Housing Finance Problems of Borrowers: A Comparative Study of LICHFL and HDFC

Transcription

1 American-Eurasian Journal of Scientific Research 8 (5): , 2013 ISSN IDOSI Publications, 2013 DOI: /idosi.aejsr Housing Finance Problems of Borrowers: A Comparative Study of LICHFL and HDFC J. Babu Department of Commerce, Government Degree and PG College, Puttur, Chittoor District, Andhra Pradesh , India Abstract: Housing finance is a specialist economic activity of recent origin in India. It is in its infant stage of development and like any other newly emerging system, it also faces certain problems. The customer of today has also become aware about his needs and requirements of housing finance. The construction of house involves innumerable problems that the prospective house owner has to confront. The most significant among them is mobilizing funds required for house construction. The borrower has to seek both internal and external funds for this purpose. The most important source of getting external funds is through loans from HFIs. HDFC is more liberal in sanctioning and disbursing housing loans to its applicants than its counterpart LICHFL. Rigid rules and regulations, inadequate loan amount and security / surety are the three major problems irrespective of income of the borrowers. Non-consideration of future and other income inconvenienced the sample borrowers mostly in securing adequate housing loans from HFIs. Key words: Housing-Finance INTRODUCTION Hypothesis: The following Hypothesis has been formulated for the present study: Housing is a commitment to the community and also a commitment to economic growth. Home ownership There are no significant differences in housing demands an increase in personal financial commitment finance problems of sample borrowers between the and is in return, a collective commitment to personal sample HFIs financial security. Expanding home ownership will strengthen a nation s economy and prepare it to embrace Sample Design: The universe for the study consists of 10 the rich possibilities of the twenty first century by HFIs operating in pilgrim town Tirupati. Of these, 4 belong expanding its middle class [1]. to public sector and 6 belong to private sector. The size of The construction of house involves innumerable operations of the Life Insurance Corporation Housing problems that the prospective house owner has to Finance Limited (LICHFL), a public sector institution and confront. The most significant among them is mobilizing the Housing Development Finance Corporation (HDFC), funds required for house construction. The borrower has a private sector institution are significant in Tirupati town to seek both internal and external funds for this purpose as against the other HFIs. Hence, the study is confined to [2]. The most important source of getting external funds the branches of these two housing finance institutions in is through loans from HFIs. This paper deals with various Tirupati [4]. problems faced by the sample borrowers in availing loans The number of borrowers were around 1500 and from the HFI [3]. 750 respectively in LICHFL and HDFC branches of Tirupati. A sample of 20 per cent borrowers from Objective of the Study: The following objective has been these two HFIs has been selected randomly. specifically set for the study: Accordingly, 300 and 150 respondents from LICHFL and HDFC respectively have been chosen for detailed to identify housing finance problems of sample study [5]. Thus, the sample constitutes 450 respondents borrowers. from these two HFIs. Corresponding Author: J. BABU, Department of Commerce, Government Degree and PG College, Puttur, Chittoor District, Andhra Pradesh

