INDIAN INSTITUTE OF PLANNING & MANAGEMNT MANAGEMNT
Project report on – on – Individual Individual Housing Housing Loan scheme of LIC LIC housing Finance .
Faculty – Maninder Singh Finance
Submitted by – Manoj Kadiyan SF-5 (SS- 10-12 BATCH )
[email protected] 8800771561
Acknowledgement
I would like to express my greatest gratitude to the people who have helped & supported me throughout my project. I am grateful to my teacher Maninder Singh continuous support for the project, from initial advice & contacts in the early stages of conceptual inception & through on-going advice & encouragement to this day. A special thank of mine goes to my classmates who helped me in completing the project & they exchanged her interesting ideas, thoughts & made this project easy and accurate. I wish to thank my parents for their undivided support and interest who inspired me and encouraged me to go my own way, without whom I would be unable to complete my project. At last but not the least I want to thank my friends who appreciated me for my work and motivated me and finally to God who made all the things possible...
Table of contents
s.no 1. 2. 3. 4. 5. 6. 7.
Particular INTRODUCTION Eligibility Criteria Document Needed Practical Example Financial Snapshot Key highlight Key financial ratio
Page 3 4 5 8 9 10 12
Introduction LIC Housing Finance
LIC Housing Finance Limited was incorporated in 1989 and an important zone of Life Insurance Corporation of India. As one of the leading players and an earlier entrant in the market for housing loans, LIC Housing Finance Limited boasts of an extensive distribution network. LIC offers home loans for construction/purchase of house/flat and also for renovation of existing flat/house. While LIC Griha Prakash and different others are for purchase, construction of properties and extension of residential units, LIC Griha Sudhar Loan facilitates repairs/renovation of properties. LIC Housing Finance provides various types of loans, such as:
Purchase, construction, repair and renovation of new, existing houses.
Finance for existing property for business/personal needs.
Loans to professionals for purchase / construction of Clinics / Nursing Homes / Diagnostic Centers / Office Space. Loans to Corporate Bodies and Companies under different schemes for purchase / construction of office premises. Loans to Property Builders and Developers for residential and commercial projects.
Eligibility criteria for resident Indians:
Minimum age 21 years
Permanent income source i.e. services holder or business person
Eligibility criteria for NRIs:
Minimum age 21 years and Graduate
Valid Indian Passport
Permanent source of income.
Valid job contract or works permit.
Rate of Interest :-
The Interest Rate difference to which the housing loan is taken which could be for the purchase of a new house, existing house from second owner, construction of house, renovation, etc. Loan Amount :-
Loan amount is determined on the basis of the repayment capacity of the applicant/s. Repayment capacity takes into consideration factors such as age, income, savings, assets, stability of occupation and continuity of income, dependents, liabilities etc. In LIC Griha Prakash scheme, the maximum loan can go up to Rs 1 crore starting from Rs. 25,000. The minimum is Rs.1, 00,000 and maximum is Rs.1, 00, 00,000 for Griha Laxmi. In both the cases, the home loan finances go up to 85% of the cost of the property including agreement value, stamp duty and registration charges. For purchase of a site/ vacant plot, the minimum is Rs.50, 000 and maximum is Rs. 20, 00,000. LIC Griha Sudhar Loan offers a maximum loan amount of up to Rs.10 lacs and the loan to property cost shall not exceed 85% of the cost of repairs or 25% of market value of property, whichever is lower. The company finances up to 85% of the total cost of the property including Stamp Duty and Registration Charges.
Documents Needed :
An equitable mortgage of house/flat
One guarantor
Repayment
Repayment Mode: Equated Monthly Installments (EMI) - Monthly Rest Basis
Repayment of the loan for resident Indians is permitted for a maximum period of:
20 years for �Griha Prakash � or Retirement Age, or 70 years of age, whichever is earliest. 15 years for �Griha Laxmi � and �Griha Sudhar � or Retirement Age, or 70 years of age, whichever is earliest. The maximum duration for repayment of loans for NRIs is 10 years under'Griha Shobha' and 15 years under 'Griha Laxmi' However, the term for the loan will under no circumstances exceed the age of retirement or completion of 65 years of age, whichever is earlier. For NRIs, the maximum term is restricted to seven to 10 years. Processing Fees :
Processing fees (non-refundable) is 0.5 per cent of the amount applied for, subject to a maximum of Rs 5,000. Administrative fees (non-refundable) is charged at the rate of 1 per cent of the loan sanctioned.
