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CREDIT APPRAISAL OF A LOAN APPLICANT INTRODUCTION REQUIRED DOCUMENTS PROCESS PRECAUTIONS

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INTRODUCTION Credit appraisal is one of the most important and significant step in the Home Loan process. In case of home loans we either create new accounts or maintain pre existing ones.Credit appraisal is however a part of sanctioning new loans.or enhancing the existing one Credit Appraisal starts from the moment you take the documents from customer for Loan. Which is then sent to back office for processing which is called HUB .In case of India Habitat Centre it refers to the well recognized HDFC Regional office at Munirka .

CATEGORIES In case of Credit Appraisal there are three main cateogories

1. SALARIED PERSON Here the Credit Appraisal is done for a salaried person .We try to compute the credit worthiness of a salaried person .By saying that we mean that the person is employed as an employee in a recognised organization.The organization may be public or private The person must have proof to prove his employment like credit documents etc.

2. SELF EMPLOYED PERSON The nature of Credit Appraisal done for a self employed applicant is slightly more complex and dicey.This is due to the presence of enormous bank statements as well as transactions involved in business.As conducting Business in modern times is a capital intensive process DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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the bank statements of self employed persons are large and much more complex.The statement runs into a large number of pages due to the multiple number of transactions Apart from that their income statements are also quite complex due to presence of many components.

Hence in the case of a self employed person demanding a loan the credit appraisal has to be done very carefully .For this very purpose HDFC Ltd has appointed Specialized Credit Appraisers and a specilaised Selfemployed Committee.These consist mainly of Chartered Accountants. They handle the important job of appraising the credit worthiness of the self employed applicants.

3)SELF EMPLOYED PROFFESSIONAL The self employed professionals include people like Doctors,Chartered accountants ,Engineers etc. Only HDFC recogonizes these professionals as a separate category and has hence developed a comparitively smoother procedure for their Credit Appraisal and sanctioning.of loan.

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REQUIRED DOCUMENTS

The Credit Appraisal is an important step in sanctioning loan applications .Hence the Credit Appraiser needs to have certain important documents to compute the credit worthiness of the applicant .In the case of salaried person these include the following

1. SALARY SLIPS (3 MONTHS CURRENT) The salary slip is usually a printed sheet of paper that contains 2 components A. Income/Earnings collumn It contains an exhaustive list of the various components that are added to the persons salary.They contain various components like Basic pay ,HRA etc. B. Deductions It contains an exhaustive list of various components that are deducted from the persons Earnings.They contain various components like Income tax,Provident fund,Employee Loans etc.

2. BANK STATEMENTS(6 MONTHS CURRENT) The bank statement contains the various transactions that the applicant performs in his bank account.It has 3 components DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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A. Date B. Descriptions It contains the brief and standardised description of the activity or the account related to the transaction .Eg. Clearing cheque 166129,Transfer deposit C. Deposits It contains the amounts that were credited to the account D. Withdrawal It contains the amounts that were debited to the account.This is carefully studied to find out about any regular withdrawals or a series of checks so that any exsting loans may be revealed and there can be a correct estimate of the repayment capacity. E. Balance It shows effect of transaction on the pre existing account balance F. Special feature HDFC will not consider any loan s with out standing EMI of or below 6 months.

3 FORM 16 It is form given by Employer which states the income earned from that company during the full financial year ,and gives the details of Tax deducted at source.

4

.COPY OF INCOME TAX RETURN(SARAL) The SARAL tax return form reveals the structure of incomes and/or the vaious earnings of the tax returnee .It also shows the various deductions that will not be included and it also contains the Rebates on which he earns tax benefit.

5. RESIDENCE PROOF The residence proof includes the Electricity bill,Telephone bill,Ration Card ,Passport. DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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6.

PHOTO ID PROOF The photo proof includes the Pancard ,Voter ID card,Employee ID card,Passport etc.

7.

AGE PROOF The age proof includes the Pan card,Passport,Photo ID.

8.

LOAN APPLICATION FORM DULY FILLED It can also be downloaded from HDFCs user friendly web based portal.

9.

CHARGES FOR PROCESSING FEES This is a standard and nominal fees to be paid at the time of applying for loan Fees structure.

OR

0.5% of loan amount +Service tax of 12% (less)Education cess of 3%

5618/-

HDFC takes from applicant whichever is less.This is applicable time to time.

10. PHOTOCOPIES OF PROPERTY PAPERS

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SPECIAL CASE In the event that the applicant has only recently joined an organization OR there is a recent increase in the salary he will not be able to produce the afore mentioned documents. In that case to not give inconvenience to Borrower HDFC will demand only the following A. Copy of appointment letter B. Increment letter

SELF EMPLOYED PROFESSIONAL 1. 2. 3. 4. 5. 6. 7.

