CHAPTER I

CHAPTER I INTRODUCTION Indian banking system has undergone a drastic change after the independence of the country in August 1947. There has been a significant change in the structure, composition, management, objectives and the mode of working of the banking institution over the last three decades or so the more significant changes in the Indian banking system after the independence. Nationalization of the Reserve Bank of India The Reserve Bank of India was established on April 1, 1934, as Shareholders Bank. The first major step taken by the Government of Indian in the field of Indian Banking was the nationalization of the Reserve Bank of India on January 1, 1949. The Reserve Bank of India was nationalized with a view to establish a close integration between the policies of Reserve Bank of India and close of the Government of India. In 1947-49, the Government of India was on the

threshold of formulating far-reaching policies for the planned economic development of the country. The measures were expected to have programmers, which could create inflationary pressures. The nationalization of the Reserve Bank through necessary for raining adequate financial resources for the Government for making the monetary system elastic according to the requirements of economic development and also for controlling inflationary pressure. The Reserve Bank of India has been given extensive power under the banking Regulation Act, 1949 to Control and regulate the monetary affairs of the Indian Economy.
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Defination of Banking The banking regulation Act 1949 Sec (1) (b) defines Banking business as Accepting, for the purpose of lending or investment of deposit of money from the public, repayable demand or otherwise and with draw able by cheques, draft, order or otherwise. Origin of the term BANK Regarding the origin of the word Bank the writers on banking are different According to some authorities the word Bank is derived from the word Banco, or Banque, all of which mean a bench. They early bankers transacted their money lending activities on benches in the market place. It was on these benches that the dedieval European money lenders and money changes used to exhibits coins of different countries of different denominations for the purpose of changing and lending money lending. Early history of banking As early as 200 B.C. The Babylonians had developed some sort of banking. They used their banks and the priests acted as the financial agents. But the spread of debrief in religion destroyed the public confidence in depositing money and valuables in temples. Later, however, far a few centuries, banking as an organized system of money lending receded because of religious belief that the charging of interest was unnatural and immoral. Even now, some Mohammedans refuse to accept interest on their lending in obedience to the commends in their religious books. However, in the middle of 12th country, banks were established at Venice and Genoa Again in 14th century there camp up number money lenders in Florence. They received money ion deposited and were lenders of money.

Early history of co-operative banks The co-operative Banks have been established under the co-operative societies Acts of different states. The co-operative movement was started in 1904, with a view to provide finance for agriculture. The progress of cooperative movement was rather slow prior to the independence. It was only in 1954 when the Reserve Bank of India accepted the recommendations of the All India Rural credit survey committee that the co-operative movement could gain momentum. The Co-operative Banks have a three tier ser-up. The state co-operative banks function at the district level and the primary credit society work at the village level. The state co-operative Bank borrows funds from the RBI at concessional rates and lends to central co-operative societies. The total advances, by the co-operative sector which amounted to Rs.147 Crores in 195051 are estimated at about Rs. 14,000 Crores as at the end of June 1988. Development of banking system in India From time immemorial the banker has been an indispensable pillar of Indian society. The introduction of division of labor, so necessary for the development of an economy necessitated the use of money to meet the complexities in the matter of exchange. Money ecomony, in its turn could not to without the institution of banking for any considerable time. However, transition evidence from to show that banking in India has its origin as early as the Vedic period and records have been traced in regards to giving and receiving of credits. However, transition from money lending to banking have occurred before Mane who in The laws of Manu by Huhlar is quoated to have said, A
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sensible man should deposit his money with a person of good family of good conduct, well acquainted with the law, veracious, having many relatives, wealthy and honorable (Arya). Dr. Premath Banerji, in his book, public Administration in Ancient India. Quotes from Brihaspati and Baudhayana Verse regarding the regulation of interest, references is also made to the same in kautilyas Arthashastra. Banking system in India Banking system plays a vital role in the economic development of a country. The structure of the banking system in India. Consists of two parts Unorganized Sector Organized sector UNORGANIZED SECTOR The Unorganized sector comprise of moneylenders and indigenous bankers. The organized sector consists of commercial banks. Co-operative banks and Regional Rural banks. These Institutions mainly provide short term credit to business, but there are a number of specialized term lending institutions, which provide long-term requirements of industry, agriculture and foreign trade. Post office saving bank, which is 110 year old, is another segment of the country is at apex of the banking structure in India.

ORGANISED SECTOR 1.Commercial banks These form the oldest banking institutions in the organized sector. They constitute the predominant segment of the banking system in India. They caster the needs of trade, commerce, industries, agriculture, small business, transport and other activities with a wide network of branches throughout the country. Commercial Banks a major share in the total banking operations. The commercial banking system consists of scheduled and non-scheduled banks. 2.scheduled banks Scheduled banks are one, which is registered, in the second scheduled of Observe Bank of India. A bank for inclusive in the scheduled should fulfill the lowing condition. The bank concerned must be carrying on a business of banking in India. The bank must have a paid up capital and reserve of an aggregate value of not less than Rs.5 Lakhs. It must satisfy Reserve Bank of India that its affairs are not being conducted in a manner detrimental to the interest of the depositors. 3.Non- Scheduled Banks The bank, which is not included in the second Scheduled of the Reserve Bank of India, is known as non- scheduled banks. The Scheduled banks come within the direct preview of the credit control measures of the Reserve Bank. They are entitled to borrowings and rediscounting facilities from the Reserve Bank of India. Non- Scheduled Banks are not entitled to such facilities.

