CHAPTER 1

INTRODUCTION

TO THE INDUSTRY

I

1

INTRODUCTION TO INDUSTRY

WHAT IS BANKING-

Banking in a traditional sense is the business of accepting deposits of money from public for

the purpose of lending and investments. These deposits can have a distinct feature of being

withdrawal by cheques, which no other financial institution can offer.

In addition, banks also offer various other financial services, which includes:-

Issuing Demand Draft and Travelers Cheques

Credit Card

Collection of cheques, Bills of Exchange

Safe Deposit Lockers

Issuing Letters of Credit and Letters of Guarantee

Sale and Purchases of Foreign Exchange

Custodial Services

Investment and Insurance service

The business of banking is highly regulated since banks deal with money offered to them by

the public and ensuring the safety of this public money is one of the prime responsibilities of

any bank. That is why banks are expected to be prudent in their lending and investment

activities. Every bank has Compliance department, which is responsible to ensure that all the

services offered by the banks and the processes followed are in compliance with the local

regulation and the bank’s corporate policies:

Banking Regulation Act, 1949

Foreign Exchange Management Act, 1999

Indian Contract Act, 1872

Negotiable Instrument Act, 1881

Banks lend money either for productive purposes to individuals, firm corporate etc. or for

buying house property, cars and other durable and for investment purposes to individuals and

others.

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However banks do not finance any speculative activity. Lending is risk taking; having prudent

norms for lending should cover the risk. The depositors of banks are also assured of their

money by deploying some percentage of deposits in statutory reserve like SLR and CRR.

BANKING INDUSTRY IN INDIA

Banking in India has its origin as early as the Vedic period. It is believed that the transition from

money lending to banking must have occurred even before Manu. The great Hindu Jurist, who

devoted a section of his work to deposits and advances and lay down rules relating to rate of

interest. During the Mogul period, the indigenous banker played a very important role in

lending money and financing foreign trade and commerce. During the days of the East India

Company it was the turn of the agency houses to carry on the banking business.

The General Bank of India was the first joint Stock Bank to be established in the year 1786.

The others, which followed, were the Bank of Hindustan and Bengal Bank. The bank of

Hindustan is reported to have continued till 1906 while the other two failed in the meantime. In

Bank of Bengal in 1809, the Bank of Bombay in 1840 and the bank of madras in 1843. These

three banks also known as presidency Bank were independent units and functioned well.

These three banks were amalgam

Acted on 27th January 1921. With the passing of the State Bank of India Act in 1955 the

Reserve Bank of India Act 1934. In the wake of the Swedes Movement, a number of bank with

Indian management were establish in the country namely, Punjab National Bank Ltd., Bank of

India Ltd., the Central Bank of India Ltd., Indian Bank Ltd., the Bank of Baroda Ltd., and the

Central Bank of India Ltd. On July 19, 1969 fourteen major banks of the Country were

nationalized & in 15th April 1980 six more commercial private sector banks were also taken

over by the Government.

Today the commercial banking system in India may be distinguished into:

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PUBLIC SECTOR BANKS

State Bank of India & its associate bank called the State Bank Group, 20 nationalized banks,

Regional Rural Banks mainly sponsored by public sector banks Old generation private bank,

New generation private bank, foreign banks in India, Scheduled co-operative bank, non-

scheduled banks

CO-OPERATIVE SECTOR BANKS

The co-operative sector has been developed in the country to the supplement the Village

moneylender. The co-operative banking sector in India is divided into four components State

Co-operative Banks, Central Co-operative Banks, Primary Agriculture Credit Societies, Land

Development Banks, Urban Co-operative banks, Primary Agriculture Development Banks,

Primary Land Development Banks, and State Land Development Banks.

DEVELOPMENT BANKS

Industrial Finance Corporation of India (IFCI), Industrial Development Bank of India (IDBI),

Industrial Credit and Investment Corporation of India (ICICI), Industrial Investment Bank of

India (IIBI), Small Industrial Development Bank of India(SIDBI), SCICI Ltd., National Bank for

Agriculture and Rural Development(NABARD0, Export Import Bank of India.

NATIONAL HOUSING BANK

The Indian banking can be broadly categorized into Nationalized, Private Banks & Specialized

Banking Institution. The RBI Act as a centralized body monitoring and discrepancies and short

coming in the system. Since the Nationalization of Banks in 1969, the public sector banks have

accrued a place of prominence and have since then seen tremendous progress. Conservative

banking practices allowed India Banks to be insulated partially form the Asia currency crises,

India banks are now quoting all higher valuation when compared to Bank to other Asian

countries that have major problems linked to huge NPA’s and payment defaults. Co-operative

4

banks are nimble footed in approach and armed with efficient branch network focus primarily

on the high revenue niche retail segments. The India banking was finally worked up to the

competitive dynamic of the new India market and is addressing the relevant issues to take on

the multifarious challenges of globalization.

Private Banks has been fast on the uptake and is reorienting their strategies using the interest

as a medium. The Interest has emerged as the new challenging frontier of marketing. The

large does of liberalization have largely brought this transformation and economic reforms that

allowed banks to explore new business opportunities rather generating revenues from

conventional streams i.e. borrowing and lending.

The banking in India is highly fragmented with banking unit contributing to almost 55 of

deposits and 60% of advances. Indian nationalized banks continue to be the major lender in

the economy duet to their sheer size and penetrative networks which assures them high

deposit mobilization. The India banking can be broadly categorized into nationalized, private

banks and specialized banking institutions. The RBI acts as a centralized body monitoring any

discrepancies and shortcoming in the system. It is foremost monitoring body in the Indian

financial sector. The nationalized banks continue that out of commercial banks operating in

India, banks are in the public sector and 5 are in the private sector. The private sector bank

grids also include foreign banks that have started their operation here.

5

CHAPTER 2

INTRODUCTION TO

THE ORGANISATION

6

INTODUCTION TO THE AXIS BANK

Commercial banking services which includes merchant banking, direct finance infrastructure

finance, venture capital fund, advisory, trusteeship, forex, treasury and other related financial

services. As on 31-Mar-2009, the Group has 827 branches, extension counters and 3,595

automated teller machines (ATMs).

Axis Bank was the first of the new private banks to have begun operations in 1994, after the

Government of India allowed new private banks to be established. The Bank was promoted

jointly by the Administrator of the specified undertaking of the Unit Trust of India (UTI - I), Life

Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) and

other four PSU insurance companies, i.e. National Insurance Company Ltd., The New India

Assurance Company Ltd., The Oriental Insurance Company Ltd. and United India Insurance

Company Ltd. The Bank today is capitalized to the extent of Rs. 359.76 cores with the public

holding (other than promoters) at 57.79%.The Bank's Registered Office is at Ahmadabad and

its Central Office is located at Mumbai. The Bank has a very wide network of more than 853

branches and Extension Counters (as on 30th June 2009). The Bank has a network of over

3723 ATMs (as on 30th June 2009) providing 24 hrs a day banking convenience to its

customers. This is one of the largest ATM networks in the country. The Bank has strengths in

both retail and corporate banking and is committed to adopting the best industry practices

internationally in order to achieve excellence.

History of Axis bank-

1993: The Bank was incorporated on 3rd December and Certificate of business on 14th

December. The Bank transacts banking business of all description. UTI Bank Ltd. was

promoted by Unit Trust of India, Life Insurance Corporation of India, General Insurance

Corporation of India and its four subsidiaries. The bank was the first private sector bank to get

a license under the new guidelines issued by the RBI.

7

1997: The Bank obtained license to act as Depository Participant with NSDL and applied for

registration with SEBI to act as `Trustee to Debenture Holders'. Rupees 100 crores was

contributed by UTI, the rest from LIC Rs 7.5 crores, GIC and its four subsidiaries Rs 1.5 crores

each.

1998: The Bank has 28 branches in urban and semi urban areas as on 31 st July. All the

branches are fully computerized and networked through VSAT. ATM services are available in

27 branches. The Bank came out with a public issue of 1,50,00,000 No. of equity shares of Rs

10 each at a premium of Rs 11 per share aggregating to Rs 31.50 crores and Offer for sale of

2,00,00,000 No. of equity shares for cash at a price of Rs 21 per share. Out of the public issue

2, 20,000 shares were reserved for allotment on preferential basis to employees of UTI Bank.

Balance of 3, 47, 80,000 shares were offered to the public. The company offers ATM cards,

using which account-holders can withdraw money from any of the bank's ATMs across the

country which is inter-connected by VSAT. UTI Bank has launched a new retail product with

operational flexibility for its customers. UTI Bank will sign a co-brand agreement with the

market, leader, Citibank NA for entering into the highly promising credit card business.

2000: The Bank has announced the launch of Tele-Depository Services for Its depository

clients. UTI Bank has launch of `connect', its Internet banking Product. UTI Bank has signed a

memorandum of understanding with equitymaster.com for e-broking activities of the site.

Infinity.com financial Securities Ltd., an e-broking outfit is Typing up with UTI Bank for a

banking interface. Geojit Securities Ltd, the first company to start online trading services, has

signed a Moue with UTI Bank to enable investors to buy\sell Demat stocks through the

company's website. India bulls have signed a memorandum of understanding with UTI Bank.

UTI Bank has entered into an agreement with Stock Holding Corporation of India for providing

loans against shares to SCHCIL's customers and funding investors in public and rights issues.

