A STUDY ON PERCEPTION AND PROBLEMS OF HOME LOAN BORROWERS WITH REGARDS TO STATE BANK OF INDIA IN THIRUCHIRAPPALLI CITY ABSTRACT Dr. I. NARSIS 1 P. ARIVAZHAGAN 2 1 Research Advisor, Department of Commerce, Government Arts College, Trichy -24 2 Research Scholar, Department of Commerce, Government Arts College, Trichy- 24 Every citizen of the country dreams of having his own house. This takes precedence over other household expenditure and creature needs. Housing is a major expenditure and cannot be funded out of a family s normal monthly income or savings. The prospective homeowner must look for a loan substantial in size and so structured that he can repay it over a longer period of time, in many cases almost one s entire working life. Loan is offered to a borrower to purchase or build a new house on the basis of his/her eligibility and the bank s lending rules. One of the important basic human needs is shelter. House is the ultimate dream of every middle class family. One of the most important benefits of taking a home loan is the interest rate that is allowed on the home loan. Fixed and variable interest rate options are also available for home loans. Many financiers also offer home improvement loans at the same interest rate as they offer the home loans. This paper describes and analyses the perceptions and problems of home loan takers in Thiruchirappalli city. It offers policy options to make the housing finance more effective in addressing the hitherto neglected segment, the rural andless developed region. Key words: Commercial Banks, Housing Finance, SBI, Home loan. Introduction INTERCONTINENTAL JOURNAL OF MARKETING RESEARCH REVIEW The demand for housing has increased rapidly due to population growth, migration from rural areas to urban areas, the decay of the existing housing stock and breakdown of traditional joint families. The information technology revolution and rapid growth of knowledge based industries in recent years have also further contributed to the already growing acute shortage of housing India particularly in urban areas. Since housing requires huge investment, a critical constraint for the development of housing is lack of finance. Home loan means that you buy a house on installments. In other words w hen you want to own a home and cannot afford to pay the amount in lump sum, you can pay it in monthly installments with an interest rate. On an average a person spends almost twothirds of his life in a house which is his sanctuary in his old age.in rural areas the situation is even more alarming. The Government and some public sector undertakings have been trying to tackle the problem but their efforts do not much even the fringe of the problem. The central and state governments cannot solve this problem. Today there are 50 housing finance companies registered with the registrar of companies, of these 29 have been approved by National Housing Bank for financial assistance. The housing finance industry has been borrowing at the rate of nearly 35% for the last two years. Housing Finance Blessed are those who live in their own house and fortunate are those who have the money to buy one. But all are not privileged to buy a house of their own. For many such people, buying a house has become possible in modern times through Housing Finance. The term Housing Loan or www.icmrr.org 130 icmrrjournal@gmail.com
Housing Finance means fiancé for construing/purchasing or modifying a property. The various Hosing Loans offered by Housing Finance institutions (HFIs) are for house Purchase, house extension, house improvement and land purchase. Hence, Housing Finance means the financial resources for an individual or group of persons used especially for the purpose of housing. Housing Finance in India Home-buyers in India were traditionally debt averse and opted for external funding only as a last resort. Consequently, formal external funding of house construction/purchase has accounted for a relatively small proportion of housing finance in the three decades after independence and this business activity had formally began in India in the 1970s. Construction/purchasing of a house needs a large investment, it requires long-term finance. In India, the main source of credit that flows into house construction is both formal and the informal sectors. The formal sector includes budgetary allocation of Central and State Government, assistance from the Financial Institutions, agencies and corporations like Life Insurance Corporation (LIC) and General Insurance Corporation (GIC) etc., the latter, it refers to finance from money lenders, household savings, disposal of existing property and borrowings from friends