FAQ's :What makes LIC Housing Finance Ltd. my best choice? Here's why a loan from LIC Housing Finance Ltd. means a complete peace of mind.
Lowest Interest Rates
Easy application , quick approvals.
Insurance - linked security.
Largest Network.
No Hidden Costs.
A financially strong and stable company we have already sanctioned loans to over 5 lakh applicants. With a network of more than 100 offices in the country we are always accessible to you , wherever you may
be . What is meant by Floating & Fixed Rate of Interest? Where the loan is under Floating Rate of Interest, the Rate of Interest shall be reviewed every six months ( January & July ) based on the prevailing market conditions as judged by the Company. The revised Floating Rate of Interest could increase, decrease or remain the same.
On the other hand, where the loan is under Fixed rate of Interest, the Rate of Interest ordinarily remains constant throughout the term of the loan. For calculating the Emi, please use our EMI Calculator. Who Can Apply For The Loan? You must be in permanent service or engaged in a profession or business to be eligible for a loan. You should have a stable job and a regular income. Our loan schemes are for those going in for a residential house. We may be able to advance you a loan under our scheme if you want to -
a. Construct/purchase a new House/Flat. b. Buy an existing house or flat not more than 35 years old. c. Extend an existing House. d. Renovation/repairs to an existing House/Flat. Who Can Be Co-Applicant? The Co-owners of the property in respect of which financial assistance is sought, must be co-applicants. Usually joint applications are from husband- wife, father-son or mother-son. How Much Does LICHFL lend? Loan amount is determined on the basis of the repayment capacity of the applicant/s. Repayment capacity takes into consideration factors such as age, income, dependents, assets, liabilities, stability of occupation and continuity of income, savings etc.
The maximum loan would be Rs.100 lakhs per unit to any individual applicant. We will extend loan upto 85 % of the cost of property value (including Stamp duty & Registration charges). For How Long A Period Can I Get Loan? We grant term upto a maximum of 20 yrs (maximum 10 years under Griha Shobha for NRIs and maximum 15 years under Griha Lakshmi). The term for the loan will under no circumstances exceed the age of retirement or completion of 70 yrs of age whichever is earlier.
For Example – LIC housing finance ltd has LIC Griha Prakash LIC home loans plan where individuals can get LIC housing loan amounting to 85% of the total property cost provided the total value of the property doesn’t exceed the value of 1 Crore Rupees. This LIC home loan scheme is valid on both purchase and construction of property and covers the money that the buyer spends while signing agreement, making registration charges and payment of stamp duty fees. : Griha Prakash Loan Category : Min. Rs. 1,00,000. Loan Amount 85% of total Cost of the property including Stamp Duty and Registration : Loan to Property Cost Charges. : Maximum 20 years Loan Term Repayment Mode
: Equated Monthly Instalments(EMI) - Monthly Rest Basis
Security
: 1. Equitable Mortgage of Residential House / Flat / Plot
Upfront Fees
2. Demand Promissory Note. : 1.00% of Loan Amount Sanctioned + Service Tax as applicable.
LIC housing finance ltd is also committed to help non professional loan seekers to take advantage of Griha Shobha LIC home loan project where they can get a minimum LIC home loan of 5,00,000 RS for a maximum time of 10 years. Professionals get an extended advantage of repaying back this LIC housing loan in 15 years. Even while staying abroad, a tr ue Indian’s heart always belongs to his home land. With the real estate still booming in India it is the best chance for the NRIs to take advantage of LIC NRI home loan plans to buy, construct, renovate, repair or even buy a plot at the place of their choice. LIC housing finance limited offers LIC NRI home loans in form of Griha Shobha. In order to enjoy LIC NRI home loans an individual should be at least 21 years of age and should have completed his graduation. Also, to become eligible for LIC NRI home loan, a person should have a valid Indian passport. Even PIOs can apply for LIC NRI home loan and have to produce valid foreign passport at the time of submitting the home loan application. Non Resident Indian Loan Category Loan Category Loan Amount Repayment Mode Security Upfront Fees Special Conditions
: : : : :
Griha Shobha Min. Rs. 5,00,000. Non- Professional : Maximum 10 years, Professional : Maximum 15 years Equated Monthly Instalments(EMI) - Monthly Rest Basis 1. Equitable Mortgage of Residential House/Flat/Plot 2. Demand Promissory Note. : 1.00% of Loan Amount Sanctioned + Service Tax as applicable. : All conditions including payment of margin money as per RBI Guidelines.
