36314685 Comparative Study of Bank s Retail Loan Products Vis a Vis Competitions or Peer Banks

8/7/2019 36314685 Comparative Study of Bank s Retail Loan Products Vis a Vis Competitions or Peer Banks

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Comparative Study of Banks Retail Loan Products 2009-2011

i New Delhi Institute of Management Bank of Baroda

SUMMER TRAINING REPORT

on

Comparative Study of Banks Retail LoanProducts

for

Bank of Baroda

Under the supervisionof

Mr. N. K. Kalani(Chief Manager, Retail Loan Factory, DMR - I)

New Delhi Institute of Management

50 (B&C), 60, Tughlakabad Institutional Area, New Delhi 110062.

Submitted by,

Jagadeesh K.V.

R.No. 228PGDM 2009-11,

NDIM.

Submitted to,

Mr. N. K. Kalani

Chief Manager,Retail Loan Factory,

DMR - I,

Bank of Baroda.


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ii New Delhi Institute of Management Bank of Baroda

AcknowledgementFirst and foremost, I wish to thankBank of Baroda for providing me opportunity to

undergo my internship training.

I am very much thankful to Mr. Nand Kishore Kalani (Chief Manager, Retail Loan

Factory) for his constant encouragement and regular ideas and feedback for

contributing maximum in project.

Further, I would also like to thank all the employees of Retail Loan Factory, Bank of

Baroda, DMR-I Branch and all the responders of survey, without whom it would be

impossible for me to complete the project.

I am also very thankful to Mr. V. K. Mahajan (Project Guide) keen interest in

project and guided me in project work.

Last but not the least, my sincere regards to CRC (Corporate Resource Centre) and

all faculty members of New Delhi Institute of Management, New Delhi for their pain

stalking supervision and downright suggestions which brought a lot of confidence in

me to complete this dissertation report.


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iii New Delhi Institute of Management Bank of Baroda

Declaration

I, Jagadeesh K.V., hereby declare that the Dissertation on Competitive study of

Banks Retail Loan Products Vis--vis Competitions / Peer Banks at Bank of

Baroda, New Delhi assigned to me for the requirement of partial fulfillment ofPost

Graduate Diploma in Management (PGDM) in New Delhi Institute of

Management, New Delhi. It is the original work conducted by me and data provided

in this study is authentic to the best of my knowledge and belief.

This report is not submitted to any other institute or university for the award of any

other degree.

Jagadeesh K. V.

PGDM 2009-2011

New Delhi Institute of Management, New Delhi


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iv New Delhi Institute of Management Bank of Baroda

Index

Contents

1.Executive Summary

2.Banking Industry Background

a. Early History

b. Post-independence

c. Nationalization

d. Liberalization

e. Current Situation

f. Structure of Indian Finance System

g. Categories of Banks

h. Introduction to Finance

i. The Business of Banking

j. Functioning of Banks

k. Forms of Advances

3.Loans

4.Bank of Baroda Background

a. History

b. Centenary Year

c. Mission & Vision Statement

d. Achievementse. Objectives

f. Global Presence

g. Company Network (National & International)

h. Wide Global Network

i. Customers & Competitors and Strengths

j. Values & Future of the Bank

k. Product Profile

5.Objective of the Study

a. Work Done

b. Procedure for Applying Retail Loans

c. Comparative Study of Home Loan Applicants

d. Documents Required for Retail Loans

e. Terms Related to Retail Loans

Page No.

1

2

2

2

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4

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6

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8

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12

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1314

14

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15

16

17

17

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22

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25


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v New Delhi Institute of Management Bank of Baroda

Contents

7.Retail Loans

a. Key Products

b. Home Loans

c. Education Loans

d. RBI Directives for Home Loans

e. Tax Benefits

8.Home Loans in India

a. Introduction

b. Comparative Analysis of PSU Banks

c. Competitive Advantage of BOB Over SBI

d. Comparative Analysis of Private Sector Banks

e. Competitive Advantage of PSU Banks Over Private Banks

9.Education Loans in India

a. Introduction

b. Comparative Analysis of PSU Banks

c. Competitive Advantage of BOB Over SBI

d. Comparative Analysis of Private Sector Banks

e. Competitive Advantage of PSU Banks Over Private Banks

10.Research Methodology

a. Research Objective

b. Steps of Research Methodologyc. Sources of Data

d. Sampling Plan

11. Limitations of Study

12. Findings & Conclusion

13. Suggestions & Recommendations

14. Bibliography

15. Appendix

a. Questionnaire

b. Financial Statements of Bank of Baroda

Page No.

26

26

27

28

30

31

34

34

37

40

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51

53

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5556

57

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62

Appendix i

Appendix - ii


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Appendix - 1 New Delhi Institute of Management Bank of Baroda

Executive Summary

All around the world retail lending has been an established market; however its rise in

emerging economies like India has been of recent origin. If recent statistics on

consumer finance are any indication, the last few years have been trend setting. The

traditional debt-averse, middle-class Indians who lived within their thrifty means,

never to venture beyond their means, seem to have given way to a new middle-class

that is free from all inhibitions regarding conspicuous consumption. Unlike its

predecessors, the middle-class of today has donned a new attitude; it attaches no

social-stigma in taking loans for spending.

Indian retail banking is up and kicking. During 2004-05 retail contributed 42% of

overall credit growth. Growing at the CAGR of 35% over last 5 years the retail asset

touched Rs1,89,000 crore. Major product segments of retail credit include housing

finance, education loan, auto finance, personal loans, consumer durable loan and

credit cards to name a few. Housing constitutes the biggest segment of 48% of the

entire retail credit; followed by the auto loans segment which constitutes almost

27.8%. While the balance retail credit is used by consumer durables at 7.2%,

educational and other personal loans take the remaining 16%.

Banks are increasing their dominance in housing finance and capturing the market

share of the housing finance companies. During 2004-05, the market share of banks

stood at 62%, against the 33% by Housing finance companies; Rs2-5 lakh margins

constitutes almost a third of the loan size. All the players in this market are adopting

an aggressive attitude and the housing loan availability is playing into the players

hands. Despite this phenomenal growth in India, the housing loan as a percentage of

GDP at 4.91% indicates low penetration when compared to other countries like

Malaysia (17%) and Thailand (9%). But again this coupled with the population

growth indicates good future prospects.

Following the housing loans, it is the education loan which is also giving the growthof retail credit the necessary boost. The last few years have witnessed a high increase

in students aspiring for management and professional courses, leading to a spurt in

educational loans. Banks are now having a direct tie-up with the educational

institutions to cash in on the opportunity. Public sector banks (PSBs) are more

focused on the educational loans segment. In the educational loan segment,


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2 New Delhi Institute of Management Bank of Baroda

disbursement of domestic banks has surged by 13% to Rs2249 crore in 2004-05; up

from Rs1983 crore in 2003-04. The number of students availing education loans has

increased to 1,40,000 from 1,08,000 during this period.

In India, all the retail banking segments are expected to witness a tremendous growth

owing to the low cost of borrowing, changing customer attitudes towards borrowing

and optimism regarding economic growth. Retail lending constitutes just 12.36% of

the Indian banking system. Given this macroeconomic scenario, the share of retail

banking will grow dramatically and it is expected that about 35% of the incremental

growth in net credit will come from retail banking. This requires expansion and

diversification of retail banking product portfolio, better penetration and faster service

mechanism. Hitherto, the growth had come from metros and tier I cities. While the

loan requirement from larger cities will continue to grow, explosive growth in credit

is expected to register in tier II cities, semi-urban and rural areas.

