A comparative study on Loans and advances

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

Apoorva Institute of Management Studies, Bangalore.

CHAPTER-1

INTRODUCTION TO LOANS AND ADVANCES

The commercial banks accept deposits and also lend money to the people who require it for

various purposes. Lending of funds to traders, businessmen and industrial enterprises is one of

the important activities of commercial banks. The major part of the deposits received by banks is

lent out, and a large part of their income is earned from interest on such lending. There is a

considerable difference between the rate of interest which the commercial bank grants on

deposits, and the rate they charge on loans and advances. It is this difference which constitutes

the main source of bank earnings.

1.1 Meaning of Loans and Advances:

The term "loan" refers to the amount borrowed by one person from another.

The amount is in the nature of loan and refers to the sum paid to the borrower.

Thus, from the view point of borrower, it is 'borrowing' and from the view point of bank.

it is lending'.

Loan may be regarded as 'credit. Granted where the money is disbursed and its recovery

is made on a later date.

It is a debt for the borrower. While granting loans, credit is given for a definite purpose

and for a predetermined period. Interest is charged on the loan agreed rate and intervals

of payment.

'Advance' on the other hand, is a 'credit facility' granted by the bank. Banks grant

advances largely for short-term purposes



1.2 Utility of Loans and Advances

1. Loans and advances can be arranged from banks in keeping with the flexibility in

business operations. Traders may borrow money for day to day financial needs availing

of the facility of cash credit, bank overdraft and discounting of bills. The amount raised

as loan may be repaid within a short period to suit the convenience of the borrower.

Thus business may be run efficiently with borrowed funds from banks for financing its

working capital requirements.

2. Loans and advances are utilized for making payment of current liabilities, wage and

salaries of employees, and also the tax liability of business.

3. Loans and advances from banks are found to be 'economical' for traders and

businessmen, because banks charge a reasonable rate of interest on such loans/advances.

1.3 Borrowing Rate and Lending Rate

People make their funds available to the banks by depositing their ‘savings’ in

various types of accounts. In other words, bank funds mainly consist of deposits from

the public, though banks may also borrow money from other institutions and the Reserve

Bank of India. Banks thus mobilizes funds through its deposits. On public deposits the banks

pay interest at and the rate of interest varies according to the type of deposit. The

borrowing rate refers to the rate of interest paid by a bank on its deposits. The rates which

the banks allow depend upon the nature of deposit account and the period for which the

deposit is made with the bank. No interest is generally paid on current account deposits. The

rate is relatively lower on savings account deposits. Higher rates ranging from 6% to 12% per

annum are paid on fixed deposit accounts according to the period of deposit.

Banks also borrow from other institutions as well as from the Reserve Bank of India. When

the Reserve Bank of India lends money to commercial banks, the rate of interest it charges

for lending is known as ‘Bank Rate’

The rate at which commercial banks make funds available to people is known as ‘Lending -

rate’. The lending rates also vary depending upon the nature of loans and advances. The



rates also vary according to the purpose in view. For example if the loan is sanctioned for the

purpose of activities for the development of backward areas, the rate of interest is relatively

lower as against loans and advances for commercial/business purposes. Similarly for smaller

amounts of loan the rate of interest is higher as compared to larger amounts. Again lending

rates for consumer durables, e.g. Loans for purchase of two-wheelers, cars, refrigerators,

etc. are relatively higher than for commercial borrowings.

However, the Reserve Bank of India from time to time announces changes in the

interest-rate structure to regulate the lending of funds by banks. Different rates of interest are

prescribed for various categories of advances, such as advances to agriculture, small

scale industries, road transport, etc. Graded rates of interest are prescribed for backward

areas. Lower rate is normally charged from agencies selling food-grains at fixed price

through Govt. approved outlets.

Lastly, lower rate of interest is charged for loans granted to persons belonging to ‘weaker

sections of the society’.

1.4 Lending of Money by Bank

The commercial banks lend money in four different ways: (a) direct loans, (b) cash

credit, (c) overdraft, and (d) discounting of bills. These are briefly discussed below.

1. Loans

Loan is the amount borrowed from bank. The nature of borrowing is that the money is

disbursed and recovery is made in installments. While lending money by way of loan,

credit is given for a definite purpose and for a pre-determined period. Depending upon

the purpose and period of loan, each bank has its own procedure for granting loan. However

the bank is at liberty to grant the loan requested or refuse it depending upon its own

cash position and lending policy. There are two types of loan available from banks.



(a) Demand loan, and

(b) Term loan.

(a) A Demand Loan: Is a loan which is repayable on demand by the bank. In other words, it

is repayable at short-notice. The entire amount of demand loan is disbursed at one

time and the borrower has to pay interest on it. The borrower can repay the loan either

in lump sum (one time) or as agreed with the bank. For example, if it is so agreed the

amount of loan may be repaid in suitable installments. Such loans are normally granted by

banks against security. The security may include materials or goods in stock, shares of

companies or any other asset. Demand loans are raised normally for working capital

purposes, like purchase of raw materials, making payment of short-term liabilities

(b) A Term Loans: Medium and long term loans are called term loans. Term loans are

granted for more than a year and repayment of such loans is spread over a longer period.

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

Term loan is required for the purpose of starting a new business activity, renovation,

modernization, expansion/ extension of existing units, purchase of plant and machinery,

purchase of land for setting up of a factory, construction of factory building or purchase of

other immovable assets. These loans are generally secured against the mortgage of land,

plant and machinery, building and the like.

2. Cash credit

Cash credit is a flexible system of lending under which the borrower has the option to

withdraw the funds as and when required and to the extent of his needs. Under this

arrangement the banker specifies a limit of loan for the customer (known as cash credit

limit) up to which the customer is allowed to draw. The cash credit limit is based on the

borrower’s need and as agreed with the bank.

Against the limit of cash credit, the borrower is permitted to withdraw as and when he needs

money subject to the limit sanctioned.



It is normally sanctioned for a period of one year and secured by the security of some

tangible assets or personal guarantee. If the account is running satisfactorily, the limit of

cash credit may be renewed by the bank at the end of year. The interest is calculated and

charged to the customer’s account.

Cash credit, is one of the types of bank lending against security by way of pledge or

hypothetication of goods. ‘Pledge’ means bailment of goods as security for payment of debt.

Its primary purpose is to put the goods pledged in the possession of the lender. It

ensures recovery of loan in case of failure of the borrower to repay the borrowed

amount. In ‘Hypothetication’, goods remain in the possession of the borrower, who finds

himself under the agreement to give possession of goods to the banker whenever the banker

requires him to do so. So hypothetication is a device to create a charge over the asset under

circumstances in which transfer of possession is either inconvenient or impracticable.

3. Overdraft

Overdraft facility is more or less similar to ‘cash credit’ facility. Overdraft facility is the

result of an agreement with the bank by which a current account holder is allowed to

draw over and above the credit balance in his/her account. It is a short-period facility. This

facility is made available to current account holders who operate their account through

cheques. The customer is permitted to withdraw the amount of overdraft allowed as and

when he/she needs it and to repay it through deposits in the account as and when it is

convenient to him/her.

Overdraft facility is generally granted by a bank on the basis of a written request by the

customer. Sometimes the bank also insists on either a promissory note from the borrower or

personal security of the borrower to ensure safety of amount withdrawn by the customer.

The interest rate on overdraft is higher than is charged on loan. The following are some of

the benefits of cash credits and overdraft:

Cash credit and overdraft allow flexibility of borrowing, which depends upon the

need of the borrower.



There is no necessity of providing security and documentation again and

again for borrowing funds.

This mode of borrowing is simple and elastic and meets the short term financial

needs of the business.

4. Discounting of Bills

Apart from sanctioning loans and advances, discounting of bills of exchange by bank is

another way of making funds available to the customers. Bills of exchange are negotiable

instruments which enable debtors to discharge their obligations to the creditors. Such Bills

of exchange arise out of commercial transactions both in inland trade and foreign trade.

When the seller of goods has to realize his dues from the buyer at a distant place

immediately or after the lapse of the agreed period of time, the bill of exchange facilitates

this task with the help of the banking institution.

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

These bills may be payable on demand or after a stated period.

In discounting a bill, the bank pays the amount to the customer in advance, i.e. before the

due date. For this purpose, the bank charges discount on the bill at a specified rate. The bill

so discounted, is retained by the bank till its due date and is presented to the drawer

on the date of maturity. In case the bill is dishonored on due date the amount due on bill

together with interest and other charges is debited by the bank to the customer’s account.

1.5 Long-term and Short-term Loans

Commercial banks grant loans for different periods-long, short and medium term for

different purposes.

Short-term loans

Short term loans are granted by banks to meet the working capital needs of business. The

working capital needs refer to financial needs for such purposes as, purchase of raw



materials, payment of wages, electricity bill, taxes etc. Such loans are granted by

banks to its borrowers to be repaid within a short period of time not exceeding 15 months.

