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TABLE OF CONTENTS
Chapters
1. INTRODUCTION
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Credit philosophy
Credit policy
Introduction to loans
Classification of loans
Building up of a proposal
Requirements as per constitution of borrower
Financial Appraisal
6. CONCLUSION
Conclusion
BIBLIOGRAPHY
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CHAPTER 1
Introduction
The last year financial crises have become the main cause for recession which
was started in 2006 from US and was spread across the world. The world
economy has been majorly affected from the crisis. The securities in stock
exchange have fallen down drastically which has become the root cause of
bankruptcy of many financial institutions and individuals. The root cause of the
economic and financial crisis is credit default of big companies and individuals
which has badly impacted the world economy. So in the present scenario
analysing ones credit worthiness has become very important for any financial
institution before providing any form of credit facility so that such situation
doesnt arise in near future again.
Before going further it is necessary to understand the need and basic framework
of the project. Therefore this chapter provides an introduction to the topic,
objective of the project, reasons for selecting the project and the basic structure
and framework how the project proceeds. In order to understand the importance
of the topic selected an introduction to the overview of the commercial bank ,
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its functions, and present trends and growth in bank credit are required and it is
covered in this chapter.
It is the incident of credit defaults that has given rise to the financial crisis of
2008-09. But in India the credit default is comparatively less that other
countries such as US. One of the reasons leading to this may be good appraisal
techniques used by banks and financial institutions in India. Eventually the
importance of this project is mainly to understand the credit appraisal
techniques used by the banks with special reference to Punjab National Bank.
The overall objective of this project is to under stand the current credit appraisal
system used in banks. The Credit Appraisal system has been analysed as per the
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different credit facilities provided by the bank. The detailed explanation about
the techniques and process has been discussed in detail in the further chapters.
The project first of all makes a study about the commercial banks- its important
functions. Then it highlights on the concept of Bank Credit & its recent trends.
The project then proceeds towards the lending procedure of banks and here it
highlights about credit appraisal being the first step in building up of a loan
proposal. Then it discusses the bank credit policy with respect to Punjab
National bank where the project was undertaken.
The project then proceeds with the review of literature i.e. review of some past
work regarding credit appraisal by various researchers. The project then moves
towards research methodology where it covers the information regarding the
type of data collected and the theoretical concepts used in the project are
discussed in detail. Then the project proceeds with the next chapter consisting of
the analysis part which covers the analysis of various techniques used by the
banks for the purpose of credit appraisal. Then the project moves to its next
chapter i.e. findings where some results found out are interpreted and then
moving on to the last and the final chapter i.e. the suggestions and conclusions
where some steps are suggested to be implemented to increase the work
efficiency and to reduce to work pressure
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CHAPTER 2
Commercial banks are the oldest, biggest and fastest growing financial
intermediaries in India. They are also the most important depositories of public
savings and the most important disbursers of finance. Commercial banking in
India is a unique banking system, the like of which exists nowhere in the world.
The truth of this statement becomes clear as one studies the philosophy and
approaches that have contributed to the evolution of banking policy,
programmes and operations in India.
The banking system in India works under constraints that go with social control
and public ownership. The public ownership of banks has been achieved in
three stages: 1995, july 1969 and April, 1980. Not only the public sector banks
but also the private sector and foreign banks are required to meet the targets in
respect of sectoral deployment of credit, regional distribution of branches, and
regional credit deposit ratios. The operations of banks have been determined by
lead bank scheme, Differential Rate of interest scheme, Credit authorization
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scheme, inventory norms and lending systems prescribed by the authorities, the
formulation of credit plans, and service area approach.
Commercial Banks in India have a special role in India. The privileged role of
the banks is the result of their unique features. The liabilities of Bank are money
and therefore they are important part of the payment mechanism of any country.
For a financial system to mobilise and allocate savings of the country
successfully and productively and to facilitate day-to-day transactions there
must be a class of financial institutions that the public views are as safe and
convenient outlets for its savings. The structure and working of the banking
system are integral to a countrys financial stability and economic growth. It has
been rightly claimed that the diversification and development of Indian Economy are in
no small measure due to the active role banks have played financing economic activities of
different sectors.
Management of Reserves
Banks are expected to hold a part of their deposits in form of
ready cash which is known as CASH RESERVES.
Central bank decides the reserve ratio known as the CRR.
Creation of Credit
Banks are said to create deposits or credit or money or it can be
said that every loan given by bank creates a deposit.
This has given rise to the important concept of money multiplier.
Bank Credit
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Types of credit-
Bank in India provide mainly short term credit for financing working capital
needs although, as will be seen subsequently, their term loans have increased
over the years. The various types of advances provide by them are: (a) Term
Loans, (b) cash credit, (c) overdrafts, (d) demand Loans , (e) purchase and
discounting of commercial bills, and, (f) instalment or hire purchase credit.
Volume of Credit-
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22.5 20.4
Public Sector Banks
The rates have gone down compared to previous quarter when it was seen
that there was no changes in loan rates in private and foreign banks. But
then compared to rate cuts done by RBI, they still need to go lower.
(Basis points)
Bank Group
Deposit Rates Lending Rates
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(BPLR)
125-250 125-225
Public Sector Banks
75-200 100-125
Private Sector Banks
100-200 0-100
Five Major Foreign Banks
Change (from
BPLR Oct 08 Mar 09 Apr 09
Oct to Apr)
13.75-
Public Sector Banks 11.50-14.00 11.50-13.50 125-225
14.75
13.75-
Private Sector Banks 12.75-16.75 12.50-16.75 100-125
17.75
Five Major Foreign14.25-
14.25-15.75 14.25-15.75 0-100
Banks 16.75
Sector-wise credit points credit has increased to agriculture, industry and real
estate whereas has declined to NBFCs and Housing. A bank group wise sectoral
allocation is also given which suggests private banks have increases exposure to
agriculture and real estate but has declined to industry. Public sector banks have
increased allocation to industry and real estate. There is a more detailed analysis
in the macroeconomic report released before the monetary policy
As on As on
Sector February 15, February
2008 27, 2009
% share Variations % share Variations
in total (per cent) in total (per cent)
Agriculture 9.2 16.4 13 21.5
Industry 45.2 25.9 52.5 25.8
Real Estate 3.1 26.7 8.5 61.4
Housing 7.3 12 4.7 7.5
NBFCs 5.7 48.6 6.6 41.7
Overall Credit 100 22 100 19.5
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To sum up, the credit conditions seems to have worsened after January 2009.
The rates have declined but lending has not really picked up. However, the
question still remains whether credit decline is because banks are not lending
(supply) or because people/corporates are not borrowing (lack of demand). It is
usually seen that all financial variables as lead indicators say if credit growth
(along with other fin indicators) is picking, actual growth will also rise.
However, it is actually seen the relation is far from clear. In fact, the financial
indicators hardly help predict any change in business cycle. Most rise in good
times and fall in bad times. Most financial indicators failed to predict this global
financial crisis and kept rising making everyone all the more complacent.
Bank lending was done for a long time by assessing the working capital needs
based on the concept of MPBF (maximum permissible bank finance). This
practice has been withdrawn with the effect from April 15 th 1997 in the sense
that the date, banks have been left free to choose their own method ( from the
method such as turnover , cash budget, present MPBF , or any other theory) of
assessing working Capital requirement of the borrowers.
The cash credit system has been the bane, yet it has exhibited a remarkable
strength of survival all these years. In spite of many efforts which were direct in
nature, only a slow progress has been made to reduce its importance and
increase bill financing. Therefore a concrete and direct policy step was taken on
April 21, 1995 which made it mandatory for banks, consortia, syndicates to
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restrict cash credit components to the prescribed limit , the balance being given
in the form of a short term loan, which would be a demand loan for a maximum
period of one year, or in case of seasonal industries , for six months. The interest
rates on the cash credit and loan components are to be fixed in accordance with
the prime lending rates fixed by the banks. This loan system was first made
applicable to the borrowers with an MPBF of Rs 20 crore and above; and in
their case , the ratio of cash credit (loan) to MPBF was progressively
reduced(increased) from 75 (25) per cent in April 1995 , to 60 (40) percent in
September 1995, 40 (60) per cent in April 1996 , and 20 (80) percent in April
1997. With the withdrawal of instructions about the MPBF in April 1997 , the
prescribed cash credit and loan components came to be related to the working
capital limit arrived in banks as per the method of their choice.
With effect from September 3, 1997, the RBI has permitted banks to raise their
existing exposure limit to a business group from 50% to 60%; the additional
10% limit being exclusively meant for investment in infrastructure projects.
The term lending by banks also has subject to the limits fixed by RBI. In 1993,
this limit was raised from Rs 10 crore to Rs 50 crore in case of a loan for a
single project by a single bank, and from Rs 150 crore to Rs 200 crore for a
single project by all the banks. The latter limit was subsequently raised to Rs
500 crore in the case of general projects and Rs 1000 crore for power projects.
From September3, 1997 these caps on term lending by banks were removed
subject to their compliance with the prudential exposure norms.
The banks can invest in and underwrite shares and debentures of corporate
bodies. At present, they can invest five percent of their incremental deposits in
equities of companies including other banks. Their investment in shares/ Bonds
of DFHI, Securities trading Corporation of India (STCI), all Indian financial
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institutions and bonds (debentures) and preference shares of the companies are
excluded from this ceiling of five per cent with affect from April 1997 . From
the same date banks could extend loans within this ceiling to the corporate
against shares held by them. They could also offer overdraft facilities to stock
brokers registered with help of SEBI against shares and debentures held by
them for nine months without change of ownership.
