A

PROJECT REPORT
ON
“COMPARATIVE STUDY OF CREDIT APPRAISAL NORMS FOR HOME LOANS
OF IDBI BANK AND IT’S COMPETITORS”
”Submitted in partial fulfillment of the requirements for the award
of
The degree of
Master of Business Administration
Submitted to:
Punjab Technical University
Jalandhar
By:
Amit Ranjan
“Regd No”
9212400051
Under the guidance of
“Prof. S.S.Panda, Faculty of IIBS (Bangalore)”

#70, 2nd Main Road, 3rd Cross, Kanaka Nagar, Nagawara,

BANGALORE – 560 032
2009 – 11

DECLARATION

I hereby declared that this project titled “ Customer satisfaction at Shoppers’ stop
“ , is submitted to the Punjab Technical University as a partial requirement for the
award of Degree of Master of Business Administration, during the year 2009-
2011. It is the record of an original & independent study carried out by me, under
the able guidance and supervision of Prof. Satys sidaratha Panda faculty of
International Institute of Business Studies, Bangalore. This project report

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has not been submitted earlier by me or by anybody else for the award of any
other degree in any University in India or abroad.

Date : Signature
of the Student
Place :

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ACKNOWLEDGEMENT
The toughest of endeavors in this world is not possible without the support of a
helping hand which guides and motivates a person to take on any challenge head
on. Inputs from such helping hand are always like very essential because more
often or not certain mistakes which go unnoticed from our eyes. I AMIT RANJAN
express my thankfulness toward my faculty Prof.S.S,Panda for giving such a nice
opportunity to work something related to practical exposure of retail industry &
extending his untiring guidance to us, by constantly discussing the project matter
and helping us in clarifying our thinking in several pertinent issues and providing a
meaning full insight into the subject.

AMIT RANJAN
( )

EXECUTIVE SUMMARY
Introduction of research:
The Credit Apparaisal is a holistic exercise which starts from the time a prospective
borrower walks into the branch and culminates in credit delivery and monitoring
with the objective of ensuring and maintaining the quality of lending and managing

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credit risk.
The process of Credit Appraisal is multidimensional and includes- Management
Appraisal, Technical Appraisal, Commercial Appraisal, Financial Appraisal and
Economic Appraisal.
Management Appraisal has received lot of attention these days as it is one of the
long term factors affecting the business of the concern.
Technical Appraisal emphasizes on the technical feasibility of the venture and also
finds out the possible economic life period of the present technology.
Commercial Appraisal focuses on the commercial viability of the project .It tries to
find matters regarding demand in market, the acceptance of product in market. It
also focuses on the presence of other substitutes of the product in the market. It
also focuses on the multiple scope of the product.
Financial Appraisal is done to find out whether the promoter is having the capacity
to raise finance – both own equity and debt? What are the sources of margin? Will
the business generate sufficient funds to service the debt and other stakeholders?
Is the capital structure optimal?
Economic Appraisal examines level of cost/ benefit and IRR (Internal Rate of
Return).
The scope of credit structure is incomplete without examination of credit proposal.
Credit proposal has to be examined from the point of 6 C’s viz. Character,
Capacity, Capital, Condition, Collateral and Cash flow. The Credit Policy of IDBI has
undergone changes to cope with the environmental changes, tap the available
opportunities, achieve their commercial objective, fulfill social obligations and
adhere to mandatory directed lending norms. The credit policy consists of both
fund based credit exposure and non fund based credit exposure. The credit policy
is studied under – Coverage, Clientele, Marketing.
The bank has over the years designed and adopted the Best Practices Code. This in
effect represents the bank’s philosophy towards effective Corporate Governance.
IDBI has specialized type of lending known as Segmented Lending in which bank
has set within it specialised branches for focused lending to various segments. This
includes-

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Commercial and Personal Finance
Housing Finance
Housing and Personal Finance
SME Branches
Overseas Branches
Corporate and Banking Branches

This segmented approach is expected to provide both market and customer focus
for ensuring better business development, better development of expertise and
better customer satisfaction.
Bank has also set exposure norms which corresponds to the quantum of finance
been credited. These exposure norms are as per the RBI norms and also the bank’s
specific norms. Bank also observes Selective Credit Control with respect to
essential commodities like wheat, rice which would directly or indirectly defeat
purpose of the directive. This policy is exclusively for essential commodities so that
their prices remain same throughout the country. One of the important monitoring
aspects in the credit portfolio is the periodic review of advance accounts. The vital
decision to deploy the Bank’s resources should necessarily be based upon the
thorough assessment and evaluation of the needs of the borrower. For this, a
proper periodical review of any account is inevitable. Bank has introduced Fair
Lending Practices Code which helps the bank to provide professional, efficient,
courteous, diligent and speedy services in matter of lending. The Fair Practices
Code codifies the procedures to ensure clarity, transparency, timeliness and
responsiveness in Bank’s relationship with the borrower customers at all stages
like marketing, processing, sanctioning, monitoring and administration.
With the kind of transformation that is taking place in the banking industry and in
the country, it is imperative for us to be conscious of our earnings and asset
quality. Further, as profit is reward for risk bearing capacity, the spread available in
case of high quality assets are thin. With the ushering in an era of liberalization in
the economy, new opportunities are available and for a Bank of our size it is
important that we realize our market share through better understanding of these

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developments
Different loan schemes are available to meet different needs of customers .These
schemes can be categorized under
1) Retail loans: Includes Personal Loans, Housing Loans, Education Loans, Gold
Loan Scheme, and many more.
2) Agricultural loans: Includes Agriclinics and Agribusiness.
3) Schemes for SME
4) Schemes for Other Priority Sectors

Introduction of the organization:

IDBI Bank Ltd. is a Universal Bank with its operations driven by a cutting edge core
Banking IT platform. The Bank offers personalized banking and financial solutions
to its clients in the retail and corporate banking arena through its large network of
Branches and ATMs, spread across length and breadth of India. We have also set
up an overseas branch at Dubai and have plans to open representative offices in
various other parts of the Globe, for encasing emerging global opportunities. As on
March 31, 2011, the Bank had a network of 816 Branches and 1372 ATMs. The
Bank's total business, during Fy 2010-11, reached Rs. 3,37,584 Crore, Balance
sheet reached Rs. 2,53,377 Crore while it earned a net profit of Rs. 1650 Crore (up
by 60 %).
Our vision for the Bank is for it to be the trusted partner in progress, by leveraging
quality human capital and setting global standards of excellence, to build the most
valued financial conglomerate. Our experience of financial markets helps us to
effectively cope with challenges and capitalize on the emerging opportunities by
participating effectively in our country’s growth process. IDBI Bank Ltd. is today
one of India's largest commercial Banks. For over 40 years, IDBI Bank has essayed
a key nation-building role, first as the apex Development Financial Institution (DFI)
(July 1, 1964 to September 30, 2004) in the realm of industry and thereafter as a
full-service commercial Bank (October 1, 2004 onwards). As a DFI, the erstwhile
IDBI stretched its canvas beyond mere project financing to cover an array of
services that contributed towards balanced geographical spread of industries,

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development of identified backward areas, emergence of a new spirit of enterprise
and evolution of a deep and vibrant capital market. On October 1, 2004, the
erstwhile IDBI converted into a Banking company (as Industrial Development IDBI
Limited) to undertake the entire gamut of Banking activities while continuing to
play its secular DFI role. Post the mergers of the erstwhile IDBI Bank with its parent
company (IDBI Ltd.) on April 2, 2005 (appointed date: October 1, 2004) and the
subsequent merger of the erstwhile United Western Bank Ltd. with IDBI Bank on
October 3, 2006, the tech-savvy, new generation Bank with majority Government
shareholding today touches the lives of millions of Indians through an array of
corporate, retail, SME and Agri products and services.
Headquartered in Mumbai, IDBI Bank today rides on the back of a robust business
strategy, a highly competent and dedicated workforce and a state-of-the-art
information technology platform, to structure and deliver personalized and
innovative Banking services and customized financial solutions to its clients across
various delivery channels. As on March 31, 2010, IDBI Bank has a balance sheet of
Rs.2.34 lakh crore and business size (deposits plus advances) of Rs.3.06 lakh
crore. As an Universal Bank, IDBI Bank, besides its core Banking and project
finance domain, has an established presence in associated financial sector
businesses like Capital Market and Investment Banking, Home Finance, Primary
Dealership area and more recently, the Life Insurance Business. As a step towards
taking the organization on a accelerated growth path, the Bank has reorganized its
businesses around nine verticals out of which six customer verticals, each focusing
on distinct customer segments and three business verticals. Going forward, IDBI
Bank is strongly committed to work towards emerging as the 'Bank of choice' and
'the most valued financial conglomerate', besides generating wealth and value to
all its stakeholders.

Objectives of the study:

The main objective behind this assessment is:

➢ To study home loans schemes of various banks and financial institutions.

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➢ Make a comparative analysis of home loans schemes of IDBI with its
competitors in Bangaluru City(RT Nagar)

Methodology:
The research design was descriptive in nature. The primary data was collected by
survey using structured questionnaire. Secondary data was collected through the
internet. The population of study consists of customer of this segment of IDBI
Bank. Sample size was 100 and Sample area was RT Nagar Bangalore. Non-
probability judgment technique was followed.
Conclusion and recommendations:

Every Bank has its own Credit Structure as per their convenience and the norms
proposed by their Head Office. But this certainly does not mean that the basic
layout of the Credit Structure changes from Bank to Bank. There are certain rules
and regulations as set by RBI which is exemplary for every Bank to follow. The
Bank cannot deviate from the already set norms but certain margins can be added
or deducted by Bank as per their requirements. As already mentioned Credit
Structure is a very wide term which includes in itself several subparts. The first and
foremost part of Credit Structure is Credit Appraisal. Credit Appraisal is a holistic
approach which starts from the point a prospective borrower enters the Bank and
culminates at its taking credit facility. Lending is prime function of Bank which is
already mentioned in the starting pages of the report as ‘Dharma’ of Bank.
Investigation of a credit proposal is done from the point of the six C’s viz.
Character, Capacity, Condition, Collateral and Cash flow. There are various stages
of Credit Appraisal. A brief review of those stages is as follows:
1) Interview with proponent.
2) Adherence of the KYC Norms.
3) Verification of the documents.
4) Presanction inspection.

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5) Preparation of credit proposal.
6) Sanction of credit proposal.
7) Giving sanction letter to proponent.

