A STUDY ON CREDIT APPRAISAL
CHAPTER 1
INTRODUCTION
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A STUDY ON CREDIT APPRAISAL
CHAPTER 1: OVERVIEW OF HOUSING IN INDIA
India is home to over 1.1 billion people. With about one in every sixth person in the
world living in India, housing performance assumes significant importance. Successive
Indian governments have regarded housing as a primary need of its people. The need
to provide affordable housing has been the reason behind state interventions in the
sector. Housing policies, however, tended to be framed by the government form a social
rather than economic perspective. Despite explicit recognition of the need for housing
programmes received low public investment. Housing and subsidies were largely
synonymous and hence the tendency to view housing finance from the angle of the
government’s cash budget and not as a developmental activity with tremendous spin-
offs to the economy.
A Significant trigger of the change in housing policies in India occurred pursuant to the
Global Shelter Strategy adopted by the United Nations (UN) in November 1998. These
resolutions encouraged individual countries to establish comprehensive, multi-faceted
housing programmes to provide shelter for all. Global Shelter Strategy’s main aim was
to ensure social, economic and environmental sustainability while simultaneously
upgrading living conditions. A defining feature of the resolution was that it sought to
involve national governments, private bodies as well as the non-governmental
organizations in formulating housing programmes. This provided the impetus to the
Indian government in drafting its first National Housing Policy, which was tabled in
Parliament in 1992 and adopted in August 1994. Subsequently, with a national agenda
of ‘shelter for all ‘, a new Housing and Habited Policy was adopted in1998. This proved
to be a watershed with the government’s recognition that it should withdraw from direct
participation in the housing and housing finance sector and instead take on the role as
facilitator, thereby creating an enabling environment to encourage private sector capital.
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A STUDY ON CREDIT APPRAISAL
In 2000, UN members adopted eight millennium Development Goals ranging from
eradication of poverty to developing a global partnership for development. For housing
though, it was the seventh goal that would prove to be important. Goal 7 called for
“insuring environmental stability” and assigned UN-HABITANT the responsibility of
assisting states to monitor and gradually attain the “cities without slums” target,
popularly known as Target 11. This target calls on member states to achieve “a
significant improvement in the lives of at least 100 million slum dwellers by 2020”. For
India this will prove to be daunting. In 2001 India’s population estimated to be living in
slums was 61.8 million (ministry of urban employment, 2005).
ESTABLISHMENT OF NHB
Considering the acute shortage of housing the world over, the United Nations declared
1987 as the International year of shelter for homeless, as a result of which a number of
housing finance institutions were setup. A few of these companies were sponsored by
Nationalized banks , while others by private initiative. To ensure a healthy growth and
development in the housing sector and to narrow down the margin between the housing
demand and availability of houses the need for a regulatory body was felt. And so in
1988 the National housing bank was setup by an act of Parliament. Wholly owned by
RBI, the key focus area of NHB was to regulate and supervise Housing Finance
Companies, provide financial assistance to them, formulate schemes for resource
mobilization and extend credit for housing.
ROLE OF HOUSING
Macro economic stability and the housing sector are inextricably linked it is estimated
that for one Indian rupee (Rs) invested in housing; Rs 0.78 gets added to the gross
domestic product of the country . the housing sector has strong backward and fprward
linkages to over 250 ancillary industries. After agriculture, the housing and real estate
indudtry is the second largest employment generator. It is estimated that the
construction sector provides direct employment to 16 percent of the country’s work
force, which is growing percent of workers in the construction sector. However,nearly 55
percent of these workers are in the unskilled category.
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A STUDY ON CREDIT APPRAISAL
In india , residential housing accounts for almost 80 percent of the real estate market in
terms of volumes and has been growing as 30 to 35 percent annually ( CRISIL,2006).
Housing is a basic and essential human need . acquisition and ownership of a house
can raise the welfare of the household that lives in it and inter alia enhances
productivity, but housing development has been slow. Because housing is a large
investment, it requires long-term finance. Other factors hindering housing development
are inflation, interest rate controls, instability of financial markets and the inadequate
legal system.
Housing in india has been one of the important economic activities which serves to fulfill
many of the plan objectives : providing shelter to needy , raising the quality of life;
particularly of the poor , creating an environment conductive for bettr health and
sanitation , creating additional employment and achiving urban, rural and inter-personal
equity in terms of standard of living. Further ,housing could lead to generation of
additional savings at all levels and impact on the socio-economic and physio-
psychological development of human beings. Housing is important to development in
both economic and welfare terms. It is only consumption good but also a productive
investment .
