Loans and Advances - IRCB

Comparative Study On Loans and Advances At The Millennium Credit Co-Operative Society Ltd
CHAPTER-1
INTRODUCTION TO LOANS AND ADVANCES
The commercial banks accept deposits and also lend money to the people who require it for
various purposes. Lending of funds to traders, businessmen and industrial enterprises is one of
the important activities of commercial banks. The major part of the deposits received by banks is
lent out, and a large part of their income is earned from interest on such lending. There is a
considerable difference between the rate of interest which the commercial bank grants on
deposits, and the rate they charge on loans and advances. It is this difference which constitutes
the main source of bank earnings.
1.1 Meaning of Loans and Advances:
 The term "loan" refers to the amount borrowed by one person from another.
 The amount is in the nature of loan and refers to the sum paid to the borrower.
 Thus, from the view point of borrower, it is 'borrowing' and from the view point of bank.
it is lending'.
 Loan may be regarded as 'credit. Granted where the money is disbursed and its recovery
is made on a later date.
 It is a debt for the borrower. While granting loans, credit is given for a definite purpose
and for a predetermined period. Interest is charged on the loan agreed rate and intervals
of payment.
 'Advance' on the other hand, is a 'credit facility' granted by the bank. Banks grant
advances largely for short-term purposes
Apoorva Institute of Management Studies, Bangalore. Page 1

1.2 Utility of Loans and Advances
1. Loans and advances can be arranged from banks in keeping with the flexibility in
business operations. Traders may borrow money for day to day financial needs availing
of the facility of cash credit, bank overdraft and discounting of bills. The amount raised
as loan may be repaid within a short period to suit the convenience of the borrower.
Thus business may be run efficiently with borrowed funds from banks for financing its
working capital requirements.
2. Loans and advances are utilized for making payment of current liabilities, wage and
salaries of employees, and also the tax liability of business.
3. Loans and advances from banks are found to be 'economical' for traders and
businessmen, because banks charge a reasonable rate of interest on such loans/advances.
1.3 Borrowing Rate and Lending Rate
People make their funds available to the banks by depositing their ‘savings’ in
various types of accounts. In other words, bank funds mainly consist of deposits from
the public, though banks may also borrow money from other institutions and the Reserve
Bank of India. Banks thus mobilizes funds through its deposits. On public deposits the banks
pay interest at and the rate of interest varies according to the type of deposit. The
borrowing rate refers to the rate of interest paid by a bank on its deposits. The rates which
the banks allow depend upon the nature of deposit account and the period for which the
deposit is made with the bank. No interest is generally paid on current account deposits. The
rate is relatively lower on savings account deposits. Higher rates ranging from 6% to 12% per
annum are paid on fixed deposit accounts according to the period of deposit.
Banks also borrow from other institutions as well as from the Reserve Bank of India. When
the Reserve Bank of India lends money to commercial banks, the rate of interest it charges
for lending is known as ‘Bank Rate’
The rate at which commercial banks make funds available to people is known as ‘Lending -
rate’. The lending rates also vary depending upon the nature of loans and advances. The

rates also vary according to the purpose in view. For example if the loan is sanctioned for the
purpose of activities for the development of backward areas, the rate of interest is relatively
lower as against loans and advances for commercial/business purposes. Similarly for smaller
amounts of loan the rate of interest is higher as compared to larger amounts. Again lending
rates for consumer durables, e.g. Loans for purchase of two-wheelers, cars, refrigerators,
etc. are relatively higher than for commercial borrowings.
However, the Reserve Bank of India from time to time announces changes in the
interest-rate structure to regulate the lending of funds by banks. Different rates of interest are
prescribed for various categories of advances, such as advances to agriculture, small
scale industries, road transport, etc. Graded rates of interest are prescribed for backward
areas. Lower rate is normally charged from agencies selling food-grains at fixed price
through Govt. approved outlets.
Lastly, lower rate of interest is charged for loans granted to persons belonging to ‘weaker
sections of the society’.
1.4 Lending of Money by Bank
The commercial banks lend money in four different ways: (a) direct loans, (b) cash
credit, (c) overdraft, and (d) discounting of bills. These are briefly discussed below.
1. Loans
Loan is the amount borrowed from bank. The nature of borrowing is that the money is
disbursed and recovery is made in installments. While lending money by way of loan,
credit is given for a definite purpose and for a pre-determined period. Depending upon
the purpose and period of loan, each bank has its own procedure for granting loan. However
the bank is at liberty to grant the loan requested or refuse it depending upo n its own
cash position and lending policy. There are two types of loan available from banks.

(a) Demand loan, and
(b) Term loan.
(a) A Demand Loan: Is a loan which is repayable on demand by the bank. In other words, it
is repayable at short-notice. The entire amount of demand loan is disbursed at one
time and the borrower has to pay interest on it. The borrower can repay the loan either
in lump sum (one time) or as agreed with the bank. For example, if it is so agreed the
amount of loan may be repaid in suitable installments. Such loans are normally granted by
banks against security. The security may include materials or goods in stock, shares of
companies or any other asset. Demand loans are raised normally for working capital
purposes, like purchase of raw materials, making payment of short-term liabilities
(b) A Term Loans: Medium and long term loans are called term loans. Term loans are
granted for more than a year and repayment of such loans is spread over a longer period.
The repayment is generally made in suitable installments of a fixed amount.
Term loan is required for the purpose of starting a new business activity, renovation,
modernization, expansion/ extension of existing units, purchase of plant and machinery,
purchase of land for setting up of a factory, construction of factory building or purchase of
other immovable assets. These loans are generally secured against the mortgage of land,
plant and machinery, building and the like.
2. Cash credit
Cash credit is a flexible system of lending under which the borrower has the option to
withdraw the funds as and when required and to the extent of his needs. Under this
arrangement the banker specifies a limit of loan for the customer (known as cash credit
limit) up to which the customer is allowed to draw. The cash credit limit is based on the
borrower’s need and as agreed with the bank.
Against the limit of cash credit, the borrower is permitted to withdraw as and when he needs
money subject to the limit sanctioned.

It is normally sanctioned for a period of one year and secured by the security of some
tangible assets or personal guarantee. If the account is running satisfactorily, the limit of
cash credit may be renewed by the bank at the end of year. The interest is calculated and
charged to the customer’s account.
Cash credit, is one of the types of bank lending against security by way of pledge or
hypothetication of goods. ‘Pledge’ means bailment of goods as security for payment of debt.
Its primary purpose is to put the goods pledged in the possession of the lender. It
ensures recovery of loan in case of failure of the borrower to repay the borrowed
amount. In ‘Hypothetication’, goods remain in the possession of the borrower, who finds
himself under the agreement to give possession of goods to the banker whenever the banker
requires him to do so. So hypothetication is a device to create a charge over the asset under
circumstances in which transfer of possession is either inconvenient or impracticable.
3. Overdraft
Overdraft facility is more or less similar to ‘cash credit’ facility. Overdraft facility is the
result of an agreement with the bank by which a current account holder is allowed to
draw over and above the credit balance in his/her account. It is a short-period facility. This
facility is made available to current account holders who operate their account through
cheques. The customer is permitted to withdraw the amount of overdraft allowed as and
when he/she needs it and to repay it through deposits in the account as and when it is
convenient to him/her.
Overdraft facility is generally granted by a bank on the basis of a written request by the
customer. Sometimes the bank also insists on either a promissory note from the borrower or
personal security of the borrower to ensure safety of amount withdrawn by the customer.
The interest rate on overdraft is higher than is charged on loan. The following are some of
the benefits of cash credits and overdraft:
 Cash credit and overdraft allow flexibility of borrowing, which depends upon the
need of the borrower.

 There is no necessity of providing security and documentation again and

again for borrowing funds.
 This mode of borrowing is simple and elastic and meets the short term financial
needs of the business.
4. Discounting of Bills
Apart from sanctioning loans and advances, discounting of bills of exchange by bank is
another way of making funds available to the customers. Bills of exchange are negotiable
instruments which enable debtors to discharge their obligations to the creditors. Such Bills
of exchange arise out of commercial transactions both in inland trade and foreign trade.
When the seller of goods has to realize his dues from the buyer at a distant place
immediately or after the lapse of the agreed period of time, the bill of exchange facilitates
this task with the help of the banking institution.
Banks invest a good percentage of their funds in discounting bills of exchange.