Application form with photo Identity and residence proof Educational Qualifications Certificate and Proof of Business Existence Last 3 years Income Tax returns (self and business) Last 3 years Profit and Loss and Balance Sheet Last 6 months Bank Statements Processing Fee Cheque

SELF EMPLOYED BUSINESSMAN 1.Application form with photo 2. Identity and residence proof 3. Educational Qualifications Certificate and Proof of Business Existence 4. Last 3 years Income Tax returns (self and business) 5. Last 3 years Profit and Loss and Balance Sheet 6. Last 6 months Bank Statements 7. Processing Fee Cheque 8. Business Profile DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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PROCESS The process of Credit Appraisal involves the calculation of two important ratios A. Income to Installment ratio B. Loan Eligibility ratio However ahead of that we need to compute the actual salary we are going to consider for Appraisal.Along with that we will compute the deductions that need to be reduced from the salary

STEP 1

The income slip of the applicant has many components .We first calculate the GROSS SALARY of the applicant .It is a simple process of adding the various incomes and/or earnings of the applicant.However in HDFC the aim is to provide convenience to the customer through every stage .Hence a special procedure is followed in calculation of this salary. We will add various standard and uniform components .That means that in the calculation of Gross Salary we shall consider 100 percent of these components .This is because these Earnings will always be a part of his take home pay package .Hence they are going to always be a fixed constituent of his REPAYMENT CAPACITY. After we have added the fixed components we will search for those items that do not appear as standard components in the Income Slip of the current 3 months.These can be DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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A. Regular Items These items are present in all the income slips .However their amount is variable. This is because they are linked to performance or their amount depends on the descretion of the Employer. Eg Additional HRM,Vehicle allowance etc. We first calculate the Average amount of these items.We then divide this Average amount by two. This is because they are variable components of the REPAYMENT CAPACITY. Profit Allowances OR Some other

=

Average of 3 months 2

B. Non regular Items These items are not present in all the income slips.At HDFC for sake of the Applicant these items are not considered to be affecting the REPAYMENT CAPACITY of the Applicant.They only affect it temporarily.

STEP 2

This step is the calculation of the 1 2

Income to Installment Ratio Fixed Obligation to Installment Ratio

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2.1 INCOME TO INSTALLMENT RATIO (IIR) This ratio reveals the available repayment capacity that HDFC can consider from the Gross Salary of the Applicant It is affected by the following A. Income B. Obligations-Towards family,no of children,spending habits

C.

Profile-The Applicants profession .If he currently receives less income but his profile is such that there is large scope of increments and/or he receives many variable amounts like Profit allowances ,certain fees,etc .Then in that case it positively affects his IIR and it is increased.Eg Director,Principal.etc.

.

IIR

=

EMI *100 INCOME

The percentage revealed in this calculation tells us what amount of the Gross Salary The applicant has to repay HDFC s loan A good IIR should lie between 35to 50%.Only a very good profile will allow a person with IIR of above 50% to be considered for a loan. 2.2 FIXED OBLIGATION TO INCOME RATIO This ratio is an extension of IIR.The nature of information revealed by this ratio is the same as IIR. However this ratio also shows the effect of the various Obligations/Liabilities On the repayment capacity of the applicant. DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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FOIR

=

EMI+OBLIGN INCOME

* 1OO

It should also lie between 35 to 50%. However in the case of a good profile there is a positive effect on FOIR same as IIR.If we are calculating FOIR then we don’t need to calculate IIR. .

STEP 3

LOAN ELIGIBILITY RATIO This is the most important and significant ratio that will reveal the maximum amount of loan that can be sanctioned to the Applicant .It is the ratio of the salary to be considered for repayment of the loan and the EMI per 1 lakh of the loan amount. The amount of loan demanded by the Applicant and the term for which it has been demanded must both fall within the permissible limits as shown by the loan eligibility ratio. FORMULA

=

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Available salary for repayment EMI per 1 Lakh of the amount

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NON RESIDENT INDIAN SALARIED/EMPLOYED An NRI is a person with Indian citizenship but residing in another country.An NRI can take a housing loan from HDFC . He is however not eligible for a Top Up loans Home Equity Loans Non Residential Premises Loans He is however eligible for Home Improvement and Home Extension Loans from HDFC . important An NRI Loan is appraised on the Net Salary . This is the take home pay package obtained after reducing the deductions from the earnings .As this salary is low it reduces their loan eligibility .However the salary is converted into Indian Currency for computing credit worthiness.The figure obtained is higher in Indian currency hence the loan eligibility rises.Eg 5,487$ american dollars will mean 2,46,915 Rupees. SELF EMPLOYED PROFESSIONALS An NRI applicant can also be a Doctor,Engineer etc.In these cases HDFC will put them in the special category of Self Employed Professionals. Their credit appraisal is carried out as follows Their latest available Profit and Loss A/c is reviewed by the credit appraiser. This account has two sides a Profit side which reveals all earnings and gains .There is also a Loss side which shows all taxes, liabilities and losses. We refer to the Profit side a the Gross Receipts.These includes components revealing the nature and amount of the Prime income and other earnings Eg Consultation fees in case of Doctor . From the Gross Receipts we calculate the Gross Profits and thereon move to calculate Loan eligibility .Which is the loan amount that can be conveniently sanctioned to the applicant. Loan Eligibility