and relatives. State Bank of India (SBI): The State Bank of India, the country s oldest bank and a premier in terms of balance sheet size, number of branches, market capitalization. It is the bank having very wide product mix, such as Project fiancé, Home loans, Auto loans, Car loans, Education loans, Loans to Small Medium Enterprises, Government business, Rural and Agri business, Corporate Business etc. SBI is moving a head withcutting-edge technology and innovative new banking models, to expand its rural banking base, looking at the vast untapped potential in the hinterland and proposes to cover 100,000 villages in the next two years. Need for the Study: Today due to inflation in the economy, there is rise in the price of all commodities. Due to this an ordinary individual is not able to save sufficiently to meet the high cost requirement of house construction or purchase. He has to essentially depend upon of the Financial Institutions (FIs) for borrowing money for the purpose of house constructions or purchase. The proposed study will bring out the various sources of finance for house construction/purchase and a detailed study about the types of home loans, loan procedure and documents required for home loan sanction from the FIs. There is a need to examine the housing policies, Government and RBI initiatives in order to appreciate the liquidity in the housing finance sector. Objectives of the Study: To examine the Housing Policy frame work in India. To analyze the trends and progress in Housing Finance in India. To study the operational performance of SBI with regard to providing housing finance to individuals. To assess the perceptions and problems of home loan takers Hypotheses of the Study: Whether the concerted efforts made by the government, in the form of policy frame work are helpful to the home loan borrowers. www.icmrr.org 131 icmrrjournal@gmail.com
Whether the selection of the housing financial institution is influenced by the operational factors. Scope of the Study: In view of the objectives set for the research, the study examines the efforts made by the government in the form of policies are helpful to home loan borrowers. The study mainly concerned with the evaluation of operational performance of SBI with regard to providing housing finance to individual borrowers and to examine the operational factors which influenced them in the selection of the Housing Financial Institution. Sources of the Data: For the purpose of the study, two sources of data have been collected. 1. Primary Data: A broad questionnaire was administered to the individual home loan borrowers of SBI to know their perceptions i.e. factors influencing the selection of the HFI, opinion regarding the rate of interest on home loan, time taken in processing the loan, procedural formalities, security for getting the loan and difficulties faced by borrowers, in addition to this, personal interviews with the officers and branch managers of SBI were held to fill the gaps in the data. 2. Secondary Data: To explain the housing policy changes and to analyze the trends and progress in the housing finance in India, the secondary data were used. The data was collected from the annual reports of the NHB, Drafts of National Housing and Habitat Policies, published by Ministry of Urban Development and Poverty Alleviation, Government of India, RBI Bulletins, Union Budgets of India, Ministry of Finance, Government of India and Survey Reports on Indian Housing Finance. Methodology of the Study: The major lenders of housing finance to individuals are considered for SBI. Further, to study perceptions and problems of home loan borrowers have been selected randomly. That is respondents have been selected from the list of the borrowers/customers provided by the various branches of SBI of thiruchirappalli in the state of Tamilnadu for the present study. The sample size was 150 respondents from SBI. Limitations of the Study: Housing Finance Sector growth is influenced by various factors such the prices of land, steel, cement, labor cost, savings, inflation rate, etc., the impact of these factors was not taken for the present study. The other limitations are: 1. Only individual loan schemes offered by the FIs had been studied. Thus, the study neither covers the corporate loan schemes offered by the FIs nor the corporate customers. 2. Only operational performance of the HFIs under review was studied and the evaluation of the institutions had been done on the basis of their figures from the annual reports at all India level. www.icmrr.org 132 icmrrjournal@gmail.com
