Federal Bank Ltd, India - Case Study

HOUSING LOAN APPROVAL

PROCESS IMPROVEMENT

Objective of the Study

The objective behind the project is to understand the procedure adopted to sanction housing loan and the various parameters in due process in Federal Bank Ltd, India. Objective of project is to reduce the housing loan process time from average 90 days to less than 20 days or even lesser and thereby decrease leads to conversion slippage.

OBJECTIVES

• The lending objective of the bank outlines default risk  tolerance, to protect against any risk of default, and thus to manage various credit risk.

• To be the Most Admired Bank and to be seen as a premium financial service bank, setting world class standards, and committed to excellence in customer service.

• Brining out innovative products  first in the market.

• Brining out uniformity in approach, skills for appraising a loan, documentation standards, and process with enough place for flexibility and innovation.

• Efficient utilization of resources, diversification of risk and having a balanced portfolio, contributing to profitability.

• Adhering to Board, Satutory and other regulatory requirements.

SECTORAL OVERVIEW

Post colonial India was traditionally a heavily planned and regulated economy with predominantly directed investment. The financial sector was subject to a variety of allocation and interest range regulations and only in the past decade has really progress been made in deregulation. Housing was not considered a priority sector, and, in fact was looked upon as a social good. In this environment, investment in low and moderate-income (LMI) housing was directed thought the housing and urban Development Corporation (HUDCO) a government owned entity.

India’s first private sector retail housing finance institution, the housing development and finance corporation (HDFC), was formed in 1978.Until then there was effectively no market rate housing finance available. HDFC steadily grew into a major force in this sector, despite the control credit allocation structure in the country. Other private sector competitors began to appear in 1983. In 1988, an apex institution, the national housing bank was created

In the early 1990s there were essentially three strands of financing flowing into LMI financing. The first and the largest were the continuing flow from HUDCO at below market prices. The major problem with this process was not just the non-sustainability of the pricing and rates, but the high degree of political intervention and default that was tolerated. The second was a significant amount of lending to moderate-income households by HFCs, which were required by NHB, to cross subsidise small loans by charging higher rates on bigger loans. Although there was evidence that many of these lower rate, smaller loans were taken by relatively higher income households, moderate income borrowers did receive some benefit from this system. The third was the flow of funds and technical assistance to NGO’S. These amounts remained small and most such institution struggled under the burden of limited management capacity.