PNB HOUSING FINANCE LIMITED

Strategy to Increase the

Existing Customer Base
With reference to the Delhi- NCR region
C h a y a n i k a D u t t a ( 8 9 / 0 8 )

6 / 2 0 / 2 0 0 9
PREFACE
“A good housing finance student must be able to cope with an
extremely complex and dynamic environment.”
Industry exposure is the most crucial part of the management studies in which a student is able
to synchronize his technical knowledge with practical knowledge gained from the organization
in which he gets his training.

We have a great pleasure in presenting this work as a part of the “Two years full time
management program”. We were allotted a project title …………………….at Punjab National Bank
Housing Finance, New Delhi Branch, which helped me a lot in knowing about the working of the
organization as well as about the housing sector in India and International Markets.

This research aims is to analysis Housing Finance on the basis of their services, products, growth,
and their subsidiaries. Because Housing Finance Companies are one of the main participants in
Real Estate Finance, they often act as an insulator for an economy.

I hope that the words of the projects will communicate the actual of experience gained with
subtlety and precision, which is unapproachable, by any other means.

2 PNB Housing Finance Limited

ACKNOWLEDGEMENT
Preservation, inspiration and motivation have always played a key role in the success of any
venture. In the present world of competition and success, training is like a bridge between
theoretical and practical working; willingly we prepared this particular Project. First of all we
would like to thank the supreme power, the almighty god, who is the one who has always
guided us to work on the right path of our life. We would like to thank P r o f . G . L . S H A R M A for
granting me permission to undertake the training in this esteemed organization.

We express our sincere thanks to

a i n ( E x e c i c e e s i d e n t , u s i n g F i n a n c e

M r . P . K . J . V P r P N B H o

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

L .

express our earnest gratitude to for his valuable

a i n ( i c e e s i d e n t , D e l h i a n c h )

M r . R . K . J V P r B r

support. We express our greatest gratitude to our mentor, guide and supporter
s h i v a n i

M r . S

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

N r

project, without which we would not have been able to complete this project successfully. I also
thank the other staff of who devoted their valuable
u s i n g F i n a n c e , D e l h i a n d D

P N B H o N O I A

time by helping us to complete my project.

We also thank to & others faculty members of

s n u p i y a i n g h a l a h a d u h a s t i

M r . A r S L B r S r

, for their valuable suggestions and help.

n s t i t u t e a n a g e m e n t

I o f M

Last but not least, our sincere thanks to our parents, family and friends who directly or indirectly
helped us to bring this project into its final shape.

PNB Housing Finance Limited 3

STUDENTS UNDERTAKING

The Project is submitted to Lal Bahadur Shatri Institute of Management,

Delhi, Summer Training Project as part of curriculum for MBA

Project Guides:

Company Name – PNB Housing Finance Limited

Company Mentor- Mr. P.K Jain,

Executive Vice President (Credit),

PNB Housing Finance, Ltd.

Faculty Mentor- Ms. Anupriya Singh,

Faculty,LBSIM

Chayanika Dutta (89/08)

4 PNB Housing Finance Limited

Letter of Authorization

To whomsoever it may concern

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

(Academic Session 2008-10) at Lal Bahadur Shastri Institute of
Management, Delhi accomplished her ‘Summer Internship Project’ at
PNB Housing Finance Limited, Corporate Office, New Delhi, from April
20th, 2009 to June 20th, 2009 and prepared a Project Report on the “Strategy
to Increase the Existing Customer Base- With Reference to Delhi-
NCR Region”.

We wish her good luck for all future endeavours.

(P. K. JAIN)
Executive Vice President (Credit)

PNB Housing Finance Limited 5

Table of Contents
S. No. Particulars Pg. No.
1. Executive Summary 10
2. Introduction 11
3. Housing Scenario in India (HFCs) 13
4. Marketing Profile of Housing Finance Companies 18
5. Trends in Housing Finance Sector 20
6. PNB Housing Finance Ltd. 21
7. Objective of Study 30
8. Research Methodology 31
9. Research Questions 32
10. Interviews with the staff 33
11. Existing Customer Survey 34
12. Study of Builders 41
13. Study of Prospective Customers 44
14. Results 49
15. Conclusions and Recommendations 50
16. Limitations 51
17. Appendices 52

6 PNB Housing Finance Limited

List of Tables
S. No. Particulars Pg. No.

1. Level of Satisfaction 38
2. Work Division of Builders 42
3. Financing Companies for Builders 42
4. Findings for Builders 43
5. Companies Opted for by Prospective Customers 45

PNB Housing Finance Limited 7

List of Graphs
S. No. Particulars Pg. No.
1. Purpose of Taking Loan 35
2. Amount of Loan 35
3. Mode of Awareness 36
4. Consideration of Other Financial Intuitions 36
5. Reason for Choosing PNBHFL 37
6. Age of Respondents 37
7. Time Period 41
8. Already Decided on Financer 44
9. Company Opted for 46
10. Aid to Decision 46
11. Type of Financer 47
12. Awareness about PNBHFL 47

8 PNB Housing Finance Limited

List of Appendices
S. No. Particulars Pg. No.

1. Questionnaire for Existing Customers 54

2. Questionnaire for Builders 56

3. Questionnaire for Prospective customers 58

4. Data Sheet of Existing customers 60

5. Data sheet of Builder Survey 63

6. Data Sheet of Prospective customers 66

7. Bibliography 67

PNB Housing Finance Limited 9

Executive Summary
There is growing competition between open hands, at an young age because of
Housing Finance firms in post reform India. growing opportunities for Youthful India.
For a layman, it is always difficult to decide
The major findings of this study are that
which housing finance company to choose.
there is a huge demand for housing finance
The project undertaken at Punjab National
companies, and it is time for PNBHFL to pull
Bank Housing Finance Limited gave a deep
up their socks to become one of the the top
insight about the housing needs of the
housing financial companies in India
individuals as well as the understanding of
the real estate sector. It also helped to Through this report we were also able to
understand the working of an organization understand, what are our Company’s (PNB
and how the various departments interact Housing Finance) positive and strong points,
with each other and carry on various on the basis of which we come to know
operations. what can be the best ways for company to
increase its market share. We also gave
Research was carried out to find which
suggestions to the company, what
housing company people prefer and to
improvement can be done to our products.
figure out what people prefer while
selecting a housing finance company.

