PROJECT REPORT ON

CREDIT APPRAISAL PROCESS

Bachelor of Commerce (Banking & Insurance)

Semester (V)
(2019-2020)

Submitted By
MUSKAN MAHESHWARI ( 24 )

Project Guide
PROF. VINAY JADAV

Mithibai College of Arts, Chauhan Institute of Science &

Amruthben Jivanlal College of Commerce and
Economics
Bhaktivedanta Swami Marg, Gulmohar Road, Suvarna
Nagar, Vile Parle (W), Mumbai, Maharashtra 400056
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 “ CREDIT APPRAISAL PROCESS ”

Bachelor of Commerce (Banking & Insurance)

Semester (V)

Submitted
In Partial Fulfillment of the requirements
For the Award of Degree of
Bachelor of Commerce (Banking & Insurance)

By:
MUSKAN MAHESHWARI
Roll No.: (24)

Mithibai College of Arts, Chauhan Institute of Science &

Amruthben Jivanlal College of Commerce and
Economics
Bhaktivedanta Swami Marg, Gulmohar Road, Suvarna
Nagar, Vile Parle (W), Mumbai, Maharashtra 400056

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 ACKNOWLEDGEMENT

To list who all have helped me is difficult because they are so

numerous, and the depth is so enormous.

I would like to acknowledge the following as being idealistic channels

and fresh dimensions in the completion of this project.

I take this opportunity to thank Mithibai College for giving me chance

to do this project.

I would like to thank my Principal, Dr. Rajpal Shripat Hande for

providing the necessary facilities required for completion of this
project.

I take this opportunity to thank our Head of Department Mr. Mandar

Thakur, for his moral support and guidance.

I would also like to express my sincere gratitude towards my project

guide Asst. Prof. Mr. Vinay Jadav whose guidance and care made
the project successful

Lastly, I would like to thank every person who directly or indirectly

helped me in the completion of the project especially my Parents and
Peers who supported me throughout my project.

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 DECLARATION

I, MUSKAN MAHESHWARI the student of T.Y.B.B.I. Semester V

(2019-2020) hereby declare that I have completed the project on
CREDIT APPRAISAL PROCESS .

The information submitted is true and original to the best of my

knowledge.

_____________________
(MUSKAN MAHESHWARI)
Roll No.: (24)

Mithibai College of Arts, Chauhan Institute of Science & Amruthben

Jivanlal College of Commerce and Economics

Bhaktivedanta Swami Marg, Gulmohar Road, Suvarna Nagar, Vile

Parle (W), Mumbai, Maharashtra 400056

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 CERTIFICATE

This is to certify that Miss. MUSKAN MAHESHWARI , Roll No:

(24) of Third Year B.B.I., Semester V (2019-2020) has successfully
completed the project on
“CREDIT APPRAISAL PROCESS”
under the guidance of Asst. Prof. Mr. VINAY JADAV .

Project Guide/ Internal Examiner Principal

(Asst. Prof. Mr. VINAY JADAV)

External Examiner

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 INDEX

SNO. CONTENTS PAGE

NUMBER
1 INTRODUCTION 7-12
1.1 Meaning 7
1.2 Various Terms 8
1.3 Indian Banking Structure 9-11
1.4 Loan 12
2 REVIEW OF LITERATURE 13
3 NEED OF THE STUDY 14
4 OBJECTIVE OF THE STUDY 15
5 HYPOTHESIS OF THE STUDY 16
6 SCOPE OF THE STUDY 17
7 RESEARCH METHODOLOGY 18-30
7.1 Process 20-23
7.2 Ratio 24
7.3 Different rates of different banks 25
7.4 Study on HDFC’s home loan rates 26-28
7.5 Study on SBI’S home loan rates 29-30
8 LIMITATION OF THE STUDY 31
9 QUESTIONNAIRE FOR CUSTOMERS 32-36
10 QUESTIONNAIRE FOR EMPLOYEES 37-38
11 FINDINGS 39
12 TESTING OF HYPOTHESIS 40
13 RECOMMENDATIONS 41
14 REFERENCE 42

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 INTRODUCTION

CREDIT APPRAISAL

CREDIT APPRAISAL means investigation done by the bank before providing any loans and
advances/project finance and also checks the commercial , financial , industrial viability of the
project proposed its funding pattern and further checks its primary and collateral security cover
available for recovery of such funds.
Credit appraisal assesses two major factors. Ability and willingness to repay the loan.

IN LAYMAN LANGUAGE
The assessment of the various risks that can impact on the repayment of loan is credit
appraisal. In short, you are determining "Will I get my money back?". Depending on the
purpose of loan and the quantum, the appraisal process may be simple or elaborate. For small
personal loans, credit scoring based on income, life style and existing liabilities may suffice.
But for project financing, the process comprises technical , commercial, marketing, financial ,
managerial appraisals as also implementation schedule and ability.
-Vinod Jetley, Assistant General Manager , SBI
Credit Evaluation and Decision

Based on the results of these verifications the bankers take a credit decision of / on whether or
not to sanction the loan to the applicant.

A specialized credit appraisal team manages credit evaluation within banks. Credit decisions
taken by this team are governed by the detailed credit policies and operating notes issued
regularly for the various product segments. The credit decision would usually ensure and
address the following characteristics:
- Whether the applicant has the capacity to repay the loan?
- Whether the applicant has the required liquidity to pay the installments on the due dates?
- Whether the applicant can comfortably pay off all the obligations?
- Whether the applicant has the desired intention to repay the loan?
- Whether the asset taken as collateral, for secured loans, serves as a good security cover?
- Whether the application details of the applicant and the proposed loan are authentic?