SCOPE OF THE STUDY As the housing finance is a growing financial sector, role of banks, financial institutions, co-operative banks and private money lenders on the one land, and the borrowers of housing loans on the other take an active role in the market. Various housing loans (housing loan products) are offered by the suppliers at different interest rates with various terms and conditions. The players (institutional and borrowers) the products, the terms and conditions determine the functioning of the market. Also, governmental policy towards housing finance is a key behind the housing finance market for its movements and practices. And, the number of borrowers has increased enormously; the market has an active role in national economy. So, there is a wider scope for research in this area. IMPORTANCE OF THE STUDY The market for housing finance products has all features like all other markets. The problems include heavy competition, advertising, pricing, consumer etc. particularly speaking, the housing finance market meet certain specific problems in terms of variable rates of interest prevailing in the market, lack of transparency in transactions, recovery procedure, collection of EMI amount etc. Now, the borrowers feel dissatisfaction towards determination of number of EMIs and penalty imposed on the delay payment (even for one day). These problems make the market as more reactive. This peculiar environment demands this study for deep analysis.

OBJECTIVES OF THE STUDY 1. To study procedural formalities to apply for housing loans. 2. To identify the problems of borrowers in house financing. 3. To offer suitable suggestions for development of market for house financing. METHODOLOGY This present study is a survey on the borrowers of housing loan products. Papanasam Taluk of Thanjur district has been selected as a geographical area for this study. Papanasam Cooperative Urban Bank, Papanasam, Thanjur District is the study unit of this study. In Papanasam Taluk, nationalized banks. Financial institutions, co-operative Banks & societies and private money lenders supply the housing loan products. (Private money lenders are excluded from this study). The borrowers, who have obtained House Construction Loan and Mortgage Loan from the Papanasam Cooperative Urban Bank, Papanasam, constitute the population of the study. So, there are two groups of borrowers. In the last 12 Month period (January 2010 December 2010) the number of borrowers of housing loan in Papanasa Cooperative Urban Bank, Papanasam is given below: 1. No. of borrowers of Housing Construction 2. No. of borrowers Mortgage Loan Total 386 245 631 From the 631 borrowers, 100 samples from each group have been selected at random.

DATA COLLECTION TOOLS Secondary data have been collected from various secondary sources. On the basis of such information, the primary data are determined. A questionnaire is prepared to collect primary data. Pre-testing has been already been held among 20 borrowers during the month of June 2010. On the basis of experience gathered during the study, the questionnaire has been modified properly. It was distributed among the 200 borrowers of the study. Analysis of Data The data are analyzed with the help of statistical tools such as percentages and chi-square test. LIMITATIONS OF THE STUDY 1. The study has a small geographical area (Papanasam Taluk) only. 2. This study takes the views of borrowers who have borrowed loan in the previous 12 month period (January 2010 December 2010) only.

CHAPTER II

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CHAPTER-II REVIEW OF LITERATURE Report on trend and progress of Housing in India (2002) points out that the housing that the housing finance is characterized by the low level NPAs and this fact has been the major inducement for various players in the financial sector to look towards housing finance as a viable alternative. This is the only sector in the financial system where the level of NPAs remains to be very low. This fact has led the banks to take housing finance business more seriously resulting in housing finance disbursement by banks to even surpass the total disbursement by housing finance companies during the year 2001-02. The fact that housing finance is a comparatively safe business can be observed from the fact that housing finance is a comparatively safe business can be observed from the fact that during the last three years, the proportion of NPAs to total assets of the HFCs registered with NHB and having asset base of more than Rs.10 crores, (these HFCs account for more than 99% of the total business of all HFCs ) has been declining. The proportion of gross NPAs to total assets of these companies decreased from a level of 2.88% as at end of March, 2000 to 2.53% as at the end of March, 2001 and further to 2.36% as at the end of March, 2002. Himanshu Joshi (2006) says that the empirical findings recorded in the study support the inference that amongst the various factors that have bearing on housing prices, monetary conditions, viz., interest rate and credit growth play a critical role. Together they explain a very large part of the forecast error. Variance of housing prices and can be considered as primary drivers of growth. It is, however, somewhat alarming housing prices, reflecting an extent of adverse selection in overall bank financing.