These bills may be payable on demand or after a stated period.
In discounting a bill, the bank pays the amount to the customer in advance, i.e. before the
due date. For this purpose, the bank charges discount on the bill at a specified rate. The bill
so discounted, is retained by the bank till its due date and is presented to the drawer
on the date of maturity. In case the bill is dishonored on due date the amount due on bill
together with interest and other charges is debited by the bank to the customer’s a ccount.
1.5 Long-term and Short-term Loans
Commercial banks grant loans for different periods-long, short and medium term for
different purposes.
 Short-term loans
Short term loans are granted by banks to meet the working capital needs of business. The
working capital needs refer to financial needs for such purposes as, purchase of raw

materials, payment of wages, electricity bill, taxes etc. Such loans are granted by
banks to its borrowers to be repaid within a short period of time not exceeding 15 months.
Short term loans are normally granted against the security of tangible assets like goods in
stock, shares, debentures, etc. The rate of interest charged on short term loans ranges from
12% to18% p.a.
 Term Loans
Medium and long term loans are generally known as ‘term loans’. These loans are granted
for more than 15 months. In case of medium term loan, the period ranges from 15
months to less than 5 years. Medium term loans are generally granted for heavy repairs,
expansion of existing units, modernization/renovation etc. Such loans are sanctioned
against the security of immovable assets. The normal rate of interest ranges between 12%
to 18% depending upon the period, purpose, nature and amount of the loan. Though banks
may grant long term loans, they avoid granting loan for more than 5 years
1.6 Nature and Security of Loans
To ensure the safety of funds lent, the first and most important factor considered by a bank
is the capacity of borrowers to repay the amount of loan, The bank therefore, relies
primarily on the character, capacity and financial soundness of the borrower. But the bank
can hardly afford to take any risk in this regard and hence it also has the security of
tangible assets owned by the borrower. In case the borrower fails to repay the loan, the
bank can recover the amount by attaching the assets.
It can sell the assets offered as security and realize the amount. Thus from the view point of
security of loans, we can divide the loans into two categories: (a) secured, and (b)
unsecured. Unsecured loans are those loans which are not covered by the security of
tangible assets. Such loans are granted to firms/institutions against the personal security of
the owner, manager or director. On the other hand, Secured loans are those which are
granted against the security of tangible assets, like stock in trade and immovable property.
Thus, while granting loan against the security of some assets, a charge is created over the

assets of the borrower in favors of the bank. This enables the bank to recover the dues from
the customer out of the sale proceeds of the assets in case the borrower fails to repay the
loan.
There are various types of securities which may be offered against loans granted, but
all of those are not acceptable to the banks. The types of securities genera lly accepted
by the bank are the following:
 Tangible assets such as plant and machinery, motor-van, etc.

 Documents of title to goods, like Railway Receipt (R/R), Bills of exchange, etc.
Financial Securities (Shares and Debentures)
 Life-Insurance Policy
 Real estate’s (Land, building, etc).
 Fixed Deposit Receipt (FDR)
 Gold ornaments, Jewelers etc.
1.7 Procedure of granting Cash Credit, Overdraft and Discounting Bills
Banks provide financial assistance to its customers in the form of loans, advances, cash
credit, and overdraft and through the discounting of bills. The procedure of applying for and
sanction of loans and advances differs from bank to bank. However, the steps which are
generally to be taken in all cases are as follow:
1. Filling up of loan application form
Each bank has separate loan application forms for different categories of borrowers. When
you want to borrow money from a bank, you will have to fill up a loan application form
available with the bank free of cost.
The loan application form contains different columns to be filled in by the applicant. It
includes all information required about the borrower, purpose of loan, nature of facility
(cash-credit, overdraft etc) required, period of repayment, nature of security offered,

and the financial status of the borrower. A running business limit may be required to
furnish additional information in respect of:
 Assets and liabilities

 Profit and loss for the last 3 years.
 The names and addresses of three persons (which may include borrowers, suppliers,
customers and bankers) for reference purposes.
2. Submission of form along with relevant documents.
The bank application form duly filled in should be submitted to the bank along with the
relevant documents.
3. Sanctioning of loan
The bank scrutinizes the documents submitted and determines the credit worthiness of
the applicant. If it is found to be feasible, the loan is sanctioned. If the loan is for Rs
5000 or less, normally the Branch Manager himself can take the decision and sanction the
loan. In case the amount of loan is more than Rs 5000, the application is considered at
regional, zonal or head office level, depending on the amount of loan.
4. Executing the Agreement
When the loan is sanctioned by the bank and the borrower is informed about it, he
will have to execute an agreement with the bank regarding terms and condition for the
amount of loan raised.
5. Arrangement of Security for Loan
The borrower will now arrange for security against the loan. These securities may be
immovable properties, shares, debentures, fixed deposit receipts, and other documents, like,
Kisan Vikas Patra, National Savings Certificate, as per agreement.
When the borrower completes all the formalities, he is allowed to get the amount of
loan/advance/ over draft as sanctioned by the bank. In case of ‘discounting of bills’, the
bank credits the amount of bill to the customer’s account before the realization of the bill

and thus, makes available the fund. In case, the bill is dishonored on due date, the amount
due on the bill together with interest and other charges are payable by the party whose bill is
discounted.
Procedure of Granting Loans and advances
1.8 STATUTORY & OTHER RESTRICTIONS ON LOANS & ADVANCES
RBI has been issuing from time to time rules/regulations/instructions on statutory and other
restrictions in respect of loans and advances to Banks for implementation and to adopt adequate
safeguards in order to ensure that the banking activities undertaken by them are run on sound,
prudent and profitable lines, as under.
1. Statutory Restrictions
 Advances against bank own share
A bank cannot grant any loans and advances on the security of its own shares. (Section 20(1) of
the Banking Regulation Act, 1949)
 Advances to bank Directors
Banks are prohibited from entering into any commitment for granting any loans or advances to
or on behalf of any of its directors, or any company/firm in which any of its directors is
interested as partner, manager, employee or guarantor (B.R Act (Section 20(1).

 ‘Loans & advances’ shall not include

 Loans or advances against Govt. securities, life insurance policies or fixed deposit.
 Loans or advances to the Agricultural Finance Corporation Ltd.
 Loans or advances to any of its directors in his capacity as an employee prior to
becoming as director, loans or advances granted to its Chairman and Chief Executive
Officer who was not an employee of the banking company immediately prior
to his appointment as Chairman/ Managing Director/CEO, or to its whole-time
director (for purchasing a car, personal computer, furniture or constructing/ acquiring
a house for his personal use and Festival Advance), with the prior approval and
subject to terms and conditions stipulated by RBI.
 Loans & advances’ include, among others.

 Purchase of or discount of bills from directors and their concerns.
 Issuance of guarantees and opening of L/Cs on behalf of the bank’s directors etc.
2. Regulatory Restrictions
 Granting loans and advances to relatives of Directors
 Without prior approval of the Board or without the knowledge of the Board, no loans and
advances aggregating to Rs. 25 Lakh and above should be granted to relatives of the
bank's Chairman/Managing Director or other Directors or other bank’s Directors
(including Chairman/Managing Director) and their relatives, Directors of
Subsidiaries/Trustees of Mutual Funds/Venture Capital Funds set up by the financing
banks or other banks, including lending to directors and their relatives on reciprocal basis
(Sec. 20 of B.R. Act).
 This restriction would also apply to grant of loans and advances to spouse and
minor/dependent children of the Directors of banks except those who own independent
source of income arising out of his/her employment or profession and the facility so
granted is based on standard procedures and norms for assessing the creditworthiness of
the borrower. The term “relative” is explained in RBI Master Circular dt. 01.07.13.
 Loans & advances of less than Rs.25 Lakh to these borrowers can be sanctioned at
appropriate level as per delegation with suitable reporting to the Board.

 The term ‘loans and advances’ will not include loans or advances against Government
securities, Life insurance policies, Fixed or other deposits, Stocks and shares, Temporary
overdrafts for small amounts, i.e. up to Rs. 25,000/-,Casual purchase of cheques up to Rs.
5,000 at a time, Housing loans, car advances, etc. granted to an employee of the bank
 The guidelines are applicable while granting loans/ advances or awarding contracts
to directors of scheduled co-operative banks or their relatives and to directors of
Subsidiaries/trustees of mutual funds/venture capital funds set up by them as also other
banks.
 Grant of Loans & Advances to Officers and Relatives of Senior Officers of Banks
 No officer or any Committee comprising, inter alia, an officer as member shall sanction
any credit facility to his/her relative but only by the next higher sanctioning authority.
Credit facilities sanctioned to senior officer shall be reported to board.
 Credit facilities to the relatives of senior officers of the bank sanctioned by the
appropriate authority should be reported to the Board.
 Restriction on payment of commission to staff members including officers
Banks should not pay commission to staff members and officers for recovery of loans. (Sec10(1)
b (ii) of BR Act).
 Restrictions on offering incentives on any banking products
Banks should not offer any banking products, including online remittance schemes etc., with
prizes / lottery/free trips (in India and/or abroad), etc. or any other incentives having an element
of chance, except inexpensive gifts costing not more than Rs. 250/-. Etc

1.9 The Advantages and Disadvantages of Loans
Loan is a form of debt, often with interest. There are several reasons why people apply for loans.
Usually they borrow money to purchase a house, buy a car, or start a business. Often, applying
for a loan is necessary because most do not have available financial resources they need to make
a purchase. Other forms of loans, like the student loans have helped a lot of students get through
school. Those who use student loan debt consolidation clearly have multiple student loans. They
do this to manage their obligations better.
Since loan is borrowed, the lender expects to receive payment with the interest specified. In
addition, borrowers should make the payments at the specified due date for a certain period. This
is where most people have problems. Most problems start when people cannot make the monthly
payments required due to different circumstance. Some finds it difficult to pay their loan because
of the many other debts they have. Some encounter additional problems such as medical
emergencies and job loss.
Since getting a loan is a commitment, you have to be very careful with your decisions. Choose
the right lender. There is more to picking a lender than just looking for one with the least interest.
Keep in mind that those with low interest require longer period. Remember, when choosing a
lender, check its stability, its flexibility, repayment schemes, and interest rates.
Before you decide to get a loan, it is only right that you review its advantages and disadvantages.
Advantages
Below are the advantages of getting a loan. These are also the reasons why many apply for it:
 There is a loan for just about anything. If you are in need of money to purchase a house,
you can apply for a housing loan. If you need a car, you can apply for a car loan. With all
the loans available, you will be able to purchase everything you need.
 It helps a person afford an expensive purchase. All of us wish to acquire a property.
However, we do not have the amount of money to make the purchase. Loans allow us to
do this. They lend us the money so that we can finally afford our desired property.

