The quality of banks operational efficiency

Berstain David (2009) examined in his study taken from 2001 to 2008 that in this period there is increase use of home loans as compared to private mortgage insurance (PMI). he have divided his study into four sections. Section 1 describes why people are going more for home loans than PMI. The main reason for this is that now home loan markets provide Piggybank loans for those people who don’t have 20% of down payment. Section 2 tells the factors responsible for the growth of home loans and the risks of shifting towards home equity market without any PMI coverage.

PMI can protect lenders from most losses up to 80% of LTV and the absence of PMI will result in considerable losses in an environment. Section 3 tells the measures in changes of type of loans. For this he have taken the data from the 2001 and 2007 AHS a joint project by HUD and Census The results of this analysis presented in Table One reveal a sharp increase in the Prevalence of owner-occupied properties with multiple mortgages among properties with Newly originated first mortgages.

Section 4 describe the Financial status of single-lien and multiple-lien households and for this he have taken the survey of consumer finance and show that financial position is more weaker in multiple loans than the single loans. Vandell, Kerry D (2008) analyzes the sharp rise and then suddenly drop down home prices from the period 1998- 2008.

Changes in prices are for the reasons such as economic fundamentals, the problem was not sub prime lending per se, but the Fed‘s dramatic reductions, then increases in interest rates during the early- mid-2000 , the housing aboom was concentrated in those markets with significant supply-side restrictions, which tend to be more price-volatile; the problem was not in the excess supply of credit in aggregate, or the increase in sub prime per se, but rather in the increased or reduced presence of certain other mortgage products.

La courr, Micheal (2007) analysis in his study the factors affected the increase in the level of Annual percentages rates (APR) spread reporting during 2005 over 2004. the three main factors are changes in lender business practices; (2) changes in the risk profile of borrowers; and (3) changes in the yield curve environment. The result show that after controlling for the mix of loan types, credit risk factors, and the yield curve, there was no statistically significant increase in reportable volume for loans originated directly by lenders during 2005, though indirect, wholesale originations did significantly increase.

Finally, given a model of the factors affecting results for 2004-2005, we predict that 2006 results will continue to show an increase in the percentage of loans that are higher priced when final numbers are released in September 2007. Ramamurthy (1998), in his technical paper on the profitability and productivity in Indian banking stated that the banking structure and profitability structure of the banking system across the country have a bearing on the profitability of the banks.

When banks are considered as groups in terms of big, medium and small, bigger banks have greater scope for economies of scale. The author opined that one of the main determinants of banks’ profitability is the network of branches, frequently termed as franchise strength. Pathak (2003), while comparing the financial performance of private sector banks since 1994-95, explained that the private sector banks have delivered a new banking experience. Looking to the growing popularity of services provided by them, their public sector counterparts have started emulating them.

He studied the performance of these banks in terms of financial parameters like deposits, advances, profits, return on assets and productivity. In this paper, the author made an attempt to have an insight into the financial operation of these institutions. A sample of 5 banks has been taken for financial analysis. Financial track record of all these banks was evaluated, and their financial performance was compared. The working of all the constituents was satisfactory but the HDFC Bank emerged as a top performer among them followed closely by the ICICI Bank.

La cour Micheal (2006) examined the home purchase mortgage product preferences of LMI households. Objectives of his study to analyze the factors that determined their choice of mortgage product is different income groups have some specified need to met particular product,the role pricing and product substitution play in this segment of the market and do results vary when loans are originated through mortgage brokers? For this they have use the regression analysis and the results are high interest risk reduce loan value. Self employed borrower chooses reduce documented loans than salaried workers.

Use of this product type seems to be more prevalent among borrowers with substantial funds for down payment and better credit scores. In case of pricing Multi families requires price premium and larger loans carry lower rate. And the role of time, particularly, the time required for the loan to proceed from application to closing it is find that government lending taking the longest time and Nonprime loans the shortest time. Multi family properties take longer time in closing. And during peak season take longer time to close.

And for last objective it is found that broker originated loans close faster. The effect of mortgage brokers on pricing and other market outcomes is fertile ground for additional research. Veronica Cacdac Warnock and Francis E. Warnock (2008) in their Journal of Housing Economics examined the extent to which markets enable the provision of housing finance across a wide range of countries. Housing is a major purchase requiring long-term financing, and the factors that are associated with well functioning housing finance systems are those that enable the provision of long-term finance.

Across all countries, controlling for country size, we find that countries with stronger legal rights for borrowers and lenders (through collateral and bankruptcy laws), deeper credit information systems, and a more stable macroeconomic environment have deeper housing finance systems. These same factors also help explain the variation in housing finance across emerging market economies. Across developed countries, which tend to have low macroeconomic volatility and relatively extensive credit information systems, variation in the strength of legal rights helps explain the extent of housing finance.

We also examine another potential factor–the existence of sizeable government securities markets–that might enable the development of emerging markets’ housing finance systems, but we find no evidence supporting that. Peter Neuteboom (2003) in his paper “A European comparison of the costs and risks of mortgages for owner-occupiers” examined that mortgage take-up by homeowners differs enormously across Europe. The loan-to-value and loan-to-income ratios are quite dissimilar, ranging from some 20% and 0. 9 respectively in Italy to more than 90% and 3.