This study suggest that people are opening

up towards housing finance companies with

10 PNB Housing Finance Limited

Introduction
Roti, kapda aur makan an average Indians • Loans on Adjustable Rate, Fixed Rate
requirement hasn’t changed much since the with money market condition and Fixed
phrase famously gain currency in 1970’s. Rate without money market conditions.
India has made headway on all three counts
and especially the last. Cheap funds to
E F F C E

V O L U T I O N O H O U S I N G I N A N

build that aspiration The implementation of housing

makan are much more finance policies pre-supposes
The NHB was
easily available now. efficient institutional
established in July
arrangements. Although there
The definitive dream
1988 under the were a large number of agencies
of an individual, a house
National Housing providing direct finance to
that appeared distant a
Bank Act 1987 as individuals for house
few years, is easily
construction, there was no well
achievable today. an apex bank, on
established finance system till
Housing loan in the lines of IDBI mid-80s, in as much as it had not
traditional sense means
and as a wholly been integrated with the main
finance for buying /
owned subsidiary financial system of the country.
modifying a property.
The different housing of RBI The NHB was established in July
loan products offered by 1988 under the National Housing
HDFC are as follows- Bank Act 1987 as an apex bank, on the lines
of IDBI and as a wholly owned subsidiary of
• Home Loans, Home Improvement
RBI. It is the principal agency to promote
Loans, Home Extension Loans, Loans to
housing finance institutions at the regional
professionals for office or clinic, Home
and local levels and to provide financial and
Equity Loans (Loan Against Property), Loan
other support to such institutions
Against Rent receivables, Short Term
connected with the housing and human
Bridging Loan.
settlements.

PNB Housing Finance Limited 11

The system has also been characterized by
the emergence of several specialized
financial institutions, which are
considerably strengthened the organization
of housing finance system in the country. At
present there are 320 housing finance
companies of which few are registered
under NHB which accounts for 98% of the
country’s total housing disbursement.
Housing finance as a financial intermediate
process commenced only in 1978, which
begin with the establishment of Housing
Development Finance Corporation (HDFC)
as a specialized leader to households and
corporate entities specifically for housing
purpose. State housing boards like MHADA
were introduced further for promotion of
housing industry.

The second pillar of the initial stage was the The robust growth in the demand for
cooperative movement catering largely to housing finance in the recent years has
the private sector. Households were been remarkable. Lower interest rates, tax
encouraged to form cooperative societies, incentives home ownership, massive
invest initial capital for land purchase and competition by providers of housing finance
then were financed by the level apex has helped consumers considerably. The
cooperative housing finance companies, primary market for housing finance has now
which in turn were financed by the LIC, matured. We need to move on to the next
which set aside a particular quantum of stage very quickly.
their investible resources for this purpose.

The third pillar was the housing building

advance made to employees of the public
sector cooperation and financial institutions
as well as to civil servants. Capital formation
in housing for the rest of the private sector
is left almost entire to the market forces. It
is estimated that about Rs. 7000 crores has
been the total formal sector’s finance for
housing which are netting out internal
sectoral flows, workout out to roughly half
the gross figure i.e. Rs 3500 crores.

12 PNB Housing Finance Limited

Housing Scenario in India (HFCs)
Today we are looking at the Housing which was hopelessly down is now having
Scenario at a stage when the National hopes of revival.
Economy is on the road to revival, after
It is only housing, amidst all
reeling under depressive
these that seems to have kept up
conditions for over the The potential for
fairly stable front. Yes, the late
last three years. The
housing in this 90s saw even housing go through
growth rate of the
country is huge by a bad phase. But, then with that
economy might go up to
NHB estimates. phase crossed, there has been a
levels up to 6%, if the
steady revival and stabilization of
revival is kept up. Share And the
the market at levels which can
markets are not entirely requirements by be termed as reasonable from
looking up, though they
NHB estimates are the point of view of both the
are stabilizing at levels
around 20 million customers and those on the
which can be termed as
supply side. Housing is a basic
reasonable. houses. There are
need and like any basic human
other estimates
Industrial growth rate need will be constantly in
which was wallowing at which suggest that demand. The potential for
a low of 1.5% is now at it is at a much housing in this country is huge by
around 5%. In fact, higher level. NHB estimates. And the
industrial credit given requirements by NHB estimates
out by banks which in normal times would are around 20 million houses. There are
be about 4-5 times of bank credit given to other estimates which suggest that it is at a
housing, had in the last few years reduced much higher level. Even going by the
to levels below advances to housing loans. conservative estimate taken by the NHB,
But the happy feature is that industrial the requirements in the area of housing are
growth is picking up. Even, the steel sector massive.

PNB Housing Finance Limited 13

This really means that a lot of investments construction industry through the joint
can be there in the coming years and there venture route.
is room for multiple players. Going by
As far as availability of finance to the retail
figures of amounts given out by the
customers is concerned, there has been a
organized financial sector, the average of
tremendous improvement in the possibility
money being advanced for purchase of
over the last few years. There are over 32
housing is in the range of 20 to 25 thousand
NHB recognized Housing Finance
crores every year over the last five years. In
Companies which dot the map of this
the next five years these may be in the
country with their presence all-over. The
region of 70-75 thousand crores.
nationalized banks have in addition made
There is also talk of housing a thrust area and added
foreign direct investment to the reach for advancing loans
There are over 32
coming in. this will add to individuals. Leading Housing
to the capabilities of the
NHB recognized Finance organizations like the
financial sector in Housing Finance HDFC, ICIC also have a
meeting the Companies which widespread network all over the
requirements in the area country giving out loans to
dot the map of this
of housing. The customers for housing. The
country with their
considered view on FDI is banking major, SBI covers over
that it would not in any presence all-over 500 centers through their
way present hardships to branches where personal
the local developer community. They may banking division functions. The other banks
on the other hand enable the local too are not far behind in their reach out to
entrepreneurs to organize the construction the house purchasing public. Banks have
industry in a more stable way. The reason come into this sector at a time when credit
why I venture forth to say this is that off take in the industrial sector has been
finance has been one of the areas of low. With lot of funds waiting to be
uncertainties as far as investments into the deployed, the housing scene presented an
construction industry are concerned. FDIs attractive option to the banks to channelize
might end up strengthening this area by their funds. This was particularly so,
bringing in finance and steadying the because in the housing sector advances are
given against mortgage of assets, which

