Summer Training Report_Chayanika Dutta

8/14/2019 Summer Training Report_Chayanika Dutta

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PNB HOUSING FINANCE LIMITED

Strategy to Increase the

Existing Customer BaseWith reference to the Delhi- NCR regionC h a y a n i k a D u t t a ( 8 9 / 0 8 )

6 / 2 0 / 2 0 0 9


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2 PNB Housing Finance Limited

PREFACE

A good housing finance student must be able to cope with an

extremely complex and dynamic environment.

Industry exposure is the most crucial part of the management studies in which a student is able

to synchronize his technical knowledge with practical knowledge gained from the organization

in which he gets his training.

We have a great pleasure in presenting this work as a part of the Two years full time

management program. We were allotted a project title .at Punjab National Bank

Housing Finance, New Delhi Branch, which helped me a lot in knowing about the working of the

organization as well as about the housing sector in India and International Markets.

This research aims is to analysis Housing Finance on the basis of their services, products, growth,

and their subsidiaries. Because Housing Finance Companies are one of the main participants in

Real Estate Finance, they often act as an insulator for an economy.

I hope that the words of the projects will communicate the actual of experience gained with

subtlety and precision, which is unapproachable, by any other means.


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PNB Housing Finance Limited 3

ACKNOWLEDGEMENT

Preservation, inspiration and motivation have always played a key role in the success of any

venture. In the present world of competition and success, training is like a bridge between

theoretical and practical working; willingly we prepared this particular Project. First of all we

would like to thank the supreme power, the almighty god, who is the one who has always

guided us to work on the right path of our life. We would like to thankP r o f . G . L . S H A R M A

for

granting me permission to undertake the training in this esteemed organization.

We express our sincere thanks toM r . P . K . J

a i n ( E x e c

. V

i c e

P r

e s i d e n t ,

P N B H o

u s i n g F i n a n c e

L

t d

.

)

, without whose mentoring and guidance, this project would not have completed. We also

express our earnest gratitude toM r . R . K . J

a i n (

V

i c e

P r

e s i d e n t , D e l h i

B r

a n c h )

for his valuable

support. We express our greatest gratitude to our mentor, guide and supporterM r

s

. S

h i v a n i

N

a

r

u l a

(AVP, PNBHFL, Delhi) for her time-to-time guidance and support in completing the

project, without which we would not have been able to complete this project successfully. I also

thank the other staff ofP N B H o

u

si n

g Fi n a n

c e ,D

e lh i a n

d

N O I

D

A

who devoted their valuable

time by helping us to complete my project.

We also thank toM r

s

. A

n u p

r

i y a

S

i n g h

& others faculty members ofL

a l

B

a h a d u

r S

h a s t

r

i

I

n

st i t u t

e

o f M

a n a

g e m e n t

, for their valuable suggestions and help.

Last but not least, our sincere thanks to our parents, family and friends who directly or indirectly

helped us to bring this project into its final shape.


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Letter of Authorization

To whomsoever it may concern

This is to certify that Ms. Chayanika Dutta, the student of M.B.A

(Academic Session 2008-10) at Lal Bahadur Shastri Institute of

Management, Delhi accomplished her Summer Internship Project at

PNB Housing Finance Limited, Corporate Office, New Delhi, from April

20th, 2009 to June 20th, 2009 and prepared a Project Report on the Strategy

to Increase the Existing Customer Base- With Reference to Delhi-

NCR Region.

We wish her good luck for all future endeavours.

(P. K. JAIN)

Executive Vice President (Credit)


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Table of Contents

S. No. Particulars Pg. No.

1. Executive Summary 10

2. Introduction 11

3. Housing Scenario in India (HFCs) 13

4. Marketing Profile of Housing Finance Companies 18

5. Trends in Housing Finance Sector 20

6. PNB Housing Finance Ltd. 21

7. Objective of Study 30

8. Research Methodology 31

9. Research Questions 32

10. Interviews with the staff 33

11. Existing Customer Survey 34

12. Study of Builders 41

13. Study of Prospective Customers 44

14. Results 49

15. Conclusions and Recommendations 50

16. Limitations 51

17. Appendices 52


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List of Tables


1. Level of Satisfaction 38

2. Work Division of Builders 42

3. Financing Companies for Builders 42

4. Findings for Builders 43

5. Companies Opted for by Prospective Customers 45


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List of Graphs


1. Purpose of Taking Loan 35

2. Amount of Loan 35

3. Mode of Awareness 36

4. Consideration of Other Financial Intuitions 36

5. Reason for Choosing PNBHFL 37

6. Age of Respondents 37

7. Time Period 41

8. Already Decided on Financer 44

9. Company Opted for 46

10. Aid to Decision 46

11. Type of Financer 47

12. Awareness about PNBHFL 47


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List of Appendices


1. Questionnaire for Existing Customers 54

2. Questionnaire for Builders 56

3. Questionnaire for Prospective customers 58

4. Data Sheet of Existing customers 60

5. Data sheet of Builder Survey 63

6. Data Sheet of Prospective customers 66

7. Bibliography 67


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Executive Summary

There is growing competition between

Housing Finance firms in post reform India.

For a layman, it is always difficult to decide

which housing finance company to choose.

The project undertaken at Punjab National

Bank Housing Finance Limited gave a deep

insight about the housing needs of the

individuals as well as the understanding of

the real estate sector. It also helped to

understand the working of an organization

and how the various departments interact

with each other and carry on various

operations.

Research was carried out to find which

housing company people prefer and to

figure out what people prefer while

selecting a housing finance company.

This study suggest that people are opening

up towards housing finance companies with

open hands, at an young age because of

growing opportunities for Youthful India.

The major findings of this study are that

there is a huge demand for housing finance

companies, and it is time for PNBHFL to pull

up their socks to become one of the the top

housing financial companies in India

Through this report we were also able to

understand, what are our Companys (PNB

Housing Finance) positive and strong points,

on the basis of which we come to know

what can be the best ways for company to

increase its market share. We also gave

suggestions to the company, what

improvement can be done to our products.


