(298048505) 148308699-Credit-Appraisal-of-TJSB-Bank

8/12/2019 (298048505) 148308699-Credit-Appraisal-of-TJSB-Bank

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GENESIS OF THE PROJECT

The project is on Credit Appraisal Process of TJSB Bank. Credit Appraisal is an

important activity carried out by the Special Credit Cell department of the bank which

determines whether to accept or reject the proposal for finance. t means an

investi!ation or assessment done by the bank before providin! any "oans and Advances

or Project finance and also checks the commercial# financial and technical viability of

the project proposed# its fundin! patterns and further check the primary and collateral

security cover available of recovery of such funds.

t is the process of appraisin! the credit worthiness of a "oan applicant. $actors like

a!e# income# number of dependents# nature of employment# continuity of employment#

repayment capacity# previous "oans# credit cards# etc. are taken into account whileappraisin! the credit worthiness of a person.

Proper assessment of credit risk is important as it helps in establishin! credit limits. n

assessin! credit risks the % Cs of credit are crucial & relevant to all borrowers' lendin!#

which must be kept in mind# at all times.

Character: The willin!ness of the customer to honor his obli!ations. t reflects

inte!rity# a moral attribute that is considered very important by credit mana!ers.Capacity: The ability of the customers to meet credit obli!ations from the operatin!

cash flows.

Capital: The financial reserves of the customers. f the customer has problems in

meetin! credit obli!ations from operatin! cash flow# the focus shifts to its capital.


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Collateral: The security offered by the customer in the form of pled!ed assets.

Conditions: The !eneral economic conditions that affect the customers.

To !et information on the five Cs a $irm may rely on the $inancial Statements# Bank

(eferences# )*perience of the firm and Prices and yields on Securities.

+


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!C%GRO&N' OF THE !N%ING SECTOR

'EFINITION OF !N%

The word bank has ori!inated from )n!lish word Banco# Bancus or Ban4ue. ts

meanin! is bench or table. n )urope in the middle a!e# the money transactions were

undertaken sittin! on a bench.

" (er Indian !an)ing ct# 5A service to accept deposits from people with the

intention to invest or lend with the condition of returnin! it immediately whenever

demanded at any predetermined time. An institute this service is Bank6

Bankin! is a service helpful to the business# its function is to borrow money from

people and further lend the same. 2hile analy7in! definition of bank as per ndian

Bankin! Act# below mentioned matters are clarified,

8+9 Bank accepts monetary deposits from people.

8-9 The intention behind acceptin! these deposits is to invest or lend the respective fund.

89 The function of acceptin! deposit or lendin! money is made under the condition that on

demand or as predetermined otherwise the same amount has to be refunded

immediately.

8/9 The institution doin! this type of business is called bank.

The bankin! sector is dominated by Scheduled Commercial Banks 8SBCs9. As at end

:arch -;;-# there were -


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A minimum stipulated Capital Ade4uacy (atio 8CA(9 was introduced to stren!then the

ability of banks to absorb losses and the ratio has subse4uently been raised from > to

.

(etail Bankin! is the new mantra in the bankin! sector. The home "oans alone account

for nearly two1third of the total retail portfolio of the bank. Accordin! to one estimate# the

retail se!ment is e*pected to !row at ;1/;> in the comin! years.

et bankin!# phone bankin!# mobile bankin!# AT:s and bill payments are the new bu77

words that banks are usin! to lure customers.

2ith a view to provide an institutional mechanism for sharin! of information on

borrowers ' potential borrowers by banks and $inancial nstitutions# the Credit

nformation Bureau 8ndia9 "td. 8CB"9 was set up in Au!ust -;;;. The Bureau

provides a framework for collectin!# processin! and sharin! credit information on

borrowers of credit institutions. SB and ?$C are the promoters of the CB".

The (B is now plannin! to transfer of its stakes in the SB# ?B and ational bank for

A!ricultural and (ural evelopment to the private players. Also# the 3overnment has

sou!ht to lower its holdin! in PSBs to a minimum of > of total capital by allowin!

them to raise capital from the market. Banks are free to ac4uire shares# convertible

debentures of corporate and units of e4uity oriented mutual funds# subject to a ceilin! of

%> of the total outstandin! advances 8includin! commercial paper9 as on

:arch + of the previous year.

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CLSSIFICTION OF !N%S:

The ndian bankin! industry# which is !overned by the Bankin! (e!ulation Act of ndia

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+out Co#o(erati,e !an)

A Co1operative bank is financial entities which belon!s to its members# who are at the

same time the owners and customers of their bank. Co1operative banks are often

created by persons belon!in! to the same local or professional community or sharin! a

common interest. Co1operative banks !enerally provide their members with wide ran!e of

financial and bankin! services. 8loans# deposits# bankin! accounts etc9.

Co1operative bank differ from stockholder banks by their or!ani7ation# their !oals# their

values and their !overnance. n most countries# they are supervised and controlled by

bankin! authorities and have to respect prudential bankin! re!ulations# which put them at

a level playin! field with stockholder banks. ependin! on countries# this control and

supervision can be implemented directly by state entities or dele!ated to a co1operative

federation or central body. Co1operative bankin! is retail and commercial bankin!

or!ani7ed on a co1operative basis.

