HOUSING LOANS - CUSTOMER PERSPECTIVE (A STUDY CONDUCTED WITH REFERENCE TO CHENNAI)

Transcription

1 MADRAS UNIVERSITY JOURNAL OF BUSINESS AND FINANCE Refereed, Peer-reviewed and Bi-annual Journal from the Department of Commerce Global Impact factor: 0.4 Vol. No. July 04 Pp. 4-4 ISSN: journal.unom.ac.in HOUSING LOANS - CUSTOMER PERSPECTIVE Dr. C. Shalini Kumar* V. Sudha** Abstract Home loans are an attractive and popular means of buying a dream house for most people. In India, the demand for home loans has increased manifold in the last decade. The purpose of the study is to study the concept of Home Loan /Housing Finance in today s scenario. The home loan market in India has grown at a rapid and alarming rate of over 40% over the period of the last four years. The reports from one of the industry experts, reveals that it is evident that there is very little chance that these will be any significant decline in growth rates in the future. Therefore it becomes important at this point in time to examine the key factors that have been instrumental in triggering this high growth period. These are several reasons that can be considered as having attributed to the growth of the home loan market. On the demand side, the first and the most important factor for the growth has been faster rise in incomes as compared to property prices, thus making housing more affordable. Key Words: Housing loan, Housing finance, Property prices, Income, Gross Domestic Product INTRODUCTION Home loans are an attractive and popular means of buying a dream house for most people. In India, the demand for home loans has increased manifold in the last decade. Housing is a primary human need next in importance to food and clothing. This takes precedence over other household expenditure and routine needs. Housing, however, is a major expenditure and cannot be funded out of a family s normal monthly income or savings. The prospective house owner must look for a loan substantial in size and so structured that he can repay it over a longer period of time, in many cases almost ones entire working life. Loan is offered to a borrower to purchase or build a new house on the basis of his/her eligibility and the banks lending rules. Government gave encouragement for housing finance subsidiaries by offering number of tax concessions to individuals and with such overall encouragement given to this sector, a number of players entered in housing finance. One of the most important benefits of taking a home loan is the interest rate that is allowed on the home loan. Fixed and variable interest rate options are also available for home loans. Many financiers also offer home improvement loans at the same interest rate as they offer the home loans. IMPORTANCE OF HOUSING Ever since human civilization evolved, human settlement became a primary concern along with food and clothing. Housing, in fact, laid the foundation for human settlement and civilization.. Good housing is, thus, a pre-requisite for human development and welfare. It is essential for the smooth operation of a modern society. Healthy and commodious living provides incentives and generates efficiency, energy, zeal and strength on which depends social, cultural and economic prosperity. 4 * Principal, Annai Velankanni College of Arts & Science. Chennai ** Associate Professor, Dept of Commerce, M.O.P Vaishnav College for Women, Chennai

