© 2018 JETIR June 2018, Volume 5, Issue 6 www.jetir.

org (ISSN-2349-5162)

CUSTOMER SATISFACTION REGARDING

HOUSING LOANS:
A STUDY WITH SPECIAL REFERENCE TO LIC
HOUSING FINANCE LTD
1. Dr. KRISHNA BANANA 2. P.V.L NARASIMHA RAO
Assistant Professor `& Research Supervisor Research Scholar,
Dept. of Commerce & Management Studies Dept. of Commerce & Management Studies,
Acharya Nagarjuna University Acharya Nagarjuna University-Guntur
Ongole Campus, Ongole-523105

Abstract: The objective of the study is to assess the satisfaction level of LIC Housing loan customers on
the basis of several factors such as bank’s legal formalities and procedures, bank’s internal environment,
likelihood to recommend others, bank’s festival schemes and offer This study is descriptive in nature and the
sampling method which has been used in the study is Convenience sampling. The sample size includes 90
respondents which have taken housing loan from LIC Housing Finance Ltd. Discriminant Analysis has been
used to analyses the data collected through questionnaire with the help of statistical software SPSS. In this
study it has been found that the customers availing overdraft facility are more satisfied than the customers who
have not availed this facility. Legal formalities and Procedure affect the customer satisfaction in more extent.
Great efforts must be taken to make people aware about the schemes and offers launched by the bank.

Keywords: Housing Loan, Customer Satisfaction, Overdraft Facility.

Introduction
‘House’ is one of the basic human necessities next to food and clothing. It is not only a shelter but also an
asset and wealth of human being. Housing finance/ loan means ‘finance for meeting various needs relating to
housing such as purchase of a flat/house, acquisition of a plot and construction of a house, extension of a
house, repairs, renovation and up gradation of a house /flat with Housing ranks third amongst 14 major
industries in terms of total linkage effect in the Economy. It is the second largest employment generator in the
country after Agriculture. As per the report of technical group on urban housing shortage in India (2012-17),
the housing shortage in the urban areas is 18.78 million units while in the rural area it is 43.67 million units. In
2012, Housing loans as a percentage of GDP have remained at around 7 per cent. From the above data it
can be said that there still required the need of houses in India.

According to 2015-16 report of National Housing Board, of the total loan granted by public sector banks,
67% (48178 crore) was for housing sector. Thus banks are facing a tough competition. The Government
of India is also supporting development in housing sector by taking initiative like “House for All by 2022”,
“Make in India”, “Pradhan Mantri Jan DhanYojana.”

The Banking Companies Act of India defines Bank as, “A bank is a financial institution which accepts the
money from the public for the purpose of lending or investment repayable on demand or otherwise
withdrawal by cheques, drafts or otherwise.”

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II. LITERATURE REVIEW

According to Philip K. Kotler, “Satisfaction is a person’s feeling of pleasure or disappointment resulting from
comparing a products perceived performance in relation to his or her expectations.”

Customer Satisfaction = Result - Expectation

OR
Customer satisfaction = Performance - Expectations

J.D. Power (2008) in his study made an attempt to measure the customer satisfaction with home equity
lenders. The study finds that there are few key performance indicators for lenders that are critical to
satisfying customers, these are repayment spread over 15-20 years’.

Housing finance system in India: It has two components viz. formal and informal Housing and related
infrastructure is one of the principal sectors • that can revitalize and sustain economic growth and
development. Besides Housing has the maximum propensity to generate income. Approving applications and
providing customers with an access to their fund quickly.

Setting and meeting expectations during the application approval process. Avoiding surprising the
customer during the origination process Being versatile and flexible in the location of the closing and
demand for materials, equipment and services; it is a chronic problem for countries like India. The rapid
growth of population, increasing urbanization, break-up of joint families; low income level and inadequate
maintenance of housing stock have created shortage of dwelling units not only in urban areas but also in
rural areas in India. The matters relating to housing and urban development has been assigned to the State
Government and urban local bodies by the constitution of India. The Ministry of Urban Development and
Poverty alleviation is the apex authority of Government of India at national level to formulate policies, sponsor
and support program. Reserve Bank of India also supports the housing sector through its subsidiary National
Housing Bank.

Paul Jackson (2008): In his study he made an attempt to analyze the overall customer satisfaction. The
study pointed out that for consumers shopping for a home equity loan, closing cost and price including
interest rates and fees are particularly important considerations.