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 VARIOUS TERMS

CREDIT
A term used in accounting to describe either an entry on the righthand side of an account or
the process of making such an entry. A credit records the increases in liabilities, owners'
equity, and revenues as well as the decreases in assets and expenses.
A sum in taxation that is subtracted from the computed tax, as opposed to a deduction that is
ordinarily subtracted from gross income to determine adjusted gross income or taxable
income. A claim for a particular sum of money.
A contractual agreement in which a borrower receives something of value now and agrees to
repay the lender at some date in the future, generally with interest. The term also refers to the
borrowing capacity of an individual or company.

An accounting entry that either decreases assets or increases liabilities and equity on the
company's balance sheet. On the company's income statement, a debit will reduce net income,
while a credit will increase net income.

INTEREST RATE
The interest rate is the amount a lender charges for the use of assets expressed as a percentage
of the principal. The interest rate is typically noted on an annual basis known as Annual
Percentage Rate (APR). The assets borrowed could include cash, consumer goods, or large
assets such as a vehicle or building.

COLLATERAL SECURITY
In lending agreements, collateral is a borrower's pledge of specific property to a lender, to
secure repayment of a loan. The collateral serves as a lender's protection against a borrower's
default and so can be used to offset the loan if the borrower fails to pay the principal and
interest satisfactorily under the terms of the lending agreement.

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 INDIAN BANKING STRUCTURE

The Reserve Bank of India (RBI), as the central bank of the country, closely monitors
developments in the whole financial sector.

DEFINITION/MEANING OF A BANK

The word bank has originated from English word Banco, Bancus or Banque. Its meaning
is bench ortable. In Europe in the middle age, the money transactions were undertaken
sitting on a bench.As per Indian Banking Act, “ A service to accept deposits from people
with the intention to invest orlend with the condition of returning it immediately whenever
demanded at any predetermined time.
An institute this service is Bank”. Banking is a service helpful to the business, its function
is to borrow money from people and further lend the same.

While analysing definition of bank as per Indian Banking Act, below mentioned matters
are clarified:
(1) Bank accepts monetary deposits from people.
(2) The intention behind accepting these deposits is to invest or lend the respective fund.
(3) The function of accepting deposit or lending money is made under the condition that
on demand or as predetermined otherwise the same amount has to be refunded
immediately.

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TYPES OF BANKS

 Reserve Bank of India (RBI)

The country had no central bank prior to the establishment of the RBI. The RBI is the supreme
monetary and banking authority in the country and controls the banking system in India. It is
called the Reserve Bank’ as it keeps the reserves of all commercial banks.

 Scheduled & Non –scheduled Banks

A scheduled bank is a bank that is listed under the second schedule of the RBI Act, 1934. In
order to be included under this schedule of the RBI Act, banks have to fulfil certain conditions
such as having a paid up capital and reserves of at least 0.5 million and satisfying the Reserve
Bank that its affairs are not being conducted in a manner prejudicial to the interests of its
depositors. Scheduled banks are further classified into commercial and cooperative banks.
Non- scheduled banks are those which are not included in the second schedule of the RBI Act,
1934. At present these are only three such banks in the country.

 Commercial Banks

Commercial banks may be defined as, any banking organization that deals with the deposits
and loans of business organizations. .Commercial banks issue bank checks and drafts, as well
as accept money on term deposits. Commercial banks also act as moneylenders, by way of
instalment loans and overdrafts.Commercial banks also allow for a variety of deposit accounts,
such as checking, savings, and time deposit. These institutions are run to make a profit and
owned by a group of individuals.

 Scheduled Commercial Banks (SCBs):

Scheduled commercial banks (SCBs) account for a major proportion of the business of the
scheduled banks. SCBs in India are categorized into the five groups based on their ownership
and/or their nature of operations. State Bank of India and its six associates (excluding State
Bank of Saurashtra, which has been merged with the SBI with effect from August 13, 2008)
are recognised as a separate category of SCBs, because of the distinct statutes (SBI Act, 1955
and SBI Subsidiary Banks Act, 1959) that govern them. Nationalised banks and SBI and
associates together form the public sector banks group IDBI ltd. has been included in the
nationalised banks group since December 2004

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  Public Sector Banks

These are banks where majority stake is held by the Government of India.
Examples of public sector banks are: SBI, Bank of India, Canara Bank, etc.

 Private Sector Banks

These are banks majority of share capital of the bank is held by private individuals. These
banks are registered as companies with limited liability. Examples of private sector banks are:
ICICI Bank, Axis bank, HDFC, etc.

 Foreign Banks

These banks are registered and have their headquarters in a foreign country but operate their
branches in our country. Examples of foreign banks in India are: HSBC, Citibank, Standard
Chartered Bank, etc

 Regional Rural Banks

Regional Rural Banks were established under the provisions of an Ordinance promulgated on
the 26th September 1975 and the RRB Act, 1976 with an objective to ensure sufficient
institutional credit for agriculture and other rural sectors. The area of operation of RRBs is
limited to the area as notified by GoI covering one or more districts in the State.

 Cooperative Banks

A co-operative bank is a financial entity which belongs to its members, who are at the same
time the owners and the customers of their bank. Co-operative banks are often created by
persons belonging to the same local or professional community or sharing a common interest.
Co-operative banks generally provide their members with a wide range of banking and
financial services (loans, deposits, banking accounts, etc).