Co1operative bankin! institutions take deposits and lend money in most part of the world.

Co1operative bankin! institutions take deposits and lend money in most parts of the

world. t includes retail bankin!# as carried out by credit unions# mutual savin!s and loan

associations# buildin! societies and co1operatives# as well as commercial bankin! services

provided by mutual or!ani7ations to co1operative businesses.

The structure of commercial bankin! is of branch Ebankin! type # while the co1

operative bankin! structure is a tier federal one .

1 A state Co1operative bank works at the ape* level 8 i.e. .works at state level 9

1 The central Co1operative bank works at the intermediate level. 8i.e.istrict Co1

operative banks ltd. works at district level 9

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INTRO'&CTION OF TJS! !N%

Since +


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!u"ine"" Proce"" Re#engineering:

2ith the help of Core Bankin! Solution TJSB has initiated Business Process (e1

en!ineerin! by establishin!,

H Speciali7ed Credit Cell

H Speciali7ed (etail Bankin! Cell

H Centrali7ed :onitorin! Cell

H Centrali7ed Back office Processin! Cell

H )1lobby

!anca""urance:

TJSB act as an a!ent for :a* ew Iork "ife nsurance Company "td for life insurance

product and with The riental nsurance Company "td for !eneral nsurance.

!u"ine"" E.(an"ion Plan:

(eco!ni7in! opportunity# TJSB has done its e*pansion throu!h :er!er and Takeover of

the other Banks. t has recently ac4uired two Pune based Co1operative Banks namely The

avjeevan a!rik Sahakari Bank "td and The Sad!uru Jun!li :aharaj Sahakari Bank

"td.

Re/ard" and Recognition :

TJSB was awarded as T)C?"3I BAF $ T?) I)A( in the Co1operative

Bank Cate!ory for $inancial Iear -;;


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Organi"ation Structure #TJS!

BA(

C) C3:

3:

3: 3:

8Credit# Audit# ?(9 8T9

3:

$ore* Accounts PC(

A3:

(ecovery Credit SCC Audit & Admin TGi!ilance

:ana!ers

fficers


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O!JECTIVES N' SCOPE OF THE PROJECT

O+0ecti,e" and "co(e:

? To study the credit appraisal system in banks.

? To understand the commercial# financial & technical viability of the proposal proposed

and it s findin! pattern.

? To study the various funded and non1funded credit facilities offered by the bank

Scope of my project is to know the Credit Appraisal in Co1operative Bank. 2hat are the

parameters and risk factors are taken into consideration in Credit process. ?ow

Speciali7e Credit Cell 8SCC9 works.

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RESERCH 1ETHO'OLOG2

+. escriptive (esearch,

TJSB Bank sanctions the limits after proper appraisal of the !enuine workin! capital

re4uirements of the borrowers keepin! in mind their business cycle and short term

credit re4uirement. (elationship between Credit score and (atios helps us to know

whether bank has taken viable decision before !rantin! loans.

-. Samplin!,

As no Primary data was collected# the whole conclusion was made on the basis of

Secondary data. o Samplin! is done.

. ata Analysis,

ata Analysis is done by usin! Correlation analysis. n Correlation it e*plains the

relationship between the (atin! and (atios. (atin! is the total score obtained by each

customer based on the various financial parameters. t covers financial risk# Business

(isk# :ana!ement (isk and ndustry risk. ifferent (atios are taken in consideration

such as# Current (atio# Collateral Covera!e# Cash Accruals and T"1L)'T2ML).

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Literature re,ie/

"iterature review provides available research with respect to the selected topic of the

projector research findin!s by an author which has been done with respect to the

research to research topic. This chapter provides the overall view of the available

literature with respect to the topic of the project. The review of the related research

works are described as under,1

+. A researcher 1ac-i)o Ni""an)e3 Erne"t r*eete* in their book, Financial

Integration and Development e*plained about the loan administration and risk

reduction by formal lenders8i.e. banks9# Credit Analysis Standards# ncrease Project

e4uity re4uirements# "oan screenin! of banks and assessin! creditworthiness durin!

screenin!. Banks consider return on project as an important indicator for appraisin! the

projects

-. A research was conducted by 1r4 V414V4 Su+-a Rao# on 5Monitoring of Advances - A

New look. The research !ave two views on the commencement of monitorin! process1

8i9arrow view1 the monitorin! starts only after the advance is disbursed# 8ii9Broad

view1 at the time of conductin! credit investi!ation of the borrower continue in all other

sta!es of credit cycle.

. 1ritun0a* %umar Pande* conducted a study on Financial erformance Appraisal of

!I"C#. The bjectives of the study was to check the profitability and efficiency of the

firm in the near future# to !ive brief summery about the ratios which affect the

or!ani7ation s financial structure and to point out the relationship between ratios and

reasons behind it.

/. Eleanor C-arle" in his paper 5Appraising the $ole of the Appraiser# talked about the

centrali7ed function of the appraiser to !rant the loan and virtually every loan applicant

will have to rely on an appraisal to set a value on the property a!ainst which the loan is

to be made.

