Innovative Journal of Business and Management 2 : 5 September October (2013) 123 - 127.

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INNOVATIVE JOURNAL OF BUSINESS AND MANAGEMENT

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A STUDY ON COMPREHENSIVE PROBLEMS OF HDFC & SBI HOME LOAN TAKERS IN ANDHRA PRADESH STATE
S.Tarakeswara Rao Dept. of Commerce & Mgt. Studies, Dr.B.R.Ambedkar University, Srikakulam 532458, Andhra Pradesh State ARTICLE INFO Corresponding Author: S.Tarakeswara Rao Dept. of Commerce & Mgt. Studies, Dr.B.R.Ambedkar University, Srikakulam 532458 Andhra Pradesh State Key words: Commercial Banks, Housing Finance, HDFC, SBI, Home loan. ABSTRACT The urban poor, with their low incomes, uncertain employment and low assets, have been side-lined by commercial banks who do not find them bankable. In order to rectify this situation, there is a need for a supportive role on the part of the government and commercial banks and a streamlining developmental role on the part of community based financial initiatives. The Indian housing finance sector has failed to promote housing development across the country. In its desire to stabilize itself mainly in the major urban areas, the housing finance has largely neglected issues of the housing sector in rural and lessdeveloped regions. Further, the financial housing needs of a large segment of the population are not being addressed. They continue to rely on informal sources for housing finance. This paper describes and analyses the perceptions and problems of home loan takers in Andhra Pradesh State. It offers policy options to make the housing finance more effective in addressing the hitherto neglected segment, the rural and lessdeveloped region. 2013, IJBM, All Right Reserved INTRODUCTION Housing finance is a relatively new concept in India comparing to other financial services that are widely available in the country since a long year back. However, the speedy development in housing and various housing activities have understandably led to the growth of Indian housing finance market. As a result, a number of players have barged into the market. It was in the year 1970 when Housing and Urban Development Corporation (HUDCO) was established to finance various housing and urban infrastructure activities. However, the Housing Development Finance Corporation (HDFC) was the India's first private sector housing finance company came into existence in 1977. Since then, the housing finance in India has been flying high. It's expected to grow at a growth rate of 36% in the coming years. HOUSING SECTOR Housing Sector refers to the entire construction activity, it has maximum propensity to generate income and demand for materials, equipments and services. In fact, housing provides necessary impetus to the economy as a whole. Small initiatives in housing will propel multiplier effects in the economy through a chain of linkage effects. For every one crore rupees of investment in housing, nearly 290 industries in the building material sector get activated besides the core manufacturing sector constituting cement, steel and bricks etc. It has been estimated that out of every Rs. 100 spent on housing Rs. 11.40 is returned back to the national exchequer by way of stamp duty, registration and taxes. Housing Sector has seen exceptional changes in the last 15 years, both globally and nationally. In the last few years, the housing sector in India has witnessed a spurt in demand not just for residential property but also for commercial property. This rise in demand may be attributed to the large and growing middle class population of 300 million people. The Technology and business Process Outsourcing have correspondent to growing demand for shopping malls, multiplexes, food outlets, office spaces ad business centers etc. HOUSING FINANCE Blessed are those who live in their own house and fortunate are those who have the money to buy one. But all are not privileged to buy a house of their own. For many such people, buying a house has become possible in modern times through Housing Finance. The term Housing Loan or Housing Finance means fianc for construing/purchasing or modifying a property. The various Hosing Loans offered by Housing Finance institutions (HFIs) are for house Purchase, house extension, house improvement and land purchase. Hence, Housing Finance means the financial resources for an individual or group of persons used especially for the purpose of housing. HOUSING FINANCE IN INDIA