Short term loans are normally granted against the security of tangible assets like goods in

stock, shares, debentures, etc. The rate of interest charged on short term loans ranges from

12% to18% p.a.

Term Loans

Medium and long term loans are generally known as ‘term loans’. These loans are granted

for more than 15 months. In case of medium term loan, the period ranges from 15

months to less than 5 years. Medium term loans are generally granted for heavy repairs,

expansion of existing units, modernization/renovation etc. Such loans are sanctioned

against the security of immovable assets. The normal rate of interest ranges between 12%

to 18% depending upon the period, purpose, nature and amount of the loan. Though banks

may grant long term loans, they avoid granting loan for more than 5 years

1.6 Nature and Security of Loans

To ensure the safety of funds lent, the first and most important factor considered by a bank

is the capacity of borrowers to repay the amount of loan, The bank therefore, relies

primarily on the character, capacity and financial soundness of the borrower. But the bank

can hardly afford to take any risk in this regard and hence it also has the security of

tangible assets owned by the borrower. In case the borrower fails to repay the loan, the

bank can recover the amount by attaching the assets.

It can sell the assets offered as security and realize the amount. Thus from the view point of

security of loans, we can divide the loans into two categories: (a) secured, and (b)

unsecured. Unsecured loans are those loans which are not covered by the security of

tangible assets. Such loans are granted to firms/institutions against the personal security of

the owner, manager or director. On the other hand, Secured loans are those which are

granted against the security of tangible assets, like stock in trade and immovable property.

Thus, while granting loan against the security of some assets, a charge is created over the



assets of the borrower in favors of the bank. This enables the bank to recover the dues from

the customer out of the sale proceeds of the assets in case the borrower fails to repay the

loan.

There are various types of securities which may be offered against loans granted, but

all of those are not acceptable to the banks. The types of securities genera lly accepted

by the bank are the following:

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

Documents of title to goods, like Railway Receipt (R/R), Bills of exchange, etc.

Financial Securities (Shares and Debentures)

Life-Insurance Policy

Real estate’s (Land, building, etc).

Fixed Deposit Receipt (FDR)

Gold ornaments, Jewelers etc.

1.7 Procedure of granting Cash Credit, Overdraft and Discounting Bills

Banks provide financial assistance to its customers in the form of loans, advances, cash

credit, and overdraft and through the discounting of bills. The procedure of applying for and

sanction of loans and advances differs from bank to bank. However, the steps which are

generally to be taken in all cases are as follow:

1. Filling up of loan application form

Each bank has separate loan application forms for different categories of borrowers. When

you want to borrow money from a bank, you will have to fill up a loan application form

available with the bank free of cost.

The loan application form contains different columns to be filled in by the applicant. It

includes all information required about the borrower, purpose of loan, nature of facility

(cash-credit, overdraft etc) required, period of repayment, nature of security offered,



and the financial status of the borrower. A running business limit may be required to

furnish additional information in respect of:

Assets and liabilities

Profit and loss for the last 3 years.

The names and addresses of three persons (which may include borrowers, suppliers,

customers and bankers) for reference purposes.

2. Submission of form along with relevant documents.

The bank application form duly filled in should be submitted to the bank along with the

relevant documents.

3. Sanctioning of loan

The bank scrutinizes the documents submitted and determines the credit worthiness of

the applicant. If it is found to be feasible, the loan is sanctioned. If the loan is for Rs

5000 or less, normally the Branch Manager himself can take the decision and sanction the

loan. In case the amount of loan is more than Rs 5000, the application is considered at

regional, zonal or head office level, depending on the amount of loan.

4. Executing the Agreement

When the loan is sanctioned by the bank and the borrower is informed about it, he

will have to execute an agreement with the bank regarding terms and condition for the

amount of loan raised.

5. Arrangement of Security for Loan

The borrower will now arrange for security against the loan. These securities may be

immovable properties, shares, debentures, fixed deposit receipts, and other documents, like,

Kisan Vikas Patra, National Savings Certificate, as per agreement.

When the borrower completes all the formalities, he is allowed to get the amount of

loan/advance/ over draft as sanctioned by the bank. In case of ‘discounting of bills’, the

bank credits the amount of bill to the customer’s account before the realization of the bill



and thus, makes available the fund. In case, the bill is dishonored on due date, the amount

due on the bill together with interest and other charges are payable by the party whose bill is

discounted.

Procedure of Granting Loans and advances

1.8 STATUTORY & OTHER RESTRICTIONS ON LOANS & ADVANCES

RBI has been issuing from time to time rules/regulations/instructions on statutory and other

restrictions in respect of loans and advances to Banks for implementation and to adopt adequate

safeguards in order to ensure that the banking activities undertaken by them are run on sound,

prudent and profitable lines, as under.

1. Statutory Restrictions

Advances against bank own share

A bank cannot grant any loans and advances on the security of its own shares. (Section 20(1) of

the Banking Regulation Act, 1949)

Advances to bank Directors

Banks are prohibited from entering into any commitment for granting any loans or advances to

or on behalf of any of its directors, or any company/firm in which any of its directors is

interested as partner, manager, employee or guarantor (B.R Act (Section 20(1).



‘Loans & advances’ shall not include

Loans or advances against Govt. securities, life insurance policies or fixed deposit.

Loans or advances to the Agricultural Finance Corporation Ltd.

Loans or advances to any of its directors in his capacity as an employee prior to

becoming as director, loans or advances granted to its Chairman and Chief Executive

Officer who was not an employee of the banking company immediately prior

to his appointment as Chairman/ Managing Director/CEO, or to its whole-time

director (for purchasing a car, personal computer, furniture or constructing/ acquiring

a house for his personal use and Festival Advance), with the prior approval and

subject to terms and conditions stipulated by RBI.

Loans & advances’ include, among others.

Purchase of or discount of bills from directors and their concerns.

Issuance of guarantees and opening of L/Cs on behalf of the bank’s directors etc.

2. Regulatory Restrictions

Granting loans and advances to relatives of Directors

Without prior approval of the Board or without the knowledge of the Board, no loans and

advances aggregating to Rs. 25 Lakh and above should be granted to relatives of the

bank's Chairman/Managing Director or other Directors or other bank’s Directors

(including Chairman/Managing Director) and their relatives, Directors of

Subsidiaries/Trustees of Mutual Funds/Venture Capital Funds set up by the financing

banks or other banks, including lending to directors and their relatives on reciprocal basis

(Sec. 20 of B.R. Act).

This restriction would also apply to grant of loans and advances to spouse and

minor/dependent children of the Directors of banks except those who own independent

source of income arising out of his/her employment or profession and the facility so

granted is based on standard procedures and norms for assessing the creditworthiness of

the borrower. The term “relative” is explained in RBI Master Circular dt. 01.07.13.

Loans & advances of less than Rs.25 Lakh to these borrowers can be sanctioned at

appropriate level as per delegation with suitable reporting to the Board.



The term ‘loans and advances’ will not include loans or advances against Government

securities, Life insurance policies, Fixed or other deposits, Stocks and shares, Temporary

overdrafts for small amounts, i.e. up to Rs. 25,000/-,Casual purchase of cheques up to Rs.

5,000 at a time, Housing loans, car advances, etc. granted to an employee of the bank

The guidelines are applicable while granting loans/ advances or awarding contracts

to directors of scheduled co-operative banks or their relatives and to directors of

Subsidiaries/trustees of mutual funds/venture capital funds set up by them as also other

banks.

Grant of Loans & Advances to Officers and Relatives of Senior Officers of Banks

No officer or any Committee comprising, inter alia, an officer as member shall sanction

any credit facility to his/her relative but only by the next higher sanctioning authority.

Credit facilities sanctioned to senior officer shall be reported to board.

Credit facilities to the relatives of senior officers of the bank sanctioned by the

appropriate authority should be reported to the Board.

Restriction on payment of commission to staff members including officers

Banks should not pay commission to staff members and officers for recovery of loans. (Sec10(1)

b (ii) of BR Act).

Restrictions on offering incentives on any banking products

Banks should not offer any banking products, including online remittance schemes etc., with

prizes / lottery/free trips (in India and/or abroad), etc. or any other incentives having an element

of chance, except inexpensive gifts costing not more than Rs. 250/-. Etc



1.9 The Advantages and Disadvantages of Loans

Loan is a form of debt, often with interest. There are several reasons why people apply for loans.

Usually they borrow money to purchase a house, buy a car, or start a business. Often, applying

for a loan is necessary because most do not have available financial resources they need to make

a purchase. Other forms of loans, like the student loans have helped a lot of students get through

school. Those who use student loan debt consolidation clearly have multiple student loans. They

do this to manage their obligations better.

Since loan is borrowed, the lender expects to receive payment with the interest specified. In

addition, borrowers should make the payments at the specified due date for a certain period. This

is where most people have problems. Most problems start when people cannot make the monthly

payments required due to different circumstance. Some finds it difficult to pay their loan because

of the many other debts they have. Some encounter additional problems such as medical

emergencies and job loss.

