A COMPARATIVE STUDY OF HOME LOANS OF STATE BANK

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Vol-3 Issue-4 2017IJARIIE-ISSN (O)-2395-4396A COMPARATIVE STUDY OF HOME LOANS OFSTATE BANK OF INDIA (S.B.I.) AND HOUSINGDEVELOPMENT FINANCE CORPORATION(H.D.F.C.) BANKS: AN EMPERICAL STUDY OFBATHINDA,PUNJAB1234Raju Kaur , Kajal Chaudhary* , Amit Kumar , Supreet Kaur Jaggi(* Corresponding Author)1, 2, 3,4Department of Business Management, Eternal University, Himachal Pradesh, IndiaAbstract:Every human being wants their own house. House is a profitable and useful in the future andfurnishes propulsion to economic development. But in today’s scenario buying the home is achallenging chore, because it is a major expenditure. A middle class family cannot afford thisexpenditure. To resolve this activity, government provides housing finance loan facility for everyperson at lower interest rate. Housing finance sector encourage of tax rebates. Housing financemeans to take a home on loan basis in which we pay monthly installments with favorable interestrates. A loan facility has been provided on the basis of people's eligibility and the bank's rules.Many number of banks and financial institutions entered in housing financing sector which offercheap loans at low interest rate. Interest rate is very important part of loans. The banks andfinancial institutions provide two types of interest rates i.e. fixed and floating for loan. Banks arenot only provides home loan but they also provides improvement, extension, conversion,construction loan etc. The main purpose of this study to comparison and analyze between homeloan procedure and customer satisfaction of S.B.I. India’s largest public sector bank andH.D.F.C. is the largest private sector banks in India. For this study we have taken S.B.I. andH.D.F.C. banks which represent the city of Bathinda, Punjab.Keywords: Interest Rate, Home Loans, Financial Institutions, Fixed and Floating Interest Rate.1. IntroductionHome is one of the things that everyone one wants to own. Home is a dream of every person thatshows the quantity of efforts, sacrifices luxuries and above all gathering funds little by little toafford one’s dream. Home is a shelter to person where he rests and feels comfortable. Thedemand of home loans has increased dramatically. For fulfill this purpose many banks areproviding home loans whether commercial banks or financial institutions to the people who wantto have a home. Part of the reason for this increase is because the accessibility of loans hasgotten bigger. Today, home loans are available in the market at very low interest rates that meetthe demands of many home buyers. A home represents the largest asset that typically peoplehave and this is why home loans have such a huge impact in the loan market today. When aperson purchases a home, he or she will be investing a huge amount of cash. Many people can’tcome up with the whole money to pay out the house, while some others can’t even afford toinvest money for the house they will like to purchase. When getting a home loan, the individualsshould consider taking care of different aspects related to the home loan.The origin of western type commercial Banking in India dates back to the 18th century. Thestory of banking starts from Bank of Hindustan established in 1770 and it was first bank at6205www.ijariie.com1787