=

Gross Profit * 2

Another important consideration is that the Annual outflow of EMIs should not exceed the NET PROFIT. The Net Profit is computed by deducting the various costs and losses from the Gross profit. DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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STEP UP REPAYMENT FACILITY

HDFC Ltd has a hitherto “with you ,right through” .This statement HDFC proves time and again by developing close relationship with individual customers and by constantly developing and marketing in the market new and innovative products that increase the comfort level of the customers . Along the same philosophy HDFC came up with Step Up Repayment Facility which once again reassures customers that HDFC helps you achieve your dream. This facility is especially helpful to those customers who want to get a loan on an amount that is not falling within the permissible limit of their repayment capacity.It also is in line with HDFCs aim to provide greater degree of personalization in service and the tools. Hence there can be the situation wherein the applicant is not in the position to pay the required EMI which is calculated by the ILPS (Individual loan processing system). HDFC in this case offers to let the applicant use one of the two plans to repay the loan amount.

A. The EMI Chooser 1 In this plan the applicant gets the advantage from HDFC to select the amount that he wants to pay as his fist EMI.This means that HDFC will let the applicant decide what amount he can comfortably pay to HDFC in the first term of his Loan Repayment Schedule.The system will calculate the next two EMIs for the next two terms The customer can hence decide when he wants to repay the maximum amount of the DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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Loan to HDFC and when he wants to repay minimum leftover or remaining amount of the loan in the form of still smaller EMIs. B. The EMI Chooser 2 This plan is an extension of the aforementioned plan .In this plan HDFC helps the Applicant by letting him choose two EMIs .This means that the Applicant can select the amount that he wants two pay for both the First and the Second terms of his repayment schedule.This translates into more help and more convenience to the Applicant However the benefits of these plans don’t stop here . A. The Applicant can also allocate the term length for which he wants to pay what amount This translates into a great advantage to the Applicant .He can now link 1. His current salary 2. The rate of average increment, 3. His existing and expected obligations, 4. His existing and expected expenses 5. The length of the term among others. HDFC can hence assist the Applicant in developing a much more personalized loan plan as compared to its competitors in the Housing Loan market. B. The Applicant can also save money by using these plans .This is because the total outflow in case of a regular plan is more as compared to these special plans . The Applicant will hence obtain more benefit in case of Prepayment and elsewhere. C.

All Loans from HDFC Ltd are subject to Tax exemption and be treated as Rebate.Hence HDFC lets the customer save their hard earned money.

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PRECAUTIONS The credit appraisal is an important step for both the borrower and HDFC .Hence it necessary for us to take all precautions. 1. All calculations must be done with correct figures. The data entry in the system must match the actual data .also care should be taken in places like the decimals and rounding off.The data entries should not be going outside the space provided to them. 2. The source of the data should be mentioned so that another person may easily verify the facts and figures 3 Sometimes it may happen that the Applicant has intentionally or by mistake not mentioned the full status of his obligations.The common situation in this case are A. He has not revealed of any loans that he may be paying off from an undisclosed bank account in any other bank B. He is disclosing information related to any defaults,Revolving accounts such as Debit card ,Credit card.etc. In these conditions it is difficult to correctly compute the credit worthiness of the person As a result an unscrupulous element might get a loan .This will lead to loss of both HDFC and its honest customers . The precaution taken by HDFC in this case is that it contacts CIBIL(Credit Bureau of India Ltd) which is the mega Repository of financial data in India .HDFC electronically requests CIBIL to reveal information it posseses pertaining to the persons financial obligations.CIBIL passes on the information by means of a fax containing all revolving accounts,loans and liabilities.

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FLEXIBLE LOAN INSTALMENT PLAN(FLIP) Another First of its kind product from HDFC .This is also to assist the Applicant to easily secure a loan in the following condition.FLIP is used when the applicant and co-applicant want to jointly repay the loan.There is however a problem in the situation which would otherwise not allow the loan to be sanctioned.There are two applicants hence two incomes .Therefore in the joint payment they can combine their income to repay the loan .Let there be Mr A and B who want to take a loan for 14 years .A is the father and B is the son of A .Now consider the situation in which A and B want to take a loan and jointly repay it .But A is 52 years old and B is only 25 .Hence A will retire after 8 years and will not be repaying the EMI but B can continue to repay the loan.In that case although there will be a problem at other places but in HDFC this is solved by taking different incomes in the terms . Hence the income that will be considered earlier will be the fathers income and at his retirement or at any other selected stage of repayment we will begin to consider only the income of the son. The advantage of FLIP in terms of the Applicant is that of joint payment,personalization ,easy repayment ,and freedom from many possible problems. In the Illustration the father is going to pay only for 105 months and after that we are to consider the sons salary only for the next remaining 60 months.