2 HOUSING LOANS - CUSTOMER PERSPECTIVE Housing sector is recognized as a major employment generator. It also results in growth of many homebased manufacturing industries like cement, iron and steel, paints, marble / ceramic tiles, bricks, electrical wiring and appliances, PVC pipes, furniture, sanitary fittings, household articles and other consumer durables. With forward and backward linkages, housing activity provides impetus to economic growth. Whenever the economy is facing recession, the investment in housing sector has the potential to kickstart the economy for growth. It has a multiplier effect on income and employment. Because of its strong forward and backward linkages, even a small initiative in housing will propel multiplier effect in the economy. The main reason is that the investment in housing increases income levels of the people having low income, who normally have high Marginal Propensity to Consume (MPC). This high MPC gives rise to demand for consumer goods, which result in higher Gross Domestic Product (GDP) by multiplier effect, which clearly shows that housing investment significantly contributes to economic development. Recognizing the critical importance of human settlement in developing countries, the UN declared the year 987 as International Year for Shelter for the Homeless and Poor. Since then, there has been a growing concern to address various forms of housing deprivation particularly in developing countries. REVIEW OF LITERATURE Several studies have been done by various researchers in the context of home loans. The details of reviews are below. Berstain David (009) examined in his study taken from 00 to 008 that in this period there is increasing use of home loans as compared to private mortgage insurance (PMI). Vandell, Kerry D (008) analyses the sharp rise and then suddenly drop down home prices from the period Changes in prices are for the reasons as such economic fundamentals, the problem was not subprime lending per se, but the dramatic reductions and subsequent increases in interest rates during the early- mid-000, the housing loan boom was concentrated in those markets with significant supplyside restrictions, which tend to be more price-volatile. The problem was not in the excess supply of credit in aggregate, or the increase in subprime per se, but rather in the increased or reduced presence of certain other mortgage products. La courr, Micheal (007) analyses in his study, the factors that affect the increase in the level of Annual percentage rates (APR) spread reporting during 005 over 004.The three main factors are () changes in lender business practices; () changes in the risk profile of borrowers; and () changes in the yield curve environment. The result shows that after controlling the mix of loan types, credit risk factors, and the yield curve, there was no statistically significant increase in the reportable volume for loans originated directly by lenders during 005. La cour Micheal (006) examined the home purchase mortgage product preferences of LMI households. Objectives of his study were to analysis the factors that determined their choice of mortgage product. The role pricing and product substitution play in this segment of the market and to verify whether results vary when loans are originated through mortgage brokers. In this case regression analysis has been used and results have shown that high interest risk reduces loan value. Dr. Rangarajan C. (00) said that the financial system of India built a vast network of financial institutions and markets over times and the sector is dominated by banking sector which accounts for about two-third of the assets of organized financial sector. Haavio, Kauppi (000) stated that countries where a large proportion of the population live in owner occupied housing experience higher unemployment rates than countries where the majority of people live in private rental housing.this might suggest that rental housing enhances labour mobility. In this paper, they develop a simple inter temporal two region model that compares owner occupied housing markets to rental markets and to analyze how these alternative arrangements allocate people in space and time. SBI has taken the rate war in the home loans category to 5

3 Dr. C. Shalini Kumar and V. Sudha new heights announced that it will offer loans for Rs. - 0 lakhs at.5 percent the lowest rate offered by any housing finance provider, Narasimham Committee (99) points out that although the banking system has made rapid progress during the last two decades, there is decline in productivity and efficiency and erosion of profitability. The committee strongly makes indications of liberalizing, deregulating economy to make the Indian banking system more competitive and efficient. Ojha (987) in his paper "Modern International Caparison of Productivity and Profitability of Public Sector Banks of India" has made a comparison on the basis of per employee indicators and taking cases of State Bank group and Punjab National Bank noted that Indian banks are the lowest in all accounts. Godse (98) observes that productivity aspect is only at the Conceptualization stage in the banking industry. He suggested improvement in productivity and procedures, costing of operations and capital expenditure etc. Fanning (98), while examining bank productivity of British banks observed that although the productivity of the UK clearing banks is improving, they are still heavily over manned as compared with similar banks elsewhere. Kulkarni (979) in his study Development responsibility and profitability of banks stated that while considering bank costs and profits, social benefits arising out of it cannot be ignored. He suggested that while meeting social responsibility banks should try to make developmental business as successful as possible. Varde and Singh (979) in a study "Profitability of Commercial Banks" over 5 years gave consideration to two types of factors that affects interest rates levels i.e. internal factors (including operational and managerial efficiency of individual basis). Banking Commission (97) reviewed bank operating methods and procedures and made recommendations for improving and modernizing these, particularly relating to customer services, credit procedure and 6 internal control systems. It observed that present methods of working out branch profitability are not appropriate and an integrated costing and financial reporting system is essential. RESEARCH METHODOLOGY Objectives of the Study For the purpose of the study the following objectives have been identified: ) To study the concept of Home Loan /Housing Finance in today s scenario. ) To examine types of loans in India. ) To identify the reasons for availing home loans in nationalized and private banks. 4) To analyze the impact of EMI and interest on loans charged by banks on the customers. HYPOTHESES The Hypotheses that are tested in this study are as follows:. There is no association between age, educational qualification, profession, income, type of banks and various reasons for home loan.. There is no association between education, profession of the respondents, income of the respondents, EMI and tenure of repayment.. There is no association between reasons for availing home loans and choice of banks. 4. There is no association between type of banks and interest charged on housing loan. 5. There is no association between age, educational qualification, profession, income of respondents and the type of interest (fixed/ floating) RESEARCH TOOL Questionnaire is the research tool used in the study and it consists of 5 prominent factors which influence