 Payment is staggered, which makes it affordable. This enables the person to pay off the
loan gradually. If a person has chosen a good deal, he should be able to finish paying off
the loan in the time specified.
 One gets the funding he needs. If a person wants to start a business, he can do so by
applying for a business loan. He does not have to wait for his savings to build up before
he can start his own business. They can also use the amount they loan for investment
purposes.
 Getting a loan is very helpful to start building your dream. However, you have to be very
careful with your decisions. This is because of the problems you will possibly encounter
if you mismanage your loans and other debts. If you have multiple loans, make sure to
manage it well. Use a debt consolidation loan calculator and check if it is better to
consolidate all your loans. Make sure that you manage your loans from the start. Keep in
mind that loans have disadvantages too.
Disadvantages
Here are some of the disadvantages of having loans:
 It is a long-term debt. This means that you have to deal with it for a specified period,
which means that you have to commit yourself to making monthly payments specified in
your agreement for the period indicated to repay the loans.
 If you miss payments, you will face serious consequences. You can face foreclosure or
repossession of the property. In addition, you could also face penalties and legal issues. It
will also reflect in your credit rating, which can lead to a low credit scores.
 You may not be able to make early loan repayment. Few lenders give option for early
repayment. Although there are some who will allow you to do this, they will charge you
with early repayment fees.
Loans are very helpful. However, you have to manage them well because you can get into a lot
of trouble if you fail to make the expected payments.

1.10 Engaging Recovery Agents by banks
 Banks should have a due diligence process in place for engagement of recovery
agents.
 Banks should inform the borrower the full details of the Recovery Agency
Firm/companies while forwarding cases to the recovery agency.
 The notice and the authorization letter should, among other details, also include the
telephone numbers of the relevant recovery agency.
 The up to date details of the recovery agency firms / companies engaged by banks
may also be posted on the bank’s website.
 Each bank should have a mechanism whereby the borrowers' grievances with regard
to the recovery process can be addressed.
1.11 DEFINITION OF BANKING IN INDIA

Section 5(1) (c) of Indian banking regulation act of 1949 called the Indian banking companies
Act of 1949 before 31st march 1966} defines banking in India, “section (5) (b) of the same act
defines the term banking as Accepting for the purpose of lending or investment, of deposits of
money from the public, repayable on demand or otherwise and withdrawal by cheques, draft, and
order or otherwise.
1.12 DEFINITION OF COMMERCIAL BANK

A financial institution that provides services, such as accepting deposits, giving business loans
and auto loans, mortgage lending, and basic investment products like savings accounts and
certificates of deposit. The traditional commercial bank is a brick and mortar institution with
tellers, safe deposit boxes, vaults and ATMs. However, some commercial banks do not have any
physical branches and require consumers to complete all transactions by phone or Internet. In
exchange, they generally pay higher interest rates on investments and deposits, and charge lower
fee.

1.13 FUNCTIONS OF COMMERCIAL BANKS

1. Accepting Deposits
The most important function of commercial banks is to accept deposits from the public. Various
sections of society, according to their needs and economic condition, deposit their savings with
the banks.
For example, fixed and low income group people deposit their savings in small amounts from the
points of view of security, income and saving promotion. On the other hand, traders and
businessmen deposit their savings in the banks for the convenience of payment.
Therefore, keeping the needs and interests of various sections of society, banks formulate various
deposit schemes. Generally, there are three types of deposits which are as follows
 Current Deposits:
The depositors of such deposits can withdraw and deposit money whenever they desire. Since
banks have to keep the deposited amount of such accounts in cash always, they carry either no
interest or very low rate of interest. These deposits are called as Demand Deposits because these
can be demanded or withdrawn by the depositors at any time they want such deposit accounts
are highly useful for traders and big business firms because they have to make payments and
accept payments many times in a day.
 Fixed Deposits:
These are the deposits which are deposited for a definite period of time. This period is generally
not less than one year and, therefore, these are called as long term deposits. These deposits
cannot be withdrawn before the expiry of the stipulated time and, therefore, these are also called
as time deposits. These deposits generally carry a higher rate of interest because banks can use
these deposits for a definite time without having the fear of being withdrawn.
 Saving Deposits:
In such deposits, money up to a certain limit can be deposited and withdrawn once or twice in a
week. On such deposits, the rate of interest is very less. As is evident from the name of such

deposits their main objective is to mobilize small savings in the form of deposits. These deposits
are generally done by salaried people and the people who have fixed and less income.
2. Giving Loans and advances
The second important function of commercial banks is to advance loans to its customers. Banks
charge interest from the borrowers and this is the main source of their income.
Banks advance loans not only on the basis of the deposits of the public rather they also advance
loans on the basis of depositing the money in the accounts of borrowers. In other words, they
create loans out of deposits and deposits out of loans. This is called as credit creation by
commercial bank.
Modern banks give mostly secured loans for productive purposes. In other words, at the time of
advancing loans, they demand proper security or collateral. Generally, the value of security or
collateral is equal to the amount of loan. This is done mainly with a view to recover the loan
money by selling the security in the event of non-refund of the loan.
At some times, banks give loan on the basis of personal security also. Therefore, such loans are
called as unsecured loan. Banks generally give following types of loans and advance.
 Cash Credit
In this type of credit scheme, banks advance loans to its customers on the basis of bonds,
inventories and other approved securities. Under this scheme, banks enter into an agreement with
its customers to which money can be withdrawn many times during a year. Under this set up
banks open accounts of their customers and deposit the loan money. With this type of loan, credit
is created.
 Demand Loans
These are such loans that can be recalled on demand by the banks. The entire loan amount is paid
in lump sum by crediting it to the loan account of the borrower, and thus entire loan becomes
chargeable to interest with immediate effect.

 Short Term Loans
These loans may be given as personal loans, loans to finance working capital or as priority sector
advances. These are made against some security and entire loan amount is transferred to the loan
account of the borrower.
 Over Draft
Banks advance loans to its customer’s up to a certain amount through over-drafts, if there are no
deposits in the current account. For this banks demand a security from the customers and charge
very high rate of interest.
 Discounting of Bills of Exchange
This is the most prevalent and important method of advancing loans to the traders for short-term
purposes. Under this system, banks advance loans to the traders and business firms by
discounting their bills. In this way, businessmen get loans on the basis of their bills of exchange
before the time of their maturity.
3. Investment of Funds
The banks invest their surplus funds in three types of securities—Government securities, other
approved securities and other securities. Government securities include both, central and state
governments, such as treasury bills, national savings certificate etc.
Other securities include securities of state associated bodies like electricity boards, housing
boards, debentures of Land Development Banks units of UTI, shares of Regional Rural banks
etc.
4. Agency Functions
Banks function in the form of agents and representatives of their customers. Customers give their
consent for performing such functions. The important functions of these types are as follows:

 Banks collect cheques, drafts, bills of exchange and dividends of the shares for their
customers.
 Banks make payment for their clients and at times accept the bills of exchange: of their
customers for which payment is made at the fixed time.
 Banks pay insurance premium of their customers. Besides this, they also deposit loan
installments, income-tax, interest etc. as per directions.
 Banks purchase and sell securities, shares and debentures on behalf of their customers.
 Banks arrange to send money from one place to another for the convenience of their
customers.
5. Miscellaneous Functions
Besides the functions mentioned above, banks perform many other functions of general utility
which are as follows:
 Banks make arrangement of lockers for the safe custody of valuable assets of their
customers such as gold, silver, legal documents etc.
 Banks give reference for their customers.
 Banks collect necessary and useful statistics relating to trade and industry.or facilitating
foreign trade, banks undertakes to sell and purchase foreign exchange.
 Banks advise their clients relating to investment decisions as specialist
 Bank does the under-writing of shares and debentures also.
 Banks issue letters of credit.
 During natural calamities, banks are highly useful in mobilizing funds and donations.

 Banks provide loans for consumer durables like Car, Air-conditioner, and Fridge etc.
1.14 THE ROLE OF COMMERCIAL BANKS

Besides performing the usual commercial banking functions, banks in developing countries play
an effective role in their economic development. The majority of people in such countries are
poor, unemployed and engaged in traditional agriculture.
There is acute shortage of capital. People lack initiative and enterprise. Means of transport are
undeveloped. Industry is depressed. The commercial banks help in overcoming these obstacles
and promoting economic development. The roles of a commercial bank in a developing country
are
 Mobilizing Saving for Capital Formation
 Financing Industry
 Financing Trade
 Financing Agriculture
 Financing Consumer Activities
 Financing Employment Generating Activities
 Help in Monetary Policy
1.15 TYPES OF LOANS GRANTED BY COMMERCIAL BANKS

1. Secured loan
A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property)
as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the
loan. The debt is thus secured against the collateral — in the event that the borrower defaults, the
creditor takes possession of the asset used as collateral and may sell it to regain some or all of the
amount originally loaned to the borrower.
2. Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which
evidences the existence of the loan and the encumbrance of that realty through the granting of
a mortgage which secures the loan.