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COMPANY OVERVIEW 1 HOUSING FINANCE SECTOR 2 BACKGROUND 3 BUSINESS OBJECTIVE 4 ORGANIZATIONAL GOAL 5 WIDE PRODUCT RANGE 6 CONVENIENCE VALUE ADDED SERVICES 7 GEOGRAPHICAL SPREAD 8 FUTURE

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THE HOME LOAN PROCESS A home loan is not something which we can obtain by just walking right into any market or any place like that.It is a systematic process where a loan application file goes through the hands of many experienced employees of HDFC.The applicant has to submit the original or photocopies of a few documents ,he also has to correctly fill and give certain forms tostate his requirements very clearly and to also communicate the information demanded by HDFC . The work of HDFC in sanctioning a loan goes through the following stages

SOURCES OF LOAN APPLICANTS 1. WALK IN This refers to the Applicants who apply for the loan by going to the service centre or regional branch office .They may have come to know about HDFC s home loan service from any source but this is their first contact with HDFC is in absence of any intermediary like friends,sales men etc.The applicants who contact through or by the Website are also included in the walkin cateogary. WalkIn applicants are given concessions on fees and charges which is applicable from time to time.

2. CALLCENTRE LEADS The callcentre leads refer to the applicants that come in contact with HDFC through HDFC Bank or through HLSIL .HDFC bank is the banking sction of HDFC which informs HDFC Ltd about persons who it thinks to be needing a loan .HLSIL which has been started by HDFC Ltd and refers to Housing Loan Services India Limited This organization has been especially started by HDFC to assist persons searching for home loans at easy rates and good service.HLSIL contacts probable needfuls of home loan ,contacts them, explains them the various advantages of an HDFC home loan and get thir loan application filled. DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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Every HDFC service centre has its own team which is managed by leader who reports diectly to the Branch Manager .In the India habitat centre the HLSIL team is under the leadership of a team leader who reports directly to Mr Prashant Malik(Branch Mgr IHC /Ranked 2nd in the prestigious National Corporate Challenge 2005 conducted annually by HDFC ) 3. DSAs and BSAs These are respectively the Direct selling agents and the Business selling agents. The DSAs refer to organizations which work in agreement with HDFC and forwards them the loan requests of applicants they contact or those that contact them On the other hand BSAs usually forward loan requests and assist HDFC by forwarding them the names addresses contact nos etc of various probable needfuls of home loans .BSAs usually are Builders who book houses for sale in the future. They may also include Brokers. Egs for DSAs are Nishk,Chatrath,BKM.etc

STAGES OF

HOME LOAN DataEntry

Application

DISBURSE The Loan

Munirka HUB

Fix chrgs

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Login

DoubleChecking Over(DCOVR)

Scanning

Recommendation Over(ROVR)

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The representation shown above is not a perfect copy of the actual process.This is because these stages are taking place simultaneously and one application is being taken care for by the experienced employees of both HDFC Ltd service centre and HDFC Ltd HUB (also called the back end office).Also the applicant may be asked to send information or may be asked questions regarding his requirement and/or his documents for his own convenience Hence the loan application may or may not shuttle through different stages

APPLICATION STAGE This is the stage where the Application Form first reaches the concerned Service Centre Here all the documents in the application are reviewed by the experienced staff present at the service centre . The HDFC Ltd employee who reviews the file checks to see whether all documents are present and in their proper place .He checks if the documents are duly filled,not fake,attested by authority in question and present in order.In case any document is missing the applicant is contacted electronically or by mail .The applicant is contacted by telephone and requested for the document until he denies it being with him. This exercise is called FOLLOW UP. The credit appraisal of the loan application starts at this stage. The service centre employees compute the gross salary ,IIR,FOIR,LoanEligibility ratio etc.The credit worthiness of the applicant is calculated here.

It is also at this stage that the QUICK DATA ENTRY of the loan applicantion is done to create a serial no. of the application.After that another page appears and more data is entered .It is now that a special and unique LOAN A/C NO. is created under which all the loan processes will be carried out.The number that has been generated is communicated to the applicant by means of a letter and/or electronic communicationThe system of elecronically recording the data helps to create ready reference,a proof ,helps in quick and easy processing of the data.It also helps to very easily and quickly share data with other employees of HDFC .. DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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The next and important processing performed at the service centre is that of filling up a document known as the INTERVIEW SHEET.for processing individual loans (salaried cases) .It contains various simple entries like 1. Name of borrower 2. Name of co-borrower 3. Income details 4. Family background and permanent address etc It also contains various important entries like 5. Gross Salary 6. Rental 7. Other incomes 8. Obligations The various other loans that the applicant is entitled to pay ,their amount,their remaining terms ,source etc. 9. Remarks This collumn contains the various findings that the employee has found out after thorough review of the applicants documents such as bank statement,salary slip etc. Hence the interview sheet contains the important findings which the employee has collected after careful review of the various documents .The interview sheet helps to cut corners and helps save time by not having other employees to go through the documents again and again .It hence acts as a souce of quick reference. After all this has been performed well enough the loan application will be arranged in a file and all it will be given its loan a/c no which also acts as its file no.. The file is now ready to be sent to the HUB where further processing will take place.

