and expenses ,for eg., now the fixed deposit interest rate is 10.5% and is housing loan interest rate is 8.5%, they have the bear the loss of -2% which the banks have to pay themselves. 3. Middle class people cannot afford to the current interest rate, it is too expensive for them. 4. Procedures for applying the loan is very time consuming , lengthy and very complicated. 5. Inflation has also affected the banks indirectly. 6. Political pressures. 7. Sanctioning of loan is not easy, it takes longer time. 8. Misappropriation in the bank. 98
  • 9. Housing loan becoming NPA is not affected this bank to a greater extent only 1/3rd which is ignorable when compared to other retail loans. SUGGESTIONS: The following suggestions are: 1. To broaden the customer base the vast middle income strata should be fully exploited who are very sentimental about house property in India 2. Simplify the procedure, reduce service charges, and demand only the basic essential proof. 3. Most banks are reluctant to advance loan to the service class e.g. lawyers, police officers etc.. This aspect must be exploited. 4. Adoption of flexible and more lenient penalty should be levied to the customer who fail to deposit the payment on time. The penalty should be on case to case basis rather then the same for the entire customer base. 5. Restriction to be reduced to bare minimum for loan advances and for repayment. For e.g. offer long-term repayment facilities and have no age restriction to choosing repayment. 6. The maximum age for repayment could be increase to 65-70 years of age. Such facility will help grow fast retail segment of the bank. 7. Offer multiple repayment loans. 8. Service class to be exploited by offering special reduced rates and linking the repayment from the source from where the pay-cheque to the employee is issued. This needs to undergo special contract with government organisation to ensure implementation. 99
  • CONCLUSIONS The Indian customer has come a long way from purchasing to fulfilling their needs from buying a house. Customers now grab everything that comes their way but they do their own survey of optimum loans; same in the case with banks, and housing loans. With innumerable choices before him, the customer is indeed the king. It is therefore imperative that if a bank has to succeed in the competitive world, it should be technological savvy, customer centric progressive driven by highest standards of corporate governance and guided by sound ethical values and above all should be cordial and should have personalize customer services. There is scope of exploiting the vast middle income group by releasing loans with special interest rate which would be beneficial to both parties. 100
  • BIBILIOGRAPHY Books referred: • Dr.P.C.Tulasian, “Financial Management”, 1st edition, S.Chand Publication, Pg.no.13.13 - 13.15 • E.Dharmaraj, “Financial Services”, 1st edition, S.Chand Publication, Pg.no.65 - 72. • 12th edition of loan compendium- retail banking schemes. Websites:- 1. www.google.com 2. www.pnb.com 3. www.apnaloan.com 4. www.timesofmoney.com 5. www.pnbhfl.com 102
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