Objectives of study
The main objective behind this assessment is:

➢ To study home loans schemes of competitors banks of IDBI Bank in Bangaluru

City(RT Nagar) .

➢ To suggest / recommend the IDBI important areas of loan schemes for

developing home loans more customer friendly and safe from banks point of
view.

Table of content

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Sr. Title Page
No
No.
1 Acknowledgement 3
2 Executive Summary 4-7
3 Objective 8
4 Introduction 11-21
5 Research Methodology 22-25
6 Literature Review 26
7 Company Profile 27-45

8 SWOT Analysis 36
9 Data interpretation and questionnaire 46-57
10 Findings 59 - 60
11 Recommendations 60-61
12 Conclusion 61-62
13 Bibliography 63

14 Annexure 64-71

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TABLE & GRAPH

TABLE/ GRAPH NO. PAGE NO.

1 Bar chart showing 50,55,57,58
response of customers
2 Pie chart showing 52,53,56,59
response of customers

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 CHAPTER – I
INTRODUCTION

BANK
A Bank is an institution whose debt (bank deposit) is widely accepted in settlement
of other people’s debt to each other. Bank is a business organization, which
accepts accepts money in the form of deposits for the purpose of lending and
investment. Bank repays it on demand or otherwise withdrawal by cheques, etc.
bank deals with money i.e. lending and borrowing of money. Through above
process bank generates profit. Bank advances money to individual as may be
required and to which individuals entrust money when not required by them for
use.

Commercial Banking

A commercial bank is a type of financial intermediary and a type of bank. It raises

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funds by collecting deposits from businesses and consumers via checkable
deposits, savings, deposits, and time deposits. It makes loans to businesses and
consumers. It also buys corporate bonds and government bonds. Its primary
liabilities are deposits and primary assets are loans and bonds. It is a business
organization, which deals in money, i.e., borrowing and lending of money. In this
borrowing, and lending of money it makes profit. The lending rate of interest is
higher than it pays to its depositors; it is because of this difference in lending and
borrowing rates of interest that it is able to make profits.
Functions of Commercial Banks
1) Acceptance of deposits
• Fixed Deposit Account
• Current Account
• Savings Bank Account
• Recurring Deposits
2) Advising of Loans: The various types of loan and advances are as follows

• Making Ordinary Loans

• Cash Credit
• Overdraft
• Discounting of Bills of Exchange
3) Investment of Funds
4) Purchase and Sale of Foreign Exchange
5) Creation of Credit
6) Fulfillment of Socioeconomic Objective
NATIONALIZED BANKS OF INDIA ARE:
1) State IDBI
2) IDBI
3) Punjab National Bank
4) Bank of Baroda
5) UCO Bank
6) Allahabad Bank

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7) Central IDBI
8) Syndicate Bank

PRIVATE SECTOR BANKS OF INDIA ARE:

1) Axis Bank
2) ICICI Bank
3) HDFC Bank
4) ING Vyasa Bank
5) HSBC Bank
6) IndusInd Bank
 ORGANISATION PROFILE
IDBI Bank (RELATIONSHIPS BEYOND BANKING)
IDBI was established on 7th September, 1906 by a group of eminent
businessmen from Mumbai. The Bank was private ownership and control till
July 1969 when it was nationalized along with 13 other Banks. Beginning with
one office in Mumbai with a paid up capital of Rs.50 Lackhs and 50
employees, the Bank has a made a rapid growth over the years and
blossomed into a mighty institution with a strong national presence and
sizable international operations. At present Net worth of the Bank surpasses
Rs.11100 crore. In business volume, the Bank occupies a premier position
among the nationalized Banks. The Bank has been the first among the
nationalized banks to establish a fully computerized branch and ATM facility
at Mahalaxmi Branch Mumbai way back in 1989.The Bank is a Founder
Member of SWIFT in India.The Bank came out with its maiden public issue in
1997. Total number of shareholders presently is more than 2.25 Lakhs. While
firmly adhering to a policy and prudence and caution the Bank has been in
the forefront of introducing various innovative services and systems.
Business has been conducted with the successful blend of traditional values
and ethics and the most modern infrastructure. The Bank has sizable
presence abroad, with a network of 29 branches spread in 15 countries. Bank

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 has a joint venture insurance company- Star Union Dai Ichi Life Insurance
Company Ltd. IDBIhas been selected as The Top Indian Company under the
‘Banks’ sector for the Dun And Bradstreet- Ralta Corporate Awards 2008.
Bank has won India’s Best PSU Bank by NDTV Business Leadership Awards
2008.
IDBI won The Top Public Sector Bank under Best Bank category and Overall
Best Bankin the Dun And Bradstreet Banking Awards 2009

HISTORY OF BANKING IN INDIA

Banking in India

Banking in India originated in the last decades of the 18th century. The first
banks were The General IDBI, which started in 1786, and Bank of Hindustan, which
started in 1790; both are now defunct. The oldest bank in existence in India is the
State IDBI, which originated in the Bank of Calcutta in June 1806, which almost
immediately became the Bank of Bengal. This was one of the three presidency
banks, the other two being the Bank of Bombay and the Bank of Madras, all three
of which were established under charters from the British East India Company. For
many years the Presidency banks acted as quasi-central banks, as did their
successors. The three banks merged in 1921 to form the Imperial IDBI, which, upon
India's independence, became the State IDBI.

Indian merchants in Calcutta established the Union Bank in 1839, but it failed in
1848 as a consequence of the economic crisis of 1848-49. The Allahabad Bank,
established in 1865 and still functioning today, is the oldest Joint Stock bank in
India.(Joint Stock Bank: A company that issues stock and requires shareholders
to be held liable for the company's debt) It was not the first though. That honor
belongs to the Bank of Upper India, which was established in 1863, and which
survived until 1913, when it failed, with some of its assets and liabilities being
transferred to the Alliance Bank of Simla.

When the American Civil War stopped the supply of cotton to Lancashire from the
Confederate States, promoters opened banks to finance trading in Indian cotton.

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With large exposure to speculative ventures, most of the banks opened in India
during that period failed. The depositors lost money and lost interest in keeping
deposits with banks. Subsequently, banking in India remained the exclusive
domain of Europeans for next several decades until the beginning of the 20th
century.

Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The
Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and another
in Bombay in 1862; branches in Madras and Puducherry, then a French colony,
followed. HSBC established itself in Bengal in 1869. Calcutta was the most active
trading port in India, mainly due to the trade of the British Empire, and so became
a banking center.

The first entirely Indian joint stock bank was the Oudh Commercial Bank,
established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National
Bank, established in Lahore in 1895, which has survived to the present and is now
one of the largest banks in India.

Around the turn of the 20th Century, the Indian economy was passing through a
relative period of stability. Around five decades had elapsed since the Indian
Mutiny, and the social, industrial and other infrastructure had improved. Indians
had established small banks, most of which served particular ethnic and religious
communities.

The presidency banks dominated banking in India but there were also some
exchange banks and a number of Indian joint stock banks. All these banks
operated in different segments of the economy. The exchange banks, mostly
owned by Europeans, concentrated on financing foreign trade. Indian joint stock
banks were generally under capitalized and lacked the experience and maturity to
compete with the presidency and exchange banks. This segmentation let Lord
Curzon to observe, "In respect of banking it seems we are behind the times. We
are like some old fashioned sailing ship, divided by solid wooden bulkheads into
separate and cumbersome compartments."

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The period between 1906 and 1911, saw the establishment of banks inspired by
the Swadeshi movement. The Swadeshi movement inspired local businessmen and
political figures to found banks of and for the Indian community. A number of
banks established then have survived to the present such as IDBI, Corporation
Bank, Indian Bank, Bank of Baroda, Canara Bank and Central IDBI.

The fervour of Swadeshi movement lead to establishing of many private banks in

Dakshina Kannada and Udupi district which were unified earlier and known by the
name South Canara ( South Kanara ) district. Four nationalised banks started in
this district and also a leading private sector bank. Hence undivided Dakshina
Kannada district is known as "Cradle of Indian Banking".

During the First World War (1914-1918) through the end of the Second World War
(1939-1945), and two years thereafter until the independence of India were
challenging for Indian banking. The years of the First World War were turbulent,
and it took its toll with banks simply collapsing despite the Indian economy gaining
indirect boost due to war-related economic activities. At least 94 banks in India

Years Number of banks Authorised capital Paid-up Capital

that failed (Rs. Lakhs) (Rs. Lakhs)

1913 12 274 35

1915 11 56 5

1916 13 231 4

1917 9 76 25

1918 7 209 1

failed between 1913 and 1918 as indicated in the following table:

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Post-Independence

The partition of India in 1947 adversely impacted the economies of Punjab and
West Bengal, paralyzing banking activities for months. India's independence
marked the end of a regime of the Laissez-faire for the Indian banking. The
Government of India initiated measures to play an active role in the economic life
of the nation, and the Industrial Policy Resolution adopted by the government in
1948 envisaged a mixed economy. This resulted into greater involvement of the
state in different segments of the economy including banking and finance. The
major steps to regulate banking included:

• The Reserve IDBI, India's central banking authority, was nationalized on

January 1, 1949 under the terms of the Reserve IDBI(Transfer to Public
Ownership) Act, 1948 (RBI, 2005b).[Reference www.rbi.org.in]

• In 1949, the Banking Regulation Act was enacted which empowered the
Reserve IDBI(RBI) "to regulate, control, and inspect the banks in India."

• The Banking Regulation Act also provided that no new bank or branch of an
existing bank could be opened without a license from the RBI, and no two
banks could have common directors.

Nationalisation

Despite the provisions, control and regulations of Reserve IDBI, banks in India
except the State IDBI or SBI, continued to be owned and operated by private
persons. By the 1960s, the Indian banking industry had become an important tool
to facilitate the development of the Indian economy. At the same time, it had
emerged as a large employer, and a debate had ensued about the nationalization
of the banking industry. Indira Gandhi, then Prime Minister of India, expressed the
intention of the Government of India in the annual conference of the All India
Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The
meeting received the paper with enthusiasm.

Thereafter, her move was swift and sudden. The Government of India issued an
ordinance and nationalised the 14 largest commercial banks with effect from the

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midnight of July 19, 1969. Jayaprakash Narayan, a national leader of India,
described the step as a "masterstroke of political sagacity." Within two weeks of
the issue of the ordinance, the Parliament passed the Banking Companies
(Acquisition and Transfer of Undertaking) Bill, and it received the presidential
approval on 9 August 1969.