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SCANNING In this stage the various important documents of the applicant are scanned.This helps to create their electronic copy which acts as a ready reference,a proof,and can also be shared and utilised by other employees of HDFC Ltd.

DATAENTRY The file has been sent to the back end office or the HUB .At HUB there are many experts with their own specializations . These officials review the various parts of the filae again and perform many specialized tasks . Dataentry is also one of these tasks .This entry is much more different and complex as compared to the earlier performed Quick Data Entry.An exhaustive amount and type of information has to be entered into the ILPS system ranging from Personal Details,Employment Details to Property Rate History and Customer Interactions.

RECOMMENDATION OVER(ROVR) The Recommendation OVER is also reffered to as the First Appraisal .At this stage certain specially appointed persons have been given the responsibility of recommending a loan These people have to take special care of reviewing every document ,and all the small details that need to be considered before considering the loan application to be valid . DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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After this the file is sent to another specially appointed person as explained below.At this stage if any correction or mistake is present it can be sent back to the Service Centre.

DOUBLE CHECKING OVER As the name suggests at this stage a specially appointed person will double check all the past proceedings .He will examine the Loan file for any discrepancies ,any missing and /or misplaced documents,the Credit Appraisal results,etc. This is a very important stage and must be handled with exceptional care.This is because a mistake at this stage can cause a great loss to the company.The Double checker is responsible for the ultimate sanctioning of the loan .If any mistake is done at this stage there is no going back and hence no protection.HDFC takes great care while appointing double checkers .They should have completed a select number of years with the company and should have shown exemplary performance and must posses experience.

SANCTIONING An authorised sanctioning authority within HDFC itself will review the remarks of Double Checker and Sanctioning authority .If it considers the loan suitable to be Sanctioned it gives its approval .After it has given its approval stamp the ILPS system will automatically send a letter to the Applicant that his loan has been sanctioned. After this approval the Applicant can go to whichever Service Centre which he selects to get his loan disbursed.

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SPECIAL CASE A special case can arise if the applicant has not mentioned the property for which he wants to take a loan .In that case the applicant can let the case be remain pending . This means that the Applicants loan request will be considered to be complete even though he has not decided the property.However the Applicant is expected to finalise the property in a short time A Property Address is necessary to 1. get the loan disbursed 2. process the Legal and Technical Appraisal of the property and its Papers.

DISBURSEMENT The last and final stage in the Home Loan process is that of disbursement.After the sanctioning has taken place the applicant becomes a registered customer of HDFC Ltd . He can now take the disbursement of the loan from any of the various service centre of HDFC .The loan shal be disbursed in one Lumpsum or in suitable instalments to be decided by HDFC with reference to the need and/or progress of construction (which decision shall be final and binding on the borrower).The borrower hereby acknowledges the receipt of the loan disbursed as indicated in the receipt.

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SHORT NOTES

CASE OF NEGATIVE AMORTIZATION HDFC offers two types of loan 1.Fixed rate of interest loan 2.Variable rate of interest loan The problem of Negative Amortization is specific to the Adjustable or the Variable rate loans that are lent to customers.In the case of Variable rate home loans there are three components RPLR 14% (CURRENT)

SPREAD

ROI

3%(current)

11%

The term RPLR is short for Retail Prime Lending Rate.This rate is dependent on market forces .In India the RPLR has been observing an upward trend .As a result of this there is a change in rate of interest to be applied to different loans.RPLR is revised every 3 months In which it may or may not change. Spread refers to a special discount offered to loan applicants coming to HDFC.This discount is fixed by HDFC .Every loan applicant is eligible to receive this discount from HDFC Ltd. It helps create a market advantage and benefits the Applicants.Spread is fixed for an uncertain length of time .It is absolutely dependent on the companys discretion to change it or not.Currently HDFC is offering 2.5% spread on a loan of above 20 lacs and 3% spread on a loan of below 20 lacs. ROI is the rate of interest that is applicable to the loan at the time of lending. It is computed DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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by subtracting spread discount from the RPLR. At the time of lending the ROI is good enough to repay the interest as well as the principal components .However as the RPLR increases as it is bound to do so after some time the required EMI also increases .Hence after some time the EMI becomes insufficient to repay the principal as well as the interest component . As a result of this the system releases a warning when the Loan a/c no is entered into the system as shown in the illustration . This leads to two changes 1. The Term increases 2. The EMI increases This problem can be in advance by two ways 1. PREPAYMENT Prepay a certain required sum of money so that the EMI remains the same. In this case the advantage is that the PDCs(Post Dated Cheques)that we have given earlier will still remain valid to repay the remaining EMIs .The term of the loan will decrease and come back to actual outstanding term. 2. CHANGE THE EMI If the customer wishes to change the EMI then he will have to prepare a new set of post . dated cheques in favor of HDFC .This method is not so preferred as it is unlikely that the customer would want to again prepare more PDCs.The term in this case will become the same as the actual remaining term .