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Introduction

Roti, kapda aur makan an average Indians

requirement hasnt changed much since the

phrase famously gain currency in 1970s.

India has made headway on all three counts

and especially the last. Cheap funds to

build that aspiration

makan are much more

easily available now.

The definitive dream

of an individual, a house

that appeared distant a

few years, is easily

achievable today.

Housing loan in

traditional sense means

finance for buying /

modifying a property.

The different housing

loan products offered by

HDFC are as follows-

Home Loans, Home Improvement

Loans, Home Extension Loans, Loans to

professionals for office or clinic, Home

Equity Loans (Loan Against Property), Loan

Against Rent receivables, Short Term

Bridging Loan.

Loans on Adjustable Rate, Fixed Rate

with money market condition and Fixed

Rate without money market conditions.

E

V O L U T I O N O

F

H O U S I N G

F

I N A N

C E

The implementation of housing

finance policies pre-supposes

efficient institutional

arrangements. Although there

were a large number of agencies

providing direct finance to

individuals for house

construction, there was no well

established finance system till

mid-80s, in as much as it had not

been integrated with the main

financial system of the country.

The NHB was established in July

1988 under the National Housing

Bank Act 1987 as an apex bank, on the lines

of IDBI and as a wholly owned subsidiary of

RBI. It is the principal agency to promote

housing finance institutions at the regionaland local levels and to provide financial and

other support to such institutions

connected with the housing and human

settlements.

The NHB was

established in July

1988 under the

National Housing

Bank Act 1987 as

an apex bank, on

the lines of IDBI

and as a whollyowned subsidiary

of RBI


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The system has also been characterized by

the emergence of several specialized

financial institutions, which are

considerably strengthened the organization

of housing finance system in the country. At

present there are 320 housing finance

companies of which few are registered

under NHB which accounts for 98% of the

countrys total housing disbursement.

The second pillar of the initial stage was the

cooperative movement catering largely to

the private sector. Households were

encouraged to form cooperative societies,

invest initial capital for land purchase and

then were financed by the level apex

cooperative housing finance companies,

which in turn were financed by the LIC,

which set aside a particular quantum of

their investible resources for this purpose.

The third pillar was the housing building

advance made to employees of the public

sector cooperation and financial institutions

as well as to civil servants. Capital formation

in housing for the rest of the private sector

is left almost entire to the market forces. It

is estimated that about Rs. 7000 crores has

been the total formal sectors finance for

housing which are netting out internal

sectoral flows, workout out to roughly half

the gross figure i.e. Rs 3500 crores.

Housing finance as a financial intermediate

process commenced only in 1978, which

begin with the establishment of Housing

Development Finance Corporation (HDFC)

as a specialized leader to households and

corporate entities specifically for housing

purpose. State housing boards like MHADA

were introduced further for promotion of

housing industry.

The robust growth in the demand for

housing finance in the recent years has

been remarkable. Lower interest rates, tax

incentives home ownership, massive

competition by providers of housing finance

has helped consumers considerably. The

primary market for housing finance has now

matured. We need to move on to the next

stage very quickly.


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Housing Scenario in India (HFCs)

Today we are looking at the Housing

Scenario at a stage when the National

Economy is on the road to revival, after

reeling under depressive

conditions for over the

last three years. The

growth rate of the

economy might go up to

levels up to 6%, if the

revival is kept up. Share

markets are not entirely

looking up, though they

are stabilizing at levels

which can be termed as

reasonable.

Industrial growth rate

which was wallowing at

a low of 1.5% is now at

around 5%. In fact,

industrial credit given

out by banks which in normal times would

be about 4-5 times of bank credit given to

housing, had in the last few years reduced

to levels below advances to housing loans.

But the happy feature is that industrial

growth is picking up. Even, the steel sector

which was hopelessly down is now having

hopes of revival.

It is only housing, amidst all

these that seems to have kept up

fairly stable front. Yes, the late

90s saw even housing go through

a bad phase. But, then with that

phase crossed, there has been a

steady revival and stabilization of

the market at levels which can

be termed as reasonable from

the point of view of both the

customers and those on the

supply side. Housing is a basic

need and like any basic human

need will be constantly in

demand. The potential for

housing in this country is huge by

NHB estimates. And the

requirements by NHB estimates

are around 20 million houses. There are

other estimates which suggest that it is at a

much higher level. Even going by the

conservative estimate taken by the NHB,

the requirements in the area of housing are

massive.

The potential for

housing in this

country is huge by

NHB estimates.

And the

requirements by

NHB estimates are

around 20 million

houses. There are

other estimates

which suggest that

it is at a much

higher level.


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This really means that a lot of investments

can be there in the coming years and there

is room for multiple players. Going by

figures of amounts given out by the

organized financial sector, the average of

money being advanced for purchase of

housing is in the range of 20 to 25 thousand

crores every year over the last five years. In

the next five years these may be in the

region of 70-75 thousand crores.

There is also talk of

foreign direct investment

coming in. this will add

to the capabilities of the

financial sector in

meeting the

requirements in the area

of housing. The

considered view on FDI is

that it would not in any

way present hardships to

the local developer community. They may

on the other hand enable the local

entrepreneurs to organize the construction

industry in a more stable way. The reason

why I venture forth to say this is that

finance has been one of the areas of

uncertainties as far as investments into the

construction industry are concerned. FDIs

might end up strengthening this area by

bringing in finance and steadying the

construction industry through the joint

venture route.