They provide limited banking products and are specialists in agriculture-related products.

Cooperative banks are the primary financiers of agricultural activities, some small-scale
industries and self-employed workers.

Co-operative banks function on the basis of “no-profit no-loss”.

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 WHAT IS A LOAN ?

If you have never received a loan to purchase something, you are certainly in the minority!
Loans can be a great thing, but they can also get you into trouble. One of the keys to being
financially successful is understanding when loans are a good solution for your situation.
Loans are never a good idea if you can't afford to pay them back in the required time frame.
Let's explore what a loan is and find out some of the common ways to borrow money.
A loan is when you receive money from a friend, bank or financial institution in exchange for
future repayment of the principal, plus interest. The principal is the amount you borrowed,
and the interest is the amount charged for receiving the loan. Since lenders are taking a risk
that you may not repay the loan, they have to offset that risk by charging a fee - known as
interest. Loans typically are secured or unsecured..

 Home Loans:
When you wish to purchase a house, applying for a home loan can help you to a great extent.
It provides you the financial support and helps you buy the house for yourself and your loved
ones. These loan generally come with longer tenures (20 years to 30 years). The rates offered
by some of the top banks in India with their home loans start at 8.30%. Your credit score is
checked before the loan request is approved by the lender. If you have a good credit score,
there is a fair chance that you will be able to enjoy lower rates of interest with your home loan.

 Car Loans:
Buying a car can definitely instil a great sense of joy and happiness in you. A car will remain
as your asset and it is going to be one of the biggest investments that you make. A car loan
helps you to pave the path between your dream of owning a car and actually buying your car.
Since credit reports are crucial for judging your eligibility towards any loan, it is good to have
a high credit score when you apply for a car loan. The loan application will get approved easily
and you might get a lower rate of interest associated with the loan.

 Two-Wheeler Loans:
A two-wheeler is pretty essential in today’s world. May it be going for a long ride or a busy
road in a city – bikes and scooters help you to commute conveniently. A two-wheeler loan is
easy to apply for. This amount you borrow under this loan type helps you to purchase a two-
wheeler. But if you do not pay the instalments on time and clear your debt, the insurer will take
your two-wheeler to recover the loan amount.

 Education Loans:
If you wish to get higher education in a reputed university in a different country, education
loans can help you a lot. These loans are opted by students who wish to study further but need

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financial support for pursuing the courses. An education loan covers expenses like
college/university fees, library charges, travel costs related to their course, etc.

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 REVIEW OF LITERATURE

Goyal and Joshi (2011)

have concluded in their study on Social and Ethical Aspects of Banking Industry that banks
can project themselves as a social and ethical oriented organization by simply disbursing loans
to those social, ethical and environmental concern organizations.
Gary (2009)
examined that the 'shadow banking system' at the heart of the current credit crisis is, in fact,
a real banking system – and is vulnerable to a banking panic. Indeed, the events starting in
August 2007 are a banking panic. A banking panic is a systemic event because the banking
system cannot honour its obligations and is insolvent. Unlike the historical banking panics of
the 19th and early 20th centuries, the current banking panic is a wholesale panic, not a retail
panic. In the earlier episodes, depositors ran to their banks and demanded cash in exchange
for their checking accounts. Unable to meet those demands, the banking
system became insolvent. The current panic involved financial firms 'running' on other
financial firms by not renewing sale and repurchase agreements (repo) or increasing the repo
margin ('haircut'), forcing massive leveraging, and resulting in the banking system being
insolvent.

Anshul Saxena ,India Money (2009)

According to his article retail products of bank or in layman language loans which were
introduced by bank to fulfil the needs of people ranging from basic desire like owing a dream
home or children’s education to augmented needs by paying easy instalments has come a
long way since its inception. What was introduced as supplementary products has now
become a major revenue earner for bank. These products which were boon to banks have
become big nightmare when people began to default or delay their instalments. These
incidents lead to establishments of procedure of checking the credit worthiness of applicant
now known as credit appraisal. So the study of the process was important so bank don’t fall
default.

Hrishikesh Bhattachaya (2008)

According to Banking Strategy, Credit Appraisal and Lending Strategies by Author(s):
Hrishikesh Article Section Pacific Business Review International 96 Bhattacharya “Analyses
lending strategies, credit appraisal, risk analysis and lending decisions keeping in mind the
broad framework of corporate banking strategy, and helps us understand better the vast and
significant changes in the financial market. Numerous examples from the world of business
have been provided to facilitate better understanding”. Also in, Lending Strategy, Credit
Appraisal and Lending Decision by Hrishikesh Bhattachaya .

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 NEED OF THE STUDY

The retail products of bank or in layman language loans which were introduced by bank to
fulfil the needs of people ranging from basic desire like owing a dream home or children’s
education to augmented needs by paying easy instalments has come a long way since its
inception.

What was introduced as supplementary products has now become a major revenue earner for
bank and also a major source for people to fulfil their desire or needs , which they can not
fulfil by the current amount of money or assets they hold .

These products which were boon to banks have become big nightmare when people began to
default or delay their instalments.

These incidents lead to establishments of procedure of checking the credit worthiness of

applicant now known as credit appraisal. So the study of the process was important so bank
don’t fall default due to delay or non payment of instalments by customers .

Credit appraisal process is not an easy process and both customers and bank employees at
their ends face various difficulties while taking a loan or sanctioning a loan. Which invoke
the study of the credit appraisal process the need of an hour also not much studies has been
done previously on credit appraisal process of Indian banking structure as a whole .