Vol-3 Issue-4 2017IJARIIE-ISSN (O)-2395-4396Calcutta under European management. It was liquidated in 1830-32. In 1786 General Bank ofIndia was set up. The Bank of Calcutta established in 1806 immediately became Bank of Bengal.In 1921 these 3 banks merged with each other and Imperial Bank of India got birth. ImperialBank of India was later renamed in 1955 as the State Bank of India. Thus, State Bank of India isthe oldest Bank of India. After the independence, Reserve Bank of India (RBI) was nationalizedand given wide powers. The operations of all the banks in India are controlled by the ReserveBank of India. All the Indian banks are governed by the Reserve Bank of India (RBI).After 1969, commercial banks are broadly classified into nationalized or public sector banks andprivate sector banks. The State Bank of India (S.B.I) and its associate banks along with another21 banks are public sector banks. The private sector banks include a small number of Indianscheduled banks, which have not been nationalized, and branches of foreign exchange banks.After 1991, the banking scenario has been changed completely. The impact of globalization andprivatization has affected work culture of both, public sector and private sector banks.Further, in India there are two types of banks. The Public Sector and Private Sector Banks, whichcan be differentiated on the basis of the following points – A public sector bank is one wheremore than fifty percentage of the stake is owned by the Government. All nationalized banks arepublic sector banks. There are a total of 27 public sector banks in India [19 nationalized banks 6 State bank groups (S.B.I. 5 associates) 1 IDBI bank 1 recent Bhartiya Mahila Bank].In a private sector banks majority of the stake belong to private shareholders. These banks aremanaged and control by private promoters. The old private sector banks are those which existedbefore the nationalization in 1969. The new private sector banks are those which that got theirbanking license after the liberalization in 1990s. There are 29 private sector banks in India.2.1 Types of home loanThere are different types of home loans available in the market to cater borrower’s differentneeds. Home Purchase Loan Home Improvement Loan Home Extension Loan Home Conversion Loan Home Construction Loan Land Purchase Loan Bridge Loana) Home Purchase Loan: These are the basic home loans for the purchase of a new home.These loans are given for purchase of a new or already built flat/bungalow/row-house.b) Home Improvement Loan: These loans are given for implementing repair works andrenovations in a home that has already been purchased by the customer. It may be requested forexternal works like structural repairs, waterproofing or internal works like tiling and flooring,plumbing, electrical work, painting, etc.c) Home Construction Loan: These loans are available for the construction of a new home. Thedocuments required by the banks or bank for granting customer a home construction loans areslightly different from the home purchase loans. Depending upon the fact that when customerbought the land, the lending party would or would not include the land cost as a component, tovalue the total cost of the property.d) Home Extension Loan: Home Extension Loans are given for expanding or extending anexisting home. For example addition of an extra room, etc. For this kind of loan, customer needsto have requisite approvals from the relevant municipal corporation.6205www.ijariie.com1788

Vol-3 Issue-4 2017IJARIIE-ISSN (O)-2395-4396e) Home Conversion Loan: It is that loan wherein the borrower has already taken a home loanto finance his current home, but now wants to move to another home. The Conversion HomeLoan helps the borrower to transfer the existing loan to the new home which requires extrafunds, so the new loan pays the previous loan and fulfills the money required for new home.f) Land Purchase Loan: Land Purchase Loans are available for purchase of land for both homeconstruction or investment purposes. Therefore, customer can be granted this loan even ifcustomer is not planning to construct any building on it in the near future. However, customerhas to complete construction within tenure of three years on the same land.g) Bridge Loan: Bridge Loans are designed for people who wish to sell the existing home andpurchase another. The bridge loan helps finance the new home, until a buyer is found for the oldhome.h) Top up loans: Enchasing the investment in a house without having to dispose it off to fundvarious needs related to Higher Education, Purchase of Furniture and Business Requirements.The maximum term of the loan is 10 years. Top up loans can give after 1 to 2 years of the finaldisbursement of the existing loan or upon possession/completion of the existing financedproperty.3. Review of Literature Sangwan and Bhan (2012) this study can find out the satisfaction level of customers andproblems faced by them in obtaining home loans. For this purpose, we have taken fourcommercial Banks in Chandigarh city namely H.D.F.C. Bank, Punjab NationalBank(P.N.B.), Union Bank of India and Industrial Credit and Infrastructure Corporationof India(I.C.I.C.I). Bank. It includes two public sector banks and two private sectorbanks. In the research methodology a sample size of 200 respondents has been takenthrough random sampling. They have taken both primary data as well as secondary data,in the primary data questionnaire has been used to check the satisfaction level ofcustomers about home loans. In the secondary data, the annual reports of RBI,commercial banks and broachers of these banks have been studied. Finally the wholeresearch was carried out in a systematic way to reach at exact results. The whole researchand findings were based on the objectives. Some of the limitations faced in collecting thedata were Lack of time, lack of data, non-response, reluctant attitude and illiteracy ofrespondents, which posed problems in carrying out the research. Gupta and Agarwal (2013) this is a comparative study in Meerut city, India, to evaluateservice quality and resultant customer satisfaction in private banks as compare to publicsector ones. Rao (2013) this study discussed about the perception and problems of home loan takers inAndhra Pradesh. The author has focused on research by taking into account H.D.F.C. andS.B.I. bank. The paper discussed about the Housing Policy frame work, trends andprogress in Housing Finance, the operational performance of H.D.F.C. and S.B.I. withregard to providing housing finance to individuals, perception and problems of home loantakers in the State of Andhra Pradesh. The author concluded by stating that the HousingFinance in India faced a number of set-back in decades but the designing of a shelterpolicy, the organization of the housing finance market, the introduction of fiscalincentives have bought about a number of changes in the housing finance. The servicesand product innovations are the key tools for success. Thakur G. (2014) this study concluded that people prefer H.D.F.C. bank more than S.B.I.bank for home loan. As private banks are coming daily in our country still, mostly people6205www.ijariie.com1789