Bandyopadhyay and Shah (2009) stated the further fact after inspecting the 13,487 housing loan accounts
(been sanctioned between 1993-2007) in India housing loan demand is mainly driven by the accessibility and
credit availability, changing income level, increasing GDP growth rate, changing family patterns and age
demographic effect. An increase in house price by 10%, ceteris paribus, results in 4.59% decrease in
housing demand. A 10% monthly income leads to increase in housing demand area by almost 6%.

Boyd W. et al. (2011) have conducted a study to understand the major factors affecting the housing finance
decisions of customers and have found out that reputation, interest charged on loans, interest charged on
savings accounts are of more importance rather than other criteria like friendliness of employees, modern
facilities and driven- in- services.

Machauer A. and Morgner S. (2012) have stated that segmentation to be preferred by expected benefits
and attitudes that could enhance a bank’s ability to address the conflict between individual’s services and cost
saving standardization. Using cluster analysis, segments were formed based on combinations of customer
rating for different attitudinal dimensions and benefits of bank services.

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Devlin (2013) investigation states that the importance of choice criteria according to the consumers and also
analyses the difference in the importance of choice criteria with respect to number of demographic
difference and relative factors. The study reflects that choosing a home loan institution on the basis of
professional advice is the most frequently cited choice criteria, closely followed by interest rates. Difference in
the importance of choice criteria with respect to demographic variables like gender, class household income,
educational attainment, ethnicity and financial maturity are apparent.

Jasmindeep Kaur Brar and J.S. Pasricha (2014) opined that from the immemorial shelter was considered as
a basic need of a man. To a modern no other problem is as intriguing and mind boggling as the housing
problem.

METHODOLOGY

Objectives of the study

The following are the objectives of the study:
 To understand the procedure for sanctioning of credit more specifically
for housing sector.

 To find the satisfaction level of their customers towards housing loans

provided by LIC Housing Finance Ltd.

Research Type and Research Design

We are interested in assessing the satisfaction level of LIC Housing loan customers on the basis of several
factors such as bank’s legal formalities and procedures, bank’s internal environment, likelihood to
recommend others, bank’s festival schemes and offers. This study is descriptive in nature and the research
design used in this study is cross sectional research design.

Data Sources
The study was based on Primary and Secondary data
The Primary Data was collected through direct interview method using structured questionnaires.
Questionnaire has been designed with the help of previously validated study and personally administered.
Five point Likert’s scale is used for measurement. The Secondary data was collected from their Financial Year
report and also from report of National Housing Board.

Hypothesis
Null Hypothesis
There is no significant discrimination among the group who are availing the overdraft facility of LIC
Housing Finance and who are not.

Statistical Test & Software

Discriminant Analysis has been used to analyses the data collected through questionnaire with the help of
statistical software SPSS.

Limitations of the Study

The study was conducted in Prakasam districts of the state with limited number of sample units due to time and
resource constraints. Therefore the findings may be interpreted cautiously with respect to time and space.

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Home Loans & LIC Housing Finance

Retail Loans
The Core Retail Advances comprising Housing, Vehicle, Education, Personal & Pensioner, Gold Mortgage &
Reverse Mortgage Loan Schemes. The growth of Retail Loan portfolio continued to be the thrust area of the
Bank in Financial Year 2016. In the figure given below: Aggregate Retail portfolio of Rs 38,864 crore as on
31.03.2015 increased to Rs 48,415 crore as on 31.03.2016 showing growth of 24.60%.

Home Loans
LIC Finance of India Ltd.is a commercial bank to provide housing loan facility. Due to increase in demand of
the housing loan they have also opened a separate Subsidiary, named “LIC Housing Finance Ltd.” The
Housing Loan segment registered growth of 26% with an outstanding amount of 21,544 crore as on 31st
March 2016.

Sampling Technique & Sample Size

This study has been conducted to analyze customer satisfaction • level towards housing loan at LIC
Housing Finance, Prakasam district A.P. The Convenience sampling has been used for data collection. The
sample includes 90 respondents which have taken housing loan • from LIC Housing Finance Ltd. In 2016
LIC Housing Finance has launched overdraft facility so our main focus revolves around the customer who
have • availed this facility.

