Comparative Study of Bank's Retail Loan Products Vis-A-Vis Competitions or Peer Banks

Comparative Study of Bank¶s Retail Loan Products

2009-2011

SUMMER TRAINING REPORT on

Comparative Study of Bank¶s Retail Loan Products for

Bank of Baroda Under the supervision of

Mr. N. K. Kalani (Chief Manager, Retail Loan Factory, DMR - I)

Submitted by,

Submitted to,

Jagadeesh K.V.

Mr. N. K. Kalani

R.No. ± 228

Chief Manager,

PGDM 2009-11,

Retail Loan Factory,

NDIM.

DMR - I, Bank of Baroda.

New Delhi Institute of Management 50 (B&C), 60, Tughlakabad Institutional Area, New Delhi ± 110062.

i

New Delhi Institute of Management ± Bank of Baroda


2009-2011

Acknowledgement First and foremost, I wish to thank Bank of Baroda for providing me opportunity to undergo my internship training. I am very much thankful to Mr. Nand Kishore Kalani (Chief Manager, Retail Loan Factory) for his constant encouragement and regular ideas and feedback for contributing maximum in project. Further, I would also like to thank all the employees of Retail Loan Factory, Bank of Baroda, DMR-I Branch and all the responders of survey, without whom it would be impossible for me to complete the t he project. I am also very thankful to Mr. V. K. Mahajan (Project Guide) keen interest in project and guided me in project work. Last but not the least, my sincere regards to CRC (Corporate Resource Centre) and all faculty members of New Delhi Institute of Management, New Delhi for their pain stalking supervision and downright suggestions which brought a lot of confidence in me to complete this dissertation report.

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2009-2011

Acknowledgement First and foremost, I wish to thank Bank of Baroda for providing me opportunity to undergo my internship training. I am very much thankful to Mr. Nand Kishore Kalani (Chief Manager, Retail Loan Factory) for his constant encouragement and regular ideas and feedback for contributing maximum in project. Further, I would also like to thank all the employees of Retail Loan Factory, Bank of Baroda, DMR-I Branch and all the responders of survey, without whom it would be impossible for me to complete the t he project. I am also very thankful to Mr. V. K. Mahajan (Project Guide) keen interest in project and guided me in project work. Last but not the least, my sincere regards to CRC (Corporate Resource Centre) and all faculty members of New Delhi Institute of Management, New Delhi for their pain stalking supervision and downright suggestions which brought a lot of confidence in me to complete this dissertation report.

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2009-2011

Declaration I, Jagadeesh K.V., hereby declare that the Dissertation on ³Competitive study of Bank¶s Retail Loan Products Vis-à-vis Competitions / Peer Banks´ at Bank of

Baroda, New Delhi assigned to me for the requirement of partial fulfillment of ³Post Graduate Diploma in Management (PGDM)´ in New Delhi Institute of

Management, New Delhi. It is the original work conducted by me and data provided in this study is authentic to the best of my knowledge and belief.

This report is not submitted to any other institute or university for the award of any other degree.

Jagadeesh K. V. PGDM 2009-2011 New Delhi Institute of Management, New Delhi

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2009-2011

Index Contents

Page No.

1. Executive Summary

1

2. Banking Industry Background

2

a. Early History

2

b. Post-independence

2

c. Nationalization

3

d. Liberalization

4

e. Current Situation

5

f. Structure of Indian Finance System

6

g. Categories of Banks

7

h. Introduction to Finance

7

i. The Business of Banking

8

j. Functioning of Banks

9

k. Forms of Advances

10

3.Loans

10

4.Bank of Baroda Background

12

a. History

12

b. Centenary Year

12

c. Mission & Vision Statement

13

d. Achievements

13

e. Objectives

14

f. Global Presence

14

g. Company Network (National & International)

15

h. Wide Global Network

15

i.

Customers & Competitors and Strengths

16

j.

Values & Future of the Bank

17

k. Product Profile

17

5.Objective of the Study

18

a. Work Done

19

b. Procedure for Applying Retail Loans

19

c. Comparative Study of Home Loan Applicants

22

d. Documents Required for Retail Loans

24

e. Terms Related to Retail Loans

25

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2009-2011

Page No.

Contents

26

7. Retail Loans a. Key Products

26

b. Home Loans

27

c. Education Loans

28

d. RBI Directives for Home Loans

30

e. Tax Benefits

31

8. Home Loans in India

34

a. Introduction

34

b. Comparative Analysis of PSU Banks

37

c. Competitive Advantage of BOB Over SBI

40

d. Comparative Analysis of Private Sector Banks

41

e. Competitive Advantage of PSU Banks Over Private Banks

43 44

9. Education Loans in India a. Introduction

44

b. Comparative Analysis of PSU Banks

46

c. Competitive Advantage of BOB Over SBI

50

d. Comparative Analysis of Private Sector Banks

51

e. Competitive Advantage of PSU Banks Over Private Banks

53 54

10.Research Methodology a. Research Objective

54

b. Steps of Research Methodology

55

c. Sources of Data

56

d. Sampling Plan

57

11. Limitations of Study

58

12. Findings & Conclusion

59

13. Suggestions & Recommendations

60

14. Bibliography

62

15. Appendix a. Questionnaire

Appendix ± i

b. Financial Statements of Bank of Baroda

Appendix - ii

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2009-2011

Executive Summary All around the world retail lending has been an established market; however its rise in emerging economies like India has been of recent origin. If recent statistics on consumer finance are any indication, the last few years have been trend setting. The traditional debt-averse, middle-class Indians who lived within their thrifty means, never to venture beyond their means, seem to have given way to a new middle-class that is free from all inhibitions regarding conspicuous consumption. Unlike its predecessors, the middle-class of today has donned a new attitude; it attaches no social-stigma in taking loans for spending. Indian retail banking is up and kicking. During 2004-05 retail contributed 42% of overall credit growth. Growing at the CAGR of 35% over last 5 years the retail asset touched Rs1,89,000 crore. Major product segments of retail credit include housing finance, education loan, auto finance, personal loans, consumer durable loan and credit cards to name a few. Housing constitutes the biggest segment of 48% of the entire retail credit; followed by the auto loans segment which constitutes almost 27.8%. While the balance retail credit is used by consumer durables at 7.2%, educational and other personal loans take the rema ining 16%. Banks are increasing their dominance in housing finance and capturing the market share of the housing finance companies. During 2004-05, the market share of banks stood at 62%, against the 33% by Housing finance companies; Rs2-5 lakh margins constitutes almost a third of the loan size. All the players in this market are adopting an aggressive attitude and the housing loan availability is playing into the players hands. Despite this phenomenal growth in India, the housing loan as a percentage of GDP at 4.91% indicates low penetration when compared to other countries like Malaysia (17%) and Thailand (9%). But again this coupled with the population growth indicates good future prospects. Following the housing loans, it is the education loan which is also giving the growth of retail credit the necessary boost. The last few years have witnessed a high increase in students aspiring for management and professional courses, leading to a spurt in educational loans. Banks are now having a direct tie-up with the educational institutions to cash in on the opportunity. Public sector banks (PSBs) are more focused on the educational loans segment. In the educational loan segment, Appendix - 1



2009-2011

disbursement of domestic banks has surged by 13% to Rs2249 crore in 2004-05; up from Rs1983 crore in 2003-04. The number of students availing education loans has increased to 1,40,000 from 1,08,000 during this period. In India, all the retail banking segments are expected to witness a tremendous growth owing to the low cost of borrowing, changing customer attitudes towards borrowing and optimism regarding economic growth. Retail lending constitutes just 12.36% of the Indian banking system. Given this macroeconomic scenario, the share of retail banking will grow dramatically and it is expected that about 35% of the incremental growth in net credit will come from retail banking. This requires expansion and diversification of retail banking product portfolio, better penetration and faster s ervice mechanism. Hitherto, the growth had come from metros and tier I cities. While the loan requirement from larger cities will continue to grow, explosive growth in credit is expected to register in tier II cities, semi-urban and rural ar eas. However, there are some areas of concern like rising NPA in consumer loans particularly, the delinquency rates in credit cards, and frauds in home loans. Housing prices have grown rapidly. Deflation of asset value is a possibility in certain areas. Aggressive credit growth in retail has increased the requirement for measuring and managing this risk. These require extremely skilled workforce and highly evolved credit delivery and monitoring processes. The other concern is of suicidal pricing by the aggressive banks. This is bringing the margins under pressure. Though rational pricing is critical, the competitive market shall continue to see the pricing pressure. There is also a need for a database and management information system to identify the right type of borrowers. Keeping pace with explosive changes will pose challenge to regulatory authorities. This will not limit only to increase of risk weight of consumer loan by 25 basis points which the regulator announced in mid-term policy review 2004-05. Revision of credit cards issue regulations, and recent draft guidelines on outsourcing are the steps in the right direction. Lack of consensus on definition of retail and transparency in declaration by the players as well the coverage of retail by the central banker in its reports; all of this needs a thorough re-look.

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Banking and Finance in India

The Indian money market is classified in to, 1. The Organized Sector (comprising private, public and foreign owned commercial banks and cooperative banks, together known as scheduled banks); and 2. The Unorganized Sector (comprising individual or family owned indigenous bankers or money lenders and non banking financial companies (NBFCs)).

The unorganized sector and micro credit and still preferred over traditional banks in rural and sub-urban areas, especially for non-productive purposes, like ceremonies and short duration loans.

Early History

Banking in India originated in the first decade of 18th century. The first banks were The General Bank of India , which started in 1786, and Bank of Hindustan , both of

which are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the "The Bank of Bengal" in Calcutta in June 1806. This

was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras. The presidency banks were established under charters from the British East India Company. They merged in 1925 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India. For many years the Presidency banks acted as quasi-central banks, as did their successors. The Reserve Bank of India formally took on the responsibility of regulating the Indian banking sector from 1935. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers.

Post-independence The partition of India in 1947 adversely impacted the economies of Punjab and West Bengal, paralyzing banking activities for months. India's independence marked the end of a regime of the Laissez-faire for the Indian banking. The Government of India initiated measures to play an active role in the economic life of the nation, and the

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2009-2011

Industrial Policy Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into greater involvement of the state in different segments of the economy including banking and finance. The major steps to regulate banking included,

In 1948, the Reserve Bank of India, India's central banking authority, was

y

nationalized, and it became an institution owned by the Government of India. In 1949, the Banking Regulation Act was enacted which empowered the

y

Reserve Bank of India (RBI) "to regulate, control, and inspect the banks in India." The Banking Regulation Act also provided that no new bank or branch of an

y

existing bank may be opened without a license from the RBI, and no two banks could have common directors.

However, despite these provisions, control and regulations, banks in India except the State Bank of India, continued to be owned and operated by private persons. This changed with the nationalization of major banks in India on 19th July, 1969.