Vol-3 Issue-4 2017IJARIIE-ISSN (O)-2395-4396prefer government banks for loan especially older persons are more dependent ongovernment banks. It is true that younger population preference is changing and theyprefer more private banks because of services and facilities provided by private banks.The interest rate is lower in public (S.B.I.) bank in comparison with private (H.D.F.C.)bank but services are not up to the mark. Kumara swamy (2014) this study discussed about the importance of housing finance andthe institutions providing housing finance. A detailed discussion of the marketingstrategies adopted by financing institutions have been discussed by taking into accountthe loan criteria eligibility, loan amount, interest rate, security, loan tenure, margin andprocessing fee. Finally the paper highlights the performance of the housing sector, majorfindings and suggestions to improve the effective marketing of housing finance for bothpublic and private sector banks. Sharma and Garg (2014) this study concluded that the public sector banks are verypopular among the customer these days because the interest rate is lower in State Bank ofIndia as compare to H.D.F.C. bank and the trust level that customer have with thesebanks is very high in comparison to H.D.F.C. bank. The public sector bank also providebetter facilities and services to the customer and give all the information to the customertime to time through Short Message Service(SMS) and internet banking. The informationprovided by the private banks is sometimes fake and they tried to cheat customer for theirown benefits. Gupta and Sinha (2015) this examining on the respondent regarding the purchase ofhome loan and low rate of interest, easy accessibility, status/ reputation of the institutionand scheme offered by the company are the major factor for selection of the housingfinance institution comparative study on Factor Affecting consumer’s Buying Behaviortowards Home Loan (with special reference to S.B.I. and L.I.C.H.F.L.)” and found thatfixed rate of interest is most preferred option by the customers. Chithra and Muthurani (2015) this study conducted on customer perception towardshome loan in H.D.F.C are done Chennai with the 85 sample size and simple randomsampling. The study shows that H.D.F.C. bank home loans has product portfolio forsatisfying different consumer needs. The bank has got goodwill and this can be used forpromoting its services. If new promotional activity and services introduced, it will helpvery much to organization to increase the business. Murugan and Jansirani (2017) a study carried out in Chennai to Customer perceptiontowards home loan by selecting the 500 customer on randomly basis. This study made anattempt to evaluate in depth the performance and operational problems faced by thebanking sector in extending finance to the housing sector and based on findings; identifythe areas of concerns and strategic interventions required.4. Objectives of the study To comparative study of home loan between S.B.I. and H.D.F.C. bank To evaluate the customer satisfaction between S.B.I. and H.D.F.C. bank in context ofhome loans.5. Research Methodology5.1 Need of the Study: Present study will be conducted in Bathinda (Punjab) region; S.B.I &H.D.F.C bank has been taken as a representative unit of private sector banks and public sectorbanks. A survey of 100 people each from both the banks has been conducted who are the generalpeople of the banks. Professors, businessmen, Engineers and persons from self-employed6205www.ijariie.com1790