ICRA has upgraded the rating UTI Bank's Rs 500 crore certificate of deposit programmed to

A1+.

2001: UTI Bank launched a private placement of non-convertible debentures to rise up to Rs

75 crores. UTI Bank has opened two offsite ATMs and one extension counter with an ATM in

Mangalore, taking its total number of ATMs across the country to 355. UTI Bank has recorded

8

a 62 per cent rise in net profit for the quarter ended September 30, 2001, at Rs 30.95 crore.

For the second quarter ended September 30, 2000, the net profit was Rs 19.08 crore. The total

income of the bank during the quarter was up 53 per cent at Rs 366.25 crore.

2002: UTI Bank Ltd has informed BSE that Shri B R Barwale has resigned as a Director of the

Bank w.e.f. January 02, 2002. A C Shah, former chairman of Bank of Baroda, also retired from

the bank’s board in the third quarter of last year. His place continues to be vacant. M

Damodaran took over as the director of the board after taking in the reins of UTI. B S Pandit

has also joined the bank’s board subsequent to the retirement of K G Vassal. UTI Bank Ltd

has informed that Shri Paul Fletcher has been appointed as an Additional Director Nominee of

CDC Financial Service (Mauritius) Ltd of the Bank. And Shri Donald Peck has been appointed

as an Additional Director (nominee of South Asia Regional Fund) of the Bank. UTI Bank Ltd

has informed that on laying down the office of Chairman of LIC on being appointed as

Chairman of SEBI, Shri G N Bajpai, Nominee Director of LIC has resigned as a Director of the

Bank.

2003: UTI Bank Ltd has informed BSE that at the meeting of the Board of Directors of the

company held on January 16, 2003, Shri R N Bharadwaj, Managing Director of LIC has been

appointed as an Additional Director of the Bank with immediate effect on UTI Bank; the private

sector bank has opened a branch at Nellore. The bank's Chairman and Managing Director, Dr

P.J. Nayak, inaugurating the bank branch at GT Road on May 26. Speaking on the occasion,

Dr Nayak said. This marks another step towards the extensive customer banking focus that we

are providing across the country and reinforces our commitment to bring superior banking

services, marked by convenience and closeness to customers. -UTI Bank Ltd. has informed

the Exchange that at its meeting held on June 25, 2003 the BOD have decided the following:

1) To appoint Mr. A T Pannier Selvam, former CMD of Union Bank of India and Prof. Jayanth

Varma of the Indian Institute of Management, Ahmadabad as additional directors of the Bank

with immediate effect. Further, Mr. Pannir Selvam will be the nominee director of the

Administrator of the specified undertaking of the Unit Trust of India (UTI-I) and Mr. Jayanth

Varma will be an Independent Director. 2) To issue Non-Convertible Unsecured Redeemable

Debentures up to Rs.100 crores, in one or more tranches as the Bank's Tier - II capital. -UTI

has been authorized to launch 16 ATMs on the Western Railway Stations of Mumbai Division.

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-UTI filed suit against financial institutions IFCI Ltd in the debt recovery tribunal at Mumbai to

recover Rs.85cr in dues. -UTI bank made an entry to the Food Credit Programmed; it has

made an entry into the 59 cluster which includes private sector, public sector, old private sector

and co-operative banks. -Shri Ajeet Prasad, Nominee of UTI has resigned as the director of

the bank. -Banks Chairman and MD Dr. P. J. Nayak inaugurated a new branch at Nellore.-UTI

bank allots shares under Employee Stock Option Scheme to its employees.

2004: Comes out with Rs. 500 mn Unsecured Redeemable Non-Convertible Debenture

Issue, issue fully subscribed -UTI Bank Ltd has informed that Shri Ajeet Prasad, Nominee of

the Administrator of the Specified Undertaking of the Unit Trust of India (UTI - I) has been

appointed as an Additional Director of the Bank w. e. f. January 20, 2004.-UTI Bank opens

new branch in Udupi-UTI Bank, Geojit in pact for trading platform in Qatar -UTI Bank ties up

with Shriram Group Cos -Unveils premium payment facility through ATMs applicable to LIC

UTI Bank customers –Metal junction (MJ)- the online trading and procurement joint venture of

Tata Steel and Steel Authority of India (SAIL)- has roped in UTI Bank to start off own

equipment for Tata Steel. -DIEBOLD Systems Private Ltd, a wholly owned subsidiary of

Diebold Incorporated, has secured a major contract for the supply of ATMs and services to UTI

Bank -HSBC completes acquisition of 14.6% stake in UTI Bank for .6 m -UTI Bank installs

ATM in Thiruvananthapuram -Launches Remittance Card' in association with Remit2India, a

Web site offering money transfer services

2005: - UTI Bank enters into a banc assurance partnership with Bajaj Allianz General for

selling general insurance products through its branch network. -UTI Bank launches its first

Satellite Retail Assets Centre (SRAC) in Karnataka at Mangalore.

2006: -UBL sets up branch in Jaipur -UTI Bank unveils priority banking lounge.

Management of Axis bankPromoters: Axis Bank Ltd. has been promoted by the largest and the best Financial Institution

of the country, UTI. The Bank was set up with a capital of Rs. 115 crore, with UTI contributing

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Rs. 100 Crore, LIC - Rs. 7.5 Crore and GIC and its four subsidiaries contributing Rs. 1.5 Crore

each SUUTI - Shareholding 27.02%Erstwhile Unit Trust of India was set up as a body

corporate under the UTI Act, 1963, with a view to encourage savings and investment. In

December 2002, the UTI Act, 1963 was repealed with the passage of Unit Trust of India

(Transfer of Undertaking and Repeal) Act, 2002 by the Parliament, paving the way for the

bifurcation of UTI into 2 entities, UTI-I and UTI-II with effect from 1st February 2003. In

accordance with the Act, the Undertaking specified as UTI I has been transferred and vested in

the Administrator of the Specified Undertaking of the Unit Trust of India (SUUTI), who

manages assured return schemes along with 6.75% US-64 Bonds, 6.60% ARS Bonds with a

Unit Capital of over Rs. 14167.59 crores. The Government of India has currently appointed

Shri K. N. Prithviraj as the Administrator of the Specified undertaking of UTI, to look after and

administer the schemes under UTI where Government has continuing obligations and

Mar-08 Axis Bank launches Platinum Credit Card, India's first EMV chip based card

Dec-07 Axis Bank gets AAA National Long-Term Rating from Fitch Ratings

Sept-07 Axis Bank ties up with Banque Privée Edmond de Rothschild Europe for Wealth Management

July-07 UTI Bank re-brands itself as Axis Bank

July-07 UTI Bank successfully raises USD 1050 million

July-07 UTI Bank ties up with Tata Motors Ltd. for Car Loans

June-07 UTI Bank's expansion into Asia supported by FRS

May-07 UTI Bank launches 'Spice Rewards' on the bankcards - India's first-ever merchant-supported rewards program

April-07 UTI Bank opens a Financial Services Category I Branch in the DIFC in Dubai

Mar-07 UTI Bank ties up with Hyundai Motor India Ltd. for Car Loans

Mar-07 UTI Bank ties up with IIFCL to provide finance for infrastructural projects in the country

Mar-07 UTI Bank launches Car Loans in association with Maruti Udyog Ltd

Mar-07 UTI Bank opens a Full License Bank Branch in Hong Kong

Feb-07 Finance Minister Shri P. Chidambaram Launches Shriram - UTI Bank Co - Branded Credit Card Exclusively For Small Road Transport Operators (SRTOS)

Feb-07 UTI Bank announces the launch of its Meal Card

Feb-07 UTI Bank announces the launch of its Gift Card

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Feb-07 LIC Premium payment now through UTI Bank Branches

Jan-07 UTI bank opens Priority Banking branch in Mumbai and Kolkata

Nov-06 UTI Bank opens Priority Banking Lounge in Pune

Sep-06 UTI Bank launches operations of UBL Sales, its Sales Subsidiary - Inaugurates its first office in Bangalore

Aug-06 UTI Bank announces the launch of its Credit Card Business

Aug-06 UTI Bank becomes the first Indian Bank to successfully issue Foreign Currency Hybrid Capital in the International Market

Aug-06 UTI Bank Business Gold Debit Card MasterCard Launched - Designed for business related spending by SMEs and self employed professionals

Aug-06 UTI Bank announces the scheme of issuance of "Senior Citizen ID Card" in association with Dignity Foundation

Aug-06 UTI Bank rolls out its 2000th ATM

July-06 UTI Bank opens Representative Office in Shanghai

May-06 UTI Bank and LIC join hands to launch an Annuity Card for group pensioners of LIC

May-06 UTI Bank ties up with Geojit Financial Services to offer Online Trading service to its customers

Apr-06 UTI Bank opens its first international branch in Singapore

Jan-06 UTI Bank and UTI Mutual Fund to launch a new service for sale and redemption of mutual fund schemes through the Bank's ATMs across the country

Dec-05 UTI Bank wins International Financing Review (IFR) Asia 'India Bond House' award for the year 2005

Oct-05 UTI Bank extends banking services to the rural milk producers in Anand and Kheda districts in Gujarat

July-05 UTI Bank and Visa International launch Mobile Refill facility - Anytime, Anywhere Pre-Paid Mobile Refill for all Visa Cardholders in India

May-05 UTI Bank and Bajaj Allianz join hands to distribute general insurance products

Apr-05 UTI Bank launches Smart Privilege - a special bank account designed for women

Mar-05 MTNL ties up with UTI Bank for payment of telephone bills through the Bank's ATM network

Mar-05 UTI Bank gets listed on the London Stock Exchange, raises US$ 239.30 million through Global

Mar-05 Depositary Receipts (GDRs)

Feb-05 UTI Bank appointed by Government of Karnataka as the sole banker for the

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Bangalore One (B1) project

Feb-05 UTI Bank launches a powerful version of Kisan Credit Card

Jan-05 UTI Bank ties up with Remit2India to launch the Remittance Card

Mar-04 UTI Bank enables premium payment of LIC policies through its ATMs.