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TJS! !N% 5 CRE'IT RTING OF S1E6"

+out S1E"

n ndia# small and medium enterprise 8S:)9 is a !eneric term used to describe small

scale industrial 8SS9 units and medium1scale industrial units. Any industrial unit with a

total investment in its fi*ed assets or leased assets or hire1purchase asset up to (s+;

million is considered as a SS unit and investment up to (s. +;; million is considered as

a medium unit. n addition# an SS unit should neither be a subsidiary of any other

industrial unit nor can it be owned or controlled by any other industrial unit.

The S:) sector produces a wide ran!e of industrial products such as food products#

bevera!e# tobacco and tobacco products# cotton te*tiles# wool# silk# synthetic products#

jute# hemp & jute products# wood & wood products# furniture and fi*tures# paper & paper

products# printin! publishin! and allied industries# machinery# machines# apparatus#

appliances and electrical machinery. S:) sector also has a lar!e number of service

industries.

TJS! !an) Ser,ice" to S1E"

TJSB Bank has special focus for e*tendin! credit facilities to Small and :edium Si7e

)nterprises. Bank has customi7ed solutions for Small Business )nterprises# Small Scale

ndustries and :edium Scale ndustries. Credit $acilities are offered in the nature of

Term "oans for establishment of new industries# ac4uisition of machineries# technolo!y

up1!radation# or e*ecution of ad1hoc orders or for e*pansion# moderni7ation or

diversification pro!rams. $inance offered will be in the form of $und base as well as non

fund base facilities as per the re4uirements of the Business. 2orkin! Capital Term "oan

re4uests are considered for viable small and medium si7e enterprises re4uirin!

infusion of fresh funds by way of one time core workin! capital assistance.

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Product":

? )stablishment N moderni7ation Nup1!radation of $i*ed Assets, Bank provide property

loans to S:) for purchase of factory premises &moderni7ation of e*istin! factory

buildin!. They also offer hypothecation loans to S:) s for purchase ' import of

machinery

? Settin! up ffice# (enovation of the premises: Bank offer property loans to S:) to set1

up the business office & branch office for the e*pansion of business plans. They also

offer term loans to renovate e*istin! office premises.

? Purchase of commercial vehicles, Bank offer hypothecation loan to the transport

operators to purchase new commercial vehicles such as Buses# Trucks# Tempo# etc.

? 2orkin! Capital "imits, Bank offer credit facility in the form of Cash Credit limit#

2orkin! capital term loan to the S:) s a!ainst the hypothecation of stock & Book

ebts. t helps to meet workin! capital re4uirement and Short term financial need.

? Project $inance: Bank offer project finance loans to technically 4ualified# trained and

e*perienced )ntrepreneurs to e*ecute the presti!ious orders in hand.

? )*port $inance:

? Pre#"-i(ment Credit

Pre1shipment Credit facility is offered to an e*porter by way of packin! credit to enable

him to purchase'import of raw materials# processin! and packin! of the !oods meant for

e*port order.

? Po"t 5"-i(ment credit

Post1shipment Credit facility is offered to an e*porter to finance e*port bills receivables

after the date of shipment of !oods till the date of realisation of e*port proceeds on

submission of documents.

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? Fund !a"e:

? Wor)ing ca(ital

$unds re4uired for day to1day workin! will be to finance production & sales. $or

production# funds are needed for purchase of raw materials' stores' fuel# for

employment of labour# for power char!es etc. financin! the sales by way of sundry

debtors' receivables.

Capital or funds re4uired for an industry can therefore be bifurcated as fi*ed capital &

workin! capital. 2orkin! capital in this conte*t is the e*cess of current assets over current

liabilities. The e*cess of current assets over current liabilities is treated as net# for storin!

finishin! !oods till they are sold out & for workin! capital or li4uid surplus

& represents that portion of the workin! capital# which has been provided from the lon!1

Term source.

? Term Loan

A Term "oan is !ranted for a fi*ed Term of years to = years intended normally for

financin! fi*ed assets ac4uired with a repayment schedule normally not e*ceedin!

years.

A Term "oan is a "oan !ranted for the purpose of capital assets# such as purchase of land#

construction of# buildin!s# purchase of machinery# moderni7ation# renovation or

rationali7ation of plant# & repayable from out of the future earnin! of the enterprise# in

installments# as per a prearran!ed schedule.

?Non#$und !a"e:

!an) Guarantee Limit" 7 Letter o$ Credit limit:

Bank offer to issue various types of !uarantees such as performance# financial# bid bond#

tenders# customs etc & we have tie1up with ationalised Banks also to issue B3. They

also issue inland letter of credit facility to our customers to purchase raw material#

machinery etc. They also have tie1up with ationalised Banks to issue forei!n letter of

credit to import machinery# raw material etc.

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)li!ibility,

H ndividuals'Partnership $irms'Companies.

H )*perience '4ualification in the proposal line of activity.

.

"oan Amount,

H Cash credit limit# Property loan & ?ypothecation loan will be assessed accordin! to

the project re4uirement.

