Post on 28-Nov-2014
A Study and Analysis of Loan Appraisal Process, Accounting
and Disbursement at HDFC LTD
Presented by :
Divya Kiron
Vinay Gupta
About HDFC LTD
• Established in October 17, 1977 in Bombay
and it was started by Late HD Parekh.
• The present owner is Deepak Parekh who is
non executive chairman of HDFC Ltd.
• A Non Banking Housing Finance company
registered under Companies act 1956.
• Governed by guidelines of National Housing
bank which is governed by RBI.
Primary objectives
• To improve residential housing in India by
providing housing finance in a simple and
systematic way to promote home
ownership.
• To provide financial assistance to
corporate.
Organisational policies
• Growth should be 30% every year.
• NPA should be less than 1 %.
• Profitability also to be raised along with
general equity.
• Cost effectiveness.
Sister concerns
• HDFC Bank
• HDFC SLIC
• HDFC ERGO
• HDFC Mutual Fund
• HDFC Sales
HDFC home loan products
• Housing loan- construction / purchase
• Home Extension / Improvement Loans
• Land Purchase Loan
• Home equity loan
• Home equity loan for educational purposes
• Top-up financing
• Take over loan
• NRI loan
• NRP loan
Loan Appraisal process at HDFC LTD
Preliminary Process
Customer approaches for loan through various
sources:
• Walk in: Applicants visit the regional branch or
apply through website.
• DSA (Direct Sales Agents): This consists of
HLSIL and HDFC bank
• DSE (Direct Sales Executive): Organizations
which work in agreement with HDFC and forwards
them the loan requests of applicants they contact
or those who contact them.
Credit officer
• Interacts with the customer and evaluate the credit
worthiness of the customer.
• Determines how much the borrower may be able to
afford and the amount of loan to be sanctioned.
• Interview sheet is maintained for future reference.
• Filled in application form is received from applicant.
• Various documents are also collected from
applicant as per the checklist .
• Processing Fees is also collected.
Residents - 1% of the loan amount
Non residents - 1.25% of the loan amount
• Log in sheet is created.
• A physical file with a file number of the customer
and the place of service mentioned is created
which is forwarded to hub for processing.
HOW TO DETERMINE ELIGIBILITY OF APPLICANT?
Installment to income ratio:
Ratio of monthly instalment repayable per month to
income of applicant.
HDFC EMI
IIR = ------------------------------
Gross Adjusted Income
IIR is generally fixed at 30-45%.
Fixed obligation to income ratio
Ratio includes all the fixed obligations that the
customer is supposed to pay regularly on a monthly
basis.
Existing loan installments+ Proposed HDFC loan
installment.
FOIR = --------------------------------------------------------
Gross Adjusted income
FOIR could be up to a maximum of 5% greater than
the IIR fixed by the appraiser.
Loan to cost ratio
Ratio to calculate the loan amount that a person is
eligible for on the total cost of the property.
Loan amount
LCR = ---------------------------------
Estimated cost of property
HDFC finance 85 % of cost of property.
Own contribution is 15 % of cost of property.
• Rate of interest
i. Fixed rate of interest loan
ii. Variable rate of interest loan
RPLR: Retail Prime Lending Rate is dependent
on market forces.
Spread: Spread refers to a special discount
offered to loan applicants coming to HDFC.
ROI: Rate of interest that is applicable to the
loan at the time of lending.
Hub process
• Detailed data entry.
• Scanning of documents submitted by applicant.
• Know your customer : KYC norms include the
submission of all documents in respect of their
identity and residential proof.
• Customer Point Verification : A field investigation
process is initiated to validate the details in the
application form.
• Next step in hub is to submit a request to CIBIL.
CIBIL• A snapshot of credit history of people.
• It contains:
Personal information
Credit information
The number of recent inquiries made about
applicant’s credit report
The type of credit applicant is using
• Consumer Credit Information Reports (CIR) is
later verified by Hub.
• Double checking of data entry take place.