The study done highlights the hinderances occur to the customers while taking a loan also
about the view point on mandatory insurance given by banks while opening an account or
sanctioning a loan .
It also through the light on issues faced by bank employees at their end while sanctioning the
loans .

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 OBJECTIVE OF THE STUDY

Entire process involved in successful lending by the bank beginning from the financial
process of lending , identification of reliable potential customer , legal sanction to monitoring
of those accounts .

The project will help us to -:

 Understand various issues faced by customers while taking a loan from bank .

 Understand various issues faced by bank employees which occur while sanctioning
the loan .

 Understand the view of customers on mandatory insurance given by banks while

taking a loan or opening an account .

 Understand the point of view of bank employees on merger of banks .

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 HYPOTHESIS OF THE STUDY

Hypothesis 1
H1 : Customers are satisfied with current credit appraisal project

H0 : Customers are not satisfied with current credit appraisal project

Hypothesis 2
H1 : Customers are on agreed terms with the banks mandatory insurance done, while taking a
loan or opening an account

H0 : Customers are not on agreed terms with the banks mandatory insurance done, while
taking a loan or opening an account

Hypothesis 3
H1 : Bank Employees are satisfied with current credit appraisal project

H0 : Bank Employees are not satisfied with current credit appraisal project

Hypothesis 4
H1: Bank Employees have positive view point towards merger of banks

H0: Bank Employees have negative view point towards merger of banks

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 SCOPE OF THE STUDY

 The study can be used to understand various problems faced by customers while
taking a loan

 The study can be used to compute what measures should be used to overcome the
problems faced by customers .

 The study also highlights the view of customers regarding mandatory insurance taken
, the study can be used to make this service more customer oriented .

 The study can be used to understand various hinderances occur to bank employees
problems while sanctioning a loan .

 The study can be used to develop measures to ease the process for bank employees .

 The study also highlights the view of bank employees regarding merger of banks ,
which can be elaborated further .

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 RESEARCH METHODOLOGY

CREDIT APPRAISAL PROCESS

Credit Analysis is the core process adopted by any bank in order to understand, evaluate and
appreciate about the customer's identity, integrity, financial position, repayment capacity, etc.
Day in and day out they have to deal with new customers and before sanctioning any new
loans to them, a banker is required to have made a detailed study of their customers. Hence
it is imperative for every corporate banker to be well conversant with the credit analysis
techniques; else their mistakes in the process will be very costly, at times even beyond their
manageable position. Credit analysis is the method by which one calculates the
creditworthiness of a business or organization. In other words, It is the evaluation of the ability
of a company to honour its financial obligations .

A lender conducts a credit appraisal process chiefly to make certain that the bank gets back
the money that it lends to its customers.

Whether one applies individually or as a corporate entity, a lender always conducts a detailed
and systematic credit appraisal process. The credit appraisal process before giving a loan to
entities is comprehensive in nature as it appraises or evaluates management, market,
technical, and financial elements.

No lender approves and sanctions anybody’s personal loan application instantly without an
evaluation. It is absolutely important for a lender to carry out a credit appraisal process in order
to ensure that the borrower has the capacity to repay the entire loan amount on time without
missing any payment deadlines. This is very crucial for a bank as this determines the interest
income and the capital of the bank. The repayment behaviour of a borrower directly affects
the performance of the bank.

Both banks and non-banking financial corporations (NBFCs) utilise credit appraisal
procedures before approving a personal loan application or any other loan application. Each
lender will have its own techniques for performing credit appraisal processes. A lender will
have certain norms, rules, and standards to assess the creditworthiness of a particular loan
applicant. If a borrower has a high creditworthiness, there is high probability that his or her

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loan application will be accepted by the bank. A credit appraisal is done to avoid the risk of
default on loans.

Factors Evaluated During a Credit Appraisal Process

Tax History Repayment Ability

Work Experience Nature Of Employment

Present & Former Loans Other Monthly Expenses

Future Liabilities Previous Loan Records

Assets Owned Financing Pattern

Tax History Repayment Ability

Work Experience Nature Of Employment
Present & Former Loans Other Monthly Expense
Future Liabilities Previous Loan Record
Asset Owned Financing Pattern

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 PROCESS

o STEP1: Customer Identification

Its better, you approach the customer rather customer approaches you. Avoid middleman
introducing customer to you. First thing is customer identification. Not just collecting copies
of ID and address proof but actually knowing the customer. You must know, who he is, what
he does, where he lives, how much he earns, what is his reputation in the society and his
credit worthiness.

o STEP2: Understanding the business of the borrower

Understanding the business of the borrower is very important before going further in the
process of extending credit. Enquire about the nature of business, the industry in which he
operates, the processes of business, modus operandi of business etc. Do some research about
the industry, whether the industry has going good, what are margins in that induare there any
adverse government directives, is it regulated. It doesn’t take much time but saves you and
the bank. Know the product the borrower is dealing into. Is the product viable and have a
future? For example, is it wise to lend to manufacturer of trader of CDs (Compact Disks),
knowing that CDs are disappearing and rarely used? Enquire about the major suppliers and
buyers of the borrower and their reputation in the market.