Table 1: Category Wise Sample Collection for the Study

Overdraft facility No. of Samples
Overdraft facility availed 71
Overdraft facility not availed 29

Home Purchase Loan: This is the basic loan for purchase of new house.
Home Improvement Loans: These loans are given for implementing repairs and renovations in a home
that has already been purchased
Home Construction Loans: The loan is available for construction of a new house.
Home Extension Loans: This is given for expanding or existing an existing home.
Overdraft facility: For housing loan customers LIC Housing Finance has launched an Overdraft facility in
which the person can take personal loan on less rate of interest. The maximum extent of loan is Rs.25lac.
Festival Bonanza offer: This is a beneficial offer for customers as in this bank removes the charges of
processing and documentation fee.

Eligibility Criteria for Home Loans

If the borrower is able to repay the amount any amount of loan can be granted to him/her, for this purpose
pre-sanction appraisal is done which is explained further in this report.

Parameters Involved in Housing Loan

Tenure
The tenure of the home loans refer to the time limit for a customer to repay the loan, generally, the maximum
limit for the repayment is 25 years. The longer the tenure, more a customer pays in total interest, but monthly
payment will be less.

Amount Paid by the Financer/Margin Requirement: The financer does not pay the entire amount of the
loan, customers are requested to keep some margin. Most banks go in for 75% of the funding .Example: An
apartment costing Rs.10lac may get 75% of the funding by the bank.

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Interest Rate
The most important parameter to factor in housing loan is the interest rate, it is the amount charged as a
percentage of principle by the lender to a borrower. There are two kinds of interest rates:
• Fixed rate of interest
• Floating rate of interest

Table 3: Processing Fee and Document Charges Applied by the Bank

0.50% of loan amount,
Processing fee Up to Rs.300 lac. Maximum Rs. 200000/-

Above 300 lac. Rs. 500000/-

Documentation IIEJR Irrespective of amount

Charges RJW Rs. 1350/-

Prepayment Fee
Charges are levied on floating rate of interest on Housing Loans while in case of fixed rate of interest no
prepayment charges are to be levied in when the loans are prepaid by the borrowers from their own sources.

The Loan Procedure followed by LIC Housing Finance

The process involves the disbursement of home loan, It involves following steps:

 Home loan application form is first submitted by the customer covering all the details

 Checklist of requirement is requested for from the customers and all documents are requested to be
submitted ,they are then verified whether details are details are failed in correctly and whether all the
documents are submitted.

 Pre sanction appraisal is done by the bank in which type fixed interest rate remains fixed over 3
years and then changes according to the market conditions. Whereas Floating interest rate are affected by
the rates in the market .The current interest rate on housing loan by LIC Housing Finance is Current Fixed
rate of interest is 10.50%, Floating rate of interest is 10.25% and that on overdraft is 10.50%(overdraft).

Maximum Permissible Deduction

The bank cannot deduct amount more than prescribed limit, so if a borrower ask for certain amount for loan
and after deduction of maximum permissible amount the person is not able to repay within 35 years of time
span then he is denied for this loan.

Table 2: Maximum Permissible Deduction as Per Net Monthly Salary

Net Monthly salary Max. Permissible

Up to Rs. 30000 deduction
40%of NMS
>Rs.30000 to Rs. 60000 50%
>Rs. 60000 to Rs. 100000 60%
>Rs.100000 70%

Miscellaneous Charges
All banks charge certain amount of processing fee and document charges which cannot be ignored.
• Processing Fee: Bank charge certain amount of fee for processing of the loan.

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• Documentation charges: Amount charged by the banks to borrower for checking and preparation
of documents required for sanctioning the loan is termed as documentation charges. The Processing fee and
Documentation charges imposed by LIC Housing Finance are given in below table: of land (whether
agriculture or residential), legal aspect in case of builder and NEC (non encumbrance certificate) etc. is
checked.

Housing Finance Schemes of LIC Housing Finance

The Housing Loan segment registered growth of 26% with an outstanding amount of ` 21,544 crore as on
31st March 2016. In 2015-16 the total housing loan issued was Rs. 8650 lakh which amount 17.866% of the
total loans. The Bank also implemented various Government of India schemes such as Credit Guarantee Fund
Scheme for Low Income Housing (CRGFSLIH), Housing Interest Subsidy Scheme under the name of “Rajiv
RinYojana” launched by Ministry of Housing & Poverty Alleviation and Education Loans interest Subsidy
under Central Scheme for Interest Subsidy (CSIS), New CSIS and ‘Padho Pradesh for Minority
Communities’.