3. Unsecured loan
In finance, unsecured debt refers to any type of debt or general obligation that is
not collateralized by a lien on specific assets of the borrower in the case of
a bankruptcy or liquidation or failure to meet the terms for repayment. In the event of the
bankruptcy of the borrower, the unsecured creditors will have a general claim on the assets of the
borrower after the specific pledged assets have been assigned to the secured creditors. The
unsecured creditors will usually realize a smaller proportion of their claims than the secured
creditors.
4. Short-term loans
Short term loans are granted by banks to meet the working capital needs of business. The
working capital needs refer to financial needs for such purposes as, purchase of raw materials,
payment of wages, electricity bill, taxes etc. Such loans are granted by banks to its borrowers to
be repaid within a short period of time not exceeding 15 months. Short term loans are normally
granted against the security of Tangible assets like goods in stock, shares, debentures, etc. The
rate of interest charged on short term loans ranges from 12% to18% p.a
5. Term loans
Medium and long term loans are generally known as ‘term loans’. These loans are granted for
more than 15 months. In case of Medium term loan, the period ranges from 15 months to less
Than 5 years. Medium term loans are generally granted for heavy repairs, Expansion of existing
units, modernization/renovation etc. Such loans are sanctioned against the security of immovable
assets. The normal rate of interest ranges between 12% to 18% depending upon the period,
purpose, nature and amount of the loan. Though banks may grant long term loans, they avoid
granting loan for more than 5 years.

Chapter-2
RESEARCH DESIGN
2.1 STATEMENT OF THE PROBLEM
Loan is one of the major elements of finance to a common man. The banks advance money in no
of ways like Housing Loan, Education Loan, Property Loan, Personal Loan, Vehicle Loan, Etc.
Banks usually follow different procedure for advancing different types of loan and advances. In
order to know the different procedure in sanctioning different kinds of loans and the rate of
interest charged to different type of loan this study has been undertaken.
2.2 OBJECTIVES OF THE STUDY
 To analyze different types of loans and advances made by The Millennium Credit co-
operative society.
 To list out some important loans and advance of the society and there interest rates and
security needed for granting loans and advances.
 To analyze the financial position of the society.
 To make suggestions and recommendations based on the study.
2.3 SCOPE OF THE STUDY
The study covers the following: Meaning of loans and advances, Utility of loans and advances,
Borrowing rate and lending rate, Lending of money, Nature and security of loans, Procedure of
granting cash credit, overdraft and discounting bills, Statutory & other restrictions on loans &
advances, The Advantages and Disadvantages of Loans, Engaging recovery agents by banks,
Functions of commercial banks, The role of commercial banks, Types of loans granted by
commercial banks, The study is limited to the information provided by the bank officials.

2.4 SOURCES OF DATA
1. Primary Data:
The primary data has been collected directly from the executives and employees of the bank
by personal interview.
2. Secondary Data:
The secondary data has been collected from various published and unpublished source like:
Broachers, Director’s reports, published Financial Statements of the millennium credit
Co-operative society Ltd, Bank official websites, Annual general meeting.
2.5 REFERENCE PERIOD

This reference period is selected for the study for last 4 years i.e. 2009-10 to 2012-13. This study
was done on interpretation what made by comparing various data during research work.
2.6 STATISTICAL TOOLS USED FOR DATA ANALYSIS
The statistical tools used to analyze the data are:
 Percentages.
 Column Chart.
2.7 LIMITATION OF THE STUDY
All the possible care has been taken to collect the information and make the study as authentic as
possible. However it is subjected to certain information. They are as under:
1. All the findings and recommendations, which are stated, are applicable only for the
current period.
2. The study is limited to the extent to the data given by the bank.

3. Based on limited information it is not possible to arrive at a proper conclusion.

4. The interpretation of the study is not complete as primary records of the bank are
inaccessible except Annual reports.
5. The Accuracy of the study depends on the accuracy of information and records provided
by the bank.

2.8 CHAPTER SCHEME
CHAPTER 1-INTRODUCTION TO LOANS AND ADVANCES
This chapter covers-Meaning of loans and advances, Utility of loans and advances, Borrowing
rate and lending rate, Lending of money, Nature and security of loans, Procedure of granting
cash credit, overdraft and discounting bills, Statutory & other restrictions on loans & advances,
The Advantages and Disadvantages of Loans, Engaging recovery agents by banks, Functions of
commercial banks, The role of commercial banks, Types of loans granted by commercial banks,
The study is limited to the information provided by the bank officials.
CHAPTER 2 - RESEARCH DESIGN
This chapter includes -Statement of the problem, objectives of the study, scope of the study,
sources of data Collection, Reference period, Statistical tools used for data analysis, limitation of
the study.
CHAPTER 3 - PROFILE OF THE MILLENNIUM CREDIT CO-OPERATIVE SOCIETY LTD
This chapter cover History of The Millennium credit co-operative society ltd, Corporate
mission, Corporate vision, Resource mobilization, Main operations of society, Bank declarations,
Bank administrative committee, Table showing progress of millennium credit co-operative
society limited in 2012-2013, Organizational chart.
CHAPTER 4 - ANALYSIS AND INTERPRETATION OF THE MILLENNIUM CREDIT CO-

OPERATIVE SOCIETY LTD
This chapter include all tables & charts, interpretation & analysis showing Loans and advances,
Income Statement, Balance sheet for the year ending 2009-2010 to 2012-2013..
CHAPTER 5 - SUMMARY
This chapter covers Findings, Conclusion and Suggestion.

Chapter-3
PROFILE OF THE MILLENNIUM CREDIT CO-OPERATIVE SOCIETY Ltd
The Millennium Credit Co-Operative society was incorporated on 2000 and It was established
under co-operative society act bearing registration No G.R.B:R.G.N/42/7/28676/2000-2001 On
13.07.2000 from the register of co-operative societies in Karnataka.
Head Office
Basavanagudi, Bangalore-560004
The Millennium Credit Co-Operative Society Ltd.
The Millennium Credit Co-Operative Society Ltd. is a community-based microfinance

and micro lending Institution founded in August of 2000. Our office is located at
#81/GandhiBazar,Basavanagudi,Bangalore-560004.
The mission of The Millennium Credit Co-Operative Society Limited is will be the preferred
provider of targeted financial service in our communities based on strong customer
relationships. We will strengthen these relationships by providing the right solutions that

Combine our technology, expertise and financial strength. Our goal is to create customer loyalty,
shareholder value and employee satisfaction.
The organization has adopted a co-operative approach in order to involve every member in our
mission with a spirit of cooperation and mutual confidence. The credit society has instituted a
working culture, which revolves around efficiency, transparency, professionalism, teamwork and
flexibility.
The society showed a significant progress in the collection of deposits and providing loans.
The banking has not limited its services in banking but also has contributed for the Education by
issuing books to students, encouraging National level games like Dance, Music, Drama and A
step ahead the society has took 3 students from Sri Vinayaka Education Society to pay the fee for
their education from 1st to 10th std of yearly 5000 for each child. On 06/08/13 bank has
completed its 13 years of excellence in the banking service. In the recent days there is a
competition among co-operative. Nationalized and other commercial banks to save its customers
keeping these. In view, the bank has computerized its transaction. In the next Coming years,
bank has the plans to increase its shares and funds.
3.1 CORPORATE MISSION

 The preferred provider of targeted financial service in our communities based on strong
customer relationships. We will strengthen these relationships by providing the right
solutions that combine our technology, expertise and financial strength. Our goal is to
create customer loyalty, shareholder value and employee satisfaction.
 To bring total customer satisfaction by providing quality services.
 Create wealth for customers and other stakeholders.

3.2 CORPORATE VISION
“To Be A Customer Friendly Premier Bank Committed To Enhancing Stakeholders Value”
Following are some of the rules and regulations provided by the bank for the benefits of
customers
 Avail nomination facilities to account holders including savings bank a/c and current a/c
holders.
 Bank will exchange multiple currency notes as per R.B.I guidelines.
 Bank will give standing instruction for the payment of bills, rent, interest, insurance etc…
 Bank provides required and important guidelines to the locker holders.
 Locker Facilities.
3.3 RESOURCE MOBILIZATION
 Customer Profile
Achieved to a greater extent by getting new connections from other institution and individuals.
 Customer services
By and loge the service by the is good and these are no complaints from the customer services in
The Millennium Credit Co-Operative Society Ltd is the one of the reason for attracting more
customers meeting over the recommendation by the committees and board meetings.
 Popularity Of Deposit Schemes
The different deposit schemes like fixed deposits, Millennium cash certificate (The principal will
double in 6 years). The bank is popularized these schemes.

 Deployment of funds
As the bank is situated in residential area, by introducing new and attractive scheme like
Millennium cash certificates etc, the lending has been increasing. The bank is also making efforts
to bring a significant change in the deployment of funds.
 Recovery
The branch is giving it most importance for the recovery of the overdue loans. This is
implemented with the help of the sale officer.
 Human resource
Staff relationship in the bank is excellent. A sub-committee monitors the day to day affairs in the
head office. This sub-committee corrects the mistakes and gives its previous suggestions to the
staff member to provide excellent service.
 Profitability
Sincere effects have been made to recover Loans with interest so as to Increase the profitability
of the society. Monitoring the cash holding of the branch with the given prescribed limits.
3.4 MAIN OPERATIONS OF SOCIETY
1. Cash receipts/deposits.
2. Cash withdrawals.
3. Sanctions and disbursement.
4. Locker facilities.
5. Updating and disbursement of loan.
6. Issuing demand drafts.