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The Indian National Housing Bank (NHB) was established in 1988 to promote a sound and cost-effective housing finance system and to help alleviate housing shortages, particularly in rural areas (Reside et al 1999). Housing today is now at one of its most affordable level in Indian history. Estimates show that affordability (i.e. the ratio of the price of a residential property to the annual income of the borrower) has improved significantly. For instance, for a typical suburb in Mumbai city, in 1995, it required about 22 times a borrowers total annul income to purchase a house, while in 2006, this ratio dropped to 5 times (HDFC, 2006). This increased affordability can also be attributed to the rapid rise in household earnings over the past decade. According to CRISIL, a credit-rating group, the average household income in urban areas growth at a compounded 10% in nominal terms over the last decade (CRISIL, 2006). As is the case with several countries, in India both specialized lenders as well as commercial banks provide housing finance. Internationally, there continues to be a debate on the merits and demerits of dedicated housing finance companies. In India, housing finance companies are regulated by the National Housing Bank and commercial banks by the Reserve Bank of India. There are inherent differences, especially in the liability structures of banks and housing finance companies, as well as certain fundamental differences in their regulatory requirements (Renu Sud Karnad). Commercial banks have rapidly expanded their disbursements in housing finance thereby increasing their market share. In 2000, housing financing companies accounted for 70 percent of disbursements. By 2005, their share had decreased to 36 percent with banks accounting for 64 percent of all housing financing disbursements (National Housing Bank, 2005).
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The most significant aspect, however, is that overall housing finance disbursements over the past five years have grown at a CAGR of 38 percent and this growth momentum is expected to continue. According to SSKI India. Research, mortgage finance is expected to grow at a CAGR of 2.7 percent over 2005 to 2009. (National Housing Bank report 2003,2004,2005). There are a total of 44 housing finance companies registered with National Housing Bank through only 22 are eligible to accept public deposits (National Housing Bank Report, 2006). Although housing finance companies have continued to step up their lending, most are feeling the strain, especially on the resources side, on account of the increasing dominance of banks in housing finance. This is because these bonds no longer qualify as priority sector lending with effect from April 2006. Banks are now concentrating on direct lending (National Housing Bank Report 2004). In line with global trends, during the period 2000-04, the interest rate regime was soft and there was ample liquidity in the Indian Economy. Between 2000 and 2004, rates on housing loans fell by approximately 675 basis points which were higher than the decrease in the 10 year government security rate which fell by 582 basis points over the same period Against the backdrop of extremely low interest rates, driven by competitive pressures, CRISIL, in a study entitled Low Incremental Returns on Housing Finance to Harden Rates estimated that the incremental returns for banks on their housing loans in 2004 had dropped to as low as 9.01 percent compared to 18.8 percent in the previous year. It was even lower for housing finance companies at 6.93 percent as against 20.53 percent in the previous year. However, while CRISIL estimated the incremental returns for housing finance companies as a subset, it had to
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exclude HDFC owing to HDFCs considerably larger size and superior performance which would skew the numbers significantly, if included. (NHB Trend and progress Report, 2004) As is the case with several countries, in India both specialized lenders as well as commercial banks provide housing finance. Internationally, there continues to be a debate on the merits and demerits of dedicated housing finance companies. In India, housing finance companies are regulated by the National Housing Bank and commercial banks by the Reserve Bank of India.

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CHAPTER III

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CHAPTER III PROFILE OF URBAN CO-OPERATIVE BANK LTD., PAPANASAM As a prelude the constitution and capital base of the bank in brief is furnished hereunder. The bank was started as early as in 1920 and it has completed 88 years. 244 Primary Agricultural co-operative banks (PACBs), 60Agricultural Non-Credit societies (Marketing and dairying), 56 NonAgricultural credit (Urban Banks and Employees) Thrift and Credit Societies and 124 Non-Agricultural Non-Credit societies (customer co-operative and wavers societies) are its members. The area of operation of the banks covers five Taluks viz., Thanjur district and Mannargudi and Needamangalam taluks in Thiruvarur district. The total number of branches including HO stood at 21 as on the date of 31.03.2003. Capital Base As a 31st March 2003, the authorized share capital is rs.1500 Lakhs and the paid up share capital is Rs. 1357.33 Lakhs. The government has subscribed share capital to the Rs.300 Lakhs. Its member co-operative and as high as 57.01 percent is retained by PAPCBs shares the remaining. The banks have deposit to the tune of Rs. 14410.28 Lakhs. Deposits have been; increasing at a compound growth rate of 5.20 percent over a period of five Bars 1998-99 to 2002-03 and 77.09 percent of the deposits are by way of fixed deposits. The major source of borrowing of the bank is Tamilnadu state Apex Co-operative (TNSACB), Chennai from whom 99.36 percent of borrowings are made. The borrowings of the bank have been increasing at a compound growth rate of 8.99 percent. Short-terms borrowings for seasonal agricultural operations

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and cash, credit, accommodation have formed the major chunk, which has been increasing at a compound rate of 18.2 percent over the years. Lending of loans and advances The bank has issued loans and advances to the tune of Rs.16006.34 lakhs and total outstanding stood at Rs. 21512.67 lakhs. Table 3.1 Membership Position Year Agricredi societies coAgri noncredit societies Non Agri Non Agri Govt. credit societies conon credit societies Total

Operative coBank occupies @

operative cooperative Bank occupies @ 54 54 54 56 56 123 123 124 124 124 490 490 492 49 493

operative Bank bank occupies @ occupies @

2005-06 2006-07 2007-08 2008-09 2009-10

252 252 252 252 252

60 60 60 60 60

Note : @ including 8 PARDS The above table shows that one membership position of the bank has been increasing years in 2009-2010 the membership position is 493.

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Table 3.2 Share capital of the bank Year Agricredit societies coAgri noncredit societies Non Agri Non Agri Govt. credit socities conon credit societies Total

Operative coBank occupies @

operative cooperative Bank occupies @ 171.22 176.22 194.61 204.22 252.29 10.59 10.88 26.13 26.29 26.29 300 300 300 300 300 993.11 1133.14 1189.17 1277.74 1357.33

operative Bank bank occupies @ occupies @

2005-06 2006-07 2007-08 2008-09 2009-10

607.88 642.23 664.62 743.42 773.90

3.21 3.81 3.81 3.81 4.85

Sources: Secondary data collected from Papanasam urban Co-operative Bank The above table, shows that the share capital of the bank been increasing year after years. In 2009.10 the share capital amount to Rs.1357.33 Deposits and loans In the year, 2009-10 Rs.76.63 lakhs, interest had been collected. In deposits Rs.43.53 lakhs interest are issued other deposits rs.3.91 lakhs had been issued. In the year 2006, the Bank had Rs.28.75 lakhs profit.