A second dose of nationalization of 6 more commercial banks followed in 1980. The

stated reason for the nationalization was to give the government more control of
credit delivery. With the second dose of nationalization, the Government of India
controlled around 91% of the banking business of India. Later on, in the year 1993,
the government merged New IDBI with Punjab National Bank. It was the only
merger between nationalized banks and resulted in the reduction of the number of
nationalised banks from 20 to 19. After this, until the 1990s, the nationalised banks
grew at a pace of around 4%, closer to the average growth rate of the Indian
economy.

Liberalisation

In the early 1990s, the then Narasimha Rao government embarked on a policy of
liberalization, licensing a small number of private banks. These came to be known
as New Generation tech-savvy banks, and included Global Trust Bank (the first of
such new generation banks to be set up), which later amalgamated with Oriental
Bank of Commerce, Axis Bank (earlier as UTI Bank), ICICI Bank and HDFC Bank.
This move, along with the rapid growth in the economy of India, revitalized the
banking sector in India, which has seen rapid growth with strong contribution from
all the three sectors of banks, namely, government banks, private banks and
foreign banks.

The next stage for the Indian banking has been set up with the proposed relaxation
in the norms for Foreign Direct Investment, where all Foreign Investors in banks
may be given voting rights which could exceed the present cap of 10%,at present
it has gone up to 74% with some restrictions. The new policy shook the Banking
sector in India completely. Bankers, till this time, were used to the 4-6-4 method
(Borrow at 4%;Lend at 6%;Go home at 4) of functioning. The new wave ushered in
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a modern outlook and tech-savvy methods of working for traditional banks. All this
led to the retail boom in India. People not just demanded more from their banks
but also received more. Currently (2007), banking in India is generally fairly
mature in terms of supply, product range and reach-even though reach in rural
India still remains a challenge for the private sector and foreign banks. In terms of
quality of assets and capital adequacy, Indian banks are considered to have clean,
strong and transparent balance sheets relative to other banks in comparable
economies in its region. The Reserve IDBIis an autonomous body, with minimal
pressure from the government. The stated policy of the Bank on the Indian Rupee
is to manage volatility but without any fixed exchange rate-and this has mostly
been true. With the growth in the Indian economy expected to be strong for quite
some time-especially in its services sector-the demand for banking services,
especially retail banking, mortgages and investment services are expected to be
strong. One may also expect M&As, takeovers, and asset sales. In March 2006, the
Reserve IDBIallowed Warburg Pincus to increase its stake in Kotak Mahindra Bank
(a private sector bank) to 10%. This is the first time an investor has been allowed
to hold more than 5% in a private sector bank since the RBI announced norms in
2005 that any stake exceeding 5% in the private sector banks would need to be
vetted by them. In recent years critics have charged that the non-government
owned banks are too aggressive in their loan recovery efforts in connection with
housing, vehicle and personal loans. There are press reports that the banks' loan
recovery efforts have driven defaulting borrowers to suicide.

Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution
of financial assets over time, between the lender and the borrower.

In a loan, the borrower initially receives or borrows an amount of money, called the
principal, from the lender, and is obligated to pay back or repay an equal amount
of money to the lender at a later time. Typically, the money is paid back in regular
installments, or partial repayments; in an annuity, each installment is the same
amount.

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The loan is generally provided at a cost, referred to as interest on the debt, which
provides an incentive for the lender to engage in the loan. In a legal loan, each of
these obligations and restrictions is enforced by contract, which can also place the
borrower under additional restrictions known as loan covenants. Although this
article focuses on monetary loans, in practice any material object might be lent.

Acting as a provider of loans is one of the principal tasks for financial institutions.
For other institutions, issuing of debt contracts such as bonds is a typical source of
funding.

Types of loans

Secured

A secured loan is a loan in which the borrower pledges some asset (e.g. a car or
property) as collateral for the loan.

A subsidized loan is a loan that will not gain interest before you begin to pay it. It
is known to be used at multiple colleges.

An unsubsidized loan is a loan that gains interest the day of disbursement.

A mortgage loan is a very common type of debt instrument, used by many

individuals to purchase housing. In this arrangement, the money is used to
purchase the property. The financial institution, however, is given security — a lien
on the title to the house — until the mortgage is paid off in full. If the borrower
defaults on the loan, the bank would have the legal right to repossess the house
and sell it, to recover sums owing to it. In some instances, a loan taken out to
purchase a new or used car may be secured by the car, in much the same way as
a mortgage is secured by housing. The duration of the loan period is considerably
shorter — often corresponding to the useful life of the car. There are two types of
auto loans, direct and indirect. A direct auto loan is where a bank gives the loan
directly to a consumer. An indirect auto loan is where a car dealership acts as an
intermediary between the bank or financial institution and the consumer. A type of
loan especially used in limited partnership agreements is the recourse note. A
stock hedge loan is a special type of securities lending whereby the stock of a

21
borrower is hedged by the lender against loss, using options or other hedging
strategies to reduce lender risk A pre-settlement loan is a non-recourse debt, this
is when a monetary loan is given based on the merit and awardable amount in a
lawsuit case. Only certain types of lawsuit cases are eligible for a pre-settlement
loan. This is considered a secured non-recourse debt because if the case reaches a
verdict in favor of the defendant the loan is forgiven.

Unsecured

Unsecured loans are monetary loans that are not secured against the borrower's
assets. These may be available from financial institutions under many different
guises or marketing packages:

• credit card debt

• personal loans

• bank overdrafts

• credit facilities or lines of credit

• corporate bonds (may be secured or unsecured)

The interest rates applicable to these different forms may vary depending on the
lender and the borrower. These may or may not be regulated by law. In the United
Kingdom, when applied to individuals, these may come under the Consumer Credit
Act 1974.

Demand

Demand loans are short term loans (typically no more than 180 days) that are
atypical in that they do not have fixed dates for repayment and carry a floating
interest rate which varies according to the prime rate. They can be "called" for
repayment by the lending institution at any time. Demand loans may be unsecured
or secured.

Target markets

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Personal or commercial

Loans can also be subcategorized according to whether the debtor is an individual

person (consumer) or a business. Common personal loans include mortgage loans,
car loans, home equity lines of credit, credit cards, installment loans and payday
loans. The credit score of the borrower is a major component in and underwriting
and Interest rates (APR) of these loans. The monthly payments of personal loans
can be decreased by selecting longer payment terms, but overall interest paid
increases as well. For car loans in the U.S., the average term was about 60 months
in 2009.Loans to businesses are similar to the above, but also include commercial
mortgages and corporate bonds. Underwriting is not based upon credit score but
rather credit rating.

What is credit?
Credit is a sum of money that is made available for you to borrow.

People use credit for all sorts of reasons. Credit can help when making a large
purchase or if there is a sudden emergency. It can also provide protection if, in the
case of any Visa payment card purchases, you are unhappy with an item or if your
card has been used fraudulently.

There are two main types of credit:

• Fixed-repayment loans can be home loans, or mortgages, or personal or shop

loans that are linked to a specific item or items and calculated over a set period

• Revolving credit on payment cards can give you access to a fixed amount of
money that you can spend as you wish in a wide range of retailers and other
outlets.

Repaying credit

Fixed-repayment loans are normally repaid in regular instalments over an agreed

period of time. Mortgages can be repaid in variable instalments but most personal
loans specify fixed repayments of approximately equal amounts. If you want to
make another major purchase when you have finished paying off one loan, you
need to negotiate a new loan. Revolving credit means that you always have access

23
to the credit that remains unspent. And every time you pay off some of the
outstanding amount, that proportion of your credit limit becomes available for you
to spend again. For example, if you have a credit limit of €1,000, spend €300 and
repay €100, you will have €800 available to spend. Whichever type of loan you
choose, be certain to make your repayments on time to avoid facing financial
penalties.

Credit interest

In order to cover the lending risk, lenders generally charge interest on loans and
revolving credit. It is important to take interest into account when calculating your
repayments. For example, if you borrow €100 and interest is payable at an annual
rate of 10 per cent, the total cost is €110. This is known as simple interest and is
rarely charged on borrowings. It is more common for lenders to charge compound
interest, which means that interest is calculated on the amount you owe at regular
intervals.

In this case, if you owe INR 100 and are charged 10 per cent compound interest
each year, at the end of the first year you will owe €110. In the second year the
lender will charge 10 per cent of this sum and add it to the outstanding amount, so
you will owe €121, and so on. Interest may be compounded after any period – a
day, a week, a month and so on. With fixed-repayment loans, the amount of
interest is worked out in advance and added into the repayments. There is often a
penalty if you want to repay the outstanding amount earlier than agreed. With
revolving credit, you can repay as much or as little as you want, at any point. You
can often avoid paying any interest at all if you repay the total amount you have
borrowed on the date when the first repayment is due.

24
 CHAPTER – 2

RESEARCH METHODOLOGY

25
  Statement of the problem

While it is critical to be in sync with the overall business objectives of the

organization, it is also critical to be in tune with information requirements of users,
and the value they find in services provided by the Info Center. In order to be
perceived as integral assets to their organizations, most information professionals
are concerned with expanding their activities, and serving more customers better.
Building on a loyal customer or user base is the best and easiest way to grow your
business. Just as companies find it costs approximately five times more to acquire
new customers than it costs to keep a customer, Info Centers will find it most cost
effective to grow by building on the services now provided to loyal, committed
customers. To continue earning that customer loyalty, information professionals
must keep tabs on the satisfaction levels and perceptions of value held by Info
Center users. Strategies to develop new business should always be balanced by
strategies to retain existing business and ensure ongoing satisfaction of existing
customers. There are also real bottom-line reasons for measuring customer
satisfaction. Positive results from customer satisfaction studies will make a strong
statement in support of continued funding for Info Center activities.

 Need for studying credit apprisal

Customer satisfaction provides a leading indicator of consumer purchase intentions

and loyalty. Customer satisfaction data are among the most frequently collected
indicators of market perceptions.
There was a time when customers were less critical and vocal if not totally
satisfied when dealing with a business. This is not the case today.

26
Today, customers are becoming increasingly more demanding, less to learnt and
very critical when not having their expectations met.
There was a time when the choices available on where and who to deal with was
limited. The power belonged to the business owner, customers had nowhere else
to go and therefore customer satisfaction was not so important.
Today, customers have lots of choice on where and who to deal with. As a result
the power has now shifted to the customer. If they feel you can not satisfy their
expectations they will simply vote with their feet and deal with someone who will
satisfy their needs.

