PROJECT REPORT

ON

“PROCESSING OF COMMERCIAL LOAN

AT HDFC IN RANCHI”

PROJECT REPORT SUBMITTED IN PARTIAL FULFILLMENT OF

REQUIREMENT FOR THE AWARD OF B.COM (HONS.) DEGREE UNDER

RANCHI UNIVERSITY, RANCHI OF MARWARI COLLEGE, RANCHI

SUBMITTED BY:

NAME:

CLASS:

SESSION:

EXAM ROLL NO.:

UNDER THE GUIDANCE OF

DR.

DEPARTMENT OF COMMERCE & MANAGEMENT STUDIES

MARWARI COLLEGE, RANCHI

HDFC Bank Limited,Rohini, 1st Floor,56 Circular Road,Ranchi – 834001 (Jharkhand)

Date: 03/04/2013

TO WHOM IT MAY CONCERN

This is to certify that Ms. Ananya Singh, D/O Shri Kishor, student of B.Com

Semester VI, Marwari College, Ranchi Visited HDFC Bank, Circular Road, Branch

for the purpose of understanding the concept of Commercial Loan and

collecting information of same for her project.

She was explained in detail about the Commercial Loan and information

provided to her for her project at our Bank.

Thanking you

For HDFC Bank Ltd.

This letter is being issued for specific purpose, neither bank nor any of its employee will be held responsible for any other interpretation.

Regd. Office: HDFC Bank Limited, HDFC Bank House, Senapati Bapat Marg, Lower Parel (West), Mumbai-400 013.

CERTIFICATE

This is to certify that this project has been submitted by ANANYA SINGH a

student of B.Com (Hons), (Finance), Semester-VI, Session – 2009-12 bearing

Exam Roll No.- 09MCRBC81666 of Marwari College, Ranchi on a given topic

“PROCESSING OF COMMERCIAL LOAN AT HDFC IN, RANCHI” under my

guidance. This is for partial fulfillment of award of B.Com (Hons.) degree under

Ranchi University, Ranchi. The work done by him is appreciable of an

outstanding level.

I wish him for every success in his life.

PROJCET GUIDE

Date: ………………………………

Place: ……………………………..

DECLARATION

I ANANYA SINGH hereby declare that the project titled “PROCESSING OF

COMMERCIAL LOAN AT HDFC” with reference to RANCHI has been prepared

by me and submitted under B. Com Curriculum. All the Information, facts and

figures are collected by me and are first hand in nature.

Any resemblance from existing work is purely coincidental in nature.

Name of Candidate: ANANYA SINGH

Exam Roll No. : 09MCRBC81666

Session : 2010-2013

Signature of the Candidate

ACKNOWLEDEMENT

With regard to my Project with Commercial Bank I would like to thank each

and every one who offered help, guideline and support whenever required.

First and foremost I would like to express gratitude to my guide, DR. R.

R. SHARMA & PROF. ZUBAIR Ahmad for their valuable guidance and timely

suggestions.

And lastly, I would like to express my gratefulness to the parent’s for seeing me

through it all.

TABLE OF CONTENT

Page No.

1. Introduction 1-9

Objectives

Methodology

2. Company Profile 10-16

3. Conceptual Framework 17-46

4. Analysis in the Organisation 47-49

5. Findings and Suggestions 50-52

6. Bibliography 53

CHAPTER – 1

INTRODUCTION

LOANIn finance, a loan is a debt evidenced by a note which specifies, among other

things, the principal amount, interest rate, and date of repayment. A loan entails

the reallocation of the subject asset(s) for a period of time, between the lender

and the borrower.

In a loan, the borrower initially receives or borrows an amount of money, called

the principal, from the lender, and is obligated to pay back or repay an equal

amount of money to the lender at a later time. Typically, the money is paid back

in regular installments, or partial repayments; in an annuity, each installment is

the same amount.

The loan is generally provided at a cost, referred to as interest on the debt,

which provides an incentive for the lender to engage in the loan. In a legal loan,

each of these obligations and restrictions is enforced by contract, which can also

place the borrower under additional restrictions known as loan covenants.

Although this article focuses on monetary loans, in practice any material object

might be lent.

Acting as a provider of loans is one of the principal tasks for financial

institutions. For other institutions, issuing of debt contracts such as bonds is a

typical source of funding.