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Rao/A Study on Comprehensive Problems of HDFC & SBI Home Loan Takers in Andhra Pradesh State Home-buyers in India were traditionally debt averse and opted for external funding only as a last resort. Consequently, formal external funding of house construction/purchase has accounted for a relatively small proportion of housing finance in the three decades after independence and this business activity had formally began in India in the 1970s. Construction/purchasing of a house needs a large investment, it requires long-term finance. In India, the main source of credit that flows into house construction is both formal and the informal sectors. The formal sector includes budgetary allocation of Central and State Government, assistance from the Financial Institutions, agencies and corporations like Life Insurance Corporation (LIC) and General Insurance Corporation (GIC) etc., the latter, it refers to finance from money lenders, household savings, disposal of existing property and borrowings from friends and relatives. Since independence, the institutional framework for housing finance was in the form of insurance companies like LIC and GIC. Then in 1970, the Government set up the HUDCO as a 100 per cent, Government owned enterprise with the objective of housing and urban development as well as infrastructure development. The housing policy of HUDCO was designed to allocate 55 per cent of its housing finance to the low income and weaker sections of society. Housing Development Finance Corporation (HDFC): HDFC was incorporated in 1977 with the primary objective of meeting a social need that of promoting home ownership by providing long-term finance to households for their housing HDFC was guided by its core objectivehousing for all, though the development of the Housing Finance Sector in India. It is viewed as an innovative institution and a market leader in the housing finance sector in India. The World Bank considers HDFC, as a model Private Sector Finance Company in developing countries and a provider of technical assistance for new and existing institutions in India and Abroad. State Bank of India (SBI): The State Bank of India, the countrys oldest bank and a premier in terms of balance sheet size, number of branches, market capitalization and profits. It is the two hundred year old Public Sector Bank. It is the bank having very wide product mix, such as Project fianc, Home loans, Auto loans, Car loans, Education loans, Loans to Small Medium Enterprises, Government business, Rural and Agri business, Corporate Business etc. SBI is moving ahead with cutting-edge technology and innovative new banking models, to expand its rural banking base, looking at the vast untapped potential in the hinterland and proposes to cover 100,000 villages in the next two years. It is the only the India bank to feature in the Fortune 500 list. Need for the Study: Today due to inflation in the economy, there is rise in the price of all commodities. Due to this an ordinary individual is not able to save sufficiently to meet the high cost requirement of house construction or purchase. He has to essentially depend upon of the Financial Institutions (FIs) for borrowing money for the purpose of house constructions or purchase. The proposed study will bring out the various sources of finance for house construction/purchase and a detailed study about the types of home loans, loan procedure and documents required for home loan sanction from the FIs. There is a need to examine the housing policies, Government and RBI initiatives in order to appreciate the liquidity in the housing finance sector. Objectives of the Study: 1. To examine the Housing Policy frame work in India. 2. To analyze the trends and progress in Housing Finance in India. 3. To study the operational performance of HDFC and SBI with regard to providing housing finance to individuals. 4. To assess the perceptions and problems of home loan takers in the State of Andhra Pradesh. Hypotheses of the Study: i) Whether the concerted efforts made by the government, in the form of policy frame work are helpful to the home loan borrowers. ii) Whether the selection of the housing financial institution is influenced by the operational factors. iii) Whether the home loans are taken by the borrowers of all income groups to avail the tax benefits. Scope of the Study: In view of the objectives set for the research, the study examines the efforts made by the government in the form of policies are helpful to home loan borrowers. The study mainly concerned with the evaluation of operational performance of HDFC and SBI with regard to providing housing finance to individual borrowers and to examine the operational factors which influenced them in the selection of the Housing Financial Institution. Sources of the Data: For the purpose of the study, two sources of data have been collected. 1. Primary Data: A broad questionnaire was administered to the individual home loan borrowers of HDFC and SBI to know their perceptions i.e. factors influencing the selection of the HFI, opinion regarding the rate of interest on home loan, time taken in processing the loan, procedural formalities, security for getting the loan and difficulties faced by borrowers, in addition to this, personal interviews with the officers and branch managers of HDFC & SBI were held to fill the gaps in the data. 2. Secondary Data: To explain the housing policy changes and to analyze the trends and progress in the housing finance in India, the secondary data were used. The was collected from the annual reports of the NHB, Drafts of National Housing and Habitat Policies, published by Ministry of Urban Development and Poverty Alleviation, Government of India, RBI Bulletins, Union Budgets of India, Ministry of Finance, Government of India and Survey Reports on Indian Housing Finance, published by Federation of Indian Chambers of Commerce and Industry etc. Methodology of the Study: The major lenders of housing finance to individuals are considered for the study, namely HDFC and SBI, representing Housing Finance Company and Public Sector Bank respectively. Further, to study perceptions and problems of home loan borrowers, respondents have been selected randomly. That is respondents have been selected from the list of the borrowers/customers provided by the various branches of HDFC and SBI of Hyderabad, Vijayawada and Visakhapatnam in the state of Andhra Pradesh for the present study. The sample includes 300 respondents consisting 150 respondents from HDFC and 150 respondents from SBI, representing various occupational groups such as Businessmen, Employees,