 Methodology

I. Primary source of data

• Personal interaction with customers

(Random interview)
• Structured questionnaire

II.Secondary source of data

 Websites of IDBI Bank
• www.scribd.com
• www.google .com
• Other finance related websites

27
 CHAPTER – 3
REVIEW OF LITERATURE

REVIEW OF LITERATURE
The Credit Policy of IDBI has undergone changes to cope with the environmental
changes, tap the available opportunities.
The Credit Apparaisal is a holistic exercise which starts from the time a prospective
borrower walks into the branch and culminates in credit delivery and monitoring
with the objective of ensuring and maintaining the quality of lending and managing
credit risk.
The process of Credit Appraisal is multidimensional and includes-
• Management Appraisal
• Technical Appraisal
• Commercial Appraisal
• Financial Appraisal and
• Economic Appraisal
Management Appraisal has received lot of attention these days as it is one of
the long term factors affecting the business of the concern.
Technical Appraisal emphasizes on the technical feasibility of the venture
and also finds out the possible economic life period of the present

28
technology.
Commercial Appraisal focuses on the commercial viability of the project .It
tries to find matters regarding demand in market, the acceptance of product
in market. It also focuses on the presence of other substitutes of the product
in the market. It also focuses on the multiple scope of the product.
Financial Appraisal is done to find out whether the promoter is having the
capacity to raise finance – both own equity and debt? What are the sources
of margin? Will the business generate sufficient funds to service the debt and
other stakeholders? Is the capital structure optimal?
Economic Appraisal examines level of cost/ benefit and IRR (Internal Rate of
Return).
The scope of credit structure is incomplete without examination of credit
proposal. Credit proposal has to be examined from the point of 6 C’s viz.
Character, Capacity, Capital, Condition, Collateral and Cashflow.

CHAPTER - 4
COMPANY PROFILE

29
30
Industry status & IDBI Bank’s interface
Industry introduction
The Indian Banking industry, which is governed by the Banking Regulation Act of
India, 1949 can be broadly classified into two major categories, non-scheduled
banks and scheduled banks. Scheduled banks comprise commercial banks and the
co-operative banks. In terms of ownership, commercial banks can be further
grouped into nationalized banks, the State IDBIand its group banks, regional rural
banks and private sector banks (the old/ new domestic and foreign). These banks
have over 67,000 branches spread across the country in every city and villages of
all nook and corners of the land.
The first phase of financial reforms resulted in the nationalization of 14 major
banks in 1969 and resulted in a shift from Class banking to Mass banking. This in
turn resulted in a significant growth in the geographical coverage of banks. Every
bank had to earmark a minimum percentage of their loan portfolio to sectors
identified as “priority sectors”. The manufacturing sector also grew during the
1970s in protected environs and the banking sector was a critical source. The next
wave of reforms saw the nationalization of 6 more commercial banks in 1980.
Since then the number of scheduled commercial banks increased four-fold and the
number of bank branches increased eight-fold. And that was not the limit of
growth. After the second phase of financial sector reforms and liberalization of the
sector in the early nineties, the Public Sector Banks (PSB) s found it extremely
difficult to compete with the new private sector banks and the foreign banks. The
new private sector banks first made their appearance after the guidelines
permitting them were issued in January 1993. Eight new private sector banks are
presently in operation. These banks due to their late start have access to state-of-
the-art technology, which in turn helps them to save on manpower costs.
During the year 2000, the State IDBI(SBI) and its 7 associates accounted for a 25
percent share in deposits and 28.1 percent share in credit. The 20 nationalized
banks accounted for 53.2 percent of the deposits and 47.5 percent of credit during

31
the same period. The share of foreign banks (numbering 42), regional rural banks
and other scheduled commercial banks accounted for 5.7 percent, 3.9 percent and
12.2 percent respectively in deposits and 8.41 percent, 3.14 percent and 12.85
percent respectively in credit during the year 2000.about the detail of the current
scenario we will go through the trends in modern economy of the country.
Current Scenario:
The industry is currently in a transition phase. On the one hand, the PSBs, which
are the mainstay of the Indian Banking system are in the process of shedding their
flab in terms of excessive manpower, excessive non Performing Assets (Npas) and
excessive governmental equity, while on the other hand the private sector banks
are consolidating themselves through mergers and acquisitions.
PSBs, which currently account for more than 78 percent of total banking industry
assets are saddled with NPAs (a mind-boggling Rs 830 billion in 2000), falling
revenues from traditional sources, lack of modern technology and a massive
workforce while the new private sector banks are forging ahead and rewriting the
traditional banking business model by way of theirsheer innovation and service.
The PSBs are of course currently working out challenging strategies even as 20
percent of their massive employee strength has dwindled in the wake of the
successful Voluntary Retirement Schemes (VRS) schemes.
The private players however cannot match the PSB’s great reach, great size and
access to low cost deposits. Therefore one of the means for them to combat the
PSBs has been through the merger and acquisition (M& A) route. Over the last two
years, the industry has witnessed several such instances. For instance, HDFC
Bank’s merger with Times Bank Icici Bank’s acquisition of ITC Classic, Anagram
Finance and Bank of Madurai. Centurion Bank, Indusind Bank, Bank of Punjab,
Vysya Bank are said to be on the lookout. The UTI bank- Global Trust Bank merger
however opened a pandora’s box and brought about the realization that all was
not well in the functioning of many of the private sector banks.
Private sector Banks have pioneered internet banking, phone banking, anywhere
banking, mobile banking, debit cards, Automatic Teller Machines (ATMs) and
combined various other services and integrated them into the mainstream banking

32
arena, while the PSBs are still grappling with disgruntled employees in the
aftermath of successful VRS schemes. Also, following India’s commitment to the W
To agreement in respect of the services sector, foreign banks, including both new
and the existing ones, have been permitted to open up to 12 branches a year with
effect from 1998-99 as against the earlier stipulation of 8 branches. Tasks of
government diluting their equity from 51 percent to 33 percent in November 2000
has also opened up a new opportunity for the takeover of even the PSBs. The FDI
rules being more rationalized in Q1FY02 may also pave the way for foreign banks
taking the M& A route to acquire willing Indian partners. Meanwhile the economic
and corporate sector slowdown has led to an increasing number of banks focusing
on the retail segment. Many of them are also entering the new vistas of Insurance.
Banks with their phenomenal reach and a regular interface with the retail investor
are the best placed to enter into the insurance sector. Banks in India have been
allowed to provide fee-based insurance services without risk participation, invest in
an insurance company for providing infrastructure and services support and set up
of a separate joint-venture insurance company with risk participation.
Aggregate Performance of the Banking Industry
Aggregate deposits of scheduled commercial banks increased at a compounded
annual average growth rate (Cagr) of 17.8 percent during 1969-99, while bank
credit expanded at a Cagr of 16.3 percent per annum. Banks’ investments in
government and other approved securities recorded a Cagr of 18.8 percent per
annum during the same period. In FY01 the economic slowdown resulted in a Gross
Domestic Product (GDP) growth of only 6.0 percent as against the previous year’s
6.4 percent. The WPI Index (a measure of inflation) increased by 7.1 percent as
against 3.3 percent in FY01. Similarly, money supply (M3) grew by around 16.2
percent as against 14.6 percent a year ago.The growth in aggregate deposits of
the scheduled commercial banks at 15.4 percent in FY01 percent was lower than
that of 19.3 percent in the previous year, while the growth in credit by SCBs
slowed down to 15.6 percent in FY01 against 23 percent a year ago. The industrial
slowdown also affected the earnings of listed banks. The net profits of 20 listed
banks dropped by 34.43 percent in the quarter ended March 2001. Net profits

33
grew by 40.75 percent in the first quarter of 2000-2001, but dropped to 4.56
percent in the fourth quarter of 2000-2001.On the Capital Adequacy Ratio (CAR)
front while most banks managed to fulfill the norms, it was a feat achieved with its
own share of difficulties. The CAR, which at present is 9.0 percent, is likely to be
hiked to 12.0 percent by the year 2004 based on the Basle Committee
recommendations. Any bank that wishes to grow its assets needs to also shore up
its capital at the same time so that its capital as a percentage of the risk-weighted
assets is maintained at the stipulated rate. While the IPO route was a much-fancied
one in the early ‘90s, the current scenario doesn’t look too attractive for bank
majors.
Consequently, banks have been forced to explore other avenues to shore up their
capital base. While some are wooing foreign partners to add to the capital others
are employing the M& A route. Many are also going in for right issues at prices
considerably lower than the market prices to woo the investors.
Interest Rate Scene
The two years, post the East Asian crises in 1997-98 saw a climb in the global
interest rates. It was only in the later half of FY01 that the US Fed cut interest
rates. India has however remained more or less insulated. The past 2 years in our
country was characterized by a mounting intention of the Reserve IDBI(RBI) to
steadily reduce interest rates resulting in a narrowing differential between global
and domestic rates. The RBI has been affecting bank rate and CRR cuts at regular
intervals to improve liquidity and reduce rates. The only exception was in July 2000
when the RBI increased the Cash Reserve Ratio (CRR) to stem the fall in the rupee
against the dollar. The steady fall in the interest rates resulted in squeezed
margins for the banks in general.
Governmental Policy:
After the first phase and second phase of financial reforms, in the 1980s
commercial banks began to function in a highly regulated environment, with
administered interest rate structure, quantitative restrictions on credit flows, high
reserve requirements and reservation of a significant proportion of lendable
resources for the priority and the government sectors. The restrictive regulatory

34
norms led to the credit rationing for the private sector and the interest rate
controls led to the unproductive use of credit and low levels of investment and
growth. The resultant ‘financial repression’ led to decline in productivity and
efficiency and erosion of profitability of the banking sector in general.
This was when the need to develop a sound commercial banking system was felt.
This was worked out mainly with the help of the recommendations of the
Committee on the Financial System (Chairman: Shri M. Narasimham), 1991. The
resultant financial sector reforms called for interest rate flexibility for banks,
reduction in reserve requirements, and a number of structural measures. Interest
rates have thus been steadily deregulated in the past few years with banks being
free to fix their Prime Lending Rates(PLRs) and deposit rates for most banking
products. Credit market reforms included introduction of new instruments of credit,
changes in the credit delivery system and integration of functional roles of diverse
players, such as, banks, financial institutions and non-banking financial companies
(Nbfcs). Domestic Private Sector Banks were allowed to be set up, PSBs were
allowed to access the markets to shore up their Cars. IDBI Bank Ltd. is a Universal
Bank with its operations driven by a cutting edge core Banking IT platform. The
Bank offers personalized banking and financial solutions to its clients in the retail
and corporate banking arena through its large network of Branches and ATMs,
spread across length and breadth of India. We have also set up an overseas branch
at Dubai and have plans to open representative offices in various other parts of the
Globe, for encasing emerging global opportunities. As on March 31, 2011, the Bank
had a network of 816 Branches and 1372 ATMs. The Bank's total business, during
Fy 2010-11, reached Rs. 3,37,584 Crore, Balance sheet reached Rs. 2,53,377 Crore
while it earned a net profit of Rs. 1650 Crore (up by 60 %). Our vision for the Bank
is for it to be the trusted partner in progress, by leveraging quality human capital
and setting global standards of excellence, to build the most valued financial
conglomerate. Our experience of financial markets helps us to effectively cope
with challenges and capitalize on the emerging opportunities by participating
effectively in our country’s growth process.