5 respectively in some countries in northwest Europe. In addition, the mortgage characteristics vary from a short-term serial loan to a high-risk endowment mortgage based on shares. To a certain extent, a statistical comparison of the loan-to-value and loan-to-income ratios can provide a good indication of the risks that owner-occupiers run in financing their own home. At the same time, this kind of comparison ignores the causes of the risks, namely the volatility or uncertainty of future interest rates, house prices and changes in income.

It also disregards the main mortgage characteristics, the cost of taking out a mortgage, and the direct and indirect subsidies, including interest deductibility, factors that have a big influence on the real costs and risks for homeowners. A Monte Carlo simulation model (simulating house prices, interest rates and inflation for the duration of the mortgage) was used to calculate the netmortgage repayments and the associated mortgage risk. This simulation was undertaken for each of the countries concerned, using the typical mortgagecharacteristics, etc.

The costs and risks of a mortgage in various countries of Europe could then be compared. Dr. Rangarajan C. (2001) said that the financial system of India built a vast network of financial institutions and markets over times and the sector is dominated by banking sector which accounts for about two-third of the assets of organized financial sector. Kiel (2005) in his paper “Investment and credit effects of land titling and registration” analyzes the importance of legal property documents in providing tenure security, enhancing agricultural investment incentives and easing access to credit.

While theory predicts that better property rights on land can increase investment through increased security, enhanced trade opportunities and increased collateral value of land, the presence and size of these effects depend crucially on whether those rights are properly enforced. In Nicaragua, a troubled history of land expropriation and invasion has undermined the credibility of the legal property regime. The variation in legal ownership status due to a land titling and regularization programme is studied to identify the effects of legal ownership documents.

Possession of a registered document is found to increase the probability of carrying out land-attached investments by 35%. No difference is found in the effect of public deeds and agrarian reform titles provided they are both registered and we find no strong evidence of a credit supply link, thus suggesting security of tenure as the channel through which formal land ownership has an effect on investment. Haavio, Kauppi (2000) stated that countries where a large proportion of the population lives in owner – occupied housing are experiencing higher unemployment rates.

Than countries where the majority of people live in private rental housing, which might suggest that rental housing enhances labour mobility. In this paper, they develop a simple inter temporal two region model that allow us to compare owner occupied housing markets to rental markets and to analyze how these alternative arrangements allocate people in space and time. announced that it will offer loans for Rs. 2-10 lakh at 12.5 percent the lowest rate offered by any housing finance provider, big brother SBI has taken the rate war in the home loans category to new heights.

This is because, apart from the low rate, the interest on these loans is calculated on principal, which is reduced every month unlike other housing finance companies which calculate interest on annually reducing basis. Zanforlin (2008) stated that in “The Rise and Fall of the U. S. Mortgage and Credit Markets”, renowned finance expert James Barth offers a comprehensive examination of the mortgage meltdown.

Together with a team of economists at the Milken Institute, he explores the shock waves that have rippled through the entire financial sector and the real economy. Deploying an incredibly detailed and extensive set of data, the book offers in-depth analysis of the mortgage meltdown and the resulting worldwide financial crisis. This authoritative volume explores what went wrong in every critical area, including securitization, loan origination practices, regulation and supervision, Fannie Mae and Freddie Mac, leverage and accounting practices, and of course, the rating agencies.

The authors explain the steps the government has taken to address the crisis thus far, arguing that we have yet to address the largerissues. Narasimham Committee (1991) points out that although the banking system in our country has made rapid progress during the last two decades, there is decline in productivity and efficiency and erosion of profitability. The committee strongly make indications of liberlising, deregulating economy to make Indian baking system more competitive and efficient.

Ojha (1987) in his paper “Modern international caparison of Productivity and Profitability of pubic sector banks of India” making Comparison on the basis of per employee indicators and taking examples of state bank group and Punjab National bank noted that Indian banks are the lowest in all accounts. However such international comparison will not be fair for numbers of reasons. Godse (1983) in his essay, “looking a fresh at banking productivity” observe that productivity aspect is only at the Conceptualization stage in banking industry.

He suggested improvement in productivity and procedures, costing of operations and capital expenditure etc. Fanning (1982), while examining bank productivity of British banks observed that although the productivity of the UK clearing banks is improving, they are still heavily over manned as compared with similar banks elsewhere. Kulkarni (1979) in his study “Development responsibility and profitability of banks” stated that while considering banks costs and profits, social benefits arising out of it cannot be ignored.

He suggested that while meeting social responsibility banks should try to make developmental business as successful as possible. Varde and Singh (1979) in a study “profitability of commercial banks” over 15 years gave consideration to two types of factors that effects interest rates levels i. e. internal factors (including operational and managerial efficiency on individual basis). Banking Commission (1972) reviewed bank operating methods and procedures and made recommendations for improving and modernizing these, particularly relating to customers services, credit procedure and internal control systems.

It observed that present methods of working out branch profitability are not appropriate and an integrated costing and financial reporting system is needed. Department of Banking operations and development, RBI : Bombay observed that the rapid expansion of banks activities since 1970 called for a phase of consolidations to improve the quality of banks operational efficiency, productivity and customer services.