Airo International Research Journal June, 2016 Volume VII, ISSN:

Transcription

1 1 P a g e

2 COMPARATIVE STUDY OF HOUSING FINANCE OFFERED BY PUBLIC AND PRIVATE SECTOR BANKS Shivani Sharma Abstract This paper was an attempt to comparative analyzes the jousting finance offered by public and private sector banks. Purchasing the house of your dreams is not an easy task. House loan means that you buy a house on installments. Housing or shelter is the basic need of human being. This is accepted by the civilized society. Housing is an enigma to the developing countries; it is simultaneously the hardest problem to solve the social housing schemes. After 1990s all public sector banks were struggling with NPA problem. The housing shortage is increasing day by day as a proportion to the massive increase in population. Today, there are more than 350 housing finance companies registered with the registrar of companies of these 29 have been approved by NHB for financial assistance. The research examined the satisfaction level and problems faced by customers while availing home loan. For this purpose we have taken four commercial banks in namely PNB, Central Bank of India, HDFC Bank and ICICI Bank. It includes two public sector banks and two private sector banks. In the research methodology a sample size of 100 respondents has been taken through random sampling. For the study, researcher has collected both primary data as well as secondary data. Finally the whole research was carried out in a systematic way to reach at exact result. INTRODUCTION Housing Finance is a broad topic, the concept of which can vary across continents, regions and countries, particularly in terms of the areas it covers. Housing does not mean the construction of a shelter only, a shelter to protect way from the inclemency s of weather. They channel human relationship and are an integral part of the society. Attractive packages and flexibilities in housing loan Schemes. Put simply, housing finance is what allows for the production and consumption of housing. It refers to the money we use to build and maintain the nation s housing stock. But it also refers to the money we need to pay for it, in the form of rents, mortgage loans and repayments. Housing Finance brings together complex and multi-sector issues that are driven by constantly changing local features, such as a country s legal environment or culture, economic makeup, regulatory environment, or political system. The term Housing Loans or Housing Finance means finance for buying or modifying a property. Hence Housing Finance maybe defined as the financial resources for an individual or a group of 2 P a g e

3 persons used facially for the purpose of housing. HOUSE LOAN- Home loans are loans you have access to, depending on whether you want to buy or build a house and can also be used to repair or extend an existing house. Home Loans are an attractive and popular means of buying a dream house for most people. In India, the demand for home loans has increased manifold in the last decade. Every day numerous people apply for home loans to own a perfect abode for themselves. The fact that home loans come with added advantage (like tax benefits) is the icing on the cake. DIFFERENT TYPES OF HOME LOANS IN INDIA- Home purchase loans: These are the basic home loans for the purchase of new home. Home improvement loans: These loans are given for implementation repair works & renovation in a home that has already been purchased by the client. Home construction loans: These are available for the construction of new home. Home extension loans: These are given for expanding or extending an existing home for e.g.: addition of an extra room etc. Home conversion loan: This is for those who have financed the present home with home loan & wish to purchase& move to another home for which some extra funds are required through home on version loan,existing loan is transferred to the new home including the extra amount required eliminating the pre payment of the previous loan. Land Purchase loans: This loan is available for the purchasing of land for both construction and investment purpose. Almost all leading banks offer this loan like ICICI Bank (Land Loan), Axis bank (Loan for Land Purchase). Bridge loan: These are designed for those people who wish to sell the existing home & purchase another one. The bridge loan help finance the new home, until a buyer is found for the old home. Refinance Loans: These loans help you to pay off the debt you have incurred from private sources such as relatives and friends, for the purchase of your present home. HOUSING FINANCE INSTITUTIONS IN INDIA 3 P a g e