14 PNB Housing Finance Limited

continue to carry value, and therefore make
the loans considerably safe. Even by the
experience of the housing sector in India,
NIRs have been some of the lowest as
compared to any other sector of advance.
of RBI which has been constantly giving a
signal for a soft interest regime has been
lowering its bank rate and CRR constantly
thus, enabling banks to have recourse to
greater liquidity at lower cost.

The other significant factor that has kicked For the Housing Finance Institutions
up a lot of activity in the however, there has been a
recent past, in the difficulty of their being able to
housing area, is today’s For the Housing match such interest rate
steadily falling interest Finance reductions, since the cost of
rates of loans. The Institutions funds borrowed earlier, kept the
customers today enjoy average cost a fairly high levels.
however, there has
tremendous choice and But then they have fallen in line
can approach those
been a difficulty of with the market to remain in
giving out finance at their being able to contention. This has had the
lowest rates. The fall in match such interest result of even bringing down the
the rates has been spread for the Housing Finance
rate reductions,
phenomenal over the Companies.
since the cost of
last 4 to 5 years. From
The customer who is purchasing
rates that were around funds borrowed
a house today has not only the
15% and over, they have earlier, kept the
options of competitively lowest
plummeted to around average cost a rates of interest, but also choice
9% and even lower. The
fairly high levels. of different types of loans
changes have come so
starting from the house-
thick and fast that an
purchase or house-building loans to house-
organization like ours has had to revise
improvement loans, home equity loans
interest rates over a dozen times in the last
[loans on mortgage of property], home
2 years. Banks which are outside the
extension loans, NRI loans etc. It has never
purview to regulations of the NHB have
been better than this ever before.
enjoyed certain added advantages too in
the matter of their ability to compete in While this is such a positive development,
terms of interest rates. The monetary policy as far as the home seekers are concerned,

PNB Housing Finance Limited 15

the lot of home builders is still a long way One of the reasons why financiers shy away
behind the satisfactory levels. Even today, from developer-finance is that the
with the organized groups of Developers, developers are not systematically organized
being by and large, quite influential, still like the Corporates. Their picture is not
availability of institutionalized finance, as a transparent; the variations are from a
regular source, has been almost absent as proprietorship builder to partnerships,
far as the average Developer is concerned. closely held family concerns, Private Limited
Companies, Public Limited Companies etc.
This has been an area of major concern for
Often the company that comes out to
the Builders. The more enlightened
borrow is part of a bigger group
platforms of developers
and the credentials presented
at National levels like One of the reasons for assessment do not carry the
CREDAI and NAREDCO
why financiers shy total financial picture of the
have been trying to
away from group. There is a difficulty about
grapple with this matter
assessing track record of small or
to bring about some developer-finance
medium builders since they keep
stability on this front. In is that the
changing their names and one
fact the Housing Finance
developers are not can’t push back enough to know
Companies and the
systematically the full picture. Even when
representatives of the
financials are presented they are
developers have been organized like the
not professionally done and
sitting together to thrash Corporates.
there is difficulty in looking at it
out some commonly
as one would look at a regular
agreed methods whereby finance to
corporate business house. A lot of deals do
developers can be a more dependable
not get reflected in the financials since two-
arrangement. Surprisingly, it is this attempt
levels deals, namely cash the cheque, make
by the developer community that has even
it difficult for clear assessment of actual
forged a common platform for the HFCs to
position. Individual developers keep having
meet! Credit is certainly due to the
incomes moving up and down over the
Developers’ organizations for having
years which again is a reflection of booking
brought the HFCs closer, in their own quest
of income only when sale results. Since
for a solution to the area of construction
project work and sale alternate at different
finance.