Feb-04 Bilateral arrangement between State Bank of India (and its 7 associate member banks) and UTI Bank. comes into force with the commencement of operations (as on 3rd February '04) of the combined network of over 4000 ATMs

Feb-04 UTI Bank (by pursuing a proactive strategy of forging bilateral agreements and being a progressive player in the multi-lateral consortiums for shared ATM network) offers its customers access to over 7000 ATMs across the country - the largest to be offered by any bank in India so far.

Dec-03 Bank inaugurated its ATM at Thegu near the Nathula Pass in Sikkim. This ATM is at the highest altitude in India.

Sep-03 The Bank's ATMs across the country crosses the thousand mark

Sep-03 Bank launches the Travel Currency Card.

Aug-03 The Bank's Debit Card crosses the one million mark.

Aug-03 Total Advances cross Rs 7,000 Crore.

May-03 Bank declares a net profit of Rs 192.18 crores for FY03, a growth of 43% over the previous year

Mar-03 Bank signs Agreement with Employees Provident Fund Organization (EPFO) for disbursement of Pension

Mar-03 Bank crosses the 800 ATM mark

Mar-03 The Bank issues 3,83,62,834 fully paid up equity shares totaling to Rs. 164.00 crores, through a

Mar-03 Preferential offer to Life Insurance Corporation of India (now constituting 13.54% of

Mar-03 the Bank's expanded equity), Citicorp Banking Corporation, Bahrain (holding 3.84%), Chris Capital I,

Mar-03 LLC, Mauritius (holding 3.84%) and Karur Vysya Bank Ltd.(constituting 1.00%) The Bank also

Mar-03 Increases the authorized share capital of the Bank from Rs. 230 crores to Rs. 300 crores.

Feb-03 Bank, in a pioneering move, launches the AT PAR Cheque facility, free of cost, for all its Savings Bank customers.

Feb-03 Bank wins mandate to set up 14 ATMs at the Western Railway stations along the Mumbai division.

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Oct-02 Bank launches Corporate iConnect? - the Internet Banking facility for Corporate

Aug-02 Bank signs MoU with BSNL regarding bill collection services across the country through both online and offline channels.

Apr-02 Bank opens its 500th ATM

Mar-02 Deposits Cross Rs.12, 000 Crore

Jan-02 The Bank's 100th branch opens at Tuticorin, Tamilnadu

Jan-02 The Bank opens an ATM at the Gol Dak-Khana, i.e. the New Delhi GPO, making it the first instance of a commercial bank setting up an ATM at any post-office in the country.

Dec-01 Total Advances cross Rs 5,000 Crore

Nov-01 The deposit base for the Bank crosses Rs. 10,000 Crore

Sep-01 Private placement of 26% stake in the Bank to CDC Capital Partners. UTI holding reduces to 44.88%

Aug-01 Bank signs MoU with India Post for introducing value added financial products and services to customers of both organizations, including setting up of UTI Bank ATMs in post offices.

July-01 Bank ties up with Govt of Andhra Pradesh for collection of commercial tax

Dec-00 Bank opens its 200th ATM. It becomes the 2nd largest ATM network in the country, a position held even today.

Oct-00 Bank becomes fully networked

July-00 E-commerce initiatives announced

July-00 Financial Advisory Services offered beginning with marketing of US 64

Apr-00 UTI Bank calls off its proposed merger with Global Trust Bank and surges ahead on its own.

Apr-00 Bank launches its Internet banking module, iConnect Retail loans introduced for the first time by the Bank

Mar-00 Profits cross Rs 50 crore mark for the first time.

Feb-00 Bank adopts Financial software from Infosys for core banking

Jan-00 Dr.P.J Nayak takes over as Chairman and Managing Director from Shri Supriya Gupta.

Sep-99 Cash management services (CMS) launched, Co branded credit card launched

Mar-99 Deposits cross Rs.3000 crores

Sep-98 UTI Bank goes public with a Rs. 71 crore public issue; Issue over-subscribed 1.2 times, over 1 lakh retail investors. UTI holding reduces to 60.85%

Jun-96 Crosses Rs.1000 crore deposit mark

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Mar-95 Completes first profitable year in operation

Apr-94 First branch of UTI Bank inaugurated at Ahmadabad by P.CHITAMBERM SINGH, Hon'ble Finance Minister, Government of India.

Dec-93 UTI Bank comes into being

Dec-93 Registered office at Ahmadabad; Head office at Mumbai

MILESTONE

PRODUCTS OF AXIS BANK

Easy Access Saving Account

Saving Account for Women

Prime Saving Account

Senior Citizens Saving Account

Priority Banking

Corporate Salary Account

Trust /NGOs Saving Account

Resident Foreign Currency Account

Online Trading Account

Current Account

Term Deposits

Locker Facilities

NRI Services

Depository Services

Financial Advisory Services

Wealth Management Services

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Insurance Solutions – Life and General

Retail Loans

Credit Loans

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ORGANIZATION STRUCTURE OF AXIS BANK

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CHAPTER 3

RESEARCH METHOLODIGY

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RESEARCH METHODOLOGY

TITLE OF THE STUDY

“SCOPE OF HOUSING FINANCE AND RETAIL FINANCE”

DURATION OF THE STUDY

45 DAYS TRAINING From 20 May 2013 to 5 July 2013

OBJECTIVES OF RESEARCH

The main objective of this project is concerned with getting the opinion of people regarding

of whole sale banking operations and what they feel about availing the services of financial

advisors.

To understand the banking relationship of organizations with their existing banker.

To generate the business by generating leads.

This title refers to find the need of customer and on that basis identify the customer in

various finance services and promotional tool among the existing customer as well as

prospecting customer.

DATA SOURCES

Data was gathered through primary and secondary data.

Primary data- It consists of original information gathered for the specific purpose the data is

generally collected by survey. Primary sources were preferred because of its relevance to the

issue to have a focused approach due emphasis was given to obtain accurate information from

the respondent.

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Secondary data - It consists of information that already exists having been collected for

another purpose. With the help of secondary data collected from various magazines

newspapers and trade journals market patterns websites of co. & through net surfing.

Survey method was used to collect the primary data on various parameters by way of personal

interview supported by a well-structured questionnaire. Questionnaire is enclosed in last

SAMPLE SIZE AND METHODS OF SELECTING SAMPLE-

Sample Characteristics by Loan Term

Less than/equal to 5 Years

Average loan size of Rs. 3,19,699, with 73.6% of loans sanctioned since July 01

Proportion of fixed rate loans at 34.2%

Lowest average property area (119.15 sqm) and income (Rs. 27,867),

Share of up gradation loans at 28.6%

Presence of co-obligants at 37.6% and self-employed borrowers at 6.4%

IIR at 22.29% and LCR at 64.1%

From 10 to 15 Years

Average loan size of Rs. 2,70,080, with 50.56% of loans sanctioned since July 01

Proportion of fixed rate loans at 19.0%

Property area at 88.79 sqm and income at Rs. 14,075

Up gradation loans at 8.2%

Self-employed borrowers at 6.0% and the presence of co-obligants at 36.6%

IIR at 28.90% and LCR at 67.83%

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From 5 to 10 Years

Average loan size of Rs. 3,49,983, with 63.76% of loans sanctioned since July 01

Proportion of fixed rate contract at 20.7%

Average property area (101.27 sqm) and income at (Rs. 18,925),

Up gradation loans at 20.1% and the presence of co-obligants at 39.7%

Self-employed borrowers at 7.7%

IIR at 24.81% and LCR at 63.99%

Above 15 Years

Average loan size of Rs. 3,26,840, with 80.75% of loans sanctioned since July 01

Proportion of fixed rate contract at 13.5%

Average property area at 93.19 sqm and monthly income at Rs. 15,183

Up gradation loans at 2.1%

Self-employed borrowers at 15.4% and the presence of co-obligants at 41.2%

IIR at 31.84% and LCR at 71.03%

Sample Characteristics by Sanction Amount

Less than Rs. 100,000

High proportion of fixed rate contracts at 44.0%, with proportion of loans with term

below 5 years at 25.67% and above 15 Years at 6.76%

Lowest average property area (85.2 sqm) and income (Rs. 9,682) and high share of up

gradation loans (38.5%),

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Presence of co-obligants at 29.9% and self-employed borrowers at 4.4%

LCR at 58.64% and IIR at 16.65%

Between Rs. 100,001 to Rs. 200,000

Proportion of fixed rate contract at 25.2%, with proportion of loans with term below 5 years at 10.38% and above 15 Years at 5.94%

Average property area (81.08 sqm) and income at (Rs. 10,590) and presence of co obligants at 31.3%.