As far as availability of finance to the retail

customers is concerned, there has been atremendous improvement in the possibility

over the last few years. There are over 32

NHB recognized Housing Finance

Companies which dot the map of this

country with their presence all-over. The

nationalized banks have in addition made

housing a thrust area and added

to the reach for advancing loans

to individuals. Leading Housing

Finance organizations like the

HDFC, ICIC also have a

widespread network all over the

country giving out loans to

customers for housing. The

banking major, SBI covers over

500 centers through their

branches where personal

banking division functions. The other banks

too are not far behind in their reach out to

the house purchasing public. Banks have

come into this sector at a time when credit

off take in the industrial sector has been

low. With lot of funds waiting to be

deployed, the housing scene presented an

attractive option to the banks to channelize

their funds. This was particularly so,

because in the housing sector advances are

given against mortgage of assets, which

There are over 32

NHB recognized

Housing Finance

Companies which

dot the map of this

country with their

presence all-over


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continue to carry value, and therefore make

the loans considerably safe. Even by the

experience of the housing sector in India,

NIRs have been some of the lowest as

compared to any other sector of advance.

The other significant factor that has kicked

up a lot of activity in the

recent past, in the

housing area, is todays

steadily falling interest

rates of loans. The

customers today enjoy

tremendous choice and

can approach those

giving out finance at

lowest rates. The fall in

the rates has been

phenomenal over the

last 4 to 5 years. From

rates that were around

15% and over, they have

plummeted to around

9% and even lower. The

changes have come so

thick and fast that an

organization like ours has had to revise

interest rates over a dozen times in the last

2 years. Banks which are outside the

purview to regulations of the NHB have

enjoyed certain added advantages too in

the matter of their ability to compete in

terms of interest rates. The monetary policy

of RBI which has been constantly giving a

signal for a soft interest regime has been

lowering its bank rate and CRR constantly

thus, enabling banks to have recourse to

greater liquidity at lower cost.

For the Housing Finance Institutions

however, there has been a

difficulty of their being able to

match such interest rate

reductions, since the cost of

funds borrowed earlier, kept the

average cost a fairly high levels.

But then they have fallen in line

with the market to remain in

contention. This has had the

result of even bringing down the

spread for the Housing Finance

Companies.

The customer who is purchasing

a house today has not only the

options of competitively lowest

rates of interest, but also choice

of different types of loans

starting from the house-

purchase or house-building loans to house-

improvement loans, home equity loans

[loans on mortgage of property], home

extension loans, NRI loans etc. It has never

been better than this ever before.

While this is such a positive development,

as far as the home seekers are concerned,

For the Housing

Finance

Institutions

however, there has

been a difficulty of

their being able to

match such interest

rate reductions,

since the cost of

funds borrowed

earlier, kept the

average cost a

fairly high levels.


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the lot of home builders is still a long way

behind the satisfactory levels. Even today,

with the organized groups of Developers,

being by and large, quite influential, still

availability of institutionalized finance, as a

regular source, has been almost absent as

far as the average Developer is concerned.

This has been an area of major concern for

the Builders. The more enlightened

platforms of developers

at National levels like

CREDAI and NAREDCO

have been trying to

grapple with this matter

to bring about some

stability on this front. In

fact the Housing Finance

Companies and the

representatives of the

developers have been

sitting together to thrash

out some commonly

agreed methods whereby finance to

developers can be a more dependable

arrangement. Surprisingly, it is this attempt

by the developer community that has even

forged a common platform for the HFCs to

meet! Credit is certainly due to the

Developers organizations for having

brought the HFCs closer, in their own quest

for a solution to the area of construction

finance.

One of the reasons why financiers shy away

from developer-finance is that the

developers are not systematically organized

like the Corporates. Their picture is not

transparent; the variations are from a

proprietorship builder to partnerships,

closely held family concerns, Private Limited

Companies, Public Limited Companies etc.

Often the company that comes out to

borrow is part of a bigger group

and the credentials presented

for assessment do not carry thetotal financial picture of the

group. There is a difficulty about

assessing track record of small or

medium builders since they keep

changing their names and one

cant push back enough to know

the full picture. Even when

financials are presented they are

not professionally done and

there is difficulty in looking at it

as one would look at a regular

corporate business house. A lot of deals do

not get reflected in the financials since two-

levels deals, namely cash the cheque, make

it difficult for clear assessment of actual

position. Individual developers keep having

incomes moving up and down over the

years which again is a reflection of booking

of income only when sale results. Since

project work and sale alternate at different

One of the reasons

why financiers shy

away from

developer-finance

is that the

developers are not

systematically

organized like the

Corporates.


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levels, incomes too fluctuate, making it

difficult for assessing a picture of stable or

growing incomes. Since there is so much

variety thrown in, the financial companies

find it very difficult to evolve standardized

set of norms for lending to developers. In

fact, after the experience of wholesale

defaults in the loan account of the Builders

in the late 90s, the financial companies

have only selectively moved forward with

finance to developers.

One of the most important requirements

from the side of organizations like

NAREDCO and CREDAI is that the Builder

community needs to he helped to organize

themselves on professional lines. A certain

uniform set of accounting practices need to

be followed. The developers also need to

bring certain uniformity in their practices as

far as the house purchasing customers are

concerned. In the context I would like to

quote Shri Deepak Parekh, The HDFC

Supremo, who gave a call in the recently

concluded CREDAI National Convention to

the developers on a few important things.

Shri Parekh appealed to Developers to go

by carpet area, and charge, if required,

additionally on sq. ft rates for the super

plinths area which provided common

services. This would make it very simple for

the customer to understand what area he

stands to have in the flat he is about to

purchase. The other practice relates to

payment being made by purchasing

customers at time periods specified in the

agreement. His point was that these

payments should be related to progress of

constructions and not merely on time

schedule. The third point he mentioned was

regarding two-level pricing. A number of

these aspects will need to be considered bythe developers. They need to make their

various centre-level associations bring in

some standards in the working of the

developers. Together the industry should

present a picture of confidence, if financers

and customers are to look at them with a

sense of reliability. While at the top levels

big developers are well organized and

institutionalized, a lot of the others in the

field are not giving out such signals of

confidence to financiers. Therefore, the role

of NAREDCO and such organizations would

be to bring in uniform standards and

practices amongst Builders so that they

would be in a much better position to look

at institutional help which is today so much

conspicuous by its absence.