o STEP3: Understanding Credit Requirements

Understand what type of credit facilities the borrower require. The assessment depends on the
type of facilities borrower require. Further, you’ll have to head to the guidelines after you
know, which credit facilities are to be sanctioned. Requirement analysis is important because,
you can not take risk of neither over financing or under financing. Both the cases are
dangerous and may have adverse consequences. Over financing would lead to stress in
account as borrower has been provided more funds than required, which he’ll use for non-
business purposes. While in case of under financing, borrower will not be able to execute the
project properly resulting into business failure.

o STEP4: Selecting appropriate scheme/ credit facility

Banks have different schemes for different types of borrower depending upon the nature of
activity and volume of activity. These schemes have a set of guidelines for different
parameters such as eligibility calculations, collateral security requirement, margins, rate of
interest, service charges etc. For example there may be a scheme for traders, distributors, car
dealers, tour operators, travel agents, professionals etc. Select the appropriate scheme, if

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applicable to the borrower before going for a conventional fund based working capital facility
or term loan.

o STEP5: Loan Application

You must obtain duly filled loan application in the prescribed format of your bank from the
borrower. Loan application is designed in a way so that crucial information of the borrower
are obtained. Read the whole application along with the annexures and documents.

o STEP6: KYC

KYC is must. To must first identify the customer. Complete the KYC norms before going
further in the loan proposal.

o STEP6: Draw Credit Information Reports (CIBIL)

Draw the credit information reports like CIBIL as required by your bank’s guidelines. CIBIL
is the most important and widely used CIR in India. There are two types of CIBIL reports,
personal and commercial. Commercial is for business entities be it proprietorship or a limited
liability company, whereas personal is for individuals. This report contains credit history of
the borrower.This report should be carefully and specially checked for any settlements,
defaults, past dues and written off amounts. If any of these appear, that means the credit
history of the borrower is not good. Even if there are minor amounts in default, you must ask
for explanation and evidences to your satisfaction. The current loans of the borrower is
availing can be known, which will help to analyse his repayment capacity .

o STEP7: RBI Defaulter List

The defaulter list is available on CIBIL website and can be accessed from here. Check this
list to ensure that names of borrower/ proprietor/ partners/ directors/ guarantors or associate
and allied concerns of the borrower are not appearing therein.

o STEP8: CERSAI Search

If there is any Immovable Property involved, whether as primary security or collateral

security, check the CERSAI database, to ensure that the property is not mortgaged with other
lenders. Further, now even particulars of movable assets like stocks and book debts are
required to be registered with CERSAI, so you should also check for that, so that you get to
know about the loans taken by the borrower.

o STEP9: MCA Search

If the prospective borrower is a limited liability company (private limited company or a

limited company) or an LLP (Limited Liability Partnership), search the details in MCA
website .

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 o STEP10: Visits before sanction

Before processing the loan, you must visit residence of borrower, all business places of the
borrower such as registered office, corporate office, factories and godowns And the location
of properties to be mortgaged in the account. Make enquiries from neighbours, local
prominent peoples, local property dealers. This will give you an idea about the worth of your
prospective borrower.

Documents Required for Checking Bankability

1. Proof of income

In order to prove your monthly income, you will be required to submit certain documents and
they include:
 Most recent bank statements for 3 to 6 months
 Most recent salary slips
 Most recent Income Tax Return (for self-employed individuals)
 Audited financials for the previous 2 years

2. Proof of address

To prove your residential address, you will have to furnish any one of the following documents:
 Leave and license agreement
 Latest electricity bills or utility bills
 Aadhaar card
 Driving license
 Passport

3. Proof of Identity

To prove your identity and date of birth, you will be required to submit any one of the following
documents:
 Aadhaar
 PAN card
 Voter ID
 Driving license
 Passport-size photographs

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 4. Proof of Employment

To prove your employment information, you will be required to give certain documents
regarding your employer or your own company (if you are self-employed):
 Letter from your employer
 Offer letter or appointment letter provided by your employer
 Office address proof
 Employment certificate from your present employer
 Certificate of experience or relieving letter from your previous employer(s) to show your
overall work experience

5. Proof of Creditworthiness

To prove your creditworthiness, you can show your credit score to your new lender. This can
be done by submitting your CIBIL report. When you are furnishing your CIBIL report, you
should be sure about the details of your credit score. You should also ensure that your credit
score is 750 and above.
With the help of your CIBIL report, your lender will check if you have been prompt while
making your repayments and while clearing your credit card bills. Your lender will also be able
to see if you have defaulted any loan during your entire credit history and if you have made
many enquiries. Hence, you need to be very particular about how your credit report looks.

6. Proof of Investment

If you have made any investment, you will be required to provide proofs. This can be done by
giving documents of your investments such as fixed deposits, shares, mutual funds, fixed
assets, gold, etc.
When the lender takes a look at your income proof, age proof, and employment proof, the
lender gets an idea about your overall profile and the bank can determine if you will be able to
repay your loan promptly without any financial struggle.

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 RATIOS (For Credit Appraisal Process)

 Fixed obligation to income ratio (FOIR): This ratio refers to how one deals with his or her
debts and how often they repay their debts. It refers to the ratio of the loan obligations and
other expenses to the income that they earn on a monthly basis. The bank will assess if a
certain portion of your income is sufficient to manage your EMIs for the loan that you have
applied for and for your other liabilities. If the ratio is higher than the benchmark fixed by
the lender, then the lender may not accept the application.

 Instalment to income ratio (IIR): This ratio considers the equated monthly instalments
(EMIs) of your loan to the income that you earn. It will indicate the amount you will be
required to take from your income to pay your personal loan EMI.