The bank has prescribed certain norms on transaction for the benefit of the customers. There
norms given below.
 Pass book will be updated immediately as transaction happened.

 Customers can purchase a demand draft within few minutes.
 Nomination facility is made available.
 Cheque books one issued on demand from depositors.
 Changes in customer personal information immediately after customer request.
3.5 Bank declarations
 To provide professional, efficient, courteous, delight and speedy services in the matter of
retail lending.
 Not to discriminate on the basis religion, sex, descent or any of them.
 To be fair and honest in advertisement and marketing of loans products.
 To bring best deposits schemes for customer satisfaction.
 To provide customer with accurate and timely disclose of terms costs rights and liabilities
as regard loan transactions.
 Top attempt in good faith to resolve dispute or differences with customers by setting up
complaint redresses cells within the organization.
 To comply with the entire regulatory requirement in good faith.
 To spread general awareness about potential risks contracting loans and encourages
customer to take an independent financial advices and not only on representation from
the bank.

3.6 Bank Administrative Committee
 President- Prasanna
 Vice President- B.C Krishna
Board of Directors
 Sri.H.C.Channaiah
 Sri.S.L.Manjunath
 Sri.P.R. Manohar Guptha
 Sri.G.K.Harish Kumar
 Sri.Muninanje Gowda
 Sri.Dr.K.Krishna Murthy
 Sri.K.M.Dakshina Murthy
 Smt.Sunitha Nagesh
 Sri.D.Krishnappa
 Sri.G.Srinivasn
 Sri.M.Ramesh.

3.7 Table Showing Progress of Millennium Credit Co-Operative Society

Limited in 2012-2013
( In Lakhs )
Share Capital 116.53
Deposits 3199.97
Reserves and surplus 79.30
Other Funds 201.10
Loans and advances 3172.76
Net profit of 2011-12 76.49
No. of Members 3807
Working Capital 3596.90
Dividend 15%
Yearly Business 5730.43
Savings and Investments 328.61
Audit Rating "A"

3.8 ORGANISATIONAL CHART

CHAPTER-4
ANALYSIS AND INTERPRETATION OF COMPARATIVE STUDY ON LOANS AND ADVANCES
AT THE MILLENNIUM CREDIT CO-OPERATIVE SOCIETY LTD
Loans and Advances play an important part in the gross earnings and net profit of banks. The
basic function of Banks is whether it is a commercial bank or any other credit institution, is to
enable individuals and business enterprises to purchase goods or services. Consumers demand
credit to acquire goods for which they pay in future. Demand for credit by business man arises
because of time consuming nature of the productive and distribution process. Of all the functions
of modern banking, lending with or without security, is by far the most important functions.
Loans and advances constitute lending. Loans and advances from the major business activity of
the bank, they pay the depositor as and when they are due for payment. And major part of banks
income is earned from interest earned on advances. The proper management of loans and
advances is known as credit management. Therefore credit management can be defined as
“management of loans and advances in banks”.
4.1 Product Profile
The Different Types of Loans and Advances Are As Follows
1. Surety Loan
2. Property Loan
3. House Construction Loan
4. Land Purchase loan
5. Business loan or Business improvement loan
6. LIC bond loan
7. Gold loan
8. Loans on deposits
9. Vehicle loan
10. Two wheeler loan
11. Staff vehicle loan

12. Staff houses building loan

13. Staff Special salary advance
1. Surety Loan
 Quantum Of Loan: Decided by the management
 Interest: 18% P.A
 Purpose: For the personal use of members and their relatives
 Period Of Loan: 60 months
 Objective: To help the persons who is in need of funds
 Documents:
 Address proof and id proof.
 Introducer of the bank ( Reputed Member )
2. Property(Assets) Loans
 Quantum Of Loan: up to 40lakhs
 Period of loan: During of loan is 180 months( 15 years)
 Objectives: Loan taken on property is fulfilling the long term finance for person who
needed to their personal purpose.
3. House construction loan

 Quantum Of Loan: up to 40 lakhs
 Interest:15.00% P.A
 Purpose: For the construction of house
 Period Of Loan: 180 month (15 years)
 Objective: To provide financial assistance to the middle class people and the society
members to build and own house
 Age criteria: A person must be at age of 18years and above

 Procedures
 Applicant should fill up the form provided by the bank
 Applicant should pay the service charge as prescribed by the bank.
 Documents
 It is own with sale people he should have the old owners paper which are favoring
them
 If it is for father’s property then he should hold the document that he is the owner
 Recent tax receipts
 Khatha papers
 Site/construction plan
 Site photographs
 Address proof and income conformation.
4. Site Purchasing Loan

 Quantum of loan: 40 lakhs.
 Interest:15% P.A
 Period of loan: 180months (10 years)
 Processing fee: According to the changes in future course banks decision involved in it.
5. Business And Business Improvement Loan

 Quantum Loan: up to 40lakhs
 Interest Rate:15% P.A
 Purpose: Bank provides loans to its membership customer for their Business transaction
and business improvement.
 Special Feature
 This Loan is provided to small scale Business to improve.
 To Improve Business with the financial assistance.
 This loan helps in self employment of the people.
 Documents from the applicants
 Applicant should give the document which shows income coming from his
Business transaction.

 Balance sheet of previous showing its profit position.

 Provided the necessary documents like Incorporation certificate, Commencement
certificate
 If Business place is rented one, then the applicant should get letter from the owner
that he is paying his rent regularly.
 Income tax returns
6. Lic Bond Loans

 Amount of loan70% on premium paid on LIC Bonds.
 Interest Rate: Up to 15% P.A Interest Amount Rate may charge from period as per the
direction of reserve bank and administration board
 Way of treating and transferring:
The persons have to transfer bonds to the bank and register in the concerned department
and get the letter or document showing the transfer to the bank.
 Procedure:
 In common policy assignment letter related every policy holders signature with
written letter and the letter should be written to the insurance company holder.
 This should be enlisted in the insurance company.
 A receipt regarding the last installment paid the policy holder and gets the
surrendered value details from the policy company.
7. Gold Ornaments Loan

 Quantum of loan: Maximum upto 10 lakhs on gold ornaments as a gram gold Rs.2,000/-
 Duration of loan: 24 months
 Interest Rate: 15% P.A
 Documents:
 ID Proof and address proof.
 There is no much of security needed.

8. Vehicle Loan [Three wheelers, cars, trucks, buses]

 Quantum of loan: up to 15lakh
 Period of loan: During of loan is 60 months( 5 years)
 Objective:
 To own vehicles by everyone
 To provide loan to their business purpose for vehicles like auto, trucks, cars,
buses.
 To become self employed and which gradually reduces un-employment
 Procedures and documents:
 Applicant should for Performa invoice
 Duplicate of driving licenses holders will be applicant
 Permit letters from the transport office for running the vehicle
 If the vehicles are given to BMTC/KSRTC then should provided necessary
letter required by bank.
 Membership id cards and address proof duplicate
 Income conformation paper.
 Get necessary blank forms for the transfer of the vehicle ownership.
 Promissory note
 Hypothecation.
9. Two Wheeler Loan

 Quantum of loan: Up to 1 lakh
 Purpose: Purchases of new two wheeler (Scooter, Motorcycle, and Moped) for personal
use only.
 Duration of loan: Upto 28 Months
 Interest Rate:15% P.A

 Documents & Procedures

 Performa invoice from the vehicle company.
 Applicant driving license duplicate.
 Declaration letter from the loan beneficiary
 ID card showing customer of the bank & address proof duplicate.
 Proof of income from employer
 Eligibility
Employees of centre/state government department’s public sector undertaking,
corporation boards, private institutions, business /trade professionals,
agriculturists/engaged in allied activities that have income proof.
10.Staff Vehicle Loan

 Quantum of loan: 70% of the value.
 Period of loan:60 months.
 Interest Rate: Up to 14% P.A
 Purpose
 For the transportation of its staff.
 For their personal purpose.
 Repayment:
The loan amount is deducted in their salary with a very low interest rate than
other.
11.Staff Special Salary Advance

 Quantum of loan: Decided by the management
 Purpose:
 For the personal purpose of staff.
 To make expense before the salary date.
 Repayment:
The advance amount is a deducted in future salaries there is no interest on their advance.

12.Staff Houses Building Loan

 Quantum of loan: 70% of Expenses or 40 lakhs which ever is low.
 Period of loan:180 months.
 Purpose:
 Staff to own their house.
 To secure themselves.
 Repayment: The loan amount is deducted in their salaries. The interest amount is fixed by
the administration which may be very low.
13.National Savings Certificate

 Amount of loan: 70% of bond value purchased or market value
 Interest Rate: Up to 15% P.A
14.Over Drafts On Deposits

 Purpose:
 To meet the personal needs of customers.
 To develop a good relation between customer and bank.
 Eligibility:
 An account holder should have maintain a good balance in the past.
 He should have a good record of transaction and maintain the good balance.
 Permission:
 Account holder should approach the manager in respective department head.
 The management will decide to allow or not.
 Amount of Over Draft: 90% of the value.