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Market Profile of Housing Finance

Sector

The need for housing a population of 1

billion plus cannot be underscored. Despite

this realization, nothing substantial has

been achieved in policy framework until

recently. Outdated laws-some of which

continue to hamper proper development of

debt instruments in the housing finance

sector-posed major hurdles for the industry

to take root in India . The banking norms, as

they existed until 1990s prevented

commercial banks from participating in the

housing finance sector. But over the last

four years the federal ministry and the

Reserve Bank of India (RBI) have

reconstituted the institutional framework

for consumer finance.

The industry is at a nascent stage when

compared to developed western economies

or even the South East Asian economies.

While mortgage is an established business

practice in the Indian housing finance

market, securitization-in a formal sense-is

absent.

The housing finance industry in India is

estimated to be approximately US $ 5

billion (INR 250 billion. US $ 1= INR 49). The

market grew at 35 to 40 percent per annum

for the last five years, and is expected to

grow at 40 percent compounded annual

rate over the next decade. The main players

in this industry are housing finance

companies, commercial (local as well as

foreign) banks, cooperative banks and other

non-banking financial companies (NBFCs).

Traditionally, the share of the housing

finance companies has been larger as

compared to the other players but it has

begun to dwindle over the last two

decades. The commercial banks are set to

take the major portion of the pie in the next

two to three years.

Following are the prime reasons for a high

annual growth in this sector.

D e m a n d

: The National Housing Bank

(NHB) puts the shortage of housing units inIndia to 19.40 million units (2001). The total

demand for housing does not automatically

get translated into demand for housing

finance. Primarily, the housing finance and

the construction industries have


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concentrated on the urban market where

the demand for housing was 9.4 million

units (2001).

A f f o r

d a b i l i t y :

Affordability has twoaspects: Affluence and the price stability.

According to various estimates there at

least 150 million Indians who are able to

and willing to benefit from the consumer

finance industry. Today, a house costs just

about 3-3.5 times an individuals annual

salary as against 15-20 times, more than a

decade ago. The plateauing of the real

estate prices in India has meant that there

is a match between income and price for

the product. Prices have risen at an annual

rate between 5 to 8 percent.

C

o

m p e t i t i

o

n :

The RBIs guidelines for

commercial banks to earmark 3 percent of

their incremental deposits for housing

finance have opened the floodgates for the

industry. More players, ever lowering

interest rates, better and varied services

have ensured more growth.

P o

l i c y :

The federal government has

taken several measures in its annual budget

to encourage housing finance industry. The

direct tax rebate on housing loans for

individual taxpayers has provided the

single-biggest push for generating more

demand for housing mortgages. In addition,

National Housing and Habitat Policy

announced in 1998 has redefined the

priorities for the housing industry and

delineated the focus areas for housing

finance industry. S

e c u

r

i t i z a t i

o

n :

The securitization

market in India, though in its infancy, holds

great promise especially in the mortgage

backed securities (MBS) area. While more

complex securitization transactions and

public issuance of securitization paper are

still a distant dream, appropriate legislation

and investor education can give the

securitization market in India a much-

needed thrust. During the last two years,

the federal government has changed

several rules to enable the development of

primary and secondary market in housing

finance sector.


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Trends in the Housing Finance

Industry

The Indian housing finance industry has

grown by leaps and bounds in past few

years. Total home loan disbursements by

Banks and Housing Finance Companies

(HFCs) has risen from Rs. 29359.29 crores in

2001-02 to Rs 51672.7 crores in 2002-03

witnessing a phenomenal growth of 76%

during this period.

The robust growth experienced by the

industry in the last few years has been

triggered by a number of factors, some of

which are listed below:

Tax rebates on housing loans

Lowering of real estate prices to

affordable levels

Greater amount of professionalism

being exhibited by developers and

builders who are today acquiring

clearer titles and are doing more

timely completion of projects

Investment options have dried up

with lower interest rates in banks

and the stock market being down

for number of years

Slashing of interest rate on home

loans


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PNB Housing Finance Limited

Products offered by PNB Housing Finance Ltd.

PNB housing Finance Ltd. Has following five schemes under which the loans are granted to

individuals.

1. Apna Ghar Yojna

2. Ghar Sudhar Yojna

3. NRI- Housing loan Scheme

4. Loan Against Property

5. Loan for acquisition of commercial property

1. APNA GHAR YOJNAA. The Scheme was approved w.e.f Oct.1989 for financing the individual for:-

B. Construction of house

C. Purchase of House Flat

D. Extension/Structural modification of the existing house

E. Purchase of semi-built house/flat and completion thereof

F. Purchase of expandable house and expansion thereof.

The cases for addition/extension are considered only if it results in extra floor area. This

should be supported by the construction/ remodeling plan duly approved by the competent

local authorities, wherever necessary. Sanction of loan in principle may be considered

where property is yet to be identified.

Eligibility

Any person who is in permanent service or in business or practicing any profession. Age of

applicant should not more than 60 years in case of service class borrowers and 65 years in

case of businessmen/self employed people.


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Co-applicant

Co-applicant can be spouse, father, mother, son or daughter. In case daughter as co-

applicant , generally one daughter should be taken as co-applicant. In case the property

intended to be purchased / constructed is in joint names, generally all the owners will be

considered as applicants for the purpose of loan.

Minimum and maximum loan amount

The minimum amount is Rs.50000/- and there is no upper limit on the loan amount, which

depends on the repayment capacity of the borrower.

Margin

Generally PNB Housing Finance Ltd. accepts 20-25% as margin but in deserving cases it can

be lowered.

Repayment period

From 1 year to 20 years.

2. GHAR SUDHAR YOJANAThe Scheme was approved w.e.f Oct.1989 for financing to individuals for:-

A) For repair of existing house

B) For renovation of house

The Scheme was approved w.e.f Oct.1989 for financing to individuals for:-

C) For repair of existing house

D) For renovation of house

The Scheme was approved w.e.f Oct.1989 for financing to individuals for:-

E) For repair of existing house

F) For renovation of house


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Eligibility & Co-applicant condition

Same as in the case of Apna Ghar Yojna.