 Loan to cost ratio: This ratio indicates the maximum amount that a particular borrower is
eligible to take. This will depend on the cost of the car if you are taking a car loan and on the
cost of the house if you are taking a home loan. For a personal loan, it will depend on your
personal requirement. Usually, the ratio will range from 70 to 90% of the cost of the car or
house.

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 DIFFERENT RATES OF DIFFERENT BANKS

HOME LOANS

BANK HOME LOAN RATE PROCESSING FEE

SBI 8.05% 0.25%
Max Rs. 10,000
AXIS 8.60% 0.50%
Min Rs. 2,500 - Max Rs. 25,000
HDFC 8.40% 0.50%
Min Rs. 3,000 - Max Rs. 10,000
ICICI 9.05% 0.25%
Min Rs. 5,000 - Max Rs. 5,000
BANK OF BARODA 8.45% 0.50%
Min Rs. 7,500 - Max Rs. 25,000
PNB FINANCING 9.25% 1.00%
Min Rs. 10,000 - Max Rs. 10,000
IDBI 8.75% 0.50%
Min Rs. 2,500
STANDARD CHARTED 9.41% 1.00%
Min Rs. 5,000 - Max Rs. 10,000
YES BANK 9.85% 1.00%
Max Rs. 15,000
HSBC BANK 8.85% 1.00%
Max Rs. 10,000
PNB BANK 8.50% 0.50%
Min Rs. 20,000 - Max Rs. 50,000

CAR LOANS

BANK CAR LOAN RATE PROCESSING FEE

SBI 9.65% NIL
HDFC 11.50% Up to Rs. 5,150
PNB 9.40% 1% of loan amount subject
to max. of Rs. 6,000
AXIS 8.50%-11.50% Up to Rs. 5,500
ICICI 10.75% Up to Rs. 5,000
IDBI 9.10% Up to Rs. 4,500
BANK OF INDIA 8.90% Up to Rs. 5000
SYNDICATE BANK 8.95% Up to Rs. 5000

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27
A STUDY ON TOP PRIVATE SECTOR BANK’S HOME
LOAN RATES
HDFC Bank Home Loan

HDFC Bank Home loan can be taken to fund your dream house purchase. A home loan is a secured
loan, where the house you intend to purchase is considered as collateral. HDFC bank offers home
loans to people who look forward to purchasing new apartments, flats, properties from private
developers, properties from public sector companies, independent houses, etc. These loans are offered
at competitive interest rates to salaried as well as self-employed professionals. HDFC is a reputed
bank when it comes to home loans as it was established as a purely home loan (product) lending bank
as the name suggests. However it gained trust and popularity with the people and other financial
services were provided as well.

HDFC Bank Home Loan Details Updated on 29th August 2019

Loan Amount Up to Rs. 75 lakhs and above

Loan Tenure 1 year to 30 years

Interest Rate 8.40% to 9.25%

Features of Home Loans at HDFC Bank

Some of the HDFC home loan options available are as follows.

 The bank offers various types of HDFC home loans based on the suitability of its targeted
audience.
 Home loans are offered to salaried and self-employed professionals as well as self-employed
non-professionals.
 The HDFC pre-approved loans are offered to people looking forward to negotiating with the
sellers or marking their financial credibility.
 The HDFC NRI Home Loan is offered to non-resident Indians who aim to buy a property in
India.
 The HDFC Home loan transfer is offered to people wanting to shift their existing interest
and expensive EMIs to the HDFCs advantage in this regard.
 Home improvement loans are offered to people wanting to upgrade their property through
structural improvements, waterproofing, internal and external repairs, roofing, painting, etc.
 Home extension loan is offered to people who want to make extra rooms in their existing
houses or want to make similar modifications.

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  Special HDFC Housing loans for agriculturists are offered to farmers to want to purchase a
house in the residential areas of the villages. Under this scheme, no mortgage of agricultural
land is required.
 HDFC rural housing finance is extended to government and private sector employees to
make properties in rural residential areas.

HDFC Bank Home Loan Interest Rates

The HDFC bank home loan interest rate starts at 8.40% to 9.25%, but varies as per individual profile.
Keep a check on this page to note the updated HDFC home loan interest rates for the current year.

HDFC bank offers home loans to different categories of applicants and to streamline the data, the
following factors can be used to understand what affects the interest rate of each loan applicant
desiring to build a home with the amount.

 Amount of Loan: Applying for a home loan with HDFC is subject to the same terms of a
home loan. Higher the loan amount, lesser will be the interest rate.
 Income group: Banks do their due diligence when it comes to checking salaries and income
of applicants. They need that assurance of repayment while lending out the home loan
amount. Higher the salary or income, the interest rate is likely to be a shade lesser.
 Relationship with Bank: HDFC is known for its customer-centric approach among banks.
Customers with an existing relationship with the bank are given lower interest rates on home
loans. In the larger scheme of things, borrowers end up saving a lot of money due to this.
 Loan Type: HDFC takes care to offer lower interest rates to women applicants. Apart from
this, differential rates are applicable under the fixed and floating rate schemes.

HDFC Home Loan Processing Fee and Other Charges

As an applicant, it is important to know all that you will be paying for and HDFC is clear and
transparent about it. There are no hidden charges that will raise its ugly head once you have taken the
plunge. Let’s take a look at the charges apart from the interest rates below:

 Processing Fee: At the outset, the bank charges a 0.5% of the loan as a processing fee. This
charge is applied for lending the amount and for the expenses incurred upon conducting credit
appraisal and other checks.