A study group headed by Shri Prakash Tandon, the then Chairman of Punjab
National Bank, was constituted by the RBI in July 1974 with eminent
personalities drawn from leading banks, financial institutions and a wide cross-
section of the industry with a view to study the entire gamut of Bank's finance
for working capital and suggest ways for optimum utilization of Bank credit.
This was the first elaborate attempt by the central bank to organize the Bank
credit. Most banks in India even today continue to look at the needs of the
corporate in the light of methodology recommended by the Group. The report of
this group is widely known as Tandon Committee report.
The weaknesses in the Cash Credit system have persisted with the non-
implementation of one of the crucial recommendations of the Committee. In the
background of credit expansion seen in 1977-79 and its ill effects on the
economy, RBI appointed a working group to study and suggest-
ii) Alternate type of credit facilities to ensure better credit discipline and co
relation between credit and production. The Group was headed by Sh. K.B.
Chore of RBI and was named Chore Committee.
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Another group headed by Sh. P.R. Nayak (Nayak Committee) was entrusted
the job of looking into the difficulties faced by Small Scale Industries due to the
sophisticated nature of Tandon & Chore Committee recommendations. His
report is applicable to units with credit requirements of less than Rs.50 lacs.
The face of Indian banking has changed radically in the last decade. A perusal
of the Basic Statistical Returns submitted by banks to the Reserve Bank of India
shows that between 1996 and 2005, personal loans have been the fastest
growing asset, increasing from 9.3 per cent of the total bank credit in 1996 to
22.2 per cent in 2005. Of course, this is partly due to the huge rise in housing
loans, which rose from 2.8 per cent of the bank credit to 11 per cent over the
period, but other personal loans comprising loans against fixed deposits,
gold loans and unsecured personal loans also rose from 6.1 per cent to 10.7
per cent. Other categories whose share increased were loans to professionals
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and loans to finance companies. In contrast, there has been a sharp decline in
the share of lendings to industry. Credit to small scale industries fell from 10.1
per cent of the total in 1996 to 4.1 per cent in 2005.
A major share of the economic growth has been led by the expansion of
the service sector
Capital intensity and investment intensity required for growth in the
current economic context may not be as high as it used to be in the past.
In manufacturing sector more efficient utilization of existing capacities
contributed to the sectoral growth rather rather than any large addition of
fresh capacities. The consequential increase in the demand for credit was
also subdued.
Greater and cheaper avenues for credit resulted in a bigger share of
disintermediation being resorted to by large borrowers.
The other trend has been the substantial drop in the share of rural credit, while
the share of metropolitan centres has increased. While bankers say that up
gradation of rural centres into semi-urban could be one reason (the share of
semi-urban centres has gone up), it is also true that the reforms have been
urban-centric and have tended to benefit the metros more. The number of rural
bank offices fell from 32,981 in March 1996 to 31,967 by March 2005.
The states have been the main beneficiaries of bank credit are the northern
region as it has increased its share from 18.7 per cent of the total credit in 1996
to 22.2 per cent in 2005. As it was seen that Delhis share went up from 9.5 per
cent to 12.1 per cent over the period. This is not due to food credit, the account
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of which is maintained in Delhi. Clearly, the national capital has gained a lot
from liberalisation.
Theaggregatedepositsofscheduledcommercialbankshaveexpandedduring
200809atasomewhatslowerrate(19.8%)thanin200708(22.4%).Within
aggregate deposits demand deposits have shown anabsolute fall (Rs 4,179
crore)incontrasttothesizeableincrease(Rs94,579croreorby22%)in2007
08,.Ontheotherhand,timedepositshaveshownanacceleratedincreaseof
22.6%asagainst21.8%inthepreviousyear.
Intheinvestment portfolioof banks, theexpansionduring 2008 09atRs
194,031crorehasbeenmuchlowerthantheexpansionofRs340,250croreas
increaseinnetbankcredittogovernmentundermonetarydataforthesame
period.ThishashappenedbecausethelatterhasasizeableamountofRBIcredit
togovernmentfollowingtheincreasedopenmarketoperations.Finally,there
has occurred considerable slowdown in bank credit expansion. Because of
relativelyhigherprocurementoffoodgrains,foodcredithasexpandedbyRs
1,812croreduring200809asagainstanabsolutefallofRs2,121crorein
200708.NonfoodcreditgrowthatRs406,287hasbeenslowerthaninthe
previousyearatRs432,846.
Procedure for providing Bank Credit-
Banks offers different types of credit facilities to the eligible borrowers. For
this, there are several procedures, controls and guidelines laid out. Credit
Appraisal, Sanctions, Monitoring and Asset Recovery Management comprise
the entire gamut of activities in the lending process of a bank which are clearly
shown as below:
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Credit
Appraisal
Sanctions
Monitoring &
Asset recovery
Management
From the above chart we can see that Credit Appraisal is the core and the basic
function of a bank before providing loan to any person/company, etc. It is the
most important aspect of the lending procedure and therefore it is discussed in
detail as below.
Credit Appraisal
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CHAPTER3
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bank penetration is far lower than in other markets. Indias banking industry
must strengthen itself significantly if it has to support the modern and vibrant
economy which India aspires to be. While the onus for this change lies mainly
with bank managements, an enabling policy and regulatory framework will also
be critical to their success.
The failure to respond to changing market realities has stunted the
development of the financial sector in many developing countries. A weak
banking structure has been unable to fuel continued growth, which has harmed
the long-term health of their economies. In this white paper, we emphasise the
need to act both decisively and quickly to build an enabling, rather than a
limiting, banking sector in India.
Indian banks have compared favourably on growth, asset quality and
profitability with other regional banks over the last few years. The banking
index has grown at a compounded annual rate of over 51 per cent since April
2001 as compared to a 27 per cent growth in the market index for the same
period. Policy makers have made some notable changes in policy and regulation
to help strengthen the sector. These changes include strengthening prudential
norms, enhancing the payments system and integrating regulations between
commercial and co-operative banks. However, the cost of intermediation
remains high and bank penetration is limited to only a few customer segments
and geographies. While bank lending has been a significant driver of GDP
growth and employment, periodic instances of the failure of some weak banks
have often threatened the stability of the system. Structural weaknesses such as
a fragmented industry structure, restrictions on capital availability and
deployment, lack of institutional support infrastructure, restrictive labour laws,
weak corporate governance and ineffective regulations beyond Scheduled
Commercial Banks (SCBs), unless addressed, could seriously weaken the health
of the sector. Further, the inability of bank managements (with some notable
exceptions) to improve capital allocation, increase the productivity of their
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Over the last few years the treasury departments of banks have been responsible
for a substantial part of profits made by banks. Between July 1997 and Oct
2003, as interest rates fell, the yield on 10-year government bonds (a barometer
for domestic interest rates) fell, from 13 per cent to 4.9 per cent. With yields
falling the banks made huge profits on their bond portfolios. Now as yields go
up (with the rise in inflation, bond yields go up and bond prices fall as the debt
market starts factoring a possible interest rate hike), the banks will have to set
aside funds to mark to market their investment. This will make it difficult to
show huge profits from treasury operations. This concern becomes much
stronger because a substantial percentage of bank deposits remain invested in
government bonds. Banking in the recent years had been reduced to a trading
operation in government securities. Recent months have shown a rise in the
bond yields has led to the profit from treasury operations falling. The latest
quarterly reports of banks clearly show several banks making losses on their
treasury operations. If the rise in yields continues the banks might end up
posting huge losses on their trading books. Given these facts, banks will have to
look at alternative sources of investment.
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The best indicator of the health of the banking industry in a country is its level
of NPAs. Given this fact, Indian banks seem to be better placed than they were
in the past. A few banks have even managed to reduce their net NPAs to less
than one percent (before the merger of Global Trust Bank into Oriental Bank of
Commerce OBC was a zero NPA bank). But as the bond yields start to rise the
chances are the net NPAs will also start to go up. This will happen because the
banks have been making huge provisions against the money they made on their
bond portfolios in a scenario where bond yields were falling.
Reduced NPAs generally gives the impression that banks have strengthened
their credit appraisal processes over the years. This does not seem to be the
case. With increasing bond yields, treasury income will come down and if the
banks wish to make large provisions, the money will have to come from their
interest income, and this in turn, shall bring down the profitability of banks.
The entry of new generation private sector banks has changed the entire
scenario. Earlier the household savings went into banks and the banks then lent
out money to corporate. Now they need to sell banking. The retail segment,
which was earlier ignored, is now the most important of the lot, with the banks
jumping over one another to give out loans. The consumer has never been so
lucky with so many banks offering so many products to choose from. With
supply far exceeding demand it has been a race to the bottom, with the banks
undercutting one another. A lot of foreign banks have already burnt their fingers
in the retail game and have now decided to get out of a few retail segments
completely.The nimble footed new generation private sector banks have taken a
lead on this front and the public sector banks are trying to play catch up. The
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PSBs have been losing business to the private sector banks in this segment.
PSBs need to figure out the means to generate profitable business from this
segment in the days to come.
In the recent past there has been a lot of talk about Indian Banks
lacking in scale and size. The State Bank of India is the only bank
from India to make it to the list of Top 100 banks, globally. Most of
the PSBs are either looking to pick up a smaller bank or waiting to be
picked up by a larger bank. The central government also seems to be
game about the issue and is seen to be encouraging PSBs to merge or
acquire other banks. Global evidence seems to suggest that even
though there is great enthusiasm when companies merge or get
acquired, majority of the mergers/acquisitions do not really work. So
in the zeal to merge with or acquire another bank the PSBs should not
let their common sense take a back seat. Before a merger is carried
out cultural issues should be looked into. A bank based primarily out
of North India might want to acquire a bank based primarily out of
South India to increase its geographical presence but their cultures
might be very different. So the integration process might become very
difficult. Technological compatibility is another issue that needs to be
looked into in details before any merger or acquisition is carried out.