4 At present housing finance market has a keen competition, among the public sector housing finance companies, private sector housing companies and banks. Housing Finance is an important element of housing policies persuaded by the Governments of developed and developing countries of the world. In India the flow of credit into the housing sector comes from two sources that is formal and informal sectors. According to Dr. Rangarajan Committee Report in the year 1987, the formal sector has been boom in the financial markets. The major housing financial institutions meeting housing finance in India are as follows: (i) Scheduled Commercial Banks: The Indian Mortgage Market has been growing at around 18 percent in the fiscal year owing to enabling factors such as a stable operating environment, buoyant property prices etc. The share of Banks can be attributed to extensive network and broad customer base, access testable low-cost funds and other regulatory mandates. (a) Public sector banks: SBI, PNB, Bank of Baroda, Dena Bank, Bank of India. Allahabad Bank, OBC etc. (b)private sector banks: HDFC, ICICI Bank, Axis Bank, IDBI, ING Vysya Bank etc. (c)foreign Banks: Standard Charted Bank, City Bank, HSBC etc. (ii) Housing Finance Companies: Housing Finance Companies (specialized institutions lending for housing) registered with the National Housing Bank are a major component of the mortgage lending institutions in India. HFCs are regulated and supervised by National Housing Bank under the provisions of the National Housing Bank Act, 1987 and the directions and guidelines issued there under from time to time. The regulatory measures include prudential norms, transparent and standardized accounting and disclosure policies, fair practice code, asset liability management and other risk management practices etc. DHFL, HDFC GRUH, India bulls Housing Finance, Sundaram BNP Paribas etc. (iii) Insurance companies: Insurance companies are another form of housing financing institution, LIC Housing finance is another major player in housing sector in India with about 8% of market share. Promoted by Life Insurance Corporation of India, LICHFL has an extensive distribution network with a strong brand presence. Other insurance companies providing housing finance is GIC Housing Finance, New India assurance, National Insurance, ICICI Lombard, TATA AIG, Bajaj Allianz etc. (iv) Micro Finance Institutions: Microfinance Institutions or Non- Governmental Organizations who are present locally and have a bottom participative 4 P a g e

5 approach are making various efforts to cater to the housing finance needs of the low income segments of the society. The MFIs work on the model of SHGs linked with Banks. The National Housing Bank has recognized the penetration of Housing Micro Finance Institutions as delivery mechanisms for channelizing housing finance to the un-served sections of society and accordingly developed a suitable Housing Microfinance Programme to cater to the needs of this section. (v) Developmental Financial Institutions: HUDCO, SIDBI, NA-BARD, Apex Housing cooperative society, State Cooperative agriculture and Rural Banks etc., Development Finance Institutions (DFIs) have mainly catered to the medium to long-term financing requirements. Industrial Finance Corporation of India (IFCI) was the first DFI which was established to extend long-term finance to industry. Industrial Investment Bank of India (IIBI) Ltd, Export-Import Bank of India (EXIM) and Tourism Finance Corporation of India (TFCI) Ltd which provide long-term finance to various sectors; and ii) refinance institutions such as National Bank for Agriculture and Rural Development (NABARD), Small Industries Development Bank of India (SIDBI) and National Housing Bank (NHB) which pro-vide finance to banking as well as non-banking financial intermediaries. For achieving the objectives, the researcher has taken four commercial banks in namely PNB, Central Bank of India, HDFC Bank and ICICI Bank. It includes two public sector banks and two private sector banks. LITERATURE REVIEW La cour Micheal (2006) examined the home purchase mortgage product preferences of LMI households. Objectives of his study were to analysis the factors that determined their choice of mortgage product. The role pricing and product substitution play in this segment of the market and to verify whether results vary when loans are originated through mortgage brokers. In this case regression analysis has been used and results have shown that high interest risk reduces loan value. Singh and Sharma (2006), in their study on Housing finance in India LIC housing finance limited examined the development of housing finance in India. The study was based on the case study of LIC Housing Finance Limited. From time to time the government introduces a number of loan schemes for the development of housing finance system in rural and urban areas. Half of the population of India lives in slums and shabby shelters in rural areas. As per the development of housing finance the National Housing Policy (NHP), was introduced in 1988 and the NHB was set up in 1988 as an apex institution for housing 5 P a g e