(ate of interest,

H Bank s P"( is +.%; > p.a. & Bank offer attractive rate of interest to S:) s

based on their credit ratin!s.

Security,

H ?ypothecation of Asset financed

H :ort!a!e of immovable property

H Personal 3uarantee of irector ' Partner.

Period,

H Period for cash credit account will be of +- months and limits bein! renewed yearly.

H Period for Terms loans will be 0 months to / months.

H :oratorium period will be 0 months.

H Period for project finance variable from project to project and reviewed on yearly

basis.

+=


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TJS! !an) Commercial Loan Proce""ing:

The commercial loans provide an attractive source of income in terms of interest# lenders

e*ercise a lot of care and study in evaluatin! borrowers to ensure that funds lent out are

alon! with the earnin!s.

TJSB Bank provides separate loan for different cate!ories of borrowers. The loan

application form contains information relatin! to Back!round of borrower# personal and

professional details# purpose of loan# nature of facility# period of repayment# nature of

security offered# and financial status of borrower.

T*(e" o$ !orro/er"

Categor*

T*(e o$ !orro/er

P1+ ndividuals for activities allied to a!riculture.

P1- Small Scale ndustrial units and

e4uipment'systems for

evelopment of new and renewable sources of

ener!y.

P1 (oad and water transport operators.

P1/ (etail Traders

P1% Small Business )nterprises

P10 Professional and Self1)mployed persons.

P1= State sponsored or!anisations for Scheduled

Castes'Scheduled Tribes

P1 )ducational "oans

P1< ?ousin! "oans

P1+; Consumption "oans

P1++ Software

P1+- $ood & A!ro Processin! Sector

P1+ nvestment by banks in venture capital

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CRE'IT PPRISL PROCESS

(eceipt of Applications from Applicant

Communicate with client documents re4uired for the said proposal

$ollow1up Sheet

Pre1sanction visit by bank officers

Check for (B defaulters list# CB" data# )C3C# Caution list etc

Title clearance reports of the properties to be obtained from )mpanelled

Galuation reports of the properties to be obtained from )mpanelled

Preparation of financial data

Proposal preparation

Assessment of proposal

Sanction'approval of proposal by appropriate sanctionin! authority

ocumentation# a!reement# mort!a!es# pre1disbursement re4uirements

isbursement of loans

Post sanction activities

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Re8uired 'ocument" $or Proce"" o$ Loan"

+. Audited ' Provisional P& " A'c# Balance Sheet for Current Iear i.e. upto+.;.-;+-.

-. T (eturn Copy of the $irm for A.I -;+-1-;+ or latest filed.. (eason for increase or decrease 8as applicable9 in sales ' net worth ' profits in

comparison with earlier year s fi!ures.

/. :onth wise Sales & Purchase for Current year April -;+-.

%. "atest ebtors ' Creditors ' Stock statements. 8'e+tor" "tatement "-ould +e age#/i"e9

0. Projected sales turnover of the $irm for# -;+-1-;+.

=. .T (eturns copy alon! with individual Balance sheet of all partners ' irectors '

Proprietors for A.I -;+-1-;+ 8$.I -;++1-;+9 or else latest filed.

. Appro*imate amount of Bad ebts as on last month.


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Credit Rating o$ TJS! !an)

Credit (atin! is done before sanctionin! any finance to customer. Knder this method

marks are assi!ned to each of the parameters.

The followin! are the parameters have been considered for determinin! the ratin! of

borrowers in the S:) cate!ory,

? $inancial (isk

? Business (isk

? ndustry (isk

? :ana!ement (isk

2ithin each of these broad areas# various parameters have been used for obtainin! an

overall ratin! of the borrower. The total marks a borrower can be awarded on bein!

analy7ed usin! these parameters shall be +;;.

2ei!hted :arks in > 9

:arks btained By Borrower

Total :arks assi!ned to various Parameters

As per Banks !uideline# concession in (ate of nterest is provided which is subject to

credit ratin! of the borrower.

The Credit Rating Scale to be used to rate the applicant is as follows,

1ar)" o$ t-e

((licant

Rating o$

t-e

=% & Above AM

Between 0; to=% A

Between %; to

0;

B

Between % to

%;

C

Between ; to %

-+


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; PRI1R2 RE


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? wnership remains with the borrower.

? Possession is also with the borrower.

? Symbolic'constructive possession with creditor 8Bank9.

? t creates an e4uitable char!e.? ?ypothecation A!reement !ives Banker a ri!ht to take possession of hypothecated

!oods# machines.

+4 Pledge:

Knder section +=- of ndian Contract Act pled!e means 5Bailment of 3oods as a

security for repayment of a debt or performance of a promise6.

A common e*ample of pled!e is !old ornaments# which are pled!ed with the bank

as a security a!ainst which 3old "oan is !iven.

mportant features of Pled!e are E

? Actual delivery of security is !iven to the Bank.

? wnership remains with bailers 8Borrower9.

? "iable to return after fulfillment of promise or repayment of loan amount.