35
Profile of the Bank

IDBI bank: All about

The economic development of any country depends on the extent to which its
financial system efficiently and effectively mobilizes and allocates resources. There
are a number of banks and financial institutions that perform this function; one of
them is the development bank. Development banks are unique financial
institutions that perform the special task of fostering the development of a nation,
generally not undertaken by other banks.
Development banks are financial agencies that provide medium-and long-term
financial assistance and act as catalytic agents in promoting balanced
development of the country. They are engaged in promotion and development of
industry, agriculture, and other key sectors. They also provide development
services that can aid in the accelerated growth of an economy.

 The objectives of development banks are:

I. To serve as an agent of development in various sectors, viz. industry,
agriculture, and international trade
II. To accelerate the growth of the economy
III. To allocate resources to high priority areas
IV. To foster rapid industrialization, particularly in the private sector, so as to
provide employment opportunities as well as higher production
V. To develop entrepreneurial skills
VI. To promote the development of rural areas
VII. To finance housing, small scale industries, infrastructure, and social utilities.
In addition, they are assigned a special role in: Planning, promoting, and
developing industries to fill the gaps in industrial sector.
Coordinating the working of institutions engaged in financing, promoting or
developing industries, agriculture, or trade, rendering promotional services such as

36
discovering project ideas, undertaking feasibility studies, and providing technical,
financial, and managerial assistance for the implementation of projects
Industrial development IDBI
The industrial development IDBI was established in 1964 by parliament as wholly
owned subsidiary of reserve IDBI. In 1976, the bank’s ownership was transferred to
the government of India. It was accorded the status of principal financial institution
for coordinating the working of institutions at national and state levels engaged in
financing, promoting, and developing industries.
IDBI has provided assistance to development related projects and contributed to
building up substantial capacities in all major industries in India. IDBI has directly
or indirectly assisted all companies that are presently reckoned as major
corporates in the country. It has played a dominant role in balanced industrial
development. IDBI set up the small industries development IDBI(SIDBI) as wholly
owned subsidiary to cater to specific the needs of the small-scale sector. IDBI has
engineered the development of capital market through helping in setting up of the
securities exchange board of India(SEBI), National stock exchange of India
limited(NSE), credit analysis and research limited(CARE), stock holding corporation
of India limited(SHCIL), investor services of India limited(ISIL), national securities
depository limited(NSDL), and clearing corporation of India limited(CCIL) In 1992,
IDBI accessed the domestic retail debt market for the first time by issuing
innovative bonds known as the deep discount bonds. These new bonds became
highly popular with the Indian investor. In 1994, IDBI Act was amended to permit
public ownership up to 49 per cent. In July 1995, it raised over Rs 20 billion in its
first initial public (IPO) of equity, thereby reducing the government stake to 72.14
per cent. In June 2000, a part of government shareholding was converted to
preference capital. This capital was redeemed in March 2001, which led to a
reduction in government stake. The government stake currently is 51 per cent.In
august 2000, IDBI became the first all India financial institution to obtain ISO 9002:
1994 certification for its treasury operations. It also became the first organization
in the Indian financial sector to obtain ISO 9001:2000 certification for its forex
services.

37
 Milestones

 July 1964: Set up under an Act of Parliament as a wholly-owned subsidiary

of Reserve IDBI.

 February 1976: Ownership transferred to Government of India. Designated

Principal Financial Institution for co-coordinating the working of institutions at
national and State levels engaged in financing, promoting and developing
industry.

 March 1982: International Finance Division of IDBI transferred to Export-

Import IDBI, established as a wholly-owned corporation of Government of
India, under an Act of Parliament.

 April 1990: Set up Small Industries Development IDBI(SIDBI) under SIDBI

Act as a wholly-owned subsidiary to cater to specific needs of small-scale
sector. In terms of an amendment to SIDBI Act in September 2000, IDBI
divested 51% of its shareholding in SIDBI in favour of banks and other
institutions in the first phase. IDBI has subsequently divested 79.13% of its
stake in its erstwhile subsidiary to date.

 January 1992: Accessed domestic retail debt market for the first time with
innovative Deep Discount Bonds; registered path-breaking success.

 December 1993: Set up IDBI Capital Market Services Ltd. as a wholly-

owned subsidiary to offer a broad range of financial services, including Bond
Trading, Equity Broking, Client Asset Management and Depository Services.
IDBI Capital is currently a leading Primary Dealer in the country.

 September 1994: Set up IDBI Bank Ltd. in association with SIDBI as a

private sector commercial bank subsidiary, a sequel to RBI's policy of
opening up domestic banking sector to private participation as part of overall
financial sector reforms.

 October 1994: IDBI Act amended to permit public ownership upto 49%.

38
 July 1995: Made Initial Public Offer of Equity and raised over Rs.2000 crore,
thereby reducing Government stake to 72.14%.

 March 2000:Entered into a JV agreement with Principal Financial Group,

USA for participation in equity and management of IDBI Investment
Management Company Ltd., erstwhile a 100% subsidiary. IDBI divested its
entire shareholding in its asset management venture in March 2003 as part
of overall corporate strategy.

 March 2000: Set up IDBI Intech Ltd. as a wholly-owned subsidiary to

undertake IT-related activities.

 June 2000: A part of Government shareholding converted to preference

capital, since redeemed in March 2001; Government stake currently 58.47%.

 August 2000: Became the first All-India Financial Institution to obtain ISO
9002:1994 Certification for its treasury operations. Also became the first
organisation in Indian financial sector to obtain ISO 9001:2000 Certification
for its forex services.

 March 2001: Set up IDBI Trusteeship Services Ltd. to provide technology-

driven information and professional services to subscribers and issuers of
debentures.

 February 2002: Associated with select banks/institutions in setting up Asset

Reconstruction Company (India) Limited (ARCIL), which will be involved with
the Strategic management of non-performing and stressed assets of
Financial Institutions and Banks.

 September 2003: IDBI acquired the entire shareholding of Tata Finance

Limited in Tata Home finance Ltd, signalling IDBI's foray into the retail
finance sector. The housing finance subsidiary has since been renamed 'IDBI
Home finance Limited'.

 December 2003: On December 16, 2003, the Parliament approved The

Industrial Development Bank (Transfer of Undertaking and Repeal Bill) 2002
to repeal IDBI Act 1964. The President's assent for the same was obtained on

39
 December 30, 2003. The Repeal Act is aimed at bringing IDBI under the
Companies Act for investing it with the requisite operational flexibility to
undertake commercial banking business under the Banking Regulation Act
1949 in addition to the business carried on and transacted by it under the
IDBI Act, 1964.

 July 2004: The Industrial Development Bank (Transfer of Undertaking and

Repeal) Act 2003 came into force from July 2, 2004.

 July 2004: The Boards of IDBI and IDBI Bank Ltd. take in-principle decision
regarding merger of IDBI Bank Ltd. with proposed Industrial Development
IDBI Ltd. in their respective meetings on July 29, 2004.

 September 2004: The Trust Deed for Stressed Assets Stabilization Fund
(SASF) executed by its Trustees on September 24, 2004 and the first
meeting of the Trustees was held on September 27, 2004.

 September 2004: The new entity "Industrial Development IDBI" was

incorporated on September 27, 2004 and Certificate of commencement of
business was issued by the Registrar of Companies on September 28, 2004.

 September 2004:Notification issued by Ministry of Finance specifying SASF

as a financial institution under Section 2(h)(ii) of Recovery of Debts due to
Banks & Financial Institutions Act, 1993.

 September 2004:Notification issued by Ministry of Finance on September

29, 2004 for issue of non-interest bearing IDBI Special Security, 2024,
aggregating Rs.9000 crore, of 20-year tenure.

 September 2004: Notification for appointed day as October 1, 2004, issued

by Ministry of Finance on September 29, 2004.

 September 2004:RBI issues notification for inclusion of Industrial

Development IDBILtd. in Schedule II of RBI Act, 1934 on September 30, 2004.

 October 2004: Appointed day - October 01, 2004 - Transfer of undertaking

of IDBI to IDBI Ltd. IDBI Ltd. commences operations as a banking company.
IDBI Act, 1964 stands repealed.

40
 January 2005: The Board of Directors of IDBI Ltd., at its meeting held on
January 20, 2005, approved the Scheme of Amalgamation, envisaging merging
of IDBI Bank Ltd. with IDBI Ltd. Pursuant to the scheme approved by the Boards
of both the banks, IDBI Ltd. will issue 100 equity shares for 142 equity shares
held by shareholders in IDBI Bank Ltd. EGM has been convened on February 23,
2005 for seeking shareholder approval for the scheme.

 SUBSIDIARIES COMPANIES

IDBI Capital Market Services

A wholly owned subsidiary, commenced its

operations as Primary Dealer. The company
presently focuses on Bond trading, underwriting in
auctions of G-sec and T-bills.
IDBI Intech Ltd.

A wholly owned subsidiary, deals in the Information

Technology Services, Information Security Practice,
Knowledge Management Services, national contact center
and outbound contact center.
IDBI Home Finance
A wholly owned subsidiary, deals in the Home finance arena.
It was acquired in September 2003 from Tata HomeFinance
Ltd.

