Economics Assignmnt

7/28/2019 Economics Assignmnt

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INDUSRTY - BANKING SECTOR

BANKSTATE BANK OF INDIA

PRODUCTHOUSING LOAN

Submitted to:Mr.Sourabh Kumar

Submitted by:

Manhar Parmjot Singh

10900912

RM39B1A56


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TABLE OF CONTENTS

1. Overview of Banking Industry2. Company Profile

2.1 Introduction2.2 Background2.3 Evolution of SBI

3. SBI Housing Loan3.1 Unique features3.2 Purpose3.3 Eligibility3.4 Loan Amount3.5 Margin

3.6 Processing Fee3.7 Pre-closure Penalty3.8 Security3.9 Maximum Repayment Period3.10 Moratorium3.11 Disbursement3.12 Documents3.13 SBI-Flexi Home Loans3.14 SBI-Maxgain Home Loans3.15 SBI-Realty Home Loans3.16 SBI-Freedom Home Loans

3.17 SBI-Optima Additional Home Loans3.18 SBI-Homeline Special Personal Loans3.19 Purpose3.20 Eligibility3.21 Interest Rates/processing fee3.22 Other Salient Features3.23 Credit Khazana3.24 Eligibility3.25 Concession in Interest3.26 Concession in Margin3.27 Security

4. Total cost

5. Competitors of State Bank of India

6. Demand Estimation


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1. Overview of Banking Industry

The Indian banking industry has been on the path of reformation and recovery ever since theprocess of liberalization had begun. While the earlier highly regulated, or rather, restrictedsystem had hampered down heavily on the sector as a whole, the liberalization process led to a

total makeover of the entire sector, making it more customer and industry friendly. One of themajor policies that liberalization brought in was the removal of entry barriers to the bankingsector, thus ushering in a number of foreign and private banks. Thus, thanks to liberalization, theIndian banking sector became a true monopolistic competition.

2. Company Profile

2.1 Introduction

State Bank of India is an India-based bank. As of March 31, 2012, the Bank had a network of

20,193 branches, including 5,096 branches of its five associate banks. In addition to banking, theCompany, through its various subsidiaries, provides a range of financial services, which includelife insurance, merchant banking, mutual funds, credit card, factoring, security trading, pensionfund management, custodial services, general insurance (non-life insurance) and primarydealership in the money market. Its segments include Treasury, which includes investmentportfolio and trading in foreign exchange contracts and derivative contracts;Corporate/Wholesale Banking, which comprises lending activities of Corporate Accounts Group,Mid Corporate Accounts Group and Stressed Assets Management Group; Retail Banking, whichcomprises of branches in National Banking Group, which includes personal banking activities,including lending activities to corporate customers, and Other Banking Business.

2.2 Background

The State Bank of India is the oldest and largest bank in India, with more than $250 billion(USD) in assets. It is the second-largest bank in the world in number of branches; it opened its10,000th branch in 2008. The bank has 84 international branches located in 32 countries andapproximately 8,500 ATMs. Additionally, SBI has controlling or complete interest in a numberof affiliate banks, resulting in the availability of banking services at more than 14,600 branchesand nearly 10,000 ATMs. SBI traces its heritage to the 1806 formation of the Bank of Calcutta.The bank was renamed the Bank of Bengal in 1809 and operated as one of the three premier"presidency" banks (the presidency banks had the exclusive rights to manage and circulatecurrency and were provided capital to establish branch networks). In 1921, the government

consolidated the three presidency banks into the Imperial Bank of India. The Imperial Bank ofIndia continued until 1955, when India's central bank, the Reserve Bank of India, acquired themajority interest in the bank and changed its name to the State Bank of India (SBI).In 1959, theIndian government passed the State Bank of India Act, resulting in the acquisition (majorityshareholding) of eight state-affiliated banks and the creation of the State Bank of India Group(SBI Group). The SBI itself is now majority owned by the Indian government, which purchasedthe shares held by the Reserve Bank of India.


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2.3 Evolution of SBI

The origin of the State Bank of India goes back to the first decade of the nineteenth centurywith the establishment of the Bank of Calcutta in Calcutta on 2 June 1806. Three years later thebank received its charter and was re-designed as the Bank of Bengal (2 January 1809). A unique

institution, it was the first joint-stock bank of British India sponsored by the Government ofBengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July 1843) followedthe Bank of Bengal. These three banks remained at the apex of modern banking in India till theiramalgamation as the Imperial Bank of India on 27 January 1921.