Up gradation loans at 14.6%

Self-employed borrowers at 4.67%

IIR at 26.57% and LCR at 63.69%

Between Rs. 200,001 to Rs. 500,000

Proportion of fixed rate contracts at 16.2%, with proportion of loans with term below 5

years at 6.02% and above 15 Years at 15.4%

Property area at 95.77 sqm and income at Rs. 15,949 and up gradation loans at 6.53%

Self-employed borrowers at 6.97% and the presence of co-obligants (42.2%)

IIR at 31.18% and LCR at 69.75%

Between Rs. 500,001 to Rs. 1,000,000

Proportion of fixed rate contract at 11.5%, proportion of loans with term below 5 years at

7.19% and above 15 Years at 24.49%

Average property area at 131.06 sqm and monthly income at Rs. 34,686 and up

gradation loans at 2.52%

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Self-employed borrowers at 12.32%, with the presence of co-obligants (55.0%),

IIR at 32.62% and LCR at 73.08%

Self-employed borrowers at 6.63% and the presence of co-obligants (41.4%),

IIR at 25.26% and LCR at 67.95%

Above Rs. 1,000,000

Average loan size of Rs. 255,316, with median loan size of Rs. 200,000, with high

proportion of fixed rate contracts (11.5%),

Proportion of loans with term below 5 years at 9.20% and above 15 Years at 29.69%

Lowest average property area (197.32 sqm) and income (Rs. 86,254),

Proportion of up gradation loans at 0.95% only

Presence of co-obligants at 62.6% and self-employed borrowers at 18.02%

LCR at 76.18% and IIR at 32.95%

Sample Characteristics: Delay/Default Study by Region

Southern Region

1. Small value loans (53% below Rs. 2, 00,000), with fixed interest rate contracts of over

30%,

2. Over 43.58% are of 10-15 year maturity and 44.77% below 10 years

3. Relatively large average property area (2nd highest) and the highest income

(Rs. 20,061),

4. High share of up gradation loans (20%),

23

5. Second largest co-obligates (40%) and the relatively low self-employed borrowers

(6.06%).

6. Second highest IIR (26.3%) and Lowest LCR (62.4%)

Western Region

1. Medium size loans (40% between Rs. 2, 00,000 to 5, 00,000), with floating rate contracts at

80%,

2. 51.94% are of 10-15 year maturity and 35.48% below 10 years

3. Smallest average property area (75.8 sqm), low (2nd lowest) monthly income (Rs. 15,816),

4. Lowest proportion of up gradation loans (10%),

5. Relatively higher proportion of self-employed borrowers (6.75%) and the lowest presence of

co-obligate(33%).

6. Highest IIR (28.6%) and LCR (69.6%).

Northern Region

1. Large value loans (16% of Above Rs. 500,000), with floating rate interest contract at 82.5%,

2. Over 42.98% are of 10-15 year maturity and 46.62% below 10 years

3. Highest average property area (127.9 sqm), relatively higher income (Rs. 19,214),

4. Relatively higher share of up gradation (17%)

5. Highest presence of co-obligates (49%) and highest proportion of self-employed (8.73%)

6. Lowest IIR among regions at 25.2% and low LCR (64.1%)

Eastern Region

24

1. Small value loans (53% below Rs. 200,000), with proportion of fixed rate contract at 25.7%,

2. Over 40.91% are of 10-15 year maturity and 46.97% below 10 years

3. Second lowest average property area (84.4 sqm), lowest monthly income (Rs. 15,712),

4. High proportion of up gradation loans (17%).

5. Lowest proportion of self-employed borrowers (3.46%) and relatively higher presence of co-

obligates (39%),

6. Relatively low IIR (26.3%), but high LCR (67.9%).

Sampling procedure

The sample is selected in a random way, irrespective of them being investor or not or

availing the services or not. It was collected through mails and personal visits to the known

persons, by formal and informal talks and through filling up the questionnaire prepared. The

data has been analyzed by using the measures of central tendencies like mean, median,

mode. The group has been selected and the analysis has been done on the basis statistical

tools available.

Sample design

Data has been presented with the help of bar graph, pie charts, line graphs etc.

Sampling plan

Sampling unit - Who are to be surveyed.

Sampling size - How many are to be surveyed.

Going  by  the sampling objectives of the study there was all those sales team manager,  

C.A. , tax consultant, ICC, Businessmen, Govt. servant and also general public, means

almost all the people, which are considered to be a sample unit and together constitute

25

universe. Respondents were incorporated in the study on the basis of simple random

sampling technique.

FIELD WORK

Mainly the Field work was done in the various areas and localities of Jaipur city, and big

task was to go for the different age group persons (less than 35 years and More than 35

years) to differentiate the Investment behaviors of the Youth and the Middle aged persons.

• RESEARCH APPROACHES: Observations and Survey.

• RESEARCH INSTRUMENT: Structured Questionnaires.

• SAMPLE SIZE: 200 (100+100) Respondents of Jaipur city (100 respondents of more

than 35 years and 100 respondents of less than 35 years age).

• SAMPLING PROCEDURE: Convenient Sampling

LIMITATION OF RESEARCH

Due to time constraint, the research was confined to Jaipur only.

Sample size is very small.

Some of the respondents shows biasness and gave wrong information

Some of the respondents do not cooperate and are not interested in answering.

Some of the persons were not so responsive.

Possibility of error in data collection.

Possibility of error in analysis of data due to small sample size.

26

CHAPTER 4

FACTS & FINDINGS

27

FACTS & FINDINGS

(a) Delay Risk

The following variables were found to determine the level of delay risk for a loan:

Geography: Loans originating in the Southern and the Western Region have a marginally

higher risk than the loans in the North, at the end of five years into loan age. The East has a

lower risk compared to all other regions.

Origination Period: Recent loans carry higher risk as compared to loans disbursed in prior

periods of study. This may be a result of high level of competition leading to a certain amount

of slackening of controls.

Loan Amount: Higher value loans carry higher risk during the later years of the study period,

whereas the smaller loans carry a relatively higher risk during the first two years of the loan

term.

Loan Term: Longer term loans carry relatively lower risk, except for the loans with 10-15 year

tenure. Almost three fourths of the long term loans have been disbursed for the purpose of

purchasing new dwellings.

Co-obligate: The presence of a co-obligate helps mitigate risk under most circumstances, as

the default risk is lower for loans backed by co-obligates.

Loan Purpose: Loans disbursed for up gradation of property have a higher risk, followed by

loans disbursed for purchase of new dwellings and for purchase of old dwellings respectively.

Borrower Occupation: Self-employed borrowers carry a higher risk than employed borrowers,

but small-loan employed borrowers carry the maximum risk.

28

This analysis gives a fair view of the determinants of delay risk in terms of the above-

mentioned variables. However, the credit analysis process would need to consider the

variations in credit risk arising out of segment, borrower and loan profile.

(b) Default Risk

As mentioned earlier, the definition of delay risk in this study is relatively stricter than the

definition of default risk. Default event has been defined as a situation where a borrower has 3

or more outstanding installments at the end of one year from the date of first delay. Based on

this analysis, in summary, the following variables have been observed to determine the level of

default risk for a loan:

Geography: Loans originating in the Western region have the highest default risk, followed by

the Southern, Northern and the Eastern Regions.

Origination Period: While default risk for earlier period loans is observed to rise only during

the later years of loan age, the loans during the recent period show an increase in probability

of default during the earlier years of loan age.

Loan Amount: Smaller loans have a higher risk of default during the later years of loan age.

Loan term: Loans with term between 5 to 15 years carry a higher risk as compared to the

Below 5 years and the Above 15 year loans.

Co-obligate: The presence of a co-obligate mitigates the risk of default except in the Northern

region.

29

Borrower profession: Self employed borrowers carry higher risk, except in recent loans

As evident from the graph above, the share of default in the category of self employed

borrowers have been higher than the overall (combined for all borrowers) default rate in each

Loan to Cost Ratio LCR category.

Loan Purpose: Loans for new dwelling units are observed to have higher risk compared to the

loans for old dwellings. Relationship between Default Rate and Loan to Cost Ratio1

The study revealed that there is a significant change in the default rate as the LCR changes.

While there was a steady increase in the default rate as the LCR increases, the trend was

reversed in the highest LCR category when the rate actually shows a southern trend.

Relationship between default rate and loan to cost ratio

30

Loan to Cost Ratio may be interpreted as Loan to Value Ratio as the data has been based on

the value of properties.

A fair degree of consistency was observed in the credit risk behavior of the different LCR

categories across regions and time periods. Though the proportion of self employed borrowers

in the higher LCR was lower, the average Installment Income Ration (IIR) was observed to

increase with LCR. From the observations, it was fair to infer that higher default with increase

in LCR could be resulting from increased pressure on borrower due to higher IIR.

Origination Period: Recent period loans carry a higher prepayment risk as compared to loans

issued in earlier periods of the study.

(c) Prepayment Risk

The study revealed that the level of prepayment risk for a loan is determined by the following

variables:

Geography: Loans originated in the Southern region have the highest prepayment risk,

followed by the Northern, Western and the Eastern region.