Analysis
Table No 4.1
Table Showing Vehicle Loan for the Period 2009-10 to 2012-13
Total Loans and % Of Total

Year Advances Vehicle Loan Amt
2009-2010 17,22,15,424 12,93,208 0.75
2010-2011 29,09,99,648 45,70,052 1.57
2011-2012 28,91,18,080 72,97,854 2.52
2012-2013 31,72,81,601 67,81,516 2.13
Chart No 4.1
Chart Showing Vehicle Loan for the Period 2009-10 to 2012-13
7297854
8000000 6781516
6000000 4570052
4000000
1293208
2000000
0
2009-2010 2010-2011 2011-2012 2012-2013
Vehical Loan
Analysis and interpretation

The above table and Chart shows the vehicle loan position is increasing year by year. It was
0.75% of total loans lend by bank. But it increased to 1.57 in 2010-2011 and 2.52 in 2011-2012.
But had decreased in 2012-2013 to 2.13 compared to last year.
The total vehicle loan is differs from year to year her we can know that there is increase in 2011-
2012 by 7297854 but decrease in 2012-2013 by 6781516.

Table No 4.2
Table Showing Surety Loan for the Period 2009-10 to 2012-13

Year Advances Surety Loans Amt
2009-2010 17,22,15,424 80,42,139 4.67
2010-2011 29,09,99,648 1,31,07,602 4.5
2011-2012 28,91,18,080 1,80,20,266 6.23
2012-2013 31,72,81,601 1,66,51,913 5.25
Chart No 4.2
Chart Showing Surety Loan for the Period 2009-10 to 2012-13
18020266
20000000 16651913
13107602
15000000
8042139
10000000
5000000
0
2009-2010 2010-2011 2011-2012 2012-2013
Surety Loan

The above table and Chart shows the Surety loan position is increasing year by year. It was
4.67% of total loans lend by bank. But it decreased to 4.50% in 2010-2011 and then it raised to
6.23 in 2011-2012. But in 2012-2013 once again it decreased to 5.25 compared to last year.
The total Surety loan is differs from year to year her we can know that there is increase in 2011-
2012 by 18020266 but decrease in 2012-2013 by 16651913.

Table No 4.3
Table Showing Immoveable Property Loan for the Period 2009-10 to 2012-13

Year Advances IPL Loan Amt
2009-2010 17,22,15,424 15,35,35,547 89.15
2010-2011 29,09,99,648 26,10,64,901 89.71
2011-2012 28,91,18,080 24,90,02,596 86.12
2012-2013 31,72,81,601 26,87,65,131 84.7
Chart No 4.3
Chart Showing Immoveable Property Loan for the Period 2009-10 to 2012-13
261064901 268765131
300000000 249002596
250000000
200000000 153535547
150000000
100000000
50000000
0
2009-2010 2010-2011 2011-2012 2012-2013
Immovable Property Loan

The above table and Chart shows the IPL loan position is increasing year by year. It was 89.15%
of total loans lend by bank. But it increased to 89.71% in 2010-2011 and then it came down to
86.12 in 2011-2012. But in 2012-2013 once again it decreased in percentage of lending to 84.70
compared to last year.
The total IPL loan is differs from year to year her we can know that there is increase in 2012-
2013 by 268765131 compared to last year 249002596.

Table No 4.4
Table Showing Gold Loan for the Period 2009-10 to 2012-13

Year Advances Gold Loan Amt
2009-2010 17,22,15,424 8,19,838 0.48
2010-2011 29,09,99,648 18,83,634 64
2011-2012 28,91,18,080 9,77,357 0.34
2012-2013 31,72,81,601 21,25,055 0.67
Chart No 4.4
Chart Showing Gold Loan for the Period 2009-10 to 2012-13
2500000 2125055
1883634
2000000
1500000 977357
819838
1000000
500000
0
2009-2010 2010-2011 2011-2012 2012-2013
Gold Loan
Analysis and Interpretation

The above table and Chart shows the Gold loan position is increasing year by year. 2009-2010 It
was 0.48% but It was Increased in 2010-2011 by 0.64%, and then decline to 0.34% in 2011-2012
and It was Increased to 0.67 in 2012-2013.
The total Gold loan differ from year to year here it is seen that in the year 2011-2012 has
decreased by 977357 from last year and increased in 2012 by 2125055.

Table No 4.5
Table Showing Deposit Loan for the Period 2009-10 to 2012-13

Year Advances Deposit Loan Amt
2009-2010 17,22,15,424 80,81,784 4.69
2010-2011 29,09,99,648 98,05,982 3.37
2011-2012 28,91,18,080 1,26,47,681 4.37
2012-2013 31,72,81,601 2,18,75,209 6.9
Chart No 4.5
Chart Showing Deposit Loan for the Period 2009-10 to 2012-13
21875209
25000000
20000000
12647681
15000000 9805982
8081784
10000000
5000000
0
2009-2010 2010-2011 2011-2012 2012-2013
Deposite Loan

The above table and Chart shows the amount on Deposits loan position is increasing year by
year. 2009-2010 it was 4.69% but It was decreased 2010-2011 by 3.37%, and increased in 2011-
2012 by 4.37%. and then it further increased to 6.90% in 2012-2013.
The total Deposits loan differ from year to year here it is seen that in the year 2011-2012 it has
increased by 12647681 and 21875209 in 2012-2013.

Table No 4.6
Table Showing Staff Lic Loan for the Period 2009-10 to 2012-13

Year Advances LIC Loan Amt
2009-2010 17,22,15,424 18,940 0.011
2010-2011 29,09,99,648 10 0
2011-2012 28,91,18,080 0 0
2012-2013 31,72,81,601 0 0
Chart No 4.6
Chart Showing Staff Lic Loan for the Period 2009-10 to 2012-13
20000
15000
10000
5000
0 Staff Lic Loan

2009-2010 2010-2011 2011-2012 2012-2013

The above table and Chart shows the amount on Staff lic loan position is decreasing year by
year. It was 0.011% in 2009-2010 but It was decreased and eliminated entirely in the coming
years.
The total Staff lic loan differ from year to year here it is seen that in the year 2009-2010 it has
18940 and decreased to zero in coming years

Table No 4.7
Table Showing Staff Salary Advances for the Period 2009-10 to 2012-13
Total Loans and Staff salary % Of Total

Year Advances Advances Amt
2009-2010 17,22,15,424 84,000 0.0491
2010-2011 29,09,99,648 72,000 0.0251
2011-2012 28,91,18,080 63,000 0.0221
2012-2013 31,72,81,601 5,000 0.0016
Chart No 4.7
Chart Showing Staff Salary Advances for the Period 2009-10 to 2012-13
100000 84000
72000
80000 63000
60000
40000
20000 5000
0
2009-2010 2010-2011 2011-2012 2012-2013
Staff Salary Advance

The above table and Chart shows the amount on Staff Salary advances position is decreasing
year by year. 2009-2010 it was 0.0491% but It was decreased to 0.0251% in 2010-2011,0.0221
in 2011-2012 and further decreased to 0.0016% in 2012-2013.
The total Staff Salary Advances differ from year to year here it is seen that in the year 2011-2012
it has decreased to 63000 and 5000 in 2012-2013.

Table No 4.8
Table Showing Staff Loan for the Period 2009-10 to 2012-13

Year Advances Staff Loan Amt
2009-2010 17,22,15,424 2,34,547 0.1372
2010-2011 29,09,99,648 4,54,103 0.156
2011-2012 28,91,18,080 10,.61,268 0.3671
2012-2013 31,72,81,601 10,33,580 0.3364
Chart No 4.8
Chart Showing Staff Loans for the Period 2009-10 to 2012-13
1500000 1061268 1033580

1000000
454103
234547
500000
0
2009-2010 2010-2011 2011-2012 2012-2013
Staff Loans

The above table and Chart shows the amount on Staff loan position is increasing year by year.
2009-2010 it was 0.1372% and in 2010-2011 it was 0.1560 but it was further increased to 2011-
2012 by 0.3671%, and decreased in 2012-2013 by 0.3364%.
The total Staff loan differ from year to year here it is seen that in the year 2011-2012 it has
increased by 1061268 and 1033580 in 2012-2013.

Table No 4.9
Table Showing Arbitration and Execution Charges for the Period 2009-10 to 2012-13
Total Loans and A and E % Of Total

Year Advances Charge Amt
2009-2010 17,22,15,424 1,05,421 0.6232
2010-2011 29,09,99,648 41,364 0.0142
2011-2012 28,91,18,080 48,058 0.0177
2012-2013 31,72,81,601 44,197 0.0141
Chart No 4.9
Chart Showing Arbitration and Execution Charges for the Period 2009-10 to 2012-13
150000
105421
100000
41364 48058 44197
50000
0
2009-2010 2010-2011 2011-2012 2012-2013
Arbitration and execution Charges
The above table and Chart shows the amount on Arbitration and Execution Charges position is
decreasing year by year. 2009-2010 it was 0.6232% and in 2010-2011 it was 0.0142 but It was
slightly increased to 0.0177% in 2011-2013 and decreased in 2012-2013 by 0.0141%.
The total on Arbitration and Execution Charges differ from year to year here it is seen that in the
year 2011-2012 it has decreased by 48058 and 44197 in 2012-2013.