4 HOUSING LOANS - CUSTOMER PERSPECTIVE the general public to opt for housing loan. These factors also have an impact on the choice of the type of loan and the financial institution sought, for the purpose of availing such loan. The statements pertaining to the 5 factors were responded by the chosen respondents who had availed housing loans from both public and private banks. The statements have been designed using Likert s 5 point scale which ranges from strongly agree to strongly disagree. SAMPLE SIZE & DATA COLLECTION The researcher applied simple random sampling method to obtain the responses from the general public. The study was focused on both public and private sector banks which were chosen by the respondents for availing housing loan. The researcher has sourced out respondents who have availed of housing loan from different financial institutions and collected around 00 responses. DATA ANALYSIS The researcher used t-test, f-test and factor analysis by Principle - Component method and KMO Bartlett s test. LIMITATIONS OF THE STUDY. This research study was time bound and only certain criteria were taken up for study.. This research study was taken in a limited area only (i.e Chennai city) and findings may vary from place to place.. The study was limited to one nationalized bank and private bank. 4. Some of the respondents might have been biased in their responses as it depends on their experience gained by them during processing of such loans. 5. Some of the conclusions also depend upon secondary data which are reliable to the extent and as such the conclusions derived from them are justifiable. TYPES OF HOUSING LOANS: The following are some popular types of home loans available in the Indian housing finance market: LAND PURCHASE LOANS Land purchase loans are taken to buy a plot of land on which a borrower wishes to construct his house. Most banks offer up to 85 percent of the price of the land. These loans can be availed for residential as well as for investment purposes. Almost all leading banks offer this loan like ICICI Bank (Land Loan), Axis bank (Loan for land purchase) etc. HOME PURCHASE LOANS The home purchase loans are the most popular and the most commonly available home loan variants. These loans can be used to finance the purchase of a new residential property or an old house from its previous owners. In this type of loan also, lenders usually finance up to 85 percent of the market value of the house. These loans are provided either on fixed interest rates or floating interest rates or as hybrid loans. All banking institutions and housing finance companies provide this type of loan. HOME CONSTRUCTION LOANS These loans can be availed by those individuals who want to construct a house according to their wishes rather than purchasing an already constructed one. The loan application and approval process for home construction loans are somewhat different from those of the commonly available housing loans. The plot of land on which the borrower wishes to construct the house should have been bought within a year for the cost of the land to be included as a component for calculating the total price of the house. If the plot has been purchased more than a year ago, then the above clause is not applicable. The borrower has to make a rough estimate of the cost that will be incurred for the construction of the house and then apply for the loan with the same amount. The lender then takes over from their and analyses the application to decide whether or not to sanction the loan. The approval or disapproval 7

