CO-OPERATIVE BANKING & ITS CREDIT APPRAISAL MECHANISM

CO-OPERATIVE BANKING & ITS CREDIT APPRAISAL MECHANISM

SUMMER PROJECT

Presented By : Chandni Devani8/18/20112Objective of Study:1. To understand the Indian Co-operative banking industry.2. To understand the concept & Mechanism of credit appraisal & various services rendered by Abhyudaya Co-op Bank Ltd.3. The project emphasis on understanding the procedure and process used by Abhyudaya Co-operative Bank Ltd. to assess the credit worthiness of the borrower.4. The study in the form of cases deal with calculations of MPBF (Maximum Permissible Bank Finance), along with going through the borrowers information, general information of the proposal, past record of borrower and details of security mortgaged.5. To suggest the steps to be taken to increase the efficiency of Abhyudaya Co-op Bank Ltd. regarding Credit Appraisal.

CO-OPERATIVE BANKING & ITS CREDIT APPRAISAL MECHANISM8/18/201128/18/20113INDIAN BANKING STRUCTURE

CO-OPERATIVE BANKING & ITS CREDIT APPRAISAL MECHANISM8/18/201138/18/20114

CO-OPERATIVE BANKINGACo-operative Bankis a financial entity which belongs to its members, who are at the same time the owners and the customers of their bank.

Registered under the Co-operative Societies Act

They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.

MAIN FEATURESAs per B.R. Act 1949 co-operative bank cannot undertake trading activities.

A co-operative bank is prohibited from holding any immovable property Except for own use

Co-operative bank cannot carry on business of banking in india unless Minimum paid up share capital and reserves is less than rupees one lakh.

8/18/20115TYPES OF LOANS & ADVANCES

1.Personal Loan2.Gold Loan3.Rent Securitization Loan4.Mortgage Loan5.Hosing Loan6.Educatin Loan7.Vehicle Loan8.Group Loan9.Project Loan10.Loan Against NSC/RBI Bonds/LIC/KVP)8/18/20116Process of lending in Co-op Banks Begins with Membership:In co-op banks the borrowers must be the members (shareholders) of the bank There are 2 types of members1. Nominal members2. Regular members

What is credit appraisal?Credit Appraisal is the process by which a lender appraises the technical feasibility, economic viability and bankability including creditworthiness of the prospective borrower. Components of Credit Appraisal Process/ MechanismWe can tabulate all the conditions under three parameters.

8/18/20117Technical FeasibilityWhat bank is looking forLiving standardDecent living standard with some tangibles like T.V. & fridge will provide assurance to bank regarding your residential status.LocalityPresence of some undesirable elements like local goons or controversial areas adversely affects your loan appraisal process.Telephonic VerificationAt least one response is need from person to establish the identity of the person from contact point of view.Educational QualificationNot an essential barrier but essential to understand the complex terms & conditions of bank loan.Political InfluenceAn interesting reference point in the sense that they are one of major category of loan defaulters.ReferencesTo establish the residential identity of person from human contact point of view & cross check of their loans.PARAMETER COMPONENTS & HOW BANK ASSES YOUR CREDITWORTHINESS THROUGH IT8/18/20118Economic Parameters

MPBFMaximum Permissible bank finance calculation is done on the basis of loan amount.Ratio analysisTo check the financial position and repayment capacity of the borrower.Financial statementsTo find out the current and projected value of borrower income.IRRInternal Rate of Return is calculated of the borrower.DSCR To check the ability of the project to generate sufficient cash flows to repay the debt taken to finance the project.8/18/20119ParameterNormsCheckpointsBank Statements12 months bank statements need to be furnishedTo check the average amount client is maintaining in the account is sufficient to pay the installment amount or not.Business continuity proofTwo year IT returns made compulsoryTo enquire primary source of income.Credit interviewFor the big loan amount credit interview is necessary.To check the general attitude of customer along with efforts are put in to understand their needs better.SecurityAsset of value equal to or more than loan amount taken has to be put as pledge or collateral.To safeguard bank interest against any future default.Ownership title To be on the name or blood relative of applicant.To establish the ownership claim of the loan applicant.CIBIL ReportTo check the credit history of the applicant.Bank tool to check any default incidence in loaning history of applicant.Bankability Parameters

8/18/201110Credit Appraisal Process

8/18/201111Loan Type: Housing LoanApplicant: Mrs. Prachi GhaisasCo-Applicant: Mr. Uday GhaisasAmt Applied:40,00,000Installment:1801. Details of Applicant & Co-Applicant is collected:

ApplicantCo-ApplicantDate of Birth15/6/197603/05/1976Membership No.AppliedAppliedPan No.A0mpp6087BAfzpp6527kResidential statusOwnershipOwnershipArea sq.ft.12501250Address Goregaon eastGoregaon eastName & Address of BusinessNavami Enterprise,Goregaon eastSahara One , sahara point, Goregaon west.Gross Salary P.M.150002,50,000Net Salary P.M.148002,00,000Income tax paid3807,21,449Case study