In order to enjoy the LIC home loans offered by LIC housing finance limited one must fulfill following criteria: To enjoy LIC housing loan, individuals should have a minimum annual income of 1.5 lakhs Salaried employees should be between the age group of 25-58 years whereas self employed individuals should be between 21-70 years of age to enjoy LIC home loans.
LIC housing finance ltd also takes pride in serving NRI’s provided they have valid Indian Passports. Step- up EMI Facility This facility is extended, keeping in view the prospective increase in income of the Borrowers, and is available to people who have good prospect of future increase in income, viz., young Professionals/Executives who are less than 35 years of age.
This facility envisages flexible mode of repayment through Stepping up of EMI during the tenure of loan. Under this Facility, the EMI will initialy be fixed at a lower amount; this would be changed twice (i.e., on the 6th and the 11th year) during the Loan Tenture (15 years); the rate at which the EMI will be stepped-up in the 6th and 11th years would be at 10/15/20 % of the initial EMI as preferred by the Applicant. If you meet the LIC housing loan eligibility criteria, contact LIC home loans office today to process your loan application. With, LIC housing loans, owning a house no more remains a dream.
Financial snapshot
FY10
FY11
NII (Cr)
886.94
1371.9
% chg(yo-y) 54.7
Operating Profit (Cr)
869.56
1105.7
54.6
Net Profit (Cr)
662.17
974.12
47.13
Interest income on housing loans (Cr) 3282.6
4469.6
36.2
NIM(%)
2.70
3.08
14.07
EPS
14.5
20.53
41.5
DPS
3.0
3.50
16.67
ABV
72
88.24
22.50
RoAE (%)
19.50
25.80
32.31
RoAA (%)
2.01
2.18
8.45
P/E
14.1
10.2
-
P/BV
2.8
2.3
-
Standalone Financial Results (Rs in Crores) PARTICULARS
Q4FY11
Q4FY10
%chg(y-o-y)
Q3FY11
%chg(q-o-q)
FY11
FY10
%chg(y-o-y)
Interest Income
1293.7
919.3
40.7
1161.48
11.4
4469.9
3282.7
36.2
Other Operating Income
60.6
43.14
40.5
51.6
17.3
210.4
173.1
21.6
Total Income
1354.3
962.44
40.7
1213.08
11.6
4680.3
3455.8
35.4
Expenditure
938.12
676.84
38.60
1098.15
-12.4
3574.56
2557.89
39.7
-
Interest Exp
873.34
621.3
40.6
809.31
7.9
3097.71
2395.71
29.3
-
Employee Cost
16.91
11.95
41.5
19.82
-14.5
68.12
48.47
40.4
-
Provisions & Write offs
18.85
-12.63
-
232.8
-91.9
260.08
-284.4
-
-
Commissions & Brokerages
31.52
23.43
34.44
23.2
35.7
86.77
67.12
29.3
Operating Profit
391.81
292.92
33.76
352.4
11.18
1105.55
897.87
54.6
Other Income
37.63
5.28
612.68
141.3
-73.4
188.64
13.39
1308.3
Profit before Tax
429.51
298.18
44.01
256.31
67.6
1294.17
911.31
42.01
Tax Expense
114.74
84.67
3.55
42.79
16.82
319.67
249.09
28.30
Profit after Tax
314.72
213.51
47.4
213.52
47.4
974.49
662.17
47.20
EPS
6.63
4.50
47.33
4.50
47.40
20.53
14.69
39.75
Key Highlights:
LIC Housings total income for Q4FY11 grew by 40.7% y-o-y to Rs 1354.3Cr, with net interest margins of 3.45% in ➦
Q4FY11 as compared to 3.3% same quarter last year. While the average cost of funds increased by 43 bps from 7.59% in Q4FY10 to 8.01% in Q4FY11, the average yield on assets improved by 44 bps yo-y from 10.18% in Q4FY10 to 10.62% in FY11, resulting into a marginal improvement of 1 bps in the interest spread, reported at 2.61% in Q4FY11. Net interest income (Interest earned less interest expended) rose by 41% to Rs 420.36 Cr y-o-y supported by 50% rise in interest income from project loans and 39.4% rise in interest income from retail loans y-o-y basis.