Since getting a loan is a commitment, you have to be very careful with your decisions. Choose

the right lender. There is more to picking a lender than just looking for one with the least interest.

Keep in mind that those with low interest require longer period. Remember, when choosing a

lender, check its stability, its flexibility, repayment schemes, and interest rates.

Before you decide to get a loan, it is only right that you review its advantages and disadvantages.

Advantages

Below are the advantages of getting a loan. These are also the reasons why many apply for it:

There is a loan for just about anything. If you are in need of money to purchase a house,

you can apply for a housing loan. If you need a car, you can apply for a car loan. With all

the loans available, you will be able to purchase everything you need.

It helps a person afford an expensive purchase. All of us wish to acquire a property.

However, we do not have the amount of money to make the purchase. Loans allow us to

do this. They lend us the money so that we can finally afford our desired property.

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Payment is staggered, which makes it affordable. This enables the person to pay off the

loan gradually. If a person has chosen a good deal, he should be able to finish paying off

the loan in the time specified.

One gets the funding he needs. If a person wants to start a business, he can do so by

applying for a business loan. He does not have to wait for his savings to build up before

he can start his own business. They can also use the amount they loan for investment

purposes.

Getting a loan is very helpful to start building your dream. However, you have to be very

careful with your decisions. This is because of the problems you will possibly encounter

if you mismanage your loans and other debts. If you have multiple loans, make sure to

manage it well. Use a debt consolidation loan calculator and check if it is better to

consolidate all your loans. Make sure that you manage your loans from the start. Keep in

mind that loans have disadvantages too.

Disadvantages

Here are some of the disadvantages of having loans:

It is a long-term debt. This means that you have to deal with it for a specified period,

which means that you have to commit yourself to making monthly payments specified in

your agreement for the period indicated to repay the loans.

If you miss payments, you will face serious consequences. You can face foreclosure or

repossession of the property. In addition, you could also face penalties and legal issues. It

will also reflect in your credit rating, which can lead to a low credit scores.

You may not be able to make early loan repayment. Few lenders give option for early

repayment. Although there are some who will allow you to do this, they will charge you

with early repayment fees.

Loans are very helpful. However, you have to manage them well because you can get into a lot

of trouble if you fail to make the expected payments.

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1.10 Engaging Recovery Agents by banks

Banks should have a due diligence process in place for engagement of recovery

agents.

Banks should inform the borrower the full details of the Recovery Agency

Firm/companies while forwarding cases to the recovery agency.

The notice and the authorization letter should, among other details, also include the

telephone numbers of the relevant recovery agency.

The up to date details of the recovery agency firms / companies engaged by banks

may also be posted on the bank’s website.

Each bank should have a mechanism whereby the borrowers' grievances with regard

to the recovery process can be addressed.

1.11 DEFINITION OF BANKING IN INDIA

Section 5(1) (c) of Indian banking regulation act of 1949 called the Indian banking companies

Act of 1949 before 31st march 1966} defines banking in India, “section (5) (b) of the same act

defines the term banking as Accepting for the purpose of lending or investment, of deposits of

money from the public, repayable on demand or otherwise and withdrawal by cheques, draft, and

order or otherwise.

1.12 DEFINITION OF COMMERCIAL BANK

A financial institution that provides services, such as accepting deposits, giving business loans

and auto loans, mortgage lending, and basic investment products like savings accounts and

certificates of deposit. The traditional commercial bank is a brick and mortar institution with

tellers, safe deposit boxes, vaults and ATMs. However, some commercial banks do not have any

physical branches and require consumers to complete all transactions by phone or Internet. In

exchange, they generally pay higher interest rates on investments and deposits, and charge lower

fee.



1.13 FUNCTIONS OF COMMERCIAL BANKS

1. Accepting Deposits

The most important function of commercial banks is to accept deposits from the public. Various

sections of society, according to their needs and economic condition, deposit their savings with

the banks.

For example, fixed and low income group people deposit their savings in small amounts from the

points of view of security, income and saving promotion. On the other hand, traders and

businessmen deposit their savings in the banks for the convenience of payment.

Therefore, keeping the needs and interests of various sections of society, banks formulate various

deposit schemes. Generally, there are three types of deposits which are as follows

Current Deposits:

The depositors of such deposits can withdraw and deposit money whenever they desire. Since

banks have to keep the deposited amount of such accounts in cash always, they carry either no

interest or very low rate of interest. These deposits are called as Demand Deposits because these

can be demanded or withdrawn by the depositors at any time they want such deposit accounts

are highly useful for traders and big business firms because they have to make payments and

accept payments many times in a day.

Fixed Deposits:

These are the deposits which are deposited for a definite period of time. This period is generally

not less than one year and, therefore, these are called as long term deposits. These deposits

cannot be withdrawn before the expiry of the stipulated time and, therefore, these are also called

as time deposits. These deposits generally carry a higher rate of interest because banks can use

these deposits for a definite time without having the fear of being withdrawn.

Saving Deposits:

In such deposits, money up to a certain limit can be deposited and withdrawn once or twice in a

week. On such deposits, the rate of interest is very less. As is evident from the name of such



deposits their main objective is to mobilize small savings in the form of deposits. These deposits

are generally done by salaried people and the people who have fixed and less income.

2. Giving Loans and advances

The second important function of commercial banks is to advance loans to its customers. Banks

charge interest from the borrowers and this is the main source of their income.

Banks advance loans not only on the basis of the deposits of the public rather they also advance

loans on the basis of depositing the money in the accounts of borrowers. In other words, they

create loans out of deposits and deposits out of loans. This is called as credit creation by

commercial bank.

Modern banks give mostly secured loans for productive purposes. In other words, at the time of

advancing loans, they demand proper security or collateral. Generally, the value of security or

collateral is equal to the amount of loan. This is done mainly with a view to recover the loan

money by selling the security in the event of non-refund of the loan.

At some times, banks give loan on the basis of personal security also. Therefore, such loans are

called as unsecured loan. Banks generally give following types of loans and advance.

Cash Credit

In this type of credit scheme, banks advance loans to its customers on the basis of bonds,

inventories and other approved securities. Under this scheme, banks enter into an agreement with

its customers to which money can be withdrawn many times during a year. Under this set up

banks open accounts of their customers and deposit the loan money. With this type of loan, credit

is created.

Demand Loans

These are such loans that can be recalled on demand by the banks. The entire loan amount is paid

in lump sum by crediting it to the loan account of the borrower, and thus entire loan becomes

chargeable to interest with immediate effect.



Short Term Loans

These loans may be given as personal loans, loans to finance working capital or as priority sector

advances. These are made against some security and entire loan amount is transferred to the loan

account of the borrower.

Over Draft

Banks advance loans to its customer’s up to a certain amount through over-drafts, if there are no

deposits in the current account. For this banks demand a security from the customers and charge

very high rate of interest.

Discounting of Bills of Exchange

This is the most prevalent and important method of advancing loans to the traders for short-term

purposes. Under this system, banks advance loans to the traders and business firms by

discounting their bills. In this way, businessmen get loans on the basis of their bills of exchange

before the time of their maturity.

3. Investment of Funds

The banks invest their surplus funds in three types of securities—Government securities, other

approved securities and other securities. Government securities include both, central and state

governments, such as treasury bills, national savings certificate etc.

Other securities include securities of state associated bodies like electricity boards, housing

boards, debentures of Land Development Banks units of UTI, shares of Regional Rural banks

etc.

4. Agency Functions

Banks function in the form of agents and representatives of their customers. Customers give their

consent for performing such functions. The important functions of these types are as follows:



Banks collect cheques, drafts, bills of exchange and dividends of the shares for their

customers.

Banks make payment for their clients and at times accept the bills of exchange: of their

customers for which payment is made at the fixed time.

Banks pay insurance premium of their customers. Besides this, they also deposit loan

installments, income-tax, interest etc. as per directions.

Banks purchase and sell securities, shares and debentures on behalf of their customers.

Banks arrange to send money from one place to another for the convenience of their

customers.

5. Miscellaneous Functions

Besides the functions mentioned above, banks perform many other functions of general utility

which are as follows:

Banks make arrangement of lockers for the safe custody of valuable assets of their

customers such as gold, silver, legal documents etc.

Banks give reference for their customers.

Banks collect necessary and useful statistics relating to trade and industry.or facilitating

foreign trade, banks undertakes to sell and purchase foreign exchange.

Banks advise their clients relating to investment decisions as specialist

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

Banks issue letters of credit.

During natural calamities, banks are highly useful in mobilizing funds and donations.



Banks provide loans for consumer durables like Car, Air-conditioner, and Fridge etc.

1.14 THE ROLE OF COMMERCIAL BANKS

Besides performing the usual commercial banking functions, banks in developing countries play

an effective role in their economic development. The majority of people in such countries are

poor, unemployed and engaged in traditional agriculture.