Nationalization By the 1960s, the Indian banking industry has become an important tool to facilitate the development of the Indian economy. At the same time, it has emerged as a large employer, and a debate has ensued about the possibility to nationalize the banking industry. Indira Gandhi, the-then Prime Minister of India expressed the intention of the GOI in the annual conference of the All India Congress Meeting in a paper entitled " . The paper was received with Stray thoughts on Bank Nationalization´ positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued an ordinance and nationalized the 14 largest commercial banks with effect from the midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval on 9th August, 1969.

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2009-2011

A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the GOI controlled around 91% of the banking business of India.

After this, until the 1990s, the nationalized banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.

Liberalization

In the early 1990s the then Narsimha Rao government embarked on a policy of liberalisation and gave licenses to a small number of private banks, which came to be known as New Generation tech-savvy banks, which included banks such as Global Trust Bank (the first of such new generation banks to be set up) which later amalgamated with Oriental Bank of Commerce, UTI Bank (now re-named as Axis Bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, kick ± started the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks.

The next stage for the Indian banking has been setup with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%at present it has gone up to 49% with some restrictions.

The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%; Go home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks. All this led to the retail boom in India. People not just demanded more from their banks but also received more.

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2009-2011

Current Situation Banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks ar e considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true.

With the growth in the Indian economy expected to be strong for quite some timeespecially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&As, takeovers, and asset sales.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them.

Currently (2010), India has 96 scheduled c ommercial banks (SCBs) - 27 public sector banks (that is with the Government of India holding a stake), 31 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign banks. They have a combined network of over 53,000 branches and 49,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.

Since liberalization, the government has approved significant banking reforms. While some of these relate to nationalized banks (like encouraging mergers, reducing government interference and increasing profitability and competitiveness) other

6



2009-2011

reforms have opened up the banking and insurance sectors to private and foreign players.

Structure / Constituents of Indian Finance System The India Finance System is composed of different institutions and will see subsequent address to certain roles and have accordingly brought out a variety of instrumentation and helped create a healthy money market, which is fundamental requisite of good finance system.

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2009-2011

Categories of Bank Banking in India falls mainly under two categories, viz. Commercial banks and Cooperative banks, while commercial banks cater to the needs of industry and trade largely; the cooperative banks play a major role in financing agriculture and allied activities in rural areas, and trade and servic es in urban areas.

The commercial banks may be classified into four group in terms of ownership, 1. Public Sector Banks 2. Regional Rural 3. Indian Private Sector Banks and 4. Banks incorporated outside India.

The commercial banks can be further classified into Scheduled banks and Non Scheduled Banks. Scheduled Banks are those listed in the second schedule to the Reserve Bank of India Act 1934

These banks satisfy the criteria laid down under section 42 (6) of the RBI Act that they should have capital and reserve of Rs. 5 lakhs and their activities should not be detrimental to the interests of depositors. The scheduled banks are required to maintain cash reserves equal to 5 % of DTL which can go up to 15 % under section 42 (1). Those, which are not included in the 2

nd

schedule, are called the non-scheduled

banks. The number of take- oven/liquidation as also in some cases up gradation into scheduled banks category.

Introduction to Finance Finance is the handmaiden of economic growth Institutions like banks, which command huge financial resources, can play a crucial role in shaping the economy of a country by judiciously deploying their funds over such important activities as would lead to an overall economic growth. A bank¶s offer compared to a dam and the money lying scattered with individuals and institutions in society to the water running its own course without any direction. Money is collected by banks by way of deposits, and

8



2009-2011

from this fund money is turned back to the community in the form of loans. Thus, banks act as a vital link between the savers and the needy.

India is striving to transform herself into an industrially developed country based on a rural and agricultural economy which should not only be able to feed the millions of her populations but also to produce raw material for her mills. This can be done by bringing about the necessary change from an agrarian economy to a diversified one. Banks have crucial role to play not only in the achievement of this objective but more significantly in determining how speedily and efficiently it is achieved. Since the nationalization of the fourteen major banks, the banking industry has developed adequately enough to meet the changing needs, both corporate and personal. Banks now offer a wide range of financial services in an extensively varied environment. The complex task of managing these changes and their consequences requires that banker should be more professional than ever before.

The Business of Banking Banking has been understood differently at different times and indifferent countries. In India, the earliest legislation that dealt with the business of banking was the Indian Companies Act 1913. The Banking Regulations Act came in 1936. Under this Act all companies having their principal business, accepting deposits from the public were classified as banks. Hence between 1936 and 1942 even trading and industrial concerns accepting deposits were classified as banks, if accepting such deposits was their principal business. The Government of India passed a compressive Banking Regulation Act in 1949. Accordingly a banking company was defined as a company which carries on the business of banking that is to say accepting for the purpose of lending or investing deposits of money from the public, repayable on demand of otherwise, and withdrawal cheque, draft, order of otherwise. The study group reviewing legislation affecting banking is of the opinion that ³banking should be abroad based.´ The definition given by the Banking Regulation Act 1949 is certainly not exhaustive, and it needs certain alterations for the sake of simplification. The purpose of accepting deposits is strictly not relevant for the definition of banking, through it is basic for banking regulation. There is no need to distinguish between

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2009-2011

³loans´ deposits´ in the context of banking regulation. The definition of banking should cover all forms of deposits from the public, and banking regulation should take into its ambit all the different types of banking.

Functioning of a Bank Functioning of a Bank is among the more complicated of corporate operations. Since Banking involves dealing directly with money, governments in most countries regulate this sector rather stringently. In India, the regulation traditionally has been very strict and in the opinion of certain quarters, responsible for the present condition of banks, where NPAs are of a very high order. The process of financial reforms, which started in 1991, has cleared the cobwebs somewhat but a lot remains to be done. The multiplicity of policy and regulations that a Bank has to work with makes its operations even more complicated, sometimes bordering on illogical. This section, which is also intended for banking professional, attempts to give an overview of the functions in as simple manner as possible.

Banking Regulation Act of India, 1949 defines Banking as "acc epting, for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawal by cheques, draft, order or otherwise."

Deriving from this definition and viewed solely from the point of view of the customers, Banks essentially perform t he following functions, 1. Accepting Deposits from public/others (Deposits). 2. Lending Money to public (Loans). 3. Transferring money from one place to another. 4. Acting as trustees. 5. Keeping valuables in safe custody. 6. Government business.

But do these functions constitute banking? The answer must be a no. There are so many intricacies involved in the activities that a bank performs today, that the above list must sound very simple to a seasoned banker. Please click on the activity to see what a Bank has to do to give the above services to its customers. These activities can

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also be described as back office banking. Banks are organized in a linear structure to perform these activities at the base of which lies a Branch. The corporate office of a bank is normally called Head Office

Forms of Advances Advances by commercial banks are made in different forms such as loans, cash credit, overdrafts, bills purchased, bills discounted etc. These are generally short- term advances. Commercial banks do not sanction advances on a long-term basis beyond a small proportion of their demand and time liabilities. They cannot afford to lock up their funds for long period. Hence a considerable percentage of their advances is repayable on demand.

Advances may be granted against tangible security or in special deserving cases on an unsecured/clean basis. 1. Loans

7. Bridge loan

2. Overdrafts

8. Participation loan

3. Cash credits

9. Loans to small borrowers

4. Temporary Overdrafts

10. Hire purchase and leasing finance

5. Clean advances

11. Bills purchased

6. Term loans

12. Bills discounted

Loans Bank loans are called indirect agents of production. For achieving a sustained rate of economic growth over a long period, greater efforts have to be made to increase agricultural and industrial production, and in this increased production, bank credit plays a significant role. But banks in India are not free to employ their funds n an arbitrary manner, while lending, they will have to keep in mind factors like a desirable balance among liquidity, safely and profitability, legal and statutory requirements, socio-economic conditions of the country, priorities set by economic planners, and so on. Banks try to achieve this objective through maintaining a particular relationship

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between their assets and deposits. As such, between advances and deposits in the form of advances among as many different types of securities and over as wide an areas as possible, and they avoid granting too large a proportion of their advances to one party or to a single industry. While these factors limit banks capability to lend, they are, nevertheless expected to grant credit according to the changing economic scene conditioned by the programs and priorities of different Five Year Plans.

In a loan account the entire amount is paid to the debtor at one time, either in cash or by transfer to his current account. No subsequent debit ordinarily allowed except by way of interest, incidental charges, insurance premiums, expenses incurred is provided for by installment without allowing the demand character of the loan to be affected in any way. There is usually a stipulation that in the event of installment remaining unpaid, the entire amount of the loan will become due. Interest is charged on the debit balance, usually with quarterly rests unless there is an arrangement to the contrary. No cheque book is issued. The security may be personal or in the form of shares, debentures. Government paper, immovable property, fixed deposit receipts, life insurance policies, goods etc.

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Bank of Baroda

Bank of Baroda was founded by Maharaja Sayajirao Gaekwad of Baroda on July 20, 1908 with a paid up capital of Rs 10 lakhs. Since then bank has traversed an eventful and successful journey of almost 103 years. Today, Bank of Baroda has a network of 3211 branches including 80 overseas branches spread over 25 countries. In mideighties, the Bank of Baroda diversified into areas of Merchant Banking, Housing Finance, Credit Cards and Mutual Funds. In 1995 the Bank raised Rs 300 crores through a Bond issue. In 1996 the Bank tapped the capital market with an IPO of Rs 850 crores.

Bank of Baroda took the lead in shifting from manual operating systems to a computerized work environment. Today, the Bank has 1918 computerized branches, covering 70% of its network and 91.64% of its business.

Bank of Baroda gives high priority to quality service. In its quest for quality, the Bank has secured the ISO 9001:2000 certifications for 15 branches.

In 2010, Bank of Baroda became the 3rd Largest Bank in India when it over took ICICI Bank. Total Business crosses Rs 4,00,000 crores.

Centenary Year

On the 20th July 2007, the Bank entered its Centenary year. In its quest to become a world-class bank with global best practices, the Bank is, now, well poised to take-off with the most modern business and HR systems and processes. The Bank has already initiated myriad HR interventions with special thrust on internal talent discovery, upgrading the managerial skills through training, and improving the motivational level of the employees of the bank

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2009-2011

Mission Statement ³To be a top ranking National Bank of International Standards committed to augmenting stake holders' value through concern, care and competence´.

A Saga of Vision and enterprise It has been a long and eventful journey of almost a century across 25 countries. Starting in 1908 from a small building in Baroda to its new hi-rise and hi-tech Baroda Corporate Centre in Mumbai, is a saga of vision, enterprise, financial prudence and corporate governance.