?

isposal possible only after default and !ivin! due notice to the Borrower.

c4 1ortgage:

Transfer of Property Act +- defines :ort!a!e as, 15Transfer of an interest in specific

immovable property for the purpose of securin! the payment of money advanced by

way of loan# on e*istin! or future debt or the performance of an en!a!ement which may

!ive rise to pecuniary liability6.

? :ort!a!or must be the owner or a person havin! interest in immovable property.

? :ort!a!or must have a contractual capacity.

? Property must be a specific immovable property.

? Purpose is to secure the loan repayment.

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-9 PROCESSING PPLICTION ,

After receivin! all the re4uired documents from the borrower a loan officer will then

review the application and documentary attachments. "oan officer will then analyse and

review various credit reports# documentation as well as income details provided by the

borrower.

T-ere are t-ree (rinci(al" o$ +an) lending,

Sa$et*: As Bank lends funds entrusted to it by the depositors# the first and foremost

principal of lendin! is to ensure safety of the funds lent. Safety mean by capacity and

willin!ness of borrower to repay.

Li8uidit*: "i4uidity mean by !rantin! loan a!ainst security of assets which are easily

marketable without much loss.

Pro$ita+ilit*: The sound principle of lendin! is not to sacrifice safety or li4uidity for

the sake of hi!her profitability. Bank should not !rant advances to unsound parties even

if they are ready to pay hi!h interest.

Bank therefore has to consider creditworthiness of borrower# borrowers back!round#

soundness of his project or business activity. Banker has to ensure that the business of

the borrower is permissible for lendin! as per the !uidelines & policy of the bank. $or

assessin! credit worthiness of borrower# banker has to collect information throu!h

number of sources.

This is important sta!e in loan process as it involves preparation of Proce"" Note# and

analysis of loan application. mportant steps carried out by loan officer are as follows.

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? nal*"i" o$ $inancial "tatement":

Banks approach towards analysis of financial statement is to find and study the

solvency or repayin! capacity of the borrower. Bank is concerned with the estimation of

the risks if any# involved in lendin! to the borrower.

Processin! officer carefully analyses all the financial statements and records of the

borrower. $inancial Statement analysis assists the loan officer in assessin! the financial

and administrative efficiency of the borrower. Garious financial ratios are calculated

and trend analysis is carried out to check the consistency and !rowth of business.

Garious recommendations and observations are drawn based on the ratios.

(atios computed are as follows,

? Tan!ible et 2orth

? ebt1)4uity (atio

? Knsecured "oans

? Asset Turnover (atio

? "i4uidity (atio

? Sales

? Profitability & SC(

? Vi"it Re(ort

"oan processin! officer conduct visit to the commercial or factory site of the borrower

and also to its re!istered office for inspection. bjective behind visit is to verify the

operational setup and soundness of the borrower in respect of loan. After the visit

detailed visit report is prepared containin! observations of visit and recommendations.

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? Wor)ing Ca(ital ""e""ment:

2orkin! capital facilities are re4uired by industries .tradin! concerns and also units

en!a!ed in e*tendin! services. eed of workin! capital in majority of cases remain

more or less constant throu!hout the year.

1et-od" o$ ""e""ment o$ /or)ing ca(ital

a4 1a.imum Permi""i+le !an) Finance =1P!F; 1et-od:

? Audited financial statements of last two years have to be studied. The data in Profit &

"oss Statement & in the Balance Sheet in whatever format is first reconstructed in the

prescribed format.

? The total build1up of current assets & current liabilities is to be studied. The inventory#

ebtors & Creditors which have been e*pressed in the monetary terms in balance sheet

should be converted into holdin! into months or days.

? Current assets & current liabilities are assessed based on projected sales.

? $indin! the 2orkin! Capital 3ap & decidin! the contribution of Borrower & Banks

contribution for brid!in! the 3ap

+4 Turno,er 1et-od:

Knder this method# workin! capital is assessed on the basis of -;> of the projected '

actual sales of the borrower.

c4 O(erating C*cle 1et-od:

Knder this method# workin! capital re4uirement is assessed on the basis of the avera!e

time intervenin! between the ac4uisition of material or services enterin! the process

and the final cash reali7ation.

-%


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Calculation o$ 'ra/ing Po/er> Limit

rawin! power is calculated based on the value of security provide i.e. Stock and debts

or property. rawin! power is calculated after considerin! mar!in which is fi*ed to

certain e*tent e.!. $or the traders is ;> whereas to a manufacture it is fi*ed at /; >.

1argin:

:ar!in is provided by way of li4uid surplus i.e. from lon! term liabilities. Current

assets shall partly finance by capital and lon! term liabilities for any !oin! concern.

$inancial accommodation up to +;; > of the value of !oods will not be !ranted by

banks# banks fi* certain mar!in on the value of !oods which must be financed by

borrower and remainin! will be financed by bank. The percenta!e of mar!in fi*ed on

any security depends on its nature and type of borrower.