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Rao/A Study on Comprehensive Problems of HDFC & SBI Home Loan Takers in Andhra Pradesh State Professional and Self employed people. The care has been taken to include the respondents who are availing tax benefits through their home loans. Limitations of the Study: Housing Finance Sector growth is influenced by various factors such the prices of land, steel, cement, labor cost, savings, inflation rate, etc., the impact of these factors was not taken for the present study. The other limitations are: 1. Only individual loan schemes offered by the FIs had been studied. Thus, the study neither covers the corporate loan schemes offered by the FIs nor the corporate customers. 2. Only operational performance of the HFIs under review was studied and the evaluation of the institutions had been done on the basis of their figures from the annual reports at all India level. 3. Since the data was obtained from more than one source, there may be discrepancies between one resource and another about the same variable. Perceptions and Problems of home loan takers in Andhra Pradesh State: Purpose of borrowings loan: HFIs offer various home loan products to its clientele that include loan for land purchase, for house construction, house purchase, house improvement etc.
Table 1: Shows Purpose of home loan Purpose HDFC Land purchase 8(5.3) House purchase 89(59.3) House construction 38(25.3) House modification 10(6.7) Other purposes 5(3.3) Total 150 SBI 1(0.7) 79(52.7) 51(34) 14(9.3) 5(3.3) 150 Total 9(3) 168(56) 89(29.7) 24(8) 10(3.3) 300

The thumb rule is that fixed rates are beneficial when interest rates are increasing. A recent development in housing finance is that a few premier institutions are no longer offering fixed interest rates on home loans with tenures exceeding 210 years. Besides, in many cases the lenders fixed interest rates would be reset at the end of every two years on the basis of the ten prevailing market rates. When the rate of interest charged varies with the Prime Lending Rate (PLR), i.e., if the PLR increases, the interest rate charged on a loan increases and vice versa is said to be the floating rate of interest. Here, the interest rate risk is high. The thumb rule is that, floating interest rates are beneficial when PLR is falling and costly when rates move up.
Table.3: Shows Type of interest opted by borrowers Type HDFC SBI Total Fixed rate 49(32.7) 47(31.3) 96(32) Floating 101(67.3) 103(68.7) 204(68) rate Total 150 150 300

It can be observed form the table.3 that, 67.33 per cent of HDFC and 68.67 per cent of SBI opted for floating rate of interest as present economy is featured by falling rate regime. Opinion regarding rate of interest charged by the HDFC & SBI: To examine the opinion regarding the rate interest charged by the HFIs, the borrowers were asked to indicate their opinion on five-point scale.
Table.4: Opinion regarding SBI Opinion HDFC Very high 10(6.7) High 53(35.3) Moderate 70(46.6) Low 15(10) Very low 02(1.3) Total 150 rate of interest charged by the HDFC & SBI 6(4) 25(16.7) 70(46.7) 39(26) 10(6.6) 150 Total 16(5.3) 78(26) 140(46.7) 54(18) 12(4) 300

It can be observed from Table 1, that highest proportion of respondents of HDFC 59.33 per cent and 52.67 per cent respondents of SBI had taken home loans for purchase of house. For construction of house 29.67 per cent and 34 per cent had taken belonging to HDFC and SBI respectively. Tenure of home loans: Tenure of the loan depends upon borrowers age, type of the loan, earning capacity etc.
Table 2: Shows Tenure of home loan Years HDFC 5-10 30(20) 10-15 45(30) 15-20 55(36.7) Above 20 20(13.3) Total 150 SBI 39(26) 55(36.7) 44(29.3) 12(8) 150 Total 69(23) 100(33.3) 99(33) 32(10.7) 300

Many Indian loan takers are loan averse and though they avail the loan for 15-20 years period, many repay the full amount, on an average, in seven to eight years. It is evident from Table.2, that 36.67 per cent of respondents with reference to HDFC took the loan for the period of 15-20 years. Similar number of respondents of SBI took the loan for period of 10-15 years. 26 per cent of SBI respondents had taken loan for 5-10 years which is the shortest period. And 13.33 per cent of the HDFC respondents have taken loan for the period of above 20 years. Type of interest rate: Keeping in mind the competition among HFIs, they are offering fixed and floating rate of interest to their customers. In case of fixed rate system, interest on the loan remains the same for the entire lending period. No interest rate risk is involved as there is no change in interest rates.