There is acute shortage of capital. People lack initiative and enterprise. Means of transport are

undeveloped. Industry is depressed. The commercial banks help in overcoming these obstacles

and promoting economic development. The roles of a commercial bank in a developing country

are

Mobilizing Saving for Capital Formation

Financing Industry

Financing Trade

Financing Agriculture

Financing Consumer Activities

Financing Employment Generating Activities

Help in Monetary Policy

1.15 TYPES OF LOANS GRANTED BY COMMERCIAL BANKS

1. Secured loan

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

as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the

loan. The debt is thus secured against the collateral — in the event that the borrower defaults, the

creditor takes possession of the asset used as collateral and may sell it to regain some or all of the

amount originally loaned to the borrower.

2. Mortgage loan

A mortgage loan is a loan secured by real property through the use of a mortgage note which

evidences the existence of the loan and the encumbrance of that realty through the granting of

a mortgage which secures the loan.

http://en.wikipedia.org/wiki/Loan

http://en.wikipedia.org/wiki/Collateral_(finance)

http://en.wikipedia.org/wiki/Default_(finance)

http://en.wikipedia.org/wiki/Loan


http://en.wikipedia.org/wiki/Real_property

http://en.wikipedia.org/wiki/Mortgage_note

http://en.wikipedia.org/wiki/Encumbrance

http://en.wikipedia.org/wiki/Mortgage_law

http://en.wikipedia.org/wiki/Security_interest



3. Unsecured loan

In finance, unsecured debt refers to any type of debt or general obligation that is

not collateralized by a lien on specific assets of the borrower in the case of

a bankruptcy or liquidation or failure to meet the terms for repayment. In the event of the

bankruptcy of the borrower, the unsecured creditors will have a general claim on the assets of the

borrower after the specific pledged assets have been assigned to the secured creditors. The

unsecured creditors will usually realize a smaller proportion of their claims than the secured

creditors.

4. Short-term loans

Short term loans are granted by banks to meet the working capital needs of business. The

working capital needs refer to financial needs for such purposes as, purchase of raw materials,

payment of wages, electricity bill, taxes etc. Such loans are granted by banks to its borrowers to

be repaid within a short period of time not exceeding 15 months. Short term loans are normally

granted against the security of Tangible assets like goods in stock, shares, debentures, etc. The

rate of interest charged on short term loans ranges from 12% to18% p.a

5. Term loans

Medium and long term loans are generally known as ‘term loans’. These loans are granted for

more than 15 months. In case of Medium term loan, the period ranges from 15 months to less

Than 5 years. Medium term loans are generally granted for heavy repairs, Expansion of existing

units, modernization/renovation etc. Such loans are sanctioned against the security of immovable

assets. The normal rate of interest ranges between 12% to 18% depending upon the period,

purpose, nature and amount of the loan. Though banks may grant long term loans, they avoid

granting loan for more than 5 years.

http://en.wikipedia.org/wiki/Finance

http://en.wikipedia.org/wiki/Debt


http://en.wikipedia.org/wiki/Lien

http://en.wikipedia.org/wiki/Bankruptcy

http://en.wikipedia.org/wiki/Liquidation

http://en.wikipedia.org/wiki/Secured_creditors



Chapter-2

RESEARCH DESIGN

2.1 STATEMENT OF THE PROBLEM

Loan is one of the major elements of finance to a common man. The banks advance money in no

of ways like Housing Loan, Education Loan, Property Loan, Personal Loan, Vehicle Loan, Etc.

Banks usually follow different procedure for advancing different types of loan and advances. In

order to know the different procedure in sanctioning different kinds of loans and the rate of

interest charged to different type of loan this study has been undertaken.

2.2 OBJECTIVES OF THE STUDY

To analyze different types of loans and advances made by The Millennium Credit co-

operative society.

To list out some important loans and advance of the society and there interest rates and

security needed for granting loans and advances.

To analyze the financial position of the society.

To make suggestions and recommendations based on the study.

2.3 SCOPE OF THE STUDY

The study covers the following: Meaning of loans and advances, Utility of loans and advances,

Borrowing rate and lending rate, Lending of money, Nature and security of loans, Procedure of

granting cash credit, overdraft and discounting bills, Statutory & other restrictions on loans &

advances, The Advantages and Disadvantages of Loans, Engaging recovery agents by banks,

Functions of commercial banks, The role of commercial banks, Types of loans granted by

commercial banks, The study is limited to the information provided by the bank officials.



2.4 SOURCES OF DATA

1. Primary Data:

The primary data has been collected directly from the executives and employees of the bank

by personal interview.

2. Secondary Data:

The secondary data has been collected from various published and unpublished source like:

Broachers, Director’s reports, published Financial Statements of the millennium credit

Co-operative society Ltd, Bank official websites, Annual general meeting.

2.5 REFERENCE PERIOD

This reference period is selected for the study for last 4 years i.e. 2009-10 to 2012-13. This study

was done on interpretation what made by comparing various data during research work.

2.6 STATISTICAL TOOLS USED FOR DATA ANALYSIS

The statistical tools used to analyze the data are:

Percentages.

Column Chart.

2.7 LIMITATION OF THE STUDY

All the possible care has been taken to collect the information and make the study as authentic as

possible. However it is subjected to certain information. They are as under:

1. All the findings and recommendations, which are stated, are applicable only for the

current period.

2. The study is limited to the extent to the data given by the bank.



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

4. The interpretation of the study is not complete as primary records of the bank are

inaccessible except Annual reports.

5. The Accuracy of the study depends on the accuracy of information and records provided

by the bank.



2.8 CHAPTER SCHEME

CHAPTER 1-INTRODUCTION TO LOANS AND ADVANCES

This chapter covers-Meaning of loans and advances, Utility of loans and advances, Borrowing

rate and lending rate, Lending of money, Nature and security of loans, Procedure of granting

cash credit, overdraft and discounting bills, Statutory & other restrictions on loans & advances,

The Advantages and Disadvantages of Loans, Engaging recovery agents by banks, Functions of

commercial banks, The role of commercial banks, Types of loans granted by commercial banks,

The study is limited to the information provided by the bank officials.

CHAPTER 2 - RESEARCH DESIGN

This chapter includes -Statement of the problem, objectives of the study, scope of the study,

sources of data Collection, Reference period, Statistical tools used for data analysis, limitation of

the study.

CHAPTER 3 - PROFILE OF THE MILLENNIUM CREDIT CO-OPERATIVE SOCIETY LTD

This chapter cover History of The Millennium credit co-operative society ltd, Corporate

mission, Corporate vision, Resource mobilization, Main operations of society, Bank declarations,

Bank administrative committee, Table showing progress of millennium credit co-operative

society limited in 2012-2013, Organizational chart.

CHAPTER 4 - ANALYSIS AND INTERPRETATION OF THE MILLENNIUM CREDIT CO-

OPERATIVE SOCIETY LTD

This chapter include all tables & charts, interpretation & analysis showing Loans and advances,

Income Statement, Balance sheet for the year ending 2009-2010 to 2012-2013..

CHAPTER 5 - SUMMARY

This chapter covers Findings, Conclusion and Suggestion.



Chapter-3

PROFILE OF THE MILLENNIUM CREDIT CO-OPERATIVE SOCIETY Ltd

The Millennium Credit Co-Operative society was incorporated on 2000 and It was established

under co-operative society act bearing registration No G.R.B:R.G.N/42/7/28676/2000-2001 On

13.07.2000 from the register of co-operative societies in Karnataka.

Head Office

Basavanagudi, Bangalore-560004

The Millennium Credit Co-Operative Society Ltd.

The Millennium Credit Co-Operative Society Ltd. is a community-based microfinance

and micro lending Institution founded in August of 2000. Our office is located at

#81/GandhiBazar,Basavanagudi,Bangalore-560004.

The mission of The Millennium Credit Co-Operative Society Limited is will be the preferred

provider of targeted financial service in our communities based on strong customer

relationships. We will strengthen these relationships by providing the right solutions that



Combine our technology, expertise and financial strength. Our goal is to create customer loyalty,

shareholder value and employee satisfaction.

The organization has adopted a co-operative approach in order to involve every member in our

mission with a spirit of cooperation and mutual confidence. The credit society has instituted a

working culture, which revolves around efficiency, transparency, professionalism, teamwork and

flexibility.

The society showed a significant progress in the collection of deposits and providing loans.

The banking has not limited its services in banking but also has contributed for the Education by

issuing books to students, encouraging National level games like Dance, Music, Drama and A

step ahead the society has took 3 students from Sri Vinayaka Education Society to pay the fee for

their education from 1st to 10

th std of yearly 5000 for each child. On 06/08/13 bank has

completed its 13 years of excellence in the banking service. In the recent days there is a

competition among co-operative. Nationalized and other commercial banks to save its customers

keeping these. In view, the bank has computerized its transaction. In the next Coming years,

bank has the plans to increase its shares and funds.