However, there are some areas of concern like rising NPA in consumer loans

particularly, the delinquency rates in credit cards, and frauds in home loans. Housing

prices have grown rapidly. Deflation of asset value is a possibility in certain areas.

Aggressive credit growth in retail has increased the requirement for measuring and

managing this risk. These require extremely skilled workforce and highly evolved

credit delivery and monitoring processes. The other concern is of suicidal pricing by

the aggressive banks. This is bringing the margins under pressure. Though rationalpricing is critical, the competitive market shall continue to see the pricing pressure.

There is also a need for a database and management information system to identify

the right type of borrowers.

Keeping pace with explosive changes will pose challenge to regulatory authorities.

This will not limit only to increase of risk weight of consumer loan by 25 basis points

which the regulator announced in mid-term policy review 2004-05. Revision of credit

cards issue regulations, and recent draft guidelines on outsourcing are the steps in the

right direction. Lack of consensus on definition of retail and transparency in

declaration by the players as well the coverage of retail by the central banker in its

reports; all of this needs a thorough re-look.


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Banking and Finance in India

The Indian money market is classified in to,

1. The Organized Sector (comprising private, public and foreign owned

commercial banks and cooperative banks, together known as scheduled

banks); and

2. The Unorganized Sector (comprising individual or family owned indigenous

bankers or money lenders and non banking financial companies (NBFCs)).

The unorganized sector and micro credit and still preferred over traditional banks in

rural and sub-urban areas, especially for non-productive purposes, like ceremonies

and short duration loans.

Early History

Banking in India originated in the first decade of 18th century. The first banks were

The General Bank of India, which started in 1786, and Bank of Hindustan, both of

which are now defunct. The oldest bank in existence in India is the State Bank of

India, which originated in the "The Bank of Bengal" in Calcutta in June 1806. This

was one of the three presidency banks, the other two being the Bank of Bombay andthe Bank of Madras. The presidency banks were established under charters from the

British East India Company. They merged in 1925 to form the Imperial Bank of India,

which, upon India's independence, became the State Bank of India. For many years

the Presidency banks acted as quasi-central banks, as did their successors. The

Reserve Bank of India formally took on the responsibility of regulating the Indian

banking sector from 1935. After India's independence in 1947, the Reserve Bank was

nationalized and given broader powers.

Post-independence

The partition of India in 1947 adversely impacted the economies of Punjab and West

Bengal, paralyzing banking activities for months. India's independence marked the

end of a regime of the Laissez-faire for the Indian banking. The Government of India

initiated measures to play an active role in the economic life of the nation, and the


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Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed

economy. This resulted into greater involvement of the state in different segments of

the economy including banking and finance. The major steps to regulate banking

included,

y In 1948, the Reserve Bank of India, India's central banking authority, was

nationalized, and it became an institution owned by the Government of India.

y In 1949, the Banking Regulation Act was enacted which empowered the

Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in

India."

y The Banking Regulation Act also provided that no new bank or branch of an

existing bank may be opened without a license from the RBI, and no two

banks could have common directors.

However, despite these provisions, control and regulations, banks in India except the

State Bank of India, continued to be owned and operated by private persons. This

changed with the nationalization of major banks in India on 19th July, 1969.

Nationalization

By the 1960s, the Indian banking industry has become an important tool to facilitate

the development of the Indian economy. At the same time, it has emerged as a large

employer, and a debate has ensued about the possibility to nationalize the banking

industry. Indira Gandhi, the-then Prime Minister of India expressed the intention of

the GOI in the annual conference of the All India Congress Meeting in a paper

entitled " Stray thoughts on Bank Nationalization. The paper was received with

positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued

an ordinance and nationalized the 14 largest commercial banks with effect from the

midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described

the step as a "masterstroke of political sagacity."Within two weeks of the issue of the

ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer

of Undertaking) Bill, and it received the presidential approval on 9th August, 1969.


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A second dose of nationalization of 6 more commercial banks followed in 1980. The

stated reason for the nationalization was to give the government more control of credit

delivery. With the second dose of nationalization, the GOI controlled around 91% of

the banking business of India.

After this, until the 1990s, the nationalized banks grew at a pace of around 4%, closer

to the average growth rate of the Indian economy.

Liberalization

In the early 1990s the then Narsimha Rao government embarked on a policy of

liberalisation and gave licenses to a small number of private banks, which came to be

known as New Generation tech-savvy banks, which included banks such as Global

Trust Bank (the first of such new generation banks to be set up) which later

amalgamated with Oriental Bank of Commerce, UTI Bank (now re-named as Axis

Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the

economy of India, kick started the banking sector in India, which has seen rapid

growth with strong contribution from all the three sectors of banks, namely,

government banks, private banks and foreign banks.

The next stage for the Indian banking has been setup with the proposed relaxation in

the norms for Foreign Direct Investment, where all Foreign Investors in banks may be

given voting rights which could exceed the present cap of 10%at present it has gone

up to 49% with some restrictions.

The new policy shook the Banking sector in India completely. Bankers, till this time,

were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of

functioning. The new wave ushered in a modern outlook and tech-savvy methods ofworking for traditional banks. All this led to the retail boom in India. People not just

demanded more from their banks but also received more.


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Current Situation

Banking in India is generally fairly mature in terms of supply, product range and

reach-even though reach in rural India still remains a challenge for the private sector

and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are

considered to have clean, strong and transparent balance sheets relative to other banks

in comparable economies in its region. The Reserve Bank of India is an autonomous

body, with minimal pressure from the government. The stated policy of the Bank on

the Indian Rupee is to manage volatility but without any fixed exchange rate-and this

has mostly been true.

With the growth in the Indian economy expected to be strong for quite some time-

especially in its services sector-the demand for banking services, especially retail

banking, mortgages and investment services are expected to be strong. One may also

expect M&As, takeovers, and asset sales.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its

stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an

investor has been allowed to hold more than 5% in a private sector bank since the RBI

announced norms in 2005 that any stake exceeding 5% in the private sector banks

would need to be vetted by them.

Currently (2010), India has 96 scheduled commercial banks (SCBs) - 27 public sector

banks (that is with the Government of India holding a stake), 31 private banks (these

do not have government stake; they may be publicly listed and traded on stock

exchanges) and 38 foreign banks. They have a combined network of over 53,000

branches and 49,000 ATMs. According to a report by ICRA Limited, a rating agency,

the public sector banks hold over 75 percent of total assets of the banking industry,

with the private and foreign banks holding 18.2% and 6.5% respectively.

Since liberalization, the government has approved significant banking reforms. While

some of these relate to nationalized banks (like encouraging mergers, reducing

government interference and increasing profitability and competitiveness) other


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reforms have opened up the banking and insurance sectors to private and foreign

players.

Structure / Constituents of Indian Finance System

The India Finance System is composed of different institutions and will see

subsequent address to certain roles and have accordingly brought out a variety of

instrumentation and helped create a healthy money market, which is fundamentalrequisite of good finance system.


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Categories of Bank

Banking in India falls mainly under two categories, viz. Commercial banks and Co-

operative banks, while commercial banks cater to the needs of industry and trade

largely; the cooperative banks play a major role in financing agriculture and allied

activities in rural areas, and trade and services in urban areas.

The commercial banks may be classified into four group in terms of ownership,

1. Public Sector Banks

2. Regional Rural

3. Indian Private Sector Banks and

4. Banks incorporated outside India.

The commercial banks can be further classified into Scheduled banks and Non

Scheduled Banks. Scheduled Banks are those listed in the second schedule to the

Reserve Bank of India Act 1934

These banks satisfy the criteria laid down under section 42 (6) of the RBI Act that

they should have capital and reserve of Rs. 5 lakhs and their activities should not be

detrimental to the interests of depositors. The scheduled banks are required to

maintain cash reserves equal to 5 % of DTL which can go up to 15 % under section

42 (1). Those, which are not included in the 2nd

schedule, are called the non-scheduled

banks. The number of take- oven/liquidation as also in some cases up gradation into

scheduled banks category.