6 finance and a wholly-owned subsidiary of RBI. B. Satish Kumar (2008), in his article on an evaluation of the financial performance of Indian private sector banks wrote Private sector banks play an important role in development of Indian economy. After liberalization the banking industry underwent major changes. The economic reforms totally have changed the banking sector. RBI permitted new banks to be started in the private sector as per the recommendation of Narsimha committee. The Indian banking industry was dominated by public sector banks. But now the situations have changed new generation banks with used of technology and professional management has gained a reasonable position in the banking industry. Kajal Choudhary and Monika Sharma (June, 2011), in their study on Performance of Indian Public Sector Banks and Private Sector Banks: A Comparative Study, mentioned that The economic reforms in India started in early nineties, but their outcome is visible now. Increased competition, new information technologies and thereby declining processing costs, the erosion of product and geographic boundaries, and less restrictive governmental regulations have all played a major role for Public Sector Banks in India to forcefully compete with Private and Foreign Banks. This paper was an attempt to analyze how efficiently Public and Private sector banks have been managing and they focuses on taking suitable & stringent measures to get rid of NPA problem. They also mentioned that bank staff involved in sanctioning the advances should be trained about the proper documentation and charge of securities and motivated to take measures in preventing advances turning into NPA. Public banks must pay attention on their functioning to compete private banks. Banks should be well versed in proper selection of borrower/project and in analyzing the financial statement. Dr. P.S. Ravindra (2013), in their study on Operational and Financial Performance Evaluation of Housing has evaluated the operational performance of LIC Housing finance Limited and HDFC. Top housing finance companies such as HDFC, LIC Housing Finance witnessed loan book growth of per cent during the year ended March 2012, thereby increasing their market share. It was concluded that the success of the LICHFL and HDFC in the housing finance industry is in its marketing network. They have more number of marketing personnel than the regular office staff. Even though, these two housing agencies are good in sanctioning loan disbursal and delivery of service to the customers, they have to modify and 6 P a g e

7 differentiate their services from other financial companies, which assure maximum benefit to the customers. Dr. Anand Kumar (2016), in his research on Growth and Impact of Housing Finance on Indian Economy concluded that the housing sector contributes directly to overall production activities of the economy like job growth, tax revenue, wages, and the benefits of shelter and wealth accumulation for households. The housing sector is very important for both local and national economy. The results show that there is significant great relationship between Housing finance sector and employment. Dr. Amit S. Nanwani (2016), in his research on A Comparative Study of Home Loans Offered by Public and Private Sector Banks in Nagpur District concluded that both public sector and private sector banks truly deserve to be the leading banks in home loan sector. Mostly people prefers public sector banks for home loans, especially because they believe that it is more secure bank and interest rate is lower. It was found that private sector banks are very popular among the customers these days. The satisfaction level that customer have with these banks is very high in comparison to public sector banks. Customer are associated with banks for many services that they require on regular basis and people tend to prefer banks which provide better facilities and convenient banking. From the overall analysis it can be said that the satisfaction level in relation to the services provided by private sector banks are very high as compared to public sector banks. OBJECTIVES OF THE STUDY 1. To study and compare the home loan schemes offered by the Public Sector Banks i.e. PNB, Central Bank of India and Private Sector Banks i.e. ICICI, HDFC. 2. To study marketing strategies of public & private sector banks in housing Finance. 3. To study the customer s response regarding the housing loans facility of the selected banks. SCOPE OF THE STUDY The scope of the study involved getting knowledge about the house loan schemes offered by the Public Sector Banks & Private Sector Banks and, also assess the problems of the customers which they face at the time of obtaining home loans & along with that analyze the satisfaction level of the customers while they deal with bank whether it is a Private Bank or a Public Bank. The major part of the study focused on making comparative evaluation of the house loan schemes offered by both private sector banks and public sector banks. The scope of the study is limited to Karnal, Kurukshetra, and Ambala. JUSTIFICATION OF THE STUDY 7 P a g e