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Importance of the bank The Non-Agricultural credit societies co-operative Bank occupies on important place. They advance loans mostly to the small traders, artisans and salary earners on personal security as well as against gold and silver produce. They accept deposits of various types and there by afford facilities for investment to persons to small men. In the commercial banks and central banks, many of them provide banking facilities of various kinds of their members and customers. Features A credit co-operative registered under sales co-operative societies act in town or semi town areas. A minimum capital paid up of Rs. 50,000 and Provision of banking facilities, (e.g.) accepting for the purpose of lending or investment of deposits from members and. Non-members repayable on demand or otherwise, and with drawls by sequel, draft order, etc. Functions of the bank The main Function of the Papanasam urban co-operative bank are as follows: 1. To attract deposits from members as well as non-members 2. To advance loans to members 3. To act as the agent for the joint purchase of domestic and other requirements of the members. 4. To undertake collection of bills, accepted or endorsed by members. 5. To arrange for the safety custody to valuable documents of members.
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6. Objectives of the bank The by law permitted the society to function under the below mention objectives. Purchase agriculture and house hold goods in bulk and sell the same Provide agriculture implements tools and livestock on hire basis. Maintain go down on hire basis or on ownership basis to keep the goods of the society. And the agriculture produces of the members. Encourage members to undertake new technology in agriculture handicraft. Make arrangements for social and recreation of its member by accepting Donation and subsidy from the government. As per the objective no.8 of the by-law the bank receiving material helps from the government. As per objective of the by-law no.9 the bank creates thrift self-help through mutual help in the all rules are same for all co-operative banks.

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CHAPTER IV

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CHAPTER-IV HOUSING LOAN AN OVERVIEW Houses are expensive. Consequently, availability and cost of housing finance are critical determinations of how well housing markets function around the world. Changes in housing finance mechanisms are drivers in explaining dramatic changes in housing markets and housing activity seen in industrialized countries in recent in recent years (Richard K.Green and M.Wachter, 2007). Over the past two decades, Indian economy has made significant progress in developing private housing markets and market-based system for financing home purchase. However, development has been uneven across countries due to heterogeneity in market infrastructure and economic development. The concept of service quality is playing a vital role in promoting the housing finance in the world. In India, dwelling in a safe and convenient place is one of the essential requirements of every human being and it has become an ambition to a large number of persons, it is the only shelter to all as a place for security, privacy, happiness and life. The house stands for physical, immobile entry, which is central to human life. The house-human relationship starts with the birth of individual and goes on till his death. And there is an emotional attachment with the house as the house gives social identify to the individual. Even after independence of 61 years, a lot of people, living below poverty line, are houseless persons and their lives are in the roadsides and open Places. The house still a dream to lakhs and lakhs of middle class and poor people in our country. However, those people struggle for survival with a dream of own house at least in a small place with minimum comfortable. As the population increase, the problem of housing is also a responsibility to government. The
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government has to provide housing facilities to poor people and financial assistance is also planned and granted to the people. A century later and years after decolonization, it is now a question of event and effective housing land delivery, the working of the state and its administrative apparatus. (Annie Barbera H. Chikwanha, 2005). Ushe has criticized housing provision has been politicized in modern societies and even social good, a human right and more importantly, as a political good in itself. (Uche, 1999). The state has traditionally been viewed as having two main options in housing itself and the other is the support approach, which is when it supports the popular self housing provision efforts. The welfare approach views all social services as social goods resulting in a top-down non particular system of provision that tends to treat all home seekers as homogeneous group. It is seen in these days as fertile lands are also converted as plots for construction of house. Real estate is a growing sector of business in which a large part of money, including black money too, is invested in these days. Industrial development boosted urban development, prompting the real estate market to respond to the demand for residential, commercial, and service activities. Providing housing facilities is a business today to many firms and this sector is now diversified with many divisions such as real estates, housing financing firms, construction companies and other related aspects. The real estate prices have undergone many changes due to various factors. The bubble in real estate prices should have ended after the Gulf War in 1990. However, due to continued influx of foreign funds, the real estate market remained buoyant. Due to the Bangkok international banking facility, a lot of cheap loans became available and many developers were encouraged to borrow to develop real estate projects. (Sopon Pornchokchai, 2003)
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Financing is the major hindrance to most of the people in the case of seeking housing facilities. As it is a huge requirement, it is not possible to the middle class people to construct or buy a house without loan arrangements. In this context, many housing loan operations are undertaken by the banks and private money-lenders. Role of commercial banks and specialized financial institutions is of vital importance and their share of housing finance is considerably large in the total finance invested in this sector. In the bad old times not so long ago, only rich old families owned homes. Salaries were low and loans expensive, costing upwards of 15 percent per annum. (Rajesh Gajra and Vidyalashmi, 2006). The Indian housing industry is highly fragmented, with the unorganized sector, comprising small builders and contractors, accounting for over 70% of the housing units construed and the organized sector accounting for the rest. A welcome move recently announced by the government is that 100% foreign direct investment in India would be allowed in township, housing, builtup infrastructure and construction-developed projects, which could included housing, commercial premises, hotels, resorts, hospitals, educational

institutions, recreational facilities, city and regional level infrastructure. A lot f factors have contributed to the buoyancy in the housing sector. A part from the government support, factors such a increasing number of dual income families, high salaried employees with high purchasing and borrowing powers, bottoming out of property prices, decreasing interest rates, easy availability of home finance, a stock market shy of regaining its earlier momentum etc., have contributed in a significant measure to the resurgence of the housing sector. The Government of India has also been adopting several measures to encourage investment from Non Resident Indian(NRI) in housing and real
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estate development for promoting flow of foreign exchange to the country. Housing has always been an important agenda for the government of India over the year because it is a visible output where the development can be seen a vital sector of the national economy creating jobs and generating taxes and wages that positively influence the quality of life. Housing is a basic necessity as well as, being a vital part of the construction sector, an important sector of the economy. The Government of India has been transforming housing sector into an engine of economic growth under prudent policies and a host of initiatives including the extension of benefits u\s 80 I to mass housing projects scarping of urban land ceiling