 Technical and Legal Charges: Every bank has its set of rules and regulations while lending
huge sums of amounts. HDFC charges technical and legal fees which are properly explained
to the applicant at the time of loan approval by the bank executives.

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  Prepayment Charges: HDFC allows for prepayment and foreclosure of loan amount in case
the applicant wishes to pay off in lump-sum amounts at decided intervals of time. On floating
rate of home loans, applicants are not charged prepayment fees, as per RBI guidelines.

HDFC Home Loan Eligibility Criteria

Home loan eligibility may differ from one candidate to another. The eligibility criteria for HDFC
Bank housing loan are discussed below:

The applicant for home loan HDFC needs to meet the age requirement and possess all necessary
identity and income proof required to apply for the loan.

 He/she meet the requirement for credit score and should not be under too many debts.
Documentation requirements for a sole proprietorship or partnership or a private limited firm
 Passport sized photographs of the applicant and the co-applicant.
 Fully filled and signed housing loan application form.
 KYC documents including their identity and residential proof. This may include a copy of
your voter ID, passport, Aadhar card, PAN card, driving license, etc.
 Attested copies of your partnership, AOA or MOA.
 Audited financial papers of the previous 2 years.
 Income tax returns of the partners or the directors for past 2 years.
 Bank statement of the operating account for past 6 months.
 Qualification certificate if the candidate is an expert such as a doctor, advocate, charted
accountant, architect or a civil engineer.

LIMIT WOMEN/OTHER SALARIED/NON INTEREST RATES

Up to 30Lakhs Women Salaried 8.40%
Non Salaried 8.95%

Other Salaried 8.45%

Non Salaried 8.95%
Up to 30 – 75Lakhs Women Salaried 8.75%
Non Salaried 9.25%

Other Salaried 8.80%

Non Salaried 9.30%

Above 75Lakhs Women Salaried 8.80%

Non Salaried 9.30%

Other Salaried 8.85%

Non Salaried 9.35%

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A STUDY ON TOP PUBLIC SECTOR BANK’S HOME
LOAN RATES
SBI Bank Home Loan

SBI offers loans to Indian residents as well as Non-Resident Indians that are at least 18 years old and
no older than 70 years. These individuals are eligible for loans of up to 30 years in tenure. The bank
does not advertise its maximum loan amount, though banks tend to offer loan principal's based on
prospective borrowers' income level, CIBIL credit score and existing debt obligations.

SBI Home Loan Processing Fee and Other Charges

There are a number of standard fees associated with SBI's home loan products. Most notably, the
bank's processing fee is lower than those of many other lenders. That being said, we strongly
recommend that you carefully review each bank's fees when comparing home loans in order to make
your loan as affordable as possible.

Processing Fee: At the outset, the bank charges a 0.35% of the loan as a processing fee (min. Rs.
2,000, max Rs. 10,000) . This charge is applied for lending the amount and for the expenses incurred
upon conducting credit appraisal and other checks.

How to Apply: Application Process

Individuals interested in applying for home financing from SBI must fill out an application and
provide several documents. These documents include proof of identity, residence and income.
Additionally, loan applicants are required to provide documentation associated with the property that
they plan to purchase. These include documents proving permission for construction, sale agreement
documents, occupancy certificates, share certificate (Maharashtra only), maintenance bill, electricity
bill, and the property tax receipt.

31
 Finally, applicants must submit additional documents if their property is not yet built or under
construction. These documents include an approved plan and registered development agreement from
the builder, conveyance deed and payment receipts or bank A/C statement showing all the payments
made to the builder or property seller.

SBI Home Loan Eligibility Criteria

 Employer Identity Card , 3 Passport size photographs

 Proof of Identity: PAN, Passport, Driver’s License or Voter ID card
 Proof of Residence: Copy of utility bill or of Passport, Driving License or Aadhar Card
 Payment Receipts or bank A/C statement (payments to builder/seller)
 Proof of Income (Salaried): Salary Slip/Certificate, Form 16/IT Returns (2 years)
 Proof of Income (Non-Salaried): Proof of business address, IT returns (3 years) Balance Sheet & P&L
A/C (3yrs), business license details, TDS certificate, Certificate of Qualification
 Account Statements: Bank Account (6 months), A/C statement (1 year)

LIMIT WOMEN/OTHER SALARIED/NON INTEREST RATES

Up to 30Lakhs Women Salaried 8.35%
Non Salaried 8.50%

Other Salaried 8.45%

Non Salaried 8.55%
Up to 30 – 75Lakhs Women Salaried 8.60%
Other Non Salaried 8.75%

Salaried 8.65%
Non Salaried 8.80%

Above 75Lakhs Women Salaried 8.70%

Non Salaried 8.85%

Other Salaried 8.75%

Non Salaried 8.95

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 LIMITATIONS OF THE STUDY

 Limitation of time was one of the most important factors for collecting data. A longer
time period would have ensured to collect more information in details.

 Every organization has some secret that is not exposed to others. So there are many
points which they do not disclose which they consider while sanctioning the loan.

 Customers hesitate while providing information about their incomes and loans.

 The information collected from customers was unsettled , it was difficult to draw a
common point.

 Due to lack of experience, there is a chance of having some mistake in the report but
best effort has been applied to avoid any kind of mistake.

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 QUESTIONNAIRE FOR CUSTOMERS

1.Name

2.What is your age?

o 30-35
o 35-40
o 40-45
o 45-50
o 50+

3.Number of housing loans take?

o 1
o 2
o 3
o Nil

4.Number of vehicle loans taken?

o 1
o 2
o 3
o Nil

5.From which bank have you taken your housing loan?