Achievements

1) Business Performance

The Bank continued scaling new heights of business size recording global business growth of 24.07 per cent during 2007-08. Its domestic deposits increased by 22.82 per cent and domestic advances rose by 25.63 per cent. During 2007-08, the Bank¶s overseas business grew by 24.56 per cent primarily due to a substantial increase of 35.70 per cent in overseas advances. The overseas business contributed 20.0 per cent to total business and 23.8 per cent to net profit. The level of net profit at Rs 1,435.52 crore for the year 2007-08 reflected a robust year-onyear growth of 39.9%. On the front of asset quality management, while the Gross NPA in domestic operations stood at 2.18 per cent at end-March 2008, the same for Overseas Operations was just 0.55 per cent. The global Net NPA was pegged at 0.47 percent by the year-end 2007-08 in line with the promise given by the Bank to its stakeholders. y

Total Business (Deposit+ Advances) increased to Rs 2,58,735.45 crore reflecting a growth of 24.07%.

14



y

2009-2011

Gross Profit and Net Profit were Rs 3,028.55 crore and Rs 1,435.52 crore respectively. Net Profit registered a growth of 39.85% over previous year

y

Net NPAs to Net Advances declined from 0.60% last year to 0.47%. Objective

of Bank of Baroda

1. Special focus on improving ³relations´ with the existing corporate customers as well as efforts to add new quality customers to the Bank¶s Book.

2. Thrust on business process reengineering to reduce the ³transaction costs´. 3. A dedicated effort to add 2.5 to 3.0 million quality customers to Bank¶s book in FY09 and in subsequent years.

4. By end of the current financial 2010-11, the Bank is targeting 54 more branches for ISO 9001:2000 quality certification.

Global Presence of Bank of Baroda

Bank of Baroda Building in Dubai

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2009-2011

Branch Network (as of 22/06/2010)

International Operations

Wide Global Network Bank of Baroda started its overseas journey by opening its first branch way back in

1953 in Mombassa, Kenya. Since then the Bank has come a long way in expanding its international network to serve NRIs/PIOs and locals. Today it has transformed into India's International Bank .

It has significant international presence with a network of 80 offices in 25 countries including 43 branches/offices of the Bank, 27 branches of its seven Subsidiaries and 4 Representative Offices in Malaysia, China, Thailand & Australia. The Bank also has one Joint Venture in Zambia with 9 branches.

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2009-2011

The Bank has presence in world's major financial centers i.e. New York, London, Brussels, Dubai, Hong Kong, and S ingapore. The "round the clock around the globe" , Bank of Baroda is further in the process of identifying/opening more overseas centers for increasing its global presence to serve its 33 million global customers in still better way. Recently, it upgraded its operations in Guangzhou, China from Representative Office to a branch on 2nd August 2008. It also has plans to upgrade its Representative Offices in Australia and Malaysia. It has further plans to establish overseas offices in Houston (USA), Canada, New Zealand, Qatar, Saudi Arabia, Mozambique, Russia etc. Besides this, it has plans to extend its reach in existing countries of operations in UK, UAE, Uganda, Kenya and T&T etc.

Customers

Competitors

y

Individual

y

State Bank of India

y

Stock Broking Entities

y

Punjab National Bank

y

HUF (Hindu Undivided Family)

y

Union Bank of India

y

Proprietorship Concerns

y

HDFC

y

Public Limited Companies

y

ICICI

y

Private Limited Companies

y

Standard Chartered Bank

y

Corporate Partnership Firms

y

HSBC

Strengths y

It has diversified customer profile, including Blue chip companies, small and medium sized companies, retail customers, self-help groups, and high net worth individuals.

y

It has strong brand equity and a wide customer base of over 5 million.

y

Bank of Baroda¶s financial strength has been recognized by international credit rating agencies.

y

A strong capital base ensures that it is well placed for growth of business.

y

The bank, which has consistently earned profit since its inception, has committed and competent human capital to power its aggressive growth plan.

17



The Values of the Bank

2009-2011

Future of the Bank

y

Management Team - The core strength of Bank

Bank of Baroda looks confidently

y

Technology Technology and T ech Initiatives

into future to face & thrive in

y

Strategic Initiatives

intense competitive environment

y

Corporate Banking and Credit

that is emerging in global era.

y

The Bank of Baroda Family

Product Profile

Wholesale Banking

Deposit Products

SME Banking

Loan Products

Retail Banking

ATM / Debit Cards

Rural/Agri Banking

Internet Banking

Wealth Management

Rapid Funds2India

Demat

Baroda e-Trading

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Objective

2009-2011

of the Study

The main objective of this study is to analyze different types of home loans and education loans offered by Bank of Baroda and also identify the competitive advantage of Bank of Baroda over its competitors and peer banks in retail loan segment in India. This study also covers the recent transformations taken place in retail loan segment in recent past in both Public sector and Private sector financial institutions in India. During this study, I came to know about different types of home loans and education loans and the procedure involved in the approval or rejection of the loans in Bank of Baroda. Following are the other objectives that are also involved in the successful completion of the project assigned. a ssigned. y

To know the scenario of home loans and education loans in India.

y

To know different types of loans offered by Bank of Baroda and its competitors in home loan and education loan category.

y

To know the procedure followed by different financial institutions during the sanction of loans.

y

To know various parameters that play major role in the approval or rejection of loan loa n applications.

y

To know the differences in rate of interest and other fees charged by Bank of Baroda and other financial institutions in retail loa n segment.

y

To know the concessions in interest rates and charges and penalties, value added services and benefits offered by various financial institutions in India.

y

To know the RBI directives and ta x benefits that is allowed by the Govt. of India to the applicants in home loan a nd educational loan category.

y

To know both the financial institution¶s point of view and also the customer¶s point of view.

y

To know the advantages and drawbacks in the loan products provided by Bank of Baroda over other financial institutions in India.

Thus, all these objectives helped to complete the study successfully.

19



2009-2011

Work Done a.Online a.Online Automation of Customer Data (LAPS) LAPS (Lending Automation Processing Software ) is used to automate the customer profile i.e., personal details, employment details, income details, CIBIL report, property details etc. Based on the details entered, the software provides a rating to the customer. This rating is used to decide whether to approve the loan requested by the customer or not.

Procedure for applying Retail Loans Application

CIBIL Reports

Pre Credit

LAPS

Inspection

Deviation

Appraisal

Approval

Disbursal

a. Application First of all, the applicants have to make an application to the concerned bank in which he/she wants to get loan. Also need to submit the documents that are requested by the bank as per the needs of the loan.

20



2009-2011

b. CIBIL ( Credit Information Bureau (India) Limited ) Reports CIBIL¶s aim is to fulfill the need of credit granting institutions for comprehensive credit information by collecting, collating and disseminating credit information pertaining to both commercial and consumer borrowers, to a closed user group of Members. Banks, Financial Institutions, Non-Banking Financial Companies, Housing Finance Companies and Credit Card Companies use CIBIL¶s services to check the credibility of the customer in order process his request (i.e., loan process, credit card approval or any sanctioning any of company¶s products to the customer). c. Pre Credit Banks or financial institutions will verify the all documents submitted by the customer for loan and the customer¶s income, liabilities, valuation of personal properties and ability to repayment of the loan. Based on this

report, the Pre Crediting Officer suggests deviations (if any) in interest rate, repayment period, loan amount, additional security etc. regarding the application of the customer in order to approve the loan. d. Deviation In this phase, the Loan Officer suggests deviations (if any) in the loan amount, repayment tenure, processing charges, security or interest rates by considering the Pre Credit Report of the customer prepared by Pre Crediting Officer of the bank. This is also an important phase in the loan procedure. Branch Manager can also suggest deviations at any point of time during loan sanction process. e. Online Automation of Customer Data (LAPS) LAPS (Lending Automation Processing Software ) is used to automate the customer profile i.e., personal details, employment details, income details,

21



2009-2011

CIBIL report, property details etc. Based on the details entered, the software provides a rating to the customer. f. Inspection (Residence, Work Place, P ersonal Property) Based on the documents submitted about the residence, employment, property etc. are being inspected by a loan officer of the financial institution. g. Appraisal Based on the inspection report submitted by the loan officer, customer¶s credibility will be appraised which is a major phase in loan sanctioning procedure. h. Approval Based on the rating given by the LAPS and the appraisal report, senior manager of the branch or any other employee of equivalent designation will decide whether to approve the loan or not. i. Disbursal Once the loan has been approved, the loan amount will be disbursed based on the requirement of the customer. Based on the nature of the application, additional documents may be required during disbursement of the loan amount.

22



2009-2011

Comparative Study of Housing Loan Applicants Name Age, Marital Status & Qualification Employment Details (Salaried/ Self Employed) CoApplicant Income Details

Lokesh Kumar Singh 30Yrs, Graduate & Single

Amit Kumar 28Yrs, Graduate

Middle Management, Proprietor, Proprietor, Indian Oil Corporation Own Business / Self Own Business / Self Ltd., Employed Employed West Bengal. Govt. Public Sector None Yes None Gross Income, Rs73,845 Deductions, Rs16,744

No Relationship with Bank Loan Details Rs20L @ 8.75% (240Months), Flexible (Loan Amt. ROI @ R OI (Tenor)) Purchase of Flat Purpose Property Rs30.08L Cost EMI EMI Rs18,214 based on Proposed Loan Amount EMI Rs27,563 repayment capacity of borrower EMI Within Limit Limit Has not changed Mobility of Individual¶s location in past 3 years Location 0 No. of Dependents Income Tax Returns Proof of Income of Borrower

23

Bharat Singh 29Yrs, Graduate & Married

Gross Income, Rs366,66 (Applicant) Rs39,027(CoApplicant) Deductions, Rs5486 (Applicant) Rs2000 (Co-Applicant) Yes (Short Term)

Gross Income, Rs14194 Deductions, Rs1560

Rs34L @ 9.50% (180Months), Flexible ROI

Rs5L @ 9.00% (300Months), Flexible ROI

Purchase of Flat Rs42.40L

Purchase of Old Flat Rs13.69L

EMI Rs35,504 based on Proposed Loan Amount EMI Rs37,930 repayment capacity of borrower EMI Within Limit Limit Has not changed location in past 3 years

EMI Rs4,112 based on Proposed Loan Amount EMI Rs5,537 repayment capacity of borrower EMI Within Limit Limit Has not changed location in past 3 years

3

2

Income Tax Returns

Income Tax Returns

Yes (Short Term)