HOUSING FINANCE
Housing is one of the most basic human needs and comes after the food and clothing in
importance. A poor country like india si facing a chronic shortage of houses particularly
for weaker section of society. It requires extraordinary efforts on the part of the
government to provide this basic need to its vast population. Gigantic investment in this
sector is necessary to provide a real boost to house building activi ty.
Finance- A Concept
Finance holds key to all activities. The Sanskrit saying “ARTHA SACHIVAH” which
means “FINANCE REIGNS SUPREME” speaks volumes for the significance of the
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A STUDY ON CREDIT APPRAISAL
finance function of an organization The path of the success is greased with money.
Finance is regarded as life blood of business enterprise. This modern money – oriented
economy, is one of the basic foundation of all kinds of economic activities. It is the
master key which provides access to all the sources for being employed in
manufacturing and merchandising activities. It has rightly been said that one needs
money to make more money. However it is also true that money be gets more money
only when it is properly managed. Hence, efficient management of every line of
enterprise i.e. closely linked with efficient ,management of its finance.
Definition of finance
KEENTH MIDGLEY AND RONALD BURNS STATE “ Finance is the process of
organising the flow of funds so that a line fulfills its objects in the most efficient manner
and meet its obligation as they fall due”.
GEORGE CHRISTLY AND PETER RODEN STATE THAT “ To finance mens to arrange
payments for it”.
They observe that finance may be generally defined as the study of money, its nature,
behaviour regulation and problems. Finance is a study of money management. It may
deal eith the eays in which businessmen, investors, governments, financial activities is
largely confined to money management. Even so , to confine it to money management
is to underestimate its role economic transactions.
Nature and scope of Business finance:
The allocation of the investible funds among firms has a significant financial basis.
Some firms may individually be more efficient or less efficient than others. The only way
in which the combined effects of the relatively greater efficiency in some respects and
relatively less efficiency in other may be judged by taking their performances as a whole
into consideration. The only thing common to all firms is the use of money and in so far
MES INSTITUTE OF MANAGEMENT
A STUDY ON CREDIT APPRAISAL
as actons have monetary consequences, performances of all firms may be reduced to
monetary measurements.
Finance administers economic activites. The scope of finance is vast and determined by
the financial needs of the business enterprise, which have to be identified before any
corporate plan is formulated. This eventually means that financial data obtained and
scrutinized. The aim behind sucj scrutiny is to determine how to maintain financial
stability. Finance is a specialized function. Its specialized nature makes it a functional
operation.
HOUSING FINANCE INDUSTRY-AN OVERVIEW
Housing finance has a vast, untapped and potential market today. Significantly there
has been no dearth of demand for housing and consequently for financial for the same
have benn abundant. A boost to the housing finance industry can push up the indian
economic scenario in a large scale. Housing has a tremendous tendency to create
income and demand for resources, tools and services. As per the ninth plan, the
shortage of housing in 3,15,00,000 crores and has achieved an additional 20% growth
for the year 2009-10 compared to previous year.
With RBI attatching the priority tagged to housing , almost all nationalized banks have
jumped into fray, offering attractive terms for housing. Market dynamics play a pivotal
role in determining the lending rates. The entry of banks into the housing finance
sectors has posed a serious threat to all ready existing players in the field. The housing
finance sector is witnessing a clash between major players. Foremost amongst this is
SBI and HDFC imbroglio. Such severe competition has benefited the customers in the
form of cheaper interest rates and better service. Tax sops provided by government of
India is significant step towards upholding the future prospectus of this industry. The
demand is a result of genuine individual needs for Housing. Thus the industry is on solid
ground and has interesting prospectus ahead.
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A STUDY ON CREDIT APPRAISAL
THE FOLLOWING HOUSING FINANCE INSTITUTIONS CAN BE
CLASSIFIED IN TO 3 CATEGORIES:
Public sector finance- which include SBI Home Finance, HUDCO,LIC Housing Finsnce
ltd, General Insurance Corporation Housing Finance ltd,PNB Housing Finance.
BANKS- almost all the banks throughout India provide Housing finance, except few
small branches. The major banks that provide loans for housing are Bank of Baroda,
Bank of India, Bank of Maharashtra, Bank of Punjab, Canara Bank, Co-Operative
Banks, City Bank, Corporation Bank, Dena Nivas, HSBC, ICICI Home Finance, IDBI
Bank, Lakshmi Vilas Bank, UCO Bank, and many others .
PRIVATE SECTOR FINANCE- Diwan Housing Finance Corporation, Global
Housing Finance Corporation ltd, Maharshi Housing Development Finance Corporation,
HDFC, Weizmann Homes and Others.
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