Introduction to Finance

Finance is the handmaiden of economic growth Institutions like banks, which

command huge financial resources, can play a crucial role in shaping the economy of

a country by judiciously deploying their funds over such important activities as would

lead to an overall economic growth. A banks offer compared to a dam and the money

lying scattered with individuals and institutions in society to the water running its own

course without any direction. Money is collected by banks by way of deposits, and


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from this fund money is turned back to the community in the form of loans. Thus,

banks act as a vital link between the savers and the needy.

India is striving to transform herself into an industrially developed country based on a

rural and agricultural economy which should not only be able to feed the millions of

her populations but also to produce raw material for her mills. This can be done by

bringing about the necessary change from an agrarian economy to a diversified one.

Banks have crucial role to play not only in the achievement of this objective but more

significantly in determining how speedily and efficiently it is achieved. Since the

nationalization of the fourteen major banks, the banking industry has developed

adequately enough to meet the changing needs, both corporate and personal. Banks

now offer a wide range of financial services in an extensively varied environment.

The complex task of managing these changes and their consequences requires that

banker should be more professional than ever before.

The Business of Banking

Banking has been understood differently at different times and indifferent countries.

In India, the earliest legislation that dealt with the business of banking was the Indian

Companies Act 1913. The Banking Regulations Act came in 1936. Under this Act all

companies having their principal business, accepting deposits from the public were

classified as banks. Hence between 1936 and 1942 even trading and industrial

concerns accepting deposits were classified as banks, if accepting such deposits was

their principal business. The Government of India passed a compressive Banking

Regulation Act in 1949. Accordingly a banking company was defined as a company

which carries on the business of banking that is to say accepting for the purpose of

lending or investing deposits of money from the public, repayable on demand of

otherwise, and withdrawal cheque, draft, order of otherwise. The study group

reviewing legislation affecting banking is of the opinion that banking should be

abroad based. The definition given by the Banking Regulation Act 1949 is certainly

not exhaustive, and it needs certain alterations for the sake of simplification. The

purpose of accepting deposits is strictly not relevant for the definition of banking,

through it is basic for banking regulation. There is no need to distinguish between


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loans deposits in the context of banking regulation. The definition of banking

should cover all forms of deposits from the public, and banking regulation should take

into its ambit all the different types of banking.

Functioning of a Bank

Functioning of a Bank is among the more complicated of corporate operations. Since

Banking involves dealing directly with money, governments in most countries

regulate this sector rather stringently. In India, the regulation traditionally has been

very strict and in the opinion of certain quarters, responsible for the present condition

of banks, where NPAs are of a very high order. The process of financial reforms,

which started in 1991, has cleared the cobwebs somewhat but a lot remains to be

done. The multiplicity of policy and regulations that a Bank has to work with makes

its operations even more complicated, sometimes bordering on illogical. This section,

which is also intended for banking professional, attempts to give an overview of the

functions in as simple manner as possible.

Banking Regulation Act of India, 1949 defines Banking as "accepting, for the purpose

of lending or investment of deposits of money from the public, repayable on demand

or otherwise and withdrawal by cheques, draft, order or otherwise."

Deriving from this definition and viewed solely from the point of view of the

customers, Banks essentially perform the following functions,

1. Accepting Deposits from public/others (Deposits).

2. Lending Money to public (Loans).

3. Transferring money from one place to another.

4. Acting as trustees.

5. Keeping valuables in safe custody.

6. Government business.

But do these functions constitute banking? The answer must be a no. There are so

many intricacies involved in the activities that a bank performs today, that the above

list must sound very simple to a seasoned banker. Please click on the activity to see

what a Bank has to do to give the above services to its customers. These activities can


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also be described as back office banking. Banks are organized in a linear structure to

perform these activities at the base of which lies a Branch. The corporate office of a

bank is normally called Head Office

Forms of Advances

Advances by commercial banks are made in different forms such as loans, cash credit,

overdrafts, bills purchased, bills discounted etc. These are generally short- term

advances. Commercial banks do not sanction advances on a long-term basis beyond a

small proportion of their demand and time liabilities. They cannot afford to lock up

their funds for long period. Hence a considerable percentage of their advances is

repayable on demand.

Advances may be granted against tangible security or in special deserving cases on an

unsecured/clean basis.

Loans

Bank loans are called indirect agents of production. For achieving a sustained rate of

economic growth over a long period, greater efforts have to be made to increase

agricultural and industrial production, and in this increased production, bank credit

plays a significant role. But banks in India are not free to employ their funds n an

arbitrary manner, while lending, they will have to keep in mind factors like a desirable

balance among liquidity, safely and profitability, legal and statutory requirements,

socio-economic conditions of the country, priorities set by economic planners, and so

on. Banks try to achieve this objective through maintaining a particular relationship

7. Bridge loan

8. Participation loan

9. Loans to small borrowers

10.Hire purchase and leasing finance

11.Bills purchased

12.Bills discounted

1. Loans

2. Overdrafts

3. Cash credits

4. Temporary Overdrafts

5. Clean advances

6. Term loans


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between their assets and deposits. As such, between advances and deposits in the form

of advances among as many different types of securities and over as wide an areas as

possible, and they avoid granting too large a proportion of their advances to one party

or to a single industry. While these factors limit banks capability to lend, they are,

nevertheless expected to grant credit according to the changing economic scene

conditioned by the programs and priorities of different Five Year Plans.

In a loan account the entire amount is paid to the debtor at one time, either in cash or

by transfer to his current account. No subsequent debit ordinarily allowed except by

way of interest, incidental charges, insurance premiums, expenses incurred is

provided for by installment without allowing the demand character of the loan to be

affected in any way. There is usually a stipulation that in the event of installment

remaining unpaid, the entire amount of the loan will become due. Interest is charged

on the debit balance, usually with quarterly rests unless there is an arrangement to the

contrary. No cheque book is issued. The security may be personal or in the form of

shares, debentures. Government paper, immovable property, fixed deposit receipts,

life insurance policies, goods etc.


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Bank of Baroda was founded by Maharaja Sayajirao Gaekwad of Baroda on July 20,1908 with a paid up capital of Rs 10 lakhs. Since then bank has traversed an eventful

and successful journey of almost 103 years. Today, Bank of Baroda has a network of

3211 branches including 80 overseas branches spread over 25 countries. In mid-

eighties, the Bank of Baroda diversified into areas of Merchant Banking, Housing

Finance, Credit Cards and Mutual Funds. In 1995 the Bank raised Rs 300 crores

through a Bond issue. In 1996 the Bank tapped the capital market with an IPO of Rs

850 crores.

Bank of Baroda took the lead in shifting from manual operating systems to a

computerized work environment. Today, the Bank has 1918 computerized branches,

covering 70% of its network and 91.64% of its business.

Bank of Baroda gives high priority to quality service. In its quest for quality, the Bank

has secured the ISO 9001:2000 certifications for 15 branches.

In 2010, Bank of Baroda became the 3rd Largest Bank in India when it over took

ICICI Bank. Total Business crosses Rs 4,00,000 crores.