2 Table 1: Distribution of Sample Borrowers Facing Problems (HFI) Sl. Total No. Preparation Delay in processing Rigid rules Inadequate Average No. of No. HFI of borrowers facing problems of documents of loan application Security / surety and regulations loan problemsper borrower 1 LICHFL 300(100.00) 189(63.00) 105(35.00) 44(14.67) 82(27.33) 130(43.33) 138(46.00) HDFC 150(100.00) 72(48.00) 27(18.00) 9(6.00) 38(25.33) 63(42.00) 44(29.33) 2.51 TOTAL 450(100.00) 261(58.00) 132(29.33) 53(11.78) 120(26.67) 193(42.89) 182(40.44) ANOVA Source of Variation SS Df MS F P-value F crit Between Groups ** Within Groups Total **Significant at 1 per cent level Table 2: Distribution of Sample Borrowers According to Preparationof Documents to Obtain Housing Loan Sl. No. Preparation of documents to obtain housing loan LIC HFL HDFC Total 1 Borrowers Facing the Problem 105(35.00) 27(18.00) 132(29.33) 2 Borrowers not facing the Problem 195(65.00) 123(82.00) 318(70.67) TOTAL 300(100.00) 150(100.00) 450(100.0) Sources of Data: Data for the study have been culled out Regarding institutional-wise problems, quite large from primary source. The primary data relating to housing number of sample borrowers, i.e., 189(63 per cent) are finance institutions have been collected by canvassing a facing problems in case of LICHFL and 48 per cent of the schedule among the officials of the branch offices of borrowers in case of HDFC. The majority of the borrowers LICHFL and HDFC [6]. The primary data pertaining to of both the HFIs of LICHFL and HDFC are facing sample borrowers have been collected by administering a problems due to their adherence to strict rules and schedule. regulations. It is significant to mention to that the loan amount disbursed by the LICHFL to the borrowers is Problems of Borrowers: Problems of various nature and inadequate for 138 sample borrowers but it accounted to magnitude are faced by the residential house builders 42 sample borrowers only in case HDFC. It seems that while seeking institutional house loans [7]. The housing HDFC is more liberal in sanctioning and disbursing loan problems include documentation, long delays in housing loans to its applicants than its counterpart sanctioning, security and surety, rules and regulations, LICHFL. adequacy of loan amount. Hypothesis Formulated and Tested: It is hypothesized Institutional Problems of Borrowers: The problems faced that There are no significant differences in housing by the sample borrowers while seeking loans from the finance problems of sample borrowers between the sample select HFIs have been elicited and presented in the HFIs. Table 1. The calculated value of ANOVA (10.41) is It is obvious that out of 450 sample borrowers, 261 greater than the critical value of ANOVA (4.96). have encountered problems of varied nature [8, 9]. These Hence forth, the null hypothesis that There borrowers on an average faced more than one problem or are no significant differences in housing finance the other. In case of specific problems, per cent of problems of sample borrowers between the sample the borrowers are experiencing the problem of rigidity of HFIs is rejected. rules and regulations, followed by per cent, inadequate loan, per cent preparation of documents, Documentation: The first and foremost aspect of getting per cent, security/surety and a mere per cent house loan from the HFIs is documentation. Every loan expressed the problem of delay in processing of loan seeker has to submit all the relevant documents application [10]. prescribed by the HFIs. 235

3 Table 3: Distribution of Sample Borrowers According to Time-lag in the Sanction of the Loans Sl. No. Time taken in sanctioning loans LICHFL HDFC Total 1 Up to 15 days 8(2.67) 7(4.67) 15(3.33) days 69(23.00) 92(61.33) 161(35.78) days 179(59.67) 42(28.00) 221(49.11) days 26(8.66) 5(3.33) 31(6.89) 5 More than 60 days 18(6.00) 4(2.67) 22(4.89) TOTAL 300(100.00) 150(100.00) 450(100.0) Table 4: Distribution of Sample Borrowers Facing Security and Surety Problems Sl. No. Problems of borrowers LICHFL HDFC Total 1 Title Deeds 13(4.28) 9(5.92) 22(4.89) 2 Arranging Guarantors 67(22.06) 22(14.47) 89(19.78) 3 Collateral Security 2(0.66) 7(4.61) 9(2.0) 4 Total (1+2+3) 82(27.00) 38(25.00) 120(26.67) 5 Borrowers not facing Problem 218(73.00) 112(75.00) 330(73.33) TOTAL (4+5) (100.00) (100.00) 450(100.0) The distribution of sample borrowers according to sanctioned for more than 60 days. Majority of the preparation of documents to obtain housing loan is borrowers of both the HFIs got their loan sanctioned presented in the Table 2. between 30 and 45 days. It is also observed that majority The Table portrays that 105 borrowers (35 per cent) of the borrowers of LICHFL got their loan sanctioned of LICHFL and 27 borrowers (18 per cent) of HDFC faced between 30 and 45 days but majority of the borrowers of the problem of documentation whereas on the contrary, HDFC got their loan sanctioned within a month. Limited majority of the borrowers, i.e., 195 borrowers (65 per cent) number of the borrowers got their loan sanctioned in of LICHFL and 123 borrowers (82 per cent) of HDFC did HDFC after more than 45 days. It is evident that HDFC is not face the problem of documentation. It is concluded disbursing housing loans to its loan applicants early than that majority of the borrowers of both the sample HFIs that of the LICHFL. The delay in LICHFL is primarily LICHFL and HDFC did not experience problems relating mainly due to the strict adherence to rules and regulations to documentation. as it being a public sector enterprises. 6.4 Security and Surety Problems Delay in Disbursement of Loan: One of the prominent All loans seekers from HFIs are required to problems generally the borrowers face is delay in mortgage house property by way of depositing title disbursement of loan by the HFIs. The particulars of the deeds to the lending institutes. Otherwise, getting a problem of delay in disbursement of loan by the two HFIs housing finance loan from lending institutes becomes a made to the borrowers are presented in the Table 3. herculean task. Hence security and surety are Hobson s It is understood that a mere 3.33 per cent borrowers choice. Moreover, they are also required to arrange got their loans sanctioned within 15 days, per cent guarantors on their behalf. Two guarantors are necessary of the borrowers between 15 and 30 days, per cent in case of both LICHFL and HDFC. The problems of between 30 and 45 days, 6.89 per cent between 45 and 60 borrowers regarding security and surety are presented in days and 4.89 per cent of the borrowers got their loan the Table