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BASEL rules did not take into account the operational risks. As
per the BASEL-II norms, banks will have to set aside 15 per cent
of net income to protect themselves against operational risks.
Over the last few years, the falling interest rates, gave banks very little incentive
to lend to projects, as the return did not compensate them for the risk involved.
This led to the banks getting into the retail segment big time. It also led to a lot
of banks playing it safe and putting in most of the deposits they collected into
government bonds. Now with the bond party over and the bond yields starting
to go up, the banks will have to concentrate on their core function of lending.
The banking sector in India needs to tackle these challenges successfully to
keep growing and strengthen the Indian financial system.
ICICI BANK
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bank has a network of 4,450 branches and 13,995 ATMs in India, and has a
presence in 19 countries including India.
ICICI Bank is one of the Big Four banks of India, along with State Bank of
India, Bank of Baroda and Punjab National Bank. The bank has subsidiaries in
the United Kingdom and Canada; branches in United States, Singapore, Bahrain,
Hong Kong, Sri Lanka, Qatar, Oman, Dubai International Finance Centre,
China and South Africa; and representative offices in United Arab Emirates,
Bangladesh, Malaysia and Indonesia. The company's UK subsidiary has also
established branches in Belgium and Germany.
HISTORY
ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian
financial institution, and was its wholly-owned subsidiary. ICICI's shareholding
in ICICI Bank was reduced to 46% through a public offering of shares in India
in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in
fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in an all-stock
amalgamation in fiscal 2001, and secondary market sales by ICICI to
institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955
at the initiative of the World Bank, the Government of India and representatives
of Indian industry. The principal objective was to create a development financial
institution for providing medium-term and long-term project financing to Indian
businesses.
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formed the view that the merger of ICICI with ICICI Bank would be the optimal
strategic alternative for both entities, and would create the optimal legal
structure for the ICICI group's universal banking strategy. The merger would
enhance value for ICICI shareholders through the merged entity's access to low-
cost deposits, greater opportunities for earning fee-based income and the ability
to participate in the payments system and provide transaction-banking services.
The merger would enhance value for ICICI Bank shareholders through a large
capital base and scale of operations, seamless access to ICICI's strong corporate
relationships built up over five decades, entry into new business segments,
higher market share in various business segments, particularly fee-based
services, and access to the vast talent pool of ICICI and its subsidiaries.
In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the
merger of ICICI and two of its wholly-owned retail finance subsidiaries, ICICI
Personal Financial Services Limited and ICICI Capital Services Limited, with
ICICI Bank. The merger was approved by shareholders of ICICI and ICICI
Bank in January 2002, by the High Court of Gujarat at Ahmedabad in March
2002, and by the High Court of Judicature at Mumbai and the Reserve Bank of
India in April 2002. Consequent to the merger, the ICICI group's financing and
banking operations, both wholesale and retail, have been integrated in a single
entity.
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CREDIT APPRAISAL
MISSION
We will leverage our people, technology, speed and financial capital to:
Corporate banking
Personal banking
Industrial finance
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CREDIT APPRAISAL
Agriculture finance
Financing of trade
International banking
Home loan
Auto loan
ATM/Debit card
ICICI Bank has won 11 awards at the 17th National Awards for Excellence in
Energy Management organized by the Confederation of Indian Industries (CII).
ICICI Bank has won bronze in the Banking Services category at the Golden
Cart Summit and Awards 2016.
ICICI Bank has won Gold at the Energy and Environment Foundation (EEF)
Global Environment Award 2016 during the World Renewable Energy
Technology Congress & Expo-2016.
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ICICI Bank has won Gold in Not-for-Profit (Interactive Campaign) and Silver
in Creative Affectiveness, Social Media, both for the #GiftALivelihood
campaign at 2016 DMA Asia ECHO Awards India edition.
ICICI Bank has won Gold for #GiftALivelihood in the Social Cause
Supported by a Corporate/Brand category at Campaign India Digital Crest
Awards (CIDCA), 2016.
ICICI Bank was the exclusive recipient of awards in the categories of Website
of the Year India and Core Banking System Initiative of the Year India and
received a silver in the category of Branch Innovation of the Year in the Asian
Banking and Finance (ABF) Retail Banking Awards 2016.
ICICI Bank has been declared winner in the category of Enterprise Mobility at
Intelligent Enterprise Awards 2016, organised by the Indian Express Group.
ICICI Bank has won Gold awards in the Bank and Credit card issuing Bank
segments under Finance category in the Readers Digest Trusted Brand 2016
Survey.
ICICI Bank has won second prize for the ICICI Bank BKC Tower in the
Service category at 12th - CII (Western Region) Safety, Health and
Environment Excellence Award 2015-16.
ICICI Bank has won two awards in the categories of Best Core Banking
Project- Single Country and Best Retail Payments Project at The Asian
Banker Technology Innovation Awards 2016.
ICICI Bank has been declared as winner in the category of Private - Service
Sector (Large)' at the 13th National Awards for Excellence in Cost
Management-2015.
ICICI Bank Canada won the 2016 Employment Equity Achievement Award for
Improved Representation by the Government of Canadas Ministry of
Employment, Workforce Development and Labour.
ICICI Bank won the Golden Peacock Innovative Product/Service Award for the
year 2016 under the category of Financial Sector (Banking). The Bank
received the award for the project on One kWp solar retrofit system for
ensuring un-interrupted power supply to gramin branches.
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ICICI Bank was ranked first in the Best Bank- Innovation category in the
Business Today-KPMG survey on India's best banks. The Bank was ranked
second in the category of Bank of the Year.
ICICI Bank was ranked first in The Brand Trust Report, India Study 2016
done by Trust Research Advisory (TRA) under the BFSI category. The Bank
was also ranked 10th among the overall 1,000 brands as per the report.
ICICI Bank has won two awards in the categories of Best Retail Bank in India
and Best Employee Engagement Initiative in Asia Pacific, Middle-East and
Africa at the Asian Banker Excellence in Retail Financial Services International
Awards 2016. The award programme is the most prestigious of its kind in the
industry. More than 250 banks across 42 countries were evaluated for the
awards this year.
ICICI Bank was ranked second in Total Income Listing and ranked seventh in
Total Business Listing in the list of India's Leading BFSI Companies 2016 by
Dun & Bradstreet.
ICICI Bank received two awards at the IBA Banking Technology Awards
2016. In the large banks segment, the Bank was declared winner in the
category of 'The Best Use of Technology to Enhance Customer Experience' and
runner up in the category of 'The Best Use of Digital and Channels Technology'.
ICICI Bank won the bronze under the Financial Services category for
advertising effectiveness on the Expressions Debit Card campaign at 2015 Effie
Awards.
ICICI Bank won the 'Global Safety Awards 2016' organised by The Energy and
Environment Foundation. This award is sponsored by Ministry of Power,
Ministry of Petroleum & Natural Gas and Ministry of Coal, Government of
India.
ICICI Banks corporate office, Chandivali, Mumbai won the first prize, and
CIBD office, Vashi, won the third prize under Commercial Building category
at the 10th State Level Awards for Excellence in Energy Conservation and
Management, organised by Maharashtra Energy Development Agency.
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ICICI Bank was ranked first in India at the Euromoney Private Banking &
Wealth Management Survey, in four categories. They were: Net-worth-specific
services, Philanthropic Advice, SRI/Social Impact Investing and Innovative
Technology - Client Experience. The Bank was ranked sixth in Asia, in the
category of Innovative Technology - Client Experience.
Head Office
7, Bhikhaji Cama Place, New Delhi-110066
Circle Office
Branches
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Hierarchy
Executive Director
Deputy GM
Assistant GM
Chief Manager
Senior Manager
Manager
Senior Officers
Officers
Subordinate clerks
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Board of Directors
Mr M.K.Sharma :- Chairman
Mr. Dileep Choksi :- Board Member
Mr. Homi R. Khusrokhan :- Board Member
Mr. M.S. Ramachandran :- Board Member
Dr. Tushaar Shah :- Board Member
Mr. V. K. Sharma :- Board Member
Mr. V. Sridar :- Board Member
Mr. Alok Tandon :- Board Member
Mrs. Chanda Kochhar :- CEO & MD
Mr. N.S.Kannan :- Executive Officer
Mr. Rajiv Sabharawal :- Executive Officer
Mr. Vijay Chandok :- Executive Officer
Mrs. Vishakha Mulye :- Executive Officer
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Review of Literature
Literature review provides available research with respect to the selected topic
of the project or the research findings by an author which has been done with
respect to the research topic. This chapter provides the overall view of the
available literature with respect to the topic of the project. The review of the
related research works are described as under:-
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3. The research paper on the topic Towards an appraisal of the FMHA farm
credit program: A case study of the efficiency of borrower by S. Mehdian,
Wm. McD. Herr, Phil Eberle, and Richard Grabowski have studied that the a
production frontier methodology is used to measure the overall efficiency of a
sample of farmers home administration(FMHA) compared to non participants.
The study did not find evidence that the efficiency FMHA farms improved
between a time period Results indicated that overall efficiency of FMHA
borrowers is associated with selected financial characteristics of the farms. A
review of the literature shows that agricultural finance specialists have not been
successful in evaluating whether FMHA pro- grams improve the efficiency and
income of probability of success. Liberal loan policies
Eligible borrowers. Inadequate evaluation of the FMHA program occurs partly
because of because the difficulty of adequately deter-mining the impacts of
changes in the econ- borrowers in a more normal period of the loan. This study
addressed these difficulties by utilizing a nonparametric production frontier
technique to measure overall efficiency and a matched pair statistical procedure
to measure how efficiency of farms receiving FMHA credit changed relative to
a Non-FMHA farmers.