Vol-3 Issue-4 2017IJARIIE-ISSN (O)-2395-4396category, etc. will be surveyed.5.2 Study design: Descriptive study design was used to fulfill the objectives.5.3 Area of the study: The study is conducted in S.B.I. and H.D.F.C. Bank in Bathinda5.4 Sampling Technique: Convenient Sampling method was used for research purpose.5.5 Sample size: The sample comprised of 100 respondents out of which 50 are from S.B.I. and50 are from H.D.F.C. Bank.5.6 Sources of Data: The primary data were collected using the survey method with the help ofstructured questionnaire. The secondary data was collected from various Research paper internet,marketing journal, books, magazines and past thesis etc.6. Results and DiscussionsTable 1: Socio Demographic Profile of Respondents of S.B.I. and H.D.F.C.Sr. No. Socio-Demographic Traitsi)ii)iii)iv)v)vi)6205S.B.I. Bank (N 50)H.D.F.C. Bank (N 50)Frequency (%)Frequency (%)Age 9GenderMale2.08.060.068.0Female40.032.0Marital StatusMarried82.072.0UnmarriedQualificationHigh 0FarmerMonthly income (Rs.)Rs. 20000-5000020.08.048.038.0Rs. 50001-8000032.050.0Rs. 80001-11000020.012.0www.ijariie.com1791

Vol-3 Issue-4 2017IJARIIE-ISSN (O)-2395-4396Rs. 110001-14000000Table 1 shows that at S.B.I. most (40%) of respondents are between the age of 31 to 43 years,30% are between 44 to 56 years followed by 28% and 2% between the age of 18 to 30 and 57 to69 years respectively. While in H.D.F.C. most (38%) of respondents are between the age of 81 to30 years, 34% were between 31 to 43 years followed by 20% and 8% between the age of 44 to56 and 57 to 69 years respectively.In S.B.I. 60% respondents are male and 40% are female. In H.D.F.C. 68% respondents are maleand 32% are female. In S.B.I. maximum (82%) of the respondents are married, 18% areunmarried and in HDFC (72%) of the respondents are married and 28% are unmarried.It shows that at S.B.I. the majority of 34% respondents are post- graduate and 32% are graduatewhereas 14% and 20% are high-school\intermediate and others passed respectively. While inH.D.F.C. 42% respondents are Graduate and 28% are Post-graduate whereas 12% and 18% arehigh-school and others pass outs.Regarding the Occupation at S.B.I. the majority of the respondents are service that is 46% whileremaining three categories that is businessman, self-employed and farmer holds for 12%, 22%and 20% respectively. Whereas on the other side at H.D.F.C. 46% of the respondents are selfemployed while service, businessman and farmer holds for 22%, 24% and 8%.It shows that at S.B.I. the majority of 48 percent respondents earned an income of Rs. 20,00050000 followed by the group of Rs. 50001-80000 with 32 percent, and the smallest sample of 20percent earned the income of Rs. 80001-110000.Whereas on the other side at H.D.F.C. the majority of 50% respondents earned an income of Rs.50001-80000 followed by the group of Rs. 20000-50000 with 38 percent and the smallest sampleof 12 percent earned the income of Rs. 80001-110000.7. Test of SignificanceThe following hypothesis is framed for the study:H0: There is no significant difference between in the home loan of S.B.I. and H.D.F.C. BanksH1: There is significant difference between in the home loan of S.B.I. and H.D.F.C. BanksIn order to test the hypothesis of the study t-test was used and ρ values were calculated. Acomparison between the S.B.I. and H.D.F.C. was conducted table.Table 2: Difference Between of Home Loan of S.B.I. and H.D.F.C.S.FactorMeanNo1.2.3.The application form of home loanis easy to understandAre you satisfying with the interestrate charges by bankDo you agree that your bank loanprocessing is 519www.ijariie.com1792

