Financial Performance of Public and Private Sector Banks in Housing Loans

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

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ISSN (Print): 2319–5479, Volume-4, Issue–4, 2015 90

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

informal resources till the late eighties. There were few lenders of housing loans which included Life Insurance Corporation of India, Housing and Urban Development Corporation (HUDCO), Housing Development Finance Corporation (HDFC) and Apex Cooperative Housing Finance Societies (ACHFS) with no particular support existing for the formal sector. The main aim was to channelize resources to housing sector through budgetary allocations especially for Economic Weaker Section (EWS) housing/ housing for migrated population.

Introduction

The housing finance industry has grown robustly over the last few years. This is due to the fact that the housing finance industry is very competitive today and lenders are offering attractive packages to customers. From the last decade, the Government of India has been continuously trying to strengthen the housing sector by introducing various housing loan schemes for rural and urban population. The first attempt in this regard was the National Housing Policy (NHP), which was introduced in 1988. The National Housing Bank (NHB) was set up in 1988as an apex institution for housing finance and a wholly-owned subsidiary of Reserve Bank of India (RBI). Before these, HUDCO was set-up by the Government in 1970 to meet the financial needs of the housing and urban infrastructure. In 1977, HDFC was set up as the first housing finance company with the private participation.

Housing finance system is relatively young in India and due to this, housing finance assistance from formal sector has been limited to the middle and high income groups and PLIs have not been able to penetrate the rural areas. Besides this, the sector is the second largest employment generator in the country.

BANKING SECTOR IN HOUSING FINANCE

At present India has a well developed banking system.

Most of the banks in India were founded by Indian entrepreneurs and visionaries in the pre-independence era to provide financial assistance to traders, agriculturists and budding Indian industrialists. Indian banks have played a significant role in the development

of Indian economy by inculcating the habit of saving in Indians and by lending finance to Indian industry.

At present, the need for housing finance in India is largely being fulfilled by the 51 Housing Finance Companies (HFCs) registered with NHB and the 27 Public Sector Commercial Banks. Apart from these, various other institutions are also involved with housing finance. The following types of institutions are in operation for extending housing loans to the Indian borrowers:

a) Scheduled Commercial Banks b) Housing Finance Companies

c) Scheduled Cooperative Banks (Scheduled State Co-operative Banks, Scheduled District Co- operative Banks and Urban Co-operative Banks) d) Regional Rural Banks

e) Agriculture and Rural Development Banks f) State Level Apex Co-operative Housing Finance

Societies.

Besides these, a large informal sector comprising of money lenders, individuals, friends and relatives etc. is also involved in the field of housing finance.

As the housing finance in India is dominated by the commercial bank, the focus of the study has been centered on the commercial banks. The commercial bank in India consists of: Scheduled Commercial Banks and Unscheduled Banks. Scheduled commercial Banks constitute those banks, which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934.RBI includes only those banks in this schedule, which satisfy the criteria laid down vide section 42(6)(a) of the Act. Indian banks can be broadly classified into nationalized banks/public sector banks, private banks and foreign banks.

The overall performance of the Scheduled Commercial Banks (in terms of the outstanding credit) can be depicted in the following chart-1.

Chart-1 : Outstanding Credit of Scheduled Commercial Banks 1992 to 2010

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It is clear from the chart that there is a decrease in terms of housing loan accounts from the year 1992 to the year 2000 but thereafter upto 2010 it is continuously increasing.

It we talk about the amount outstanding it shows a continuous growth right from the year 1992 to 2010.

PUBLIC SECTOR BANKS

Public sector banks are those in which the Government of India or the RBI is a majority shareholder. These banks include the State Bank of India (SBI) and its subsidiaries, other nationalized banks, and Regional Rural Banks (RRBs). Over 70% of the aggregate branches in India are those of the public sector banks.

Some of the leading banks in this segment include Allahabad Bank, Canara Bank, Bank of Maharashtra, Central Bank of India, Indian Overseas Bank, State Bank of India, State Bank of Patiala, State Bank of Bikaner and Jaipur, State Bank of Travancore, Bank of Baroda, Bank of India, Oriental Bank of Commerce, UCO Bank, Union Bank of India, Dena Bank and Corporation Bank.

Some of these commercial banks also have sponsored some HFCs. As on 31 March 2011 there are six HFCs sponsored by Commercial Banks. These include:

 Can Fin Homes Ltd., sponsored by Canara Bank

 Centbank Home Finance Ltd., sponsored by Central Bank of India

 ICICI Home Finance Ltd., sponsored by ICICI Bank

 Ind Bank Home Finance Ltd., sponsored by Indian Bank

 PNB Home Finance Ltd., sponsored by Punjab National Bank

 REPCO Home Finance Ltd., sponsored by REPCO Bank

The financial performance of these HFCs during last few years is represented in the table No. 5.1.