Primarily Anglo-Indian creations, the three presidency banks came into existence either as aresult of the compulsions of imperial finance or by the felt needs of local European commerceand were not imposed from outside in an arbitrary manner to modernize India's economy. Theirevolution was, however, shaped by ideas culled from similar developments in Europe andEngland, and was influenced by changes occurring in the structure of both the local tradingenvironment and those in the relations of the Indian economy to the economy of Europe and the

global economic framework.

3. SBI Housing Loan

"THE MOST PREFERRED HOME LOAN PROVIDER"voted in AWAAZ Consumer Awardsalong with the MOST PREFERRED BANK AWARD in a survey conducted by TV 18 inassociation with AC Nielsen-ORG Marg in 21 cities across India.

SBI HOME LOANS now offers Interest Rates concessions on GREEN HOMES in accordancewith SBI's commitment to Environment protection.SBI Home Loans come to you on the solidfoundation of trust and transparency built in the tradition of State Bank of India.Best Practices

followed in SBI mentioned below will tell you why it makes sense to do business with StateBank of India.

Best practices followed in SBI

People dealing withyou

End to End service by Permanent employees of SBI who areaccountable to you.

PlaceSBI branch of your choice will service your loan account.You can always meet our employees face to face.

PriceComplete transparency.Interest charged on the daily reducing balance.

Prepaymentcharges

No penalty for prepayments made, out of bonafide savings orwindfall gains for which evidence is produced.

Costs hidden infine print

No hidden costs

TransparencyComplete transparency. All the features of our product,including interest rates, are in the public domain.


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3.1 Unique features

Provision for on the spot "In principle" approval. Loan sanctioned within 6 days of submission of required documents. Option to avail Home Loan as a Term Loan or as an Overdraft facility to save on interest

and maximise gains (see SBI MaxGain in the following sections) Option to club income of your spouse and children to compute eligible loan amount Provision to finance cost of furnishing and consumer durables as part of project cost Repayment permitted upto 70 years of age Free personal accident insurance cover upto Rs.40 Lac. Optional Group Insurance from SBI Life at concessional premium (Upfront premium

financed as part of project cost)

Interest calculated on daily reducing balance basis, and starts from the date ofdisbursement.

Plus schemes which offer attractive packages with concessional interest rates to Govt.Employees, Teachers, Employees in Public Sector Oil Companies.

Special scheme to grant loans to finance Earnest Money Deposits to be paid to UrbanDevelopment Authority/ Housing Board, etc. in respect of allotment of sites/ house/ flat

Option to avail loan at the place of employment or at the place of construction Complimentary international ATM-Debit card Complimentary SBI Classic/ International Credit Card Option for internet-banking Concessional package under Credit Khazana for prospective Auto Loan, Student Loan,

Personal Loan borrowers whose accounts are conducted satisfactorily

50% concession in charges in respect of all personal remittances/ collection of outstationcheques

Personal loan at attractive rates under SBI Home Plus scheme tailored exclusively forSBI Home Loan customers.

3.2 Purpose

Purchase/ Construction of House/ Flat Purchase of a plot of land for construction of House Extension/ repair/ renovation/ alteration of an existing House/ Flat Purchase of Furnishings and Consumer Durables as a part of the project cost Takeover of an existing loan from other Banks/ Housing Finance Companies.

3.3 Eligibility

Minimum age 18 years as on the date of sanction Maximum age limit for a Home Loan borrower is fixed at 70 years, i.e. the age by which

the loan should be fully repaid.

Availability of sufficient, regular and continuous source of income for servicing the loanrepayment.


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3.4 Loan Amount

40 to 60 times of NMI, depending on repayment capacity as % of NMI as under;

Net Annual Income EMI/NMI Ratio

Upto Rs.2 lacs 40%

Above Rs.2 lac to Rs. 5 lacs 50%

Above Rs. 5 lacs 55%

To enhance loan eligibility you have option to add:1. Income of your spouse/ your son/ daughter living with you, provided they have a steadyincome and his/ her salary account is maintained with SBI.2. Expected rent accruals (less taxes, cess, etc.) if the house/ flat being purchased is proposed tobe rented out.3. Depreciation, subject to some conditions.

4. Regular income from all sources.Note:NMINet Monthly IncomeEMIEquated Monthly Installment.

3.5 MarginPurchase/ Construction of a new House/ Flat/ Plot of land:20% for loans up to Rs.30 Lacs, 20% for loans above Rs.30 lacs and upto Rs.75 lacs. 25% forloans above Rs.75 lacs. (w.e.f. 01.01.2009).