Loan Amount: Smaller loans have a lower initial prepayment risk compared to larger loans

On a realistic note, PLIs have been using their experience to address various risk elements in

their lending for housing finance. HFCs/ Banks use the presence of a co-obligate as a credit

31

risk mitigation mechanism, as it is perceived that co-obligant backed loans carry lower risk.

This has also been corroborated by the study. Again, as the smaller loans are observed to

carry a relatively higher risk during the earlier years of a loan, a firm with a larger share of

smaller loans in its portfolio may need to invest more resources in the monitoring and

collection process. We observe a similar trend in loans sanctioned during the recent years,

compared to loans sanctioned earlier, irrespective of the loan amount.

The findings of the study also indicate that as the industry gains greater maturity in terms of

harvesting existing opportunities arising from different demographics/ socio economic

conditions, there may be a reason to determine the risk-adjusted return that the PLI is able to

achieve in different segments and allocate capital to different regions or sub-portfolios

(mapped to different market segments) depending on the risk.

32

CHAPTER 5

ANALYSIS &

INTERPRETATION

ANALYSIS & INTERPRETATION

RETAIL FIANCE-

Indian Retail finance continues to redefine the credit growth in the country. It grew by a

whopping 44.4% in 2005-06 to touch Rs3, 538 billion. This leap was despite the increase in

risk weight by RBI for housing and real estate loans during August, 2005. Housing, which

constitutes more than 52% of all retail loans, grew at a robust rate of 44.35% during 2005-06.

In order to help banks in India to understand the market and competition and plan future

strategies, we have just come out with an Industry Insight on Indian Retail finance – 2006

33

edition. This report analyses the Retail finance market and its segments in India and presents

the key trends, along with issues and challenges.

The annual growth in bank credit to the commercial sector is at 25.4% as on March 31, 2007

and was lower than 27.2% against the previous year. Until 2010, Retail finance is expected to

grow at a CAGR of 28% to touch a figure of INR9, 700 billion. This requires expansion and

diversification of retail product portfolio, better penetration and faster service mechanism. The

report on Retail finance Industry in India covers industry segments like housing loan, auto loan,

personal loan, education loan, consumer durable loan, credit card and regulatory frame work

for retail banks is also discussed. The report gives Retail finance industry's current

performance and future outlook. A total of 22 major retail banks in India are covered in terms of

their performance, strategy and outlook.

Retail finance in India has fast emerged as one of the major drivers of the overall banking

industry and has witnessed enormous growth in the recent past. The Retail Finance Report

encompasses extensive study & analysis of this rapidly growing sector. It primarily covers

analysis of the present status, current trends, major issues & challenges in the growth of the

retail finance sector.

Retail lending across the globe has been a showcase of innovation in the commercial banking

sector. Countries like China and India have emerged as potential markets with huge

investment opportunities. The higher growth of retail lending in emerging economies is

attributable to fast growth of personal wealth, favorable demographic profile, rapid

development in information technology, the conducive macro-economic environment, financial

market reforms, and several micro-level supply side factors. . The retail finance strategies of

banks are undergoing major transformation, as banks adopt a mix of strategies like organic

growth, acquisitions and alliances. This has resulted in a paradigm shift in the marketing

strategies of the banks. Public Sector Banks players are adopting aggressive strategies,

leveraging their branch network and their customer vase to earn a larger share of the retail pie.

Banks are also going in for innovative strategies like cross selling and packaged selling of

retail products. At the same time, new foreign players are also entering this high growth sector.

GROWING RETAIL MARKET

34

A. T. Kearney recently identified India as the "second most attractive retail destination" of 30

emergent markets. Similarly, Associated Chambers of Commerce and Industry of India's

(Assoc ham’s) study, projected the overall retail market to grow from Rs 5,88,000 crore now

(unorganized market Rs 5,83,000 core, organized Rs 5,000 crore) to Rs 8,00,000 crore by

2009. The success of the organized retail market — encompassing the department store

format, hyper-market cash-and-carry store, supermarket format and specialty retailing — rests

on the right assessment of demographic customer profiles.

Exploitation of the latent "globalizations" (think global, act local) potential requires robust

growth in retail loans. The Basel-II credit risk framework is based on a Merton-type model,

calibrated to fit three retail exposure types relating to qualified revolving exposures, residential

mortgage exposures and other retail exposures.

The steadily burgeoning retail banking portfolio, the constant refinements to the nature and

pricing of retail products and the renewed emphasis on the customer-centric system, or what

Prof C. K. Prahlad calls the "bottom of the pyramid", make retail lending the core competence

of banks.

Acquisition of an agile, broad-based business model generating economies of scale requires

synchronized action through direct communication with the end-user, product differentiation,

product management, customer's credit history, proper borrower identification and skilful risk

management. In the shift from bricks to clicks, multi-channel delivery strategies — ATMs, the

Internet and telebanking — need to be increasingly used.

DRIVERS OF RETAIL BUSINESS IN INDIA

What has contributed to this retail growth? Let me briefly highlight some of the basic reasons.

First, economic prosperity and the consequent increase in purchasing power have given a fillip

to a consumer boom. Note that during the 10 years after 1992, India's economy grew at an

average rate of 6.8 percent and continues to grow at the almost the same rate – not many

countries in the world match this performance.

35

Second, changing consumer demographics indicate vast potential for growth in consumption

both qualitatively and quantitatively. India is one of the countries having highest proportion

(70%) of the population below 35 years of age (young population). The BRIC report of the

Goldman-Sachs, which predicted a bright future for Brazil, Russia, India and China, mentioned

Indian demographic advantage as an important positive factor for India.

Third, technological factors played a major role. Convenience banking in the form of debit

cards, internet and phone-banking, anywhere and anytime banking has attracted many new

customers into the banking field. Technological innovations relating to increasing use of credit /

debit cards, ATMs, direct debits and phone banking has contributed to the growth of retail

banking in India.

Fourth, the Treasury income of the banks, which had strengthened the bottom lines of banks

for the past few years, has been on the decline during the last two years. In such a scenario,

retail business provides a good vehicle of profit maximization. Considering the fact that retail’s

share in impaired assets is far lower than the overall bank loans and advances, retail loans

have put comparatively less provisioning burden on banks apart from diversifying their income

streams.

Fifth, decline in interest rates have also contributed to the growth of retail credit by generating

the demand for such credit.

RETAIL BANKING PRODUCTS AND SERVICES

Wide range of retail banking products and services are offered by the banks, which cover both

Depository and Advances to suit various segments of customer like salaried persons,

businessmen, traders, professionals, pensioners etc. are as follows:-

· Housing loan.

· Personal loan.

· Vehicle or automobile loan.

· Loan for consumer goods.

· Credit and Debit cards-Global and international.

36

· Loan for holidays.

· Insurance products.

· Gold loans.

· Event loans.

· Overdraft.

· Mutual funds etc.

· Leasing, hire purchase and factoring services

Retail banking depositories in various segments like children, housewives, salaried class,

professionals etc. include the following: -

· Flexi deposit accounts.

· Savings bank accounts.

· Recurring deposit account.

· Fixed deposit

· Lockers.

· Other short-term deposits.

Banks are coming out with more features to add value to retail banking products and services.

These are called VALUE ADDED PRODUCTS AND SERVICES. These include the following: -

· Free collection of specified number of outstation instruments per month.

· Instant credit of outstation cheque.

37

· Concession in commission, exchange for issuance of pay orders and demand drafts.

· Issuance of free chequebooks.

· Issuance of free ATM cards.

· Interest rate options (fixed or floating)

· Waiver of credit card issuance fees.

· Free issuance of Add On cards to the members of the cardholders.

· Accident insurance cover.

· Arranging for insurance cover on the lockers in the bank.

· Reducing the fees charged on locker facilities.

· Free execution of standing instructions of customers.

· Free investment advisory services.

· Legal services for documentation

· Services to senior citizens

Other services include -

· Payment of bills like electricity bills, telephone bills and water bills etc. on due date.

· Payment of monthly or quarterly education fee for children.

· Payment of insurance premium on or before due dates.

· Demating of shares, debentures and bonds.

· Telephone banking.

· Internet banking.

· Making payments at doorsteps.

38

STRATEGIES FOR INCREASING RETAIL BANKING BUSINESS

A. Constant product innovation to match the requirements of the customer segments: The

customer database available with the banks is the best source of their demographic and

financial information and can be used by the banks for targeting certain customer segments for

new or modified product. The banks should come out with new products in the area of

securities, mutual funds and insurance

B. Quality service and quickness in delivery: As most of the banks are offering retail products

of similar nature, the customers can easily switchover to the one, which offers better service at

comparatively lower costs. The quality of service that banks offer and the experience that

clients have, matter the most. Hence, to retain the customers, banks have to come out with

competitive products satisfying the desires of the customers at the click of a button.

C. Introduction of new delivery channels: Retail customers like to interface with their bank

through multiple channels. Therefore, banks should try to give high quality service across all

service channels like branches, Internet, ATMs, etc.

D. Tapping of unexploited potential and increasing the volume of business. This will

compensate for the thin margins: The Indian retail banking market still remains largely

untapped giving a scope for growth to the banks and financial institutions. With changing

psyche of Indian consumers, who are now comfortable with the idea of availing loans for their

personal needs, banks have tremendous potential lying in this segment. Marketing

departments of the banks be geared up and special training be imparted to them so that banks

are successful in grabbing more and more of retail business in the market.

