International Journal of Research and Development - A Management Review (IJRDMR)

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Financial Performance of Public and Private Sector Banks in Housing Loans

Lopamudra Praharaj Asst. Prof, dept of MBA, GIFT, Bhubaneswar

Abstract : The housing finance sector was dominated by of Indian economy by inculcating the habit of saving in informal resources till the late eighties. There were few Indians and by lending finance to Indian industry. lenders of housing loans which included Life Insurance Corporation of India, Housing and Urban Development At present, the need for housing finance in India is Corporation (HUDCO), Housing Development Finance largely being fulfilled by the 51 Housing Finance Corporation (HDFC) and Apex Cooperative Housing Companies (HFCs) registered with NHB and the 27 Finance Societies (ACHFS) with no particular support Public Sector Commercial Banks. Apart from these, existing for the formal sector. The main aim was to various other institutions are also involved with housing channelize resources to housing sector through budgetary finance. The following types of institutions are in allocations especially for Economic Weaker Section (EWS) operation for extending housing loans to the Indian housing/ housing for migrated population. borrowers: Introduction a) Scheduled Commercial Banks The housing finance industry has grown robustly over b) Housing Finance Companies the last few years. This is due to the fact that the housing finance industry is very competitive today and lenders c) Scheduled Cooperative Banks (Scheduled State are offering attractive packages to customers. From the Co-operative Banks, Scheduled District Co- last decade, the Government of India has been operative Banks and Urban Co-operative Banks) continuously trying to strengthen the housing sector by d) Regional Rural Banks introducing various housing loan schemes for rural and urban population. The first attempt in this regard was the e) Agriculture and Rural Development Banks National Housing Policy (NHP), which was introduced f) State Level Apex Co-operative Housing Finance in 1988. The (NHB) was set up Societies. in 1988as an apex institution for housing finance and a wholly-owned subsidiary of Reserve Besides these, a large informal sector comprising of (RBI). Before these, HUDCO was set-up by the money lenders, individuals, friends and relatives etc. is Government in 1970 to meet the financial needs of the also involved in the field of housing finance. housing and urban infrastructure. In 1977, HDFC was As the housing finance in India is dominated by the set up as the first housing finance company with the commercial bank, the focus of the study has been private participation. centered on the commercial banks. The commercial Housing finance system is relatively young in India and bank in India consists of: Scheduled Commercial Banks due to this, housing finance assistance from formal and Unscheduled Banks. Scheduled commercial Banks sector has been limited to the middle and high income constitute those banks, which have been included in the groups and PLIs have not been able to penetrate the Second Schedule of (RBI) Act, rural areas. Besides this, the sector is the second largest 1934.RBI includes only those banks in this schedule, employment generator in the country. which satisfy the criteria laid down vide section 42(6)(a) of the Act. Indian banks can be broadly classified into BANKING SECTOR IN HOUSING nationalized banks/public sector banks, private banks FINANCE and foreign banks. At present India has a well developed banking system. The overall performance of the Scheduled Commercial Most of the banks in India were founded by Indian Banks (in terms of the outstanding credit) can be entrepreneurs and visionaries in the pre-independence depicted in the following chart-1. era to provide financial assistance to traders, agriculturists and budding Indian industrialists. Indian Chart-1 : Outstanding Credit of Scheduled Commercial banks have played a significant role in the development Banks 1992 to 2010

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It is clear from the chart that there is a decrease in terms Some of these commercial banks also have sponsored of housing loan accounts from the year 1992 to the year some HFCs. As on 31 March 2011 there are six HFCs 2000 but thereafter upto 2010 it is continuously sponsored by Commercial Banks. These include: increasing.  Can Fin Homes Ltd., sponsored by It we talk about the amount outstanding it shows a  Centbank Home Finance Ltd., sponsored by continuous growth right from the year 1992 to 2010. of India PUBLIC SECTOR BANKS  ICICI Home Finance Ltd., sponsored by ICICI Public sector banks are those in which the Government Bank of India or the RBI is a majority shareholder. These  Ind Bank Home Finance Ltd., sponsored by banks include the (SBI) and its subsidiaries, other nationalized banks, and Regional Rural Banks (RRBs). Over 70% of the aggregate  PNB Home Finance Ltd., sponsored by Punjab branches in India are those of the public sector banks. National Bank Some of the leading banks in this segment include  REPCO Home Finance Ltd., sponsored by , Canara Bank, , , , State Bank of India, , State Bank of The financial performance of these HFCs during Bikaner and Jaipur, , Bank of last few years is represented in the table No. 5.1. Baroda, Bank of India, Oriental Bank of Commerce, UCO Bank, , and .