3.1 CORPORATE MISSION

The preferred provider of targeted financial service in our communities based on strong

customer relationships. We will strengthen these relationships by providing the right

solutions that combine our technology, expertise and financial strength. Our goal is to

create customer loyalty, shareholder value and employee satisfaction.

To bring total customer satisfaction by providing quality services.

Create wealth for customers and other stakeholders.



3.2 CORPORATE VISION

“To Be A Customer Friendly Premier Bank Committed To Enhancing Stakeholders Value”

Following are some of the rules and regulations provided by the bank for the benefits of

customers

Avail nomination facilities to account holders including savings bank a/c and current a/c

holders.

Bank will exchange multiple currency notes as per R.B.I guidelines.

Bank will give standing instruction for the payment of bills, rent, interest, insurance etc…

Bank provides required and important guidelines to the locker holders.

Locker Facilities.

3.3 RESOURCE MOBILIZATION

Customer Profile

Achieved to a greater extent by getting new connections from other institution and individuals.

Customer services

By and loge the service by the is good and these are no complaints from the customer services in

The Millennium Credit Co-Operative Society Ltd is the one of the reason for attracting more

customers meeting over the recommendation by the committees and board meetings.

Popularity Of Deposit Schemes

The different deposit schemes like fixed deposits, Millennium cash certificate (The principal will

double in 6 years). The bank is popularized these schemes.



Deployment of funds

As the bank is situated in residential area, by introducing new and attractive scheme like

Millennium cash certificates etc, the lending has been increasing. The bank is also making efforts

to bring a significant change in the deployment of funds.

Recovery

The branch is giving it most importance for the recovery of the overdue loans. This is

implemented with the help of the sale officer.

Human resource

Staff relationship in the bank is excellent. A sub-committee monitors the day to day affairs in the

head office. This sub-committee corrects the mistakes and gives its previous suggestions to the

staff member to provide excellent service.

Profitability

Sincere effects have been made to recover Loans with interest so as to Increase the profitability

of the society. Monitoring the cash holding of the branch with the given prescribed limits.

3.4 MAIN OPERATIONS OF SOCIETY

1. Cash receipts/deposits.

2. Cash withdrawals.

3. Sanctions and disbursement.

4. Locker facilities.

5. Updating and disbursement of loan.

6. Issuing demand drafts.



The bank has prescribed certain norms on transaction for the benefit of the customers. There

norms given below.

Pass book will be updated immediately as transaction happened.

Customers can purchase a demand draft within few minutes.

Nomination facility is made available.

Cheque books one issued on demand from depositors.

Changes in customer personal information immediately after customer request.

3.5 Bank declarations

To provide professional, efficient, courteous, delight and speedy services in the matter of

retail lending.

Not to discriminate on the basis religion, sex, descent or any of them.

To be fair and honest in advertisement and marketing of loans products.

To bring best deposits schemes for customer satisfaction.

To provide customer with accurate and timely disclose of terms costs rights and liabilities

as regard loan transactions.

Top attempt in good faith to resolve dispute or differences with customers by setting up

complaint redresses cells within the organization.

To comply with the entire regulatory requirement in good faith.

To spread general awareness about potential risks contracting loans and encourages

customer to take an independent financial advices and not only on representation from

the bank.



3.6 Bank Administrative Committee

President- Prasanna

Vice President- B.C Krishna

Board of Directors

Sri.H.C.Channaiah

Sri.S.L.Manjunath

Sri.P.R. Manohar Guptha

Sri.G.K.Harish Kumar

Sri.Muninanje Gowda

Sri.Dr.K.Krishna Murthy

Sri.K.M.Dakshina Murthy

Smt.Sunitha Nagesh

Sri.D.Krishnappa

Sri.G.Srinivasn

Sri.M.Ramesh.



3.7 Table Showing Progress of Millennium Credit Co-Operative Society

Limited in 2012-2013

( In Lakhs )

Share Capital 116.53

Deposits 3199.97

Reserves and surplus 79.30

Other Funds 201.10

Loans and advances 3172.76

Net profit of 2011-12 76.49

No. of Members 3807

Working Capital 3596.90

Dividend 15%

Yearly Business 5730.43

Savings and Investments 328.61

Audit Rating "A"



3.8 ORGANISATIONAL CHART



CHAPTER-4

ANALYSIS AND INTERPRETATION OF COMPARATIVE STUDY ON LOANS AND ADVANCES

AT THE MILLENNIUM CREDIT CO-OPERATIVE SOCIETY LTD

Loans and Advances play an important part in the gross earnings and net profit of banks. The

basic function of Banks is whether it is a commercial bank or any other credit institution, is to

enable individuals and business enterprises to purchase goods or services. Consumers demand

credit to acquire goods for which they pay in future. Demand for credit by business man arises

because of time consuming nature of the productive and distribution process. Of all the functions

of modern banking, lending with or without security, is by far the most important functions.

Loans and advances constitute lending. Loans and advances from the major business activity of

the bank, they pay the depositor as and when they are due for payment. And major part of banks

income is earned from interest earned on advances. The proper management of loans and

advances is known as credit management. Therefore credit management can be defined as

“management of loans and advances in banks”.

4.1 Product Profile

The Different Types of Loans and Advances Are As Follows

1. Surety Loan

2. Property Loan

3. House Construction Loan

4. Land Purchase loan

5. Business loan or Business improvement loan

6. LIC bond loan

7. Gold loan

8. Loans on deposits

9. Vehicle loan

10. Two wheeler loan

11. Staff vehicle loan



12. Staff houses building loan

13. Staff Special salary advance

1. Surety Loan

Quantum Of Loan: Decided by the management

Interest: 18% P.A

Purpose: For the personal use of members and their relatives

Period Of Loan: 60 months

Objective: To help the persons who is in need of funds

Documents:

Address proof and id proof.

Introducer of the bank ( Reputed Member )

2. Property(Assets) Loans

Quantum Of Loan: up to 40lakhs

Interest: 15% P.A

Period of loan: During of loan is 180 months( 15 years)

Objectives: Loan taken on property is fulfilling the long term finance for person who

needed to their personal purpose.

3. House construction loan

Quantum Of Loan: up to 40 lakhs

Interest:15.00% P.A

Purpose: For the construction of house

Period Of Loan: 180 month (15 years)

Objective: To provide financial assistance to the middle class people and the society

members to build and own house

Age criteria: A person must be at age of 18years and above



Procedures

Applicant should fill up the form provided by the bank

Applicant should pay the service charge as prescribed by the bank.

Documents

It is own with sale people he should have the old owners paper which are favoring

them

If it is for father’s property then he should hold the document that he is the owner

Recent tax receipts

Khatha papers

Site/construction plan

Site photographs

Address proof and income conformation.

4. Site Purchasing Loan

Quantum of loan: 40 lakhs.

Interest:15% P.A

Period of loan: 180months (10 years)

Processing fee: According to the changes in future course banks decision involved in it.

5. Business And Business Improvement Loan

Quantum Loan: up to 40lakhs

Interest Rate:15% P.A

Purpose: Bank provides loans to its membership customer for their Business transaction

and business improvement.

Special Feature

This Loan is provided to small scale Business to improve.

To Improve Business with the financial assistance.

This loan helps in self employment of the people.

Documents from the applicants

Applicant should give the document which shows income coming from his

Business transaction.



Balance sheet of previous showing its profit position.

Provided the necessary documents like Incorporation certificate, Commencement

certificate

If Business place is rented one, then the applicant should get letter from the owner

that he is paying his rent regularly.

Income tax returns

6. Lic Bond Loans

Amount of loan70% on premium paid on LIC Bonds.

Interest Rate: Up to 15% P.A Interest Amount Rate may charge from period as per the

direction of reserve bank and administration board

Way of treating and transferring:

The persons have to transfer bonds to the bank and register in the concerned department

and get the letter or document showing the transfer to the bank.

Procedure:

In common policy assignment letter related every policy holders signature with

written letter and the letter should be written to the insurance company holder.

This should be enlisted in the insurance company.

A receipt regarding the last installment paid the policy holder and gets the

surrendered value details from the policy company.

7. Gold Ornaments Loan

Quantum of loan: Maximum upto 10 lakhs on gold ornaments as a gram gold Rs.2,000/-

Duration of loan: 24 months

Interest Rate: 15% P.A

Documents:

ID Proof and address proof.

There is no much of security needed.



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

Quantum of loan: up to 15lakh

Period of loan: During of loan is 60 months( 5 years)

Interest: 15% P.A

Objective:

To own vehicles by everyone

To provide loan to their business purpose for vehicles like auto, trucks, cars,

buses.

To become self employed and which gradually reduces un-employment

Procedures and documents:

Applicant should for Performa invoice

Duplicate of driving licenses holders will be applicant

Permit letters from the transport office for running the vehicle

If the vehicles are given to BMTC/KSRTC then should provided necessary

letter required by bank.

Membership id cards and address proof duplicate

Income conformation paper.

Get necessary blank forms for the transfer of the vehicle ownership.