Table.4, depicts that 32.66 per cent of SBI respondents felt that the interest rate charged it is low and very low. Whereas 31.33 per cent of HDFCs respondents opined that it is charging very high and high rate of interest. And 46.67 per cent respondents of both the HFIs expressed their opinion that the interest rate is moderate. SBI, a Public Sector Bank, is able to raise funds at a lower rate of interest and offering home loans at lower rates and it is acting as a major influencing factor in choosing SBI by the borrowers. Processing Time: All the institutions take few days to process the application and to sanction the loan. Table.5 presents the processing time taken by HDFC and SBI. Table.5: Shows Time taken in processing the loan
Days Less than 7 7-15 15-21 Above 21 Total HDFC 65(43.3) 46(30.7) 27(18) 12(8) 150 SBI 22(14.7) 24(16) 28(18.7) 76(50.7) 150 Total 8729) 70(23.3) 55(18.3) 88(29.3) 300

It can be concluded from the table.5 that, 43.33 per cent and 30.66 per cent of HDFCs respondents specified that processing time was less than 7 days and 7-15 days. Whereas 50.66 per cent of SBIs respondents claimed that the processing time was above 21 days. It was obvious that the loan processing of HDFC is much lesser than that of SBI, as it follows decentralization system is processing. As a factor it was ranked as second by the respondents of HDFC. The chi-square test was applied to test the hypothesis that the processing time varies according the institution.

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Rao/A Study on Comprehensive Problems of HDFC & SBI Home Loan Takers in Andhra Pradesh State H0: There is no significant difference between the institutions with regard to time taken for processing the loan, as against. H1: There is significant difference between the institutions with regard to time taken for processing the loan. From the data, the calculated Chi-square test statistic value 73.85 and the critical value at 5% level of significance for 3 degrees of freedom is 7.81. Since, calculated value is greater than the critical value. H0 is rejected. It can be concluded that there is significant difference between the institutions with regard to time taken for processing/sanctioning the loan. Repayment schedule: The loan is repaid in the form of installments. SBI offers the option of payment in the form of EMI only, where as HDFC offers various flexible repayment options like Step up Repayment Facility. Flexible Loan Installment Plan, Balloon Payment Plan and Structured Repayment Plan etc. Thus, these flexible repayment options given to the borrower, provides freedom to structure the repayment schedule to suit the individual needs.
Table.6: Shows Repayment schedule of the loan Repayment HDFC SBI Total Schedule EMI 136(90.7) 150(100) 286(95.3) Others 14(9.3) NIL(-) 14(4.7) Total 150 150 300

H0: There is no significant difference between the institutions with regard to the kind of security advanced to the institution, as against H1: There is significant difference between the institutions with regard to the kind of security advanced to the institution. From the data, the calculated Chi-square test statistic value 1.12 and the critical value at 5% level of significance for 2 degrees of freedom is 5.99. Since, calculated value is less than the critical value therefore H0 is accepted. It can be concluded that there is no significant difference between the institutions with regard to the kind of security advanced to the institutions. Awareness regarding recovery procedure followed by the concerned HFI with regard to the default loans: To know the awareness regarding the procedure that is being followed by the HFI with regard to the default loans, the respondents were asked about awareness and results were shown in the table.9.
Table.9: Shows Awareness about default loans Particulars HDFC SBI Total Yes 132(88) 122(81.3) 254(84.7) No 18(12) 28(18.7) 46(15.7) Total 150 150 300