Vol-3 Issue-4 20174.5.Do you satisfy with the after homeloan services provided by yourbank are best as compare to otherbankAre you satisfied with theemployees behavior of the bankIJARIIE-ISSN 4.120.593-0.5330.595Would you like to prefer public 3.860.9893.100.9943.829 0.000**sector bank for home loan1.1443.501.164-3.984 0.000**7. Would you like to prefer private 2.58sector bank for home loan**Significant at 0.01 level*Significant at 0.05 levelTable 2 illustrates the findings of t-test which is individually applied to all the factors thatdetermines the customer satisfaction to check which factors bear significant difference withrespect to these banks. The t-test compares the actual difference between two means in relationto the variation in the data (expressed as the standard deviation of the difference between themeans). The replies of respondents from both banks are recorded and ranked from stronglyagrees to strongly disagree as 1 to 5 respectively.The table 2 suggested that the difference between of Home Loan of S.B.I. and H.D.F.C. Bank.The null hypothesis (H0) was rejected and alternate hypothesis (H1) was accepted as p- value(0.000) is smaller than α value (0.01) suggesting that there exist significant difference in HomeLoan of S.B.I. and H.D.F.C. BanksAssociation of Demographic Variables with the level of customer satisfactionTable 3: Association of demographic profile with level of customer satisfaction of S.B.I.BankS.FactorsAgeQualification OccupationMonthlyNoincome6.1.2.3.4.5.6.7.The application form of home loan .506**-.045-.382**.289*is easy to understandAre you satisfying with the interest -.051.043.028.034rate charges by bankDo you agree that your bank loan .351*-.188.119.449**processing is fastDo you satisfy with the after home .311*-.162.069.070loan services provided by your bankare best as compare to other bankAre you satisfied with the.252.402**-.254.076employees behavior of the bankWould you like to prefer public -.040-.209.205.290*sector bank for home loanWould you like to prefer private.027.158.137-.179sector bank for home loanFrom table 3 it was found that age has a strong positive correlation with the application form ofhome loan is easy to understand. There was significant positive relation with loan processing,6205www.ijariie.com1793

Vol-3 Issue-4 2017IJARIIE-ISSN (O)-2395-4396after home loan services provided by your bank are best as compare to other bank. Qualificationhas a strong positive correlation with the employee behavior of the bank. It was also found thatOccupation has a highly negative correlation with the application form of home loan is easy tounderstand. Monthly income has strong positive correlation with loan processing. There wassignificant positive correlation with application form of home loan and public sector bank.Table 4: Association of demographic profile with level of customer satisfaction of H.D.F.C.BankS.No.FactorsAgeQualification Occupation Monthlyincome1.2.3.4.5.6.7.The application form of home loan iseasy to understand.506**.137.212-.022Are you satisfying with the interest rate.049-.229.227-.378**charges by bankDo you agree that your bank loan-.186.007-.063.013processing is fastDo you satisfy with the after home loanservices provided by your bank are.015-.517**.471**-.145best as compare to other bankAre you satisfied with the employees.184.143.468**-.023behavior of the bankWould you like to prefer public sector-.126.339*.377**.009bank for home loanWould you like to prefer private sector.009-.056-.038-.066bank for home loan**Significant level at the 0.01 level (2-tailed).*Significant level at the 0.05 level (2-tailed)Table 4 reveals that age has a strong positive correlation with the application form of home loanis easy to understand. Qualification has a strong negative correlation with the after home loanservices provided by your bank are best as compare to other bank. There was significant positivecorrelation with public sector bank. It was found that Occupation has strong positive correlationwith the after home loan services provided by your bank are best as compare to other bank,employee’s behavior and public sector bank. It was found that Monthly income has a strongnegative correlation with interest rate.Findings According to my study HDFC and SBI Bank have widest range of home loan products. According to my study maximum people prefer fixed rates on home loans. According to my research the rate of interest of SBI is less than HDFC Bank. People get knowledge about home loans from television, internet, Newspaper, Media orfamilies and friends. The majority of the respondents want to take a loan for the construction of the new house. As far as reputation of bank is concerned maximum numbers of respondents prefer publicbanks and not private bank. Because they think that the public banks are more secured ascompare to the private banks.6205www.ijariie.com1794