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 year by year from 2006 to 2010 but faced a decline in the year 2010-2011, both in terms of public deposits and outstanding housing loans.

PRIVATE SECTOR BANKS

Private Banks are essentially comprised of two types:

the old and the new. The old private sector banks comprise those, which were operating before Banking Nationalization Act was passed in 1969. On account of their small size, and regional operations, these banks were not

nationalized. These banks face intense rivalry from the new private banks and the foreign banks. The banks that are included in this segment include: Bank of Madura Ltd. (now a part of ICICI Bank), Bharat Overseas Bank Ltd., Karnataka Bank Ltd., Lord Krishna Bank Ltd., The Catholic Syrian Bank Ltd., The Dhanalakshmi Bank Ltd., The Federal Bank Ltd., The Jammu & Kashmir Bank Ltd., The Karur Vysya Bank Ltd., The Lakshmi Vilas Bank Ltd., The Nedungadi Bank Ltd. and Vysya Bank.

The new private sector banks were established when the Banking Regulation Act was amended in 1993.The leading banks that are included in this segment include

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Bank of Punjab Ltd., Centurion Bank Ltd., Global Trust Bank Ltd., HDFC Bank Ltd., ICICI Banking 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 owned subsidiary (WOS) or conversion of existing branches into a WOS. The second phase will commence in April 2009 after a review of the experience gained after due consultation with all the stake holders in the banking sector. The review would examine issues concerning extension of national treatment to WOS, dilution of stake and permitting mergers/ acquisitions of any private sector banks in India by a foreign bank.

Major foreign banks in India are ABN-AMRO Bank ,Abu Dhabi Commercial Bank Ltd., American Express Bank Ltd., BNP Paribas, Citibank, DBS Bank Ltd., Deutsche Bank, HSBC Ltd. And Standard Chartered Bank.

The overall banking sector for housing finance in India can be presented with the help of following chart:

BANKING SECTOR

Before 1990’s, there was no significant share of banks in the housing finance sector of India. Due to the industrial recession in the last decade there has been a dearth of alternative avenues for the deployment of funds by the financial institutions. It created the interest of banking sector in housing loans.

The Table 5.2 shows that how the commercial banks have lead the housing finance companies in housing finance disbursement early in the 20^th century.

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

Commercial Banks 25412.41 32832.92 49066.92 85346.45 126797.03 182167.2 230689 Housing Finance

Companies 12638 14614.44 17832.01 20862.23 26000 29500 32500

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 Commercial Banks like number of housing loan accounts, credit limit etc. are given below in the table No. 5.3. The figures in the table No. 5.3 clearly show that during the year 2010 the no. of housing loan accounts, outstanding housing loan, Average Outstanding Housing Loan per Account, Credit Limit and Average Credit Limit per Account shows 5.72%, 7.57%, 1.60%, 11.16% and 5.05% increase respectively in comparison to the year 2009.

TABLE No. 5.3 : HOUSING LOAN ACCOUNT, CREDIT LIMIT AND OUTSTANDING HOUSING

LOAN

(Rs. in lac)

PARTICULAR 2009 2010 PERCENTAGE

INCREASE No. of Housing

Loan Accounts 571070

2 6037786 5.72 Outstanding

Housing Loan

284750 91

30630668 7.57

Average 4.99 5.07 1.60

Outstanding Housing Loan per Account

Credit Limit 338796

90 37662292 11.16 Average Credit

Limit per Account

5.93 6.23 5.05

Source: Report on Trend and Progress of Housing in India, 2011

If we take a look at the outstanding housing loan portfolio in terms of the size it is quite clear that till the end of March 2010, a major proportion of the outstanding housing loan was in the category of 10 lac- 25 lac. In this category the proportion of housing loan have increased to 27.7% during 2010 as compared to 25.62% during the year 2009.

The detailed size wise outstanding housing loan can be represented in the following table.

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TABLE No. 5.4 : SIZE WISE OUTSTANDING HOUSING LOAN

(in percentage) Percentage of Total Outstanding Housing Loan Portfolio

March, 2009 March, 2010 Up to Rs. 25,000 0.10 0.10

>25,000- 2 Lac 6.72 5.73

>2 Lac- 5 Lac 19.85 18.33

>5Lac- 10 Lac 20.83 21.66

>10 Lac- 25 Lac 25.62 27.71

>25 Lac- 50 Lac 12.16 12.83

>50 Lac 14.72 13.64

TOTAL 100 100

Source: Report on Trend and Progress of Housing in India, 2011

Banking sector plays the most important role in providing housing finance. As the housing finance is undoubtedly the most secured investment, the Government as well as private sector banks remain interested to grab a major share of housing finance market. They already have a wide circle of existing customers and a broad network of infrastructure through their branches. Khurdha District is not an exception of this phenomenon. Here a strong web of branches of different banks can be seen everywhere, which are willingly ready to provide desired amount of housing finance to eligible customers.

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