Ratings

Score

Loan Status

2009-2011

1. Net worth to Loan 1. Net worth to Loan 1. Net worth to Loan Ratio ± 0.70 Ratio ± 2.92 Ratio ± 3.45 2. Net Annual Income 2. Net Annual Income 2. Net Annual Income of the Borrower ± of the Borrower ± of the Borrower Rs6,85,212.00 Rs8,18,484.00 Rs1,51,608.00 3. Fixed Obligations to 3. Fixed Obligations to 3. Fixed Obligations to Income Ratio ± 0.47 Income Ratio ± 0.77 Income Ratio ± 0.40 4. Marketability of 4. Marketability of 4. Marketability of Property (Home Loan ± Property (Home Loan ± Property (Home Loan) Very Good Good ± Very Good 5. Guarantor¶s Net 5. Guarantor¶s Net 5. Guarantor¶s Net worth to Loan Ratio ± worth to Loan Ratio ± worth to Loan Ratio ± 0.00 0.00 0.00 6. Loan to Value Ratio 6. Loan to Value Ratio 6. Loan to Value Ratio ± 0.66 ± 0.80 - 0.36 7. Number of Joint 7. Number of Joint 7. Number of Joint Applicants ± 0 Applicants ± 1 Applicants ± 0 8. Housing Loan 8. Housing Loan 8. Housing Loan Purpose Category ± Purpose Category ± Purpose Category ± Purchase (New Purchase (New Purchase (Old construction construction construction 9. Stability of Income 9. Stability of Income 9. Stability of Income Income has been Income has been Income has been steadily increasing over steadily increasing over steadily increasing last 3yr last 3yr over last 3yr Obtained ± 115 Obtained ± 79 Obtained ± 98 Cut-Off -96 Cut-Off -96 Cut-Off -96 Grading ± HL6 Grading ± HL10 Grading ± HL 8 Sanctioned Rejected Sanctioned

Key Terms 1. Net Worth to Loan Ratio =

Total Income ± Total Deductions Loan Requested

2. Fixed obligations to Income Ratio =

3. Loan to Value Ratio =

Total Liabilities Total Income

Loan Requested Value of the Property

4. HL ± Housing Loan

24



2009-2011

Documents required to Process Loan Application For General Applicant: y

Passport size Photograph

y

Age Verification Certificate (school/college/leaving certificate or mark sheet, PAN card. Election Identity card, Passport, Driving License, Ration Card, Birth Certificate.)

y

Bank Statement for past 36 months or salary Account and any other operating A/C.

For self Employed: y

Computation of Income, Balance sheet, the Profit and Loss A/C along with schedules of company and individuals for past 3 years duly certified by C.A.

y

Memorandum/Article of Association or partnership as applicable.

y

Brief profits of the company.

y

A/C continuity proof for the last one year.

y

Office address proof.

y

Residence address proof.

y

Qualification certificate for self-employed professionals.

y

Sale deed/ Agreement of sale. (In case of Housing Loan)

y

Copy of approval plan if applicable. (In case of Housing Loan)

y

Letter of allotment of Housing Board or society. (In case of Housing Loan)

y

Permission for construction if applicable. (In case of Housing Loan)

y

Valuation of property which is to be financed. (In case of Housing Loan)

y

In case of agricultural land conversion into ± copy of relative order.

y

NOC under the provision of ULC Regulation Act, 1976 in original.

For Salaried: y

Latest salary certificate/sleep showing all the deduction of t he employer.

y

Four month¶s salary statements required in case of variable salary

25



2009-2011

y

Latest form 16/ I.T. Returns

y

Appointment/Increment letter from the employer for annual benefit to be considered.

Note y

More or less additional documents may be required as per the banks rules.

Terms related to Retail Loans EMI: Equated Monthly Installment till the loan is paid back. It consists of a

y

portion of interest and the principal. Floating Rate of Interest: Rate of interest which varies with the market

y

lending rate. This means that there is an element of risk of paying more than budgeted amount in case the lending rates goes up. Monthly Reducing Balance: In this system interest reduces monthly with

y

repayment of Principal amount. Annual Reducing Balance: In this system principal is reduced annually at the

y

end of the year so you end up paying interest even for the portion of principal you have actually paid back. Fixed Rate of Interest: Rate of interest remains unchanged throughout the

y

period of the loan.

y

Processing Charge: It's a fee payable to the on applying for the loan.

y

Prepayment Penalties: When loan is paid back before the agreed term of the

loan, then banks/ institutions charge penalty for the prepayment.

y

Commitment Fee: Some institution charge commitment fee in case the loan

is not availed within a stipulated period, after it is processed a nd sanctioned.

y

Miscellaneous Cost: It is quite possible that some lenders may charge

documentation or consultant charges.

26



2009-2011

Retail Loans

A wide range of solutions for your financial needs.

Bank of Baroda offers a wide range of retail loans to meet your diverse needs.

Whether the need is for a new house, child's education, purchase of a new car or home appliances, our unique and need specific loans will enable you to convert your dreams to realities.

Key Products

Housing Loan

Housing Loans to NRIs / PIOs

Home Improvement Loan

Loan Against Future Rent Receivables

Mortgage Loan

Advance Against Securities

Education Loan

Baroda Career Development Loan

Auto Loan

Two Wheeler Loan

Loan to Doctors

Traders Laon Loan to Pensioners

Personal Loan

Baroda Ashray (Reverse Mortgage Loan)

Loan for financing Individuals for subscription to Public Issues /IPO

27



2009-2011

Housing Loan - Bank of Baroda 1. Baroda Housing Loan - Be a Proud Home

Owner

Bank of Baroda invites you to be a proud owner of your own home and offers easy

Home Loan with a number of conveniences to suit your budget.

Home Loan is available for, y

Purchase of new / old dwelling unit.

y

Construction of house.

y

Purchase of plot of land for construction of a house.

y

Repaying a loan already taken from other Housing Finance Company / Bank.

y

Repayment period up to 25 years (floating rate option).

2. Baroda Home Improvement Loan Bank of Baroda brings to you a unique loan pr oduct. A loan for Repairs / Renovations / Improvement / Extension of Home and for Fur niture, Fittings & Fixtures. Key Benefits y

Loan available for repairs / renovation / improvement / extension of the existing house.

y

Loan available for purchase of furniture / fixtures / furnishing / other gadgets such as fans, geysers, air conditioners etc. required, to: o

o

28

Our existing housing loan borrowers New borrowers New Delhi Institute of Management ± Bank of Baroda


2009-2011

Education Loan - Bank of Baroda

Education is the most important investment one makes in life. Higher studies and specialization in certain fields call for additional financial support from time to ti me. Whether you are planning school education (nursery to standard XII) of your child, pursuing a graduate or post-graduate degree, the Bank of Baroda Education Loans , can help finance your ambitions and goals. Following are the loan options available: 1. Baroda Vidya Bank of Baroda presents a one of its kind finance option for parents of

students pursuing school education. These loans are available for studies from Nursery to Senior Secondary School. 2. Baroda Gyan A loan product specially designed for students pursuing Graduation, Post Graduation, Professional & Other courses in India. Bank of Baroda extends a helping hand to energize your studies and promote education of the youth. 3. Baroda Scholar Bank of Baroda presents financial assistance to students going abroad for

Professional / Technical studies. The loan offering is designed to empower you with the financial capability to realize your dreams... Achieve your goals... Reach out to the maximum limits...

29



2009-2011

4. Baroda Career Development Gainfully employed persons intend to pursue higher education, vocational courses, trainings, pilot trainings, skill up gradation, diploma or degree courses offered in aviation, hospitality and travel management, executive development etc. in India / abroad. To help the future management leaders acquire higher specialized managerial skills and dominate the global arena, Bank of Baroda brings to you Baroda Career Development, a unique loan fa cility for working persons.

30



2009-2011

RBI Directive for Home Loans The Reserve Bank of India (RBI) has in the latest directive asked the Indian banks to be more "fair and transparent" while signing their agreements with the consumers. This has come following complaints from various consumer sections regarding home loans. It has emphasized on the fact that while giving a home loan, the banks should not tie their loans with their own prime lending rates (PLR) which often results in pro-bank and against consumer interest. Households should get credit counseling before signing any loan agreement.

y

In such case, banks should give credit counseling to customer before giving a loan. Any non-governmental organization can also give independent credit counseling to small borrowers. Consumers often complain of not receiving benefits of falling interest rates as

y

banks tie their floating rate loans with its PLR and even when rates fall, the banks kept the PLR unchanged. But when interest rates are hiked, the banks increase the benchmark rate, thus making customers pay a higher rate and consequently increase the number of EMIs too. The RBI has asked the banks to mend rules for the same. y

Individual borrowers should ask for the exact tenure and EMI while taking a fixed rate loan. The RBI has also resolved to look into all consumer complaints if it is bought to the regulator's notice.

y

The IRDA (insurance regulator) has powers to take action against banks if a customer feels cheated while buying an insurance product. On its regulatory role, the RBI is trying to maintain a balance between the extent of freedom granted to the banks and the objectives of governance.

y

RBI has made it mandatory for all banks - including private and foreign banks - to offer a passbook to their customers with the address and telephone number of the nearest branch.

31



y

2009-2011

Customers have often been harassed by banks' call centers where there is no accountability of the query made. The "do not call" registry has also been flouted by banks as customers are bombarded with unnecessary product offerings. The RBI has directed the Indian Banks' Association to come out with a single "do not call" registry or when a customer adds his name to a single bank registry it should then stop unsolicited calls from all banks.

y

On rising credit card frauds and wrong statements given by the banks, the RBI has asked the customers to approach the ombudsman to redress their problems. This way the RBI feels would inculcate more consumer friendly practices among Indian banks.

Tax Benefits There are certain tax benefits for the resident Indians based on the principal and interest component of a loan under the Income Tax Act, 1961. It may help one get tax benefit up to Rs.50, 490 p.a. (approx). if interest repayment of Rs.1,50,000 p.a. is paid. In addition to this, one also is eligible for getting tax benefits under section 80C on repayment of Rs.1, 00,000 p.a. that further reduces the tax liability by Rs.33.660 p.a. These deductions are available to assesses, who have taken a loan to either buy or build a house, under Section 24(b). However, interest on borrowed capital is deductible up to Rs150, 000 if the following conditions are fulfilled: y

Capital is borrowed for acquiring or constructing a property on or after April 1, 1999.

y

The acquisition and construction should be completed within 3 years from the end of the financial year in which capital was borrowed.

y

The person, extending the loan, certifies that such interest is payable in respect of the amount advanced for acquisition or construction of the house

y

A loan for refinance of the principle amount outstanding under an earlier loan taken for such acquisition or construction.

32



2009-2011

If the conditions stated above are not fulfilled, then the interest on borrowed capital is deductible up to Rs30, 000 though the following conditions have to be satisfied: Capital is borrowed before April 1, 1999 for purchase, construction,

y

reconstruction repairs or renewal of a house property. Capital should be borrowed on or after April 1, 1999 for reconstruction,

y

repairs or renewals of a house property. If the capital is borrowed on or after April 1, 1999, but construction is not

y

completed within 3 years from the end of the year, in which capital is borrowed. In addition to the above, principal repayment of the loan/capital borrowed is eligible for a deduction of up to Rs1,00,000 under Section 80C from assessment year 2006-07.