Vol-3 Issue-4 2017IJARIIE-ISSN (O)-2395-4396Suggestions The documentation work and formalities should be reduced while providing loans to thecustomer. The bank should improve their customer service. The behavior of the staff of the bank towards the customer should be more personalized. The banks need to improve on the customer satisfaction level due to stiff competitionamong the banks. The booklet and attractive advertisement should be provided to the customer forawareness about different housing loan schemes offered by the banks According to the customer point of view the documentation work should be less and mustbe fast procedure in H.D.F.C. bank. The banks should focus on the customer satisfaction factors due to stiff competitionamong the banks.ConclusionThe present study concludes that there are various satisfactory factors which affect thesatisfaction level of customers of housing loan. On the basis of collected data, it is beingconcluded that customers are satisfied by S.B.I. bank because the interest rate is lower in S.B.I.as compare to H.D.F.C. Bank and the trust level that customer have with these banks is very highin comparison to H.D.F.C. Bank, especially older persons are more dependent on Public banks.Overall in level of customer satisfaction the customer more satisfied with the S.B.I. Bank invariables of application form of home loan is easy to understand, interest rate charges by bank,loan processing is fast, employee behavior and public sector bank. But, in H.D.F.C customersatisfied with the after home loan services provide by your bank as compare to other bank. So,there is need to reduce the rate of interest, terms and conditions, procedural formalities andprocessing fees.References[1] Sangwan, P. and Bhan, K. (2012), “A Comparative Analysis on Home Loans of Public andPrivate Sector Banks in India” 2 (9), 121-126.[2] Rao, T.S. (2013), “A study on comprehensive problems of H.D.F.C. and S.B.I. loan takers inAndhra Pradesh State”, Innovative Journal of Business and Management, 123-127.[3] Gupta, V. P. and Aggarwal, P. K. (2013), “Comparative study of customer satisfaction inPublic and Private Sector Banks in India”, Global Journal of Business Management, 7(1), 16-26.[4] Garg, P. and Sharma, R. (2014), “Home Loan: A Comparative Analysis of S.B.I. andH.D.F.C. Bank”, International Journal of Scientific Research, 3(10), 2277-8179.[5] Kumaraswami, M. and Nayan, J. (2014), “Marketing of Housing Finance- A ComparativeStudy of Public and Private Sector Banks”, Global Research Analysis, 2 (3), 116-120.[6] Geete, V. and Thakur, A. (2014), “A comparative study of home loan scheme of privateSector Bank and public sector bank (with special reference to S.B.I. and H.D.F.C.)” InternationalJournal of Research in Management and Social Science, 2(2), 12-21.[7] Gupta, U. and Sinha, R. (2015), “A Comparative Study on Factors Affecting Consumer’sBuying Behavior towards Home Loans (With Special Reference to State Bank of India AndLife Insurance Corporation, Allahabad)”, IOSR-Journal of Business and Management 17 (2),13 - 17.[8] Murugan, M. S. and Jansirani, J. (2017), “Customer perception towards Home Loan”,International Journal of Trend in Research and Development, 12-14.6205www.ijariie.com1795

Vol-3 Issue-4 2017IJARIIE-ISSN (O)-2395-4396Author’s Biographies:1. Ms. Raju Kour has received B.B.A. Degree from Punjabi University, Patiala, India.Presently, M.B.A. scholar at Eternal University, Baru Sahib, Himachal Pradesh, India. Area ofspecialization is finance.2. Dr. Kajal Chaudhary has received (Ph.D.) from Chaudhary Charan Singh University,Meerut, Uttar Pradesh, India. Presently working as an Assistant Professor at Eternal University,Baru Sahib, Himachal Pradesh, India. She has 12 years of academic experience. Her area ofinterest is finance.3. Mr. Amit Kumar has received M.B.A. H.P.U, Himachal Pradesh India. Presently working asan Assistant Professor at Eternal University, Baru Sahib, Himachal Pradesh, India. He has 6years of academic experience. His area of interest is Finance.4. Ms. Supreet Kaur has received (B.Com.) Degree from Chaudhary Charan Singh University,Meerut, Uttar Pradesh, India. Presently an M.B.A. scholar at Eternal University, Baru Sahib,Himachal Pradesh, India. Area of specialization is Finance.6205www.ijariie.com1796

In 1786 General Bank of India was set up. The Bank of Calcutta established in 1806 immediately became Bank of Bengal. In 1921 these 3 banks merged with each other and Imperial Bank of India got birth. Imperial Bank of India was later renamed in 1955 as the State Bank of India. Thus, State Bank of India is the oldest Bank of India.