8 Literature revealed that not much research work has been done in the area of housing finance provided by various types of bank from the customer s point of view, So the study has been undertaken in some of the cities to know about the satisfaction level and problems of the customers in availing housing finance along with that the different schemes offered by the public and private banks. The approach of the study was to get a deep insight into the industry through a study which would include all the details about the housing finance, how many customers are aware of housing finance schemes offered, how they get informed about these, how they perceived it as an effect of the offered schemes on the satisfaction level of the bank customers. So, two Public sector banks i.e. Punjab National Bank & Central Bank of India and two Private sector banks i.e. ICICI Bank & HDFC Banks have been selected so that a comparative analysis can be undertaken. RESEARCH METHODOLOGY For the study I have collected both primary data as well as secondary data. The primary data has been collected through the responses of the customers through structured questionnaires to check the satisfaction level of customers about the home loan schemes and their providers. In secondary data, the annual reports of RBI, commercial banks and broachers of these banks, articles published in magazines, journals and newspapers have been studied. Sources of Data Collection-Primary data source as well as Secondary data source. Sample Size The research was conducted on the sample of 100 respondents. Professionals, Bank employees & other category people i.e. people seeking home loans were selected for the survey. Sample Area Karnal, Kurukshetra & Ambala SAMPLING TECHNIQUE The selection of the respondents was done on the basis of convenience sampling. RESEARCH TOOLS Tools of analysis:-analytical techniques have been used to obtain findings and arrange information in a logical sequence from the data collected. After tabulation of the data, researcher used the following quantitative techniques: PERCENTAGE ANALYSIS- The data that is obtained from the questionnaire is analyzed through percentage Analysis. The results are shown on the percentage basis. 8 P a g e

9 GRAPHS- Graphical representations are used to show the results in simple form. DATA ANALYSIS AND INTERPRETATION SCHEMES OFFERED BY PNB, CNTRAL BANK OF INDIA, HDFC and ICICI BANK- TABLE - CRITERIA FOR AVAILING HOME LOAN FACILITY BY SELECTED BANKS BASIS PNB CENTRAL ICICI HDFC BANK OF INDIA Eligibility Min. Age-21years Min. Age- Min. Age- Max. Age-70 years 18years 21years (65yr for Max. Age-60 Max. Ageprofessional) years 65years (60 years for salaried) Maximum Loan 25 lakh-75 Lakh 20 Lakh-75 Up to 10crore Amount Lakh Rate of Interest 8.65%-8.75% 8.50% Fixed 8.65%-8.80% Floating Floating Min. Age- 24 years Max. Age-65years (60years for salaried) 5 Lakh-10Crore 8.5%-9.20% Floating Lowest EMI Rs. 780/- per lakh Rs. 769/- per Rs.762/- per lakh Rs.769/- per lakh lakh for 30 for 30 years years Loan Tenure 30 Years or 70 years of age, whichever is earlier 30 Years 30 Years 1 Year to 30 Years Penalty 2%for outstanding 2% 2% 2% for outstanding loan amount loan amount 9 P a g e

10 Processing Charges Upto Rs.300 lakh- Up to0.50% of 0.50%-1% of the Up to 0.50% of the 0.5%,Max.20,000/- the loan loan amount or loan amount or Rs. exclusive of service amount subject Rs. 2,000, 2,000, whichever is tax to Maximum whichever is maximum(plus Above Rs. 300 lakh- Rs. 20,000 higher + taxes as applicable) Rs. 50,000/- applicable exclusive of service Service tax & tax Surcharge SOURCE- Dr. Amit S. Nanwani A COMPARATIVE STUDY OF HOME LOANS OFFERED BY PUBLIC AND PRIVATE SECTOR BANKS IN NAGPUR DISTRICT, (2016). INTERPRETATION- The above table shows that the minimum eligibility criteria required for age in PNB & ICICI is 21 years, for HDFC is 24 years and the least one is offered by the Central Bank of India i.e.18 years whereas the maximum age required in ICICI, HDFC is 65 years and in PNB 70 years and in Central Bank of India is 60 years. The maximum Loan amount offered by the PNB and Central Bank of India is 75lakh and other banks i.e. for ICICI & HDFC is 10 Crore and the minimum loan amount for PNB & Central Bank of India is 25 lakh and 20 lakh whereas for HDFC is 5 lakh. Central Bank of India offers the minimum Rate of Interest i.e. 8.50% Fixed, PNB and ICICI offers 8.65%-8.75% and % Floating Rate of Interest respectively and HDFC offers higher Rate of Interest with 8.50%-9.20% floating. ICICI Bank offers Lowest EMI with Rs.762/-per lakh, Central Bank of India and HDFC both offers Rs.769/-per lakh for 30 years and PNB has the highest EMI with Rs.780/- per lakh. The table of the selected banks i.e. PNB, ICICI, HDFC, Central Bank of India all offers highest Loan Tenure of 30years.All the selected banks in the above table charges 2% of Penalty on outstanding loan. PNB Processing Charges are 0.5% or maximum of Rs.20,000 exclusive of service tax on loan amount of Rs.300 Lakh and Rs.50,000 exclusive of service tax is charged on the loan amount above Rs.300. Central Bank of India charges 0.5% of the loan 10 P a g e