Centenary Year

On the 20th July 2007, the Bank entered its Centenary year. In its quest to become a

world-class bank with global best practices, the Bank is, now, well poised to take-off

with the most modern business and HR systems and processes. The Bank has already

initiated myriad HR interventions with special thrust on internal talent discovery,

upgrading the managerial skills through training, and improving the motivational

level of the employees of the bank

Bank of Baroda


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Mission Statement

A Saga of Vision and enterprise

Achievements

1) Business Performance

The Bank continued scaling new heights of business size recording global

business growth of 24.07 per cent during 2007-08. Its domestic deposits

increased by 22.82 per cent and domestic advances rose by 25.63 per cent.

During 2007-08, the Banks overseas business grew by 24.56 per cent

primarily due to a substantial increase of 35.70 per cent in overseas advances.

The overseas business contributed 20.0 per cent to total business and 23.8 per

cent to net profit. The level of net profit at Rs 1,435.52 crore for the year

2007-08 reflected a robust year-onyear growth of 39.9%.

On the front of asset quality management, while the Gross NPA in domestic

operations stood at 2.18 per cent at end-March 2008, the same for Overseas

Operations was just 0.55 per cent. The global Net NPA was pegged at 0.47

percent by the year-end 2007-08 in line with the promise given by the Bank to

its stakeholders.

yTotal Business (Deposit+ Advances) increased to Rs 2,58,735.45 crore

reflecting a growth of 24.07%.

To be a top ranking National Bank of International

Standards committed to augmenting stake holders' value

through concern, care and competence.

It has been a long and eventful journey of almost a century across 25 countries.

Starting in 1908 from a small building in Baroda to its new hi-rise and hi-tech

Baroda Corporate Centre in Mumbai, is a saga of vision, enterprise, financial

prudence and corporate governance.


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yGross Profit and Net Profit were Rs 3,028.55 crore and Rs 1,435.52

crore respectively. Net Profit registered a growth of 39.85% over

previous year

yNet NPAs to Net Advances declined from 0.60% last year to 0.47%.

Objective of Bank of Baroda

1. Special focus on improving relations with the existing corporate customers

as well as efforts to add new quality customers to the Banks Book.

2. Thrust on business process reengineering to reduce the transaction costs.

3. A dedicated effort to add 2.5 to 3.0 million quality customers to Banks book

in FY09 and in subsequent years.

4. By end of the current financial 2010-11, the Bank is targeting 54 more

branches for ISO 9001:2000 quality certification.

Global Presence of Bank of Baroda

Bank of Baroda Building inDubai


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Branch Network (as of 22/06/2010)

International Operations

Wide Global Network

Bank of Baroda started its overseas journey by opening its first branch way back in

1953 in Mombassa, Kenya. Since then the Bank has come a long way in expanding its

international network to serve NRIs/PIOs and locals. Today it has transformed into

India's International Bank.

It has significant international presence with a network of 80 offices in 25 countries

including 43 branches/offices of the Bank, 27 branches of its seven Subsidiaries and 4

Representative Offices in Malaysia, China,Thailand & Australia. The Bank also

has one Joint Venture in Zambia with 9 branches.


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The Bank has presence in world's major financial centers i.e. New York, London,

Brussels, Dubai, Hong Kong, and Singapore.

The "round the clock around the globe" , Bank of Baroda is further in the process of

identifying/opening more overseas centers for increasing its global presence to serve

its 33 million global customers in still better way.

Recently, it upgraded its operations in Guangzhou, China from Representative Office

to a branch on 2nd August 2008. It also has plans to upgrade its Representative

Offices in Australia and Malaysia.

It has further plans to establish overseas offices in Houston (USA), Canada, New

Zealand, Qatar, Saudi Arabia, Mozambique, Russia etc. Besides this, it has plans to

extend its reach in existing countries of operations in UK, UAE, Uganda, Kenya and

T&T etc.

Customers

y Individual

y Stock Broking Entities

y HUF (Hindu Undivided Family)

y Proprietorship Concerns

y Public Limited Companies

y

Private Limited Companiesy Corporate Partnership Firms

Competitors

y State Bank of India

y Punjab National Bank

y Union Bank of India

y HDFC

y ICICI

y

Standard Chartered Banky HSBC

Strengths

y It has diversified customer profile, including Blue chip companies, small and

medium sized companies, retail customers, self-help groups, and high net worth

individuals.

y It has strong brand equity and a wide customer base of over 5 million.

y Bank of Barodas financial strength has been recognized by international credit

rating agencies.

y A strong capital base ensures that it is well placed for growth of business.

y The bank, which has consistently earned profit since its inception, has

committed and competent human capital to power its aggressive growth plan.


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Product Profile

Wholesale Banking Deposit Products

SME Banking Loan Products

Retail Banking ATM / Debit Cards

Rural/Agri Banking Internet Banking

Wealth Management Rapid Funds2India

Demat Baroda e-Trading

The Values of the Bank

y Management Team - The core strength of Bank

y

Technology and Tech Initiativesy Strategic Initiatives

y Corporate Banking and Credit

y The Bank of Baroda Family

Future of the Bank

Bank of Baroda looks confidently

into future to face & thrive in

intense competitive environment

that is emerging in global era.


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Objective of the Study

The main objective of this study is to analyze different types of home loans and

education loans offered by Bank of Baroda and also identify the competitive

advantage of Bank of Baroda over its competitors and peer banks in retail loan

segment in India. This study also covers the recent transformations taken place in

retail loan segment in recent past in both Public sector and Private sector financial

institutions in India.

During this study, I came to know about different types of home loans and education

loans and the procedure involved in the approval or rejection of the loans in Bank of

Baroda. Following are the other objectives that are also involved in the successful

completion of the project assigned.

y

To know the scenario of home loans and education loans in India.y To know different types of loans offered by Bank of Baroda and its

competitors in home loan and education loan category.

y To know the procedure followed by different financial institutions during

the sanction of loans.

y To know various parameters that play major role in the approval or

rejection of loan applications.

y To know the differences in rate of interest and other fees charged by Bank

of Baroda and other financial institutions in retail loan segment.

y To know the concessions in interest rates and charges and penalties, value

added services and benefits offered by various financial institutions in

India.

y To know the RBI directives and tax benefits that is allowed by the Govt. of

India to the applicants in home loan and educational loan category.

y To know both the financial institutions point of view and also the

customers point of view.

y To know the advantages and drawbacks in the loan products provided by

Bank of Baroda over other financial institutions in India.

Thus, all these objectives helped to complete the study successfully.


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Work Done

a.Online Automation of Customer Data (LAPS)

LAPS (Lending Automation Processing Software) is used to automate the

customer profile i.e., personal details, employment details, income details,

CIBIL report, property details etc. Based on the details entered, the software

provides a rating to the customer. This rating is used to decide whether to

approve the loan requested by the customer or not.

Procedure for applying Retail Loans

a.Application

First of all, the applicants have to make an application to the concerned bank in

which he/she wants to get loan. Also need to submit the documents that are

requested by the bank as per the needs of the loan.