TABLE No. 5.1 : FINANCIAL PERFORMANCE OF HFCS SPONSORED BY COMMERCIAL BANKS IN LAST FIVE YEARS (Rs. in Crore) Particular 2006-07 2007-08 2008-09 2009-10 2010-11 Paid up capital 409.24 958.07 1423.05 1390.66 1225.68 Free Reserves 395.94 513.35 726.00 952.55 1080.91 Net Owned Funds (NOF) 716.78 1368.08 1998.93 2129.02 2105.38 Public Deposits 597.73 600.02 2851.80 3667.62 2334.18 Outstanding Housing Loans 7636.96 7858.49 13273.46 15844.86 12164.48 Source: Report on Trend and Progress of Housing in India, 2011 The table No. 5.1 shows that these HFCs are expanding nationalized. These banks face intense rivalry from the year by year from 2006 to 2010 but faced a decline in new private banks and the foreign banks. The banks that the year 2010-2011, both in terms of public deposits and are included in this segment include: Bank of Madura outstanding housing loans. Ltd. (now a part of ICICI Bank), Ltd., Ltd., Ltd., The PRIVATE SECTOR BANKS Catholic Syrian Bank Ltd., The Dhanalakshmi Bank Private Banks are essentially comprised of two types: Ltd., The Ltd., The Jammu & Kashmir the old and the new. The old private sector banks Bank Ltd., The Ltd., The Lakshmi comprise those, which were operating before Banking Vilas Bank Ltd., The Ltd. and Vysya Nationalization Act was passed in 1969. On account of Bank. their small size, and regional operations, these banks The new private sector banks were established when the were not Banking Regulation Act was amended in 1993.The leading banks that are included in this segment include ______ISSN (Print): 2319–5479, Volume-4, Issue–4, 2015 91 International Journal of Research and Development - A Management Review (IJRDMR) ______

Bank of Punjab Ltd., Centurion Bank Ltd., Global Trust The overall banking sector for housing finance in India Bank Ltd., HDFC Bank Ltd., ICICI Banking can be presented with the help of following chart: Corporation Ltd., IDBI Bank Ltd., Indus Ind Bank Ltd. FOREIGN BANKS IN INDIA Foreign banks have brought latest technology and latest banking practices in India. They have helped made Indian Banking system more competitive and efficient. Government has come up with a road map for expansion of foreign banks in India. The road map has two phases. During the first phase between March 2005 and March 2009, foreign banks may establish a presence by way of setting up a wholly BANKING SECTOR owned subsidiary (WOS) or conversion of existing branches into a WOS. The second phase will commence Before 1990’s, there was no significant share of banks in in April 2009 after a review of the experience gained the housing finance sector of India. Due to the industrial after due consultation with all the stake holders in the recession in the last decade there has been a dearth of banking sector. The review would examine issues alternative avenues for the deployment of funds by the concerning extension of national treatment to WOS, financial institutions. It created the interest of banking dilution of stake and permitting mergers/ acquisitions of sector in housing loans. any private sector banks in India by a foreign bank. The Table 5.2 shows that how the commercial banks Major foreign banks in India are ABN-AMRO Bank have lead the housing finance companies in housing ,Abu Dhabi Commercial Bank Ltd., American Express finance disbursement early in the 20th century. Bank Ltd., BNP Paribas, Citibank, DBS Bank Ltd., , HSBC Ltd. And Bank. TABLE No. 5.2 : HOUSING FINANCE DISBURSEMENT BY DIFFERENT INSTITUTION (Rs. in crore) Institutions 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 All Scheduled 25412.41 32832.92 49066.92 85346.45 126797.03 182167.2 230689 Commercial Banks Housing Finance 12638 14614.44 17832.01 20862.23 26000 29500 32500 Companies Total 38050.41 47440.36 66898.93 106208.7 152797.03 211667.2 263189 % share of HFCs 33.21% 30.81% 26.66% 19.64% 17.02% 13.94% 12.35% Total Growth 29% 22% 34% 46% 36% 33% 22% Source: Report on Trend and Progress of Housing in India. Some parameters regarding performance of Scheduled Outstanding Commercial Banks like number of housing loan Housing Loan per accounts, credit limit etc. are given below in the table Account No. 5.3. The figures in the table No. 5.3 clearly show Credit Limit 338796 37662292 11.16 that during the year 2010 the no. of housing loan 90 accounts, outstanding housing loan, Average Average Credit 5.93 6.23 5.05 Limit per Outstanding Housing Loan per Account, Credit Limit Account and Average Credit Limit per Account shows 5.72%, 7.57%, 1.60%, 11.16% and 5.05% increase respectively Source: Report on Trend and Progress of Housing in in comparison to the year 2009. India, 2011 TABLE No. 5.3 : HOUSING LOAN ACCOUNT, If we take a look at the outstanding housing loan CREDIT LIMIT AND OUTSTANDING HOUSING portfolio in terms of the size it is quite clear that till the LOAN end of March 2010, a major proportion of the (Rs. in lac) outstanding housing loan was in the category of 10 lac- PARTICULAR 2009 2010 PERCENTAGE 25 lac. In this category the proportion of housing loan INCREASE have increased to 27.7% during 2010 as compared to No. of Housing 571070 6037786 5.72 25.62% during the year 2009. Loan Accounts 2 Outstanding 284750 30630668 7.57 The detailed size wise outstanding housing loan can be Housing Loan 91 represented in the following table. Average 4.99 5.07 1.60 ______ISSN (Print): 2319–5479, Volume-4, Issue–4, 2015 92 International Journal of Research and Development - A Management Review (IJRDMR) ______