It can be observed from the table.6 that, majority of the respondents of both HDFC and SBI opted for EMI. Very less percentage of respondents i.e. 9.33 per cent of HDFC opted for other methods of repayment. Opinion regarding procedural formalities: All the institutions sanction the loan after customers abide certain formalities, which differ from institution to institution. Respondents were asked to indicate their opinion on five-point scale and table.7 shows the opinion regarding procedural formalities towards HDFC and SBI.
Table.7: Shows Opinion regarding procedural formalities Days HDFC SBI Total Very personable 56(37.6) 26(17.7) 82(27.3) Reasonable 70(46.7) 50(33.3) 12(40) Un reasonable 22(14.7) 55(36.7) 77(25.7) Very unreasonable 2(1.3) 19(12.7) 21(7) Total 150 150 300

The table.7 reveals that, 37.33 per cent and 46.66 per cent of the respondents of HDFC claimed that procedural formalities are very reasonable and reasonable respectively, which is really noticeable with regard to SBI, 36.66 and 12.66 per cent specified that procedural formalities are un-reasonable and very unreasonable. This is the issue which has to be taken care by SBI. Security provided for getting loan: All the customers have to mortgage the property purchase/constructed as security, in addition to various other securities.
Table.8: Shows Security for obtaining Home Loan Type of Security HDFC SBI Mortgage 50(33.3) 46(30.7 Mortgage & Guarantee 50(33.3) 55(30) LIC Policy 47(31.3) 53(35.3) Collateral 3(2) 6(4) Total 150 150 Total 96(32) 95(31.7) 100(33.3) 9(3) 300

It can be revealed from the table.9 that, awareness level was high with regard to the respondents of both the institutions. 88 per cent of the HDFCs respondents and 81.33 per cent of SBIs respondents were aware of the concerned procedure. The Chi-square test was applied to test the hypothesis that the awareness about recovery procedure followed by the concerned HFI with reference to the default loans. H0: There is no significant difference between the institutions with regard to the awareness about recovery procedure followed by the concerned financial institution with reference to the default loans, as against H1: There is no significant difference between the institutions with regard to the awareness about recovery procedure followed by the concerned financial institution with reference to the default loans. From the data, the calculated Chi-square test statistic value is 2.57 and the critical value at 5% level of significance for I degree of freedom is 3.84. Since, calculated value is less than the critical value therefore H0 is accepted. It can be concluded that there is no significant difference between the institutions with regard to the awareness about recovery procedure followed by the concerned HFI with reference to the default loans. Availing tax benefits on Home Loans: The home loan borrower is eligible for certain tax benefits of principal and interest components of a loan under the Income Tax Act, 1961. The borrower can claim these benefits, whether he borrows HDFC or SBI.
Table.10: Shows Availing tax benefits Particulars HDFC SBI Yes 138(92) 142(94.7) No 12(8) 8(5.3) Total 150 150 Total 280(93.3) 20(6.7) 300

It can be seen from the table.8 that, there is equal response for various types of securities provided for getting loan. The Chi-square test was applied to test the hypothesis that the institutions vary in terms of security to be provided for getting loan.

Table.10, shows that 92.00 per cent and 94.66 per cent of the respondents belonging to HDFC and SBI are availing tax benefits. H0; Income level and availing tax benefits availed by the Home Loan borrowers are independents as against. H1: Income level and availing tax benefits availed by the Home Loan borrowers are independent. From the data, the calculated Chi-square test statistic value is 27.64 and the critical value at 5% level of

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Rao/A Study on Comprehensive Problems of HDFC & SBI Home Loan Takers in Andhra Pradesh State significance for 3 degrees of freedom is 7.81. Since, calculated value is greater than the critical value therefore H0 is rejected. It can be concluded that there is an association, all the borrowers are availing tax benefits irrespective of their income levels, and they are using home loans to reduce the tax burden. Overall opinion on Home Loans of HDFC and SBI: To know the satisfaction level of the customers with regard to the overall functioning of the loan of two HFIs under review, five-point scale has been used.
Table.11: Shows Overall perceptions on home loans of HDFC & SBI Days HDFC SBI Total Very good 49(32.7) 14(9.3) 63(21) Good 60(40) 39(26) 99 (33) Moderate 29(19.3) 50(33.3) 79(26.3) Poor 12(8) 40(26.7) 52(17.3) Very Poor NIL 7(4.7) 7(2.3) Total 150 150 300