Promissory note

Hypothecation.

9. Two Wheeler Loan

Quantum of loan: Up to 1 lakh

Purpose: Purchases of new two wheeler (Scooter, Motorcycle, and Moped) for personal

use only.

Duration of loan: Upto 28 Months

Interest Rate:15% P.A



Documents & Procedures

Performa invoice from the vehicle company.

Applicant driving license duplicate.

Declaration letter from the loan beneficiary

ID card showing customer of the bank & address proof duplicate.

Proof of income from employer

Eligibility

Employees of centre/state government department’s public sector undertaking,

corporation boards, private institutions, business /trade professionals,

agriculturists/engaged in allied activities that have income proof.

10. Staff Vehicle Loan

Quantum of loan: 70% of the value.

Period of loan:60 months.

Interest Rate: Up to 14% P.A

Purpose

For the transportation of its staff.

For their personal purpose.

Repayment:

The loan amount is deducted in their salary with a very low interest rate than

other.

11. Staff Special Salary Advance

Quantum of loan: Decided by the management

Purpose:

For the personal purpose of staff.

To make expense before the salary date.

Repayment:

The advance amount is a deducted in future salaries there is no interest on their advance.



12. Staff Houses Building Loan

Quantum of loan: 70% of Expenses or 40 lakhs which ever is low.

Period of loan:180 months.

Purpose:

Staff to own their house.

To secure themselves.

Repayment: The loan amount is deducted in their salaries. The interest amount is fixed by

the administration which may be very low.

13. National Savings Certificate

Amount of loan: 70% of bond value purchased or market value

Interest Rate: Up to 15% P.A

14. Over Drafts On Deposits

Purpose:

To meet the personal needs of customers.

To develop a good relation between customer and bank.

Eligibility:

An account holder should have maintain a good balance in the past.

He should have a good record of transaction and maintain the good balance.

Permission:

Account holder should approach the manager in respective department head.

The management will decide to allow or not.

Amount of Over Draft: 90% of the value.



Analysis

Table No 4.1

Table Showing Vehicle Loan for the Period 2009-10 to 2012-13

Year

Total Loans and

Advances Vehicle Loan

% Of Total

Amt

2009-2010 17,22,15,424 12,93,208 0.75

2010-2011 29,09,99,648 45,70,052 1.57

2011-2012 28,91,18,080 72,97,854 2.52

2012-2013 31,72,81,601 67,81,516 2.13

Chart No 4.1

Chart Showing Vehicle Loan for the Period 2009-10 to 2012-13

Analysis and interpretation

The above table and Chart shows the vehicle loan position is increasing year by year. It was

0.75% of total loans lend by bank. But it increased to 1.57 in 2010-2011 and 2.52 in 2011-2012.

But had decreased in 2012-2013 to 2.13 compared to last year.

The total vehicle loan is differs from year to year her we can know that there is increase in 2011-

2012 by 7297854 but decrease in 2012-2013 by 6781516.

0

2000000

4000000

6000000

8000000

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

1293208

4570052

7297854 6781516

Vehical Loan



Table No 4.2

Table Showing Surety Loan for the Period 2009-10 to 2012-13

Year

Total Loans and

Advances Surety Loans

% Of Total

Amt

2009-2010 17,22,15,424 80,42,139 4.67

2010-2011 29,09,99,648 1,31,07,602 4.5

2011-2012 28,91,18,080 1,80,20,266 6.23

2012-2013 31,72,81,601 1,66,51,913 5.25

Chart No 4.2

Chart Showing Surety Loan for the Period 2009-10 to 2012-13


The above table and Chart shows the Surety loan position is increasing year by year. It was

4.67% of total loans lend by bank. But it decreased to 4.50% in 2010-2011 and then it raised to

6.23 in 2011-2012. But in 2012-2013 once again it decreased to 5.25 compared to last year.

The total Surety loan is differs from year to year her we can know that there is increase in 2011-

2012 by 18020266 but decrease in 2012-2013 by 16651913.

0

5000000

10000000

15000000

20000000

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

8042139

13107602

18020266 16651913

Surety Loan



Table No 4.3

Table Showing Immoveable Property Loan for the Period 2009-10 to 2012-13

Year

Total Loans and

Advances IPL Loan

% Of Total

Amt

2009-2010 17,22,15,424 15,35,35,547 89.15

2010-2011 29,09,99,648 26,10,64,901 89.71

2011-2012 28,91,18,080 24,90,02,596 86.12

2012-2013 31,72,81,601 26,87,65,131 84.7

Chart No 4.3

Chart Showing Immoveable Property Loan for the Period 2009-10 to 2012-13


The above table and Chart shows the IPL loan position is increasing year by year. It was 89.15%

of total loans lend by bank. But it increased to 89.71% in 2010-2011 and then it came down to

86.12 in 2011-2012. But in 2012-2013 once again it decreased in percentage of lending to 84.70

compared to last year.

The total IPL loan is differs from year to year her we can know that there is increase in 2012-

2013 by 268765131 compared to last year 249002596.

0

50000000

100000000

150000000

200000000

250000000

300000000

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

153535547

261064901 249002596 268765131

Immovable Property Loan



Table No 4.4

Table Showing Gold Loan for the Period 2009-10 to 2012-13

Year

Total Loans and

Advances Gold Loan

% Of Total

Amt

2009-2010 17,22,15,424 8,19,838 0.48

2010-2011 29,09,99,648 18,83,634 64

2011-2012 28,91,18,080 9,77,357 0.34

2012-2013 31,72,81,601 21,25,055 0.67

Chart No 4.4

Chart Showing Gold Loan for the Period 2009-10 to 2012-13

Analysis and Interpretation

The above table and Chart shows the Gold loan position is increasing year by year. 2009-2010 It

was 0.48% but It was Increased in 2010-2011 by 0.64%, and then decline to 0.34% in 2011-2012

and It was Increased to 0.67 in 2012-2013.

The total Gold loan differ from year to year here it is seen that in the year 2011-2012 has

decreased by 977357 from last year and increased in 2012 by 2125055.

0

500000

1000000

1500000

2000000

2500000

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

819838

1883634

977357

2125055

Gold Loan



Table No 4.5

Table Showing Deposit Loan for the Period 2009-10 to 2012-13

Year

Total Loans and

Advances Deposit Loan

% Of Total

Amt

2009-2010 17,22,15,424 80,81,784 4.69

2010-2011 29,09,99,648 98,05,982 3.37

2011-2012 28,91,18,080 1,26,47,681 4.37

2012-2013 31,72,81,601 2,18,75,209 6.9

Chart No 4.5

Chart Showing Deposit Loan for the Period 2009-10 to 2012-13


The above table and Chart shows the amount on Deposits loan position is increasing year by

year. 2009-2010 it was 4.69% but It was decreased 2010-2011 by 3.37%, and increased in 2011-

2012 by 4.37%. and then it further increased to 6.90% in 2012-2013.

The total Deposits loan differ from year to year here it is seen that in the year 2011-2012 it has

increased by 12647681 and 21875209 in 2012-2013.

0

5000000

10000000

15000000

20000000

25000000

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

8081784 9805982

12647681

21875209

Deposite Loan



Table No 4.6

Table Showing Staff Lic Loan for the Period 2009-10 to 2012-13

Year

Total Loans and

Advances LIC Loan

% Of Total

Amt

2009-2010 17,22,15,424 18,940 0.011

2010-2011 29,09,99,648 10 0

2011-2012 28,91,18,080 0 0

2012-2013 31,72,81,601 0 0

Chart No 4.6

Chart Showing Staff Lic Loan for the Period 2009-10 to 2012-13


The above table and Chart shows the amount on Staff lic loan position is decreasing year by

year. It was 0.011% in 2009-2010 but It was decreased and eliminated entirely in the coming

years.

The total Staff lic loan differ from year to year here it is seen that in the year 2009-2010 it has

18940 and decreased to zero in coming years

0

5000

10000

15000

20000

2009-2010 2010-2011 2011-2012 2012-2013 Staff Lic Loan



Table No 4.7

Table Showing Staff Salary Advances for the Period 2009-10 to 2012-13

Year

Total Loans and

Advances

Staff salary

Advances

% Of Total

Amt

2009-2010 17,22,15,424 84,000 0.0491

2010-2011 29,09,99,648 72,000 0.0251

2011-2012 28,91,18,080 63,000 0.0221

2012-2013 31,72,81,601 5,000 0.0016

Chart No 4.7

Chart Showing Staff Salary Advances for the Period 2009-10 to 2012-13


The above table and Chart shows the amount on Staff Salary advances position is decreasing

year by year. 2009-2010 it was 0.0491% but It was decreased to 0.0251% in 2010-2011,0.0221

in 2011-2012 and further decreased to 0.0016% in 2012-2013.

The total Staff Salary Advances differ from year to year here it is seen that in the year 2011-2012

it has decreased to 63000 and 5000 in 2012-2013.