IDBI Asset Management

IDBI Asset Management Limited (AMC), the Asset
Management Company of IDBI Mutual Fund is a wholly-
owned subsidiary of IDBI Bank Ltd. Its mission is to
promote financial inclusion, by assisting the common man
in making informed investment choices, through mutual
funds. The trustee company for IDBI Mutual Fund is IDBI

41
MF Trustee Company.

IDBI Federal Life Insurance Company Ltd.

A joint venture with Federal Bank and Ageas, a multinational

insurance
giant based out of Europe. It primarily deals in Life
insurance space
SWOT ANALYSIS OF IDBI:

STRENGTHS:
Different options are available to cover the large segment of market by catching
the need of the ultimate customers. IDBI has always tried to provide the best of
the customer service and as a result the customers are pretty satisfied with the
services provided by the Bank.
The new staff which is being recently given emphasis would prove beneficial for
the Bank.

WEAKNESSES:
Employee point of view- Employee do not have individual identity in the outside
World. Officers need to have proof that they are employees of the Bank. Customer
point of view- Improvement is unrest, in such a cut throat competition Bank
should be in a position to improve the services towards its customers.

OPPORTUNITIES:
The headline inflation has fallen sharply and recent trends suggest that it may
move negative. The decline in inflation should support consumption demand and
reduce input costs for corporates.
Large number of sectors requires push in demand is infrastructure, IT, fertilizers,
iron and steel and hence require huge investments. They will generate forward
and backward linkages with other sectors and facilitate growth and further

42
investment. This would increase bank credit substantially.

THREATS:
Growth of quality assets, which are normally low yielding, would be tied up unless
commensurate cost-effective CASA deposits are mobilized. Internal failure cost
due to rapid migration of the employees to other Banks offering more exciting and
eye catching salary packages and benefits.
The inexperienced young staff generally works with a rapid pace. This may affect
the profit and the reputation of the Bank in the market.

CREDIT APPRAISAL
DEFINING CREDIT APPRAISAL
Credit appraisal is a holistic exercise which starts from the time a prospective
borrower walks into the branch and culminates in credit delivery and monitoring
with the objective of ensuring and maintaining the quality of lending and
managing credit risk within acceptable limits. Details of it will be given under
the title Credit Policy.
The appraisal would be different in respect of:
a) personal loans for consumer durables, houses etc ;
b) loans to tiny business enterprises ;
c) loans to agriculturists ; and,
d) Credit facilities to firms, corporate and others for business/trade/ industry.

DIMENSIONS OF CREDIT APPRAISAL:

I. MANAGEMENT APPRAISAL
A lot of attention has to be paid to this area, for this is one of the long term
factors affecting the business of the concern. Does the management have
enough experience in the line? What is its track record? What are the
antecedents? Introduced to us by whom? These are some of the questions that
need to be answered before we can take up any kind of exposure.

43
I. TECHNICAL APPRAISAL

what is the status of technology used? Has a prototype been developed of

the product? What could be the possible economic life period of the present
technology? Is the venture technology feasible?
Technical appraisal of the project needs to be carried out for industrial
activity proposals beyond the cut-off limits prescribed from time to time.
Where technical appraisal is carried out by All India Financial Institutions,
PSU Banks/other leading banks having expertise in the area and the same
may be accepted for an appraisal purpose, after subjected to vetting by
TAC/TAD.
Exemptions from fresh techno-economic appraisal shall be available in the
following categories:
a) Where appraisal has been carried out by all India Financial Institutions and
relevant portion of appraisal note made available for vetting of our TAD /
TAC.
b) Where appraisal has been carried out by leader of WC consortium and the
branch / sanctioning authority observing no serious differences with such
appraisal.
c) In case of AAA /AA rated accounts with other banks, where our bank
proposes to join the consortium and /or sanction limits under multiple
banking arrangement for the existing activity of the company/firm
d) In case of well conducted existing accounts with credit rating of AAA and
AA where only additional working capital limits are sought and diversification
of the project is not proposed
e) In case of well conducted existing accounts with credit rating of AAA and
AA term loan requirements up to Rs.10 crores, provided expansion is in the
same product line and without change in technology
III. COMMERCIAL APPRAISAL
The business has to be commercially viable for us to proceed further. Is there
enough demand in the market? Is the product accepted in the market? How

44
many substitute products are there? What about entry and exit barriers? Is
there scope for further growth?
The nature of the product, demand for the same, the existing and perceived
competition in the segment, ability of the proponents to withstand the same,
government policies governing the industry, etc. need to be taken into
consideration. The trade practices in respect of the product should be
thoroughly understood.
IV. FINANCIAL APPRAISAL
Does the promoter has the capacity to raise finance- both own equity and
debt? What are the sources of margin? Will the business generate sufficient
funds to service the debt and other stakeholders? Is the capital structure
optimal?
Thorough scrutiny of the financial aspects of the request needs to be carried
out. Apart from ascertaining the need based character of the limits
requested for, the financial health of the proponents, ability to absorb
unanticipated financial costs need to be looked into. Ascertaining the need
based character of the limits would include scrutiny of the cost of the project,
means of financing, financial projections etc. need to be within acceptable
parameters for that industries/ activities.
Where higher limits are considered, detailed analysis of the financial health
would be made and the following ratios computed:
i) Current ratio
ii) Total outside liabilities/equity ratio
iii) Profit before interest and taxes/interest ratio
iv) Profit before tax/Net sales ratio
v) Inventory + receivables/Sales ratio
vi) DSCR if the borrower enjoys any term loan with any bank/FI even if no TL
is being considered by our bank. Assessment of working capital credit
requirements hinges normally on the projected sales and other financial
figures. All the above ratios would be compiled for the past two/three years
including the latest audited balance sheet. As the ratios would vary from

45
 industry to industry, services, trade, etc. it is proposed not to stipulate any
particular benchmark for the above ratios. Besides the above factors, Bank
need to reckon the existence, if any, of negative factors that may adversely
affect the continued well being of a customer.

V. ECONOMIC APPRAISAL
What is the breakeven level? Will the business post positive net present
value through its economic life? What is the level of cost /benefit? What is
the Internal Rate of Return (IRR)? Will the cost of funding and operations be
well below the IRR?
As a prudent Banker the following areas need to be particularly looked into:

 STAGES OF CREDIT APPRAISAL

1.Interview with the proponent and ostentation of application on Bank’s

prescribed format.
2. Adherence of KYC norms stipulated by Reserve IDBI.
3. Ostentation and verification of documents/financial statements according
to type of credit facility required as per Bank’s norms
4. Inspection: Pre sanction Inspection is done by Bank’s Officials viz.
inspection of borrower’s residence, making inquiries from his area and
collect market reports, inspection of proposed principal and collateral
securities. In case of mortgage of property proposed, a search report is
obtained from Bank’s approved advocate for last 30 years regarding non-
encumbrance of the property, dues on the property, and genuineness of title,
peaceful possession and marketability of property. To ensure the market and
distress sale value of the property, Valuation report of the property is also
needed from Bank’s approved Architect.
5. Preparation of credit proposal: The credit proposal contains the complete
information about the proponent’s background, appraisal of financial &
managerial status, technical and economic viability of the activity and future
prospects. Financial analysis is exercised to justify the required financial

46
 assistance/ to arrive maximum permissible finance as per Bank’s norms. This
Financial analysis is done according to Bank’s/RBI norms for different kind of
facility/ies. In specified cases SWOT analysis (strength, weakness,
opportunity and threats) is also done for the proponent’s and Bank’s financial
safeguard. It is responsibility of the processing officer to mention all the facts
relating to proponent, his/their financials, security proposed and all the terms
and conditions.
6. Sanction of credit proposal: The sanctioning authority goes through the
credit proposal and it is his responsibility to ascertain the facts of the
proposal. If needed he himself make physical inspection and change/modify
the terms and conditions and finally give sanction within stipulated time
frame of the scheme.
7. A sanction letter is given to the proponent. The sanction letter contains
the type and size of facility and margin stipulated with all terms and
conditions including rate of interest and charges, Insurance of the proposed
security and periodicity of inspections etc. which is duly acknowledged by
the proponent/s.
8. If the proponent agrees the terms and conditions stipulated by the bank,
he/authorized persons have to execute the security documents before the
Bank’s authorized officer and finally the account is opened to disburse the
facility.
9. After disbursement post sanction inspections are carried out by the Bank’s
official from time to time (as stipulated per terms of sanction) to ascertain
the utilization of funds, for safeguard of the advance and Bank’s interest in
the security.

PROCESS OF CREDIT APPRAISAL

General
The process of credit appraisal would begin with the selection of the proponent. It
would involve appraising the background of the proponent/management,

47
commercial, technical and financial appraisal. Appraisal of credit facilities would
comprise two distinct segments:

- Appraising the acceptability of the customer.

- Assessment of the customer's credit needs.

 Both the aspects need to be examined simultaneously at the time of the initial
entry of a customer to the Bank as also subsequent periodic renewals.
The appraisal would be different in respect of:
a) personal loans for consumer durables, houses etc ;
b) loans to tiny business enterprises ;
c) loans to agriculturists ; and,
d) Credit facilities to firms, corporate and others for business/trade/ industry.

Background of the proponent/management

the identification of the borrower needs to be done properly through scrutiny of
his antecedents, experience, competence, integrity, initiative etc. This may be
done by obtaining status reports from previous bankers or meaningful
assessment of his dealings with bank. In case of corporates, the management
structure, the background of the top management, needs to be scrutinised.
Bank should be careful if the names of prospective borrowers/promoters appear
in the list of defaulters published by RBI/ ECGC etc or in any other list of
undesirable customers.

Wilful defaulters
In case of borrowers/promoters who have been identified as wilful defaulters by
banks and advised by RBI, there are certain penal provisions applicable.
Credit facilities may not be denied to any constituent merely on the ground that
their directors (Nominee of Professional) not connected with the day to day
management are appearing on the defaulters list of RBI. However, discrete
enquiries may be made about their existing status with the defaulting company.
Additionally, it should be ensured that directors of the borrowing company

48
should not have been disqualified due to provisions of Section 274(g) of
Companies Act.

Commercial appraisal
The nature of the product, demand for the same, the existing and perceived
competition in the segment, ability of the proponents to withstand the same,
government policies governing the industry, etc. need to be taken into
consideration.