4 Table 5: Distribution of Sample Borrowers Experiencing the Problem of Rules and Regulations Sl. No. Problem LICHFL HDFC Total 1 Cost of the plot not Financed 57(18.85) 42(28.00) 99(22) 2 Repayment Schedule 34(11.25) 12(8.00) 46(10.22) 3 Non-consideration of future /other Income 32(10.58) 7(4.67) 39(8.67) 4 Plinth area Criteria 7(2.32) 2(1.33) 9(2) 5 Total ( ) 130(43.00) 63(42.00) 193(42.89) 6 Borrowers not facing the Problem 170(57.00) 87(58.00) 257(57.11) TOTAL (5+6) 300(100.00) 150(100.00) 450(100.0) It is clear that 120 borrowers of the total sample condition results in availing lesser loan limits than what constituting per cent experienced difficulty in they actually require for constructing their houses. connection with arranging security and surety for Whereas per cent of the sample borrowers feel that obtaining loans from the HFIs. Out of these, 22 borrowers the rules of repayment are cumbersome in nature while representing 4.89 per cent of the sample experienced 8.67 per cent opined that their other income which is not difficulty in offering proper title deeds as required by their there in the official records could be taken into account respective HFIs. As many as 89 borrowers constituting while fixing the loan limits. On the contrary, mere 2 per per cent of the sample appraised that it was difficult cent of the borrowers opined that the rules regarding for them to arrange guarantors. Mere 2 per cent of the plinth area criteria are rigid. It is quite clear from the Table sample borrowers have faced the problem of collateral that 43 per cent borrowers of LICHFL and 42 per cent of security. Coming to the specific sample groups, a higher the borrowers of HDFC felt that the rules and regulations percentage of 27 encountered this problem in LICHFL and prescribed by the HFIs are rigid. 25 per cent in HDFC. Majority of the sample borrowers who experienced the difficulties in arranging the Insufficient Loan: Another alarming problem is guarantors lamented that all the lending institutions are insufficient loan amount disbursed by the HFIs which is insisting that the guarantors should be either government generally experienced by most of the borrowers. The employees or income tax assesses. But finding such a respondents often complained that the loan amount is guarantor is very problematic to the borrowers. Since the inadequate to complete the house. The reasons for length of duration of repayment of house loans ranges disbursement of inadequate loan sanctioned by HIFs vary from 5 to 15 years, the guarantors are not willing to proffer from person to person and from institution to institution their guarantee for housing loans. Sample borrowers who and from time and time. The details of the perceptions of have joint properties/title deeds experienced some the borrowers regarding the insufficient loan amount problems in offering security also. disbursed by the HFIs are elicited and presented in the Table 6. Rules and Regulations: The housing financial institutions The contents of the Table explain that 182 borrowers prescribe their own rules and regulations and terms and constituting 40 per cent of the total sample have conditions in disbursing housing finance. The borrowers complained insufficient housing loan sanctioned by HFIs. must accept them in order to avail housing finance. The As many as 94 borrowers accounting for per cent of borrowers have different experiences regarding the rules the total sample opined that HFIs did not sanction and regulations. The particulars of their experiences are sufficient loan because of non-consideration of the future presented in the Table 5. and other income. The other two reasons responsible for It is observed that 193 borrowers out of 450 sample insufficient sanction of loan are low cost estimation and borrowers constituting per cent opinioned that the plinth area criterion. These two reasons are felt rules and regulations of housing finance institutions are significantly by about per cent of the sample not favorable to the borrowers. Of them, 99 borrowers borrowers. Cost estimation and alterations in the original accounting to 22 per cent opined that cost of plot not plans are the significant causes in case of 2.44 per cent of being financed by HFIs is the problem for them. This the sample borrowers. 237