3.6 Processing Fee

0.50% of Loan amount with a cap of Rs.10,000/-(including Service Tax)

3.7 Pre-closure Penalty

No penalty if the loan is preclosed from own savings/windfall gains for which documentaryevidence is produced by the customer.In case, such proof is not produced by the borrower, penalty @2% on the amount prepaid inexcess of normal EMI dues shall be levied if the loan is pre-closed within 3 years from the dateof commencement of repayment.

3.8 Security

Equitable mortgage of the property.Other tangible security of adequate value like NSCs, LifeInsurance policies etc., if the property cannot be mortgaged.

3.9 Maximum Repayment Period

For applicants up to 45 years of age: 25 years For applicants over 45 years of age: 15 years


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3.10 MoratoriumUp to 18 months from the date of disbursement of first installment or 2 months after finaldisbursement in respect of loans for construction of new house/ flat (moratorium period will beincluded in the maximum repayment period)

3.11 Disbursement In lump sum direct in favour of the builder/ seller in respect of outright purchase In stages depending upon the actual progress of work in respect of construction of house/

flat etc.3.12 Documents

Completed application form Passport size photograph Proof of IdentityPAN Card/ Voters ID/ Passport/ Driving License Proof of ResidenceRecent Telephone Bill/ Electricity Bill/ Property tax receipt/

Passport/ Voters ID

Proof of business address in respect of businessmen/ industrialists Sale Deed, Agreement of Sale, Letter of Allotment, Non encumbrance certificate, Land/

Building Tax paid receipt etc. (as applicable and subject to satisfaction report from ourempanelled lawyer)

Copy of approved plan and approval from the Local Body Statement of Bank Account/ Pass Book for last 6 months

3.13 SBI-Flexi Home LoansA customized product designed to enable borrowers to hedge their Home Loan againstunfavorable movement in interest rates. The product gives you a one time irrevocable option tochoose one of the three customized combinations of fixed and floating interest rates and also to

choose the order in which the fixed and floating rate will be availed.Minimum Loan Amount: Rs.5 lacs (Other terms and conditions as applicable to regular HomeLoans).

3.14 SBI-Maxgain Home Loans

An innovative and customer-friendly product to enable you to earn optimal yield on your savingsand minimize interest burden on Home Loans, with no extra cost.

The loan is granted as an Overdraft facility with the added flexibility for you to operate yourHome Loan Account like your SB or Current Account.The product serves to minimize your interest cost by enabling you to park your surplus funds inSBI-Maxgain (with the benefit to withdraw the surplus funds whenever you require), speciallyin the wake of low yields from other deposit/ investment avenues. Minimum Loan Amount: Rs.5lacs(Other terms and conditionsas applicable to regular Home Loans).


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3.15SBI-Realty Home LoansA unique product if you are on the look out for a loan to purchase a plot of land for houseconstruction. The loan is available for a maximum amount of Rs.1 crore* and with a comfortablerepayment period of upto 25 years.

You are also eligible to avail another Housing Loan for construction of house on the plotfinanced above with the benefit of running both the loans concurrently.(House constructionshould commence within 2 years from the date of availment of SBI-Realty Housing Loan)(Other terms and conditionsas applicable to regular Home Loans)(* relaxation considered on case to case basis)

3.16 SBI-Freedom Home Loans

A revolutionary product designed for customers who are on the look out for a source of financefor a property they want to invest in without mortgaging the same. All you have to do is pledgeany financial security that you have and you will get a Home Loan for your dream home.

A must-take for those who do not want to pay stamp duty for mortgage of their property or gothrough the hassles of creation of mortgage.

You also have an option to take the loan by way of mortgage of the property and pledge financialsecurities in lieu of margin money.

Repayment is highly customized, giving you the option to repay through regular EMIs orthrough maturity proceeds of the securities pledged. (Other terms and conditions as applicableto regular Home Loans).

3.17 SBI-Optima Additional Home Loans

3.18 SBI-Homeline Special Personal LoansInnovative and value added products extended to existing Home loan borrowers with asatisfactory repayment record of 3 years and whose loan is Standard Asset, with a view toreinforce the customer loyalty and to maintain long term relationship with the borrowers. In caseof take-over of Home Loans from other Banks/HFCs, the borrower should have fulfilled theabove conditions with the present Bank/HFC.