TABLE No. 5.4 : SIZE WISE OUTSTANDING [5] Chidambaram R.M and Alamelu (1994): HOUSING LOAN “Profitability in Banks – A matter of Survival, (in percentage) The Banker: pp 1-3 May. Percentage of Total [6] Das A. (1997): “Technical, Allocative and Scale Outstanding Housing Loan Efficiency of Public Sector Banks in India, RBI Portfolio Occasional Papers, June to September. March, 2009 March, 2010 Up to Rs. 25,000 0.10 0.10 [7] Barman R. B. and Samanta G. P “Banking >25,000- 2 Lac 6.72 5.73 Services Price Index: An Exploratory Analysis >2 Lac- 5 Lac 19.85 18.33 for India” (www.financialindia.com) >5Lac- 10 Lac 20.83 21.66 [8] Bhadury Prof. Subrato (2007) conducted study >10 Lac- 25 Lac 25.62 27.71 on “Commercial new challenges >25 Lac- 50 Lac 12.16 12.83 and opportunities after liberalization” South >50 Lac 14.72 13.64 Asian Journal of Socio-Political Studies (Vol No- TOTAL 100 100 2, Jan-June 2007). Source: Report on Trend and Progress of Housing in [9] Board John Sutcliffe, Ziemba Charles, William India, 2011 T.(2003) “Applying Operations Banking sector plays the most important role in ResearchTechniques to Financial Markets” Interfaces; (Mar/Apr2003, vol. 33 issue 2), (Pg12 providing housing finance. As the housing finance is 24). undoubtedly the most secured investment, the Government as well as private sector banks remain [10] Brown Craig O. and Dinc I. Serdar (2005) “The interested to grab a major share of housing finance Politics of Bank Failures: Evidence from market. They already have a wide circle of existing Emerging Markets” Quarterly Journal of customers and a broad network of infrastructure through Economics, (November 2005) (Pg-1413-1443). their branches. Khurdha District is not an exception of this phenomenon. Here a strong web of branches of [11] Batra Mr. Sumant & Dass Kesar (2003) different banks can be seen everywhere, which are “Maximising value of Non Performing Assets” willingly ready to provide desired amount of housing Forum for Asian Insolvency Reform (FAIR) finance to eligible customers. (Seoul, Korea 10 - 11 November 2003). [12] Chhikara Dr. Sudesh (2007) “Causes and Impact REFERENCES: of Non Performing Assets in Public Sector [1] Sathya and Bhattacharya et el (1997) : “Impact of Banks: A state level Analysis” Amity Privatization on the Performance of the Public Management Analyst ( Vol 1, No 2) (2007) ( Pg. Sector Banks, Journal of Management Review: No. 48-56). pp 45-55. [13] Chipalkatti Niranjan , Rishi Meenakshi (2007) [2] K. SRINIVAS (2010): “Pre and Post Merger “Do Indian banks understate their bad loans?” Financial Performance of Merged Banks- A The Journal of Developing Areas. Nashville: Select Study”, Indian Journal of Finance, May (Spring 2007. Vol. 40, Issue. 2) ;( Pg. 75-91). 2010. [14] Chakrabarti Rajesh and Chawla Gaurav (2005) [3] Chowdari Prasad and K.S. Srinivasa Rao (2004) : “Bank Efficiency in India since the Reforms: An “Private Sector Banks in India - A SWOT Assessment” Money & Finance ICRA Bulletin, Analysis, Bankers Profession, pp 28-33. (JulyDec’05) (Pg.-31-42). [4] Sanjay J. Bhayani (2006): “Performance of the New Indian Private Banks – A Comparative Study, Banking Review: pp 55 – 59. 

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