Application

CIBIL Reports

Pre Credit

Deviation

LAPS

Inspection

Appraisal

Approval

Disbursal


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b.CIBIL (Credit Information Bureau (India) Limited) Reports

CIBILs aim is to fulfill the need of credit granting institutions for

comprehensive credit information by collecting, collating and disseminating

credit information pertaining to both commercial and consumer borrowers, to a

closed user group of Members. Banks, Financial Institutions, Non-Banking

Financial Companies, Housing Finance Companies and Credit Card

Companies use CIBILs services to check the credibility of the customer in

order process his request (i.e., loan process, credit card approval or any

sanctioning any of companys products to the customer).

c.Pre Credit

Banks or financial institutions will verify the all documents submitted by the

customer for loan and the customers income, liabilities, valuation of

personal properties and ability to repayment of the loan. Based on this

report, the Pre Crediting Officer suggests deviations (if any) in interest rate,

repayment period, loan amount, additional security etc. regarding the

application of the customer in order to approve the loan.

d.Deviation

In this phase, the Loan Officer suggests deviations (if any) in the loan amount,

repayment tenure, processing charges, security or interest rates by considering

the Pre Credit Report of the customer prepared by Pre Crediting Officer of the

bank. This is also an important phase in the loan procedure. Branch Manager

can also suggest deviations at any point of time during loan sanction process.

e.Online Automation of Customer Data (LAPS)

LAPS (Lending Automation Processing Software) is used to automate the

customer profile i.e., personal details, employment details, income details,


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CIBIL report, property details etc. Based on the details entered, the software

provides a rating to the customer.

f.Inspection (Residence, Work Place, Personal Property)

Based on the documents submitted about the residence, employment, property

etc. are being inspected by a loan officer of the financial institution.

g.Appraisal

Based on the inspection report submitted by the loan officer, customers

credibility will be appraised which is a major phase in loan sanctioning

procedure.

h.Approval

Based on the rating given by the LAPS and the appraisal report, senior

manager of the branch or any other employee of equivalent designation will

decide whether to approve the loan or not.

i.Disbursal

Once the loan has been approved, the loan amount will be disbursed based on

the requirement of the customer. Based on the nature of the application,

additional documents may be required during disbursement of the loan amount.


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Comparative Study of Housing Loan Applicants

Name Lokesh Kumar Singh Bharat Singh Amit Kumar

Age, Marital

Status &

Qualification

30Yrs, Graduate &

Single

29Yrs, Graduate &

Married

28Yrs, Graduate

EmploymentDetails

(Salaried/

Self

Employed)

Middle Management,Indian Oil Corporation

Ltd.,

West Bengal.

Govt. Public Sector

Proprietor,Own Business / Self

Employed

Proprietor,Own Business / Self

Employed

Co-

Applicant

None Yes None

Income

Details

Gross Income,

Rs73,845

Deductions,

Rs16,744

Gross Income,

Rs366,66 (Applicant)

Rs39,027(Co-

Applicant)

Deductions,Rs5486 (Applicant)

Rs2000 (Co-Applicant)

Gross Income,

Rs14194

Deductions,

Rs1560

Relationship

with Bank

No Yes (Short Term) Yes (Short Term)

Loan Details

(Loan Amt.

@ ROI

(Tenor))

Rs20L @ 8.75%

(240Months), FlexibleROI

Rs34L @ 9.50%


Rs5L @ 9.00%


Purpose Purchase of Flat Purchase of Flat Purchase of Old Flat

Property

Cost

Rs30.08L Rs42.40L Rs13.69L

EMI EMIbased onProposed

Loan

Amount

Rs18,214

EMI

repayment

capacity

of

borrower

Rs27,563

EMI

Limit

Within

Limit

EMIbased onProposed

Loan

Amount

Rs35,504

EMI

repayment

capacity

of

borrower

Rs37,930

EMI

Limit

Within

Limit

EMIbased onProposed

Loan

Amount

Rs4,112

EMI

repayment

capacity

of

borrower

Rs5,537

EMI

Limit

Within

Limit

Mobility ofIndividuals

Location

Has not changedlocation in past 3 years



No. of

Dependents

0 3 2

Proof of

Income of

Borrower

Income Tax Returns Income Tax Returns Income Tax Returns


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Ratings 1. Net worth to Loan

Ratio 0.70

2. Net Annual Income

of the Borrower

Rs6,85,212.00

3. Fixed Obligations to

Income Ratio 0.474. Marketability of

Property (Home Loan

Very Good5. Guarantors Net

worth to Loan Ratio 0.00

6. Loan to Value Ratio 0.66

7. Number of JointApplicants 0

8. Housing Loan

Purpose Category Purchase (New

construction9. Stability of Income -

Income has beensteadily increasing over

last 3yr

1. Net worth to Loan

Ratio 2.92


of the Borrower

Rs8,18,484.00



Property (Home Loan

Good5. Guarantors Net


6. Loan to Value Ratio 0.80


8. Housing Loan

Purpose Category Purchase (New


Income has beensteadily increasing over

last 3yr

1. Net worth to Loan

Ratio 3.45


of the Borrower -

Rs1,51,608.00



Property (Home Loan)

Very Good5. Guarantors Net


6. Loan to Value Ratio- 0.36


8. Housing Loan

Purpose Category Purchase (Old


Income has beensteadily increasing

over last 3yr

Score Obtained 115

Cut-Off -96

Grading HL6

Obtained 79

Cut-Off -96

Grading HL10

Obtained 98

Cut-Off -96

Grading HL8

Loan Status Sanctioned Rejected Sanctioned

Key Terms

1.Net Worth to Loan Ratio =

2.Fixed obligations to Income Ratio =

3.Loan to Value Ratio =

4.HL Housing Loan

Total Income Total Deductions

Loan Requested

Total Liabilities

Total Income

Loan Requested

Value of the Property


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Documents required to Process Loan Application

For General Applicant:

y Passport size Photograph

y

Age Verification Certificate (school/college/leaving certificate or marksheet, PAN card. Election Identity card, Passport, Driving License, Ration

Card, Birth Certificate.)

y Bank Statement for past 36 months or salary Account and any other

operating A/C.

For self Employed:

y Computation of Income, Balance sheet, the Profit and Loss A/C along

with schedules of company and individuals for past 3 years dulycertified by C.A.

y Memorandum/Article of Association or partnership as applicable.

y Brief profits of the company.

y A/C continuity proof for the last one year.

y Office address proof.

y Residence address proof.

y Qualification certificate for self-employed professionals.

y Sale deed/ Agreement of sale. (In case of Housing Loan)

y Copy of approval plan if applicable. (In case of Housing Loan)

y Letter of allotment of Housing Board or society. (In case of Housing

Loan)

y Permission for construction if applicable. (In case of Housing Loan)

y Valuation of property which is to be financed. (In case of Housing

Loan)

y In case of agricultural land conversion into copy of relative order.

y NOC under the provision of ULC Regulation Act, 1976 in original.

For Salaried:

y Latest salary certificate/sleep showing all the deduction of the employer.

y Four months salary statements required in case of variable salary


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Note

yMore or less additional documents may be required as per the banks rules.

Terms related to Retail Loans

y EMI: Equated Monthly Installment till the loan is paid back. It consists of a

portion of interest and the principal.

y Floating Rate of Interest: Rate of interest which varies with the market

lending rate. This means that there is an element of risk of paying more than

budgeted amount in case the lending rates goes up.

y Monthly Reducing Balance: In this system interest reduces monthly with

repayment of Principal amount.

y Annual Reducing Balance: In this system principal is reduced annually at the

end of the year so you end up paying interest even for the portion of principal

you have actually paid back.

y Fixed Rate of Interest: Rate of interest remains unchanged throughout the

period of the loan.

y Processing Charge: It's a fee payable to the on applying for the loan.

y Prepayment Penalties: When loan is paid back before the agreed term of the

loan, then banks/ institutions charge penalty for the prepayment.

y Commitment Fee: Some institution charge commitment fee in case the loan

is not availed within a stipulated period, after it is processed and sanctioned.

y Miscellaneous Cost: It is quite possible that some lenders may charge

documentation or consultant charges.

y Latest form 16/ I.T. Returns

y Appointment/Increment letter from the employer for annual benefit to be

considered.


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Retail Loans

A wide range of solutions for your financial needs.

Bank of Baroda offers a wide range of retail loans to meet your diverse needs.

Whether the need is for a new house, child's education, purchase of a new car or home

appliances, our unique and need specific loans will enable you to convert your dreams

to realities.