4. The book named Financial Analysis for Bank Lending in Liberalised
Econ
I EDUCATION LOANS
Till some years back higher education and quality education was not affordable to some
illustrious students because of the financial constraints. There was no any alternative but to
jump in the job market prematurely. And this led to untimely end of budding talents and their
forceful transformation into to the mediocrity. Scholarships were there, but those were so less
in numbers that only luckier few could avail them. But now the scene has changed
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drastically. The boom in the banking sector has led to release of large amount of funds for
education loans
Student loans in India (popularly known as Education loans) have become a popular
method of funding higher education in India with the cost of educational degrees going
higher. The spread of self-financing institutions(which has less to no funding from the
government) for higher education in fields of engineering, medical and management which
has higher fees than their government aided counterparts have encouraged the trend in India.
Most large public sector and private sector banks offer educational loans.
Under section 80(e) of the Indian Income tax act, a person can exempt the amount paid
against the interest of the education loan - either for self or for his/her spouse or children - for
eight years from the year (s)he starts to repay the loan or for the duration the loan is in effect,
whichever is lesser.
Education loan is becoming popular day by day because of the rising fee structure of higher
education. It came into existence in 1995 started first by SBI bank and after that many banks
started offering study loan.
Studies Abroad
Graduation, PG and Courses offered by CIMA London , CPA in USA
Eligibility Indian National
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Secured Admission
Secured pass marks in qualifying exam. Branches need not go into
technicalities of admission process (selection through management
quota etc.) and may consider loan based on admission advice.
( RBD Cir. No. 60/08 dt. 20.12.2008)
More than one In case of more than one loan in a family, the family as a unit is to be
loan in a family taken into account for considering the loan and security taken in
relation to total quantum of loan subject to margin and repaying
capacity of the parents.
Top up Loans Top up loans may be sanctioned to students for pursuing further
studies within overall eligibility limits with appropriate
reschedulement of existing loans and required permission by the CH
Age of student There is no restriction with regard to age of student for being eligible
for the loan.
Income No Income criteria are prescribed for the parents. However amount of
Criteria loan be decided by judging Income of the parents.
Amount of loan Rs. 10.00 lac in India and 20.00 lac for abroad. CH can exercise
higher powers.
Priority Sector Rs. 10.00 lac in India and Rs. 20.00 lac for abroad.
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Constitutes of Tuition fees, Hostel charges, Exam fees, Library/Lab charges, Books,
loan Equipment, Instruments, Uniform, Building fund, Refundable deposit,
Travel expenses & Computers. (Advances for Computers are allowed in
Computer/Management courses only.)
Fees re- Within 6 months. Circle Head can allow beyond a period of 6 months
imbursement also on merits.(RBD Cir. No. 12/10 Dt. 16/02/2010)
Documents Documents will be executed both by student and the parent/guardian.
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II VEHICLE LOANS
Today, vehicles can be financed using a number of options such as loans, lease, or hire
purchase agreement. Obtaining a vehicle loan is one of the more straightforward ways of
financing a two or four wheeler. In this manner, the vehicle purchased is actually possessed
by the bank or lending institution. This means the car or motorbike is hypothecated.
Therefore, though the consumer owns the vehicle, the bank or the lending institution is
actually using it as a security against the loan that the consumer has obtained.
Vehicle loan provided by Punjab National Bank are under two categories know as PNB
SARTHI and CAR Loan & details about its processing, eligibility, margin etc are discussed
below:-
PNB SARATHI
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CAR LOAN
Conveyance Loan (Public) for Car
Eligibility Individual & Business concerns, Professionals & Agriculturists with 6M tra
Purpose & Extent Car, Van & Jeep, Multi Utility New or Old (not older than
Vehicles/Sports Utility Vecles
Individuals 25 times of net month
more vehicles.
CH may relax the cri
capacity.
Income of spouse can
guarantor
Business Corporate and non-corporate No Ceiling. One or more
capacity will be considered
Agriculturists --do--
Margin General 20% - C
considered
Govt./PSU employees 15% (Rep
If net income is more than 6 lac Margin ca
Old Vehicles 30%
CH may reduce up to 10% in deserving cases.
Repayment Maximum 7 years without any Moratorium period
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Documentation charges Rs. 270/- (Tie up arrangement Rs.1270/- ) up to Rs. 2.00 lac + ST
Rs. 450/- (Tie up arrangement Rs.1700/- ) Above Rs. 2.00 lac + ST
Security Hypothecation of the vehicle
RC in joint name of borrower and bank
Bill of the vehicle will also be in the joint name.
Guarantee Spouse if employed or Suitable 3 rd party guarantee or Collateral Security
amount.
CH and above can waive the guarantee/collateral security.
Insurance Comprehensive Insurance with bank clause and policy to remain with the b
Security Inspection PNB 551 is required for the 1st. time. In case account is regular, PNB 55
In case the account is irregular, Qtrly. Inspection is must.
Other Provisions 15% depreciation on St. line method is to be applied in case of Old Car
Driving License is not at all required.
Statement of account for the last 6 M. is required.
Car loan finance to business concerns for personal use of executives s
may be sanctioned by officials under vested powers even in case whe
authorities in terms of RBD cir. No. 51 dt. 15/09/09.
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comprises a large pool of small and medium sized loans, risk is distributed over a
large number of accounts, which is ideal from Risk Management point of view.
Hence growth of quality assets under Housing Finance is one of the major areas of
focus for the bank.
PNB-(Punjab National Bank) Home Loan offers the most consumer friendly
home loans and housing finance schemes at attractive rates. PNB Housing Loans, with an
aim to make purchase and construction of homes a comfortable task, provides fixed as well
as floating home loans at different rate of interest for different tenures. PNB Housing
Finance covers 80% of the cost of your home or renovation / repairing of your home loan up
to Rs. 10 Lacs for buying land and up to Rs. 2 Lacs for furnishing can be availed from PNB
Home Loan.
The details of housing loan product of Punjab National Bank regarding its
purpose, eligibility criteria, assessment, processing, documentation, cut back, margin,
pre-sanction follow ups, etc. are as foll
1 HOUSING FINANCE (PUBLIC)
Eligibility Individual & Joint Owners
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Concessional Bank has decided to extend concessions to Defense personnel who are
Rate of Interest raising Housing Loans under banks regular Housing Loan scheme for
for Defense public as under:
Employees
25 bps relaxation in interest rates
50 bps relaxation in processing fee
These relaxations are to be made applicable in all new cases where
defense personnel avail housing loan either in single name or along
with spouse.
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EMI has the option of choosing EMI that can increase or decrease during
repayment period rather than being given a fixed EMI over repayment
tenor.
Upfront fee 0.90 % of loan amount + service tax & education cess (10.30%) on
loans above 300 crore.
Processing fees @ 0.50% of loan amount (max. 20000) +service tax
for loans up to 300 crore.
Documentation Rs.1350 + service tax
charges
Priority Sector Repair & Renovation Rs.1.00 lac (Rural & Semi/Urban)
inclusion
Rs.2.00 lac (Urban)
Other features Loan can be sanctioned by the branch/hub near to the present place
of work/posting/residence of the borrower. However, if the property
is situated at other place, services of branch/hub located at that
center may be availed for verification of Security and
NEC/Valuation etc.
Loan can be granted even if property is in the name of wife/parents
provided that the owner is made co-borrower.
Loan can be granted for 2nd house in the same city.
Loan can be granted for purchase of house for rental purpose.
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This facility is outside the purview of Hub and Spoke model in the
accounts of existing HL borrowers.
(RBD Cir. No. 64 dt. 19.12.2009)
PNB Flexible This is an attractive variant of Housing Loan Scheme offered by the
Housing Loan PNB for its customers. Under this scheme, OD facility is made
Scheme available to the HL borrower. He can deposit his savings and withdraw
the same as per his requirement. The features of the scheme are as
under:
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Overdraft 20%
Two types of personal loans are being offered by PNB. Personal loan for pensioner is special
category of retail lending scheme being offered by Punjab National Bank to pensioner. The
main intension of this loan is to meet each and every personal needs including medical
expense of senior citizen. Details regarding the same are mentioned below.
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Margin NIL
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Repayment TL 60 EMIs
OD- Reducing DP spread over 60 M.
Defence Personnel 36 M.
Amount of EMI should not be more than 50% of net monthly
income.
60 advance cheques (maximum) signed by the borrower along with
letter of deposit be obtained. Obtention of advance cheques is
applicable where check off facility is not available.
Guarantee Suitable 3rd party guarantee. RM/CM may waive
RBL Sheet PNB Score system will be applicable and the applicant will have to
score at least 50% marks to avail loan.
Upfront fee % of loan amount + service tax
NIL for defense personnel.
Docm. Charges Rs. 270/- up to Rs. 2.00 lac. Rs. 450/- Above Rs. 2.00 lac + ST
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Personal Loans.
PNB is the first Public Sector Bank to come out with a Reverse Mortgage concept
based product for senior citizen titled "PNB Baghban". The product addresses
one of the very important requirements of the society in the fast changing
culture of Indian society. The main objective of this scheme is to address the
financial needs of senior citizens owning self occupied property (house), for
leading a decent life. The salient features of the product are given hereunder:
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Insurance Against fire, Earthquake and other calamities at the cost of the
borrower
Security EM of IP in favor of the bank. Valuation of property to be got done
from approved valuer. Revaluation be also got done once in a span of
5 years.
Upfront fee Amount equal to half months loan subject to maximum of Rs.
15000/- + Service Tax @10.30%
Docm. Charges NIL
Repayment The loan becomes due for payment after 6 months from death of both
the spouses. In case the loan is not repaid by legal heirs within 6
months from the death, the bank is within its right to sell the property
for adjustment of the loan in case the consent of the legal heirs is not
received within 6 months from the death of last survivor.