Minimum & maximum loan amount

Minimum loan amount is Rs.50000/- and maximum loan amount is Rs.1000000/-

Margin

Margin should be at least 25%.

Repayment Period

Maximum repayment period for the Ghar Sudhar yojna loans is 10 years.

3. NON RESIDENT INDIAN (NRI)

The scheme was approved w.e.f. Dec 1998 for financing to Non Residents Indians for:

A) Construction of house

B) Purchase of a house/flat

C) Extension/structural modification of the existing house or flat.

D) Purchase of a semi-built house/flat and completion thereof.

E) Purchase of expandable house and expansion thereof.

Eligibility

Loans shall be given to Indian Citizens or persons of Indian origin holding Indian passports

having the status of NRI on deputation/employment/assignment or engaged in any business

contract or constancy abroad.

Purpose

Loan shall be available for construction/purchase of house/flat.


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For personal requirement of borrowers such as education, marriage of children, family

function, foreign travel, medical expenses, furnishing the house, buying a computer or the

consumer durable, etc. by mortgaging their existing residential immovable property.

Period of Loan

Loan is available for maximum of 10 years.

Margin and Loan Amount

The maximum amount of the loan under the scheme is Rs.50 lacs. The margin for the loan is

50% of the market value of the property as certified by the approved valuer OR actual loan

eligibility as determined on the basis of repayment capacity of the borrower, whichever is

less.

Interest Rate

The applicable interest rate is linked to the interest rate for housing loan. It would be 2%

above the rate applicable to Individual Housing Loans for same amount and same period,

on annual reducing basis. The rate of interest would remain fixed for entire tenure of loan.

5. LOAN FOR ACQUISITION OF COMMERCIAL PROPERTY

This scheme of PNB Housing Finance Ltd. was introduced in Sep 2001.

Purpose

This is a loan to professionals for their requirement of office space, nursing

homes/clinic/diagnostic centre and to schools, colleges and institutions for their hostels and

office requirements and for cyber cafes in approved areas.

Maximum Loan Amount

It is 70% of the cost of property subject to the maximum of Rs.25 Lacs for individuals and

Rs.50 lacs for bodies corporate. In case of corporate, loan amount shall stand restricted to

25% of net worth of the company.

Interest Rate


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It would be 2% above the rate applicable to Individual Housing Loans for same amount and

same period, on annual reducing basis. The rate of interest would remain fixed for entire

tenure of loan.

Repayment

Loan is repayable within the period 10 years.

6. COMPOSITE HOUSING LOAN TO INDIVIDUALS

Purpose

Composite Housing Loan in PNB Housing Finance Ltd. is sanctioned for the purchase of

plot/semi built house and subsequent construction/additional construction or extension ,

subject to the repayment capacity of the applicants as per the scheme under which loan is

being considered.

Loan Amount

A) Maximum loan amount is as per the scheme under which the loan is being considered.

B) While sanctioning composite housing loan, component of loan for purchase of house/flat

and component of loan for subsequent additions/extension may be determined separately

by referring to the respective cost.

Margin

Margin on the entire loan/ total cost is maintained at 20% to 25% .

Disbursement

Loan component for purchase of house/flat is released after the borrower complies with the

stipulations contained in the respective schemes, but the loan component for additional

construction/extension in all cases is released only after the borrower has taken possession

of the house/flat, execution of the deeds and creation of valid equitable mortgage of the

property in favour of PNB Housing Finance Ltd.


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7. ADDITIONAL HOUSING LOAN

Under Apna Ghar Yojna or Ghar Sudhar Yojana PNB Housing Finance Ltd. grants additional

housing loan to employees of Punjab national Bank, employees of other Nationalised banks,

Govt. Bodies, Quasi Govt. Bodies, Statutory Bodies, reputed private banks, foreign banks and

other similar organisation on second/pari-passu charge. The details are as under:-

A)Additional Housing Loan to Employees of Punjab National Bank EligibilityAll employees of Punjab National Bank who have availed housing loan from the bank are eligible

to avail the loan from PNB Housing Finance Ltd.

Purpose of Loan

For purchase of house or flat/completion of construction/ addition/ extension of the

existing accommodation or for repair and renovation of existing house.

Amount of Loan

For construction/purchase of a house/flat or additions/extension of existing dwelling unit

the maximum amount of loan is based on the repayment capacity of the borrower, in

addition to the loan sanctioned by the bank under its scheme of housing loan to employees.

However, the actual loan amount is determined on the basis of repayment capacity of the

borrowing employee, by referring to maximum permissible deduction, and subject to

minimum margin requirement of 20%.

For repair and renovation , 75% of the estimated cost of repair/renovation subject to a

maximum of Rs.500000/- for a maximum span of 10 years.

Fee

No processing/administrative/commitment fee is envisaged under the scheme.

Repayment


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The loan instalment of PNBHF loan is deducted by the employer from the salary of the

borrower employee and remitted to PNBHF every month. Where the employer categorically

declines in writing such deduction from salary of the borrower, post dated cheques may be

accepted. The entire loan together with interest is repayable in equated monthly instalment

within a maximum period of 20 years or the remaining period of service, whichever is lower.

Security

The loan sanctioned by PNB Housing Finance Ltd. is secured by

i) Second charge on the property for which the loan has been sanctioned, the first charge

being in favour of the bank by way of equitable mortgage of the property.

ii) Additional/collateral security

B) AHL TO EMPLOYEES OF NATIONALISED BANK,CENTRAL/STATE GOVT.,

GOVT. UNDERTAKINGS ETC.

Eligibility

The employees who have availed housing loan from the employer are eligible to avail AHL

from PNB Housing Finance Ltd.

Purpose

The AHL is available for construction/purchase of house flat, extension of a house

flat,repairs renovation of the existing house.

Security

A) Security for additional housing loan shall be pari passu/second charge by way of equitable

mortgage/registered mortgage of the property being financed, the first charge being in

favour of the employer of the borrower.