Key Products

Housing Loan Housing Loans to NRIs / PIOs

Home Improvement Loan Loan Against Future Rent Receivables

Mortgage Loan Advance Against Securities

Education Loan Baroda Career Development Loan

Auto Loan Two Wheeler Loan

Loan to Doctors Traders Laon Loan to Pensioners

Personal Loan Baroda Ashray (Reverse Mortgage Loan)

Loan for financing Individuals for subscription to Public Issues /IPO


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Housing Loan - Bank of Baroda

1. Baroda Housing Loan - Be a Proud Home Owner

Bank of Baroda invites you to be a proud owner of your own home and offers easy

Home Loan with a number of conveniences to suit your budget.

Home Loan is available for,

y Purchase of new / old dwelling unit.

y Construction of house.

y Purchase of plot of land for construction of a house.

y Repaying a loan already taken from other Housing Finance Company / Bank.

y Repayment period up to 25 years (floating rate option).

2. Baroda Home Improvement Loan

Bank of Baroda brings to you a unique loan product. A loan for Repairs / Renovations

/ Improvement / Extension of Home and for Furniture, Fittings & Fixtures.

Key Benefits

y Loan available for repairs / renovation / improvement / extension of the

existing house.

y Loan available for purchase of furniture / fixtures / furnishing / other gadgets

such as fans, geysers, air conditioners etc. required, to:

oOur existing housing loan borrowers

oNew borrowers


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Education Loan - Bank of Baroda

Education is the most important investment one makes in life. Higher studies and

specialization in certain fields call for additional financial support from time to time.

Whether you are planning school education (nursery to standard XII) of your child,pursuing a graduate or post-graduate degree, the Bank of Baroda Education Loans,

can help finance your ambitions and goals.

Following are the loan options available:

1.Baroda Vidya

Bank of Baroda presents a one of its kind finance option for parents of

students pursuing school education. These loans are available for studies from

Nursery to Senior Secondary School.

2.Baroda Gyan

A loan product specially designed for students pursuing Graduation, Post -

Graduation, Professional & Other courses in India. Bank of Baroda extends a

helping hand to energize your studies and promote education of the youth.

3.Baroda Scholar

Bank of Baroda presents financial assistance to students going abroad for

Professional / Technical studies. The loan offering is designed to empower you

with the financial capability to realize your dreams... Achieve your goals...

Reach out to the maximum limits...


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4.Baroda Career Development

Gainfully employed persons intend to pursue higher education, vocational

courses, trainings, pilot trainings, skill up gradation, diploma or degree courses

offered in aviation, hospitality and travel management, executive development

etc. in India / abroad.

To help the future management leaders acquire higher specialized managerial

skills and dominate the global arena, Bank of Baroda brings to you Baroda

Career Development, a unique loan facility for working persons.


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RBI Directive for Home Loans

The Reserve Bank of India (RBI) has in the latest directive asked the Indian

banks to be more "fair and transparent" while signing their agreements with the

consumers. This has come following complaints from various consumer sectionsregarding home loans.

It has emphasized on the fact that while giving a home loan, the banks should not tie

their loans with their own prime lending rates (PLR) which often results in pro-bank

and against consumer interest.

y Households should get credit counseling before signing any loan agreement.

In such case, banks should give credit counseling to customer before giving a

loan. Any non-governmental organization can also give independent creditcounseling to small borrowers.

y Consumers often complain of not receiving benefits of falling interest rates as

banks tie their floating rate loans with its PLR and even when rates fall, the

banks kept the PLR unchanged. But when interest rates are hiked, the banks

increase the benchmark rate, thus making customers pay a higher rate and

consequently increase the number of EMIs too. The RBI has asked the banks

to mend rules for the same.

y Individual borrowers should ask for the exact tenure and EMI while taking a

fixed rate loan. The RBI has also resolved to look into all consumer

complaints if it is bought to the regulator's notice.

y The IRDA (insurance regulator) has powers to take action against banks if a

customer feels cheated while buying an insurance product. On its regulatory

role, the RBI is trying to maintain a balance between the extent of freedom

granted to the banks and the objectives of governance.

y RBI has made it mandatory for all banks - including private and foreign banks

- to offer a passbook to their customers with the address and telephone number

of the nearest branch.


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y Customers have often been harassed by banks' call centers where there is no

accountability of the query made. The "do not call" registry has also been

flouted by banks as customers are bombarded with unnecessary product

offerings. The RBI has directed the Indian Banks' Association to come out

with a single "do not call" registry or when a customer adds his name to a

single bank registry it should then stop unsolicited calls from all banks.

y On rising credit card frauds and wrong statements given by the banks, the RBI

has asked the customers to approach the ombudsman to redress their problems.

This way the RBI feels would inculcate more consumer friendly practices

among Indian banks.

Tax Benefits

There are certain tax benefits for the resident Indians based on the principal

and interest component of a loan under the Income Tax Act, 1961. It may help one get

tax benefit up to Rs.50, 490 p.a. (approx). if interest repayment of Rs.1,50,000 p.a. is

paid. In addition to this, one also is eligible for getting tax benefits under section 80C

on repayment of Rs.1, 00,000 p.a. that further reduces the tax liability by Rs.33.660

p.a.

These deductions are available to assesses, who have taken a loan to either buy or

build a house, under Section 24(b). However, interest on borrowed capital is

deductible up to Rs150, 000 if the following conditions are fulfilled:

y Capital is borrowed for acquiring or constructing a property on or after April

1, 1999.

y The acquisition and construction should be completed within 3 years from the

end of the financial year in which capital was borrowed.

y The person, extending the loan, certifies that such interest is payable in respect

of the amount advanced for acquisition or construction of the house

y A loan for refinance of the principle amount outstanding under an earlier loan

taken for such acquisition or construction.


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If the conditions stated above are not fulfilled, then the interest on borrowed capital is

deductible up to Rs30, 000 though the following conditions have to be satisfied:

y Capital is borrowed before April 1, 1999 for purchase, construction,

reconstruction repairs or renewal of a house property.

y Capital should be borrowed on or after April 1, 1999 for reconstruction,

repairs or renewals of a house property.

y If the capital is borrowed on or after April 1, 1999, but construction is not

completed within 3 years from the end of the year, in which capital is

borrowed.

In addition to the above, principal repayment of the loan/capital borrowed is eligible

for a deduction of up to Rs1,00,000 under Section 80C from assessment year 2006-07.

Terms and conditions for availing Tax benefits on Home Loans

1.Tax deductions can be claimed on housing loan interest payments, subject to an

upper limit of Rs1, 50, 000 for a financial year.

2.An additional loan for extension/improvement to the same house and the

individual's deductions on the existing loan are less than Rs1, 50,000; he can

claim further benefits from the additional loan taken, subject to the upper limitof Rs1, 50, 000 for a financial year.

3. Tax benefits under Section 24 and deduction under section 80C of the Income

Tax Act can be claimed only when the payment is made. If an individual fails

to make EMI payments, he cannot claim tax benefits for the same.

4. According to the Income Tax Act, tax rebates can only be claimed by the loan

applicant.

5. The interest on home loans taken for repairs, renewals or reconstruction, also

qualifies for the deduction of Rs 150,000.

6. A husband and wife, both of whom are tax-payers with independent income

sources, get tax deduction benefits, with respect to the same housing loan; to

the extent of the amount of loan taken in their own respective name.


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7. If an individual buys a house and sells it within the same year or after 3 years,

and if any profit is made, then a capital gains tax liability arises on the same

for which the individual is liable to pay short-term capital gains tax since the

sale took place in the same year. But in case, if the sale had taken place after 3

years, then a long-term capital gains tax liability would have arisen.