Technical appraisal
Technical appraisal of the project needs to be carried out for industrial activity
proposals beyond the cut-off limits prescribed from time to time. Such appraisal
may be carried out in-house by officers having the technical expertise for the
same or by an outside agency as determined by the appropriate authority.
Where technical appraisal is carried out by All India Financial Institutions. PSU
Banks/other leading banks having expertise in the area and the same may be
accepted for an appraisal purpose Exemptions from fresh techno-economic
appraisal shall be available in the following categories :
a. Where appraisal has been carried out by all India Financial Institutions and
relevant portion of appraisal note made available for vetting of our TAD / TAC.

b. Where appraisal has been carried out by leader of WC consortium (in respect
of accounts where our Bank is to have only WC exposure) and the branch /
sanctioning authority observing no serious differences with such appraisal.

c. In case of AAA /AA rated accounts with other banks, where our bank proposes
to join the consortium and /or sanction limits under multiple banking
arrangement for the existing activity of the company/firm
Sanctioning authorities may however stipulate, if so desired, techno economic
appraisals for any specific reasons in the exempted categories also upon
recording such reasons

49
 Financial appraisal
Thorough scrutiny of the financial aspects of the request needs to be carried
out. Apart from ascertaining the need based character of the limits requested
for, the financial health of the proponents, ability to absorb unanticipated
financial costs need to be looked into. Ascertaining the need based character of
the limits would include scrutiny of the cost of the project, means of financing,
financial projections etc.
Where higher limits are considered, detailed analysis of the financial health
would be made and the following ratios computed:

 Current ratio

 Total outside liabilities/equity ratio

 Profit before interest and taxes/interest ratio

 Profit before tax/Net sales ratio

 Inventory + receivables/Sales ratio

 DSCR if the borrower enjoys any term loan with any bank/FI even if no TL is
being considered by our bank.
Appraisal of PSUs and Govt. Corporations
PSUs and Government Corporations are sought after targets for credit off take
because of their inherent strength like the skilled managerial and technical
manpower pool in their fold, their strategic locations, their knowledge of their
field of operation etc. However, it is generally seen that the latest financials are
not available since their Balance Sheets need the nod of the Parliament or
legislative assembly and are usually delayed by more than a year. In such
cases, provisional figures may be accepted in place of Audited Balance Sheet
for a period up to two years.

Information to be obtained from the borrowers

50
 Bank need to obtain all information necessary for a sound credit decision an
indicative check list of documents to be obtained is given in the annexure II. At
times some of the information required may not be forthcoming immediately
from some borrowers due to many factors. In such cases a view may be taken
without the said information and comments noted in the proposal.

 COMPARATIVE STUDY OF HOME LOAN PROCEESS OF IDBI BANK AND ITS

COMPITITORS

Home, sweet home, built out of your dreams. A place where you return after a
hard day's work and relax, a place where you share precious moments with your
family. A place that gives you a sense of belonging. IDBI Bank helps you realise
your long cherished dream of owning your home through hassle free and customer
friendly home loans. Presenting IDBI Bank's ultra flexible home loan you have been
looking for. We realise what owning your home means to you and your family. You
can avail of the Home Loans for constructing a home, purchasing a ready built
house / flat, residential plot and even for re-financing existing loans you may have
availed from other banks or housing finance companies.
Advantages of IDBI Bank Ultra Flexible Home Loans

 Maximum Funding

 Flexibility of choosing between Floating or Fixed interest rate

 Attractive rate of interest

 EMI on daily reducing balance

 Personalized doorstep service

 Simple documentation

51
  Legal and technical assistance

 Balance transfer facility

 Reassessment and adjustment of applicant's loan eligibility in case of change

of income and residence status

Features

• Tenor of a home loan can be up to 25 years for a resident individual whereas

for NRIs the maximum tenure is 15 years subject to maximum age of 60
years at maturity.

• Loan can be applied for a maximum of 90% of the property value subject to
credit discretion.

• Security for the loan is a first mortgage of the property to be financed,

normally by way of deposit of the title deeds or such collateral security as
may be necessary.

• Title to the property should be clear and free from encumbrance, i.e., without
any pending legal litigation adversely affecting the ownership of the
property.

• Other parameters considered include an account of your age, income,

number of dependents, financial stability and co-applicant’s income.

• Tax Benefits
• A maximum deduction of Rs. 1,50,000 on your income towards interest paid
on your home loans u/s 24

 A maximum deduction of Rs. 1,00,000 on the principal repaid u/s 80 CCE

SBI Home Loans

"THE MOST PREFERRED HOME LOAN PROVIDER" voted in AWAAZ Consumer
Awards along with the MOST PREFERRED BANK AWARD in a survey conducted
by TV 18 in association with AC Nielsen-ORG Marg in 21 cities across India.
SBI HOME LOANS now offers Interest Rates concessions on GREEN HOMES in
accordance with SBI's commitment to Environment protection.

52
 SBI Home Loans come to you on the solid foundation of trust and transparency
built in the tradition of State IDBI.
Best Practices followed in SBI mentioned below will tell you why it makes sense to
do business with State IDBI.

SBI Home Loans Unique Advantage

• Package of exclusive benefits.
• Low interest rates. Further, we charge interest on a daily reducing balance!!
• Low processing charges.
• No hidden costs or administrative charges.
• No prepayment penalties. Reduce your interest burden and optimally utilize
your surplus funds by prepaying the loan.

• Over 13,700 branches nationwide, you can get your Home Loan account
parked at a branch nearest to your present or proposed residence.

ICICI BANK HOME LOAN

As one of the leading home loan provider, ICICI Bank understands how special
building a new home is for you and our Home Loan help you lay the foundation for
your dream home.
ICICI offers you the most convenient home loan plans to suit your needs. With so
many attractive features in every type of home loan we offer, creating the home
you always wanted is no longer a distant dream. Some of our key benefits are:

•Guidance throughout the process

• Home loan amounts suited to your needs
• Home Loan tenure up to 20 years

53
• Simplified documentation
• Doorstep delivery of home loan papers
• Sanction approval without having selected a property.
• Free Personal Accident Insurance
• Insurance options for your home loan at attractive premium

Tools you can use

At ICICI Bank Home Loans, strive to assist you in every possible way at every step. Hence, for your convenience,
we have provided some useful tools below that will help you in deciding on your home loan.

Adjustable Rate Home Loan EMI calculator :

If you want to apply for an Adjustable Rate home loan, this tool will enable you to calculate your Equated Monthly
Installment (EMI ) if you know the loan amount you require, term for which you want to take the loan & the rate of
interest that is applicable. You can check the EMIs for different loan tenures to decide which would be most
suitable for you.

Fixed Rate Home Loan EMI calculator :

It can be used to calculate your EMI in case you wish to opt for a Fixed Rate home loan. The tool will allow you
to see the EMI for the loan amount you require.

The HDFC Home loan Advantages –

• Counseling and advisory services for acquiring a property

• Instant Home Loan Approval
• Widest range of home loan products & services like Home Loans, Home
Improvement Loans, Home Extension Loans, Loans to professionals for office or
clinic, Home Equity Loans (Loan against Property), Short Term Bridging Loan etc.
• Loan from any office for purchase of home anywhere in India
• Loan approval even before a property is selected
• Flexible loan repayment options like Step Up Repayment Facility, Flexible Loan
installments Plan, Tranche Based EMI, Accelerated Repayment Scheme
• Vast network of over 287 offices in India, offices in Singapore, London & Dubai and
franchises in the Gulf Cooperation Council (GCC) region. Most experienced and
empowered personnel to ensure smooth & easy processing

54
• Free & safe document storage
• Online loan application facility

CHAPTER 5
DATA INTERPRETATION

55
TECHNIQUES OF DATA COLLECTION :
Research Tools
We can obtain data either or through observation or through direct communication with respondents in
one form or another through personal interviews. This in other words means there are several methods
of collecting primary data. The methods I used in my research are:
• Interview Method
• Questionnaire Method

Interview Method
The interview method of the marketing and collecting data involves presentation of oral-verbal stimuli
and reply in terms of oral-verbal responses.
• Personal Interview: A personal interview is face to face communication with the respondents. The
interviewer gets in touch with the respondents, asks the questions, and records the answers obtained. It is
the interviewer’s responsibility to record the answers either during the interview or after the interview.
• Unstructured Direct Interview: The structured questions provide limited answers. Sometimes they give
only two alternatives, i.e., yes or no, and I want to know the reason for the fact and the phenomena.
Direct questions in this case rarely elicit useful answers diagnose the problems or find motive behind the
responses. To overcome these difficulties I adopted Unstructured and Direct Interview. I inquired to the
persons openly about the subject.

Questionnaire Method
Questionnaire was prepared keeping in mind the data to be collected and suitable instructions for filling
up the questionnaire were given. Questionnaire was filled by interview as well as by the respondents

56
themselves.

Questionnaire to the customer

Table1: Correlation between awareness of customers about IDBI bank & their
Age

NO. OF RESPONSE AGE

20 20-3O

25
30-40

30 40-50

25 60 above

57
Table:2 PERCEPTION OF IDBI AS A

TYPE OF BANK RESPONSES

PRIVATE 70
PUBLIC 5
PRIVATE/PUBLIC 10
DON'T KNOW 15

TABLE 3 : RATING OF CUSTOMERS FOR IDBI BANK AS A GOOD BANK

PARAMETER RESPONSES
EFFICIENCY 45%
INTERNET BANKING/ATMs 15%
PRODUCT RANGE 25%
NETWORK 5%

58
 PHONE BANKING 10%

4. Have you ever availed the credit facility of IDBI?

Yes [ 45 ]
No [ 55 ]

5. Who inspired you to avail the credit facility of IDBI?

Response No of customer
Family 59
Friends 31
Colleague 10

Response:
Family-59
Friends-31
Collegue- 10

59
 Question asked Customer response
Once 18
Twice 10
Never 72

6. How often you fialed to fulfill the credit requirements?

Customer’s Response No. of customer

Yes 18
No 48
Can’t say 34

7. Do you find the credit terms stringent of IDBI?

7. Do other banks have more lenient credit policy as compared to IDBI?

Customer’s Response No. of customers

yes 38
No 12

60
 Can’t say 50

8. Are you satisfied with the facility of the IDBI?

Customer’s Response No. of customers

yes 58
No 30
Can’t say 12

9. Do you
Response percentage look
yes 68% forward to
No 24% avail the
Never 8%
same credit
facility of the bank in your near future?