Table No. 1- Purpose of home loan Purpose Respondents Percentage Land purchase 01 7 House purchase 79 53 House construction 51 34 House modification 14 6 Total 150 100 It can be observed from Table 1, that highest proportion of respondents had taken home loans for purchase of house. 34 per cent had taken for construction of house. Table No. 2- Tenure of home loans Years Respondents Percentage 5-10 39 26 10-15 55 37 15-20 44 29 20 & above 12 8 Many Indian loan takers are loan averse and though they avail the loan for 10-15 years period, many re- pay the full amount, on an average, in seven to eight years. It is evident from Table.2, that 37 per cent of respondents took the loan for the period of 10-15 years. Table No. 3- Type of interest opted by borrowers Type Respondents Percentage Fixed Rate 47 32 Floating Rate 103 68 It can be observed form the table.3 that, 68 per cent of the respondents were opted for floating rate of interest as present economy is featured by falling rate regime. Table No. 4- Opinion regarding rate of interest charged by Bank Opinion Respondents Percentage Very high 06 4 High 25 17 Moderate 70 47 Low 39 26 Very low 10 6 Table.4 depicts that 26 per cent of respondents felt that the interest rate charged it is low. Whereas 47 per cent of respondents opined that it is charging moderate rate of interest. SBI, a Public Sector Bank, is able to raise funds at a lower rate of interest and offering home loans at lower rates and it is acting as a major influencing factor in choosing by the borrowers. www.icmrr.org 133 icmrrjournal@gmail.com
Table No. 5- Shows Time taken in processing the loan Days Respondents Percentage Less than 7 22 14 7-15 24 16 15-21 28 18 Above 21 76 51 It can be concluded from the table.5 that, 51 per cent of respondents claimed that the processing time was above 21 days. Table No. 6- Shows Repayment schedule of the loan Repayment Schedule Respondents Percentage EMI 150 100 Others NIL -- It can be observed from the table.6 that, majority of the respondents opted for EMI. Opinion regarding procedural formalities: All the institutions sanction the loan after customers abide certain formalities, which differ from institution to institution. Respondents were asked to indicate their opinion on five-point scale and table shows the opinion regarding procedural formalities towards SBI. Table No. 7- Shows Opinion regarding procedural formalities Opinion Respondents Percentage Very Reasonable 26 18 Reasonable 55 37 Un reasonable 50 33 Very unreasonable 19 12 The table.7 reveals that, 37 per cent of the respondents claimed that procedural formalities are reasonable, which is really noticeable with 12per cent specified that procedural formalities are unreasonable. This is the issue which has to be taken care by SBI. Table No. 8- Shows Security for obtaining Home Loan Type of Security Respondents Percentage Mortgage 36 24 Mortgage & Guarantee 55 36 LIC Policy 53 35 Collateral 06 04 It can be seen from the table.8 that, there is equal response for various types of securities provided for getting loan. The Chi-square test was applied to test the hypothesis that the institutions vary in terms of security to be provided for getting loan. www.icmrr.org 134 icmrrjournal@gmail.com
H0: There is no significant difference between the institutions with regard to the kind of security advanced to the institution H1: There is significant difference between the institutions with regard to the kind of security advanced to the institution. From the data, the calculated Chi-square test statistic value 1.12 and the critical value at 5% level of significance for 2 degrees of freedom is 5.99. Since, calculated value is less than the critical value therefore H0 is accepted. It can be concluded that there is no significant difference between the institutions with regard to the kind of security advanced to the institutions. Awareness regarding recovery procedure followed by the concerned HFI with regard to the default loans: To know the awareness regarding the procedure that is being followed by the HFI with regard to the default loans, the respondents were asked about awareness and results were shown in the table.9. Table No. 9- Shows Awareness about default loans Particulars Respondents Percentage Yes 122 81.3 No 28 18.7 It can be revealed from the table.9 that, awareness level was high with regard to the respondents of SBI. 81 per cent of the respondents were aware of the concerned procedure. The Chisquare test was applied to test the hypothesis that the awareness about recovery procedure followed by the concerned HFI with reference to the default loans. H0: There is no significant difference between the institutions with regard to the awareness about recovery procedure followed by the