PRINCIPAL PREPAYMENT The word prepayment in the loan process means to pay a certain amount of the loan to decrease the principal outstanding .A customer can decrease the principal outstanding by DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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prepayment .The customer can utilise this service of HDFC in case he wants to speed up the loan repayment process . HDFC will only charge the person a 2% fees in case the person is prepaying a Fixed rate home loan . There are no charges in the case of a Variable rate home loan .

OTHER CATEOGARIES OF HOME LOAN A home loan is not only taken to construct a house on freehold land .It may also be required by a person to purchase land , to buy a house from a builder ,to buy a house from a Housing Society . to buy a house under resale.

CATEOGARY 1 If the Home Loan is taken to buy a house from a builder .The applicant will need to produce the following documents 1. Original Stamped Agreement with builder duly registered If the original agreement has been lodged for registration and not received back The following documents are to be submitted (a) Certified or Photocopy of the original agreement (b) Original receipt for payment made to the Sub Registrar for registration (c) Copy of the Letter to the Sub Registrar 2. Original Receipts for the payment made to the Builder till date 3. Letter from the Builder on his Letterhead 4. Copy of the Permission letter issued in favor of th builder under the Urban Land Act 1976 by the Competent Authority 5. Copy of the floor Plan approved by the Competent authority 6. Certificate from the builder stating the cost of the Flat/House ,type ,schedule of payment.

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In the sanctioning only photocopies are required from the applicant but after the loan is sanctioned the orginals are demanded from him and only then is the loan disbursed . The originals are taken from the applicant and then put in a docket and sent to Mumbai head office to be kept in a locker for safety.

CATEOGARY 2 If the home loan is to buy a house from a Housing Society.The Applicant will need to produce the following document 1. 2. 3. 4. 5.

Share certificate issued by society in general All Receipts for the payment made too the society in original Letter from the society Copy of the Bye Laws of the society Certificate from the society stating the cost of the flat and type along with schedule of payment 6. Copy of the Lease deed in favor of the society 7. Approved copy of the plan 8. Location sketch of the society Rest is same as above.

CATEOGARY 3 FLAT DEVELOPMENT AUTHORITY This includes all Government developent authorities like Noida Development Authority Ghaziabad Development Authority Delhi Development Authority,Housing Urban Development Authority etc. DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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In the case of a Flat development authority the documents required are 1. Allotment letter 2. Receipts of payment 3. Mortgage permision The rest is same as above in above cases .

CATEGORY 4 RESALE OF PROPERTY This is slightly different from the above types . In the case of resale of property the ownership of the property has to pass from one individual to the other .Let us take an example to explain this case . A is the original owner of a property and B is the current owner of the property and C is the person who wants to own this property .He will approach to HDFC for a loan . The first thing he has to do is to obtain the freehold on the property .For that he will have to pay a stamp duty and/or a registry of a certain sum of money. In the case of resale HDFC will look into the past 13 years of ownership records of the property It does not matter if there has not been any resale it is part of a regular practice.This is a part of the legal aspect of Loan Lending.

CATEGORY 5 House is being constructed on Freehold Plot 1. Registered sales deed in favor of Applicant in original 2. All previous registered Sales Deed in original 3. Certificate of Search cum Non Encumberance issued by the sub registrar for the DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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Last 12 years Search 4. Intkaal/Jamabandi fard of land in original

CATEGORY 6 House is being constructed on a plot alloted by Haryana Urban Development Authority(HUDA),Chandigarh Administration Urban Estate – Punjab and Various trusts 1. 2. 3. 4. 5.

Allotment letter in original Possesion letter in original Conveyance deed /Lease deed in original Permission from concerned authority to mortgage the plot in favor of HDFC Non Encumbrance Certificate from concerned authority Additional documents to be submitted in cases where the plot is acquired by way of Gift / Transfer

1. Transfer permission from concerned authority in original 2. Previous Conveyance deeds in original 3. Transfer deed in original

TRANCH EMI

Instead of making payments of PEMI on the loan amounts disbursed by HDFC pending commencement of the EMI ,the borrower can now pay an interim EMI on the disbursed Amounts. Under this arrangement the borrower would need to pay PEMII only for the remaining days of the month in which he has taken the disbursement. The advantage Under this scheme is that when the borrower avails the final disbursement of the loan he would have repaid a part of the principal amount out of the previous disbursements and DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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hence he woud be paying the regular EMI on an amount which would be less than the loan availed by him from HDFC . Under this scheme the borrower will pay Interim EMI s pending commencement of the regular EMIs . The following are the principal terms and features of the above scheme: 1. Principal repayment commences on the installment that has been drawn by the borrrower With effect from the subsequent month . 2. Interim EMI will be computed with reference to the term of repayment mentioned in the Loan agreement on the amount or disbursed with repayment of principal commencing from the following month . 3. Subsequent Disbursements The Interim EMI will be re-computed oneach subsequent disbursement /s on: (a) The principal amount outstanding of the previous disbursement/s Plus (b)The further amount being disbursed . 4. Final disbursement: Regular EMI will be re–computed with reference to the term of repayment mentioned in the loan agreement on: (a)The principal amount outstanding of the previous disbursement/s plus (b) The final amount being disbursed. 5. The Borrrower can opt for this scheme at the time of the first disbursement/s , but before commencement of the final EMI . 6. Interest rate applicable for each tranche will be as applicable on the total loan and not on the amount representing each respective disbursement.