Thus Process note comprise of entire analysis of the loan application and borrower

includin! drawin! power of the borrower# his workin! capital re4uirements# security

details# valuation reports# details of !uarantors# financial statement analysis# visit report

and other terms and conditions of sanctionin! of loan. nce process note is completed it

is forwarded to sanctionin! authority for final review and assessment

?; PPLICTION REVIEW N' SNCTIONING OF LON

After the loan application is processed and all the findin!s are satisfactory# the loan

application is then submitted to sanctionin! authority. Sanctionin! authority then

assesses and eventually decides whether the loan will be approved.

? Sanctioning aut-orit* 7 'elegation o$ ut-orit*

To re!ulate the deployment of the credit as well as for speedy sanction and disposal of

the credit# the Board of irectors of the bank determines the lendin! and discretionary

powers of various authorities at different level.

As per the level of the official from :ana!er to C) powers are assi!ned for sanctions.

-0


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Authority includes per party )*posure# 3roup e*posure# $unded and on 1funded

limits# 2aiver in processin! fee# concessions in nterest rate etc. Board is the ape* level

of authority and all the proposals beyond the powers of C) will be looked into by the

irectors. Board of irectors also formulates overall policy of the bank with re!ard to

credit.

? In"urance 'etail" of the assets and securities offered by the borrower a!ainst the loan

are also mandatory to ensure credit recovery. ?ence the details of amount of insurance

alon! with the insurin! company and their due dates are mentioned in process notes.

After the approval from the sanctionin! authority the processin! officer then forwards

the sanction letter to the borrower. Sanction letter includes amount of financin!# terms

& conditions of payment# details of Prime and collateral security# and other conditions

re!ardin! loan sanction.

@; Loan 'i"+ur"ement

nce borrower is a!reed on all the conditions mentioned in sanction letter# Borrower is

re4uired to si!n final set of loan documents. 2ith all the re4uirements met and all

closin! documents in order# loan officer !enerates isbursement rder 89 and loan is

finally disbursed.

? 'ocumentation

Banks !enerally lend for productive purpose. ocumentation is done to create le!ally

valid and effective char!e over assets which bind the borrower and !uarantors

personally. ocuments contains specifically and precisely the terms and conditions to

the contract between the borrower and bank. 2hich is e*amined by the court of law

incase of le!al recourse. t is therefore necessary that ri!ht type of documents properly

filled up# ade4uately stamped and e*ecuted are obtained on record.

-=


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Pur(o"e and im(ortance o$ documentation

ocuments are prepared and e*ecuted to record the fact that borrower has taken a loan

from the Bank and thereby evidence is created. The second purpose of documents is to

incorporate the terms and conditions on which the loan has been !iven. This is very

necessary to avoid confusion and ambi!uities in future. The third important purpose is to

create a char!e in favour of the Bank on the assets offered as a security.

By and lar!e the loans are repaid by the Borrowers as per a!reed terms and conditions.

But when the Borrower fails to repay or does not adhere to the a!reed terms and

conditions# the Bank has to take action. t may be by way of reali7in! the asset !iven as

security or enforce the a!reed terms and conditions or to take le!al action to recover the

bank dues. At that time the loan documents prepared and e*ecuted are re4uired to

produce. ocuments# which are not properly e*ecuted# cannot be enforced a!ainst the

borrower and their purpose itself is defeated.

REGISTRTION OF CHRGES OF CO1PNIES WITH ROC

The char!e on the assets of the company created in favour of the Bank as security for

loan is re4uired to be re!istered with (e!istrar of Companies. $ailure to do so renders

such char!e void as a!ainst li4uidator or other re!istered creditors. Thus in order to

protect the interest of the Bank every char!e created in favour of the bank needs to be

re!istered.

The re!istration of char!e is a notice to the !eneral public of Banks char!e on the assets

of the company. Char!es such as hypothecation# mort!a!e re4uires re!istration. The

char!e is re4uired to be re!istered within a period of ; days from the date of creation.

The delay# however# can be condoned by the (e!istrar of Companies.

$or creation of char!e $orm o to!ether with the ori!inal instrument creatin! a char!e

or certified copy is to be filed with the (e!istrar. (e4uisite fee prescribed is also to be

paid. (e!istrar after due verification of the char!e form and re!isterin! the char!e

on companys records with him issues a certificate of (e!istration of Char!e.

-


30/47

2here a modification of char!e is to be done e.!. when limit is enhanced# additional

security is char!ed etc $orm o + is also to be filed alon! with $orm o . Procedure

for filin! modification of char!e is similar to filin! ori!inal char!e.

Po"t Sanction 1onitoring O$ d,ance"

The most important sta!e in the loan be!ins after the full disbursal of the loan. All the

care taken in appraisin! the project will be nullified due to faulty monitorin!. Thus a

!ood asset'loan account can turn bad for the bank if dan!er si!nals or ne!ative

indicators are not looked into or analysed properly.

2hen input cost !oes up small industries can come under strain. ependin! on their

ability they may either pass on the cost to the customer or absorb the cost or they may

have to sacrifice the profits. n such case accounts will turn bad.

The bank should have a stron! monitorin! mechanism in place at various levels# which

will help capture the account before it moves into an PA. Bank should carefully

monitor the end use of funds and see that the funds are used for the purpose intended

for. An advance !iven for workin! capital used for tradin! in stock market increases the

risk of default.