concerned financial institution with reference to the default loans, as against H1: There is no significant difference between the institutions with regard to the awareness about recovery procedure followed by the concerned financial institution with reference to the default loans. From the data, the calculated Chi-square test statistic value is 2.57 and the critical value at 5% level of significance for I degree of freedom is 3.84. Since, calculated value is less than the critical value therefore H0 is accepted. It can be concluded that there is no significant difference between the institutions with regard to the awareness about recovery procedure followed by the concerned HFI with reference to the default loans. Table No. 10- Overall perceptions on home loans Opinion Respondents Percentage Very good 14 09 Good 39 26 Moderate 50 33 Poor 40 27 Very Poor 07 05 It can be concluded from the table.10 shows that, 33 per cent are opined that overall functioning as moderate and 27 per cent specified as poor. www.icmrr.org 135 icmrrjournal@gmail.com
Table No. 11- Opinion regarding difficulties faced by borrowers Nature of difficulties Respondents Percentage Very good 47 31 Good 61 41 Moderate 27 18 Poor 03 03 Very Poor 10 07 It can be observed from the table.11 depicts that, maximum proportion of the respondents of SBI faced the difficulties with regard to formalities to be fulfilled. Problems of the home loan borrowers The home loan application/sanction procedure is too lengthy. HFIs are collecting high amount of processing, administration, conversion fee and other charges like prepayment penalty. The change in the terms and conditions especially with regard to interest rate changes are not being communicated. The reasons for rejecting the loan application are not being informed. Delay in loan processing/sanctioning time especially with reference to SBI. There is no transparency in lending practices. SUGGESTIONS: The loan application formalities should be simplified. Most of the customers opined that institutions should not charge any processing, administration, conversion fee and other charges like prepayment penalty. The customers also suggested that institutions should provide online approval of applications. The change in the terms and conditions especially with regard to interest rate, the concerned customers should be informed. HFIs should inform the reason for rejecting the loan application. This will help the applicants in rectifying their mistakes. The customers suggested that the loan processing/sanctioning time should be reduced further. All employees, especially the front officers should be familiar with the details of Housing Loan schemes of their banks. All information regarding Housing Loans should be available on the websites of the HFIs in an interactive mode. Conclusion Thus, the Housing Finance in India faced a number of set-backs in decades, such as an unorganized market, development disparities and compartmentalized development approach. There was not even a concerted attempt to understand the housing problem let alone promote it. Reforms introduced in the sector during the 1990s, however, have overturned the situation to a great extent. The deigning of a shelter policy, the organization of the housing finance market, the introduction of fiscal incentives, increased public investment, legal reforms and others initiatives have brought about a number of changes in the housing finance. Home Loan providers should continue to address the huge potential in the industry and would maintain their focus on the individual loan segment. A trend www.icmrr.org 136 icmrrjournal@gmail.com
that has emerged over the years in the housing finance is that the decreasing role of interest rates as a competitive tool. Service and product innovations are the key tools for success at present. BIBLIOGRAPHY Annual Report 2008, Ministry of Urban Development & Poverty Alleviation, GOI. Anto Antony. 2008, Registration cost slashed, Economic Times, Dec. 17, 2008. Jasmindeep Kaur. 2008, Problems of Housing Finance in India, Abhigyan, Vol. XXV, No.4, Mar, 2008, pp 24-32 Jay Sampath.2006, Tackling rising home loan rates, Dalal Street, Vol XXVII, No.21, June- 2006, pp 89-91 P.S.N. Rao.1998, Transformation of Housing Policy in India, Property India 1998 pp 23-30. Praveen Gupta.2005, Housing Finance Companies An insight into regulatory aspects, The Chartered Accountant, Vol LIV, No.5, Feb-2005, pp 1010-1014. Rao, P.S, Transformation of Housing Policy in India, Property India 1998, pp23-28. Swapna Gopalan.2004, Functioning of Housing Finance institution, Business World, May- 2004, pp 12-13. www.icmrr.org 137 icmrrjournal@gmail.com