Following are the Housing finance schemes of LIC Housing Finance:

A. Direct finance
B. Indirect finance
B. Analysis & Interpretation
Discriminant analysis has been performed on the items to which respondents have responded. Respondents
were asked to respond on the items measuring bank’s legal formalities and procedures, bank’s internal
environment, likelihood to recommend others, bank’s festival schemes and offers.

We have selected the 69 cases for analysis and 21 cases for validation. On the basis of these 21 cases we want
to interpret that the customers who are availing the overdraft facility are generally satisfied with the bank
services. The following table depicts the data very clearly:

The group statistics table given below reveals that for all four predictors, larger group means are
associated with larger group standard deviations. (The means and standard deviations for the group who are
availing the overdraft facility are considerably higher).

V. Problem Statement and Analysis of the Questionnaire

A. Issues in Housing Loan in LIC Housing Finance, Prakasam dist. A.P

Issues No. of Respondents Percent

Missing or out-of-range group

codes 69 76.7
At least one missing
discriminating variable 0 0

Both missing or out- of-range

group codes and at least one
missing discriminating
variable 0 0

Unselected 21 23.3
Total 21 23.3
Total 90 100

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Though the total housing sector loan of LIC Housing Finance has shown a growth of 26.04%, but in LIC
Housing Finance Prakasam district AP, there is a decrease in this sector. In spite of launch of the overdraft
facility they could not get as many new customers as the previous year (2014-15). In 2014-15 the total
Housing Loan issued was Rs. 9232.43 lac with total account no.53, whereas in 2015-16 the loan issued was
Rs.7912 lac. With total new accounts of 350 and Overdraft issued was Rs. 738 lac with total accounts 140. In
this study we are trying to find out the satisfaction level of customers, on the various factors affecting the
same, So that the level of satisfaction can be improved which in turn will increase the clientele.

Group Statistics

Overdraft Mean Std. Deviation

Legal formalities 3.738 0.38787
procedures
Overdraft facility 3.4889 0.34157
Internal environment
availed
Likelihood to 3.9556 0.70568
recommend
Schemes offers 3.8444 0.56228
Legal formalities 3.2708 0.41649
procedures
Overdraft facility not 3.2847 0.35604
Internal environment
availed
Likelihood to 3.4167 0.97431
recommend
Schemes offers 3.375 0.49454
Legal formalities 3.5761 0.45436
procedures
3.4179 0.35772
Internal environment
Total
Likelihood to 3.7681 0.8427
recommend
Schemes offers 3.6812 0.5814

Table given below show the Wilk’s lambda value which measure the variables potential in discriminating the
group (smaller value indicates the variable is better at discriminating between groups). The table reveals that
legal formalities and procedure is best followed by festive schemes/offers, likelihood to recommend others,
internal environment.

Tests of Equality of Group Means

Wilks’ Lambda
Legal formalities procedures 0.756

Internal environment 0.925

Likelihood to recommend 0.906

Schemes offers 0.85

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Table below shows the correlation among all the four parameters. This shows that likelihood to
recommend bank is more dependent on internal environment and then on legal formalities.

Pooled With-in-Groups Matrices

Legal Internal Likelihood to Schemes
formalities environment recommend offers
procedures

Legal
formalities
procedures 1 0.097 0.3 0
Internal
0 1 0.4 0
Correlation environment

Likelihood to
0 0.424 1 0
recommend

Schemes offers 0 0.162 0 1

The table given below show that we have correctly classified 72.5% of selected group and 90.5% of
unselected group:

Predicted Group
Membership
Overdraft Overdraft Total
Overdraft facility facility not
availed availed
Overdraft facility availed 33 12 45
Overdraft facility not
Count 7 17 24
availed
Original Overdraft facility availed 73.3 26.7 100
Overdraft facility not
% 29.2 70.8 100
availed
Cases Overdraft facility availed 33 12 45
Overdraft facility not
Selected 8 16 24
availed
Cross- validate Overdraft facility availed 73.3 26.7 100
Overdraft facility not
Cases Not % 33.3 66.7 100
availed
Count Overdraft facility availed 14 1 15
Overdraft facility not
1 5 6
availed
Original Overdraft facility availed 93.3 6.7 100
Overdraft facility not
Selected % 16.7 83.3 100
availed

The result shows that the customers who are availing the overdraft facility are generally satisfied from LIC
Housing Finance services. It is also found that the banks legal formalities and procedures, banks internal
environment, several offers and schemes offered by LIC Housing Finance and likelihood to recommend
others to avail the LIC Housing Finance services are significant explaining the satisfaction level of
customers of LIC Housing loan. In order to maximize the customer’s satisfaction LIC Housing Finance

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should give more emphasize on these factors which in turn develop the customer’s loyalty and also
minimizing the risk of recovering housing loans.