B)

Other additional/interim security such as Life Insurance Policies, Guarantees from soundand solvent guarantors and pledge of investments may also be insisted

upon.

All the other conditions such as margin, fee , interest rates etc are same as in the case of

Apna Ghar Yojna and Ghar Sudhar Yojna Schemes.


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8. COMPOSITE HOUSING LOAN TO INDIVIDUAL

Purpose

A) Composite housing loan is sanctioned for purchase and subsequent additional

construction or extension, subject to the repayment capacity of the apllicant as per the

scheme under which the loan is being considered.

B) Purchase of plot and construction thereof.

Loan Amount

Maximum loan amount is as per the scheme under which the loan is being considered.

While sanctioning composite housing loan, component of loan for purchase of

plot/house/flat and component of loan for subsequent construction/addition/extension

may be determined separately by referring to the respective cost.

Margin

Margin on the entire loan amount/total cost is maintained at the rate as prescribed in the

scheme under which the loan is being considered. In case of purchase of plot plus

construction, margin required at the time of purchase of plot is minimum 30% and for the

entire project it id minimum 20%.

Disbursement

Loan component for purchase of house/flat/plot is released after the borrower complies

with the stipulations contained in the respective schemes, but the loan component for the

construction/additional construction/extension in all cases is released only when the

borrower has taken the possession of the house and property is being mortgaged with PNB

Housing Finance Ltd. Also the approved construction plan is also obtained before the

disbursement of second portion.

Interest and Other Charges

Interest rates are applicable as per the scheme in which the loan is being financed also the

upfront fee is payable as per the fee structure in that scheme.


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Objective of the Study

To study that how can PNB Housing Finance can increase its customer base and can increase its

market share from Rs. 700 cr to 1100 cr.

While pursuing my project secondary things in my mind were:

To gain an in-depth knowledge of dealings in Housing Finances.

To understand different platforms and products available with PNB Housing Finance .

To understand customer behaviour and conduct a customer satisfaction survey.

To understand the network of PNB Housing Finance with Builders .

To compare other housing finance companies and the services provided by Top five

Housing finance companies on different parameters.

To assess the impact of recession, if any, on Housing Finances and real estate sector.

To learn about Project financing

To learn about Resource mobilization.

To learn about concept Of Non performing Assets


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Research Methodology

The research project was exploratory in

nature. The aim was to expand the existing

customer base. So, probe had to be done

into the factors that motivates a person to

take a housing loan from a particular

company and where PNBHFL has scope of

improvement. To start with, unstructured

interviews of all ranks of staff of the

company were conducted. The results of

these interviews gave direction to the

further studies conducted.

To expand the existing customer base of

PNB Housing finance, the next step was to

study the existing customers of the

company. This was done with the help of a

sample survey of the existing customers

which posed questions regarding their

decision to choose PNBHFL and their level

of satisfaction with the services provided by

the company. The survey was conducted on

a random sample of 50 customers from the

Delhi branch of PNBHFL. Some of the

customer interviews were telephonically

conducted as well. However, most of the

customers were personally visited.

The third stage was to conduct a sample

survey of the builders. This survey was

conducted in order to find out the

perspective of the builders while getting

finance for their projects. As builders are

an important aspect of the marketing

channel of a housing finance company, this

survey proved to be very valuable.

The fourth and the final stage of the project

was to conduct a sample survey of

prospective customers in order to make the

strategy more directed to cater to the

needs of the prospective customers. It was

really very difficult to generalize a set of

characteristics for the prospective

customers. So, a pure random sampling

technique was adopted. The data was

collected from people visiting property

dealers, builders on site offices.


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Research Questions

Research questions are the questions whose answers are sought by the researcher. These

questions are the object of carrying out the research. The completion of the project is

dependent to a huge extent on the proper formulation of the research questions. The research

questions give a direction to the project and it is on the basis of these research questions that

the whole project is laid out and divided into various

parts.

The current research project Objective of the research

project undertaken was to chalk out a strategy to

increase the customer base of the company. Thus, the

few basic research questions were:

1. Who is the customer for housing

loan?

2. How do the customers finalize a

housing finance institution?

3.

What is the existing customer base

of PNB Housing Finance Limited?

4. Which customer base, the company is still

not targeting?

5. What should the company do in order to

target more customers?

The Four stages of

the project were:

Interviews of staff

Survey of existing

customers

Survey of builders

Survey of

prospective

customers


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Interviews with the Staff

The exploratory project began with the

unstructured interviews of the staff across

all the ranks of the company. This was no

sample survey and anyone who was willing

to answer the questions

was chosen for the

interviews. Apart from

the staff, the Direct

Marketing Agents (DMAs)

were also interviewed.

The DMAs are the

marketing agents of the

company who are not the

regular employees of the

company but are paid on

commission basis in

accordance with the

business brought by

them. They serve as the

marketing-force of the

company.

The findings of this step were used in thesubsequent steps to carry out further

research.

The key findings of these

interviews are as follows:

1. All the marketing decisions are taken at

the top management level. The

branches are entrusted with the

operational part of the activities.

2. The only marketing decision

that can be taken at the

branch level is the

recruitment of the DMAs.

3. All the branches have their

respective disbursement

targets, i.e. the amount of

advances that have to be

made in a particular period.

However, these targets are

usually unrealistic and there

is no reprimand for a branch

not reaching its target.

4. The score-sheet used by the

company to evaluate the

credibility of a customer is

heavily biased towards the salaried-

class of people or professionals like

doctors, engineers etc.

5. The time taken to process a loan differs

from branch to branch and even in the

same branch, from time to time

depending on the staff of the branch. A

Apart from the

staff, the DirectMarketing Agents

(DMAs) were also

interviewed.

The DMAs are the

marketing agents of

the company who

serve as the

marketing-force of

the company


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striking example in this context is that

of the Delhi branch where previously, a

loan used to take 3-5 days to process,

but after a change of staff, it now takes

8-10 days.

Existing Customer SurveyThe second stage of project was the conduction of existing customer surveys. In this process, a

questionnaire was developed based on the information acquired in the previous step and

studying the secondary literature available. The questionnaire is enclosed at the end of the

report.