11 amount or maximum of Rs.20,000. The Processing Charges of ICICI and HDFC are 0.5% - 1%of the loan amount or Rs.2,000 whichever is highest and additional service tax and surcharge is applicable. CUSTOMER RESPONSE TOWARDS HOUSE LOAN FACILITY OF SELECTED BANKS TABLE- bank preference Bank Segments Frequency Percent Public Sector Banks Private Sector Banks Total SOURCE- Survey Result Bank Segments Private Sector Bnaks, 40 Public Sector Banks, 60 Interpretation: Table depicts that out of the total respondent s i.e.100, 60% of the people have their account in Public Sector Banks and the remaining 40% of the people are having their account in Private Sector Banks. 11 P a g e

12 SOURCE- Survey Result Account Holding Bank Table: accounts of respondents in banks Account Holding Bank Frequency Percentage ICICI Bank HDFC Bank PNB Central Bank of India SBI Syndicate Bank Corporation Bank IDBI Axis BOB Bank of India Total Account Holding Bank Frequency Interpretation: The Table depicts that out of the total respondents i.e. 100, 31 are having their accounts in PNB, following by ICICI Bank & HDFC Bank with 19% and 18% respectively. SBI is holding the accounts of 14% of the respondents and the rest of them are having their account in Syndicate bank, 12 P a g e

13 DURATION TAKEN Airo International Research Journal June, 2016 Corporate Bank, IDBI, AXIS, BOB and Bank of India. SOURCE- Survey Result Table: Duration taken by your bank to sanction a home loan Duration taken for Sanctioning of Home Loan Frequency 0-1 Month Months Months More than 3 Months Total Percentage Duration taken for Sanctioning of Home Loan Duration taken for sanctioning of Home Loan Month 0-2 Months 0-3 Months FREQUENCY More than 3 Months Frequency Interpretation: Table graph depicts that most of the bank takes one to three months in sanctioning the loan and only 16% are among those who take more than three months in sanctioning of Home Loan. Table: Politeness of Bank Employees towards their customers- This table shows us the mean and standard deviation value of the banks. 13 P a g e

14 Group Statistics N Mean Std. Deviation Minimum Maximum Public Sector Banks Private Sector Banks IN PUBLIC SECTOR BANKS- Politeness of Bank Frequency Percentage Employees Yes No Total SOURCE- Survey Result Politeness of Employees of Public Sector Bank No 55 Yes Frequency IN PRIVATE SECTOR BANKS- Politeness of Bank Frequency Percentage Employees Yes P a g e

15 No Total SOURCE- Survey Result Politeness of Employees of Private Sector Bank No 18 Yes Frequency Interpretation-Table 13.1 conveys that 45% respondents say that employees of Public Sector Banks are Polite to them and 55% say they are not polite to them. Table 13.2 conveys that 82% respondents say the employees of the Private Sector Banks are polite and 18% say they are not. CONCLUSION In nutshell, we can conclude that both public sector and private sector banks truly deserve to be the leading banks in home loan sector. The services offered by them are very competitive. Mostly people prefers public sector banks (i.e. most have select PNB as per my study) for home loans, especially because they believe that is more secure bank, interest rate is lower and because of having low processing charges. On the other hand the private sector banks are coming daily in our country and the preference of younger population is changing because of services & facilities provided by them. Private sector banks are very fast and lots of time they make things easy for borrower and also bends some rules for home loans but on the other hand public sector banks rules are very strict and stringent. The documents needed for home loan by private sector banks are also less as compared to 15 P a g e