16 PNB Housing Finance Limited

levels, incomes too fluctuate, making it
difficult for assessing a picture of stable or
growing incomes. Since there is so much
variety thrown in, the financial companies
find it very difficult to evolve standardized
set of norms for lending to developers. In
fact, after the experience of wholesale
defaults in the loan account of the Builders
in the late 90s, the financial companies
have only selectively moved forward with
finance to developers.
One of the most important requirements
from the side of organizations like
NAREDCO and CREDAI is that the Builder
community needs to he helped to organize
themselves on professional lines. A certain
uniform set of accounting practices need to
be followed. The developers also need to
bring certain uniformity in their practices as
far as the house purchasing customers are
concerned. In the context I would like to
quote Shri Deepak Parekh, The HDFC
Supremo, who gave a call in the recently
concluded CREDAI National Convention to
the developers on a few important things.
Shri Parekh appealed to Developers to go
by carpet area, and charge, if required,
additionally on sq. ft rates for the super
plinths area which provided common
services. This would make it very simple for
the customer to understand what area he
stands to have in the flat he is about to
purchase. The other practice relates to
payment being made by purchasing
customers at time periods specified in the
agreement. His point was that these
payments should be related to progress of
constructions and not merely on time
schedule. The third point he mentioned was
regarding two-level pricing. A number of
these aspects will need to be considered by
the developers. They need to make their
various centre-level associations bring in
some standards in the working of the
developers. Together the industry should
present a picture of confidence, if financers
and customers are to look at them with a
sense of reliability. While at the top levels
big developers are well organized and
institutionalized, a lot of the others in the
field are not giving out such signals of
confidence to financiers. Therefore, the role
of NAREDCO and such organizations would
be to bring in uniform standards and
practices amongst Builders so that they
would be in a much better position to look
at institutional help which is today so much
conspicuous by its absence.
PNB Housing Finance Limited 17
Market Profile of Housing Finance
Sector
The need for housing a population of 1
billion plus cannot be underscored. Despite
this realization, nothing substantial has
been achieved in policy framework until
recently. Outdated laws-some of which
continue to hamper proper development of
debt instruments in the housing finance
sector-posed major hurdles for the industry
to take root in India . The banking norms, as
they existed until 1990’s prevented
commercial banks from participating in the
housing finance sector. But over the last
four years the federal ministry and the
Reserve Bank of India (RBI) have
reconstituted the institutional framework
for consumer finance.
The industry is at a nascent stage when
compared to developed western economies
or even the South East Asian economies.
While mortgage is an established business
practice in the Indian housing finance
market, securitization-in a formal sense-is
absent.
The housing finance industry in India is
estimated to be approximately US $ 5
18 PNB Housing Finance Limited
billion (INR 250 billion. US $ 1= INR 49). The
market grew at 35 to 40 percent per annum
for the last five years, and is expected to
grow at 40 percent compounded annual
rate over the next decade. The main players
in this industry are housing finance
companies, commercial (local as well as
foreign) banks, cooperative banks and other
non-banking financial companies (NBFCs).
Traditionally, the share of the housing
finance companies has been larger as
compared to the other players but it has
begun to dwindle over the last two
decades. The commercial banks are set to
take the major portion of the pie in the next
two to three years.
Following are the prime reasons for a high
annual growth in this sector.
: The National Housing Bank
D e m a n d
•
(NHB) puts the shortage of housing units in
India to 19.40 million units (2001). The total
demand for housing does not automatically
get translated into demand for housing
finance. Primarily, the housing finance and
the construction industries have
concentrated on the urban market where The federal government has
l i c y :

• P o

the demand for housing was 9.4 million taken several measures in its annual budget
units (2001). to encourage housing finance industry. The
direct tax rebate on housing loans for
Affordability has two
d a b i l i t y :

• A f f o r

individual taxpayers has provided the

aspects: Affluence and the price stability.
single-biggest push for generating more
According to various estimates there at
demand for housing mortgages. In addition,
least 150 million Indians who are able to
National Housing and Habitat Policy
and willing to benefit from the consumer
announced in 1998 has redefined the
finance industry. Today, a house costs just
priorities for the housing industry and
about 3-3.5 times an individual’s annual
delineated the focus areas for housing
salary as against 15-20 times, more than a
finance industry.
decade ago. The plateauing of the real
The securitization
e c u i t i z a t i n :

• S r o

estate prices in India has meant that there

is a match between income and price for
the product. Prices have risen at an annual
rate between 5 to 8 percent.
C m p e
market in India, though in its infancy, holds
great promise especially in the mortgage
backed securities (MBS) area. While more
complex securitization transactions and
public issuance of securitization paper are
The RBI’s guidelines for
t i t i n :

• o o

still a distant dream, appropriate legislation

commercial banks to earmark 3 percent of
and investor education can give the
their incremental deposits for housing
securitization market in India a much-
finance have opened the floodgates for the
needed thrust. During the last two years,
industry. More players, ever lowering
the federal government has changed
interest rates, better and varied services
several rules to enable the development of
have ensured more growth.
primary and secondary market in housing
finance sector.

PNB Housing Finance Limited 19

Trends in the Housing Finance
Industry
• Lowering of real estate prices to
The Indian housing finance industry has
affordable levels
grown by leaps and bounds in past few
• Greater amount of professionalism
years. Total home loan disbursements by
being exhibited by developers and
Banks and Housing Finance Companies
builders who are today acquiring
(HFCs) has risen from Rs. 29359.29 crores in
clearer titles and are doing more
2001-02 to Rs 51672.7 crores in 2002-03
timely completion of projects
witnessing a phenomenal growth of 76%
• Investment options have dried up
during this period.
with lower interest rates in banks
The robust growth experienced by the
and the stock market being down
industry in the last few years has been
for number of years
triggered by a number of factors, some of
• Slashing of interest rate on home
which are listed below: loans

• Tax rebates on housing loans

20 PNB Housing Finance Limited

PNB Housing Finance Limited
Products offered by PNB Housing Finance Ltd.

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

1. Apna Ghar Yojna

2. Ghar Sudhar Yojna
3. NRI- Housing loan Scheme
4. Loan Against Property
5. Loan for acquisition of commercial property

1. APNA GHAR YOJNA

A. The Scheme was approved w.e.f Oct.1989 for financing the individual for:-

B. Construction of house
C. Purchase of House Flat
D. Extension/Structural modification of the existing house
E. Purchase of semi-built house/flat and completion thereof
F. Purchase of expandable house and expansion thereof.

The cases for addition/extension are considered only if it results in extra floor area. This
should be supported by the construction/ remodeling plan duly approved by the competent
local authorities, wherever necessary. Sanction of loan ‘in principle’ may be considered
where property is yet to be identified.

Eligibility

Any person who is in permanent service or in business or practicing any profession. Age of
applicant should not more than 60 years in case of service class borrowers and 65 years in
case of businessmen/self employed people.

PNB Housing Finance Limited 21

 Co-applicant

Co-applicant can be spouse, father, mother, son or daughter. In case daughter as co-
applicant , generally one daughter should be taken as co-applicant. In case the property
intended to be purchased / constructed is in joint names, generally all the owners will be
considered as applicants for the purpose of loan.

Minimum and maximum loan amount

The minimum amount is Rs.50000/- and there is no upper limit on the loan amount, which
depends on the repayment capacity of the borrower.