0

20000

40000

60000

80000

100000

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

84000 72000

63000

5000

Staff Salary Advance



Table No 4.8

Table Showing Staff Loan for the Period 2009-10 to 2012-13

Year

Total Loans and

Advances Staff Loan

% Of Total

Amt

2009-2010 17,22,15,424 2,34,547 0.1372

2010-2011 29,09,99,648 4,54,103 0.156

2011-2012 28,91,18,080 10,.61,268 0.3671

2012-2013 31,72,81,601 10,33,580 0.3364

Chart No 4.8

Chart Showing Staff Loans for the Period 2009-10 to 2012-13


The above table and Chart shows the amount on Staff loan position is increasing year by year.

2009-2010 it was 0.1372% and in 2010-2011 it was 0.1560 but it was further increased to 2011-

2012 by 0.3671%, and decreased in 2012-2013 by 0.3364%.

The total Staff loan differ from year to year here it is seen that in the year 2011-2012 it has

increased by 1061268 and 1033580 in 2012-2013.

0

500000

1000000

1500000

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

234547 454103

1061268 1033580

Staff Loans



Table No 4.9

Table Showing Arbitration and Execution Charges for the Period 2009-10 to 2012-13

Year

Total Loans and

Advances

A and E

Charge

% Of Total

Amt

2009-2010 17,22,15,424 1,05,421 0.6232

2010-2011 29,09,99,648 41,364 0.0142

2011-2012 28,91,18,080 48,058 0.0177

2012-2013 31,72,81,601 44,197 0.0141

Chart No 4.9

Chart Showing Arbitration and Execution Charges for the Period 2009-10 to 2012-13


The above table and Chart shows the amount on Arbitration and Execution Charges position is

decreasing year by year. 2009-2010 it was 0.6232% and in 2010-2011 it was 0.0142 but It was

slightly increased to 0.0177% in 2011-2013 and decreased in 2012-2013 by 0.0141%.

The total on Arbitration and Execution Charges differ from year to year here it is seen that in the

year 2011-2012 it has decreased by 48058 and 44197 in 2012-2013.

0

50000

100000

150000

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

105421

41364 48058 44197

Arbitration and execution Charges



Table No 4.10

Table Showing Total Loans and advances for the Period 2009-10 to 2012-13

Year Total of B/S

Total Loans

and Advances

% Of Total

Amt

2009-2010 18,90,80,973 17,22,15,424 91.08

2010-2011 30,25,30,130 29,09,99,648 96.19

2011-2012 32,92,35,439 28,91,18,080 87.81

2012-2013 37,06,99,411 31,72,81,601 85.59

Chart No 4.10

Chart Showing Total Loans and advances for the Period 2009-10 to 2012-13


The above table and Chart shows the amount of Total loans and Advances is decreasing year by

year. 2009-2010 it was 91.08% and in 2010-2011 it was increased to 96.19% and in 2011-2012

it was decreased to 87.81%, and in 2012-2013 by 85.59%.

The Total loans and Advances differ from year to year here it is seen that in the year 2011-2012

it has decreased by 28, 91, 18,080 and 31, 72, 81,601 in 2012-2013.

0

100000000

200000000

300000000

400000000

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

172215424

290999648 289118080 317281601

Total Loans And Advances



Table No 4.11

Table Showing Net Profit for the Period 2009-10 to 2012-13

Year Total of B/S Profit

% Of Total

Amt

2009-2010 189080973 50,55,701 2.68

2010-2011 302530130 50,84,887 1.69

2011-2012 329235439 60,47,235 1.84

2012-2013 370699411 76,49,984 2.07

Chart No 4.11

Chart Showing Net Profit for the Period 2009-10 to 2012-13


The above table and Chart shows the Net Profit position is increasing year by year. 2009-2010 It

was 2.68% but It was decreased in 2010-2011 by 1.69%, and then increased to 1.84% in 2011-

2012 and It was further Increased to 2.07 in 2012-2013.

The total Net Profit differs from year to year here it is seen that in the year 7649984 in 2012-

2013 compared to 6047235 in 2011-2012.

0

2000000

4000000

6000000

8000000

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

5055701 5084887 6047235

7649984

Net Profit



Table No 4.12

Table Showing Interest received on Loans and Advances for the Period 2009-10 to 2012-13

Year

Total Loans and

Advances

Interest

Amount

Average Percentage

of Interest

2009-2010 17,22,15,424 1,94,44,418 11.29

2010-2011 29,09,99,648 3,24,89,752 11.16

2011-2012 28,91,18,080 3,90,41,225 13.51

2012-2013 31,72,81,601 3,98,58,870 12.56

Chart No 4.12

Chart Showing Interest received on Loans and Advances for the Period 2009-10 to 2012-13


The above table and Chart shows the Interest received on loans and advances position is

increasing year by year. 2009-2010 It was 19444418 but It was increased in 2010-2011 to

32489752, and then increased to 39041225 in 2011-2012 and It was further Increased to

39858870 in 2012-2013.

0

10000000

20000000

30000000

40000000

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

19444418

32489752

39041225 39858870

Amount



Comparative Balance Sheet

Table No 4.13

Table Showing Comparative Balance Sheet for the period 2009-2010 and 2010-2011

Particulars 2009-2010 2010-2011 Increase/decrease

in amount

Increase/decrease in %

LIABILITIES

Share capital 8587200 11611000 3023800 35.22

Reserve & Fund 12102606 15084020 2981414 24.64

Deposits/

Other A/c’s

157205234 264040858 106835624 67.99

Interest Provision 2502789 1686939 (815850) 32.40

Other Payable 150 000 (150) 100.00

Dividend

Payables

904223 1244706 340483 37.65

Other liabilities 2426670 3618220 1191550 49.11

Other Asset

296300 159500 (136800) 46.17

Profit &loss a/c 5055701 5084887 29186 0.578

Total 189080973 302530130 113449157 60.00

ASSETS

Cash in hand 1856360 627995 (1228365) 66.17

Cash @ bank 5800045 1382699 (4417346) 76.16

investment 2470911 3470911 1000000 40.47

Other Deposits 6000 6000 00.00 00.00

Loans& advances 172215424 290999648 118784224 68.97

Other assets 5661198 6034777 373579 6.60

Stock 8100 8100 00.00 00.00

Profit and Loss 1062935 ------ 1062935 100.00

Total 189080973 302530130 113449157 60.00



Interpretation for the period 2009-2010 and 2010-2011

There has been overall increase in total assets of the bank in the 2011 by 60.00%.

This shows the performance was good in the year.

The share capital is increased by 35.22% in 2011 as compared to 2010. So the

position of equity has also increased

In the year 2011, the investment scheme of the bank is good. It was increased by

40.47% as compared to 2010. It shows bank come out with good investment

scheme.

A cash balance and bank balance was decreased by 66.17% and 76.16%

respectively in 2011 compared to 2010. This shows the bank does not have

sufficient cash reserve to meet the emergency demand.

The position of other liabilities has unable to made payment and it shows that

the bank was increase in net profit.

The provision for Interest is decrease by 32.40 in the 2011 compared to

2010.The bank has to make provisions more to meet uncertainty in future

course.`

There were issues of shares increased by 35.22% in the year 2011. So the

position of equity has also increased.

The position of other liabilities has increased by 49.11% it shows that the bank

was unable to made payment.

In the year 2011, there was an increase in net profit of the bank up to 0.578%.

But still the bank should operate more efficiently.



Table No 4.14


Particulars 2010-2011 2011-2012 Increase/decrea

se in amount

Increase/decrease

in %

LIABILITIES

Share capital 11611000 11557800 (53200) 0.46

Reserve & Fund 15084020 18865927 3781907 25.08

Deposits/

Other A/c’s

264040858 277674787 13633929 5.16

Intrest Provision 1686939 3343661 1652672 98.21

Other Payable 000 000 000 000

Dividend

Payables

1244706 1279911 35205 2.83

Other liabilities 3618220 10466117 6847957 189.23

Other Asset

(Suspense a/c )

159500 000 (159500) 100.00

Profit &loss a/c 5084887 6047235 962348 18.92

Total 302530130 329235439 26705309 8.83

ASSETS

Cash in hand 627995 1026288 398293 63.42

Cash @ bank 1382699 4838666 3455967 249.94

Investment 3470911 22063911 18593000 535.68

Other Deposits 6000 6000 000 000

Loans &

advances

290999648 289118080 (1881568) 0.65

Other assets 6034777 6135318 100541 1.67

Stock 8100 000 (8100) 100.00

Profit and Loss ------ 6047235 6047235 100.00

Total 302530130 329235439 26705309 8.83





This shows the performance was good in the year.

In the year 2012, the investment scheme of the bank as very good. It was

increased by 535.68% in this year. Compared to increase of 40.47 last year.

A cash balance and bank balance was increased by 63.42% and 249.94% in 2012

compared to last year. This shows the bank have sufficient cash reserve to meet

the emergency requirements.