COMMERCIAL LOAN

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

individual person (consumer) or a business. Common personal loans include

mortgage loans, car loans, home equity lines of credit, credit cards, installment

loans and payday loans. The credit score of the borrower is a major component

in and underwriting and interest rates (APR) of these loans. The monthly

payments of personal loans can be decreased by selecting longer payment terms,

but overall interest paid increases as well. For car loans in the U.S., the average

term was about 60 months in 2009.

Loans to businesses are similar to the above, but also include commercial

mortgages and corporate bonds. Underwriting is not based upon credit score but

rather credit rating.

Nature of BusinessThe Bank operates in three segments:

Retail Banking

HDFC Bank

Wholesale Banking

Treasury Services

LOANS

Majority of the people are under the burden up debt, which make them avail various loans jus to consolidate their debt. By seeing its sudden importance many financial institutions and firms have started giving these loans on very affordable and nominal rates.

Landers first calculate the amt. you can borrow and that entirely depends upon the salary, expenditure and saving you have.

Ones the loan in decided the next step is calculate the time frame, which can usually range from 1 to 25 years. There are few points to be kept in mind while availing the debt consolidation loan.

If possible consult any financial expert or broker for the exact information so that there is no problem in the future.

Always choose the best and top rated financial firm for getting the loan, as this will let you get the loan at very affordable interest and amount.

Try to make every installment on time so that there is no payment issue in the future. And also keep the track of all the payments made by you so that there is no confusion in the end.

Try to use the advice of the people who have already availed the loan as they can guide you with their experiences.

Therefore the person must keep all these points in the mind in order to get the full and fruitful usage of the loan amount. Thus, if you are buried under the piled up debt then debt consolidation loans are there for you to sail you out but opt for the best and trusted policy and company.

CUSTOMER SATISFACTION SURVEY

In the study, a random sample of only existing customers of the HDFC Bank was taken, The customers studied under this survey were mostly walk-in customers. Proper care was taken to approach those customers who could easily fill up the questionnaire and were rational in their response. But there could be some errors in the analysis, which could have crept into due to lazy respondents, human errors and other factors.

METHODOLOGY

The achieve the objective of studying the data has been collected.

Research methodology carried for this study can be two types

1. Primary

2. Secondary

PRIMARY:

The data, which has being collected for the first time and it is is the original

data.

SECONDARY:

The secondary information is mostly taken from websites, books, journals, etc.

CHAPTER-2

COMPANY PROFILE

COMPANY PROFILE

HDFC Bank Limited (BSE: 500180, NSE: HDFCBANK, NYSE: HDB) is an

Indian financial services company based in Mumbai, Maharashtra that was

incorporated in August 1994. HDFC Bank is the fifth or sixth largest bank in

India by assets and the first largest bank by market capitalization as of

November 1, 2012. The bank was promoted by the Housing Development

Finance Corporation, a premier housing finance company (set up in 1977) of

India. As on December 2012, HDFC Bank has 2,776 branches and 10,490

ATMs, in 1,399 cities in India, and all branches of the bank are linked on an

online real-time basis. As of December 2012 the bank had balance sheet size of

Rs. 3837 billion. For the fiscal year 2011-12, the bank has reported net profit of

5167.07 crore (US$950 million), up 31.6% from the previous fiscal.

On March 14, 2013 an online magazine named Cobrapost.com released video

footage from Operation Red Spider showing high ranking officials and some

employees of HDFC bank willing to turn black money into white which is

violation of Money Laundering Control Act. After this The government of India

and Reserve Bank of India have ordered an inquiry

History

HDFC Bank was incorporated in 1994 by Housing Development Finance

Corporation Limited (HDFC), India's largest housing finance company. It was

among the first companies to receive an 'in principle' approval from the Reserve

Bank of India (RBI) to set up a bank in the private sector. The Bank started

operations as a scheduled commercial bank in January 1995 under the RBI's

liberalisation policies.

Times Bank Limited (owned by Bennett, Coleman & Co./The Times Group)

was merged with HDFC Bank Ltd., in 2000. This was the first merger of two

private banks in India. Shareholders of Times Bank received 1 share of HDFC

Bank for every 5.75 shares of Times Bank.

In 2008 HDFC Bank acquired Centurion Bank of Punjab taking its total

branches to more than 1,000. The amalgamated bank emerged with a base of

about Rs. 1,22,000 crore and net advances of about Rs.89,000 crore. The

balance sheet size of the combined entity is more than Rs. 1,63,000 crore

CHAPTER-3

CONCEPTUAL FRAMEWORK

Types of Commercial Loans

Individuals and businesses borrow money from banks and other financial

institutions. Money that is provided to businesses for a specific period of time,

or term, is called a commercial loan. Commercial loans can be either long-term,

used for purchasing, building or expanding a manufacturing plant, equipment or

real estate, or short-term, used for seasonal inventory, accounts payable and

smaller projects.