Margin

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

Repayment period

From 1 year to 20 years.

2. GHAR SUDHAR YOJANA

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

A) For repair of existing house

B) For renovation of house
The Scheme was approved w.e.f Oct.1989 for financing to individuals for:-

C) For repair of existing house

D) For renovation of house
The Scheme was approved w.e.f Oct.1989 for financing to individuals for:-

E) For repair of existing house

F) For renovation of house

22 PNB Housing Finance Limited

Eligibility & Co-applicant condition

Same as in the case of Apna Ghar Yojna.

Minimum & maximum loan amount

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

Margin

Margin should be at least 25%.

Repayment Period

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

3. NON RESIDENT INDIAN (NRI)

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

A) Construction of house
B) Purchase of a house/flat
C) Extension/structural modification of the existing house or flat.
D) Purchase of a semi-built house/flat and completion thereof.
E) Purchase of expandable house and expansion thereof.

Eligibility

Loans shall be given to Indian Citizens or persons of Indian origin holding Indian passports
having the status of NRI on deputation/employment/assignment or engaged in any business
contract or constancy abroad.

Purpose

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

PNB Housing Finance Limited 23

 Application

An NRI can either make a loan application himself or through a duly authorised power of
attorney. He would also be permitted to apply for such loan with NRI/ Indian resident co-
applicants.

If the application is made through power of attorney, it has to be ensure that the attorney
has specific powers to apply for loan, to negotiate terms, to execute documents, to avail
loan, to create security and to execute documents thereof etc.

Age

The maximum age of the applicant should not be more than 55 years.

Amount of Loan

The minimum amount of loan is Rs.200000/- and maximum shall be Rs.5000000/- subject to
repayment capacity.

The repayment capacity of the borrower shall be determined taking into account income,
age, qualification, work experience, spouse’s income, assets, liabilities, continuity of
occupation and alternate employment prospects in India on return.

Margin

The borrower contribution shall be minimum 25% of the total cost. Margin is to be provided
out of NRE/NRO account of the borrower or by direct remittance from abroad through
normal banking channel.

4. LOAN AGAINST PROPERTY

This scheme of PNB Housing Finance Ltd. was applicable from 1/4/2001.

Purpose of loan

24 PNB Housing Finance Limited

 For personal requirement of borrowers such as education, marriage of children, family
function, foreign travel, medical expenses, furnishing the house, buying a computer or the
consumer durable, etc. by mortgaging their existing residential immovable property.

Period of Loan

Loan is available for maximum of 10 years.

Margin and Loan Amount

The maximum amount of the loan under the scheme is Rs.50 lacs. The margin for the loan is
50% of the market value of the property as certified by the approved valuer OR actual loan
eligibility as determined on the basis of repayment capacity of the borrower, whichever is
less.

Interest Rate

The applicable interest rate is linked to the interest rate for housing loan. It would be 2%
above the rate applicable to Individual Housing Loans for same amount and same period,
on annual reducing basis. The rate of interest would remain fixed for entire tenure of loan.

5. LOAN FOR ACQUISITION OF COMMERCIAL PROPERTY

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

Purpose

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

homes/clinic/diagnostic centre and to schools, colleges and institutions for their hostels and
office requirements and for cyber cafes in approved areas.

Maximum Loan Amount

It is 70% of the cost of property subject to the maximum of Rs.25 Lacs for individuals and
Rs.50 lacs for bodies corporate. In case of corporate, loan amount shall stand restricted to
25% of net worth of the company.

Interest Rate

PNB Housing Finance Limited 25

 It would be 2% above the rate applicable to Individual Housing Loans for same amount and
same period, on annual reducing basis. The rate of interest would remain fixed for entire
tenure of loan.

Repayment

Loan is repayable within the period 10 years.

6. COMPOSITE HOUSING LOAN TO INDIVIDUALS

Purpose

Composite Housing Loan in PNB Housing Finance Ltd. is sanctioned for the purchase of
plot/semi built house and subsequent construction/additional construction or extension ,
subject to the repayment capacity of the applicants as per the scheme under which loan is
being considered.

Loan Amount

A) Maximum loan amount is as per the scheme under which the loan is being considered.
B) While sanctioning composite housing loan, component of loan for purchase of house/flat
and component of loan for subsequent additions/extension may be determined separately
by referring to the respective cost.
Margin

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

Disbursement

Loan component for purchase of house/flat is released after the borrower complies with the
stipulations contained in the respective schemes, but the loan component for additional
construction/extension in all cases is released only after the borrower has taken possession
of the house/flat, execution of the deeds and creation of valid equitable mortgage of the
property in favour of PNB Housing Finance Ltd.

26 PNB Housing Finance Limited

7. ADDITIONAL HOUSING LOAN

Under Apna Ghar Yojna or Ghar Sudhar Yojana PNB Housing Finance Ltd. grants additional
housing loan to employees of Punjab national Bank, employees of other Nationalised banks,
Govt. Bodies, Quasi Govt. Bodies, Statutory Bodies, reputed private banks, foreign banks and
other similar organisation on second/pari-passu charge. The details are as under:-

A) Additional Housing Loan to Employees of Punjab National Bank Eligibility

All employees of Punjab National Bank who have availed housing loan from the bank are eligible
to avail the loan from PNB Housing Finance Ltd.

Purpose of Loan

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

existing accommodation or for repair and renovation of existing house.

Amount of Loan

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

the maximum amount of loan is based on the repayment capacity of the borrower, in
addition to the loan sanctioned by the bank under its scheme of housing loan to employees.
However, the actual loan amount is determined on the basis of repayment capacity of the
borrowing employee, by referring to maximum permissible deduction, and subject to
minimum margin requirement of 20%.

For repair and renovation , 75% of the estimated cost of repair/renovation subject to a
maximum of Rs.500000/- for a maximum span of 10 years.