E. Infrastructure outsourcing: This will help in lowering the cost of service channels combined

with quality and quickness.

39

F. Detail market research: Banks may go for detail market research, which will help them in

knowing what their competitors are offering to their clients. This will enable them to have an

edge over their competitors and increase their share in retail banking pie by offering better

products and services.

G. Cross-selling of products: PSBs have an added advantage of having a wide network of

branches, which gives them an opportunity to sell third-party products through these branches.

H. Business process outsourcing: Outsourcing of requirements would not only save cost and

time but would help the banks in concentrating on the core business area. Banks can devote

more time for marketing, customer service and brand building. For example, Management of

ATMs can be outsourced. This will save the banks from dealing with the intricacies of

technology.

I. Tie-up arrangements: PSBs with regional concentration can reap the benefit of reaching

customers across the country by entering into strategic alliance with other such banks with

intensive presence in other regions. In the present regime of falling interest and stiff

competition, banks are aware that it is finally the retail banking which will enable them to hold

the head above water. Hence, banks should make all out efforts to boost the retail banking by

recognizing the needs of the customers. It is the innovative and competitive products coupled

with high quality care for clients will only hold the key to success in this area. In short, bankers

have to run very fast even to stay where they are now. It is the survival of the fastest now and

not only survival of the fittest.

HOUSING FINANCE-

Housing is a significant engine for growth and development of the economy. The growth in

housing and housing finance activities in recent years reflect the floating state of housing

40

market in the country. The multiplier effect of investment on housing has grown over the past

few years as the proportion of outstanding housing loan as percentage of GDP increased from

3.4% in 2001 to 9.4% by 2007 this is quit indicative of that potential exists if the proportion of

investment in housing in the other developed and emerging economies considered. A quick

look on the statistics shows that the housing loans exposure in India is much lower compared

to other countries. The ratio in India is merely 4% of GDP as against 54% in USA, 57% in UK,

14% in Thailand, 17% in China. Also, the net NPA in Housing is less than 2%, which is much

lower than other segments. The construction boom is limited only to the metros and big cities

and this cannot be the parameter for the Central Bank to make the loan price dearer.

Housing finance expanded rapidly because of investment demand and acute housing

shortage. As housing became a key contributor to banks' profitability, certain facilities began to

be routinely extended. These included processing fee waiver, pre-closure charges and

guarantees, simplified loan procedure and provision of different services such as house

insurance, repayment protection, credit/debit cards/ATM cards, and personal accident

insurance.

With a growing number of players and increased competition, the housing sector becoming

increasingly market driven. The sector efforts safe and secure residential assets good

business opportunities for the lending agencies and for the borrowers. Overall the affordability

of housing loan clearly appears to have improved with fast growing number of borrowers. This

has also partly resulted from higher levels of disposable income seen among the earners.

While the market has also witnessed change in lending practices in certain segments to

accommodate customer needs, as an offshoot of increased competition and an buyers’

market. There is a felt need for standardization and uniformity in practices in order to improve

transparency in the market and bring greater efficiency. The impact of these positive growth

indicators and sentiments has not been uniform in the rural and urban areas. The reasons are

infrastructural limitations and legal inadequacies coupled with geographical divergences. There

has been a growing concern about reaching credit for rural housing on market terms and

conditions. The concerns have been articulated in various policy pronouncements and the

sector has to gear up to find market related solutions for them. Investment in housing in the

rural areas on a large scale, besides ameliorating living conditions, also impacts the economic

profile or the region and can result in all-round development. There is a strong case for

41

supportive and an enabling policy framework for bringing in large investments in rural housing,

this can well change the economic landscape of rural India.

TYPES OF HOUSING LOAN

Home loan products are offered by almost all banks; from loans for purchasing real estate to

buying a flat, from home improvement to home extension loans. The EMI and rate of interest is

decided, taking into account a number of factors such as, the loan amount, market value of the

land or building, tenure of loans etc. The following types of home loans are generally available

in the market;

Home Equity Loans: A form of finance to the customer by way of mortgage of existing

property to the financier for taking a loan for some other purpose. The current market value of

the property is the basis for providing home equity loans.

Home Extension Loans: The purpose of this loan is the extension of existing houses like

addition of rooms, toilet facilities etc. Such loans fall under category of home loans.

Home Improvement Loans: These loans are provided mainly for repairs and maintenance of

existing houses. These could include internal and external repairing, waterproofing and

roofing; compete interior renovation, tiling and flooring etc.

Home Purchase Loans: Finance provided for the purchase of ready-made houses.

Land Purchase Loans: These loans are being provided for the purchase of land for the

purpose of construction of residential houses.

HOUSING LOAN DISBURSEMENT

42

Over the past few years, the steady growth registered in housing finance disbursements

indicates continued buoyancy in the industry. Table reveals that a significant increase during

the year 2011-12.the total disbursements of housing finance stood at Rs. 76819.00 crore

registering an overall growth of 41.47 percent. The five year compounded Annual Growth Rate

as on 2011-2012 stood at 32.15%.

(Rs. In Crore)

HOME LOAN DISBURSEMENT BY PUBLIC SECTOR BANK 2010-2012

Home loan DisbursementBank of India

Bank ofmaharastra

Central Bank ofIndia

Dena Bank

United Bank ofIndia

Housing loan disbursement

0100002000030000400005000060000

2008-09 2009-10 2010-11 2011-12

Years

Rs.

HFCSCB

43

The housing loan party may not quite be over for the nation's public sector banks. But there is

concrete evidence that the tempo may at least be slowing down. The loan disbursements

which grew by over 40 per cent in the two years prior to the fiscal 2012-14 have seen these

banks posting a growth rate of just 21 per cent in the year just gone by (2012-14). The portfolio

grew from Rs 1, 11,639 crore to Rs 1, 35,052 crore, according to information available from

sources in the Finance Ministry. Contrast this with a more than 100 per cent rise over a two-

year period between 2012 and 2014 that saw the home loan portfolio move up from Rs 53,737

crore to Rs 1,11,639 crore. Of course, it would have been an even more depressing tale of

sluggish growth, but for a few banks continuing to register smart rise in their portfolios. Banking

industry sources have for some time been cautioning that a combination of rising interest rates,

high cost of real estate (which however has shown some signs of coming down from the year-

high perch) and higher margins in bank loans would slow down growth in home loan portfolios.

The Government has on its part been keen that the impact of high interest rates should

somehow be softened on the small and medium borrowers. The Finance Minister, Mr. P.

Chidambaram had recently asked the chief executives of public sector banks to protect the

interests of borrowers in the Rs 8-10 lakh category to the extent possible.

HOME LOAN INTEREST RATES

Interest rates largely remained kind, including those on housing loans, and are expected to

remain competitively affordable in the coming years also. Banks follows their policy for

calculating interest rates but most banks follow the yearly reducing-balance method, which

accounts for your principal repayments only at the end of their financial year. As a result, you

pay interest on the principal that you have already returned to the bank. The effective interest

rate is therefore higher than the quoted interest rate by around 0.7%. Some banks may also

follow the daily or monthly reducing-balance method, which results in a lower interest burden.

There are two types of interest rates.

44

Fixed Rate of Interest: Fixed Rate of Interest means that the interest rates remain FIXED for

the entire duration the loan. This basically means that you do not benefit, even if the rates of

interest drop in the market.

Floating Rate of interest: This is the rate of interest that fluctuates according to the market

lending rate.

In recent times, the interest rate started to move up as can be witnessed for the fact that during

the last one-year period in, interest rates on housing loans have been increased twice by about

50bps. Home Loans Rates have seen a drastic mount over the last 3 years. We have reached

to the matching situate to that of in the year 2009, where most of the bank provided home

loans in India at the rate of 10.5%, Nevertheless there was a decline in the year 2010-2012

where interest rates even touched as low as 9.75%, this might have attracted many of us to

take home loans and invest in the prime properties. That was year 2012 and as of today the

home loan rates are at 12.5% which is nothing but a back-stab for the ones who took home

loan at half of the interest rates.

Housing budgets, already stretched by spiraling prices, will get further strained due to higher

outgo on home loans. Home loan market leader HDFC announced a 50basis point’s hike in

interest rate for all existing borrowers with floating rate loans. This means that the EMI for new

customers will be Rs. 1033, for every one lakh on a 20-year loan. For existing floating rate

customer, the EMI will be Rs.34 for every Rs 1lakh loan with an outstanding tenure of 20years.

The largest bank ICICI also announced a 75 basis points hike in the fixed as well as floating

home loan interest rate. The fixed rate of interest for ICICI home loans will now be 14.75%. -

Possibly costliest in the sector. State Bank of India also decided to raise interest rates on

home loans by 50bps on all credit linked to prime lending rates (PLR). Meanwhile two

government banks Bank Of India and Canra Bank decided to spare home loan borrowers from

the rate hike, even as they increased interest rates for other categories of borrowers. Bank of

India have raised their by 50bps to 13.25%, but left home loan rates untouched. On a floating

rate basis, Bank of India offers home loans in the band of 9.25%-10%.

45

The Union Bank of India and the State Bank of India has increased their benchmark prime

lending rates by 0.50 per cent each. This hike will result in change in SBI benchmark rate to

12.75 per cent immediately and to 13.25 per cent in case of UBI from July 1, 2012.