Others Residual life of property should be at least 20 years.
Purpose of loan should not be speculation or trading.
It should be ensured that the will executed by the borrower is the
last will.
Life certificate is to be obtained once in a year in November.
Age of Residual life of property should be at least 20 years. A certificate from
Property architect at the time of first valuation be obtained. Revaluation of
property will be done once in 5 years.
Ancestral Now it has been decided to accept ancestral property provided bank is
property as satisfied that there are no other legal heirs or original title deed is not
security available. For this, documentary evidence is required. Circle Head will
deal such proposals.
TERM LOANS A lump sum Term loan can be sanctioned up to Rs. 15.00 lac. The
UNDER PNB cases can be considered on selective basis by HO only for medical
BAGHBAN purpose to senior citizens for treatment of self, spouse and dependents.
SCHEME
Amendments Following two amendments have been carried out in IT Act, 1961.
in PNB 1. Reverse Mortgage does not tantamount to transfer; therefore there is
Baghban no Capital Gain Tax. Income tax is levied only at the time of
Scheme alienation of Mortgaged property by mortgagee for recovery of loan.
2. Stream of payment received by Sr. Citizen would not be treated as
Income. Therefore, bank has to obtain the following at the time of
application of loan:
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400 mergers per year (see Avery et al., 1997, and Simmons and Stavins, 1998).
The relaxation of intrastate branching restrictions, effective to differing degrees
in all states by 1992, and the passage in 1994 of the Riegle.Neal Interstate
Banking and Branching Efficiency Act, which allows bank holding companies
to acquire banks in any state and, since June 1, 1997, to open interstate
branches, is certainly accelerating the process of consolidation. These
significant changes raise important policy concerns. On the one hand, one could
argue that banks are merging to fully exploit potential economies of scale and/or
scope. The possible improvements in efficiency may translate into welfare gains
for the economy, to the extent that customers pay lower prices for banks.
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services or are able to obtain higher quality services or services that could not
have been offered before.1 On the other hand, from the point of view of public
policy it is equally important to focus on the
effect of this restructuring process on the competitive conditions of the banking
industry. Do banks gain market power from merging? If so, they will be able to
charge higher than competitive prices for their products, thus inflicting welfare
costs that could more than offset any presumed benefit associated with mergers.
In this article, analysis of competition in the banking industry is done
highlighting a very fundamental issue: How market power is measured and how
do regulators rely on accurate and effective procedures to evaluate the
competitive effects of a merger.
CHAPTER 4
Credit philosophy To achieve credit expansion required for sustaining
CREDIT POLICY
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Objectives in Credit
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Credit volumes
Earnings
Asset quality
Introduction to loans
Loans are advances for fixed amounts repayable on demand or in instalment.
They are normally made in lump sums and interest is paid on the entire amount.
The borrower cannot draw funds beyond the amount sanctioned.
Classification of Loans
Loans/Advances
Loans/Advances
Retail Loan
Page 59 Bank
Guarantee
Term
Loan
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Bank provides credit in various forms. These are broadly classified into two
categories- Fund based and Non Fund Based. Fund based refers to the type
of credit where cash is directly involved i.e. where bank provides money to the
seeker in anticipation of getting it back. Where as in a Non-fund Based, Bank
doesnt pay cash directly but gives assurance or takes guarantee on behalf of its
customer to pay if they fail to do so. In case on Fund Based there are different
categories of loans which are discussed as follows
I. RETAIL LOANS-
Retail banking in India is not a new phenomenon. It has always been prevalent
in India in various forms. For the last few years it has become synonymous with
mainstream banking for many banks.
The typical products offered in the Indian retail banking segment are:-
Housing loans
Consumer loans for purchase of durables
Auto loans
Educational loans
Credit Cost.
Personal loans
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These loans are marketed under attractive brand names to differentiate the
products offered by different banks. As the Report on Trend and Progress of
India, 2007-08 has shown that the loan values of these retail lending typically
range between Rs.20, 000 to Rs.100 lakh. The loans are generally for duration
of five to seven years with housing loans granted for a longer duration of 15
years. Credit card is another rapidly growing sub-segment of this product group.
In recent past retail lending has turned out to be a key profit driver for banks
with retail portfolio. The overall impairment of the retail loan portfolio worked
out much less then the Gross NPA ratio for the entire loan portfolio. Within the
retail segment, the housing loans had the least gross asset impairment. In fact,
retailing make ample business sense in the banking sector.
Basic reasons that have contributed to the retail growth in India are-
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cards, ATMs, direct debits and phone banking has contributed to the
growth of retail banking in India.
Fourth, the Treasury income of the banks, which had strengthened the
bottom lines of banks for the past few years, has been on the decline
during the last two years. In such a scenario, retail business provides a
good vehicle of profit maximisation. Considering the fact that retails
share in impaired assets is far lower than the overall bank loans and
advances, retail loans have put comparatively less provisioning burden on
banks apart from diversifying their income streams.
Fifth, decline in interest rates have also contributed to the growth of retail
credit by generating the demand for such credit.
Middle and -high-income homes in India has increased to 2.57 crore (25.7
million). Interest rates on retail loans have been dropping rapidly too. For
instance residential mortgages slumped by 7 per cent over the last four
years."The entry of a number of banks in India in the last few years has helped
provide increased coverage and a number of new products in the market," says
Kamath.
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Cash credit is a short-term cash loan to a company. A bank provides this type of
funding, but only after the required security is given to secure the loan. Once a
security for repayment has been given, the business that receives the loan can
continuously draw from the bank up to a certain specified amount. The bank
provides certain amount to the company for its day to day working keeping
certain margin in hand.
Term loans are the basic vanilla commercial loan. They typically carry fixed
interest rates, and monthly or quarterly repayment schedules and include a set
maturity date. Bankers tend to classify term loans into two categories:
Long-term loans: These loans are commonly set for more than three
years. Most are between three and 10 years, and some run for as long as
20 years. Long-term loans are collateralized by a business's assets and
typically require quarterly or monthly payments derived from profits or
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cash flow. These loans usually carry wording that limits the amount of
additional financial commitments the business may take on (including
other debts but also dividends or principals' salaries), and they sometimes
require that a certain amount of profit be set-aside to repay the loan.
While discounting a bill, the Bank buys the bill (i.e. Bill of Exchange or Promissory Note)
before it is due and credits the value of the bill after a discount charge to the
customer's account. The transaction is practically an advance against the
security of the bill and the discount represents the interest on the advance from
the date of purchase of the bill until it is due for payment.
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primarily in international trade, and are written orders by one person to his bank
to pay the bearer a specific sum on a specific date. Prior to the advent of paper
currency, bills of exchange were a common means of exchange. They are not
used as often today.
The person who draws the bill is called the drawer. He gives the order to pay
money to third party. The party upon whom the bill is drawn id called the
drawee. He is the person to whom the bill is addressed and who is ordered to
pay. He becomes an acceptor when he indicates his willingness to pay the bill.
The party in whose favor the bill is drawn or is payable is called the payee.
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V. EXPORT FINANCE-
This type of a credit facility is provided to exporters who export their goods to
different places. It is divided into two parts- pre-shipment finance and post-
shipment finance.
Non Fund Based loans generate income for the bank without committing the
funds of the bank. Bank generates substantial income under this head. There are
two types of credit under this category which are discussed as follows:-
I. BANK GUARANTEE-
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Any one can apply for a bank guarantee, if his or her company has obligations
towards a third party for which funds need to be blocked in order to guarantee
that his or her company fulfils its obligations (for example carrying out certain
works, payment of a debt, etc.).
In the situations, where a customer fails to pay the money, the bank must pay
the amount within three working days. This payment can also be refused by the
bank, if the claim is found to be unlawful.
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The LC can also be the source of payment for traction, meaning that redeeming
the letter of credit will pay an exporter. Letters of credit are used primarily in
international trade transactions of significant value, for deals between a supplier
in one country and a customer in another. They are also used in the land
development process to ensure that approved public facilities (streets,
sidewalks, storm water ponds, etc.) will be built. The parties to a letter of credit
are usually a beneficiary who is to receive the money, the issuing bank of
whom the applicant is a client, and the advising bank of whom the beneficiary
is a client. Almost all letters of credit are irrevocable, i.e., cannot be amended or
canceled without prior agreement of the beneficiary, the issuing bank and the
confirming bank, if any. In executing a transaction, letters of credit incorporate
functions common to giros and Traveler's cheques. Typically, the documents a
beneficiary has to present in order to receive payment include a commercial
invoice, bill of lading, and documents proving the shipment were insured
against loss or damage in transit. However, the list and form of documents is
open to imagination and negotiation and might contain requirements to present
documents issued by a neutral third party evidencing the quality of the goods
shipped, or their place of origin.
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Building Up of a Proposal
1.GATHERING CREDIT INFORMATION:-
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g. Sales tax assessment orders: Sales tax assessment orders will reveal the
turnover in business and when read with trading/ manufacturing and profit
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h. Wealth tax assessment orders: wealth tax assessment order will indicate
the net worth of individuals and reveals the liquid source available to bring
the required margin money for the venture.
i. Market sources: Constant touch with the market will help to have first
hand information about the gains or losses in particular business
transactions of the borrowers.
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1. Partnership:
Copy of partnership deed
Copy of certificate of registration of firm (if registered)
2. Company :
Memorandum and articles of association
Certificate of incorporation
Certificate of commencement of business
Search report indicating subsisting charges on the assets of the
company.
Board resolution for borrowings, creation on the assets of the
company and execution of the documents.
3. Cooperative societies
Bylaws
Permission from registrar for the borrowings, creation of charge on
the assets of the society and execution of documents.
4. Trusts
Trust deed
Resolution for the borrowings and execution of documents.