5 Dr. C. Shalini Kumar and V. Sudha of the same is intimated by the lender to the applicant. The loan amount may be disbursed at one go or in several installments according to the progress in the construction of the house. Banks like Canara Bank, UCO Bank, Bank of Baroda provide these loans. DIMENSION OF HOUSING PROBLEM The problem of Housing mainly centered on population growth, urbanization and quality of housing. The economic development, which is closely associated with industrialization and urbanization, has resulted in the rapid growth of cities in developing countries and acute shortages of housing in urban areas. The rapid pace of urbanization had serious implications on demand for housing. The demand for housing has increased phenomenally not only in quantitative terms but also in qualitative terms. The rapid spread of urbanization is also accompanied by the prolific growth of huge slums and shantytowns. The slum settlements, without any basic amenities, today represent over one third of the urban population in developing countries. Their numbers are to double over the next 5 years. Given the phenomenon of massive and historically unprecedented movements of people from rural areas to burgeoning cities, the critical issue that needs to be addressed particularly in developing countries is the provision of the basic amenities for human settlement. Like other developing countries, India too is not an exception to this seriously growing human concern. ANALYSIS & INTERPRETATION In this section,the researcher is intended to measure the influence of demographic profile of the housing loan beneficiaries in particular occupation and income are considered crucial demographic variables to identify the perceptual difference over the home loans. After reviewing national and international literature, the researcher has identified the following factors which determine a crucial role in determining customer perception. The following five factors have been predominantly quoted by the customers to perceive their opinion.. EMI. Rate of interest.. Years of repayment. 4. Type of interest 5. charges Influence of income on the factors of home loans The application of analysis of variables over the 5 factors derived the following results. ANOVA Factors Sum of Squares df Mean Square F Sig. EMI Rate of interest Year of repayment Type of interest charges

6 HOUSING LOANS - CUSTOMER PERSPECTIVE DESCRIPTIVES Mean Std. Deviation EMI Rate of interest Year of repayment Type of interest charges From the above table it is found that type of interest (f= 5.60,p=0.004) and total charges for home loan (f=4.059,p=0,08) are statistically significant at 5 % level. This implies there is a perceptual difference in the three income groups respectively less than 5,000, 5,000 to 50,000.After comparing the mean values, it is found that the customers of home loans with a salary of above Rs. 50,000 (mean 4.4) agree to a great extent about the problems of type of loans. Similarly the respondents in the same income group of above Rs. 50,000 also strongly agree for the charges made by the bank for housing loan (mean =4.6). This shows that higher income group respondents identified the difficulties of type of interest and charges in the home loan transaction. They feel that they always encounter problems in their domains. Influence of occupation on the factors of home loans Similarly, the researcher intended to measure the influence of occupation. The researcher considered only employee in public and private sector organisations as respondents. The application of ANOVA derived the following results. 9

7 Dr. C. Shalini Kumar and V. Sudha ANOVA Factors Sum of Squares df Mean Square F Sig. EMI Rate of interest Year of repayment Type of interest charges DESCRIPTIVES Mean Std. Deviation EMI Rate of interest Year or repayment Type of interest

8 HOUSING LOANS - CUSTOMER PERSPECTIVE charges From the above table,it is found that the rate of interest ( f=4.78,p=0.00),years of repayment (f=5.79,p=0.06). The total charges (f=5.800,p=0.06) are statistically significant at 5% level. This leads to mean comparison between public and private sector employees and their perception. It indicates that private sector employees have more problems with rate of interest (mean =4.04),years of repayment (mean = 4.8) and total charges (mean =4.5). They express their opinion that the rate of interest of housing loan is enormous and the banks do not give them the opportunity to fix their years of repayment. They also feel that the bank charges are exorbitant and disproportionate to their loan amount. FINDINGS & CONCLUSIONS The home loan market in India has grown at a rapid and alarming rate of over 40% over the period of the last four years. The reports from one of the industry experts, reveals that it is evident that there is very little chance that these will be any significant decline in growth rates in the future. Therefore it becomes important at this point in time to examine the key factors that have been instrumental in triggering this high growth period. These are several reasons that can be considered as having attributed to the growth of the home loan market. On the demand side, the first and the most important factor for the growth has been faster rise in incomes as compared to property prices, thus making housing more affordable. Most of the housing finance companies in India have introduced several new home loan products in order to meet the needs of a wide variety of customers. The various home loan schemes have market. The customer can choose those schemes which he feels is good for him and have the capacity to repay it on that specified time period. The customer chooses housing loan to avail himself of a decent home. Hence, the loan providers need to ensure that the procedures followed should not be cumbersome but it should be for the ultimate benefit of loan provider and the customer. REFERENCES. Dr.S.Hasanbanu and V.Jeya shree, A comparative study on factors influencing Housing loan Borrowers of public and private sector Banks in Uthanapalayam Taluk. K.K.R.H. Colleges Uthamapalayam. Tamilnadu.. Pushpa Sangwan & Kanwar Bhan, A Comparative Analysis On Home Loans Of Public &Private Sector Banks In India International Journal of Research in Commerce, Economics & Management,Volume No. (0), Issue No.9 (September),ISSN S. R a j a l a k s h m i, A s s i s t a n t P r o f e s s o r o f commerce,&mrs.c.pappeswariassistant Professor of Commerce, Govindammal Aditanar college for women, Tiruchendur, Thoothukodi Tamilnadu 4. Venkatesh.A,Assistant Professor of Commerce, Ambai Arts college,tirunelveli District, Tamilnadu, A study on housing loan borrowers of Public and private sector banks in Thoothukudi area Research Journal of Commerce Vol., No. December, Vijayakumar.M and Dr.B.Subburaj, Housing Finance An Analysis of post purchase Behavior of consumers. Gandhi gram Rural University, Indigo, TamilNadu 4