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7. Pending full disbursement , the borrower will have an option to choose in consultation with HDFC the Interim EMI he may want to pay till a)further disbursement/s b)full disbursement. 8. Pre EMII : Pre EMI interest will be payable from the date of the disbursement on the amount disbursed till the last day of the concerned month in which disbursement is made . 9. Upon each subsequent disbursement the Interim EMI will be reworked on the principal outstanding of the amount/s disbursed previously as of the last date of the concerned month (in which the further disbursement is made) plus the further disbursement amount. Repayment of the Regular EMI (which will be also calculated in the same manner )will commence from the month in which the last disbursement is made . GENERAL (A)

The Regular EMI may be different from the one mentioned in the loan agreement.

(B)

If the disbursement of the loan (part or final) is made on the first working day of a month ,then the Interim EMI or the regular EMI ,as the case may be will commence from that month itself.

HDFC HOME LOAN ADVANTAGES 1. 2. 3. 4. 5. 6. 7. 8.

Home loan counselling sharing over 29 years of home loan experience Door step service Helps in finding Dream home Wide Product Range Multiple Repayment Option Wide Network of financing Post disbursement service Loan repayment option

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jjjj SUBMITED TO Dr K .SANTI SWARUP HEAD OF DEPTT FACULTY OF SOCIAL SCIENCE SUBMITTED BY UMANG GUPTA BBM 4th SEM 057533

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DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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HOUSING FINANCE SECTOR Against the milieu of rapid urbanisation and a changing socio-economic scenario, the demand for housing has grown explosively. The importance of the housing sector in the economy can be illustrated by a few key statistics. According to the National Building Organisation (NBO), the total demand for housing is estimated at 2 million units per year and the total housing shortfall is estimated to be 19.4 million units, of which 12.76 million units is from rural areas and 6.64 million units from urban areas. The housing industry is the second largest employment generator in the country. It is estimated that the budgeted 2 million units would lead to the creation of an additional 10 million man-years of direct employment and another 15 million man-years of indirect employment. Having identified housing as a priority area in the Ninth Five Year Plan (1997-2002), the National Housing Policy has envisaged an investment target of Rs. 1,500 billion for this sector. In order to achieve this investment target, the Government needs to make low cost funds easily available and enforce legal and regulatory Growth in demand driven by improved affordability Rising disposable income Affordable interests rate Fiscal incentives on both interests and principal repayments Increasing urbanisation Young population Increased urbanisation Mortgages contribute approximately 5 percent of Indias GDP as comared to over 70% in the USA Housing shortages estimated at 24.7 million units (Census reports)

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BACKGROUND: HDFC was incorporated in 1977 with a primary objective of meeting a social need - that of promoting home ownership by providing long-term finance to households for their housing needs. HDFC was promoted with with an initial share capital of Rs. 10 crores.

BUSINESS OBJECTIVES : The primary objective of HDFC is to enhance residential housing stock in the country through the provision of housing finance in a systematic and professional manner, and to promote home ownership. Another objective is to increase the flow of resouces to the housing sector by integrating the housing finance sector with the overall domestic financial markets.

ORGANISATIONAL GOALS:

HDFC's main goals are to : a) develop close relationships with individual households, b) maintain its position as the premier housing finance institution in the country, c) transform ideas into viable and creative solutions, d) provide consistently high returns to shareholders, and e) to grow through diversification by leveraging off existing client base DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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WIDE PRODUCT RANGE Equity loans (Home and Non Residential Premises)Under Adjustable Rate Loan Option Home Extension Loans Home Improvement Loans Land Purchase Loan Adjustable Rate Housing Loan TOP-UP FINANCING Against Property Financed Short Term Bridging Loans Non Residential Premises Loan Individual Housing Loan Fixed Rate