Terms and conditions for availing Tax benefits on Home Loans 1. Tax deductions can be claimed on housing loan interest payments, subject to an upper limit of Rs1, 50, 000 for a financial year. 2. An additional loan for extension/improvement to the same house and the individual's deductions on the existing loan are less than Rs1, 50,000; he can claim further benefits from the additional loan taken, subject to the upper limit of Rs1, 50, 000 for a financial year. 3. Tax benefits under Section 24 and deduction under section 80C of the Income Tax Act can be claimed only when the payment is made. If an individual fails to make EMI payments, he cannot claim tax benefits for the same. 4. According to the Income Tax Act, tax rebates can only be claimed by the loan applicant. 5. The interest on home loans taken for repairs, renewals or reconstruction, also qualifies for the deduction of Rs 150,000. 6. A husband and wife, both of whom are tax-payers with independent income sources, get tax deduction benefits, with respect to the same housing loan; to the extent of the amount of loan taken in their own respective name.

33



2009-2011

7. If an individual buys a house and sells it within the same year or after 3 years, and if any profit is made, then a capital gains tax liability arises on the same for which the individual is liable to pay short-term capital gains tax since the sale took place in the same year. But in case, if the sale had taken place after 3 years, then a long-term capital gains tax liability would have arisen. 8. On being proved that the home loan is simply an arrangement between the loan-seeker and the builder or with a third party for the purpose of claiming tax benefits, then tax benefits will not be allowed and benefits, previously claimed, will be clubbed to the income a nd taxed accordingly. 9. Tax benefits on interest on housing loans are allowable only for the original loan and according to Section 24 (1), tax benefits can also be availed for a second loan taken to repay the first loan but not for subsequent loans. This means that if you have already availed of one loan to refinance the original loan and now want to avail a third loan to refinance the second loan, tax rebate on interest payments will not be permissible.

34



2009-2011

Home Loans in India You'll soon realize that home loan companies do exist, and they continue to exist to provide Basic Home Insurance as well as Home Loan Information including Home Loan Resources because of the very people who desire to own a house the soonest possible time - like you! It is definitely one of the major things that one can board on in his / her lifetime. The bad news is: however is that not everyone in this globe is like you, loaded enough (financially, of course) to be able to build a house as soon as he wants to. Whether you are Non Resident Indian or Resident of India, and you are thinking to start your journey of buying a new house, looking to move to a new house, investing in property or are looking forward to refinance, Consider answering these questions to yourself: y

Which type of home loan should I prefer?

y

What interest rate and repayment period will be affordable by me?

y

Will it be the best scheme that will be fitting my budget?

y

Can any insurance plan cover for an unpaid monthly due?

y

Is there a fine or penalty or even some reward as well if the whole amount of loan is paid ahead of the due date?

These are just a dash of the questions to be answered when considering taking the plunge« into the loan journey. The different home loan types are hereby presented to you to make your journey that more smoother or step by step, safer and comfortable. Yet, Got a fix on fixed rate or variable rates, offset accounts, lines of credit or bridging loans!!

35



2009-2011

With so many real estate¶s sites coming up in Indian market, finding an ideal house isn't that big issue nowadays, when you can virtually s ee all across the home you need to purchase by the various real estate simulation programs and videos available, but you still need to purchase it, right? - To really say "own" it. A home loan, also popularly identified as a mortgage, is an easier financial option to own a house. Once you've decided to endeavor on a home loan, there are so many things that you need to be informed with. Not only is it going to be an emotional experience, it is also going to be a very informative monetary journey, as you will be dealing with the whole caboodle of the mortgage process along the way. There are thousands of home loan companies waiting to provide you with your financial needs. Part of the success of this whole financial move is partly in your hands, the greater part relies on the efficiency of your chosen mortgage company. Home Loan Types

Owning a piece of land or property is a lifetime dream for every individual. There are many home loans provider in the market to make your dream come true. But before you opt for any home loan provider, you need to consider certain factors related to property that you are interested in buying and also about the salient features offered by a home loan provider and also study some Home Loans and Home Insurance FAQs which helps in applying a Home Loan in India. And the most important thing is you should know about each and every term related with Home Loans before applying for a Loan. It is always a dvisable to consult a home loan expert or consultant before applying for a home loan or purchasing a property. You can take different types of home loans like Home Purchase Loans: These are the basic forms of home loans used for

y

purchasing of a new home. y

Home Improvement Loans : These loans are given for implementing repair

works, healing and renovations in a home that has already been purchased. y

Home Construction Loans: These loans are available for the construction of

a new home.

36



y

2009-2011

Home Extension Loans: These loans are given for expanding or extending an

existing home. For eg: addition of an extra room etc. y

Home Conversion Loans: These loans are available for those who have

financed the present home with a home loan and wish to purchase and move to another home for which some extra funds are required. Through home conversion loan, the existing loan is transferred to the new home including the extra amount required, eliminating the need of pre-payment of the previous loan. y

Land Purchase Loans: These loans are available for purchasing land for both

construction and investment purposes. y

Bridge Loans: Bridge loans are designed for people who wish to sell the

existing home and purchase another one. The bridge loans help finance the new home, until a buyer is found for the home. Why take a Home Loan?

What's an average middle class Indian's most c herished dream? Purchasing and moving into a dream house would generally rank among the top three things on the wish list of most people. After all it¶s what been proved by Maslow¶s Law of Hierarchy as well. That entire house hunting every few years, grumpy landlords, killing rents would be a thing of the past. Hey, you even get to use nails to hang your favorite paintings and pictures. Don¶t you??? Taking a home loan nowadays has become very simpler. The RBI has been regularly slashing interest rates, with the result that housing finance loans that came at an interest rate of 16.5% to 18% eight years ago are now available at 9.50% to 14.50% or lower. Each year the Finance Minister's generosity during the Budget seems to be solely concentrated for the housing sector and construction sector. The Budget 2000's allowed interest payment up to Rs1lakh and principal payment of Rs20, 000 to be exempted from income tax. To top it all, the Housing Finance Companies (HFCs) are aggressively wooing customers. Now, when the sun shines, it¶s the best time to make hay. Isn¶t it?

37



2009-2011

Comparative Analysis of PSU Banks ± Home Loan Products Bank

Bank of Baroda

Products

Type Baroda Home Loan

Interest (P.a.) 9.5% to 10.75% (Fixed) 8.5% to 9.75% (Floating) 10.5%

Baroda Home Improvement Loan Baroda 14.5% Home Loans to NRIs/PIOs Up to Rs1Cr

Max. Amount

Tenure

Processing Charges

Margin

38

State Bank of India

Bank of India

Type Interest (P.a.) SBI HI- 8% to 10.5% FIVE (Fixed) (<=Rs5L) 9%(Floating) SBI Easy 8% to 11% (<=Rs50L) (Fixed) 9.25%(Floating) SBI 8% to 11% Advantage (Fixed) (>Rs50L) 10%(Floating)

1. Construction 2. Purchase 3. Repairs

No Upper Limit

Construction & Purchase ± Rs3Cr Repairs ± Rs20L, Purchase of a PlotRs30L, Purchase/Acquire of House Hold Rs1L Ranges Up to 20Yrs

Home Loan - 25Yrs Home Improvement Loan 10Yrs Up to Rs20L, 0.35% of the Loan Above Rs20L, 0.4% of the Loan

15Yrs ± 25Yrs

Up to Rs5L - Rs1K, Rs5L to Rs10L - 2K, Rs10L to Rs20L-Rs5K, Rs20L to Rs50L - Rs7K, Rs50L to 1Cr - Rs8K, Rs1Cr to 5Cr - Rs10K, Above Rs5Cr - Rs20K

Up to Rs30L, 0.55% of Loan Amt.(Min. Rs3K, Max.-10K) Rs30L-Rs50L, Rs15K Rs50L-Rs1Cr, Rs20K Rs1Cr - Rs3Cr, Rs50K

Home Loan, Up to Rs20L ± 20% Above Rs20L ± 15% Home Improvement Loan, 25% of the Project Cost

Up to Rs75L ± 20% Above Rs75L ± 25%

Up to Rs10L, 15% Cost of the Property, Above Rs10L, 20% Cost of the Property



2009-2011

1. Minimum age must be 21 1. The applicant should be at years. Age of the borrower least 18Yrs old from the date of plus repayment period should loan sanction. not be beyond retirement age 2. The loan applicant should or 65 years whichever is have a source of regular earlier income. 2. Must be employed/self- 3. In case of NRIs the applicant employed or having a should be holding a legitimate business unit and staying Indian passport or a legitimate abroad at least for 2 years work permit and should have 3. Must have minimum gross been employed overseas for at annual income equivalent to least 2Yrs. Rs.5Lacs per annum.

Eligibility

Interest Rates

Fixed

Up to Rs30L, Fixed 8% to 11% 9.5% to Floating 9% to 10% 10.5% Above Rs30L, 10.25% to 10.75% Floating Up to Rs30L, 8.5% to 9% Above Rs30L, 9.25% to 9.75% An equitable mortgage of the 1. Equitable mortgage of the Security housing property and / or property. other suitable securities. 2. Other tangible security of adequate value like NSCs, Life Insurance policies etc., if the property cannot be mortgaged. to Rs20L ± No 1. The bank charges a penalty Prepayment Up Prepayment Penalty (If Closed for prepayment of the home Penalty from own sources) loan if the loan is pre-closed In case of full prepayment or even before the half of the foreclosure (other than from genuine loan tenure. own sources) fees will be 2. There is no provision of charged at 0.5% for each year penalty for bulk payments if the of the residual period subject loan scheme is not to max. 2%. discontinued.

39

1. Salaried employees, Professionals like Doctors, Lawyers, Engineers, Chartered Accountants, Selfemployed persons. Requests are also considered in special cases from Group of individuals, NRIs, PIOs, HUF, Prop. Firm, Partnership firms and corporate. Fixed No Floating 8.75% to 11%

1. Equitable st Mortgage (1 Charge) on land/flat/house. 2. 3rd Party Guarantee. No



1. 0.25 bps concession in rate of interest is available to employees of preferred organizations and group borrowers. 2. Hassle free processing of loans as majority of proposed housing societies is approved by the bank. 3. One of the Oldest Banks in India and Customer Trust. 4. One of the largest and most widespread networks of branches across in India. 5. Easy and Flat EMI Repayment Option. 6. Interest charged on the daily reducing balance. 7. Free Personal Accident Ins. Cover for the borrower.

USPs

2009-2011

1. No Application or Administration Charges. 2. Loans can be repaid up to t he age of 70Yrs. 3. Only Bank to offer Home Loans @ 8% p.a. ROI (for 1st Year). 4. Low Processing Charges. 5. No Upper Limit on the Loan. 6. Interest charged on the daily reducing balance.

1. Interest is calculated on daily balance basis. 2. No Prepayment Penalty. 3. Free Personal Accident Ins. Cover for the borrower. 4. Loan amt. of Rs1L for furnishing the house/flat.