5 Table 6: Distribution of Sample Borrowers Facing the Problem of Insufficient Loan Sl. No. Problem LICHFL HDFC Total 1 Low cost Estimation 41(13.67) 13(8.57) 54(12) 2 Non-consideration of future / other Income 76(25.33) 18(11.86) 94(20.89) 3 Plinth area criteria 16(5.33) 7(4.62) 23(5.11) 4 Others 5(1.67) 6(3.95) 11(2.44) 5 Total ( ) 138(46.00) 44(29.00) 182(40.44) 6 Borrowers not facing the problem 162(54.00) 106(71.00) 268(59.56) TOTAL (5+6) 300(100.00) 150(100.00) 450(100.0) Note: Figures in the parentheses indicate percentages to the respective totals In the aggregate, per cent of the total sample Suggestions: borrowers have experienced insufficient sanctions of loan. The percentage share of this category of borrowers in The loan applications and other documents may be LICHFL sample group accounts to 46 and 29 in case of supplied to the sample borrowers in local languages HDFC. Thus, it is evident that this problem has more for easy understanding. intensity in LICHFL. The order of weightage of different The period of the time required for the loan reasons in LICHFL sample group is in total conformity processing, sanctioning and disbursing of housing with the pattern observed in respect of total sample loan at present works out to 2 months. This period group. Above all, non-consideration of future and other shall be reduced considerably by simplifying the income inconvenienced the sample borrowers mostly in procedures on the part of HFIs. securing adequate housing loans from HFIs. Processing of verification and documentation should be made simple. Particularly, the number of CONCLUSION documents to be submitted for house loan shall be minimized. Delay in loan processing sanctions and Of all the problems faced by the sample borrowers, disbursements may be avoided by properly the major problem is with regard to rigidity of rules educating the borrowers with regard to submission of and regulations, followed by inadequate sanction of various documents with exactness. Further, the field loan; other problems such as preparation of officer of the concerned HFIs shall evaluate the documents to be submitted along with loan proposal before the borrower and inform the application; security and surety; delay in processing shortages if any so that the borrower can fulfill these of loan application are experienced by less number of shortages immediately. sample borrowers. Majority of the borrowers of both the sample REFERENCES HFIs did not experience problems relating to documentation. The sample HFIs have followed 1. Balaji, V. and T.P. Rajamanohar, similar type of procedures in the sanction and Housing Sector in India: Issues, Opportunities disbursement of house loans. and challenges, The ICFAI University Press, first In respect to the problem of arranging security and (edit), pp: surety, most of the sample borrowers faced the 2. Singh, Fulbag and Reema Sharma, problem in of arranging guarantors followed by Housing Finance In India A Case Study of LIC submission of title deeds. It was because the HFIs Housing Finance Limited, IUP Publications, The IUP insisted upon sample borrowers to get guarantors Journal of Financial Economics, January. who are government employees only. 3. Ravichandran, K. and V.P. Sriraman, In the case of time taken for sanction of loan, most of Shifting from Urban to Rural-Pros and cons, the sample borrowers got their loan sanctioned in 15- Housing Sector in India-issues, opportunities and 45 days, whereas very few sample borrowers got their challenges, The ICFAI Press, pp: loan sanctioned after 60 days. Therefore, the housing 4. Report on Trend and Progress of Housing in India, process in both the HFIs is more or less hassle free New Delhi: June. 238

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