➦
The operating profit for Q4FY11 was up by 33.8% y-o-y and 11.18% q-o-q with a marginal growth of 11.3% in processing fees during the quarter despite on decent growth in sanctions and disbursements mainly due to the decline in project sanctions and disbursements where the fees are lump sum. Also the growth was supported by decline in 15% staff cost during the quarter.
➦
Provisions and write-offs for the quarter stood Rs 18.85 Cr a substantial reduction q-o-q basis on account of higher provisioning in Q3FY11 due to regulatory changes made by NBH under which housing finance companies are required to make standard asset provisioning of 2% on teaser loans and 0.4% on corporate loans. Advantage 5 product contributed ~80% of the total loan disbursement in Q4FY11, but the company has not yet received any confirmation from NBH claiming it a teaser loan, however LIC Housing feels its excess provision of more than Rs10 Cr in the balance shall take care of it, if NBH classifies Advantage 5 scheme as teaser loans. In FY11, LIC Housing made a provision of Rs 260 Cr towards its three year dual home rate scheme. The provision coverage increased to 93.8% in Q4FY11 from 73.2% in Q3FY11.
➦
Other income in Q4FY11 was substantial on account of profits made on sale of investments. In Q3FY11, the number was higher as LIC Housing sold its partial stake of 17.3% in LIC Mutual Fund to Nomura reporting huge profits under sale of investments. ➦During the quarter, PAT increased by 47.4% y-o-y to Rs 314.72 Cr on account of one time profit earned on sale of investment of Rs 32.13 Cr, however excluding this, adjusted PAT grew by 36.4% to Rs 283.72Cr. ➦ The EPS for Q4FY11 stood at 6.1 as against Rs 4.5 same quarter previous year. ➦
Sanctions & Disbursements (Rs in Crores) Sanctions - Individual - Project Total Disbursements - Individual - Project Total
➦
➦
Q4FY11
Q4FY10
%chg(y-o-y)
Q3FY11
%chg(q-o-q)
5578 225 5803
4074 555.4 4602.4
36.90 -59.50 26.09
5302 483 5785
5.20 -53.40 0.30
6461 333 6794
3785.71 1275.81 5061.52
70.7 -73.90 34.20
421.50 411 4626
53.30 -19 46.90
LIC Housing witnessed decent growth in sanctions and disbursements which grew by 26% and 34%in Q4FY11 y-o-y despite of significant decline in sanctions and disbursements of project loans by 59.5% and 74% y-o-y respectively. The fall was mainly on account of cautious approach adopted by LIC Housing in respect of irregularities of loans payment given to developers. However, retail sanctions and disbursements strongly grew by 36.9% and 70.7% y-o-y respectively which drove the overall sanctions and disbursement during the quarter.