The hike follows the CRR and the repo rate hike by the Reserve Bank of India (RBI). This will

lead to increase in interest rates for all loans linked to the benchmark rates.

In the Reserve Bank of India annual credit policy meeting on April 29, 2008, the provisioning

requirement has been lowered for home loans up to Rs. 30 lakh. Following the move, RBI

expects the banks to pass on the benefits of reduced rates to loans consumers. According to

media reports, currently 85 per cent customers are in up to Rs. 30 lakh category. In the total

home loan portfolio, 40 per cent are on fixed rate.

Based on the revision of the provisioning requirement, home loans of Rs. 20-30 lakh will be

charged at par with those below Rs. 20 lakh, but there will be no change in interest rates for

loans below the threshold.

The move might give the banks? Lending business a much needed boost. 

Due to frequent revision of interest rates since 2010, there is a slowdown in the growth of

loans. The home loan portfolio of banks grew just 12 per cent between April 2010 and

February 15, 20011 (Rs. 26,930 crore) compared to 25.8 per cent growth (Rs. 46,019 crore)

between April 2008 and February 15, 2007.

Loans to individuals for housing grew 16.44 per cent to touch Rs. 1, 48,489 crore in March

2010 against Rs. 1, 27,522 crore in March 2011.

Home Loan Interest Rate (Below 20 lakh)

Banks Floating

Allahabad Bank 10.25-11

Bank of Maharashtra 10.25-10.75

Canara Bank 10.5-10.75

46

HDFC 11

ICICI 11.25 - 11.75

Dena Bank 10.75

Bank of India 9.75 – 10.25

PNB Housing Finance

Ltd. 10.75

State Bank Of India 11.25

UCO Bank 10.5 – 10.75

MAXIMUM IIR TO UNABLE INCREASE IN EMI

As the interest rate head north, panic-stricken home loan borrowers are flocking to home loan

counters to restructure their debt, this is not surprising as since late 2011, home loan interest

rates have raised whopping 400-450 basis points.

Ideally, borrowers who have taken loans for more than 15 years neither should not go for

extension of the loan tenure. If the income installment ratio (IIR) is less than 30-35 %, there is

scope for increase in EMI to cover the hike in interest rate. Otherwise, borrowers should make

upfront payment to reduce the principal burden.

Technically, borrowers have three options when the interest rates shoot up. They can either

liquidate their investment or saving or shell out lump sum to reduce the principal loan amount

or agree to a higher EMI if disposable income permits or extend the tenure of the loan.

However, experts in the housing finance segment believe that the last option should be

avoided as it often leads to a situation where repayment of loans does not cover the amount of

interest due for what the particular loan period.

SBI, which was the first to react to RBI’s dual dose of repo rate and CRR hike, said it would not

levy any prepayment charge if borrowers pay op fully or partly from their own resources. The

prepayment fee is charged when borrowers transfer loans to other lenders.

47

INSTITUTIONAL PERFORMANCE

The need for long term finance for housing in the country is met by the following types of

institution:

1 SCHEDULED COMMERCIAL BANKS

2 SCHEDULED CO-OPERATIVE BANKS

(SCHEDULED STATE CO-OPERATIVE BANKS,

SCHEDULED DISTRICT CO-OPERATIVE BANKS AND

SCHEDULED URBAN CO-OPERATIVE BANKS)

3 REGIONAL RURAL BANKS,

4 AGRICULTURE AND RURAL DEVELOPMENT BANKS

5 HOUSING FINANCE COMPANIES.

The housing demands of various economic and demographic sections of the population are

met by these institutions by way of their housing loan schemes. The banks have the largest

network of branches and are also the largest mobilizer of savings in the country. Since housing

finance becomes a part of the 40 per cent priority sector lending, it makes business sense for

banks to undertake this activity. Moreover, a favorable tax and regulatory regime, act as

catalyst for doing business in this sector. Further the earmarking of 3 percent of incremental

deposits of Banks to finance housing activities has ensured availability of adequate funds for

housing activities. Securities by way of mortgage of property and robust demand have been

major considerations for banks to lend this sector.

The prominent players in this industry continue to be commercial banks. Cooperative banks

and other own niche and have been catering to their markets extensively. The institutional

performance of these institutions has been influenced by more than just customer demand.

48

Stricter NPA norms, rising interest rates and stiff competition in mobilizing low cost deposits,

have all affected the supply side factors, which in turn has influenced the performance of these

institutions in terms of volume and competitiveness.

HOUSING FINANCE DISBURSEMENTS BY VARIOUS INSTITUTIONS

[Rs. Crore]

PRIMARY LENDING INSTITUTIONS

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

SCHEDULED COMMERCIAL

BANKS

8566 23553 32816 50398 58623 60398

HOUSING FINACE

COMPANIES

14614 17832 20862 26042 27411 30458

CO-OPERATIVE

INSTITUTIONS

678 642 623 **421 10247 *

TOTAL 23858 42027 54301 76819 76398 90856

*Source: RBI, NHB

** Distribution by Apex Co-operative Housing Finance Societies only

HOUSING LOAN AS PERCENTAGE OF GDP

The accelerated growth of housing finance has resulted in an increase in its share in the GDP.

Outstanding housing loans as a percentage of GDP has risen from 3.4 per cent in 2006 to 7.25

percent in 2010 and 8.50 per cent in 2012. The figure has been pegged at about 12 per cent

by the end 2010. In view of the increased investment in the services sector, which contributes

49

about 50 per cent to the nation's GDP, and growth in urbanization, it is expected that the share

of housing in GDP would go up substantially in the coming years.

The last year has witnessed significant developments in the global economy. Following the

deterioration in the US sub-prime housing loan market, the US economy is expected to

experience a sharp slowdown in growth. During fiscal 2010, the Indian economy continued on

its high growth path, despite some moderation due to difficult conditions in global markets and

increasing inflationary pressures and monetary tightening. The Central Statistical Organization

(CSO) put GDP growth at 9.0% during fiscal 2010 following the 9.6% GDP growth in fiscal

2009, reflecting a slight moderation in growth of the economy. Growth in fiscal 2010 was driven

mainly by double-digit growth in the services sector and growth in the industrial sector. The

Index of Industrial Production (IIP) recorded an annual average growth rate of 8.1% in fiscal

2010, moderating from 11.5% in fiscal 2009. This was mainly due to moderation of growth in

the manufacturing sector from 12.5% in fiscal 2009 to 8.6% in fiscal 2010. The momentum of

growth in the services sector (including construction) continued with 10.7% growth during fiscal

2010 following the 11.2% growth in fiscal 2009.

Global oil prices increased sharply during fiscal 2010, increasing inflationary pressures

experienced on this account. International crude oil prices increased from US$ 65.87 per barrel

at March 30, 2007 to US$ 101.58 per barrel at March 31, 2010 and further increased to US$

135.90 per barrel at June 13, 2010. In view of rising inflation, Reserve Bank of India (RBI)

increased the Cash Reserve Ratio (CRR) from 6.00% to 7.50% during fiscal 2010 and further

to 8.25% effective May 2010.

CREDIT AND PREPAYMENT RISK PROFILE IN HOUSING FINANCE MARKET

The Indian housing finance market has grown fairly significantly during the last few years.

Fiscal incentives for investment in housing for households and treatment of housing finance as

Priority Sector lending for banks have been two of the main factors contributing to growth in

this market. However, a large part of the industry portfolio has been acquired in the present

50

low-interest rate scenario and during the period when economic conditions have been

relatively stable.

The key to further growth in the Indian housing finance market, as elsewhere in the world, is

the ability of housing finance firms (including banks) to trade their portfolio. Securitization has

been one of the most important risk-sharing arrangements in the housing finance market, the

world over. It has been proved that securitization can help lower the cost of credit, broaden the

pool of investors and borrowers and lessen the variability in availability of capital for the

housing finance firms.

Success in the development of the securitization market depends on the ability to understand

the behavior of underlying mortgage assets under varied economic conditions for different

market segments. The knowledge of borrower, property and loan characteristics is critical to

understanding the nature of risk associated with packages of securitized assets. Towards this

end, as per study of the credit and prepayment characteristics for a sample of housing loan

portfolios across different geographical markets. The objective was to identify relevant tools in

respect of pricing of securitized assets and determine factors, which would contribute in the

choice of credit enhancement instruments. In addition, the study was expected to facilitate

product design, credit analysis processes and pricing decisions by the housing finance

institutions. Borrower Characteristics

A closer look at the borrower characteristics suggests that there is a large variation across

regions, sanction amount, and sanction period and loan terms. Following are the data on

borrower characteristics for each of the segments for the delay/default risk sample.

The study covered the following aspects of the housing finance market:

1. Borrower characteristics- (Occupation, Borrower Age, Installment to Income Ratio, Monthly

Household Income and Presence of Co-obligate)

2. Loan characteristics- (Sanction Amount, EMI, Loan to Cost (or Value – our data is in terms

of value) Ratio, Borrowing Purpose – Refinancing and New purchase, Interest Rate and

Nature of Interest Rate Contract, Mode of Payment, Mode of Origination and Loan Term), and,

3. Property characteristics- (Property Area and Nature of Dwelling Unit- Old, New or up

gradation)

51

The key objective was to understand the credit and prepayment risk associated with each of

the segments that emerged based on these characteristics. The segments that were

considered for the study were:

_ Region

_ Loan Term

_ Sanction Amount

The Credit Risk has been defined using two events - Delay and Default event. Delay event is

the situation where the borrower has an overdue amount or pending installments (irrespective

of the amount due) at the end of 3 months from date of first delay in repayment. This is a

relatively stricter definition of credit risk (Delay Risk).