Table No 4.10
Table Showing Total Loans and advances for the Period 2009-10 to 2012-13
Total Loans % Of Total

Year Total of B/S and Advances Amt
2009-2010 18,90,80,973 17,22,15,424 91.08
2010-2011 30,25,30,130 29,09,99,648 96.19
2011-2012 32,92,35,439 28,91,18,080 87.81
2012-2013 37,06,99,411 31,72,81,601 85.59
Chart No 4.10
Chart Showing Total Loans and advances for the Period 2009-10 to 2012-13
400000000 317281601
290999648 289118080
300000000
172215424
200000000
100000000
0
2009-2010 2010-2011 2011-2012 2012-2013
Total Loans And Advances

The above table and Chart shows the amount of Total loans and Advances is decreasing year by
year. 2009-2010 it was 91.08% and in 2010-2011 it was increased to 96.19% and in 2011-2012
it was decreased to 87.81%, and in 2012-2013 by 85.59%.
The Total loans and Advances differ from year to year here it is seen that in the year 2011-2012
it has decreased by 28, 91, 18,080 and 31, 72, 81,601 in 2012-2013.

Table No 4.11
Table Showing Net Profit for the Period 2009-10 to 2012-13
% Of Total
Year Total of B/S Profit Amt
2009-2010 189080973 50,55,701 2.68
2010-2011 302530130 50,84,887 1.69
2011-2012 329235439 60,47,235 1.84
2012-2013 370699411 76,49,984 2.07
Chart No 4.11
Chart Showing Net Profit for the Period 2009-10 to 2012-13
7649984
8000000
6047235
5055701 5084887
6000000
4000000
2000000
0
2009-2010 2010-2011 2011-2012 2012-2013
Net Profit
The above table and Chart shows the Net Profit position is increasing year by year. 2009-2010 It
was 2.68% but It was decreased in 2010-2011 by 1.69%, and then increased to 1.84% in 2011-
2012 and It was further Increased to 2.07 in 2012-2013.
The total Net Profit differs from year to year here it is seen that in the year 7649984 in 2012-
2013 compared to 6047235 in 2011-2012.

Table No 4.12
Table Showing Interest received on Loans and Advances for the Period 2009-10 to 2012-13
Total Loans and Interest Average Percentage

Year Advances Amount of Interest
2009-2010 17,22,15,424 1,94,44,418 11.29
2010-2011 29,09,99,648 3,24,89,752 11.16
2011-2012 28,91,18,080 3,90,41,225 13.51
2012-2013 31,72,81,601 3,98,58,870 12.56
Chart No 4.12
Chart Showing Interest received on Loans and Advances for the Period 2009-10 to 2012-13
39041225 39858870
40000000 32489752
30000000
19444418
20000000
10000000
0
2009-2010 2010-2011 2011-2012 2012-2013
Amount

The above table and Chart shows the Interest received on loans and advances position is
increasing year by year. 2009-2010 It was 19444418 but It was increased in 2010-2011 to
32489752, and then increased to 39041225 in 2011-2012 and It was further Increased to
39858870 in 2012-2013.

Comparative Balance Sheet
Table No 4.13
Table Showing Comparative Balance Sheet for the period 2009-2010 and 2010-2011
Particulars 2009-2010 2010-2011 Increase/decrease Increase/decrease in %

in amount
LIABILITIES
Share capital 8587200 11611000 3023800 35.22
Reserve & Fund 12102606 15084020 2981414 24.64

Deposits/ 157205234 264040858 106835624 67.99
Other A/c’s
Interest Provision 2502789 1686939 (815850) 32.40
Other Payable 150 000 (150) 100.00
Dividend 904223 1244706 340483 37.65

Payables
Other liabilities 2426670 3618220 1191550 49.11
Other Asset 296300 159500 (136800) 46.17
Profit &loss a/c 5055701 5084887 29186 0.578
Total 189080973 302530130 113449157 60.00

ASSETS
Cash in hand 1856360 627995 (1228365) 66.17
Cash @ bank 5800045 1382699 (4417346) 76.16
investment 2470911 3470911 1000000 40.47

Other Deposits 6000 6000 00.00 00.00
Loans& advances 172215424 290999648 118784224 68.97
Other assets 5661198 6034777 373579 6.60
Stock 8100 8100 00.00 00.00
Profit and Loss 1062935 ------ 1062935 100.00
Total 189080973 302530130 113449157 60.00

Interpretation for the period 2009-2010 and 2010-2011
 There has been overall increase in total assets of the bank in the 2011 by 60.00%.
This shows the performance was good in the year.
 The share capital is increased by 35.22% in 2011 as compared to 2010. So the
position of equity has also increased
 In the year 2011, the investment scheme of the bank is good. It was increased by
40.47% as compared to 2010. It shows bank come out with good investment
scheme.
 A cash balance and bank balance was decreased by 66.17% and 76.16%
respectively in 2011 compared to 2010. This shows the bank does not have
sufficient cash reserve to meet the emergency demand.
 The position of other liabilities has unable to made payment and it shows that
the bank was increase in net profit.
 The provision for Interest is decrease by 32.40 in the 2011 compared to
2010.The bank has to make provisions more to meet uncertainty in future
course.`
 There were issues of shares increased by 35.22% in the year 2011. So the
position of equity has also increased.
 The position of other liabilities has increased by 49.11% it shows that the bank
was unable to made payment.
 In the year 2011, there was an increase in net profit of the bank up to 0.578%.
But still the bank should operate more efficiently.

Table No 4.14
Particulars 2010-2011 2011-2012 Increase/decrea Increase/decrease

se in amount in %
LIABILITIES
Share capital 11611000 11557800 (53200) 0.46

Reserve & Fund 15084020 18865927 3781907 25.08
Deposits/ 264040858 277674787 13633929 5.16
Other A/c’s
Intrest Provision 1686939 3343661 1652672 98.21
Other Payable 000 000 000 000

Dividend 1244706 1279911 35205 2.83
Payables
Other liabilities 3618220 10466117 6847957 189.23
Other Asset 159500 000 (159500) 100.00
(Suspense a/c )
Profit &loss a/c 5084887 6047235 962348 18.92
Total 302530130 329235439 26705309 8.83

ASSETS
Cash in hand 627995 1026288 398293 63.42

Cash @ bank 1382699 4838666 3455967 249.94
Investment 3470911 22063911 18593000 535.68
Other Deposits 6000 6000 000 000
Loans & 290999648 289118080 (1881568) 0.65
advances
Other assets 6034777 6135318 100541 1.67
Stock 8100 000 (8100) 100.00
Profit and Loss ------ 6047235 6047235 100.00
Total 302530130 329235439 26705309 8.83

This shows the performance was good in the year.
 In the year 2012, the investment scheme of the bank as very good. It was
increased by 535.68% in this year. Compared to increase of 40.47 last year.
 A cash balance and bank balance was increased by 63.42% and 249.94% in 2012
compared to last year. This shows the bank have sufficient cash reserve to meet
the emergency requirements.
 There was a paid off of shares decreased by 0.46% in the year 2012. So the
position of equity has also decreased.
 The position of other liabilities has increased by 189.23% it shows that the bank
was unable to made payment.
 In the year 2012, there was an increase in net profit of the bank up to 18.92% this
indicates the operational efficiency of the bank compared to 2011 and 2010.

Table No 4.15
Particulars 2011-2012 2012-2013 Increase/decrea Increase/decrease

se in amount in %
LIABILITIES
Share capital 11557800 11727200 169400 1.47

Reserve & Fund 18865927 23263974 4398047 23.32
Deposits/ 277674787 319997266 42322479 15.24
Other A/c’s
Interest Provision 3343661 1648406 (1695255) 50.70
Other Payable 000 000 000 000

Dividend Payables 1279911 1314751 34840 2.72
Other liabilities 10466117 4938330 (5527787) 52.81
Other Asset 000 159500 159500 100.00
(Suspense a/c )
Profit &loss a/c 6047235 7649984 1602749 26.50
Total 329235439 370699411 41463972 12.60

ASSETS
Cash in hand 1026288 922634 (103654) 10.10

Cash @ bank 4838666 13183833 8345167 172.47
Investment 22063911 32861957 10798046 48.93
Other Deposits 6000 128744 122744 2045.73
Loans & advances 289118080 317281601 28163521 9.74
Other assets 6135318 6320642 185324 3.02

Stock 000 000 000 000
Profit 6047235 000 6047235 100
Total 329235439 370699411 41463972 12.60

This shows the performance was good in the year
 In the year 2013, the investment scheme of the bank as good. It was increased by
48.93% in 2013 as compared to 2012.
 The bank has also had an increased bank balance in 2013 by 172.47%. compared
to 2012. It decrease cash balance by 10.10% in present year, compared to 2012.
 There were issues of shares increased by 1.47 % in the year 2013. So the position
of equity has also increased.
 The position of other liabilities has decreased by 52.81% compared to 2012.and
it was a good sing.
 In the year 2013, there was an increase in net profit of the bank up to 26.50% this
indicates the operational efficiency of the bank compared to 2012.