8. On being proved that the home loan is simply an arrangement between the

loan-seeker and the builder or with a third party for the purpose of claiming

tax benefits, then tax benefits will not be allowed and benefits, previously

claimed, will be clubbed to the income and taxed accordingly.

9. Tax benefits on interest on housing loans are allowable only for the original

loan and according to Section 24 (1), tax benefits can also be availed for a

second loan taken to repay the first loan but not for subsequent loans. This

means that if you have already availed of one loan to refinance the original

loan and now want to avail a third loan to refinance the second loan, tax rebate

on interest payments will not be permissible.


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Home Loans in India

that not everyone in this globe is like you, loaded enough (financially, of course) to be

able to build a house as soon as he wants to.

Whether you are Non Resident Indian or Resident of India, and you are thinking to

start your journey of buying a new house, looking to move to a new house, investing

in property or are looking forward to refinance, Consider answering these questions to

yourself:

y Which type of home loan should I prefer?

y What interest rate and repayment period will be affordable by me?

y Will it be the best scheme that will be fitting my budget?

y Can any insurance plan cover for an unpaid monthly due?

y Is there a fine or penalty or even some reward as well if the whole amount of

loan is paid ahead of the due date?

These are just a dash of the questions to be answered when considering taking the

plunge into the loan journey. The different home loan types are hereby presented to

you to make your journey that more smoother or step by step, safer and comfortable.

Yet, Got a fix on fixed rate or variable rates, offset accounts, lines of credit or

bridging loans!!

You'll soon realize that home loan

companies do exist, and they continue

to exist to provide Basic Home

Insurance as well as Home Loan

Information including Home Loan

Resources because of the very people

who desire to own a house the soonest

possible time - like you!

It is definitely one of the major things

that one can board on in his / her

lifetime. The bad news is: however is


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With so many real estates sites coming up in Indian market, finding an ideal house

isn't that big issue nowadays, when you can virtually see all across the home you need

to purchase by the various real estate simulation programs and videos available, but

you still need to purchase it, right? - To really say "own" it. A home loan, also

popularly identified as a mortgage, is an easier financial option to own a house. Once

you've decided to endeavor on a home loan, there are so many things that you need to

be informed with. Not only is it going to be an emotional experience, it is also going

to be a very informative monetary journey, as you will be dealing with the whole

caboodle of the mortgage process along the way.

There are thousands of home loan companies waiting to provide you with your

financial needs. Part of the success of this whole financial move is partly in your

hands, the greater part relies on the efficiency of your chosen mortgage company.

Home Loan Types

Owning a piece ofland orproperty is a lifetime dream for every individual. There

are many home loans provider in the market to make your dream come true. But

before you opt for any home loan provider, you need to consider certain factors

related to property that you are interested in buying and also about the salient features

offered by a home loan provider and also study some Home Loans and Home

Insurance FAQs which helps in applying a Home Loan in India.

And the most important thing is you should know about each and every term related

with Home Loans before applying for a Loan. It is always advisable to consult a home

loan expert or consultant before applying for a home loan or purchasing a property.

You can take different types of home loans like

y Home Purchase Loans: These are the basic forms of home loans used for

purchasing of a new home.

y Home Improvement Loans: These loans are given for implementing repair

works, healing and renovations in a home that has already been purchased.

y Home Construction Loans: These loans are available for the construction of

a new home.


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y Home Extension Loans: These loans are given for expanding or extending an

existing home. For eg: addition of an extra room etc.

y Home Conversion Loans: These loans are available for those who have

financed the present home with a home loan and wish to purchase and move to

another home for which some extra funds are required. Through home

conversion loan, the existing loan is transferred to the new home including the

extra amount required, eliminating the need of pre-payment of the previous

loan.

y Land Purchase Loans: These loans are available for purchasing land for both

construction and investment purposes.

y Bridge Loans: Bridge loans are designed for people who wish to sell the

existing home and purchase another one. The bridge loans help finance the

new home, until a buyer is found for the home.

Why take a Home Loan?

What's an average middle class Indian's most cherished dream?

Purchasing and moving into a dream house would generally rank among the top three

things on the wish list of most people. After all its what been proved by Maslows

Law of Hierarchy as well. That entire house hunting every few years, grumpy

landlords, killing rents would be a thing of the past. Hey, you even get to use nails to

hang your favorite paintings and pictures. Dont you???

Taking a home loan nowadays has become very simpler. The RBI has been regularly

slashing interest rates, with the result that housing finance loans that came at an

interest rate of 16.5% to 18% eight years ago are now available at 9.50% to 14.50% or

lower. Each year the Finance Minister's generosity during the Budget seems to be

solely concentrated for the housing sector and construction sector. The Budget 2000'sallowed interest payment up to Rs1lakh and principal payment of Rs20, 000 to be

exempted from income tax. To top it all, the Housing Finance Companies (HFCs) are

aggressively wooing customers. Now, when the sun shines, its the best time to make

hay. Isnt it?


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Comparative Analysis of PSU Banks Home Loan Products

Bank Bank of Baroda State Bank of India Bank of India

Products Type Interest

(P.a.)Baroda

Home Loan

9.5% to

10.75%(Fixed)

8.5% to

9.75%

(Floating)

Baroda

Home

Improvement

Loan

10.5%

Baroda

Home Loansto

NRIs/PIOs

14.5%

Type Interest (P.a.)

SBI HI-FIVE

(


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Eligibility 1. Minimum age must be 21

years. Age of the borrower

plus repayment period should

not be beyond retirement age

or 65 years whichever is

earlier2. Must be employed/self-

employed or having a

business unit and stayingabroad at least for 2 years

3. Must have minimum grossannual income equivalent to

Rs.5Lacs per annum.

1. The applicant should be at

least 18Yrs old from the date of

loan sanction.

2. The loan applicant should

have a source of regular

income.3. In case of NRIs the applicant

should be holding a legitimate

Indian passport or a legitimatework permit and should have

been employed overseas for atleast 2Yrs.

1. Salaried

employees,

Professionals like

Doctors, Lawyers,

Engineers,

CharteredAccountants, Self-

employed persons.

Requests are alsoconsidered in

special cases fromGroup of

individuals, NRIs,PIOs, HUF, Prop.

Firm, Partnershipfirms and

corporate.

Interest

Rates

Fixed Up to Rs30L,

9.5% to10.5%

Above Rs30L,

10.25% to

10.75%

Floating Up to Rs30L,

8.5% to 9%

Above Rs30L,

9.25% to

9.75%

Fixed 8% to 11%

Floating 9% to 10%

Fixed No

Floating 8.75%to

11%

Security An equitable mortgage of thehousing property and / or

other suitable securities.

1. Equitable mortgage of theproperty.

2. Other tangible security of

adequate value like NSCs, Life

Insurance policies etc., if the

property cannot be mortgaged.

1. EquitableMortgage (1st

Charge) on

land/flat/house.

2. 3rd Party

Guarantee.

Prepayment

Penalty

Up to Rs20L No

Prepayment Penalty (If Closed

from own sources)

In case of full prepayment or

foreclosure (other than from

own sources) fees will be

charged at 0.5% for each yearof the residual period subject

to max. 2%.

1. The bank charges a penalty

for prepayment of the home

loan if the loan is pre-closed

even before the half of the

genuine loan tenure.

2. There is no provision of

penalty for bulk payments if theloan scheme is not

discontinued.

No


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USPs 1. 0.25 bps concession in rate

of interest is available to

employees of preferred

organizations and group

borrowers.

2. Hassle free processing of

loans as majority of proposedhousing societies is approved

by the bank.