act,1976 increased rebates for housing loans, increased depreciation for employee housing, lower interest rates, securitization of housing loan etc. The recognition accorded by the government to the real estate sector, especially the housing sector, has been quite encouraging. An important aspect is that the demand for institutional finance for housing has been on a steady increase over the year resulting in entry of a large number of players into the housing finance science. Traditionally in India, most people depend upon their provident fund and gratuity amounts received after retirement while constructing or buying a home. However, with the emergence of housing finance as a major business in the country, an increasingly large number of people are going in for home loans. Housing has been classified as a basic need in India and successive governments have highlighted its priority status. Despite such emphasis, housing policies largely remained statements of intent rather than being translated into implementation. Earlier Indian governments tended to view housing from a social perspective rather the economic one, and the polices of the time reflected this. Today, the scenario has change. Players like commercial
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banks and housing finance companies have made efforts to develop the mortgage market and increase the availability and affordability of housing. The early development of housing finance in India is a result of the housing policies implemented by the government. A clear perspective on the evaluation of housing policies in India can be seen in the Five Year Planed, which were based on a centrally planned mode of development. Development activities in India have been structured on the basis of Five Year Plans since 1951. It was also during this time that several reforms were made. The UN Global Strategy, of which India subscribed to, was passed in the UN General Assembly in 1988. This gave the impetus to the drifting of a National Housing Policy for the first time. Another major reform that took place at the time was the founding of the National Housing Bank (NHB) in 1988. The NHB was founded to promote and regulate housing finance companies and to mobilize additional resources for housing. A Building Materials and Technology Promotion Council was also formed. Commercial banks still shied away from direct lending to housing finance. The accelerated growth of housing finance has resulted in an increase in its share in the GDP. Outstanding housing loans as a percentage of GDB has raised from 3.4 percentage in 2001 to 7.25 percent in 2005 and 8.50 percent in 2006 (estimated). The figure has been pegged at about 9 percent by the end of the 10th plan i.e. 2007. In view of the increased investment in the services sector, which contributes about 50 percent to the nations GDP, and growth in urbanization, it is expected that the share of housing in GDP and GFCF would go up substantially in the coming years.

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The fiscal concessions provided to individuals under section 88 of the IT Act (Now Section 80 C where in the deductible amount is up to Rs.1 Lakh as compared to Rs. 20,000 earlier u/s 88 of the IT Act) in 1995 and section 24(B) in 1999 (deductible amount of interest repayment is up to Rs.1.50 Lakhs), have led to an increase in demand for housing loans resulting in increased disbursements of housing finance by primary lenders over the years. As a result, housing stock in the country increased from 148 million units in 1991 to 187 million units in 2001 and is expected to have further gone to 218 million units in 2007. The Indian housing finance industry has grown by leaps and bounds in the past few years. The sector has emerged as one of the outstanding success over the last decade, second perhaps only to the countrys software industry. It is growing at an estimated rate of 28 to 30%. Total home loan disbursements by banks and Housing Finance Rs.51672.70 Crores in 2002-03 witnessing a phenomenal growth of 76% during this period. The census of India, 2001 has estimated the Indian populations at 1029 million, next only to China, with at unfavourable land-man ratio reflecting high density in pockets. The demographic profile has been marked by disproportionate urbanization caused by steady migration of people from rural to urban areas at the aggregate level. This has resulted in a huge demand on the infrastructure of the cities, besides causing pressure on the land. For the average mass of people, the priceto-income ratio is still high for acquiring a house. Loan products from financing institutions are facilitating their efforts to own a house. The housing finance institutions and the banks have made significant strides in this direction. As per Teeth Plan (2002 to 2007), the total number houses that would be required cumulatively during the plan period is estimated that investment
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required from public sector institutions would be of the order of Rs. 4,15,000 Crores. This will have to supplement the contribution from private players to tackle the growing demands for housing finance during the plan period. Over the past few years, the study growth registered in housing finance disbursement indicates continued buoyancy in industry. It reveals that the housing finance disbursement have shown a significant increase during the year 2004-05. The total disbursement of housing finance stood at Rs. 7,6819.00 crores registering an overall growth of 41.47 percent. The five-year Compounded Annual Growth Rate (CAGR) as on 2004-05 stood at 32.15%. The industry is fragmented with a large number of players, spread across different parts of the country. The Governments liberalized policy attracted not only new customers, but also new entrants to the business of housing finance. As a result, an industry that was limited to a single private player 20 years age is now inhabited by about 350 registered HFCs and have recently been joined by commercial banks. Currently, banks have garnered close to 35% share of the housing finance market by offering competitive rates of interest. Among the banks, State Bank of India and ICICI bank have been the most aggressive as far as loan disbursals are concerned. In the HFCs category, Housing Development Finance