5. Industrial units :
Project report with cash flow, fund flow statements etc.
Industrial licenses/SSI registration certificate.
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FINANCIAL APPRAISAL
1. Fixed assets: To find out any revaluation of fixed assets done by the
company to improve their net worth.
The schedules of the fixed assets should be checked up.
Study notes on accounts and comments of auditors should be
checked.
Schedule for reserve should be studied
Any change in the accounting procedure of depreciation should be
checked
2. Current assets: to find out whether the assets stated are really liquid or
not
The schedules under current liabilities and current assets to
ascertain any obsolete or slow moving raw material or finished
good and old debtors or receivables should be checked
The auditors report should be read and understood properly.
The claims lodged against receivables must be studied
The receivables due from sister/associate concerns must be studied.
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5. Term liabilities: To find out whether the liabilities are long term or
short term, and its needs and regularity
This shall be decreasing year after year; if it has increased, then the
reason for the same is to be looked into (may be irregular or new
term loan availed for expansion etc.)
The term liabilities with repayment of the same and the amount
payable during the year shall be deducted from the term liabilities
as current liabilities for finding out liquidity position of the
company should be checked.
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6. Stocks:
The stock statements and QIS forms to find the authenticity of the
figures reported under stock/receivables.
Change in the valuation of the stock/finished goods, if any, is to be
verified to find out its effect on the profitability of the company.
7. Intangible assets :
Any abnormal increase in this figure shall be studied to find out the
reasons for the same; this may be due to take over by others also.
8. Accounting Norms:
Any change in the accounting norms from the past shall be studied
to find out the reasons for the same; its effect on the net profit, net
worth of the company is to be ascertained.
Increased in last year sales are always good; if the net profit also
has increased correspondingly the performance can be noted as
satisfactory.
If the sales has come down or the net profit has also come down
then the reason has to be ascertained. If the unit earned at least cash
profit then the position may be considered as satisfactory.
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If the current ratio is increasing and nearer to 1.5 and above then
we can note the position is satisfactory.
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Expected Current ratio is 1.22:1 and above; if the ratio is less than
1.22:1 then the promoters margin (Net working capital) towards
Working Capital may not be sufficient to cover the working capital
limit; care shall be taken to ensure that sufficient Net working
capital for the working capital enjoyed is available.
When the Current ratio is poor and the Net working capital is not
sufficient to cover the existing limit, no further term loan shall be
sanctioned and the party is to be advised not to take up any fresh
investment in fixed assets.
5. Contingent liability:
The effect of this liability on the net worth of the company; if
its effect is less than 5-10 % of the net worth of the company ,the
same may be noted; but if it threatens the existence of the company
then the position needs serious analysis.
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CHAPTER 5
Credit appraisal techniques act as tool for the credit portfolio managers to take right
decisions. It is the first and the prime most function performed by the Credit Appraisal Cell
before providing any sort loans or advances. The appraisal technique for each type of loan is
separate from each other. Each type of loan whether secured or unsecured has to be analyzed
in a different way. The different techniques of credit analysis or credit appraisal are discussed
as under:
Term loans- Loans which are repayable in not less than 36 months are referred to as term
loans. In the interest of sound risk management practices, banks monitor the percentage of
Term loans in their credit portfolio with a view to keeping the term loan component within a
pre-determined percentage.
Requirements to be obtained with the proposal:
b) Where loan is on participation basis, a copy of the appraisal note of the lead institution /
bank should be obtained.
c) Scrutiny of proposals
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For assessment purposes the forms prescribed are used and debt equity ratio, average DSCR,
BEP, pay back period, etc. are taken into consideration. The following minimum financial
parameters are required to be satisfied for a Term loan proposal to merit consideration:
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It should be noted that the banks generally consider only term loans repayable
within 5 to 7 yrs. Term loans with maturity beyond 7 yrs are normally not
experienced except infrastructure loans.
Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal financial
statements as well as companies'.
A high debt/equity ratio generally means that a company has been aggressive in
financing its growth with debt. This can result in volatile earnings as a result of
the additional interest expense. If a lot of debt is used to finance
increased operations (high debt to equity), the company could potentially generate
more earnings than it would have without this outside financing. If this were to
increase earnings by a greater amount than the debt cost (interest), then the
shareholders benefit as more earnings are being spread among the same amount of
shareholders. However, the cost of this debt financing may outweigh the return
that the company generates on the debt through investment and business activities
and become too much for the company to handle. This can lead to bankruptcy,
which would leave shareholders with nothing.
The debt/equity ratio also depends on the industry in which the company operates.
For example for large projects (with project cost Rs. 100 crore and above) in
Power, acceptable level of DER is 2.33:1, in Iron and Steel Industry 2.25:1 , in
Infrastructure and Capital Intensive projects 2:1 and in Real Estate, level of DER
is 1.75:1. The CH, GM, ED and CMD have powers to further relax.
The ultimate purpose of project appraisal is to ascertain the viability of a project which has a
direct bearing on the repayment of the instalments under the proposed term loan / deferred
payment guarantee. While the repayment program will depend upon the profitability of a
project, the quantum of annual instalments has to be related to the size of the annual cash
flows. The repayment schedule should, therefore, be fixed after ascertaining the annual
servicing by the debt service coverage ratio.
The debt service coverage ratio is the core test ratio in project financing. This ratio indicates
the degree of viability of a project and influences in fixing the repayment period, and the
quantum of annual instalments. For the purpose of this ratio , debt means maturing term
obligations viz. instalments payable during a year under all the term loans/ deferred payment
guarantees and service means cash accruals (service) available to cover the maturing
obligation (debt) during each year.
The debt service coverage ratio indicates the ability of the firm to generate cash
accruals for repayment of installment and interest. For example, a DSCR of 3:1 indicates that
for each Re.1/-long term debt including interest to be paid the business generates cash accrual
of Rs.3/- to be utilized for repayment of debt. The difference between the accruals and debt is
known as margin of safety (Rs.2/- in this case).
The ratio of 1.5 to 2 is considered reasonable. Ratio lower than this should be
further looked into. A very high ratio may indicate the need for lower moratorium
period/repayment of loan in a shorter schedule. This ratio provides a measure of the ability
of an enterprise to service its debts i.e. `interest' and `principal repayment' besides indicating
the margin of safety. The ratio may vary from industry to industry but has to be viewed with
circumspection when it is less than 1.5.
A. The breakeven point is calculated to note the level of production at which the unit neither
earns profit nor incur loss. BEP is the level of operations (in terms of sales or production or
capacity utilization) at which total revenues are equal to total operating costs (fixed and
variable) or, in other words, the operating profit is equal zero. He firm starts earning
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operating profits only after the break-even is reached. At BEP, contribution exactly equals
the fixed costs.
B. The formula for calculating the break-even point for each year is as under:
C. Certain items of the cost that are to be incurred by the unit irrespective of the level of
production are called as fixed cost. The same includes depreciation, repairs and maintenance,
interest, certain portion of salaries, rent, insurance, selling expenses other than variable items
and administrative expenses
D. The variable cost changes with the levels of production. It includes cost of raw materials,
direct wages and other items, which are apportion able to unit of production.
It is a useful method for considering also the risk implications of alternative actions. From
one alternative a firm may expect higher profit and also a higher break-even point, while
another alternative may produce comparatively lower profit but at a lower break-even point.
The firm has to weigh the probability (riskiness) of reaching the break-even in the first case
before choosing that alternative. Generally, the preferred alternative would be where the
break-even will be reached earlier.
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Caution:
Relationship between revenue, variable costs and volume may not be linear.
It is not always easy to have a clean separation of costs into fixed and variable
components.
Fixed costs may be stepped not fixed over all volumes.
Complexity involved in using BEP analysis in multi-product businesses
Illustration:
Assumed:
BEP (sales) : (Fixed cost / Contribution)* Rs. 41.25 lakh = Rs. 20.27 lakh
SENSITIVITY ANALYSIS
Projects do not always run to plan. Costs and benefits estimated at an early stage of a
project may indicate a profitable project, but this profit could be eroded by an increase in
costs or a decrease in the value of the benefits (the revenue). Sensitivity Analysis involves
changing input variable estimates from an original set of estimates (called the base case) and
determine their impact on a projects measured results, such as NPV (or IRR) from
investors viewpoint, or DSCR from bankers point of view.
The Sensitivity Analysis helps in arriving at profitability of the project wherein critical or
sensitive elements are identified which are assigned different values and the values assigned
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are both optimistic and pessimistic such as increasing or reducing the sale price/sale volume,
increasing or reducing the cost of inputs etc. and then the project viability is ascertained.
The critical variables can then be thoroughly examined by generally selecting the pessimistic
options so as to make possible improvements in the project and make it operational on viable
lines even in the adverse circumstances.
In the absence of any defined factors and its values for carrying out the sensitivity analysis, a
common 5% sensitivity factor on sale price/cost price of major raw materials is to be
applied in appraisals of all the projects irrespective of the industry. However, 10% sensitivity
factor may be applied in highly volatile industries by assessing the expected volatility in sale
price/ cost price of major raw materials in future on case to case basis.
Working capital for any unit means the total amount of circulating funds required for meeting
day to day requirements of the unit. For proper working a manufacturing unit needs a specific
level of current assets such as raw material, stock in process, finished goods, receivables and
other current assets such as cash in hand/ bank and advances etc. So the working capital
means the funds invested in current assets. The trading units need the working capital for
storing the goods and allowing credit to its customers.
Gross working capital means the total funds required for financing the total current assets.