3. One of the Oldest Banks inIndia and Customer Trust.

4. One of the largest and mostwidespread networks of

branches across in India.5. Easy and Flat EMI

Repayment Option.6. Interest charged on the

daily reducing balance.

7. Free Personal Accident Ins.Cover for the borrower.

1. No Application or

Administration Charges.

2. Loans can be repaid up to the

age of 70Yrs.

3. Only Bank to offer Home

Loans @ 8% p.a. ROI (for 1st

Year).4. Low Processing Charges.

5. No Upper Limit on the Loan.

6. Interest charged on the dailyreducing balance.

1. Interest is

calculated on daily

balance basis.

2. No Prepayment

Penalty.

3. Free Personal

Accident Ins.Cover for the

borrower.

4. Loan amt. ofRs1L for

furnishing thehouse/flat.

Analysis

y Among PSU Banks, SBI has better product profile in home loan category.

Bank of Baroda competes strongly with SBI by providing equivalent product

profile.

y SBI offers loan at flexible interest rates by charging 8.00% p.a. interest rate for

first year. Whereas, Bank of Baroda offers flat interest rate of min. 8.50%

from the first year of loan disbursement.

y Bank of Baroda offers a concession of 0.25bps in interest rates for employees

of Govt. or Preferred Organizations. Whereas, SBI offers no concession to any

type of customers.

y Bank of Baroda process the loan application in 6 days after submitting loan

application. Whereas, SBI takes at least 10 to 15 days to process the loan

application.

y Bank of India does not charge any penalty on prepayment of loan. Whereas,

Bank of Baroda charges nil penalty on amount prepaid from own sources.

y SBI offers a no upper limit on the loan amount. Whereas, Bank of Baroda

offers a max. amount of Rs1Cr.


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Competitive Advantage BOB Over SBI Housing Loans

Bank Bank of Baroda State Bank of India

Concession Offers 0.25bps concession in Rate

of Interest to Employees of

Preferred Organizations & GroupBorrowers.

No concession in Interest Rates

is Offered.

Margin Over Rs20L of loan amount only

20% of margin is charged.

Up to Rs75L of loan amount a

margin of 20% is charged.

Prepayment Penalty Up to Rs20L No Prepayment

Penalty (If it is closed from own

sources).

The bank charges a Penalty for

Prepayment of the home loan if

the loan is pre-closed even

before the half of the genuine

loan tenure.

Interest Rates Flexi Interest Rate Facility is

provided.

Flexi Interest Rate is not

provided.

EMIs Flexible EMIs. Reducing EMIs.

EMIs-Housing Loans

Bank

Amt.,Rs30L

Tenure,

15Yrs

Bank of Baroda SBI

General Govt. or Preferred Organization

Floating(8.50%)

Fixed(9.50%)

Floating(8.25%)

Fixed(9.25%)

Floating Fixed

EMIs

(Rs.)

29,542.19 30,875.77 29,104.21 31,326.74 - 28,669.56

- 27,859.42

22,897.25 24,912.39

TotalInterestPaid

(Rs)

23,17,594.2 25,57,638.6 22,38,757.8 26,38,813.2 17,43,101.98 20,33,282.14

Competitive Advantage SBI Over BOB Housing Loans

Bank Bank of Baroda SBI

Products Less Number of Categorizations. Wide Variety of Product

Categorizations

Amount Maximum up to Rs1Cr. No Upper Limit on the Loan.

Tenure Maximum of 25Yrs. Maximum of 25Yrs but the

Individual age can be up to70Yrs.

Processing Charges Charges a Min. of 0.35% on LoanAmount.

Low Processing Charges.

Prepayment Penalty No Penalty up to Rs20L. No Penalty for Bulk Payments.


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Comparative Analysis of Private Banks Home Loan Products

Bank HDFC Bank ICICI Bank HSBC Bank

Products 1. Construction

2. Purchase3. Repairs

1. Construction


1. Construction


Max.Amount

Max - Rs1Cr Min. - Rs2LMax. - Rs1Cr

Mumbai &New Delhi(NCR),

Rs.5L to Rs.5CrBengaluru,

Rs.5L to Rs.3CrChennai,

Rs.2L to Rs.3Cr

Tenure Ranges Up to 20Yrs Ranges Up to 25Yrs Ranges Up to

25Yrs

ProcessingCharges

1% of Loan Amt. + ServiceTax as Applicable

0.5% of the loan amount orRs1500/- (Rs2000/- for

Mumbai, Delhi & Bangalore),

whichever is higher +

applicable Service Tax &Surcharge.

1% of the loanamount applied for,

subject to a

minimum of

Rs10000 plusservice tax.

Margin 15% of the cost Home Loa,15% to 20% of the Cost

15% of the Cost

Eligibility

1. The applicant should be at

least 18Yrs old from the date

of loan sanction.

2. The loan applicant should

have a source of regular

income.

3. In case of NRIs the

applicant should be holding a

legitimate Indian passport or alegitimate work permit and

should have been employed

overseas for at least 2Yrs.

1. You must be employed or

self-employed with a regular

source of income.

2. Age Should be in between

24Yrs to 65Yrs.

1.Age Should be in

between 24Yrs to

65Yrs

2. Income,

Rs5L p.a (salaried)

Rs7. 5L p.a (self-

employed)

Interest

RatesFixed 14.25%

Floating 8.75% to

9.25%

Fixed 13.75

Floating 11.25%

Fixed 11% to14%

Floating 9% to

14%

Security Not Required 1. Equitable Mortgage (1st

Charge) on land/flat/house.

2. 3rd Party Guarantee.


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Prepayment

Penalty

1. No prepayments allowed in

first 6 months

2. 6 months - 5 years,

1.5% of original loan

amount

3. 5 years -10 years,

0.75% of original loanamount

4. > 10 years,

No closure fee

Nil - 2% + applicable Service

Tax & Surcharge on full

prepayment

1. You can opt to

pre-pay up to 25%

of your loan every

year. Pre-payment

is permitted after a

minimum of 6

months followingloan disbursal.

2. For amount in

excess of 25% ofthe loan amount

sanctioned - 3%.ofAmt. Prepaid

USPs 1. The customer can break the

loan into two segments with

one part being charged with

fixed rates and another partwith floating rates, thus

minimizing the risk factor.

2. No security/guarantor is

required.

3. Among Private Banks,

HDFC offers low ROI (i.e.,

8.25% p.a.) on loan amt.4. An applicants minimum

age should be at least 18Yrs.

1. Doorstep delivery of homeloan papers.

2. Sanction approval withouthaving selected a property.

3. Brand Image and has more

number of customers.

4. Highly networked bank inIndia.

1. Prepayment

option up to 25% of

loan after 6 months

of disbursement.2. Pre-approved

loan facility.

3. Provides the

option of switching

from a floating rate

home loan to a

fixed rate homeloan once a year at

no extra cost.4. Resident Indians

are eligible for

certain tax benefitson principal andinterest components

of a housing loan

under the Income

Tax Act, 1961.

Analysis

y Among Private Banks, HSBC bank has better product profile in home loan

category. HDFC bank and ICICI bank competing strongly with HSBC bank by

providing equivalent product profile.

y HDFC bank offers loan at flexible interest rates by charging 8.25% p.a.

interest rate for first year. Whereas, HSBC bank offers flat interest rate of min.

9.00% from the first year of loan disbursement.

8/7/2019 36314685 Comparati

36314685 Comparative Study of Bank s Retail Loan Products Vis a Vis Competitions or Peer Banks

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Transcript of 36314685 Comparative Study of Bank s Retail Loan Products Vis a Vis Competitions or Peer Banks