The Average Loan Fees on a Commercial Loan

Types of Bank Loans

1. Secured and Unsecured Loans

o Loans can be secured or unsecured. A secured loan is supported by

collateral or property. If the borrower does not pay back the loaned

money by the agreed-upon time, the creditor can sell the property.

For example, a store's loan may be backed by inventory. Thus, as

its name suggests, a secured loan means that someone is providing

"security" that the money borrowed will be repaid in accordance

with the terms and conditions. A creditor does not grant an

unsecured loan based on collateral. Rather, it is based on the

borrower's credit standing. These loans have higher interest rates.

Equipment Loans

o If you ask for equipment financing, the equipment you purchase

will become the loan collateral. The risk is not as great as if your

personal property backed the loan. Instead of losing your whole

business or real estate if you default on your loan, you only risk the

equipment you just bought. Depending on how large or small your

business, equipment financing can either be a minimal amount or a

major expense in the millions of dollars.

Working Capital

o Businesses often go up and down in sales, depending on the time of

the year and other factors, such as the strength of the economy. A

line of credit establishes a maximum amount of money that a bank

is willing to loan. It can be used whenever it is most needed and for

whatever reason, normally for buying inventory and seasonal

changes. Interest is only paid on the balance. Although lines of

credit can be extended to several years, the creditor will review the

loan every year. Normally, however, the loans are shorter term,

such as 90 days.

Short-Term Loans

o Short-term commercial loans are normally borrowed for a specific

need, such as buying new equipment or paying off a debt. In this

case, a specific amount of money is loaned for a set term. The

interest is paid on the full amount. In most cases, these short-term

loans are normally backed by collateral, especially for new

businesses that have yet to build up credit history. The loan will

run about 90 to 120 days and be extended as necessary.

Long-Term Loans

o On the other hand, long-term loans normally run more than 3 years.

They are almost always used for the purchase of new equipment

and other similar assets. These loans are secured by the assets

being bought and will normally have various loan covenants, such

as changes in interest rates and prepayment penalties. Long-term

loans are normally not given to new businesses, because they are

too big of a risk. They have a better chance of getting an

intermediate loan or line of credit.

Business Loan

HDFC Bank’s Business Loan is designed to meet the varying business needs for

self employed businessmen involved in manufacturing, trading and the service

industry.

Features

Unsecured Loan to self employed businessmen involved in

Manufacturing, Trading and Service Industry.

Loan Amount up to Rs.15 Lakhs. (Up to Rs 30 Lakhs in selected

locations).

Flexible repayment options ranging from 12 – 36 Months.

Hassle free processing.

Speedy loan approval.

Convenience of Service at your doorstep.

Benefits

The funds can be used for business expansion, working capital, child's

education or home renovation.

No collateral/ Guarantor/ Security required.

If you are an HDFC Bank Current or Savings Account holder, we have a

special offer for you.

If you are an existing Auto Loan or Home Loan customer with a clear

repayment of 6 months or more from any of our approved financiers or

us, you can get a hassle free business loan (without income

documentation).

If you have a Fixed Deposit with us you can get hassle free loan up to

90% of FD value.

You can also apply for enhancement of your existing loan.

Credit Protect:

In case of Natural / Accidental Death of the customer, the customer

/nominee can avail of the Payment Protection Insurance (Credit Protect)

which insures the principle outstanding on the loan up to a maximum of

the loan amount.

Benefits to HDFC Bank Customers:

o Protects the family by paying off the loan amount in case of death

of the customer

o Life Coverage – provides peace of Mind

o One convenient package - loan + insurance

o Tax Benefits as per applicable laws

o No need to use other savings to repay the loan

* Premium will be charged for Credit Protect will be deducted from the loan

amount at the time of disbursal.

Self Employed (Private Ltd. Co. and Partnership Firms) include Private

Companies and Partnership firms in the Business of Manufacturing, Trading or

Services.

Eligibility Criteria:

Minimum Turnover of Rs. 40 Lakhs.

Years in business: Minimum of 3 years in current business and 5 years

total business experience

Business must be profit making for the last 2 years

Minimum Annual Income (ITR): Rs. 1.5 Lakhs p.a.