Analysis Among PSU Banks, SBI has better product profile in home loan category.

y

Bank of Baroda competes strongly with SBI by providing equivalent product profile. y

SBI offers loan at flexible interest rates by charging 8.00% p.a. interest rate for first year. Whereas, Bank of Baroda offers flat interest rate of min. 8.50% from the first year of loan disbursement.

y

Bank of Baroda offers a concession of 0.25bps in interest rates for employees of Govt. or Preferred Organizations. Whereas, SBI offers no concession to any type of customers.

y

Bank of Baroda process the loan application in 6 days after submitting loan application. Whereas, SBI takes at least 10 to 15 days to process the loan application.

y

Bank of India does not charge any penalty on prepayment of loan. Whereas, Bank of Baroda charges nil penalty on amount prepaid from own sources.

y

SBI offers a no upper limit on the loan amount. Whereas, Bank of Baroda offers a max. a mount of Rs1Cr.

40



2009-2011

Competitive Advantage ± BOB Over SBI ± Housing Loans Bank Concession

Bank of Baroda

State Bank of India

Offers 0.25bps concession in Rate of Interest to Employees of Preferred Organizations & Group Borrowers. Over Rs20L of loan amount only 20% of margin is charged. Up to Rs20L ± No Prepayment Penalty (If it is closed from own sources).

No concession in Interest Rates is Offered.

Up to Rs75L of loan amount a margin of 20% is charged. The bank charges a Penalty for Prepayment Penalty Prepayment of the home loan if the loan is pre-closed even before the half of the genuine loan tenure. Flexi Interest Rate Facility is Flexi Interest Rate is not Interest Rates provided. provided. Flexible EMIs. Reducing EMIs. EMIs Margin

EMIs-Housing Loans Bank Amt., Rs30L Tenure, 15Yrs

EMIs (Rs.) Total Interest Paid (Rs)

Bank of Baroda General Govt. or Preferred Organization Floating Fixed Floating Fixed (8.50%)

(9.50%)

(8.25%)

(9.25%)

29,542.19

30,875.77

29,104.21

31,326.74

23,17,594.2

25,57,638.6

22,38,757.8

26,38,813.2

Competitive Advantage ± SBI Bank

Over

SBI

Floating

Fixed

22,897.25 17,43,101.98

28,669.56 27,859.42 24,912.39 20,33,282.14

BOB ± Housing Loans

Bank of Baroda

SBI

Products

Less Number of Categorizations.

Wide Variety Categorizations

Amount

Maximum up to Rs1Cr.

No Upper Limit on the Loan.

Tenure

Maximum of 25Yrs.

Maximum of 25Yrs but the Individual age can be up to 70Yrs. Low Processing Charges.

Charges a Min. of 0.35% on Loan Amount. Prepayment Penalty No Penalty up to Rs20L. Processing Charges

41

of

Product

No Penalty for Bulk Payments.



2009-2011

Comparative Analysis of Private Banks ± Home Loan Products Bank

HDFC Bank

ICICI Bank

HSBC Bank

Products




Max. Amount

Max - Rs1Cr

Min. - Rs2L Max. - Rs1Cr

Mumbai & New Delhi(NCR), Rs.5L to Rs.5Cr Bengaluru, Rs.5L to Rs.3Cr Chennai, Rs.2L to Rs.3Cr Ranges Up to 25Yrs 1% of the loan amount applied for, subject to a minimum of Rs10000 plus service tax. 15% of the Cost

Tenure

Ranges Up to 20Yrs

Processing Charges

1% of Loan Amt. + Service 0.5% of the loan amount or Tax as Applicable Rs1500/(Rs2000/for Mumbai, Delhi & Bangalore), whichever is higher + applicable Service Tax & Surcharge. 15% of the cost Home Loa, 15% to 20% of the Cost

Margin

1. The applicant should be at least 18Yrs old from the date of loan sanction. 2. The loan applicant should have a source of regular income. 3. In case of NRIs the applicant should be holding a legitimate Indian passport or a legitimate work permit and should have been employed overseas for at least 2Yrs. Fixed 14.25% Floating 8.75% to 9.25%

Eligibility

Interest Rates

Security

42

Not Required

Ranges Up to 25Yrs

1. You must be employed or self-employed with a regular source of income. 2. Age Should be in between 24Yrs to 65Yrs.

Fixed 13.75 Floating 11.25%

1. Equitable Mortgagest Charge) on land/flat/house. 2. 3rd Party Guarantee.

1.Age Should be in between 24Yrs to 65Yrs 2. Income, Rs5L p.a (salaried) Rs7. 5L p.a (selfemployed)

Fixed

11% to 14% Floating 9% to 14% (1



2009-2011

Prepayment 1. No prepayments allowed in Nil - 2% + applicable Service first 6 months Tax & Surcharge on full Penalty 2. 6 months - 5 years, prepayment 1.5% of original loan amount 3. 5 years -10 years, 0.75% of original loan amount 4. > 10 years, No closure fee

1. You can opt to pre-pay up to 25% of your loan every year. Pre-payment is permitted after a minimum of 6 months following loan disbursal. 2. For amount in excess of 25% of the loan amount sanctioned - 3%.of Amt. Prepaid

1. The customer can break the 1. Doorstep delivery of home loan into two segments with loan papers. one part being charged with fixed rates and another part 2. Sanction approval without with floating rates, thus having selected a property. minimizing the risk factor. 2. No security/guarantor is 3. Brand Image and has more number of customers. required. 3. Among Private Banks, 4. Highly networked bank in HDFC offers low ROI (i.e., India. 8.25% p.a.) on loan amt. 4. An applicant¶s minimum age should be at least 18Yrs.

1. Prepayment option up to 25% of loan after 6 months of disbursement. 2. Pre-approved loan facility. 3. Provides the option of switching from a floating rate home loan to a fixed rate home loan once a year at no extra cost. 4. Resident Indians are eligible for certain tax benefits on principal and interest components of a housing loan under the Income Tax Act, 1961.

USPs

Analysis Among Private Banks, HSBC bank has better product profile in home loan

y

category. HDFC bank and ICICI ba nk competing strongly with HSBC bank by providing equivalent product profile. y

HDFC bank offers loan at flexible interest rates by charging 8.25% p.a. interest rate for first year. Whereas, HSBC bank offers flat interest rat e of min. 9.00% from the first year of loan disbursement.

43



2009-2011

HSBC bank offers a max. amount of Rs5Cr. Whereas, other private sector

y

banks offer a max. amount of Rs1Cr.

Comparative Study - PSU Banks Bank

Over

Private Banks - Housing Loan

PSU Banks

Private Banks

PSU Banks provide Wide Variety of Product Categorizations one of which is State Bank of India. Bank of Baroda offers 0.25bps concession in rate of interest to Govt. or Preferred Organization employees.

Categorizations

Concession

Less Number Categorizations.

of

No Private Bank offers a concession in rate of interest.

Amount

State Bank of India offers a no upper limit on the loan amount.

HSBC offers a Maximum amount of Rs5Cr.

Prepayment Penalty

Bank of Baroda Charges No Fee on part prepayment / full prepayment of the loan amount from own sources. State Bank of India offers 8.00% st interest rate for 1 year after disbursement of loan amount. SBI Offers Low Processing Charges.

Among Private Banks, Only Axis Bank charges No Fees prepayment of part / full loan amount. HDFC Bank offers 8.25% st Interest Rate for 1 year after disbursement of loan amount.. ICICI Bank Offers 0.5% Processing Charges on the loan amount. HDFC Bank offers flat EMIs.

Interest Rates

Processing Charges

EMI

Bank of Baroda offers Flat EMIs.

Tenure

SBI allows a maximum repayment All Private Bank allows period of 25Yrs but the individual repayment for a Max. of age must can be up to 70Yrs. 15Yrs.

EMIs - Housing Loan Bank Amt., Rs30L Tenure, 15Yrs EMIs (Rs.)

Total Interest Paid (Rs)

Bank of Baroda General Govt. or Preferred Organization Floating Fixed Floating Fixed

HDFC

Floating

Fixed

(8.50%)

(9.50%)

(8.25%)

(9.25%)

29,542.19

30,875.77

29,104.21

31,326.74

29,983.46

40,457.39

23,17,594.2

25,57,638.6

22,38,757.8

26,38,813.2

23,97,022.8

42,82,330.2

Analysis y

In Home Loan category, SBI is the market leader. Whereas, Bank of Baroda is competing strongly by providing better products and services.

44



2009-2011

Education Loans in India Most students and parents today realize how expensive an education is. Whether you hope to study at a private high school, a college, university, or an overseas school, tuition costs plus the costs of books and living can quickly add up. If you are worrying about the cost of school, you should not feel that money has to decide your education. There are a number of financial aid options that can help you. Educational loans can be one important part of your overall financial aid package. There are special distance education loans, need-based loans, college loans, government based loans, and private education loans -- in fact, chances are excellent that there are educational loans that can meet your specific needs.

What Education Loans are?

Educational loans work like any other debt. That is, loans are simply specific money that you borrow from a bank, a private lender, or some other type of lender. Afterwards, you must repay your debts with interest. However, unlike other types of loans, educational loans are different in several respects:

Different

Qualification Features

Loans created for students recognize the fact that students have not had time to build up credit rating. For this reason, applications for student loans are simpler and more streamlined. The qualifications for such loans are also usually more lenient.

Generous Repayment Terms

Loans designed to help students pursue an education recognize that students should spend their school time studying, not working to repay a loan. For this reason, many

45



2009-2011

loans created for students allow students to pay back their debts very gradually and only after graduating. This means that students can focus on their studies rather than on their loans. In fact, most loans designed for students give students the opportunity to put off repaying their debt until six months after graduation. This gives students a chance to settle down and find a job before repaying their debts.

M any

Various Student Loan Types are Available

Since there are so many students, each with separate needs, there are a number of loans designed to help students pay for their education. Many of these loans are designed specifically to help students with their unique money issues. There are loans created by private sources, by the government, and by schools. Many feature very low interest rates. Some are need-based and some are not. No matter what a student's financial needs, there is likely a loan available that can help the student meet their educational goals.

46



2009-2011

Comparative Analysis of PSU Banks - Education Loan Products Bank

Bank of Baroda

Products

Type Baroda Vidya

Interest (P.a.) 10.00%

State Bank of India

Education abroad.

in

India

Corporation Bank

or Corp Vidya (Education in India or abroad.)

Baroda Gyan 12.00% Baroda Scholar 12.00% Baroda Career 12.75% Development Plan Max. Amount

Type

Max. Amount Rs4L

Baroda Vidya Baroda Gyan Rs10L Baroda Rs20L Scholar Baroda In India, Career Rs10L Development Abroad, Plan Rs20L A Maximum amount of Rs50L is sanctioned based on the Merit of the Candidate. Type Period Baroda Max. 12 Vidya EMI¶s. 1st EMI to be due 12 months after st 1 disbursement of each year's loan component. Baroda Gyan 5 to 7Yrs after Moratorium Baroda Period Scholar (Course period + 1 year or 6 months after getting job, whichever is

Tenure

47

In India ± Rs10L Abroad ± Rs20L

In India ± Rs10L Abroad ± Rs20L

5Yrs ± 7Yrs (Moratorium Period Course period + 1 year or 6 months after getting job, whichever is earlier.)