Fee

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

Repayment

PNB Housing Finance Limited 27

 The loan instalment of PNBHF loan is deducted by the employer from the salary of the
borrower employee and remitted to PNBHF every month. Where the employer categorically
declines in writing such deduction from salary of the borrower, post dated cheques may be
accepted. The entire loan together with interest is repayable in equated monthly instalment
within a maximum period of 20 years or the remaining period of service, whichever is lower.

Security

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

i) Second charge on the property for which the loan has been sanctioned, the first charge
being in favour of the bank by way of equitable mortgage of the property.
ii) Additional/collateral security

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

GOVT. UNDERTAKINGS ETC.

Eligibility

The employees who have availed housing loan from the employer are eligible to avail AHL
from PNB Housing Finance Ltd.

Purpose

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

flat,repairs renovation of the existing house.

Security

A) Security for additional housing loan shall be pari passu/second charge by way of equitable
mortgage/registered mortgage of the property being financed, the first charge being in
favour of the employer of the borrower.
B) Other additional/interim security such as Life Insurance Policies, Guarantees from sound
and solvent guarantors and pledge of investments may also be insisted
upon.

All the other conditions such as margin, fee , interest rates etc are same as in the case of
Apna Ghar Yojna and Ghar Sudhar Yojna Schemes.

28 PNB Housing Finance Limited

8. COMPOSITE HOUSING LOAN TO INDIVIDUAL

Purpose

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

construction or extension, subject to the repayment capacity of the apllicant as per the
scheme under which the loan is being considered.
B) Purchase of plot and construction thereof.
Loan Amount

Maximum loan amount is as per the scheme under which the loan is being considered.
While sanctioning composite housing loan, component of loan for purchase of
plot/house/flat and component of loan for subsequent construction/addition/extension
may be determined separately by referring to the respective cost.

Margin

Margin on the entire loan amount/total cost is maintained at the rate as prescribed in the
scheme under which the loan is being considered. In case of purchase of plot plus
construction, margin required at the time of purchase of plot is minimum 30% and for the
entire project it id minimum 20%.

Disbursement

Loan component for purchase of house/flat/plot is released after the borrower complies
with the stipulations contained in the respective schemes, but the loan component for the
construction/additional construction/extension in all cases is released only when the
borrower has taken the possession of the house and property is being mortgaged with PNB
Housing Finance Ltd. Also the approved construction plan is also obtained before the
disbursement of second portion.

Interest and Other Charges

Interest rates are applicable as per the scheme in which the loan is being financed also the
upfront fee is payable as per the fee structure in that scheme.

PNB Housing Finance Limited 29

Objective of the Study
To study that how can PNB Housing Finance can increase its customer base and can increase its
market share from Rs. 700 cr to 1100 cr.

While pursuing my project secondary things in my mind were:

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

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

To understand customer behaviour and conduct a customer satisfaction survey.

To understand the network of PNB Housing Finance with Builders .

To compare other housing finance companies and the services provided by Top five
Housing finance companies on different parameters.

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

To learn about Project financing

To learn about Resource mobilization.

To learn about concept Of Non performing Assets

30 PNB Housing Finance Limited

Research Methodology
The research project was exploratory in customer interviews were telephonically
nature. The aim was to expand the existing conducted as well. However, most of the
customer base. So, probe had to be done customers were personally visited.
into the factors that motivates a person to
The third stage was to conduct a sample
take a housing loan from a particular
survey of the builders. This survey was
company and where PNBHFL has scope of
conducted in order to find out the
improvement. To start with, unstructured
perspective of the builders while getting
interviews of all ranks of staff of the
finance for their projects. As builders are
company were conducted. The results of
an important aspect of the marketing
these interviews gave direction to the
channel of a housing finance company, this
further studies conducted.
survey proved to be very valuable.
To expand the existing customer base of
The fourth and the final stage of the project
PNB Housing finance, the next step was to
was to conduct a sample survey of
study the existing customers of the
prospective customers in order to make the
company. This was done with the help of a
strategy more directed to cater to the
sample survey of the existing customers
needs of the prospective customers. It was
which posed questions regarding their
really very difficult to generalize a set of
decision to choose PNBHFL and their level
characteristics for the prospective
of satisfaction with the services provided by
customers. So, a pure random sampling
the company. The survey was conducted on
technique was adopted. The data was
a random sample of 50 customers from the
collected from people visiting property
Delhi branch of PNBHFL. Some of the
dealers, builders’ on site offices.

PNB Housing Finance Limited 31

Research Questions
Research questions are the questions whose answers are sought by the researcher. These
questions are the object of carrying out the research. The completion of the project is
dependent to a huge extent on the proper formulation of the research questions. The research
questions give a direction to the project and it is on the basis of these research questions that
the whole project is laid out and divided into various
parts.

The current research The Four stages of project Objective of the research
project undertaken was the project were: to chalk out a strategy to
increase the customer base of the company. Thus, the
Interviews of staff
few basic research questions were:
Survey of existing
1. Who is the customer for housing
loan? customers
2. How do the Survey of builders customers finalize a
housing finance institution?
3. What is the Survey of existing customer base
of PNB Housing prospective Finance Limited?
4. Which customer base, the company is still
customers
not targeting?
5. What should the company do in order to
target more customers?