Corporation (HDFC) continues to enjoy the market leadership with more than 30% share, while LIC Housing Finance (LICHFL) followed with about 13% market share. In 1998, the National Housing Bank (NHB) was established as a 100% subsidiary of the Reserve Bank of India. (The Central Bank of the Country), to promote companies (HFCs) and other institutions and also to function as the supervisory and regulatory body for housing finance companies. National Housing Bank does not itself give loans or finance individuals or a party as such
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but is only a corporate body to promote, establish, support or aid housing finance institutions. Housing constitutes an important component and a measure of the socioeconomic status people. It is regarded as a critical sector in terms of policy initiatives and interventions. This is reflected in the efforts of the Government to improve housing and habitat conditions by way of financial allocations in the Five-Year plans and fiscal measure related to housing announced in the Union Budgets. The reach of the institutional financial market has been extended to serve the housing sector in different regions and different segments of the population. The accessibility of housing finance for people in general has evolved, developed and improved over the years. The financing institutions have come to see good value in funding this component of the economy. With a growing number of players and increased competition, the housing sector is becoming increasingly market-driven. The sector offers safe and secure residential assets, good business opportunities for the leading agencies and attractive terms for borrowers. Overall, the affordability of housing loans clearly appears to have improved with fast growing number of borrowers. There is a felt need for standardization and uniformity in practices in order to improve transparency in the market and bring greater efficiency. The impact of these positive growth indicators has not been uniform in the rural and urban areas. The reasons are infrastructural limitations and legal inadequacies coupled with geographical divergences. There has been a growing concern about reaching credit for rural housing on market terms and conditions. The concerns have been articulated in various policy pronouncements and the sector has to gear up to find market related solutions for them. Investment in housing in rural areas on a large scale, besides ameliorating living conditions,
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also impacts the economic profile of the region and can results in all-rounded development. There is a strong case for a supportive and an enabling policy framework for bringing in large investments in rural housing. This can well change the economic landscape of rural India. The age-old concept of house as shelter has transformed with time to mean a popular investment for a significant segment of the population who consider this as a good source of return on capital. In the past few years, the housing finance industry has also been experiencing, in some measures, the process of integration with the capital market thought the securitization route. This integration has established functional links between savers home Joan borrowers financiers and capital market investors. This market has huge growth potential to serve, as an important funding source for the housing sector and it should be possible to realize this is the coming years. The emergence of housing on the national map as a critical sector Continuous to engage policy markers, regulators and the players on the ground. While the government has continued its commitment towards housing by way supportive fiscal measures, the Reserve Bank of India (RBI) has cautioned the industry about the potential problems arising out of the overheating of the and need to maintain a watchful surveillance on the developments. There has also been a word of caution on the likelihood of Non Performing Assets Chemical in the sector. The provisions of the Securities and Reconstruction of Assets and Enforcement of Securities Internet (SARFAESI) Act can produce by the lenders to realize their unpaid/ defaulted loans. The Act also a deterrent for potential defaulters and can arrest the growth of NPAs. These provisions are expected to result in more efficient and recovery practices in the industry and will generate more resources for with higher confidence among the lending institutions.

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The Reserve Bank of Indias initial efforts to encourage commercial banks in housing finance came in the form directed credit. This included mandating banks to lend to housing finance intermediaries at the bank prime lending rate less 150 basis points and annually allocating 1.5 percent of their incremental deposits in the previous year for housing finance. Overtime, as the Reserve Bank of India made a bid to move away from directed credit, the mandated lending below prime rates to housing finance companies was removed in 1998, though the allocation for housing finance was increased to 3 percent of incremental deposits. Bank lending under housing comprises three components direct lending which entails banks themselves extending housing finance loans, indirect lending where banks lend to approved housing finance and lastly, investments in mortgage-backed securities underlying loans securitized by housing finance companies. Domestic scheduled banks and foreign banks are required to extend a minimum of 40 percent and 32 percent respectively of their net bank credit to the priority sector lending inter alia comprises agriculture, small-scale industries, small business, retail trade, lending to state sponsored organizations for scheduled castes/tribes and education. It was as late as 1990 when the Reserve Bank of India put housing finance on its list of priority sectors (World Bank, 2004). For a direct housing loan to qualify as priority sector, each loan should not exceed Rs. 1,500,000 (US $33,333) irrespective of whether a house in a rural, semi-urban or urban area. As regards indirect housing finance, each loan should not exceed Rs.500,000 (US $11,111) to qualify for priority sector lending. It was not till the late 1990s that banks actively got involved in housing finance. Against the backdrop of lower interest rates, industrial slow-down,

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sluggish credit off-take and ample liquidity, commercial banks recognized that if they had to maintain their profit margins they needed to shift focus from the wholesale segment and build their retail portfolios. The lower interest rate regime, rising disposable incomes, relatively stable property prices and fiscal incentives made housing finance an attractive business. Further, housing finance traditionally has been characterized by low non-performing assets and given the vast demand for housing loans, almost all the major commercial banks plunged into the business of home loans.

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CHAPTER-V

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CHAPTER-V ANALYSIS AND INTERPRETATION OF DATA In this chapter, primary data, collected from the borrowers of house Construction loan (100) and the borrowers of mortgage loan (100) are analyzed separately. Their perception is taken in to consideration in each and every table. At last, hypotheses were tested with the help of chi square test. In the following section, data pertaining to the borrowers of house construction loan are Table- 5.1 Demographic Profile Sl.No 1 Variable Gender Classification Male Female Total 2 Age Group (in years) 20-30 30-40 40-50 50 & above Total 3 Martial Status Married Unmarried Total 4 Education Upto Higher Secondary Degree P.G Degree Total 58 14 100 58 14 100 No. 67 33 100 12 59 21 8 100 66 34 100 28 Percentage 67 33 100 12 59 21 8 100 66 34 100 28

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Occupation

Government Private Agriculture Others Total

59 25 16 0 100

59 25 16 0 100

Source: Primary Data Above table shows the demographic profile of the 100 respondents who have borrowed House Construction Loan from the Papanasam Cooperative Urban Bank.