Comparative income sheet
The income statement gives the results of the operations of a business. The comparative income
statement gives an idea of the progress of a business over a period of time. The changes in
absolute data of money values & percentages can be determined to analysis the probability of the
business. Like, comparative balance sheet, income statement has also 4 columns. First two
columns give figure of various items for two years. 3 & 4th columns are used to show
increase/decrease in figures in absolute amounts and %’s respectively.
Table No 4.16
Comparative income statement for the period 2009-2010 and 2010-2011
Particulars 2009-2010 2010-2011 Increase/decrease Increase/decrease

in amount in %
Income
Interest on Loan 19444418 32489752 13045334 67.09
Penal On Loan 357215 362608 5393 1.50
Commission on 74583 75858 1275 1.70
NNS
Interest on 113454 60951 52503 46.27
Investment
Other Incomes 1249630 1842208 592576 47.42
Total 21239300 34831377 13592077 64.00
Expenses
Interest Paid On 13640569 25277542 11636973 85.32
Deposits
Staff 7791 3934 (3857) 49.50
Conveyance
Office 107193 74844 32349 30.17
Maintenance
Commission on 502177 678389 176212 35.09

NNS
Other Expenses 1925869 3711781 1785912 92.73
Profit 5055701 5084887 29186 0.58
Total 21239300 34831377 13592077 64.00
 The operating efficiency of the bank was satisfactory & favorable as compared to
2010.
 The operating incomes have increased 13592077 for the 2011. When compared to
2010.
 The operating expenses have also increased in the year 2011. When compared to
2010.
 The profit for the year 2011 has increased to 0.58%. When it is compared to 2010.
 Bank’s profit has increased but it is able to maintain the operating efficiency during
the year.
From the above analysis, the operating efficiency of the The Millennium Credit Co-operative
Society Ltd is quite satisfactory. More efforts should be taken to get better utilization of deposits
so that operating profit increase in the future coming year.

Table No 4.17

in amount in %
Income
Interest on Loan 32489752 39041225 6551473 20.17
Penal On Loan 362608 372309 9701 2.67
Commission on 75858 68077 (7781) 10.25
NNS
Interest on 60951 389995 329044 539.85
Investment
Other Incomes 1842208 1087735 (754473) 40.95
Total 34831377 40959341 6127964 17.60
Expenses
Interest Paid On 25277542 30110134 4832592 19.11
Deposits
Staff 3934 1584 2350 59.73
Conveyance
Office 74844 37930 (36914) 49.32
Maintenance
Commission on 678389 658403 19986 2.94
NNS
Other Expenses 3711781 4104055 392274 10.56
Profit 5084887 6047235 962348 18.92
Total 34831377 40959341 6127964 17.60

2011.
 The operating incomes have increased 6127964 for the year 2012. When compared
to 2011.
2011.
the year.
 Other incomes has decreased by 1087735 compared to last year 2011.the bank has to
concentrate on other activities as well.
From the above analysis, the operating efficiency of The Millennium Credit Co-operative
Society Ltd is satisfactory. More efforts should be taken to get better utilization of deposits so
that operating profit & net profit may increase in the future coming year.

Table No 4.18

in amount in %
Income
Interest on Loan 39041225 39858870 817645 2.09
Penal On Loan 372309 482840 110531 29.68
Commission on 68077 713 (67364) 98.95
NNS
Interest on 389995 446073 56078 14.37
Investment
Other Incomes 1087735 1844698 756963 69.59
Total 40959341 42633194 1673853 4.09
Expenses
Interest Paid On 30110134 29527373 (582761) 1.93
Deposits
Staff 1584 1110 (474) 29.92
Conveyance
Office 37930 90137 52207 137.64
Maintenance
Commission on 658403 630744 (27659) 4.20
NNS
Other Expenses 4104055 4733846 629791 15.34
Profit 6047235 7649984 1602749 26.50
Total 40959341 42633194 1673853 4.09

2012.
 The operating incomes have increased 1673853 for the year 2013. When compared
to 2012.
2012.
the year.
From the above analysis, the operating efficiency of the The Millennium Credit Co-operative
Society Ltd is satisfactory. More efforts should be taken to get better utilization of deposits so
that operating profit & net profit may increase in the future coming years.

Chapter 5
SUMMARY OF FINDING, CONCLUSION AND SUGGESTIONS
5.1 FINDINGS:
 Allocation of loans has been increased in 2012-2013, when compared to the financial
year 2010-11 & 2011-2012.
 Profit position is increased by the year comparing to year 2010-2011 and 2011-2012.
 The deposit position of the bank is increased in 2012-2013. When compared to 2010-
2011 and 2011-2012.
 The bank repeat loans when previous loans are refunded.
 Small enterprises are provided loans under business loan.
 Bank operates mostly to customers of middle class and lower middle class people.
 Bank lacks in ATM centre.
 Bank does not have online banking.
 The bank lacks in branches.
 The bank uses only Kannada in its most transactions.
 The bank operations are fluctuating year by year.
 The ban has stopped giving lic bond loans to customers and the staff.

5.2 CONCLUSION
The study has been conducted on “comparative study on loans and advances”. The Millennium
Credit Co-operative Society Ltd, Bangalore.
According to the objectives through the study As we know the population is been increasing day
by day the more and more people will not have employment opportunity due to this, the
interested people will come for the loans to start their own business, but the people who are in
middle class people they have the basic needs due to less income the middle class people will
come to take loans to fulfill their needs, the needs in the sense like house construction and for
vehicle. The bank also provides the loans for the staff who are working in the bank for less rate
of interest. The loans like, festival advance, staff vehicle loans, staff house building etc….
If an account holders wants they need to have the loan the bank will help the customers to have
huge amount for less rate of interest. If the customer’s performance / transaction are good in the
bank the banks will provide advances, over draft etc

5.3 SUGGESTIONS
 The profit position can be improved by reducing the interest rates on loans.
 The providing of loans must be increased so it will help raising the income.
 Online banking should be adopted so that customers can transact easily.
 The bank should provide loans on lic bonds. So that the bank can secure of lending and
make profit as well.
 The bank should include English and Hindi with Kannada which helps to different
communities. It helps to gain more customers.
 The bank has to open the branches throughout state and cities so that they meet needs
of all customers.
Bank has to introduce new loan schemes to encourage more and more different classes of people.

BIBLIOGRAPHY
 Authors
1- Adrian Buckley- Multinational Finance- Phi-Learning Pvt Ltd
2- Appannaiah Reddy- Financial Management- Himalaya
3- Eun.C.S/Resnic.B.G- International Financial Management- TMH
4- Khan M Y- Financial Services- Tata MGraw Hill
5- Maiya- A Textbook Of Financial Management- Himalaya
6- Narendra Singh- Advanced Financial Management- Himalaya
7- Vyuptakesh Sharan- Fundamentals Of Financial Management- Dorling
8- Sunil K Parameswaran- An Introduction To Money- New-Century
 Company Profile and Journals

 Finance Related News Papers
 Www.Rbi.Org
 Www.Google.Com

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Comparative Study On Loans and Advances At The Millennium Credit Co-Operative Society Ltd

1.1 Meaning of Loans and Advances:

Apoorva Institute of Management Studies, Bangalore. Page 1

1.2 Utility of Loans and Advances

1.3 Borrowing Rate and Lending Rate

Apoorva Institute of Management Studies, Bangalore. Page 2

1.4 Lending of Money by Bank

Apoorva Institute of Management Studies, Bangalore. Page 3

(a) Demand loan, and

(b) Term loan.

The repayment is generally made in suitable installments of a fixed amount.

Apoorva Institute of Management Studies, Bangalore. Page 4

Apoorva Institute of Management Studies, Bangalore. Page 5

 There is no necessity of providing security and documentation again and

Banks invest a good percentage of their funds in discounting bills of exchange.

1.5 Long-term and Short-term Loans

Apoorva Institute of Management Studies, Bangalore. Page 6

1.6 Nature and Security of Loans

Apoorva Institute of Management Studies, Bangalore. Page 7

 Tangible assets such as plant and machinery, motor-van, etc.

1.7 Procedure of granting Cash Credit, Overdraft and Discounting Bills

1. Filling up of loan application form

Apoorva Institute of Management Studies, Bangalore. Page 8

 Assets and liabilities

2. Submission of form along with relevant documents.

4. Executing the Agreement

5. Arrangement of Security for Loan

Apoorva Institute of Management Studies, Bangalore. Page 9

Procedure of Granting Loans and advances

1.8 STATUTORY & OTHER RESTRICTIONS ON LOANS & ADVANCES

 Advances to bank Directors

Apoorva Institute of Management Studies, Bangalore. Page 10

 ‘Loans & advances’ shall not include

 Loans & advances’ include, among others.

Apoorva Institute of Management Studies, Bangalore. Page 11

 Restriction on payment of commission to staff members including officers

 Restrictions on offering incentives on any banking products

Apoorva Institute of Management Studies, Bangalore. Page 12

1.9 The Advantages and Disadvantages of Loans

Apoorva Institute of Management Studies, Bangalore. Page 13

Here are some of the disadvantages of having loans:

Apoorva Institute of Management Studies, Bangalore. Page 14

1.10 Engaging Recovery Agents by banks

1.11 DEFINITION OF BANKING IN INDIA

1.12 DEFINITION OF COMMERCIAL BANK

Apoorva Institute of Management Studies, Bangalore. Page 15

1.13 FUNCTIONS OF COMMERCIAL BANKS

Apoorva Institute of Management Studies, Bangalore. Page 16

2. Giving Loans and advances

Apoorva Institute of Management Studies, Bangalore. Page 17

 Short Term Loans

 Discounting of Bills of Exchange

Apoorva Institute of Management Studies, Bangalore. Page 18

 Banks give reference for their customers.

 Banks advise their clients relating to investment decisions as specialist

 Bank does the under-writing of shares and debentures also.

 Banks issue letters of credit.

Apoorva Institute of Management Studies, Bangalore. Page 19

1.14 THE ROLE OF COMMERCIAL BANKS

1.15 TYPES OF LOANS GRANTED BY COMMERCIAL BANKS

Apoorva Institute of Management Studies, Bangalore. Page 20

Apoorva Institute of Management Studies, Bangalore. Page 21

2.1 STATEMENT OF THE PROBLEM