32 PNB Housing Finance Limited

Interviews with the Staff
The exploratory project began with the 1. All the marketing decisions are taken at
unstructured interviews of the staff across the top management level. The
all the ranks of the company. This was no branches are entrusted with the
sample survey and anyone who was willing operational part of the activities.
to answer the questions 2. The only marketing decision
was chosen for the Apart from the that can be taken at the
interviews. Apart from branch level is the
staff, the Direct
the staff, the Direct recruitment of the DMAs.
Marketing Agents
Marketing Agents (DMAs) 3. All the branches have their
were also interviewed. (DMAs) were also respective disbursement
The DMAs are the interviewed. targets, i.e. the amount of
marketing agents of the The DMAs are the advances that have to be
company who are not the made in a particular period.
marketing agents of
regular employees of the However, these targets are
company but are paid on
the company who usually unrealistic and there
commission basis in serve as the is no reprimand for a branch
accordance with the marketing-force of not reaching its target.
business brought by 4. The score-sheet used by the
the company
them. They serve as the company to evaluate the
marketing-force of the credibility of a customer is
company. heavily biased towards the salaried-
class of people or professionals like
The findings of this step were used in the
doctors, engineers etc.
subsequent steps to carry out further
5. The time taken to process a loan differs
research.
from branch to branch and even in the

The key findings of these same branch, from time to time

depending on the staff of the branch. A
interviews are as follows:

PNB Housing Finance Limited 33

 striking example in this context is that but after a change of staff, it now takes
of the Delhi branch where previously, a 8-10 days.
loan used to take 3-5 days to process,

Existing Customer Survey

The second stage of project was the conduction of existing customer surveys. In this process, a
questionnaire was developed based on the information acquired in the previous step and
studying the secondary literature available. The questionnaire is enclosed at the end of the
report.

Hypothesis:

1. : Customers coming through the builders are less likely to consider other banks or
H 1 1

financial institutions for getting finance.

Designing Sample Survey:

The target population is the existing customer of PNBHFL, Delhi. For every loan granted, the
branch prepares two files- loan file and correspondence file, corresponding to it. Every file has a
serial no. which is the account no. of the loan granted. Thus, the sample frame is the list of all
the accounts with the branch.

The sample is picked using technique. The file number of the latest
s t a t i i e d a n d m s a m p l i n g

r f r o

loan granted was taken. Starting from that file no., (counting backward) every 10th file was
taken. After drawing out 25 files in such manner, instead of the 10th file, every 20th file was
drawn for the next 20 files. For drawing out the last five file of the sample, every 50th file was
taken out. In case of non-availability of a particular file, a file adjacent to that file was drawn out.

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

34 PNB Housing Finance Limited

Data Analysis

1. Purpose for taking the loan

It was found out that more than 80% of the loans are granted as individual housing loans
under the ‘Apna Ghar Yojana’

2. Amount of the Loan

More than 60 percent of the existing loan is of amount less than or equal to Rs. 15 lacs. The
reason for the same was sighted by the branch officials was that for a loan amount
exceeding Rs. 20 lacs, permission has to be taken from the Head Office in each case.

PNB Housing Finance Limited 35

3. Mode of Awareness

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

Recommendations of friends and relatives who are existing customers or employees
amount to 16% of the customers. DMAs had brought 20% of customers.

4. Considered other financial institutions before coming to PNBHFL

36 PNB Housing Finance Limited

 A very startling fact observed was that while taking a home loan, most people opt for the
first company they go to. In this case only 20% went to other companies before coming to
PNBHFL.

5. Reason for Opting PNBHFL

Almost 50% of the customers sighted the name ‘PNB’ as a reason to stay. In the category of
‘Others’ the most common reason mentioned was that they did not have any other choice
or that easy availability was most important for them.

6. Age of Taking Loan

PNB Housing Finance Limited 37

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

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

2. PNBHFL prefers customers in the age group of 25- 35 years as the residual earning age is
safe to give a loan.
7. Level of Satisfaction

a a m e t e v e a g e a t i s a c t i n t d D e v i a t i n

P r r A r S f o S . o

3.84 0.74
i m e a k e n

T T

2.78 0.93
n t e e s t a t e

I r R

3.48 0.99
E a s e p e n i n g a n c c u n t

o f O A o

3.12 0.92
t e a n e v i c e s

A f r L o S r

3.64 1.10
e h a v i E m p l y e e s

B o r o f o

3.48 0.99
c h e m e s F

S o f P N B H L

v e a g e a t i s a c t i n e v e l 3 3 9

A r S f o L .

38 PNB Housing Finance Limited

8. Hypothesis testing:

H11: Customers coming through the builders are less likely to consider other banks or
financial institutions for getting finance

Contingency Table

CONSIDERED NOT CONSIDERED TOTAL

BUILDER 2 13 15

NON
3 7 10
BUILDER

TOTAL 5 20 25

Thus, Calculated value of Chi2 = 1.04

Expectancy Table

CONSIDERED NOT CONSIDERED TOTAL

BUILDER 3 12 15

NON BUILDER 2 8 10

TOTAL 5 20 25

Expected Value of Chi2 = 3.84

PNB Housing Finance Limited 39

 Calculated value of Chi2 = 1.04

Expected Value of Chi2 = 3.84

As, the calculated value of Chi2 is less than its expected value so the Hypothesis is .
E E C E D

R J T

Thus, the Null Hypothesis of no association “There is no relationship between the mode of
coming of a customer and his considering other companies for getting finance” cannot be
.
E E C E D

R J T

h i s i m p l i e s t h a t t h e e i s l a a e n e s s a b u t t h e s v a i u s i m s i n t h i s i n d u s t y

T r o w w r o U S P o f r o f r r .

9. Hypothesis testing:

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

Correlation between satisfaction derived from existing loan and coming back for a second
loan = 0.72

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

A P T

However, this correlation is derived when the satisfaction level due to interest rate is
excluded while calculating the satisfaction index.

Most of the customers are highly dissatisfied with the rate of interest charged by PNBHFL as
it is higher than that of other companies.

40 PNB Housing Finance Limited

Study of the Builders
The third stage of project was the study of Builders. In this process, a questionnaire was
developed based on the information acquired in the previous steps and studying the secondary
literature available. The questionnaire is enclosed at the end of the report.

Designing Sample Survey:

• Sampling technique: Convenient Sampling

• Sample Size: 25

• Area of Study: Delhi- NCR

Data Analysis

1. Time Period

Majority of the builders are relatively new and have been functional since 5-10 years. On
further study it was found that these builders were the ones who were worst hit by the
recession.