CONCLUSION

In this study, we have included the step by step procedure involved in granting the housing loans. Initially pre-
sanction appraisal requires preparation of credit reports which helps the bank in studying the borrower’s
character, capacity and capital (3c’s). Internal and external credit ratings are taken with respect to the
account under study. Previous repayment behaviour is checked for character through reports and credit
ratings from while future cash flow projections are checked for the repayment capacity of the borrower.
Borrower’s habits on following up the rules and regulations are checked and if some irregularities are found
it are reported accordingly. Pre-release audit is done to deal with the above mentioned requirement.

To understand the nature of the securities entrusted with the bank Legal audit reports are studied. The next
thing done after the follow-up is the documentation of necessary formats and document that is essential to
be issued to the borrower on sanction of enhanced/renewed credit facility. Drawing limits of various
accounts are calculated. As part of post sanction monitoring book of debts and stocks are audited to check the
adequate security, nature and quantity. Some activities are part of monitoring which are done periodically such
as unit inspection with the bank officials to verify the stock statements. Finally a study is done to check the
NPA’s and understand the nature of the non-remunerative borrowers and suggest possible measures to
overcome the slippage of an account into an NPA.

This study at LIC Finance of India Ltd.was an extremely informative one. It gave us an excellent opportunity to
learn, as well as contribute to the organization. Their housing loan section holds second position in retail
loan category after credit given to SME. From the customer feedback we have taken, this can be generalized
that the people who have taken overdraft facility are more satisfied. Legal formalities and Procedure affect
the customer satisfaction in more extent. Great efforts must be taken to make people aware about the schemes
and offers launched by the bank.

LIC Housing Finance Ltd’s practices have been very efficient and each and every detail has been taken care
off by them. They have their own credit rating system. They have been innovative with their products and for
a banking system to grow and not just survive needs continuous evolution and it cannot be in a day or a year,
it only happens gradually. “Slow and
Steady wins the race”.

References

 LIC Housing Finance Ltd, [Online] Available: https://

 www.LIC Housing Financeindia.in/En/ui/AboutUs.aspx
 Boyd, W.L, and M. and White.C,“Customer preferences for Financial Services an analysis”,
International journal of bank marketing Vol. 12, No. 1, pp. 9-15, 2011.
 Brar Jasmindeep Kaur and pasricha J.S. “Housing Loan
 – A Comparative Study of Institutions”, Indian Journal of Commerce. Vol. 58, No. 2, pp. 71- 79,
2014.
 Credit Policy of financial year 2015-16 of LIC Finance of India Ltd.from “Circular number 22/2015,
dated on 31-03-2014”, retrieved from LIC Housing Finance database, Circle office Prakasam
 Devlin J.F,“An Analysis of Choice Criteria in the Home Loan Market”, International Journal of Bank
Marketing 20/5, pp. 212-226, 2013.
 Dr. Sahani N, Sopna P., International Journal of sales on Marketing Management and research,
Vol. 1, Issue 2011”. [7]

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 J.D. Power and associates: Customer satisfaction with home equity line of credit, 2008.
 Machauer, A, Morgner, S,“Ethnicity Endogeneity and Housing tenure Choice”, International
Journal of Bank Marketing 19/1, pp. 6-17, 2012.
 Mishra, Dr. Ashok Kumar,“Growth of Housing Finance and Housing Requirement in India”, Annals
of Management Research, Vol. 1, No. 1, 2011.
 National Institute of Bank Management: Research Study done by the Arindham Bandyopadhyay
and Asish shah (2009) [Online] http://mpra.ub.uni-munechen. de/14352/
 Paul Jackson,“Customer satisfaction with HE/HELOC origination increases”, 2008.
 Priority sector lending from “Circular no. 24/2014”, retrieved from LIC Housing Finance database,
circle office, Prakasam.
 Retail lending schemes from “RAD Circular no 68/2014”, retrieved from ‘LIC Housing Finance
database, circle office, Prakasam.

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