7Yrs ± 10Yrs (Moratorium Period Course period + 1 year or 6 months after getting job, whichever is earlier.)



2009-2011

earlier.) Baroda Career Development Plan

Tenure

Processing Charges

Type Baroda Vidya

60 EMIs (Course period + 6 months or 3 months after getting job, whichever is earlier.) Amount Nil

Baroda Gyan

Nil

Baroda Scholar

1% of the Loan amount Sanctioned. (Refundable)

Baroda Career Development Plan Type Max. Amount Baroda Nil Vidya Baroda Gyan Up to Rs4L Nil Above Rs4L5% Baroda 15% Scholar Baroda Career Development Plan

Margin

1. Should be an Indian national residing in India. 2. Secured admission to the eligible courses in the reputed institutions (foreign/indian). 3. Have secured admission to the course through entrance test / merit based selection process.

Eligibility

48

1. No processing fee/ Studies in India ± Nil upfront charges. Studies Abroad 2. Deposit of Rs.5000/- for Rs.2000. education loan for studies abroad which will be adjusted in the margin money.

Up to Nil Rs4L Above In India, Rs4L 5% Abroad, 15%

1. The applicant should be at least 18Yrs old from the date of loan sanction. 2. The loan applicant should have a source of regular income. 3. In case of NRIs the applicant should be holding a legitimate Indian passport or a legitimate work permit


1. Should be an Indian national residing in India. 2. Should have completed previous qualifying examinations. 3. Secured admission to Professional/ Technical courses in



2009-2011

and should have been employed overseas for at least 2Yrs.

Eligibility

Interest Rates

Up to Rs4L Above Rs4L

10.00% 12.00% - 12.75%

1. Up to Rs.4L - No security 2. Above Rs.4L and up to Rs.7.5L, Collateral in the form of a rd suitable 3 party guarantee along with assignment of future income 3. Above Rs.7.5L, Tangible collateral security equal to 100% of the loan amount along with assignment of future income Baroda Career Development Plan,

Security

49

India or abroad through Entrance test / Merit based selection process/ Management quota. 4. Person already in gainful employment not eligible for loan under the scheme except for pursuing evening course covered under the scheme of approved Institute. 5. If a gainfully employed person wants to pursue full time education either on study leave or by resigning from present employment, such proposals may be considered provided the applicant submits the proof in this regard to the sanctioning authority before disbursement of loan. Up to Rs4L 11.25% Up to 11.00% Rs4L Above 12.75% Rs4L±Rs5L Above 12.00% Rs4L ± Above 11.75% Rs7.5L Rs7.5L Above 11.50% Rs7.5L 1. Up to Rs.4L - No 1. Up to Rs.4L, security Co2. Above Rs.4L and up to obligation of Rs.7.5L, Parent/s, Grand Collateral security in the Parent/s (if parents form of suitable third party are deceased). No guarantee. The bank may, at other security. its discretion, in exceptional 2. Above Rs.4L and cases, waive third party up to Rs.7.5L, guarantee if satisfied with Co obligation of the net-worth/means of Parent/s Grand parent/s who would be Parent/s (if parents executing the documents as are deceased) "joint borrower". together with New Delhi Institute of Management ± Bank of Baroda


2009-2011

1. 100% tangible collateral 3. Above Rs.7.5L, security by way of mortgage of Tangible collateral property or assignment of security of suitable value, securities NSC, KVP, LIC along with the assignment policy, FDR etc. of future income of the 2. Personal guarantee of Father student for payment of / mother of the applicant or any installments. other person having sufficient worth. All loans should be secured by parent(s)/guardian of the student borrower. In case of married person, coobligator can be either spouse or the parent(s)/ parents-in-law

Security

collateral in the form of suitable third party guarantee. 3. Above Rs.7.5L, Co-obligation of Parents/Grand Parents (if Parents are deceased) together with tangible collateral security along with the assignment of future income of the student for payment of installments. The loan to be fully secured after maintaining prescribed margin on respective securities. Charges 1% of the Nil Outstanding Loan Amount.

Prepayment Charges 1% of the Outstanding Loan Amount. Penalty

1. 1% interest concession, if interest debited during the repayment holiday is serviced. 2. Hassle free processing. 3. One of the Oldest Banks in India and Customer Trust. 4. One of the largest and most widespread networks of branches across in India. 5. Easy EMI Repayment Option. 6. 1% Concession in rate of interest to loans for girl student. 7. Interest charged on the daily reducing balance.

USPs

1. Low Processing Charges. 2. Interest charged on the daily reducing balance. 3. 0.5% Concession in rate of interest to loans for girl student. 4. One of the Oldest Banks in India and Customer Trust. 5. One of the largest and most widespread network of branches across in India

1.1% interest concession, if interest debited during the repayment holiday is serviced. 2. 0.5% Concession in rate of interest to loans for girl student. 3. 0.5% Concession in rate of interest to loans for SC/ST. 4. Maximum Repayment Period of 10Yrs.

Analysis y

Among PSU Banks, Bank of Baroda has better product profile. Whereas, SBI competing strongly.

y

Bank of Baroda offers a max. amount of Rs50L.

y

Bank of Baroda offers 1% concession to girl students. Whereas, SBI and Corporation Bank offers 0.5% concession to girl students.

50



2009-2011

Competitive Study ± B OB Over SBI ± Educational Loan Bank Categorizations Concession

Amount

Bank of Baroda

State Bank of India

Wide Variety of Product Categorizations. 1. 1% Concession in rate of interest to loans for girl student. 2. 1% interest concession, if interest debited during the repayment holiday is serviced. A Maximum amount of Rs50L is allowed.

Less Number of Categorizations. 0.5% Concession in rate of interest to loans for girl student.

Prepayment Penalty

Charges 1% of the outstanding loan amount.

Interest Rates

Charges 10.00% Interest Rate up to Rs4L. Low EMI for the loans up to Rs7.5L.

EMIs

A Maximum amount Rs20L is allowed.

of

Charges 11.25% Interest Rate up to Rs4L. High EMI for the loans up to Rs7.5L when compared to Bank of Baroda.

EMI- Educational Loan Product

Rs 4L @ 5Yrs Rs 5L @ 5Yrs Rs 15L @ 5Yrs

Bank of Baroda EMI Total Interest 8,598.82 1,09,929.20 11,122.22 1,67,333.20 33,366.67 5,02,000.20

State Bank of India EMI Total Interest 8,746.92 1,24,815.20 11,312.65 1,78,759 33,177.48 4,90,648.8

Baroda Career Development Plan

Rs 10L @ 5Yrs Rs 15L @ 5Yrs

22,625.30 33,937.95

3,57,518 5,36,277

-

-

Analysis y

Among PSU Banks, Bank of Baroda is the market leader. Whereas, SBI is competing strongly as it is oldest and highly networked bank in India.

51



2009-2011

Comparative Analysis of Private Banks - Education Loan Products Bank

Axis Bank

HDFC Bank

Products

Education in India or abroad

Education in India or Education in India or abroad for Students and abroad also Working Executives.

Max. Amount

In India ± Rs10L Abroad ± Rs20L (Min. ± Rs50K) 5Yrs ± 7Yrs

In India ± Rs15L Abroad ± Rs20L Working Executives ± Rs6L 5Yrs ± 7Yrs (Moratorium Period Course period + 1 year or 6 months after getting job, whichever is earlier.)

Tenure

Processing Charges

Margin

HSBC Bank

Upto Rs1Cr (Min. ± Rs5L) Ranges Up to 15Yrs

1% of the loan amount applied Max. 2% of the loan amt. for, subject to a minimum of Rs10000 plus service tax.


1% of the loan amount applied for, subject to a minimum of Rs10000 plus service tax. 5% to 15% of the Loan 15% of the Loan Amount Amount

1. Applicant need to be a 1. Applicant need to be a 1.Age Should be in Resident Indian Resident Indian between 18Yrs to Secured admission to 2. Applicant should be aged 65Yrs professional/technical courses between 16 - 35 yrs. 2. Income, in India or Abroad through 3. All Loans require a co- Rs5L p.a. (salaried) Entrance Test/Merit based applicant. Rs7. 5L p.a. (selfselection process. employed)

Eligibility

Eligibility

15.75%

Interest Rates Security

12.00% to 14.00%

1. Third party guarantee and/or Up to Rs7.5 L , collateral security may be asked No Collateral for in appropriate cases. Party Guarantee. 2. Assignment of LIC policy in

52

13.00%

Or

1. Residential Third Property. Both selfoccupied and owned by either primary or



favor of the Bank for the sum assured being at least 100% of the loan amount. The policy is kept alive during the currency of the loan. To ensure this, the annual premium may be included in the computation of the loan requirement, along with the tuition fees and other recurring charges. Further, the future income of the student needs to be assigned in favor of the Bank for meeting the installment obligations. Nil Prepayment Penalty Security

2009-2011

Above Rs7.5L,

co-applicant. 2. Must have a co1. Residential Property applicant in India 2. HDFC Bank Fixed and can only be Deposit parents or spouse of 3. LIC/NSC/KVP student.

Charges 4% on the principal out sanding

1. Insurance Protection from HDFC ERGO. 2. No Security is required 2. No Prepayment Penalty. up to Rs7.5L of loan 3. Doorstep delivery of home amount. loan papers. 3. No Security is required for studies in Management Institutes up to Rs12L (Min.). 4. A tax rebate is offered under section 80-E of the Income Tax Act 1961* for the entire interest amount paid towards your education loan.

USPs

1. Pre-approved loan facility.

1. Up to 25% of the outstanding loan ± Nil (Once Every Financial Year). 2. Excess of 25% of the outstanding loan ± 4% of the amount prepaid. 1. Prepayment option up to 25% of loan after 6 months of disbursement. 2. 0.5% Concession in rate of interest to loans for girl student. 3. A Max. amount of Rs1Cr is provided.

Analysis y

Among Private Sector Banks, HSBC has better product profile offering a max. loan of Rs1Cr. Whereas, other banks offers a max. loan amount of Rs20L.

y

HDFC Bank offers a low interest rate of 12.00% among private sector banks.

y

HSBC bank offers a max. repayment tenure of 15Yrs. Whereas, Axis bank offers nil penalty on prepayment of loan amount.

53



Comparative Study - PSU Banks Bank Categorizations

Concession

Amount Prepayment Penalty

Interest Rates Processing Charges

EMI Tenure

Over

2009-2011

Private Banks - Education Loan

PSU Banks

Bank of Baroda provides Wide Variety of Product Categorizations. 1. Bank of Baroda Offers, a.1% Concession in rate of interest to loans for girl student. b.1% interest concession, if interest debited during the repayment holiday is serviced. 2. Corporation Bank Offers, a.0.5% Concession in rate of interest to loans for SC/ST. Bank of Baroda offers a Max. amount of Rs50L.