61
 CHAPTER – 6
SUMMARY OF FINDINGS,
CONCLUSION AND
RECOMENDATION
62
RESULTS AND FINDINGS
The Credit Apparaisal is a holistic exercise which starts from the time a
prospective borrower walks into the branch and culminates in credit delivery and
monitoring with the objective of ensuring and maintaining the quality of lending
and managing credit risk. All the efforts have been made to potray a close picture
of the approach of credit appraisal. The questionnaire and the interview taken
gives a clear indication of a general attitude of individuals towards the credit
undertaking and their knowledge regarding the terms and conditions of the Bank
before they take onto the credit.

A) Easy Mode Of Credit Payment:-

The study made showed that the Credit payment mechanism of the bank is
comparatively easier and that is the reason why a large number of people have
been attracted towards the bank for this purpose. Also the Bank has tie-ups with
different schools and colleges of Allahabad thus making it possible to have
maximum interaction with different people. These tie-ups have proved beneficial to
the bank as the people working in those colleges and schools prefer IDBI over
other banks.

B) Hassel Free Paper Work:-

Borrowers generally get confused when they see bundles of papers in a simple
credit taking process and this make them avoid the process. Bank has been trying
to made the credit payment as easier as possible and for this bank make it easier

63
for the common people to understand their terms which means less of paper work
for the borrower. Decreasing the amount of paper work has made the bank one of
the most sought after banks of the city.

D)Interest Rate As Per Defined Norms of RBI:-

RBI has defined certain norms and rate of interest for different types of loans.
Various banks don’t follow those norms and try to negotiate with the borrowers on
the interest rates. This makes the borrower infidel towards the bank. IDBI strictly
stick to the norms of RBI and hence there is no negotiation between the borrowers
and the bank. This activity gives the bank their loyal customers and feeling of
people as being cheated is eliminated.
E) Strict Evaluation Process:-
The Bank takes into consideration strict evolution process of the borrower’s
account to ascertain that the account should not turn into an NPA Account (Non
Performing Assets Account). The larger the number of NPA accounts, the more is
the loss of the Bank. For this purpose the Bank officials take a through study of the
financial statements of the borrowers and also the collateral securities are also
thoroughly checked.

F) Credit Payment Below BPLR:-

The Bank makes the credit payment below BPLR (Basic Prime Lending Rate) to
some where it finds that the borrower is in urgent need and that he or she has
been loyal to the Bank in the past. The basic criteria of the Bank states that the
borrower should have to have a good past record and that the borrower should
fulfill all the criteria of the credit process.
RECOMMENDATIONS
In spite of all the good factors and rating, still the discrepancies remain either in
the part of entire company or on the part of a particular office operating in the
state of the country. Similarly IDBI has some problem in which top management
should take corrective measures in order to become more effective and efficient in
its operation.

64
1. IDBI being a commercial bank should take into account its various other services
and customers. But the Bank has been stressing on its credit giving process only
which makes the Bank irresponsible towards its customers who are using its
deposit schemes and current schemes.
2. The speed of transaction is slower in IDBI which makes the bank loose its regural
customers. The bank should concentrate more on its regular customers to make a
better image in the minds of its customers.
3. The biggest loop hole in the bank is its recruitment process of its employees.
The Bank has large number of older age employees who are slower in their work
speed. This makes the work slower when it comes to services of the employees.
The employees are not working lot and usually a lot of pending work is kept. This
makes the working of the bank cumbersome.
4. The higher officials are generally very irresponsible towards their work and due
to this the lower staff is also in the habit of ignoring their work. The higher officials
should make sure that all the work should be done on time and they should try to
enthusiasm the lower staff and they should work cordially to make the work load
easier for their customers.
5. The bank has lost its large number of customers due to strict norms followed by
the bank in giving credit to its customers. The reason being borrowers try to scope
such stringent terms and conditions. This is the prime reason why the bank
frequently loses its customers as they find it appropriate to move to some other
bank following comparatively easier norms. The bank in this case should make its
policy a little easier for its customers to make them loyal customers of the Bank.

CONCLUSION
Every Bank has its own Credit Structure as per their convinence and the norms
proposed by their Head Office. But this certainly does not mean that the basic
layout of the Credit Structure changes from Bank to Bank. There are certain rules
and regulations as set by RBI which is exemplary for every Bank to follow. The
Bank cannot deviate from the already set norms but certain margins can be added

65
or deducted by Bank as per their requirements.
As already mentioned Credit Structure is a very wide term which includes in itself
several subparts. The first and foremost part of Credit Structure is Credit Appraisal.
Credit Appraisal is a holistic approach which starts from the point a prospective
borrower enters the Bank and culminates at its taking credit facility. Lending is
prime function of Bank which is already mentioned in the starting pages of the
report as ‘Dharma’ of Bank. Investigation of a credit proposal is done from the
point of the six C’s viz. Character, Capacity, Condition, Collateral and Cash flow.
There are various stages of Credit Appraisal. A brief review of those stages is as
follows:

1) Interview with proponent.

2) Adherence of the KYC Norms.
3) Verfication of the documents.
4) Presanction inspection.
5) Preparation of credit proposal.
6) Sanction of credit proposal.
7) Giving sanction letter to proponent.

The essential functions of a Bank are:

1) To accept deposits from the society.
2) To lend or invest same for earning profit.

Tranctions relating to these functions are invariably routed through the accounts
maintained by customers who may be individuals, joint account holders, HUF,
trusts, executors and administrators, agent, attorney, firms, clubs and
associations, Ltd. Companies. While establishing relationship with a customer, a
Bank has to ensure that prospective customer
1) Is legally capable of entering into a valid contract
2) Applied to Bank in proper form

66
The Bank imposes several restrictions in providing loans to Bank’s own Director
and his relatives.

Post liberalization years have been significant pressure on the Banks in India with a
few Banks repeatedly showing signs of distress. One of the primary reasons for this
has been lack of effective risk management system in Indian Banks. With the
increasingly competitive and volatile banking environment here to stay, a
comprehensive and integrated risk management system is now synonymous with
survival for Banks. A huge amount of risk is involved in distributing huge credits.
Risk is a scientific subject or rather an off-site supervision. The common sources
for major Credit Problems are:
1) Concentrations
2) Credit Process Issues
3) Market and Liquidity

Bank follows three steps of Risk Perception:

1) Identify
2) Quantify
3) Mitigate and Manage
Every Bank is required to have Risk Architecture. IDBI has Risk Evaluation
Committee.

Credit Risk is basically managed through policy guidelines laid down by corporate
office from time to time regarding acceptable types of risks, sectors of
investments, expected returns etc. and in return, operating units entertaining
credit propositions of worth considering nature within these over all broad
parameters.

The Fair Practices Code is summarized version of various guidelines already in

vogue with improvement wherever necessary in line with directives of RBI in this
regard. This would insure that the Bank acts in good faith and without negligence

67
in its dealings with the borrower clients since Bank has adopted the code and
purposes to advice borrower customer’s specific time limits and code of conduct.

With the advent of reforms and opening up of economy, competition has

intensified and customers have become cost conscious. The banking industry in
our country is presently going through intence competition and to improve the
earnings all Banks are vying with each other to garner profitable business. With
industrial activity still not picking up to the extent of available funds with the
banking industry, southward movement of interest rates on treasury securities,
Banks are aggressively poaching credit portfolios to other Banks whose Credit
Appraisal Systems are good. Migration of accounts from one Bank to another in
search of finer interest rates or the Banks wooing good customers from others
offering a freebie has become the order of the day.

CHAPTER-7
Bibliography and Annexure

Bibliography:

I. www.idbi.com

II. www.scribd.com

III.www.netmba.com

IV. www.google.com

Annexure:
68
Questionnaire
Q.1: Correlation between awareness of customers about IDBI bank & their Age
NO. OF RESPONSE AGE
25 20-25
46 25-30
34 30-35
23 35-40
21 40-45
22 45-50
24 50-60
55 60-ABOVE

TYPE OF BANK RESPONSES

PRIVATE 70
PUBLIC 5
PRIVATE/PUBLIC 10
DON'T KNOW 15

Q.2: : PERCEPTION OF CUSTOMER IDBI AS A BANK

Q.3:
RATING Q.3. RESPONSE OF CUSTOMERS FOR IDBI BANK AS A GOOD BANK
PARAMETER RESPONSES
EFFICIENCY 75%
INTERNET BANKING/ATMs 25%
PRODUCT RANGE 95%
NETWORK 33%
PHONE BANKING 22%

4. Have you ever availed the credit facility of IDBI?

69
ANS.
Yes [ 45 ]
No [ 55 ]

70
5. Who inspired you to avail the credit facility of IDBI?
Response No of customer
Family 59
Friends 31
Colleague 10

6. How often you failed to fulfill the credit requirements?

Question asked Customer response

Once 18

Twice 10

Never 72

7. Do other banks have more lenient credit policy as compared to IDBI?

Customer’s Response No. of customers

yes 38

No 12

Can’t say 50

8. Are you satisfied with the facility of the IDBI?

71
 Customer’s Response No. of customers

Yes 58
No 30
Can’t say 12

9. Do you look forward to avail the same credit facility of the bank in your near future?
Response Percentage

Yes 68%

No 24%

Never 8%

72
FINANCIALS RESULT MARCH 2011

Highlights of FY11 financial results (FY11 Vs FY10)

• Operating profit up 52.5% to Rs. 4158 Crore during FY11

• Net profit up 60% to Rs. 1650 Crore during FY11

• Fee based income grew by 22.8% to Rs. 1762 Crore (previous

year Rs. 1435 Crore)

• NII grew by 91.9% to Rs. 4329 Crore (previous year Rs. 2256
Crore)

• Business increased to Rs. 3,37,584 Crore (previous year Rs.

3,05,869 Crore)

• Deposits increased to Rs. 1,80,486 Crore (previous year Rs.

1,67,667 Crore)

• Advances increased to Rs. 1,57,098 Crore (previous year Rs.

1,38,202 Crore)

• Total assets grew to Rs. 2,53,377 Crore (Previous year Rs.

2,33,572 Crore)

• Dividend proposed to be increased to 35% compared to 30% in

the previous year

Mumbai, April 19, 2011: The Board of Directors of IDBI Bank Ltd.
(IDBI) met in Mumbai today to consider the audited financial results for
the year ended March 31, 2011, which are as under :

Working results:
73
FY
Q4 FY 200