This comprehensive table explains the demographic features of the sample frame. From a close scrutiny of the table, the following points are worth noting: Male respondents are of majority (67%). 30-40 is the age group that has majority (59%). Married respondents are in majority (66%). Degree holders occupy the first place (58%). Government employees are in large number (59%).

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Table 5.2 Superiority of Papanasam Cooperative Urban Bank in respect of Loan Sanctioning over other banks Sl.No Opinion No. of. Respondents 1. 2. 3. 4. 5. Quickness in sanctioning Employees approach Low interest rate All Total 32 24 38 6 100 32 24 38 6 100 %

Sources: Primary data In the case of superiority of the House Construction Loan, the respondents compared the Papanasam Cooperative Urban Bank with ither banks. 38% respondents pointed out that the low rate of interest on the housing loan is the superiority. Quickness in sanctioning has been mentioned by 32% respondents. Employees approach is the superiority to the 24% respondents.

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Diagram 5.2 Superiority of Papanasam Cooperative Urban Bank in respect of Loan Sanctioning over other banks

40 35 30 24% 25 20 15 10 5 0 Quickness in sanctioning Employees' approach 32%

38%

6%

Low interest rate

All

No. of Respondents (In %)

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Table 5.3 Perception towards the Rate of Interest charged by Cooperative Urban Bank Ltd., Papanasam Sl.No 1. 2. 3. 4. 5. Perception Low Very low Medium High Total No. of Respondents 45 30 20 5 100 % 45 30 20 5 100

Source: Primary data Rate of interest is one of the important aspects that attract more buyers of housing loan. 45% respondents feel it as low. 30% mention it as very low. 20% respondents say as medium but a few respondents (5 out of 100-5%) indicate that it is high.

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Diagram 5.3 Perception towards the Rate of Interest charged by Cooperative Urban Bank Ltd., Papanasam

45% 45% 40% 30% 35% 30% 25% 20% 15% 10% 5% 0% Low Very low Medium High 5% 20%

Perception

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Table 5.4 Consideration of Papanasam Cooperative Urban Bank towards the Sanctioning House Construction Loan Sl. No. Consideration No. of Respopndents 1. 2. 3. 4. 5. Source: Primary data Considerations of the Bank regarding the sanctioning the housing loan are assets, rules and security. 49% respondents pointes out that the security is the major consideration. At the same time, 30% feel as rules. 12% say as all the above. Assets As rules Security All Total 9 30 49 12 100 9 30 49 12 100 %

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Diagram 5.4 Consideration of Papanasam Cooperative Urban Bank towards the Sanctioning House Construction Loan

50 45 40 35 30 25 20 15 10 5 0 assets As rules Security All

Consideration

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Table 5.5 Behaviour of employees of Papanasam Cooperative urban Bank towards the Recovery of Housing Construction Loan Sl. No Behaviour of Employees 1. 2. 3. Normal Strict Kind Total Source: Primary data 68% respondents mention that the behavior of employees of the Bank is normal. But, 25% feel it strict. 7% respondents have felt that the employees are kind. No. Of Respondents 68 25 7 100 68 25 7 100 %

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Diagram 5.5 Behaviour of employees of Papanasam Cooperative urban Bank towards the Recovery of Housing Construction Loan

7%

25%

68%

0%

10%

20%

30%

40%

50%

60%

70%

80%

No. of Respondents (in %)

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CHAPTER VI

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CHAPTER VI SUMMARY OF FINDINGS, SUGGESTIONS AND CONCLUSION FINDINGS FROM THE BORROWERS OF HOUSE CONSTRUCTION LOAN 1. In the case of superiority of the House Construction Loan, the respondents compared the papanasam Cooperative Urban Bank with other banks. 38% respondents pointed out that the low rate of interest on the housing loan is the superiority.

2. Rate of interest one of the important aspects that attract more buyers of housing loan. 45% respondents feel it as low. 30% mention it as very low. 20% responds say as medium but a few respondents (5 out of 100-5%) indicate that it is high.

3. Considerations of the Bank regarding the sanctioning the housing loans are assets, rules and security. 49% respondents pointed out that security is the major consideration. At the same time, 30% feel as rules. 12%) say as all the above. 4. 58% respondents feel that the banks approach is flexibility in the case of recovery of housing loan and they constitute the majority. But it is hard to the 20% respondents. 12% mention it as forcefully. 10% feel it as normal. 5. 68% respondents mention that the behaviuor of employees of the Bank is normal. But, 25% feel it strict. 7% respondents have felt that the employees are kind.

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SUGGESTIONS From the analysis of opinions of the borrowers, the following suggestions are derived: 1. Terms and conditions may be liberalized for the benefits of borrowers to ensure quick sanctioning of the loans. 2. Amount sanctioned may be increased to some extent to eligible borrowers. 3. More advertisements may be given to the general public regarding the housing loan and mortgaged loan to cover more number of potential borrowers. 4. Efforts may be made by the Bank to collect the overdoes with legal support but the collection process should not torture to the genuine borrowers.

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CONCLUSION The Papanasam Cooperative Urban Bank, Papanasam has done its performance well in respect of housing and mortgage loans. This is ascertained from the analysis of data collected from the sample borrowers. At the same time, there is a growing need for housing loan so that all banks including private sector banks take various promotional measures to attract the market for housing loans. The Papanasam Cooperative Urban Bank, Papanasam may concentrate its attention to pay on promotional measures to increase its contribution for growth of housing finance market.