3.19 Purpose

SBI-Optima Additional HomeLoans

to meet expenditure towards major repair,renovation, addition to their house/flat,purchase of furniture, fixtures andconsumer durables

SBI-Homeline Special PersonalLoans

General purpose loan to meet expenditureto meet forseen/unforeseen contingencies


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3.20 Eligibility

SBI-Optima Additional Home Loans 18 times NMI (for salaried borrowers)/1 times NAI ( for others) or

(i)25% of the original project cost of house/flat (ii)85% of the cost of repairs etc. or (iii) gap between85% of the current market price of flat/house andactual outstanding loan dues ,

whichever is lower (EMI/NMI ratio of all loansshould not exceed 60%)

SBI-Homeline Special Personal Loans 18 times NMI (for salaried borrowers)/1 times NAI (for others)

3.21 Interest Rates/processing fee

SBI-Optima Additional HomeLoans

As applicable to Home Loans

SBI-Homeline Special PersonalLoans

Interest rates 50 bps above rates applicable tothe repayment tenure (floating rates only)

Processing fee : 0.50% of the loan amount(including service tax)

3.22 Other Salient FeaturesInbuilt provision for availment of the loans on the expiry of each bloc of 5 years, the first bloccommencing on the expiry of 5 years from the date of sanction of original Home Loan.Original Home Loan and all SBI-Optima Home Loans/SBI-HomeLine Personal Loans canrun concurrentlyComfortable repayment obligations Tenure of the loans equal to the residual maturity of theoriginal Home Loans -

3.23 Credit KhazanaThe "SBI Credit Khazana" Scheme offers Housing Loan customers, concessions in interest rates

and margins when they subsequently avail of any of the following loans: Car Loan, Scoom,Education Loan, Personal Loan, Tractor Loan.

3.24 EligibilityHousing Loan customers who have serviced the loan regularly for at least one year and whereEquitable Mortgage has been created.


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3.25 Concession in InterestThere will be a concession of 0.25% in interest when any of the above mentioned loans areavailed.

3.26 Concession in Margin

There will be a concession of 10% in case of Car Loan and 5% in case of Tractor Loan. Underthe SCOOM Scheme, the margin has been maintained at 5%.

3.27 Security

The security required to be taken under the individual schemes would be taken and additionally,the Equitable Mortgage taken for the Housing Loan would be extended to cover the new loan(s).

4. Total cost

MUMBAI: The country's largest bank, State Bank of India, has reduced its processing fee on

home loans and car loans by half in a move aimed at attracting customers and beatingcompetition.

The decision comes soon after many PSU banks announced a complete waiver of processing feefor a limited period, while private banks announced innovative schemes to attract customers.

State Bank of India has reduced the processing fee on home and auto loans by 50 per cent forloans availed from October 17 to December 31.

For home loans of up to Rs 25 lakh, the processing fee is 0.12 per cent per cent of the loanamount, subject to a minimum of Rs 1000, from 0.25 per cent earlier. For loans between Rs 25

and Rs 75 lakh, the revised processing fee is Rs 3,250, against Rs 6,500 earlier and for loans ofabove Rs 75 lakh, the processing fee is Rs 5,000, against Rs 10,000 earlier.

For take over home loans, the bank is charging a flat processing fee of Rs 1000, said a pressrelease from the bank.

With the advent of festival season India's largest lender - the State Bank of India (SBI) hasembarked upon a special campaign to ramp up its home loan book. It is going to reduce theprocessing fee for home loans to Rs.1000 per loan irrespective of the size. The offer would bemade available from September 01 onwards, a senior bank official told moneycontrol.com.Currently, loan processing is at 0.25% of the loan amount subject to a cap of Rs 6,500 for loans

upto Rs.75 lakhs. For any higher loan amount, the maximum fee ceiling is Rs.10,000. Forexample, if you apply for a loan of Rs. 20 lakhs, you need to pay a processing charge ofRs.1000/- With the new offer, it will be uniform at Rs.1,000 for a home loan. However, the offerwould end on 30th November, 2012.

At the same time, the banking behemoth is actively mulling reduction in conversion fee which ispresently at 1%. For all banks, conversion fees are in the range of 0.50-2%. This move, ifimplemented, will help the existing (SBI) home loan customers, who are not entitled to get the
http://economictimes.indiatimes.com/state-bank-of-india/stocks/companyid-11984.cmshttp://www.moneycontrol.com/india/stockpricequote/banks-public-sector/state-bankindia/SBIhttp://www.moneycontrol.com/india/stockpricequote/banks-public-sector/state-bankindia/SBIhttp://economictimes.indiatimes.com/state-bank-of-india/stocks/companyid-11984.cms


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benefit of reduced interest rates to avail of the lowered interest rates. Lets assume the loan sizeis Rs.30 lakhs and a customer has already repaid Rs.10 lakhs. Therefore, he has to payRs.20,000/-(i.e. 1% of 30-10 lakhs) one-time upfront for the conversion.Earlier, SBI cut the interest rates on home and auto loans by over 50 basis points, effective fromAugust 07. However, it did not change the base rate (remains at 10% p.a), the benchmark rate

below which the Reserve Bank of India does not allow any bank to lend. Now, a home loanborrower can avail of a home loan with interest at 10.25% as against 10.75% prior to the rate cut,for a ticket size of Rs 30 lakhs. The interest rate will be 10.40% for loans above Rs. 30 lakhs.The EMI on Home Loan tenor of 30 years is Rs.897 per lakh which is the lowest in the market.