Hypothesis:

1.H 1 1

: Customers coming through the builders are less likely to consider other banks or

financial institutions for getting finance.

Designing Sample Survey:

The target population is the existing customer of PNBHFL, Delhi. For every loan granted, the

branch prepares two files- loan file and correspondence file, corresponding to it. Every file has a

serial no. which is the account no. of the loan granted. Thus, the sample frame is the list of all

the accounts with the branch.

The sample is picked usings t

r

a t i

f

i e d

r

a n d

o

m s a m p l i n g

technique. The file number of the latest

loan granted was taken. Starting from that file no., (counting backward) every 10 th file was

taken. After drawing out 25 files in such manner, instead of the 10 th file, every 20th file was

drawn for the next 20 files. For drawing out the last five file of the sample, every 50 th file was

taken out. In case of non-availability of a particular file, a file adjacent to that file was drawn out.

S a m p l e S i z e : 5 0


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Data Analysis

1. Purpose for taking the loan

It was found out that more than 80% of the loans are granted as individual housing loans

under the Apna Ghar Yojana

2. Amount of the Loan

More than 60 percent of the existing loan is of amount less than or equal to Rs. 15 lacs. The

reason for the same was sighted by the branch officials was that for a loan amount

exceeding Rs. 20 lacs, permission has to be taken from the Head Office in each case.


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3. Mode of Awareness

Almost 60% of the customers had come through builder recommendation.

Recommendations of friends and relatives who are existing customers or employees

amount to 16% of the customers. DMAs had brought 20% of customers.

4. Considered other financial institutions before coming to PNBHFL


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A very startling fact observed was that while taking a home loan, most people opt for the

first company they go to. In this case only 20% went to other companies before coming to

PNBHFL.

5.

Reason for Opting PNBHFL

Almost 50% of the customers sighted the name PNB as a reason to stay. In the category of

Others the most common reason mentioned was that they did not have any other choice

or that easy availability was most important for them.

6. Age of Taking Loan


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In the recent times the average age of the loan applicant has come down remarkably. This is

for two reasons:

1. The no. of nuclear families is increasing rapidly in India

2.

PNBHFL prefers customers in the age group of 25- 35 years as the residual earning age issafe to give a loan.

7. Level of Satisfaction

P

a

r

a m e t e

r A

v e

r

a g e

S

a t i s

f

a c t i

o

n

S

t d

.

D e v i a t i

o

n

T

i m e

T

a k e n

3.84 0.74

I

n t e

r

e s t

R

a t e

2.78 0.93

Ea

s e

o f O

p en i n

ga n

A

c c

o

u n t

3.48 0.99

A f

t e

r L o

a n

S

e

r

v i c e s

3.12 0.92

B

e h a v i

o r o f

E m p l

o

y e e s

3.64 1.10

S

c h e m e s

o f P N B H

F

L

3.48 0.99

A

v e

r

a g e

S

a t i s

f

a c t i

o

n

L

e v e l 3

.

3 9


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8. Hypothesis testing:

H11: Customers coming through the builders are less likely to consider other banks or

financial institutions for getting finance

Contingency Table

CONSIDERED NOT CONSIDERED TOTAL

BUILDER 2 13 15

NON

BUILDER3 7 10

TOTAL 5 20 25

Thus, Calculated value of Chi2 = 1.04

Expectancy Table

CONSIDERED NOT CONSIDERED TOTAL

BUILDER 3 12 15

NON BUILDER 2 8 10

TOTAL 5 20 25

Expected Value of Chi2 = 3.84


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Calculated value of Chi2 = 1.04

Expected Value of Chi2 = 3.84

As, the calculated value of Chi2 is less than its expected value so the Hypothesis is RE

J

E C

T

E D

.

Thus, the Null Hypothesis of no association There is no relationship between the mode of

coming of a customer and his considering other companies for getting finance cannot be

R

E

J

E C

T

E D

.

T

h i s i m p l i e s t h a t t h e

r

e i s l

o w

a

w

a

r

e n e s s a b

o

u t t h e

U S P

s

o f

v a

r

i

o

u s

f

i

r

m s i n t h i s i n d u s t

r

y

.

9. Hypothesis testing:

H12 : Only satisfied customers want to return for a second loan

Correlation between satisfaction derived from existing loan and coming back for a second

loan = 0.72

The Hypothesis is accepted as the value of correlation is nearer to 1 than it is to 0. Thus, this

hypothesis isA

C C E

P T

E D

.

However, this correlation is derived when the satisfaction level due to interest rate is

excluded while calculating the satisfaction index.

Most of the customers are highly dissatisfied with the rate of interest charged by PNBHFL as

it is higher than that of other companies.


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Study of the Builders

The third stage of project was the study of Builders. In this process, a questionnaire wasdeveloped based on the information acquired in the previous steps and studying the secondary

literature available. The questionnaire is enclosed at the end of the report.

Designing Sample Survey:

Sampling technique: Convenient Sampling

Sample Size: 25

Area of Study: Delhi- NCR

Data Analysis

1. Time Period

Majority of the builders are relatively new and have been functional since 5-10 years. On

further study it was found that these builders were the ones who were worst hit by the

recession.


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Work Division

Type

No. of

builders

in this

Segment

Average

PercentageMaximum Minimum

Standard

Deviation

Commercial 15 19.33 30.00 10.00 7.99

Luxuriousapartments

15 17.33 30.00 5.00 7.76

Family residential 17 56.18 100.00 40.00 15.57

Dream villas 10 9.00 10.00 5.00 2.11

Penthouses 4 5.25 10.00 1.00 3.69

MIGs 5 9.00 10.00 5.00 2.24

Others 3 8.33 10.00 5.00 2.89

Financing Companies

Company

No. of

Builders

went for

Financing

Average

PercentageMaximum Minimum

Standard

Deviation

LICHFL 14 1.38 3.00 1.00 0.62

PNBHFL 16 22.14 50.00 5.00 12.04

HDFC 14 10.36 30.00 5.00 7.71

ICICI 15 29.67 50.00 10.00 11.41

AXIS Bank 13 15.38 30.00 5.00 6.91

PNB 8 21.25 40.00 5.00 13.82

SBI 9 13.33 20.00 5.00 5.59

Others 9 15.00 30.00 5.00 7.91


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Findings


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Study of Prospective Customers

This was the final stage of study wherein the prospective customers were surveyed. This survey

was conducted in order to find out the expectations of the prospective customers and how they

are different from the existing customers.