There was a paid off of shares decreased by 0.46% in the year 2012. So the

position of equity has also decreased.

The position of other liabilities has increased by 189.23% it shows that the bank

was unable to made payment.

In the year 2012, there was an increase in net profit of the bank up to 18.92% this

indicates the operational efficiency of the bank compared to 2011 and 2010.



Table No 4.15


Particulars 2011-2012 2012-2013 Increase/decrea

se in amount

Increase/decrease

in %

LIABILITIES

Share capital 11557800 11727200 169400 1.47

Reserve & Fund 18865927 23263974 4398047 23.32

Deposits/

Other A/c’s

277674787 319997266 42322479 15.24

Interest Provision 3343661 1648406 (1695255) 50.70

Other Payable 000 000 000 000

Dividend Payables 1279911 1314751 34840 2.72

Other liabilities 10466117 4938330 (5527787) 52.81

Other Asset

(Suspense a/c )

000 159500 159500 100.00

Profit &loss a/c 6047235 7649984 1602749 26.50

Total 329235439 370699411 41463972 12.60

ASSETS

Cash in hand 1026288 922634 (103654) 10.10

Cash @ bank 4838666 13183833 8345167 172.47

Investment 22063911 32861957 10798046 48.93

Other Deposits 6000 128744 122744 2045.73

Loans & advances 289118080 317281601 28163521 9.74

Other assets 6135318 6320642 185324 3.02

Stock 000 000 000 000

Profit 6047235 000 6047235 100

Total 329235439 370699411 41463972 12.60





This shows the performance was good in the year

In the year 2013, the investment scheme of the bank as good. It was increased by

48.93% in 2013 as compared to 2012.

The bank has also had an increased bank balance in 2013 by 172.47%. compared

to 2012. It decrease cash balance by 10.10% in present year, compared to 2012.

There were issues of shares increased by 1.47 % in the year 2013. So the position

of equity has also increased.

The position of other liabilities has decreased by 52.81% compared to 2012.and

it was a good sing.

In the year 2013, there was an increase in net profit of the bank up to 26.50% this

indicates the operational efficiency of the bank compared to 2012.



Comparative income sheet

The income statement gives the results of the operations of a business. The comparative income

statement gives an idea of the progress of a business over a period of time. The changes in

absolute data of money values & percentages can be determined to analysis the probability of the

business. Like, comparative balance sheet, income statement has also 4 columns. First two

columns give figure of various items for two years. 3 & 4th

columns are used to show

increase/decrease in figures in absolute amounts and %’s respectively.

Table No 4.16

Comparative income statement for the period 2009-2010 and 2010-2011


in amount

Increase/decrease

in %

Income

Interest on Loan 19444418 32489752 13045334 67.09

Penal On Loan 357215 362608 5393 1.50

Commission on

NNS

74583 75858 1275 1.70

Interest on

Investment

113454 60951 52503 46.27

Other Incomes 1249630 1842208 592576 47.42

Total 21239300 34831377 13592077 64.00

Expenses

Interest Paid On

Deposits

13640569 25277542 11636973 85.32

Staff

Conveyance

7791 3934 (3857) 49.50

Office

Maintenance

107193 74844 32349 30.17

Commission on 502177 678389 176212 35.09



NNS

Other Expenses 1925869 3711781 1785912 92.73

Profit 5055701 5084887 29186 0.58

Total 21239300 34831377 13592077 64.00


The operating efficiency of the bank was satisfactory & favorable as compared to

2010.

The operating incomes have increased 13592077 for the 2011. When compared to

2010.

The operating expenses have also increased in the year 2011. When compared to

2010.

The profit for the year 2011 has increased to 0.58%. When it is compared to 2010.

Bank’s profit has increased but it is able to maintain the operating efficiency during

the year.

From the above analysis, the operating efficiency of the The Millennium Credit Co-operative

Society Ltd is quite satisfactory. More efforts should be taken to get better utilization of deposits

so that operating profit increase in the future coming year.



Table No 4.17



in amount

Increase/decrease

in %

Income

Interest on Loan 32489752 39041225 6551473 20.17

Penal On Loan 362608 372309 9701 2.67

Commission on

NNS

75858 68077 (7781) 10.25

Interest on

Investment

60951 389995 329044 539.85

Other Incomes 1842208 1087735 (754473) 40.95

Total 34831377 40959341 6127964 17.60

Expenses

Interest Paid On

Deposits

25277542 30110134 4832592 19.11

Staff

Conveyance

3934 1584 2350 59.73

Office

Maintenance

74844 37930 (36914) 49.32

Commission on

NNS

678389 658403 19986 2.94

Other Expenses 3711781 4104055 392274 10.56

Profit 5084887 6047235 962348 18.92

Total 34831377 40959341 6127964 17.60





2011.

The operating incomes have increased 6127964 for the year 2012. When compared

to 2011.


2011.



the year.

Other incomes has decreased by 1087735 compared to last year 2011.the bank has to

concentrate on other activities as well.

From the above analysis, the operating efficiency of The Millennium Credit Co-operative

Society Ltd is satisfactory. More efforts should be taken to get better utilization of deposits so

that operating profit & net profit may increase in the future coming year.



Table No 4.18



in amount

Increase/decrease

in %

Income

Interest on Loan 39041225 39858870 817645 2.09

Penal On Loan 372309 482840 110531 29.68

Commission on

NNS

68077 713 (67364) 98.95

Interest on

Investment

389995 446073 56078 14.37

Other Incomes 1087735 1844698 756963 69.59

Total 40959341 42633194 1673853 4.09

Expenses

Interest Paid On

Deposits

30110134 29527373 (582761) 1.93

Staff

Conveyance

1584 1110 (474) 29.92

Office

Maintenance

37930 90137 52207 137.64

Commission on

NNS

658403 630744 (27659) 4.20

Other Expenses 4104055 4733846 629791 15.34

Profit 6047235 7649984 1602749 26.50

Total 40959341 42633194 1673853 4.09





2012.

The operating incomes have increased 1673853 for the year 2013. When compared

to 2012.


2012.



the year.

From the above analysis, the operating efficiency of the The Millennium Credit Co-operative

Society Ltd is satisfactory. More efforts should be taken to get better utilization of deposits so

that operating profit & net profit may increase in the future coming years.



Chapter 5

SUMMARY OF FINDING, CONCLUSION AND SUGGESTIONS

5.1 FINDINGS:

Allocation of loans has been increased in 2012-2013, when compared to the financial

year 2010-11 & 2011-2012.

Profit position is increased by the year comparing to year 2010-2011 and 2011-2012.

The deposit position of the bank is increased in 2012-2013. When compared to 2010-

2011 and 2011-2012.

The bank repeat loans when previous loans are refunded.

Small enterprises are provided loans under business loan.

Bank operates mostly to customers of middle class and lower middle class people.

Bank lacks in ATM centre.

Bank does not have online banking.

The bank lacks in branches.

The bank uses only Kannada in its most transactions.

The bank operations are fluctuating year by year.

The ban has stopped giving lic bond loans to customers and the staff.



5.2 CONCLUSION

The study has been conducted on “comparative study on loans and advances”. The Millennium

Credit Co-operative Society Ltd, Bangalore.

According to the objectives through the study As we know the population is been increasing day

by day the more and more people will not have employment opportunity due to this, the

interested people will come for the loans to start their own business, but the people who are in

middle class people they have the basic needs due to less income the middle class people will

come to take loans to fulfill their needs, the needs in the sense like house construction and for

vehicle. The bank also provides the loans for the staff who are working in the bank for less rate

of interest. The loans like, festival advance, staff vehicle loans, staff house building etc….

If an account holders wants they need to have the loan the bank will help the customers to have

huge amount for less rate of interest. If the customer’s performance / transaction are good in the

bank the banks will provide advances, over draft etc



5.3 SUGGESTIONS

The profit position can be improved by reducing the interest rates on loans.

The providing of loans must be increased so it will help raising the income.

Online banking should be adopted so that customers can transact easily.

The bank should provide loans on lic bonds. So that the bank can secure of lending and

make profit as well.

The bank should include English and Hindi with Kannada which helps to different

communities. It helps to gain more customers.

The bank has to open the branches throughout state and cities so that they meet needs

of all customers.

Bank has to introduce new loan schemes to encourage more and more different classes of people.



BIBLIOGRAPHY

Authors

1- Adrian Buckley- Multinational Finance- Phi-Learning Pvt Ltd

2- Appannaiah Reddy- Financial Management- Himalaya

3- Eun.C.S/Resnic.B.G- International Financial Management- TMH

4- Khan M Y- Financial Services- Tata MGraw Hill

5- Maiya- A Textbook Of Financial Management- Himalaya

6- Narendra Singh- Advanced Financial Management- Himalaya

7- Vyuptakesh Sharan- Fundamentals Of Financial Management- Dorling

8- Sunil K Parameswaran- An Introduction To Money- New-Century

Company Profile and Journals

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A comparative study on Loans and advances

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