• Recommendation bench gives their opinion
on applicant.
• The sanction letter and a SMS are sent to the
customer
• But disbursement take place only after legal
and technical appraisal .
Technical appraisal
• Technical appraisal is physical verification of
property.
• HDFC sends technical experts for:
i. Confirm Existence Of The Property / Transaction
ii. Assess Quality And Progress
iii. Assess Value Of The Property
iv. Decide the Amount Of Disbursement
Documents
• Approved plan with proceedings order in
original (In the case of construction).
• Copy of the DTCP approval or corporation
regularization order for land (In the case of
land purchase).
• Estimate for proposed construction or
improvement work (In the case of
construction).
Legal Appraisal
• Clear and valid title to the property and
whether the property can be mortgaged
with HDFC.
• Confirm Transaction and Title Of The
Property
• Assess Genuineness
• Loan Agreement
• Follow-up in case of default
Documents
• Title deeds
• No-objection certificates
• Encumbrance certificate
• Parent document
• Patta
Disbursement
• Full Disbursement:
In case of purchase of a ready built property
entire cost is paid at once
• Part disbursement:
In case of construction of property
i. Payment and construction is linked and disbursed
accordingly
ii. Pre – EMI : Simple interest paid until final
disbursement take place.
Accounts Department
• Handles post disbursement transaction
• Provides statement concerned with customers
loan account
• Clarify customer regarding EMI
• Doubts regarding outstanding balance
• Issue income tax certificate
• EMI refers to the monthly payment the customers
make on their home loan
• Combination of interest and principal repayment
• EMI depends upon the rate of interest and the
tenure of the loan.
L * R [(1+R) ^N/ (1+R) ^N-1]
EMI =
12
EMI
RepaymentMethods
• Post dated cheque
• Deduction at source
• Electronic Clearing System
• Standing instruction with bank
Types of Repayment options
• Tranche EMI : Borrowers can pay EMI either on
disbursed component or on total amount of loan.
• Flexible Loan Instalment Plan : In case of retirement .
• Balloon payment : When applicant wants a higher loan
than what he is eligible for HDFC accepts one or more
lump sum payments from a specified source on a
predetermined rate during term of loan.
• Step Up Repayment Facility : Loan repayment on basis
of income.
Loan closure• The loan will get completely paid off on the expiry
of the tenure of the loan if the customer has paid
all the instalments on time.
• Account of customer is closed.
• The entire set of original property documents is
handed back to the customer.
• A separate letter for each of the guarantors stating
that their liability has come to an end is issued.
Recovery department
• Recovery team comes into the picture when the
customer becomes defaulters.
• Five buckets- Greater than 60 days , Greater
than 90 days ,Greater than 6 months ,Greater
than 12 months ,Greater than 27 months.
• NPA - If the defaulting period is greater than
3.01 months
• HDFC has the lowest NPA .
• Tele callers : Customer Default to pay EMI or
PRE- EMI for any period between 0.1 months
and 3 months, tele callers of HDFC will inform
about this to borrowers.
• JFO :If default exceeds 3 months then Junior
Field Officers (JFO) visit customers in person and
analyse the reason and try to make him pay the
amount defaulted.
• Auction : If the default term exceeds
enormously further Securitisation and
Reconstruction of Financial and Enforcement of
Security Interest act (SURFACE), 2002 provides
HDFC to sell the property by auction in case of
default exceeding 60 days.
• Two authorised officers (branch manager and recovery
department head) will get permission from court to
sell the property.
• The property will have to be sold in 90 days by
auction.
• Here a reserve price will be fixed by management
which is between the guideline value and market value
• Any excess amount will be given to borrower.
• In case of deficit the amount will be deducted from
salary of the borrower.
Recommendations
• All the loan financing companies should submit the credit history of their customer with CIBIL.
• PAN card should be mandatory for all the customers who are applying for loan.
• All kind of loans should be included in CIBIL records.
• HDFC was understaffed.
THANK YOU