D e s i g n i n g S a m p l i n g S u r v e y

S a m p l i t e c h i q e

: Convenient Sampling

S a m p l e S i z e

: 30

A

e a o f S t d

: Delhi- NCR

Data Analysis

1. Cost of Property


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2. Already Decided on Financer

3. Companies Opted for

CompanyNo. of

RespondentsPercentage

LIC 0 ---

HDFC 4 50

SBI 3 37.5

PNB 0 ---

PNB Housing

Finance0 ---

ICICI 1 12.5

Axis Bank 0 ---

GIC 0 ---

Others 0 ---

TOTAL 8 100


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4. Aid to Decision


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5. Type of Financer

6. Awareness about PNBHFL

Strikingly, more than 8o% of the people interviewed were not aware of PNBHFL as a separate

company.

7. Hypothesis Testing73% of the sample are undecided about the source of finance before coming to builder

i.e., p=0.73


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If, 55% of the population are undecided about the source of finance before coming to

builder, then PNBHFL should finance more builders to increase its no. of retail customers

Thus,

H0 : 0.55

H1 : >0.55

The calculated value of z= 2.02

Critical value of z =1.645

Thus, as the calculated value of z is more than its critical, so the Null Hypothesis is

R

E

J

E C

T

E D

.

This implies that,

At least, 55% of the population is undecided about the source of finance before coming to

builder

So, PNBHFL should finance more builders.


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Results

After the completion of the study it can,

thus, be said that:

The level of satisfaction among the

existing customers is moderately high.

The only point where the company is

lagging behind is the interest rates.

However, the

interest rates are a

major problem area

for all the housing

finance companies

due to the guidelines

of NHB.

There is very less

correlation between

customer

satisfaction and his coming back for a

second loan. The startling fact is that

even people who do not seem satisfied

are willing to come for a second loan.

This discrepancy can be explained by

the fact that a housing loan is a highinvolvement product. So, the customer

acts more loyal towards his existing

company than in case of any low

involvement product.

However, the company should bear this

in mind that a good quality service is

very important for an existing customer

to refer other people to the company.

Being a high involvement product, faith

plays a very important role while

deciding on company.

Maximum Builders in Delhi-

NCR region have started 5-10

years back.

Last year has been

particularly bad for most

builders

All the builders are into

building family residences

Maximum percentage of

their work constitutes in this segment

only

HDFC and LICHFL have been aggressive

in financing the builders

Thus, these two companies also get a

major portion of the customers of the

builders

Builders usually prefer Down Payment

Plan of finance

PSBs and HFCs finance through

Construction Linked Plan

The prospective

customers at the

point of deciding on

the property are

undecided on the

source of finance.


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The prospective customers at the point

of deciding on the property are

undecided on the source of finance.


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Conclusions & Recommendations

PNBHFL should finance more builders

It should indulge into some advertising

activities as the awareness of PNBHFL is

low

Due to NHB norms, the ROI of PNBHFL

is higher than the ROI of most PSBs, so

PNBHFL should

t a

r

g e t

that segment ofpopulation that has high disposable

income but requires better services.

This segment is comprised of two

category of people:

Young professionals like engineers,

doctors and managers in top

companies

Businessmen

The current score-card for evaluating a

loan proposal is heavily inclined

towards financing govt. employees. This

should be changed giving preference to

the aforesaid class.

The company should highlight the

following facts in its promotion

activities:

The DMAs providing door-to-door

services

The average customer has to visit

the branch less than once in two

years

The average time taken to sanction

a loan is approx. a week

Presently, a branch has a power to

sanction a loan less than Rs 20 lac,

beyond this, it has to take permission

from H. O. As, our target customer

generally buys houses in the range of Rs

20-30 lac, this bar should be raised.

The current margin should be raised

from 75% of the property value to at

least 80%.

SBI has a cap of Rs. 10,000 on

processing fee. This cap can be

introduced in PNBHFL as well


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Limitations

Sampling techniques in two out of three cases has been convenient sampling

The study undertaken was huge and the sample size is relatively small

The study was conducted in the Delhi- NCR region only and based on this the

recommendations are give. These may or may not be true for the rest of the country.


53/67


Appendix

1. Questionnaire for Existing Customers

2. Questionnaire for Builders

3. Questionnaire for Prospective customers

4. Data Sheet of Existing customers

5. Data sheet of Builder Survey

6. Data Sheet of Prospective customers


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BibliographyBank, A. D. (Oct 2008).I n d i a : H o u s i n g F i n a n c e I I P r o j e c t .

India: ADB.

Choksey, M. P. (2007).D e l i v e r i n g M a s s H o u s i n g .

Singapore: Singapore Insstute of Planners.

IFMR. (May 2007).H o u s i n g M i c r o F i n a n c e S e c t o r - W i d e S t u d y .

Centre for Micro Finance.

Joshi, M. (22nd October 2006).H D F C - T h e I n d i a n H o u s i n g & S e r v i c e s P r o v i d e r .

Lucknow.

KARNAD, R. S. (June 23, 2004).H O U S I N G F I N A N C E A N D T H E E C O N O M Y : R E G I O N A L T R E N D S .

Brussels: HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED INDIA.

R.Nagarajan, P. S. (2006). H o u s i n g F i n a n c e S y s t e m i n I n d i a a n d C h i n a .

Shri. D. Krishnan. (2007).H o u s i n g S c e n a r i o i n I n d i a .

Delhi: LICHFL.

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