8/18/2011122.Details of Applicants family members is collected.3.Account Details:4. Details of Loans & Advances availed from other bank/financial institution/credit societies:Name of LoaneeAmt SanctionedBankDate of SanctionMr.Uday Ghaisas89,00,000Syndicate Bank03/05/09Mr.Uday Ghaisas50,00,000NKGSB1/12/095. Securities: A. Prime (Purchase of flat/house) mortgage of immovable property:Particulars of propertyA-1823, Garden Estate, Goregaon (w) Mumbai 400 062Area (Sq.ft.)(955)- 653 Sf carpetPurchase on6/10/2010Agreement value70,00,000Builder / Vender NameM/s. Vicky Joshi & Co.Present ValueMarket Value: 1,10,79,000 lakhDistress Value: 88,64,000 lakh8/18/2011136. Details of projected cost/Budget:Purchase of Flat(Total amt): 70 lakhAdvance paid : 30.50 lakhAmt applied: 40 lakhBalance in Account : 10,000Deficit : Nil

7. Guarantee: 2 Sureties8. Check list of Documents9. Declaration cum Undertaking by Mortgagers.10. List of Documents Agreement for SaleStampduty paid receiptRegistration receiptValuation receipt11.Housing Loan Agreement8/18/201114Calculation of EMI factor:

DOBAge as on dateInstallment availableApplicant15/6/7634180 monthsCo-applicant03/5/7634180 monthsInstallment Asked: 180 months Max Permissible: 180 monthsRate of Interest : 10.5% (ROI)EMI factor 100000 on basis of installment period Rs.1105/-

13. Scrutiny by branch: Full details of applicant,co-applicant,surety 1 & 2.12.Undertaking:I Mrs. Prachi Ghaisas the borrower will repay 180 EMIs of Rs. 44300/- @10.5%(floating) on daily reducing balancePurpose : Purchase of Flat8/18/201115GrossSalary deduction Other loanNetApplicant15000+20000*200Co-applicant231135+14500+13000*52450166902Total2936355265016690274083*Rent IncomeRepayment Capacity= 293635-52650 * 166902 -15000 (Net salary) (other loan)(Take home salary)

Calculation of Repayment capacity:14. Cost of Project:As per Agreement (Rs.) As per Government(Rs.)Value/Cost70,00,00051,05,400Stamp Duty33260Reg. charges30380Total73,62,98054,68,38090/85/80% ofCost of project58,90,38443,74,7048/18/201116A) Applied : 40.00lakhB)%:90 lakh (as per value construction)C)Eligible as per repayment capacity : 59083/1105*100000 = 53.47 lakhD) Loan Amount Eligibility (Lower of A/B/C of above) = Rs. 40.00 lakh

15.Visit report: 16. Documents Checked:1. Rent income deposit letter2. No share certificate issued by society3. No maintainence received by Society4. CIBIL report explanation letter5. Salary confirmation letter6. Rent agreement7. Employer Bond17. Western Zonal office Remark:1. Co-applicant is employed with sahara one & is head-distribution (motion pictures) since march 2008 & draws net salary 178695 in month of oct 2010. Salary credited to Axis bank.2. The applicant is employed with the firm Navami enterprise as manager & is earning net salary 14800 credited to HDFC3. Applicant and co- applicant has given there 3 flats at kandivali (e) and goregaon (w) on leave & licence & is earning monthly rent Rs.47500 (agreement submitted)4. Has availed 2 housing loans and 2 vehicle loans (Repayment is regular)

FINDINGS SWOT ANALYSIS OF Abhyudaya Co-op Bank Credit Appraisal:

8/18/201117STRENGTHSWEAKNESSESSCustomer ServiceRepayment capacity judgment is properSureties mustToo much DocumentationOPPORTUNITIESTHREATSIncome related GrowthIntroducing New Types of LoansCustomized loanTechnologyInflationNPA

RECOMMENDATION

8/18/201118IN EVERY BRANCH ONE STAFF ALLOWTMENT FOR DOING CALLING WORK

SYSTEM UPGRADATION

BOOKLET OF AGREEMENT/SECURITY DOCUMENTS

CONCLUSION & LEARNING8/18/201119Credit appraisal is done to check the commercial, financial & technical viability of the project proposed its funding pattern.A bankers task is to identify/assess the risk factors/parameters & manage/mitigate them on continuous basis.I worked in loan Department & understood the meaning of Customer service.One thing I got is Though all banks are different entities, they all are under one roof that is RBI.To be a good manager you need to have good interaction with others & show involvement in their difficulties. Hence one should always be open to new ideas to experience the innovation.

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