A monitorin! mechanism should look out for early warnin! si!ns in the followin!

areas.

? Knusual increase in debtor level.

? Substantial decline in sales levels.

? Status of borrowers with other banks.

? nformation of !roup companies.

? ?i!h projection of sales' Profits should be analysed.

;


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Correlation nal*"i"

Feepin! in mind# the above process of credit appraisal of TJSB# it would be interestin!to understand how the financial ratios form a very important part of determinin! credit

scores of the borrowers. n order to establish the above relationship# simple correlation

analysis is done between the ratios and the scores. t also helps in knowin! whether

bank has taken viable decision before !rantin! loans.

Particular" Score"

Ca"-

Current TOL# ccrual"> Collateral

Ratio" Ratio TNWA /-=>man

"aboratories

"td +- ;. +.+/ > %+>

Suraj "ifters

Pvt "td + -./% .; 1> /

CORRELTION

Particular"

=Rating">Ratio";

Score btained

Current Ratio B4B?@D?D

TOL# TNWANet

Sale"

#B4D?

Collateral

Co,erage

B4D?BD

+


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Current Ratio

Current ratio shows the relation between Current Assets and Current "iabilities. n Correlation

the results shows that every enterprise whose ratin! shows better short term workin! capital#

which can be easily turned into finished !oods within a less debtors turnover days. f the ratin!s

are been ne!ative then it can be said that debtors may be respondin! late.

TOL#TNWA


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O&TCO1E OF THE ST&'2

?Credit appraisal is done to check the commercial# financial & technical viability of the

project proposed# its fundin! pattern & further checks the primary or collateral security

cover available for the recovery of such funds

? Credit is core activity of the banks and important source of their earnin!s which !oes to pay

interest to depositors# salaries to employees and dividend to shareholders

? Credit and risk !o hand in hand

? n the business world# risk arises out of,1

o eficiencies 'lapses on the part of the mana!ement

o Kncertainties in the business environment o

Kncertainties in the industrial environment o

2eakness in the financial position

? A banker s task is to identify' assess the risk factors' parameters and mana!e' miti!ate them

on continuous basis

? These risks have been cate!ori7ed broadly into financial# business# industrial and

mana!ement risks which are rated separately

? The assessment of financial risk involves appraisal of the financial stren!th of the borrower

based on performance & financial indicators

To determine the Credit worthiness of a particular customer the above factor mentioned

come into play. All the factors were studied in detail while carryin! out the project.

-


34/47

LI1ITTION OF THE PROJECT

? As the credit appraisal is one of the crucial areas for any bank# some of the

technicalities are not revealed

? As some of the information is not revealed# whatever su!!estions !enerated# are based on

certain assumptions.

? Credit appraisal system includes various types of detail studies for different areas of

analysis# but due to time constraint# my analysis is restricted to few sectors.


35/47

LERNING FRO1 THE PROJECT

had a valuable e*perience doin! my summer internship at TJSB Bank in Thane. The

duration for my internship was - months# startin! from -nd :ay -;+- to -nd -;+- in Thane

:ain branch and# was workin! on the 5CRE'IT PPRISL6

:y Project 3uide was :r. Pravin Panduran! Pandit# Chief )*ecutive officer for Thane

SCC branch# respectively of his department.

This was my $irst e*posure to the corporate world and had an e*perience of workin! inbankin!. was workin! on the credit appraisal# which feel is the basic re4uirement of any

bank. 2hile workin! observed the si!nificance of the Credit in a bank# its workin!.

The project# which was !iven to me in this period of my summer internship# project was to

know the credit appraisal. $or that# have to talk to mana!er and try to understand concept of

credit in the bank.

Thus durin! this internship1period workin! on project and simultaneously observin! has

proved to be a !reat e*perience in all as have !ot to see and understand various situations of

the employees. would like to conclude by sayin! that it is been a !reat learnin! for me

throu!h this internship. understand some realities of the bank# as was part of the everyday

activities of the or!ani7ation. also learned the fact that no department can work on its

own each department have to depend on other in one1way

or the other.

/


36/47

!I!LIOGRPH2>REFERENCE

!I!LIOGRPH2

Financial 1anagement3 T-eor* and Practice =Se,ent- Edition;

-Prasanna Chandra

Lin) ///4r+i4org4in

///4t-ane0anata4co4in

///4d"i r 4go,4in ///4"id+i4com

///4i0mra4u"

%
http://www.rbi.org.in/http://www.thanejanata.co.in/http://www.dsir.gov.in/http://www.sidbi.com/http://www.thanejanata.co.in/http://www.dsir.gov.in/http://www.sidbi.com/http://www.ijmra.us/http://www.rbi.org.in/


37/47

Re$erence

!u"ine"" Standard"

Co#o(erati,e !an)" =Sea"onal rticle;3 1a* B

0


38/47

NNE&RE PROCESS NOTE SPECI1EN

.