CONVENIENCE VALUE ADDED SERVICES HDFC Standard Life Insurance Co. Ltd Original Life Insurance Cover at an attractive price from HDFC Standard Life This insurance cover ensures that lifes uncertainties do not affect your familys shelter .This affordable life cover from HDFC Standard Life has been designed to help your family repay the outstanding loan in case of the policy holders unfortunate demise.As it is a pure risk cover there would be no policy benefitspayable on survival at the end of the term of the policy HDFC CHUBB General Life Insurance Company Ltd Attractive home insurance plan from HDFC CHUBB This hassle free insurance cover helps safeguard your property and possesions from fire and allied perils such as earthquakes ,flood,riots,etc. You also have the option to protect the contents of your home against any loss caused by burglary and/or theft. HDFC BANK LTD DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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e-Age Savings Bank Account As a special offer you can open an e-Age savings Account from HDFC Bank at a lower Average Quarterly Balance of Rs 5000/-You can avail benefits like free Phone Banking ,free Net Banking ,24 hour ATM access ,interbranch /intercity banking, a personalized chequebook and much more Automatic repayment of Home Loan Equated Monthly Instalment(EMI) You can give HDFC standing instructions to repay your Home Loan EMIs directly from your HDFC Bank Savings Account .Thus saving you the trouble of procuring,signing,and tracking ‘ Post dated cheques. Free International Credit Cards An international credit card from HDFC Bank with most compehensive insurance coverage . This card is accepted worldwide .You can even withdraw 30% of your entire credit card limit through the ATM. Lower Interest rates on other loans You can avail of lower interest rates on other loans from HDFC Bank such as Personal Loans,Car and Two Wheeler loans ,Consumer Loans and Loans Against securities

FUTURE HDFC has always been market-oriented and dynamic with respect to resource mobilisation as well as its lending programme. This renders it more than capable to meet the new challenges that have emerged. Over the years, HDFC has developed a vast client base of borrowers, depositors, shareholders and agents, and it hopes to capitalise on this loyal and satisfied client base for future growth. Internal systems have been developed to be robust and agile, to take into account changes in the volatile external environment. ] HDFC has developed a network of institutions through partnerships with some of the best institutions in the world, for providing specialised financial services. Each institution is being fine-tuned for a specific market, while offering the entire HDFC customer base the highest standards of quality in product design, facilities and service. DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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DOCUMENTS TO BE COLLECTED IN APPLICATION FORM Photographs of all applicants with attestation Signature of all applicants Date of submission of application All fields duly completed Residence and office land line phone no. Fee cheque End use letter(for Top Up loan and Home Equity ) Self attestation on all documents by applicant/co-applicant PERSONAL DOCUMENTS DOB Proof of all applicants Photo ID proof Residence address proof Copy of qualification/degree certificate

INCOME DOCUMENTS Last three years individual ITRs (with computation of income ,profit and loss account,balance sheet ,schedules,and audit report and latest tax report) Copy of resolution of general meeting ,fixing renumeration of directors) DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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List of assets and investments held by an individual Last 3 years company OR partnership firm ITRs (with computation of income ,profit and loss account,balance sheet,schedules and audit report and latest tax report) Obligations details Sanction letter of credit facilities availed CA Attestation on financials if accounts are not audited MOA ,AOA OR Partnership Deed Share holding pattern certified by the auditor with a copy of latest annual return filed with ROC Provisional profit and loss account,balance sheet,schedules and copies of advance tax challans,if applicable Business Profile BANK STATEMENT Last 6 months statement of OD A/c and other current A/cs Last 6 months individual bank A/c statement PROPERTY DOCUMENTS Copies of all title documents Approved plan Construction/Improvement estimate

REFINANCE DOCUMENTS Outstanding loan account statement List of documents held by previous institution Copy of loan agreements DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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NON RESIDENT INDIAN REQUIRED DOCUMENTS 1

SALRIED

1.Pay Stubs/Salary slips (3 months current) 2. Bank statement (6 months current) 3. W2,Form 16,TDS from employer (tax deducted at source) 4. Credit report 5. Tax report 6. Employment contract/Appointment letter 7.

Past occupational history

8.

Work permit

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9.

Visa stamped on passport

10.

ID from Employer

11.

Continuous Discharge Certificates for (Merchant Navy Employees) In case of PIO .The PIO card copy else

1. 2. 12.

Photocopy of current passport Photocopy of Indian passport held earlier Power of Attorney

2. SELF EMPLOYED All of the above required except items1,3,6,10,and 11.

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DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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TABLE OF CONTENTS Acknowledgement Company Overview Housing Finance Sector Background Business Objective OrganizationalGoal WideProductRange Convenience Geographical Spread Future Credit Appraisal Introduction Required Documents Process Precaution

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ACKNOWLEDGEMENT I would like to acnowledge with profound gratitude and thank all those people who have been helpful in completion of this project. First of all I would like to thank HDFC Ltd for giving me the opportunity to be a part of its wonderful family I would like to thank Mrs Renu Sud Karnad for allowing me this summer placement. I would also like to take this opportunity to express sincere gratitude to Mr Prashant Malik(Resident Manager) along with Mr Bishnu Prasad Bhattarai(Senior Officer) for there undivided attention and for being there whenever needed I would also like to heartily thank Mr Vimal Prakash( Marketing Head) for helping me with all his powers to persue summer placement in HDFC Ltd. I would also like to thank Mr K Santi Swarup who encouraged me by making helpful suggestions .He has been the motivating spirit behind all my efforts in executing present study. I would also like to take this opportunity to thank parents and God for helping me in coming so far. UMANG GUPTA

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DAYALBAGH EDUCATIONAL INSTITUTE,AGRA

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