PNB Housing Finance Limited 41

 Work Division

No. of
builders Average Standard
Type Maximum Minimum
in this Percentage Deviation
Segment

Commercial 15 19.33 30.00 10.00 7.99

Luxurious
15 17.33 30.00 5.00 7.76
apartments
Family residential 17 56.18 100.00 40.00 15.57
Dream villas 10 9.00 10.00 5.00 2.11
Penthouses 4 5.25 10.00 1.00 3.69
MIGs 5 9.00 10.00 5.00 2.24
Others 3 8.33 10.00 5.00 2.89

Financing Companies

No. of
Builders Average Standard
Company Maximum Minimum
went for Percentage Deviation
Financing

LICHFL 14 1.38 3.00 1.00 0.62

PNBHFL 16 22.14 50.00 5.00 12.04
HDFC 14 10.36 30.00 5.00 7.71
ICICI 15 29.67 50.00 10.00 11.41
AXIS Bank 13 15.38 30.00 5.00 6.91
PNB 8 21.25 40.00 5.00 13.82
SBI 9 13.33 20.00 5.00 5.59
Others 9 15.00 30.00 5.00 7.91

42 PNB Housing Finance Limited

Findings

PNB Housing Finance Limited 43

Study of Prospective Customers
This was the final stage of study wherein the prospective customers were surveyed. This survey
was conducted in order to find out the expectations of the prospective customers and how they
are different from the existing customers.

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

: Convenient Sampling
S a m p l i n g t e c h n i q u e

: 30
S a m p l e S i z e

: Delhi- NCR
e a o f S t u d y

• A r

Data Analysis
1. Cost of Property

44 PNB Housing Finance Limited

2. Already Decided on Financer

3. Companies Opted for

No. of
Company Percentage
Respondents

LIC 0 ---

HDFC 4 50

SBI 3 37.5

PNB 0 ---

PNB Housing
0 ---
Finance

ICICI 1 12.5

Axis Bank 0 ---

GIC 0 ---

Others 0 ---

TOTAL 8 100

PNB Housing Finance Limited 45

4. Aid to Decision

46 PNB Housing Finance Limited

5. Type of Financer

6. Awareness about PNBHFL

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

7. Hypothesis Testing

73% of the sample are undecided about the source of finance before coming to builder

i.e., p=0.73

PNB Housing Finance Limited 47

If, 55% of the population are undecided about the source of finance before coming to
builder, then PNBHFL should finance more builders to increase its no. of retail customers

Thus,

• H0 : π≤0.55

• H1 : π>0.55

The calculated value of z= 2.02

Critical value of z =1.645

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

R J T

This implies that,

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

So, PNBHFL should finance more builders.

48 PNB Housing Finance Limited

Results
After the completion of the study it can, • However, the company should bear this
thus, be said that: in mind that a good quality service is
very important for an existing customer
• The level of satisfaction among the
to refer other people to the company.
existing customers is moderately high.
Being a high involvement product, faith
The only point where the company is
plays a very important role while
lagging behind is the interest rates.
deciding on company.
However, the
• Maximum Builders in Delhi-
interest rates are a
The prospective NCR region have started 5-10
major problem area
customers at the years back.
for all the housing
point of deciding on • Last year has been
finance companies
particularly bad for most
due to the guidelines the property are
builders
of NHB. undecided on the • All the builders are into
• There is very less
source of finance. building family residences
correlation between
• Maximum percentage of
customer
their work constitutes in this segment
satisfaction and his coming back for a
only
second loan. The startling fact is that
• HDFC and LICHFL have been aggressive
even people who do not seem satisfied
in financing the builders
are willing to come for a second loan.
• Thus, these two companies also get a
• This discrepancy can be explained by
major portion of the customers of the
the fact that a housing loan is a high
builders
involvement product. So, the customer
• Builders usually prefer Down Payment
acts more loyal towards his existing
Plan of finance
company than in case of any low
• PSBs and HFCs finance through
involvement product.
Construction Linked Plan

PNB Housing Finance Limited 49

• The prospective customers at the point undecided on the source of finance.
of deciding on the property are

50 PNB Housing Finance Limited

Conclusions & Recommendations
• PNBHFL should finance more builders
• It should indulge into some advertising
activities as the awareness of PNBHFL is
low
• Due to NHB norms, the ROI of PNBHFL
is higher than the ROI of most PSBs, so
PNBHFL should
t a g e
population that has high disposable
income but requires better services.
• This segment is comprised of two
category of people:

Young professionals like engineers,
doctors and managers in top
companies

Businessmen
• The current score-card for evaluating a
loan proposal is
towards financing govt. employees. This
should be changed giving preference to
the aforesaid class.
• The company should highlight the
following facts in
activities:

The DMAs providing door-to-door
services

The average customer has to visit
the branch less than once in two
years

The average time taken to sanction
a loan is approx. a week
that segment of
t
• Presently, a branch has a power to
sanction a loan less than Rs 20 lac,
beyond this, it has to take permission
from H. O. As, our target customer
generally buys houses in the range of Rs
20-30 lac, this bar should be raised.
• The current margin should be raised
from 75% of the property value to at
least 80%.
• SBI has a cap of Rs. 10,000 on
heavily inclined processing fee. This cap can be
introduced in PNBHFL as well
its promotion
PNB Housing Finance Limited 51
Limitations
• Sampling techniques in two out of three cases has been convenient sampling

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

• The study was conducted in the Delhi- NCR region only and based on this the
recommendations are give. These may or may not be true for the rest of the country.

52 PNB Housing Finance Limited

Appendix
1. Questionnaire for Existing Customers
2. Questionnaire for Builders
3. Questionnaire for Prospective customers
4. Data Sheet of Existing customers
5. Data sheet of Builder Survey
6. Data Sheet of Prospective customers

PNB Housing Finance Limited 53

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66 PNB Housing Finance Limited
Bibliography
Bank, A. D. (Oct 2008). I n d i a : H o u s i n g F i n a n c e I I P r o j e c t . India: ADB.

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

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

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

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

Brussels: HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED – INDIA.

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

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

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