Net Working capital means the difference the current assets and liabilities. In other words ,
net working capital denotes the portion of gross working capital contributed from long term
sources. As per practice of Indian banks net working capital should normally be 25% of total
current assets which will give a current ratio of 1.33 to the unit. When net working capital is
negative, it implies that the short term funds have been diverted / used for long term uses and
the unit is facing a liquidity crunch. Such situation may also arise due to losses. In such a
situation, the need of the hour is for raising long term sources. A unit needs working capital
because the production, sales and realizations are not simultaneous. The unit needs cash to
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purchase the raw material and pay expenses as there may not be perfect matching between
cash inflows and outflows. The stock of raw material is kept to ensure the uninterrupted and
smooth production. It may also be required to cover the situations of shortages etc.
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less amount of working capital may mean disruption in the working. So both the situations
are to be avoided. That is why the technique of calculation of right amount of working capital
assumes significance. For financing of working capital, a banker should be able to calculate
right amount of working capital needed by the unit being financed. It shall mean right amount
of financing which will result in higher profitability for the unit and safety of funds of the
bank.
Parameters for various stages in computation of working capital:
The assessment of working capital requirement of business unit has been engaging the
attention of the Govt., RBI and a series of committees were set up to suggest appropriate
modalities of financing working capital as under.
Realising the absence of a proper control system in the flow of bank credit for working
capital, RBI constituted a working group Tandon Committee in July 1974 under the
chairmanship of Shri P.L. Tandon. The main task of the group was:
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1. To suggest guidelines to commercial banks to follow up and supervise credit from the
view of ensuring proper end use of the funds and keeping a watch on the safety of the
advances.
2. To suggest as to what constitutes the working capital requirements of industry and to
suggest the sources for financing the minimum working capital requirements.
3. To suggest the maximum level of bank finance and the method to compute the same.
4. To make recommendations as to whether the existing pattern of financing working capital
requirements by cash credit or overdraft etc. requires to be modified. If so, to suggest
suitable modifications.
The group submitted its final report during December 1975. The recommendations of this
Committee are summarised below:
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Tandon Committee suggested that instead of making available entire limit by way of cash
credit it may be bifurcated into demand loan and cash credit component (modified by Chore
Committee).
In April 1979, a working group under the chairmanship of Sh K.B.Chore was constituted to
review the system of cash credit. The committee submitted the report in Dec 1980. The
lending discipline, as enunciated by Tandon Committee, has been streamlined by certain
recommendations made by Chore Committee. The gist of these recommendations is as
follows:
Presently this limit of Rs. 50 lac has been raised to Rs. 1 Crore.
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A recommendation that will induce a greater degree of credit planning pertains to the separate
'Peak-level' and `non-peak level' credit limits, wherever considered feasible. The period
during which these limits will be utilised will now be indicated in the bank's advice
conveying sanction of credit. This recommendation is based on the pronounced seasonal
trends in agriculture-based industries, (such as tea. coffee, sugar, jute, vegetable oils, etc.),
and in the case of some consumer industries such as those manufacturing fans, refrigerators
etc. One of the major determinants of borrower's peak-level and non-peak level credit limits
will be their availment during the corresponding period in the past. Borrower in whose cases
there are no pronounced seasonal trends, may be sanctioned only one limit as peak-level and
non-peak level concepts will not be relevant in such cases.
Dialogue with the borrower will be initiated to set right the position in regard to defective
credit planning and to ensure that such instances are avoided in future.
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The working group has conceded that in exceptional cases, ad-hoc or temporary limits could
be sanctioned to borrowers through demand loan or non-operatable cash credit accounts. On
those limits, banks are required to charge additional 1% interest per annum over the normal
rate. However, in certain cases like natural calamities it would be the discretion of the bank to
charge interest of 1% per annum.
Present Status:
The concept of MPBF was the cornerstone of financing which had emerged as a result of
recommendation of Tandon and Chore. However RBI has now abolished the guidelines for
MPBF and advised the banks to draw the guidelines for credit dispensation. Our bank is still
following MPBF system. However the relaxations on case to cases are being allowed.
To give a comprehensive and straight line method for the assessment of working capital
requirement of the borrowers, RBI constituted a working group under the chairmanship of
Sh P.R.Nayak. The study group gave its recommendations in March 1993. In April, 1993,
RBI implemented the recommendations of Nayak Committee for assessing the credit
requirements of village industries, tiny industries and other SSI units . Initially the
recommendations were for SSI units only but now other units have also been covered.
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Presently units covered under these guidelines are those having aggregate fund-based
working capital credit limits less than Rs.200 lacs for other than SSI and Rs. 500 lacs for SSI
from the banking system.
It has been advised not to apply the norms for inventory and receivables as also the Methods
of Lending. Instead such units be provided working capital limits computed on the basis of a
minimum of 20% of their Projected Annual Turn-Over (PATO) for new as well as existing
units. Their working capital requirement be assessed at a minimum of 25% of their Projected
Annual Turn-Over (PATO) assessed on realistic basis for new as well as existing units. Out of
this, at least 4/5th(20% of their PATO) be provided by the bank and the borrower should
contribute 1/5th of this estimated working capital requirement (5% of PATO) as margin money
of working capital.
- In case the margin with the party is more than 5% , PBF may be adjusted accordingly.
- The 20% limit is the minimum. As a temporary relief measure for SME Units, RBI
has allowed banks to finance upto 25% under stimulus package. The same shall be
reviewed after 30.6.09. However if the working capital cycle is longer than 3 months,
higher limit may be fixed. If the working capital cycle is less than 3 months, the limit
may be fixed @ 20 % of turnover but actual withdrawal should be allowed only on
the basis of actual D.P. However lower limit can be sanctioned if requested in writing
by the borrower.
The QMS discipline is to be enforced on all borrowers enjoying working capital limits of
Rs.1 crore and over from the banking system, irrespective of whether they are exporters or
otherwise
In case the limits have been sanctioned on the basis of Naik Committtee, QMS forms and
CMA data need not be submitted.
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The forms for QMS and time period for submission are as under.
Form- 1 To be submitted within 6 weeks from the close of quarter to which it relates
Form-11 To be submitted within 2 months from the close of Half Year to which it
relates.
QMS form I gives us the quarterly data of production and sales and quarterly levels of
current assets and current liabilities.
QMS form II gives us half yearly profitability statement and fund flow statements.
By comparing with the projections as given in CMA, we can see whether the performance is
going on as projected.
QIS I:
QIS I which was earlier discontinued has been reintroduced and is to be submitted in addition
to QMS I and QMS II.
- For all borrowed accounts availing fund based working capital credit limits of Rs.5
crore & above from our bank, Quarterly Information System (QIS) Form-I may be
obtained for fixing up of quarterly operative limits in addition to the QMS Forms.
The QIS Form-I is to be submitted in the week preceding the commencement of the
quarter to which it relates.
- Non adherence to the operative limits will attract penal interest.
COMMITMENT CHARGES
The unutilized part of the limit is found out by calculating the average utilization during the
quarter. While calculating the average utilization, overdrawn portion or excess portion is not
taken into consideration. If the average utilization is less than 85% than commitment charges
is levied on the entire unavailed position.
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Commitment charge is not applicable in case of export unit and sick unit.
PENAL INTEREST
In order to instil a sense of credit discipline among the borrowers, RBI has permitted banks to
levy penal intt. over and above the sanctioned rate of interest in case of non compliance of
various terms and conditions
The broad areas of non compliance where bank charges penal interest are:
Default in repayment of loans
Irregularity in cash credit account
Non submission of stock statements and other financial data
Default in adhering to borrowing covenants
Non payment of bills
Excess borrowings arising out of excess current assets
Non submission of information under Quarterly Monitoring System
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I. EDUCATION LOANS
Till some years back higher education and quality education was not affordable to some
illustrious students because of the financial constraints. There was no any alternative but to
jump in the job market prematurely. And this led to untimely end of budding talents and their
forceful transformation into to the mediocrity. Scholarships were there, but those were so less
in numbers that only luckier few could avail them. But now the scene has changed
drastically. The boom in the banking sector has led to release of large amount of funds for
education loans
Student loans in India (popularly known as Education loans) have become a popular
method of funding higher education in India with the cost of educational degrees going
higher. The spread of self-financing institutions(which has less to no funding from the
government) for higher education in fields of engineering, medical and management which
has higher fees than their government aided counterparts have encouraged the trend in India.
Most large public sector and private sector banks offer educational loans.
Under section 80(e) of the Indian Income tax act, a person can exempt the amount paid
against the interest of the education loan - either for self or for his/her spouse or children - for
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eight years from the year (s)he starts to repay the loan or for the duration the loan is in effect,
whichever is lesser.
Education loan is becoming popular day by day because of the rising fee structure of higher
education. It came into existence in 1995 started first by SBI bank and after that many banks
started offering study loan.
Studies Abroad
Graduation, PG and Courses offered by CIMA London , CPA in USA
Eligibility Indian National
Secured Admission
Secured pass marks in qualifying exam. Branches need not go into
technicalities of admission process (selection through management
quota etc.) and may consider loan based on admission advice.
( RBD Cir. No. 60/08 dt. 20.12.2008)
More than one In case of more than one loan in a family, the family as a unit is to be
loan in a family taken into account for considering the loan and security taken in
relation to total quantum of loan subject to margin and repaying
capacity of the parents.
Top up Loans Top up loans may be sanctioned to students for pursuing further
studies within overall eligibility limits with appropriate
reschedulement of existing loans and required permission by the CH
Age of student There is no restriction with regard to age of student for being eligible
for the loan.
Income No Income criteria are prescribed for the parents. However amount of
Criteria loan be decided by judging Income of the parents.
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Amount of loan Rs. 10.00 lac in India and 20.00 lac for abroad. CH can exercise
higher powers.
Priority Sector Rs. 10.00 lac in India and Rs. 20.00 lac for abroad.