16 public sector banks. It was found that private sector banks are very popular among the customers these days. The satisfaction level that customer have with these banks is very high in comparison to public sector banks. Customer are associated with banks for many services that they require on regular basis and people tend to prefer banks which provide better facilities and convenient banking. From the overall analysis it can be said that the satisfaction level in relation to the services provided by private sector banks are very high as compared to public sector banks. Different banks offer same product but their services differentiate and the bank has gone for in this direction. The customer can choose these schemes which he feels is good for him and have the capacity to repay it on that specified time period. SUGGESTIONS- Banks should use easy / simple procedure for the sanctioning of home loans to the customers. The banks need to improve on the customer satisfaction level due to stiff competition among the banks. Banks employees who deal with customers should have complete knowledge about the home loans. More personal attention should be given to the customers and working efficiency should be increased. The bank should improve their customer service. The services provided by banks need to be automated. The loan passing process should be quicker by public sector bank like a private sector bank. Rate of interest should be competitive and free accident insurance cover for home loan customers should be provided. Many booklets and attractive advertisement should be provided to the customer for awareness about different housing loan schemes of public sector banks like private sector banks. LIMITATIONS OF THE STUDY- This research study was time bound and only certain criteria were taken up for study. The survey has been conducted in Haryana i.e. (Karnal, Ambala & Kurukshetra) region only. It may not reflect the public opinion at large and it was not good enough for perfectly knowing about the housing loan schemes of Public &Private Sector Banks. Some of the respondents might have been biased in their responses as it 16 P a g e

17 depends on their experience gained by them during processing of such loans and the results of the study may not be the same for all the cities & at all places. The sample size has not been that much large (54) which may reflect the broader picture. Due to limitation of time and broad sector of Housing Finance Sector, the Banks & sample are selected as per the convenience of the researcher and the preference is given to only top banks in the banking industry. References: Books Banking Theory and Practice, P.k. Srivastav, Himalaya Publishing House. Indian Institute of Banking &Finance (IIBF), Home Loan Counseling ( Know Your Banking Series), Taxmann Publications Pvt.LTD. New Delhi, Research papers and Articles Kajal Chaudhary and Monika Sharma, Performance of Indian Public Sector Banks and Private Sector Banks, International Journal of Innovation, Management and Technology (2011). Dr. Shiv Kumar Garg and Dr. Gajendra Kumar, Housing Finance in India : A Comparative Study of Public and Private Sector Banks, Journal of Commerce and Trade (2014). D.D. Naik, You and Your Housing Co-operative New Delhi: The National Co-operative Housing Federation Ltd. (1976). G.Gopikuttan, Housing Boom in Kerala Causes and Consequences, Ph.D. thesis, Centre for Development Studies, Thiruvananthapuram (1988). Dr. Anand Kumar, Growth and Impact of Housing Finance on Indian Economy, International Journal of Research in Management, Science and Technology (2016). Dr. P.S. Ravindra, D. P., Operational and Financial Performance Evaluation of Housing Finance Companies in India (A Case Study of LIC Housing Finance Limited and HDFC). International Journal of Management and Social Sciences Research (2013). Singh, F., and Sharma, R., Housing Finance in India A case study of LIC housing finance limited, The IUP Journal of Financial Economics (2006) 17 P a g e

18 Dr. Amit S. Nanwani A COMPARATIVE STUDY OF HOME LOANS OFFERED BY PUBLIC AND PRIVATE SECTOR BANKS IN NAGPUR DISTRICT, international journal of progresses in engineering, management, science and humanities (2016). R.C.Dangwal, Housing Finance in India: Myth and Reality, eds. G.S Batra and R.C Dangwal, New Studies in Commerce and Business, (New Delhi: Deep and Deep Publications, 1999). Samkutty George, Prospects for a Suitable Housing Finance Scheme for Kerala, Ph.D. thesis, University of Kerala, (2002). Dr. P.S. Ravindra, Operational and Financial Performance Evaluation of Housing Finance Companies in India (A Case Study of LIC Housing Finance Limited and HDFC), International Journal of Management and Social Sciences Research (2013). La CourMicheal, The Home Purchase Mortgage Preferences of Lowand-Moderate Income Households, Forthcoming in Real Estate Economics (2006). 18 P a g e