Private Banks

Less Number Categorizations.

of

HSBC Bank Offers a Concession of 0.5% Concession in rate of interest to loans for girl students.

HSBC offers a amount of Rs1Cr.

Maximum

Corporation Bank charges Nil as Axis Bank also charges Nil as penalty on the prepaid loan penalty on the prepaid loan amount. amount. Bank of India offers reasonable HDFC Bank offers 12.00% Interest Rates. Interest Rate. SBI Offers Low Processing HSBC Bank Offers 1% Charges. Processing Charges on the loan amount. Bank of Baroda offers Flat HDFC Bank also offers flat EMIs. EMIs. Corporation Bank allows HSBC Bank allows repayment repayment for a Max. of 10Yrs. for a Max. of 15Yrs. EMI- Educational Loan

Product

Rs 4L @ 5Yrs Rs 5L @ 5Yrs Rs 15L @ 5Yrs

Bank of Baroda EMI Total Interest 8,598.82 1,09,929.20 11,122.22 1,67,333.20 33,366.67 5,02,000.20

HDFC Bank EMI Total Interest 8,897.78 1,33,866.80 11,122.22 1,67,333.20 33,366.67 5,02,000.8

Baroda Career Development Plan

Rs 10L @ 5Yrs Rs 15L @ 5Yrs

22,625.30 33,937.95

3,57,518 5,36,277

-

-

Analysis y

In Education loan category, Bank of Baroda holds edge over all other PSU and Private Sector Banks by providing better products and ser vices.

54



2009-2011

Research Methodology Research forms the foundation of any project that is undertaken: Research in common parlance refers to the search of knowledge. One can also define research as a scientific and systematic search of pertinent information on a specific topic. Redman and Moray define research as ³systematized effort to gain new knowledge´. Humans are generally very inquisitive in nature and this inquisitiveness is the mother of knowledge and the method employed by humans to gain knowledge of the unknown is research.

Research thus is an original contribution to the existing stock of knowledge making for its advancement. It is the pursuit of the truth with the help of study, observation, comparison and experiment.

Research methodology is a way of systematically solving the research problems. It may be understood as a science of how research is done. The purpose of resear ch is to discover answer to the question through application of scientific procedures.

All this means that the researcher has to design a separate mythology for the problem undertaken by him which may differ from problem to problem. Research carried out in their project is based on theoretical and field study. Research Objective

The Objective of this study is to compare housing loan products and educational loan products of different banks with products of Bank of Baroda. This will help us to know the C ompetitive Advantage of Bank of Baroda¶s loan products over its competitors.

55



2009-2011

Steps in Research Methodology

Step 1:

Objective

of Study of Home-Loans and

Educational Loans

The first step in this study is the defining the

Defining the Problem & Research Objective

objectives of the study and according to that develops Develop Research Plan

the further plan.

Step 2: Developing plan for gathering information

This stage calls for developing the most efficient plan for gathering the need information. Decide the

Collect the Information

methods of data collection and the data sources, sampling method and contact method. Decide the primary and secondary sources for collecting the data.

Analysis of the Information

Present the Findings Step 3:Collect the Information

This is the most important step in the study. This is up to the individual¶s ability to gather the information

Make the Decision

from the selected sa mples.

Step 4:Analyze the Information

Step 5:Present the Findings

56



2009-2011

Sources of Data

A. Primary Data

Primary data is a data, which is gathered by the researcher himself. This data can be collected through experiment or through survey. The various method of primary data collection is,

1. Observation Method 2. Interview Method 3. Questionnaire Method

The methods adopted in this study are,

Personal interview through structured questionnaire of Finance and Marketing head of RLF¶s of different banks etc. Sample of questionnaire is attached as an annexure.

B. Secondary Data Secondary data refers to the data which have already been collected and analyzed by someone else usually published data ar e available in form of,

1. Various publication of central, state and local government. 2. Books Magazine and Newspapers. 3. Accounting records, sales force reports etc. 4. Websites of banks.

The methods adopted in this study are,

Collecting data from websites of various banks, articles given in various sites etc. which are mentioned in the references of t he project.

Diagrammatic Approach

Data analysis involves converting a series of recorded observation (data) into descriptive statements (information). The Analysis will be showed with the help of, a. Tables

57



2009-2011

Sampling Plan This plan calls for the main three decisions for selecting the sample of banks from whole population of banks in the city.

1. Sampling Unit

Here we define the target population that will be sa mpled. Total numbers of banks working in India are approximately 48.

2. Sample Size

How many banks and financial institution should be surveyed? Large samples give more reliable results than small samples. Here 14% of the population of study i.e. 5 units (branches) are undertaken for study.

3.

Data Collection Procedure

Here I took all the information needed for this study, by means of personal visits to banks and by interview. This is the most versatile method. The interviewer can ask more number of questions; can record additional observations about the respondents.

58



2009-2011

Limitations of the Study y

It is a small research, which may be insufficient to give the real picture scope of the retail loans in India.

y

The research is based on observation and data collected from the internet and also direct interview of bankers.

y

The method of result is also limited to the reliability of method of investigations, measurement and analysis of data.

y

Auto loan are not included in the study of retail loans.

y

Education loans are not providing by other banks like ICICI & IDBI. So, it cannot compare with other banks.

y

People were not interested in replying to the interview properly.

y

Loan scheme has been revised very soon. So the study is effective till july, 2010.

y

Education loan is provided for some special customers. It is not possible for every customer to get Education Loans.

y

All the suggestions are up to my knowledge and the study conducted by me by visiting various websites, research papers and direct interview of bankers.

59



2009-2011

Findings & Conclusion Banker¶s View y

The main businesses of bank is accepting deposits with low interest rates & lend it on high interest rate and enjoy the variation for long period of time.

y

Maximum interest rate will help the bank, but it will not attract customer to earn the interest for long period. Retail Lending in term of home loans, education loans is more reliable to gain constant interest for long period of time and the recovery will be more. Maximum fund will be disbursed and will have less risk rather than other loans, which are in short ter m and high interest rate schemes.

y

Among banking sector, Bank of Baroda & SBI will enjoy long term benefit & other may have problem in future course. The number of customers that banks are chosen for retail loans are salaried employee in which it reduces the risk involved in recoveries.

Customer¶s View y

In terms of Home loan, SBI is better because of its wide variety of products and low interest rates. Whereas, Bank of Baroda is trying to provide better products and services by providing concession in interest rates to govt. and preferred organization employees.

y

Bank of Baroda bank sanction loan within short time period with respect to Nationalize banks.

y

y

Nationalize banks takes maximum time for processing loan application. In co-op. banks loan will be sanctioned but it depends upon the relation with banking personnel & member of the banks.

y

The very important benefit that the customer getting is tax benefit. Home loans are the only loan product which Government Of India have given relief & tax deduction up to Rs1,50,000 p.a. for the income tax pa yee.

That is the reason for customer paying less interest that he actual is having.

60



2009-2011

Suggestions & Recommendations Interest rate, processing fees, tenure, security and margin money-all these are

y

important in all kinds of retail loans - housing loans, education loans, auto loans, personal loans etc. So bank should revise all above keeping in view of all other banks. Bank should appoint some marketing executive for this purpose who can give information of market and other banks, revision of loan timely so that the bank can revise it very soon. These marketing executives should give report to Head Office directly for timely processing, so that the market can be fully captured as early as possible.

Limit of loan amount of all retail loans should keep increasing keeping in view

y

of private sector banks and other nationalized ba nks.

One of the major strengths of Bank of Baroda is timely processing of loan

y

application. So, it must keep on processing the loan application as soon as possible.

The major competitor to Bank of Baroda in Home Loan category is State Bank

y

of India. In order to compete with SBI, Bank of Baroda must introduce attractive schemes in home loan category and must also adjust the interest rate that makes a major difference.

In Education Loan category, Punjab National Bank is a major competitor to

y

Bank of Baroda in Northern part of I ndia. Bank of Baroda has a good portfolio in educational loan category, but it is not successful in utilizing this advantage. It has to promote its products well in the market in order to can gain advantage over Punjab National Bank. Bank of Baroda should not only attract salaried people but also the

y

businessmen and contractors where more money will be disbursed and may enjoy large rate of interest. y

61

Bank must adopt new methodology for recovering balances. New Delhi Institute of Management ± Bank of Baroda


y

2009-2011

Bank needs to identify and select the sectors in which the funds are invested in large and for long time period such as Home Loan.

62



2009-2011

Bibliography Private Sector Banks

PSU Banks y

www.bankofbaroda.com

y

www.hdfcbank.com

y

www.statebankofindia.com

y

www.hsbc.co.in

y

www.corpbank.com

y

www.icicibank.com

y

www.bankofindia.com

y

www.axisbank.com

y

www.rbi.org.in

y

www.unionbankofindia.co.in

y

www.unitedbankofindia.com

Other

Links

y

www.timesofindia.com

y

www.bankbazar.com

y

www.wikipedia.org

y

www.ruppeetimes.com

y

www.deal4loans.com

y

www.guide2homeloan.com

y

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2009-2011

Questionnaire Name of the Bank :

Address : E-mail : 1. What are your housing / education loan products? 2. What is the rate of interest for housing / education loan? Floating rate of interest ± Fixed rate of interest ± (Concession Offered if any?) 3. What are the documents required for housing / education loan? 4. What is the maximum amount a borrower can take for housing / education loan? 5. What percent of margin is allowed on the loan amount? 6. What is the amount of housing loan in the total disbursement of loan? a. 0-20% b.20-40% c.40-60% d. 60-80% e. 80% and above 7. What security is to be provided to process the loan? (Is a Guarantor required (If so what his / her age limit must be)?) 8. What is the repayment period? a. 0-5 years

d. 15-20 years

b. 5-10 years

e. 20 years and above

c. 10-15 years 8. How many days are required for processing a housing / education loan application? a. 0-10 days

d. 30-40 days

b. 10-20 days

e. 40 days and above

c. 20-30 da s 9. How many days are required for disbursing first installment of loan a mount? d. 0-10 days

f. 30-40 days

e. 10-20 days

g. 40 days and above

f. 20-30 days

Appendix - 1



2009-2011

10. What is the amount to be paid to process the loan application? 11. What will be the penalty if a part or full loan amount is prepaid? 12. Whether branch will be given as per borrower¶s choice? 13. What value added services you provide for the borrower? 14. What is the rating system followed in processing the loan? 15. Does interest rate depends on rating system or not?

Appendix - 2



2009-2011

Financial Statements of Bank of Baroda (FY 2009-2010)

Balance Sheet

Appendix - 3


Comparative Study of Bank's Retail Loan Products Vis-A-Vis Competitions or Peer Banks

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