Branch, SCC' ate, +-.;0.-;+-

NOTE TO !E PLCE' !EFORE

A:) $ APP"CAT

, 8:embership o,9

4 PRESENT PROPOSL ,

!4 !RIEF !C%GRO&N' :

4 CONSTIT&TION ,

4 SSET CLSSIFICTION ,

. ''RESS :

$ACT(I:

8wned'Rented'"eased9 , $$C),

8wned'Rented'"eased9 ,

/. 'TE OF EST!LISH1ENT ,

%. !N%ING SINCE ,

0. CTEGOR2 ,


39/47

=4 CTIVIT2:


40/47

8a9 :ain Activity , 8b9

ndustry , 8c9 "ist

of major clients ,

. A:)8S9 $ ()CT(S'PRTNERS'P(P()T( & T?)( )T 2(T?

8Amount in (s"acs9

N1E

G

E

NN&

L

INCO

NETWO

R

T

H


41/47

+;.+ PST $ T?) ACCKT $ $(: ' C:PAI

8As on ;-.;.-;+9 8Amount in (s. "acs9

FCILIT

2

S

N

C4

LI

1

IT

O

>

S

!

O

V

E

R

'

INTERE

ST

RTE

SEC&

RIT2

Cash

Credit

AG?IP

P("

TTA"

DETAILS OF COLLATERAL SECURITY VAL

Prime

TOTAL SECURITY VALUE

+;.- PST $ T?) ACCKT $ ASSCAT) $(: 'C:PAI 8ot

Applicable9

8As on 9

$acility "

i

m

i

t

'

S

B

a

l

v

e

r

(

.

.

.

Primary

Securi

ty

Type

Galue


42/47

$unded AQ

on $unded

BQ

Total A!

Security

details & its value

etail escription of security, Galue,

TTA" $ P(:A(IM

Galue,

Security Covera!e of the 3roup

N1E OF

>CEPOS&RE

TOTL

SEC&RITIE

K

TTA"

GA"KAT )TA"S,

ame of Galuer

ate of Galuation

Galuation of land (s.

Galuation of Buildin! ' (esidential Property (s.

Galuation of :achinery (s.

Galuation of Gehicles ' Cranes (s.

Galuation of ies ' Tools and other misc.

e4uipments

(s.

)PST ()"ATS?P 8Amount in"acs9


43/47

Sr

n

o

PRTIC&L

R

S

TOTL

1O&

N T

OF

'EPOS

COLLTER

L SEC&RIT2

FREE

'EPOS

IT S

a.

TOTL

+-. CKCT $ T?) ACCKT,

a9 3eneral Conduct ,

AQ TK(G)(

PRTIC&LRS Credit 'e+

Current Iear

TTA"

+9 3eneral Conduct ,

-9 Comments on Turnover, Comments on turnover, 8iff. in turnover ' :ultiple Bankin!

arran!ements ' Submission of Bank a'c statements of the Banks etc9

BQ (A23 P2)(

rawin! Power 8As on ;.;0.-;++9

Particulars ebtorsup

Kpto+;

da

)ntire

ebtors

Stock

Add, ebtors

Sub total 8a9

"ess Creditors

Sub total 8b9


44/47

:ar!in R ; >

of 8b9

rawin! Power 8b1c9

Avera!e rawin! Power (s. 2hether

operations within P , iv9 ate of "ast

(enewal

+. TTA" )A(3S $(: ACCKT,Previous Iear Current Iear

i. nterest

ii. Commission

iii. ther

TTA"

VISIT 'ETILS:

+/.+ Gisit etails

ate of

visit

+.;.-;+;

+/.- bservations durin! Gisit in Brief,

+%. SK(AC) )TA"S

Security escription Amount 8in ue ate


45/47


46/47

CO11ENTS !SE' ON PROVISIONL FINNCILS OF B#B :

; Tangi+le Net Wort-:

; 'e+t#E8uit* Ratio:

?; Current Ratio 7 Net Wor)ing Ca(ital:#

/9 Turno,er Ratio",1

%; Net Sale" and Pro$ita+ilit*:#

D; Future (ro0ection" > '4S4C4R4:#

'ELEGTION POWERS:

Parameter" !enc-mar) ctual

Committee II Committee I

Current (atio +.+=,+ +,+

T"'T2 0,+ ,+

ebt )4uity

(atio

,+ /,+

SC( +.=% +.%;

:ar!in -%> -;>

(epayment

Periods

= Iears +; Iears

Collateral

Security

%;> -%>

( ot below+>

otbelow

Processin!

waiver

-%> =%>


47/47

Con"idering de,iation in delegation o$ (o/er in ca"e o$ collateral "ecurit*3 t-e note i" (ut

u( +e$ore Committee I

; Recommendation

; TER1S N' CON'ITIONS:

Pre#di"+ur"ement:

Po"t#di"+ur"ement:

O FFICER C HIEF 1NGER SST4GEN4

=SCC; =SCC; =SCC;

'eci"ion o$ Credit Committee#II

dditional Term" 7 Condition" :

CHIR1NCRE'IT CO11ITTEE#II 'TE:

(298048505) 148308699-Credit-Appraisal-of-TJSB-Bank

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Transcript of (298048505) 148308699-Credit-Appraisal-of-TJSB-Bank