6.Form which bank have you taken your vehicle loan?

7.What were the hinderances while taking a loan?

o Documentation
o CIBIL score
o Income statement
o Others (specify in the next answer)

8.What were the hinderances while taking a loan? ( type nil if reason stated above)

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9.What is your approximate percentage of loan to income ?
o 10%-20%
o 20%-30%
o 30%-40%
o 40%+

10.Did you get the loan sanctioned as per your requirement ?

o Yes
o No

11.How much percentage was less loan sanctioned?

o 10%-20%
o 20%-30%
o 30%-40%
o 40%+

12.Are you on agreed terms with the banks policy of taking insurance while taking a loan or
opening an account?
o Yes
o No

13.Which bank’s employees you find more cooperative while taking home loans?

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  What is your age?

50YEARS+
10

45-50YEARS
15

40-45YEARS
30

35-40YEARS
40

30-35 YEARS
5

0 5 10 15 20 25 30 35 40 45

 What were the hinderances while taking a loan?

Chart Title

4.3

3.5

DOCUMENTATION CIBIL SCORE INCOME STATEMENT OTHERS

Series 1 Column2 Column1

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  How much percentage was less loan sanctioned ?

6.5

2
1.5

10-20% 20-30% 30-40% 40%+

 What is your percentage of loan to income ?

Loan to Income percentage

0.4

0.32

0.2

0.15

10-20% 20-30% 30-40% 40%

Series 1 Column2 Column1

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 Did you get the loan sanctioned as per requirement?

10%

YES
NO

90%

 Are you on agreed terms with the banks policy of taking insurance while taking
loan or opening an account?

30%

YES
NO

70%

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 QUESTIONNAIRE FOR BANK EMPLOYEES

1.Name

2.Which bank are you working with?

3.Experience of working in banking sector?

4.Do you get benefits such as less interest rate charged while taking a loan from the bank you
work in?
o Yes
o No

5.What are the hinderances faced while physical inspection of collateral?

6.What are the major problems which occur while sanctioning the loan?
o Documentation
o Income Statement
o CIBIL Score
o Collateral issue
o Inadequate Information
o Others

7.Is merger of banks good for employees?

o Yes
o No

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  What are the major problems which occur while sanctioning the loan?

80

70

60

50

40
70
30

20
30 35 Column1
10 20 25 20
0

 Is merger of banks good for employees?

7%

YES
NO

93%

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 FINDINGS

CUSTOMER’S PART

 30-35Years aged people have less number of loans .

 40-50Years aged people have more number of loans .
 People of 35Years + have loan to income ratio in 30-40% range .
 Major hinderances faced by customers while taking a loan is documentation , many a
times a bank employee demands more than required documents and not in one go
which is very troublesome to people . Finding documentation a cumbersome process
people then take loans from other than legal authorities.
 Another major issues which is mostly faced by business class customers is income
statement, they might have the income to take the loan but it is not on-papers . Their
income statement shows less income then the actual , reason being to skip the tax
paying part.
 Regarding insurance done by banks , most of the people are not satisfied by this
service of the banks .

EMPLOYEE’S PART

 Most of the bank employees get less interest rate charge benefit while taking a loan
from the bank which they work with . Employees who are in the organisation for less
than 3Years faces difficulty to avail this benefit .
 Majority employees consider merger of banks as not beneficial for employees because
merging of banks will reduce employment and also increase the competition to get
promoted .
 Also few employees think that merging will improve the professional standards and
large banks faces global challenges .
 Employees come across various issues while going for physical inspection of
collateral . The major problem is people try to avoid physical verification of collateral
and hence delay the process .
 While sanctioning the loan along with documentation appropriate CIBIL score is a
vital issue .
 In case of default borrowers recovery from collateral is a difficult task .

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 TESTING OF HYPOTHESIS

Hypothesis 1
The observed customers faced various hinderances while taking a loan and hence not
satisfied by the current credit appraisal process .
So we accept alternate hypothesis and reject null hypothesis .

Hypothesis 2
From the observed customers most of them are not in favour of banks mandatory insurance
taking .
So we accept null hypothesis and reject alternate hypothesis .

Hypothesis 3
The surveyed bank employees encountered various problems while sanctioning loans and
hence not satisfied by the current credit appraisal process .
So we accept alternate hypothesis and reject null hypothesis .

Hypothesis 4
From the surveyed bank employees majority of them did not have a positive view point
towards merger of banks .
So we accept null hypothesis and reject alternate hypothesis .

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 RECOMMENDATIONS

 At banks part, the documents required should be asked in one go , and should not
trouble frequently for the same .

 The banks should build good amount of trust in customers .

 Banks should give good service and communicate well after taking loan also .

 The collateral required rules should be eased till some extent .

 Customers at their part should be able to provide proper documents required , also
their income statement should be true picture of their actual income .

 Customers should demand the loan according to their CIBIL score .

 While physical verification customers and their family members should cooperate
with the employees .

 At their part customers should timely pay their instalments .

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 REFERENCES

Identified data sources from both essential data sources were identified to complete the
report.

 Primary Sources
a) Primary data collected by designing questionnaire .
b) The prepared questionnaire was circulated by goggle forms.
c) Two different questionnaire were made , one for customers and other for bank
employees .

 Secondary Sources
a) Website of the banks .
b) Studies done by other researchers .
c) Articles published on different websites .

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