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Constitutes of Tuition fees, Hostel charges, Exam fees, Library/Lab charges, Books,
loan Equipment, Instruments, Uniform, Building fund, Refundable deposit,
Travel expenses & Computers. (Advances for Computers are allowed in
Computer/Management courses only.)
Fees re- Within 6 months. Circle Head can allow beyond a period of 6 months
imbursement also on merits.(RBD Cir. No. 12/10 Dt. 16/02/2010)
Documents Documents will be executed both by student and the parent/guardian.
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Today, vehicles can be financed using a number of options such as loans, lease, or hire
purchase agreement. Obtaining a vehicle loan is one of the more straightforward ways of
financing a two or four wheeler. In this manner, the vehicle purchased is actually possessed
by the bank or lending institution. This means the car or motorbike is hypothecated.
Therefore, though the consumer owns the vehicle, the bank or the lending institution is
actually using it as a security against the loan that the consumer has obtained.
Vehicle loan provided by Punjab National Bank are under two categories know as PNB
SARTHI and CAR Loan & details about its processing, eligibility, margin etc are discussed
below:-
PNB SARATHI
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the bank.
Security PNB 551 is required for the Ist time. In case account is regular,
Inspection PNB 551 is not required thereafter.
In case the account is irregular, Qtrly. Inspection is must.
Upfront fee Rs 200/- + Service Tax For students Nil
CAR LOAN
Conveyance Loan (Public) for Car
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comprises a large pool of small and medium sized loans, risk is distributed over a
large number of accounts, which is ideal from Risk Management point of view.
Hence growth of quality assets under Housing Finance is one of the major areas of
focus for the bank.
PNB-(Punjab National Bank) Home Loan offers the most consumer friendly
home loans and housing finance schemes at attractive rates. PNB Housing Loans, with an
aim to make purchase and construction of homes a comfortable task, provides fixed as well
as floating home loans at different rate of interest for different tenures. PNB Housing
Finance covers 80% of the cost of your home or renovation / repairing of your home loan up
to Rs. 10 Lacs for buying land and up to Rs. 2 Lacs for furnishing can be availed from PNB
Home Loan.
The details of housing loan product of Punjab National Bank regarding its
purpose, eligibility criteria, assessment, processing, documentation, cut back, margin,
pre-sanction follow ups, etc. are as foll
1. HOUSING FINANCE (PUBLIC)
Eligibility Individual & Joint Owners
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Rate of Interest Rate of Interest as per LA Circulars issued from time to time.
0.50 % extra will be charged on H/L for 3rd House.
The interest can be fixed or floating
Option can be changed from fixed to floating and vice versa with
flat charges of 2% fee on Balance outstanding
Fixed Interest rate be reviewed/reset after a block of 5 years in
respect of loans disbursed on or after 1.8.2006.
Concessional Bank has decided to extend concessions to Defense personnel who are
Rate of Interest raising Housing Loans under banks regular Housing Loan scheme for
for Defense public as under:
Employees
25 bps relaxation in interest rates
50 bps relaxation in processing fee
These relaxations are to be made applicable in all new cases where
defense personnel avail housing loan either in single name or along
with spouse.
Upfront fee 0.90 % of loan amount + service tax & education cess (10.30%) on
loans above 300 crore.
Processing fees @ 0.50% of loan amount (max. 20000) +service tax
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Priority Sector Repair & Renovation Rs.1.00 lac (Rural & Semi/Urban)
inclusion
Rs.2.00 lac (Urban)
Other features Loan can be sanctioned by the branch/hub near to the present place
of work/posting/residence of the borrower. However, if the
property is situated at other place, services of branch/hub located at
that center may be availed for verification of Security and
NEC/Valuation etc.
Loan can be granted even if property is in the name of wife/parents
provided that the owner is made co-borrower.
Loan can be granted for 2nd house in the same city.
Loan can be granted for purchase of house for rental purpose.
For take over, permission of higher authority is not required
Important Loan cannot be granted
conditions
For construction in Un-authorized colonies
If property is to be used for commercial purpose
Without approved Map
( In Compliance of Delhi High Court Orders)
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This facility is outside the purview of Hub and Spoke model in the
accounts of existing HL borrowers.
(RBD Cir. No. 64 dt. 19.12.2009)
PNB Flexible This is an attractive variant of Housing Loan Scheme offered by the
Housing Loan PNB for its customers. Under this scheme, OD facility is made
Scheme available to the HL borrower. He can deposit his savings and withdraw
the same as per his requirement. The features of the scheme are as
under:
Overdraft 20%
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branch.
Rate of Interest as given above in the table in
Housing Loan scheme (general)
For Overdraft portion, R/I is equal to BPLR
Two types of personal loans are being offered by PNB. Personal loan for pensioner is special
category of retail lending scheme being offered by Punjab National Bank to pensioner. The
main intension of this loan is to meet each and every personal needs including medical
expense of senior citizen. Details regarding the same are mentioned below.
Margin NIL
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Repayment TL 60 EMIs
OD- Reducing DP spread over 60 M.
Defence Personnel 36 M.
Amount of EMI should not be more than 50% of net monthly
income.
60 advance cheques (maximum) signed by the borrower along with
letter of deposit be obtained. Obtention of advance cheques is
applicable where check off facility is not available.
Guarantee Suitable 3rd party guarantee. RM/CM may waive
RBL Sheet PNB Score system will be applicable and the applicant will have to
score at least 50% marks to avail loan.
Upfront fee % of loan amount + service tax
NIL for defense personnel.
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Docm. Charges Rs. 270/- up to Rs. 2.00 lac. Rs. 450/- Above Rs. 2.00 lac + ST
PNB is the first Public Sector Bank to come out with a Reverse Mortgage concept based
product for senior citizen titled "PNB Baghban". The product addresses one of the very
important requirements of the society in the fast changing culture of Indian society. The
main objective of this scheme is to address the financial needs of senior citizens owning self
occupied property (house), for leading a decent life. The salient features of the product are
given hereunder:
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Extent Maximum qualifying amount can be Rs. 1.00 crore which will
depend upon realizable value of property after maintaining
margin of 20%. The monthly payment will be made to the
borrower on the basis of reverse mortgage annuity table.
Margin 20% of realizable value of the property to arrive at the qualifying
amount
Income criteria No
Insurance Against fire, Earthquake and other calamities at the cost of the
borrower
Security EM of IP in favor of the bank. Valuation of property to be got done
from approved valuer. Revaluation be also got done once in a span of
5 years.
Upfront fee Amount equal to half months loan subject to maximum of Rs.
15000/- + Service Tax @10.30%
Docm. Charges NIL
Repayment The loan becomes due for payment after 6 months from death of both
the spouses. In case the loan is not repaid by legal heirs within 6
months from the death, the bank is within its right to sell the property
for adjustment of the loan in case the consent of the legal heirs is not
received within 6 months from the death of last survivor.
Others Residual life of property should be at least 20 years.
Purpose of loan should not be speculation or trading.
It should be ensured that the will executed by the borrower is the
last will.
Life certificate is to be obtained once in a year in November.
Age of Residual life of property should be at least 20 years. A certificate from
Property architect at the time of first valuation be obtained. Revaluation of
property will be done once in 5 years.
Ancestral Now it has been decided to accept ancestral property provided bank is
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property assatisfied that there are no other legal heirs or original title deed is not
security available. For this, documentary evidence is required. Circle Head will
deal such proposals.
TERM LOANS A lump sum Term loan can be sanctioned up to Rs. 15.00 lac. The
UNDER PNB cases can be considered on selective basis by HO only for medical
BAGHBAN purpose to senior citizens for treatment of self, spouse and dependents.
SCHEME
Amendments Following two amendments have been carried out in IT Act, 1961.
in PNB 1. Reverse Mortgage does not tantamount to transfer; therefore there is
Baghban no Capital Gain Tax. Income tax is levied only at the time of
Scheme alienation of Mortgaged property by mortgagee for recovery of loan.
2. Stream of payment received by Sr. Citizen would not be treated as
Income. Therefore, bank has to obtain the following at the time of
application of loan:
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CHAPTER 6
Conclusion
Credit appraisal is a process of appraising the credit worthiness of loan
applicants. The fund of depositors i.e. general public are mobilised by means of
such advances / investments. Thus it is extremely important for lender bank to
assess the risk associated with credit, thereby ensure the security for fund
deposited by depositors. Therefore my analyses regarding credit appraisal
procedure of Punjab National Bank are as follows:-
In case of retail lending bank strictly follow its circular and fulfils all
requirement of necessary documents required for different types of loan
so that bank do not suffer any types of loss.
Bank is very much particular about CIBIL report of borrowers in case of
each type of lending.
Bank lending process in case of retail loan is very much fast after
compiling with all the criteria of bank.
In case of project financing bank follow lengthy norms to check the
feasibility of the project such as:-
I. Firstly personal appraisal of promoter is done by the bank to
ensure that promoters are experienced in the line of business
and capable to implement and run the project efficiently.
II. Secondly detail study about the technical aspect is done to find
thetechnical soundness of project such as proper scrutiny of
financial report is done, valuation of property by government
approved valuer is done and view regarding each and every
area of project is done under technical analysis.
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This shows that ICICI BANK has sound credit appraisal system.
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BIBLIOGRAPHY
iii BOOKS
MANAGEMENT OF INDIAN FINANCIAL INSTITUTION,
SRIVASTAVA R.M & NIGAM DIVYA, 10TH EDITION,2010, HIMALYA
PUBLISHING HOUSE, GURGAON MUMBAI
FINANCIA INSTITUTION AND MARKETS, BHOLE L.M, 5TH
EDITION,2009, TATA Mc GRAW- HILLS,7 WEST PATEL NAGAR,
NEW DELHI
iv WEBSITE
www.iciciindia.com
www.rbi.gov.in
www.google.com
v. NEWSPAPER
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