Default event is the situation where a borrower has 3 or more outstanding installments at the

end of one year from the date of first delay (Default Risk). Prepayment risk event is the case

where the borrower has prepaid his or her loan in part or full. A descriptive analysis of the

sample data was carried out to map the profile of various segments and to confirm that the

choice of segments and variables is reasonable and appropriate.

COMPETITORS

1. ICICI Bank Ltd.

2. HDFC Bank Ltd.

3. State Bank of India

4. HSBC Bank

5. RBS (Royal Bank of Scotland)

6. Maharashtra Bank of India

7. Canara Bank

8. Andhra Bank

9. IDBI bank

10. Bank of India

11. Punjab National Bank

12. Central Bank

52

13. Allahabad Bank

14. ING Vysya

53

CHAPTER 6

SWOT ANALYSIS

SWOT ANALYSIS-

StrengthsStrength captures the positive aspects internal to your object that add value or offer you a competitive advantage. This is your opportunity to remind yourself of the value existing your object.

Excellent Market Coverage.

54

Quality – Conscious Organization; the Company is always able to compete on Quality.

Experienced work force.

The employees are satisfied with their present job profile.

WeaknessesWeaknesses capture the negative aspects internal to your object that detract from the value you offer or place you at a competitive disadvantage. These are areas you need to enhance in order to compete with your best competitor.

The Price of Company Product is high than the Competitors.

Employees turnover.

Narrow product range.

Unorganised labour contractors

Lack of HR development

OpportunitiesOpportunities reflect the potential you can realize through implementing things. Opportunities may be the result of growth, lifestyles changes, and resolution of problems associated with current situations.

There so many opportunities to make better utilization of the work force if the management gives better cash reward to the employee’s than worker will work hardly.

Benchmarking HR practices

Sharing HR practices with other locations.

ThreatsThreats include factors beyond your control that could place your things at risk. These are also external –you have no control over them, but you may benefit by having contingency plans to address them if they should occur.

Problem of labour turnover.

55

There is need of development in technology change and to change the present market

policy.

56

CHAPTER 7

CONCLUSION

CONCLUSION

ISO 9001 certification for its depository & custody operations & for its backend

processing of retail operation & housing finance operations.

The bank has a near competitive edge in area of operations.

57

The bank has a market leader in cash settlement service for the major stock exchanges

in its country.

AXIS Bank is one of the largest private sector banks working in India.

The bank has started facing competition from players like SBI, PNB Bank in the finance

market itself. This reduces the profit margins in the future.

Some Pvt. Banks have 7 days banking.

Since profit is the overall objective of a business enterprise, this ratio is a barometer of

the overall performance of the enterprise. It measures how efficiently the capital

employed in the business is being used.

58

CHAPTER 8

RECOMMENDATIONS

& SUGGESTIONS

RECOMMENDATIONS & SUGGESSTIONS

A. Building an inclusive housing finance system- The housing finance market has been consistently exhibiting rapid growth in the past few years

with an estimated CAGR of 38%. Growth has been largely in urban areas and in the middle to

high income groups, in particular the salaried class. This growth was partly fuelled by the entry

59

of commercial banks seeking asset growth in a sluggish business environment coupled with

the tax incentives on housing loans. The banks, with their lower cost of funds, extensive

branch network, capability to provide a range of personal banking services and aided by the

average low default rates in housing finance, could expand the market considerably. They

however, continued to focus on middle to higher income groups with the lower income groups,

self employed, rural population by and large excluded. Thus, notwithstanding the phenomenal

growth of housing finance, outstanding housing loans constitute a mere estimated 4% of the

country’s GDP, much lower than other comparable countries such as Korea, China, Thailand,

Malaysia, Brazil. In the context of the apparent potential for housing finance in the country, the

issues of affordability, new and customized products, delivery channels, policy interventions

and their sequencing assume relevance.

While the expanding middle and higher income groups may continue to access conventional

housing finance, increasing attention will need to be paid to the needs of the unnerved and

underserved. How can housing be made an instrument of financial inclusion? That housing is

the largest component of an individual in the middle and low income groups is well recognized.

The challenge is to leverage housing for equitable economic growth and poverty reduction. At

the same time, the housing finance market is an integral part of the financial market and would

need to be deepened, widened and made more sophisticated by participation in the

liberalization of the financial sector.

B. Innovation and Product Development

With the expansion of the market and entry of new classes of borrowers, the need for

innovation through development of new products, adaptation of existing products, developing

new delivery mechanisms and channels cannot be over emphasized. Innovative

Lenders would see new business opportunities which offer them market expansion as well as

higher margins in a manner that fits into their corporate strategies. Commercial banks, in

particular, might be able to identify opportunities for cross selling a range of financial products

60

with the growing convergence of Indian financial markets and offer innovative personal

financial solutions to individuals to address their home loan, insurance, savings and investment

needs. In order that innovation is facilitated and scale of economies is exploited,

standardization of business, underwriting processes, documentation would be called for. This

would not only be of value to the individual businesses but also spur higher levels of

specialization and expertise in the industry. Further, it would also address regulatory concerns.

C. Market Infrastructure

The rapid growth of the housing sector has left the market infrastructure lagging behind. In

developed economies, housing stocks and mortgages are leading indicators of economic

activity and are widely tracked. In India, housing data is scattered resulting in insufficient

analytical work which is a constraint in public policy formulation. Building a detailed data base

covering housing and housing finance at a disaggregated level is both urgent and important.

Such a database could include housing stocks, sales of existing houses, the nature of house

construction, house prices at different centers, profiles of homeowner classes including

affordable mortgages, information on construction, loans to developers, construction finance,

information on defaults, frauds.

D. Consumer Awareness and Protection

In the ultimate analysis, the borrower i.e., the home buyer is and should be the focus of

attention as far as the housing finance industry is concerned. In the absence of adequate

regulations, the average home buyer is often at the receiving end due to one-sided

documentation, little awareness of rights, inadequate education on the legal and financial

aspects of home purchase as well as home loans. With the RBI emphasizing the need for

codes and standards for the banking industry in the interest of greater transparency and

fairness to the consumer, similar effort is called for in the housing and housing finance

industry. NHB has advised housing finance companies that they should consider financing only

those residential projects which conform to the prescribed regulation standards. NHB has also

initiated a dialogue with the builders and real estate developers where a system of rating of

61

projects and developers can be exploited by the industry so that the consumer can make a fair

choice. It is also necessary to educate first-time home buyers on the processes and the

regulations involved in purchasing a house and the various major loan terms and covenants

when they borrow to finance the projects. Of late, with increase in interest rates, borrowers

who had taken floating rate loans in the past, obviously attracted by the lower interest rates,

have been making submissions that they have not been adequately informed about the

implications of increase in floating rate loans. Thus, the need for greater transparency in

housing finance transactions to enable borrowers to make enough choice about products and

profiles of lenders is the primary requisite of a well informed market... Amongst other activities,

the banks should ensure that its members embrace best consumer oriented practices. And

should develop a system of independent home loan counselors who will act in the best interest

of the consumer. In some, the development of a sustainable housing finance system could in

due course emerge as a cornerstone of the financial systems.

62

CHAPTER 9

APPENDIX

APPENDIX

63

DIFFERENT RATES & CHARGES

IN AXIS BANK YEAR 2011-2012

Rate of Interest 15.00% to 24.00%

Cheque Bounce Charges Rs. 500 per cheque bounce + Service Tax as applicable

Cheque/ Instrument Swap charges Rs.500 per instance + Service Tax as applicable

Prepayment/ Forclosure Charges NilDefault Interest Rate @24.00% per annum i.e

2% per month on the overdue installment

Duplicate Statement Issuance Charges     

Duplicate Amortization Schedule Charges

Duplicate Interest Certificate(Provisional/ Actual) issuance Charges

Rs 250 per instance + Service Tax as applicable

Rs 250 per instance + Service Tax as applicable

Rs 250 per instance + Service Tax as applicable

Cibil Report Issuance Charges                    

Stamp Duty Charges

Rs. 50/- per instance per set+ service tax as applicable

As per State Stamp ActIssuance Charges for Photocopy of Loan Agreement/ Documents

Rs 250 per instance + Service Tax as applicable

64

CHAPTER 9

BIBLIOGRAPHY

BIBLIOGRAPHY

65

WEBSITES-

WWW.GOOGLE.COM

WWW.MONEYCONTROL.COM

WWW.AXISBANK.COM

WWW.WIKIPIDIA.COM

BOOKS –

I M Pandey, “Financial Management”

Kothari, C.R., “Research Methodology Methods & Techniques”, 2006,

New Age International (p), Publishers

Prassan Chandra, Financial Management

Gupta, S.L., “ Marketing & Finance”,2004, Excel Books

TOPICS-

A new beginning: the turnaround story of Indian bank.

Banking and financed

Banking developments in India

Basics of banking

66