It can be concluded from the table.11 shows that, 32.66 per cent and 40 per cent of HDFC are opined that overall functioning is very good and good respectively, which is noteworthy. 33.33 per cent of SBI respondents expressed its functioning as moderate and 26.66 per cent specified as poor. Difficulties in loan Sanction: The customers while taking the home loan from FIs may face certain difficulties like a too lengthy procedure, delay in processing & sanctioning of the loan, lack of communication, no transparency, unco-operative attitude of the staff members etc.
Table.12: Nature of difficulties faced by borrowers Nature of HDFC SBI difficulties Formalities 23 (15.3) 47 (31.33) Delay 18 (12) 61 (40.6) Communication delay 8 (5.3) 27 (18) No transparency 6 (4) 3 (25.3) Others 9 (6) 10 (6.6)

5. HFIs should inform the reason for rejecting the loan application. This will help the applicants in rectifying their mistakes. 6. To win confidence of the customer sand bring transparency in all the transactions, it is necessary that their loan accounts should be made available on the Internet. HDFC is the way ahead in these criteria. 7. The customers of SBI suggested that the loan processing/sanctioning time should be reduced further. 8. All employees, especially the front officers of SBI should be familiar with the details of Housing Loan schemes of their banks. 9. All information regarding Housing Loans should be available on the websites of the HFIs in an interactive mode. 10. There should be uniformity in loan sanction procedure, interest rate structure among the various lenders. CONCLUSION Thus, the Housing Finance in India faced a number of set-backs in decades, such as an unorganized market, development disparities and compartmentalized development approach. There was not even a concerted attempt to understand the housing problem let alone promote it. Reforms introduced in the sector during the 1990s, however, have overturned the situation to a great extent. The deigning of a shelter policy, the organization of the housing finance market, the introduction of fiscal incentives, increased public investment, legal reforms and others initiatives have brought about a number of changes in the housing finance. Home Loan providers should continue to address the huge potential in the industry and would maintain their focus on the individual loan segment. A trend that has emerged over the years in the housing finance is that the decreasing role of interest rates as a competitive tool. Service and product innovations are the key tools for success at present. BIBLIOGRAPHY 1. Annual Report 2008, Ministry of Urban Development & Poverty Alleviation, GOI. 2. Anto Antony. 2008, Registration cost slashed, Economic Times, Dec. 17, 2008. 3. Jasmindeep Kaur. 2008, Problems of Housing Finance in India, Abhigyan, Vol. XXV, No.4, Mar, 2008, pp 24-32 4. Jay Sampath.2006, Tackling rising home loan rates, Dalal Street, Vol XXVII, No.21, June-2006, pp 89-91 5. P.S.N. Rao.1998, Transformation of Housing Policy in India, Property India 1998 pp 23-30. 6. Praveen Gupta.2005, Housing Finance Companies An insight into regulatory aspects, The Chartered Accountant, Vol LIV, No.5, Feb-2005, pp 1010-1014. 7. Rao, P.S, Transformation of Housing Policy in India, Property India 1998, pp23-28. 8. Swapna Gopalan.2004, Functioning of Housing Finance institution, Business World, May-2004, pp 12-13. 9. V.Raghu.2003, Development of Securitization Market Mortgage backed Securities, Newsletter NHB, June2003, pp5-8. 10. Vijaya Bhole.1998, Housing & Urban development in India, Classical Publishing Company, New Delhi, 1988, pp43-47.

It can be observed from the table.12 depicts that, maximum proportion of the respondents of SBI faced the difficulties with regard to formalities to be fulfilled. Problems of the home loan borrowers 1. The home loan application/sanction procedure is too lengthy. 2. HFIs are collecting high amount of processing, administration, conversion fee and other charges like prepayment penalty. 3. The change in the terms and conditions especially with regard to interest rate changes are not being communicated. 4. The reasons for rejecting the loan application are not being informed. 5. Delay in loan processing/sanctioning time especially with reference to SBI. 6. There is no transparency in lending practices. SUGGESTIONS: 1. The loan application formalities should be simplified. 2. Most of the customers opined that institutions should not charge any processing, administration, conversion fee and other charges like prepayment penalty. 3. The customers also suggested that institutions should provide online approval of applications. 4. The change in the terms and conditions especially with regard to interest rate, the concerned customers should be informed.

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