However, the new rates are available only to the new customers. So, a customer who had taken aloan at a higher floating rate viz. 11.25% will be keen to avail the benefit of the current lowerrate. So, he can convert his loan to the new rate by paying the conversion fee.

"Those proposed moves by RBI will certainly benefit customers, who should tap opportunitiesright in time. However, the bank cannot just keep on doing this beyond a point as it may hurt

their margins," said Anil Rego, CEO and founder, Rights Horizons, a Bangalore based advisoryfirm.

With 26% market share, SBI continues to be the leader in home loan market followed by theprivately held housing finance company- HDFC .

"We have got some surplus funds after RBI cut statutory liquidity ratio by 1% to 23%. We havedecided to utilize it in expanding our retail business. The Bank is aiming at 20-25% growth in itshome loan portfolio. As the country's largest bank, we have a vital role to play in supporting theeconomy", said the official.

As of July, SBI's home loan portfolio stood at around Rs 1.06 lakh plus crores. Total retail loansstood at Rs 1.86 lakh crores in the April-June quarter.

New Delhi: In festive mood, country's largest lender, the State Bank of India (SBI), has halvedthe processing fee on home and automobile loans. The reduced processing fee is available till theend of 2012. This comes days after the SBI slashed home and auto loans by 50 basis points."With this reduction, the bank is quoting the lowest processing fee on both home and auto loansto our esteemed customers," it said.

For home loans up to Rs 25 lakh, the processing charge has become 0.125 per cent of the loanamount from 0.25 per cent, it said. In case of loans between Rs 25 lakh and Rs 75 lakh, theprocessing fee would be Rs 3,250 as against Rs 6,500 while loans above Rs 75 lakh, it would beflat Rs 5,000 as compared to Rs 10,000 per application earlier. With regard to auto loan, theprocessing charge has been slashed to 0.255 per cent of the loan amount as against 0.51 per cent.

Almost a month back, the SBI had slashed its base rate, the minimum benchmark rate belowwhich the Reserve Bank of India (RBI) does not allow a bank to lend, by 25 basis points to 9.75per cent. The bank had taken the decision in its asset liability committee meeting.
http://www.moneycontrol.com/india/stockpricequote/finance-housing/housing-development-finance-corporation/HDFhttp://www.moneycontrol.com/india/stockpricequote/finance-housing/housing-development-finance-corporation/HDF


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5. Competitors of State Bank of India

PNB ICICI HDFC

Domestic

Data(Round

off figures)

Total

Deposits

Total

Advances

Net Profit Total Assets Branches

State Bank of

India

4,355.2 3,373.4 45.4 5,665.7 10,186

ICICI Bank 2,305.1 1,958.7 31.1 3,453.1 1,400

Punjab

National

Bank

1,398.6 1,990.5 20.5 1,990.5 4,500

HDFC Bank 1,007.7 634.3 16.0 1,332.5 1,412


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6. Demand Estimation

The equation for the straight line trend isY = a + bx

a-interceptb-shows impact of independent variable

The Y intercept and the slope of the line are found by making substitutions in the followingnormal equations:

Y = na + b xXY = a x + b x

2

Substituting the above values in the normal equations:

260=5a +15b813=15a + 55b

solving the two equations,a = 42.1 , b = 3.3

YEARS SALES IN Rs.LAKH

CRORES

2006 45

2007 52

2008 48

2009 55

2010 60

YEARS SALES Rs

LAKHCRORES (Y)

X X2

XY

2006 45 1 1 45

2007 52 2 4 104

2008 48 3 9 144

2009 55 4 16 220

2010 60 5 25 300

N = 5 Y=260 X=15 X =55

XY=813


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Therefore, the equation for the straight line trend isY=42.1 + 3.3X

Using this equation we can find the trend values for the previous years and estimate the sales forthe year 2011 as follows:

Y 2006 = 42.1+3.3(1) = 45.4

Y 2007 = 42.1+3.3(2) = 48.7

Y 2008 = 42.1+3.3(3) = 52.0

Y 2009 = 42.1+3.3(4) = 55.3

Y 2010 = 42.1+3.3(5) = 58.6

Y 2011 = 42.1+3.3(6) = 61.9

Thus, the forecast sales for year 2011 is Rs.61.9 lakh Crores.

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