Asset Liabilities Portfolio Particulars Outstanding Assets - Individual - Project Total o/s Assets Outstanding Liabilities
Q4FY11
Q4FY10
%chg(y-o-y)
Q3FY11
%chg(q-o-q)
46730.74 4359.10 51089.84 45162.0
33949.14 4132.24 38081.38 34758.16
37.6 5.50 34.2 29.9
41524.0 4856.01 4638.0 42075.0
12.5 -10.2 10.2 7.3
The retail loan growth looked impressive with a growth of 37.6% y-o-y and 12.5% q-o-q while project loans witnesses slowdown q-o-q basis. The increment in the individual loans boosted the overall loan book at Rs 51089 Cr for Q4FY11. The developer loan proportion stood at 8.5% down from 10.5% in Q3FY11 and 10.9% in Q4FY10. The yields on advances for projects are relatively higher at 13.5%-14% as compared to individual loans at 9%-10%. LIC Housing’s 50% total loan portfolio is on floating basis. Company’s ~50% of the borrowing portfolio is on fixed rate. LIC Housing borrowings as of ➦ Q4FY11 - 27.8% Banks - 58.4% NCD’s - 3.5%NHB’s - 1.7% LIC - 8.6% Balance ( subordinates debts, public deposits, CP’s etc)
➦
Key Financial Ratios NIMs Gross NPA’s (Rs Cr) Gross NPA’s (%) Net NPA’s (Rs Cr) Net NPA’s (%) Avg Yield on Advances Avg Cost of Funds Avg Spreads Cost/Income Ratio Capital Adequacy Ratio
Q4FY11 3.45 241.96 0.47 15.04 0.03 10.62 8.01 2.61 13.5 15.00
Q4FY10 3.30 263.15 0.69 46.36 0.12 10.18 7.58 2.60 17.60 14.92
Q3FY11 3.14 312.68 0.67 83.96 0.18 10.20 8.12 2.08 10.3 15.40
➦
NIMs improved by 31 bps q-o-q basis mainly on account of higher lending rates, retirement of some high cost borrowings and Rs 12bn home loan portfolio taken over by its parent LIC.
➦
LIC Housing Finance witnessed high asset quality improvement on q-o-q and y-o-y basis. In Q3FY11, the company stated that the security on loan given to developers was more than twice the loan value.
Improvement in Gross NPA’s with higher provisioning coverage resulted in overall improvement in Net NPA’s ➦
Strengths Strong loan growth Sanctions grew by 26% y-o-y to 5809 Cr primarily on account of 37% growth in individual loans; while disbursement grew by 34% y-o-y with 71% growth in individual loans to Rs 6794Cr. Loan book grew by 34% y-o-y to Rs 51090Cr. On sequential basis individual loans grew by 12.5% while project loans remained flat at Rs 4359Cr. However the management expects this growth to resume in coming quarters. Total outstanding borrowings stood at Rs 45162 Cr, up by 30% y -o-y. Decline in Cost-to-income ratio y-o-y, improves a sset quality On Y-o-Y basis, LIC Housing Finance managed to control its operating expenses on back of 37% decline on advertisement expense and marginal rise of 4.7% in other expenditure with 15.4% in overall operating expenses. Also gain on sale of investments in the quarter helped to maintain its cost-income ratio at 13% for FY11. Asset quality remained stable with Gross NPA at Rs 241.96 Cr for Q4FY11 as against Rs 312.68 same quarter previous year. In percentage terms Net NPA significantly reduced from 0.18 to 0.03 in Q4FY11, q-o-q portraying strong asset quality base.
New scheme ‘Freedom’ Under the ‘Freedom' scheme, the housing finance company (HFC) will give home loans up Rs 30 lakh at the current PLR (13.75 per cent) less 385 basis points, that is, at 9.90 per cent. Home loans above Rs 30 lakh and less than 75 lakh will be available under the scheme at PLR less 340 basis points, that is, 10.35 per cent. Loans above Rs 75 lakh and up to Rs 1.50 crore will be available at PLR less 300 basis points, that is, 10.75 per cent. The new product is to shift provision requirements by one year.
Concerns Increasing interest rates scenario may impact demand for fresh loans Substantial decline in project loans sanctions & disbursements impacting the NIM’s as yields for project loans are higher a s compared to that of individual loans Increasing competition from State owned banks may pressurize yields and spreads, going forward. Recommendation LIC Housing Finance reported strong growth in sanctions and disbursement in FY11 increasing its overall mortgage portfolio by 34% y-o-y along with high asset quality maintained. The company expects a growth of 25% in loan disbursements going forward. Thus as the company continues on its growth trajectory, a BUY rating is recommended with a target price of 320 at 2.5 x its FY13 BV of 126.