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QUESTIONNIRE A STUDY ON THE PROCEDURE AND PROBLEMS RELATING TO THE SANCTIONING AND RECOVERY OF HOUSING IN URBAN COOPERATIVE BANK LTD., PAPANASAM QUESTIONNAIRE FROM BORROWERS OF CONTRIBUTION LOAN 1.Name: 2.Gender Male Female 3.Age Group (in years) 20-30 30-40 40-50 50&above 4.Marital Status Married Unmarried 5.Education Upto Higher Secondary ( ) Degree 6.Occupation Government Private ( ) ( )
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( ) ( )

( ) ( ) ( ) ( )

( ) ( )

( )

Agriculture Others

( ) ( )

7.Superiority of Papanasam Cooperative Urban Bank in respect Loan Sanctioning over other banks Quickness in sanctioning Employees approach Low interest rate All ( ) ( ) ( ) ( )

8.Perception towards the Rate of Interest charged by Cooperative Urban Bank Ltd., Papanasam Low Very low Medium High ( ) ( ) ( ) ( )

9.Consideration of Papanasam Cooperative Urban Bank towards the sanctioning House Construction Loan Assets As rules Security Normally ( ) ( ) ( ) ( )

10.Mode of Recovery of Papanasam Cooperative Urban Bank towards the House Construction Loan Hardly Flexibly Forcefully Normally ( ) ( ) ( ) ( )

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11.Behavoiur of Employees of Papanasam Cooperative Urban Bank towards the Recovery of House Construction Loan Normal Strict Kind ( ) ( ) ( )

12.Problem in respect of Repayment of House Construction Loan Yes No ( ) ( )

13.Type of problem in respect of repayment of House Construction Loan Low income Unemployment Unexpected Expenses All ( ) ( ) ( )

14.Expectation from Papanasam Cooperative Urban Bank Quickness in sanctioning loan ( ) Low rate of Interest Large size loan ( ) ( )

15.Level of Satisfaction towards Amount of House Construction Loan Highly Satisfied Highly satisfied Satisfied Dissatisfied Highly Dissatisfied ( ) ( ) ( ) ( )

16.Opinion in respect of Duration of House Construction Loan Lengthy Sufficient ( ) ( )

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Short Not Enough

( ) ( )

17.There is need for changes in the House Construction Loan Strongly agree Agree Disagree Strongly disagree ( ) ( ) ( ) ( )

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A STUDY ON THE PROCEDURE AND PROBLEMS RELATING TO THE SANCTIONING AND RECOVERY OF HOUSING IN URBAN COOPERATIVE BANK LTD., PAPANASAM QUESTIONNAIRE FROM BORROWERS OF MORTGAGE LOAN

1.Name: 2.Gender Male Female 3.Age Group (in years) 20-30 30-40 40-50 50&above 4.Marital Status Married Unmarried 5.Education Upto Higher Secondary ( ) Degree 6.Occupation Government Private ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( )

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Agriculture Others

( ) ( )

7.Superiority of Papanasam Cooperative Urban Bank in respect Loan Sanctioning over other banks Quickness in sanctioning Employees approach Low interest rate All ( ) ( ) ( ) ( )

8.Perception towards the Rate of Interest charged by Cooperative Urban Bank Ltd., Papanasam Low Very low Medium High ( ) ( ) ( ) ( )

9.Consideration of Papanasam Cooperative Urban Bank towards the the Mortgage Loan Assets As rules Security Normally ( ) ( ) ( ) ( )

10.Mode of Recovery of Papanasam Cooperative Urban Bank towards the Mortgage Loan Hardly Flexibly Forcefully Normally ( ) ( ) ( ) ( )

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11.Behavoiur of Employees of Papanasam Cooperative Urban Bank towards the Recovery of the Mortgage Loan Normal Strict Kind ( ) ( ) ( )

12.Problem in respect of Repayment of Mortgage Loan Yes No ( ) ( )

13.Type of problem in respect of repayment of Mortgage Loan Low income Unemployment Unexpected Expenses All ( ) ( ) ( )

14.Expectation from Papanasam Cooperative Urban Bank Quickness in sanctioning loan ( ) Low rate of Interest Large size loan ( ) ( )

15.Level of Satisfaction towards Amount of Mortgage Loan Highly Satisfied Highly satisfied Satisfied Dissatisfied Highly Dissatisfied ( ) ( ) ( ) ( )

16.Opinion in respect of Duration of Mortgage Loan Lengthy Sufficient Short Not Enough ( ) ( ) ( ) ( )

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BIBLIOGRAPHY

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BIBLIOGRAPHY Philip kotler, Marketing Management, 11th edition and 8th edition, Prentice-Hall of India (p) Ltd, New Delhi -1, February, 2003. David Gilbert, Retail Marketing Management, published by Pearson education Ltd, First edition 1999. Honey and maclnnis, Consumer Behavior, All India publishers and Distributor Mifflin Company, Hougton Mifflin Company, New York, First edition 1999. C.R. Kothari, Research Methodology, K.K. Gupta for new Age International (p) Ltd, New Delhi 2, Second edition 1900. Devendra Thakur, Research Methodology in social sciences, Deep & Deep publications (p) Ltd 2000. P. Saravanavel, Research Methodology, Kitab Mahal, Allahabad- 2001. Dr. V.Suresh Kumar and Dr. A.Arulraj, Housing Finance Service quality, Global Research Puplications, New Delhi, 2010.

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