9 MADRAS UNIVERSITY JOURNAL OF BUSINESS AND FINANCE Refereed, Peer-reviewed and Bi-annual Journal from the Department of Commerce Global Impact factor: 0.4 Vol. No. July 04 Pp ISSN: journal.unom.ac.in A COMPARATIVE STUDY OF SIZE, STRUCTURE AND TREND IN THE WORKING CAPITAL IN SELECT SUGAR MILLS IN CHITTOOR DISTRICT, AP. Dr. V. Ramesh Babu* Prof. B. Bhagavan Reddy** Abstract Working capital plays a key role in a business enterprise just as the role of heart in human body. Working capital acts as grease to run the wheels of fixed assets. Its effective provision can ensure the success of a business while its inefficient management can lead not only to loss but also to the ultimate downfall of what otherwise might be considered as a promising concern.. There is a positive trend in the CCSFL in current assets, current liabilities and net working capital during the period leaving 004 and 005. Between the CCSFL and the PSCL, the trend in net working capital is positive in the former while negative in the latter. It means the net working capital has declined in subsequent years over the base year in the PSCL. A contrary situation emerges in the CCSFL. Key Words: Working Capital, Structure, Size, Trend analysis, Liquidity INTRODUCTION Working capital plays a key role in a business enterprise just as the role of heart in human body. Working capital acts as grease to run the wheels of fixed assets. Its effective provision can ensure the success of a business while its inefficient management can lead not only to loss but also to the ultimate downfall of what otherwise might be considered as a promising concern. Thus the efficiency of a business enterprise depends largely on its ability to manage its working capital. It is one of the important facets of overall financial management of a firm. Therefore, management of working capital is analysed in terms of size, structure and trend. For this purpose, two sugar factories are selected to analyse meaningfully and compare aptly. At the end of 0, there were 6 sugar factories in Chittoor district. Out of these, are in the cooperative sector and the remaining, 4 in the private sector. Out of them, one sugar mill from each sector is purposely brought into the sample frame. These include the Chittoor Co-operative Sugar Factory Limited (CCSFL), Chittoor, and the Prudential Sugar Corporation Limited (PSCL), Nindra. The period of the study covers 0 years from 00-. SIZE: The size of working capital implies total current assets. The term, gross working capital, is most important from the point of view of financing of working capital. On the other hand, the networking capital concept is most significant from the liquidity point of view. Therefore, gross and net working capitals of select sugar mills are analyzed. The gross working capital in the CCSFL has increased from Rs lakhs in 00 to Rs lakhs in 0(see Table ). On an average, per year, 4 *Guest Lecturer in Commerce, PVKN Govt. College, Chittoor ** Dean, Faculty of Commerce & Management, SV University, Tirupati