Documents required:

PAN Card

Address Proof (Ration card Tel/ Electricity Bill/ Lease agreement/

Passport/Trade license /Sales Tax certificate)

Bank Statement (latest 6 months bank)

Last 2 Years ITRs (computation of income) Balance Sheet and Profit &

Loss a/c. Audited or Certified by a CA

Proof of continuation (ITR/ Trade license /Establishment /Sales Tax

certificate)

Sole Proprietor Declaration or Certified Copy of Partnership Deed,

Certified true copy of Memorandum & Articles of Association & Board

resolution (Original)

Self Employed (Individuals). Include - Sole proprietors, Partners & Directors

Eligibility Criteria

Minimum age of Applicant: 21 years

Maximum age of Applicant at loan maturity: 65 years

Years in business: Minimum of 3 years in current business and 5 years

total business experience

Minimum Annual Income (ITR): Rs. 1.5 Lakhs p.a.

Documents required:

Proof of Identity (Passport / Voters ID card/ Driving License/PAN Card)

Address Proof (Ration card Tel/elect. Bill/ Lease agreement/ Passport/

Trade license /Sales Tax certificate)

Bank Statement (latest 6 months)

Latest ITR along with computation of income, Balance Sheet & Profit &

Loss a/c for the last 2 yrs. Audited or Certified by a CA

Proof of continuation (ITR/Trade license /Establishment /Sales Tax

certificate)

Other Mandatory Documents (Sole Prop. Declaration Or Certified Copy

of Partnership Deed, Certified true copy of Memorandum & Articles of

Association (certified by Director) & Board resolution (Original)

Business Loan Features

Rack Interest Rate Range 17.50% to 22.00%

Loan Processing ChargesUp to 2.50% of the loan amount subject to

a minimum of Rs. 1,000/-

PrepaymentNo pre-payment permitted until

repayment of 6 EMIs

Pre-payment charges4% of the Principal Outstanding after

repayment of 6 EMIs

No Due Certificate / No Objection

Certificate (NOC)NIL

Duplicate no due certificate / NOC Rs 250/-

Solvency Certificate Not applicable

Charges for late payment of EMI@ 24 % p.a on amount outstanding from

date of default

Charges for changing from fixed to

floating rate of interestNot applicable

Charges for changing from floating

to fixed rate of interestNot applicable

Stamp Duty & other statutory

chargesAs per applicable laws of the state

Credit assessment charges Not applicable

Non standard repayment charges Not applicable

Cheque swapping charges Rs 500/- per event

Loan Re-booking charges / Re- Rs 1000/-

scheduling charges

Loan cancellation charges Rs. 1000/-

Cheque Bounce Charges Rs 450/- per cheque bounce

Legal / incidental charges At actual

CIBIL Report Copy Charges Rs.50 Per Copy

ANNUAL REPORT

Net profit: 5,167 crore. An increase of 31.6% compared to the

previous year

• Balance sheet size: 337,909 crore as at 31st March 2012

• Total deposits: 246,706 crore. An increase of 18.3%

compared to the previous year

• Total advances: 195,420 crore. An increase of 22.2%

compared to the previous year

• Capital Adequacy Ratio: 16.5%. Regulatory minimum

requirement is 9%

• Tier I capital ratio: 11.6%

• Non Performing Assets: 1,999 crore (gross); 1.0% of Gross

Advances

• Network:

• Branches: 2544 • ATMs: 8913 • Cities: 1399

Customers View

Bebi’s Jari making enterprise grows

Hailing from a small place in Varanasi called Macharahahaan,

Bebi is known for her Jari work on sarees. She has been relying

on her talent to

make sarees and sell them for a profit. A fourteen thousand

rupee loan from HDFC Bank has helped her eliminate her

dependency on middlemen for raw materials. Bebi now buys

her sequins and gold and silver thread directly from

wholesalers, improving her product as well as her quality of life.

Plantain farming thrives in Kerala

Chaitanya Kudumbasree is a Self Help Group in Pandalam,

Kerala. Comprising only of women, this group has improved the

local agriculture

industry in Kerala by investing in organised plantain farming.

Taking a loan of one and a half lac rupees from the Bank, they

have used the

money to first lease appropriate farm land and then buy and

plant plantain trees. Today, this group benefits from their

farming venture since

plantains are in high demand in the region. They now look

forward to the additional income of thirty five thousand rupees

that will be generated

every year which they plan to re-invest in the plantain farm.

A flower seller expands her business

Sunita has been making and selling garlands outside the Shirdi

Sai Ram temple in Wardha, Maharashtra. Using her HDFC Bank

loan, she now

makes floral arrangements as well, which has helped attract a

new customer segment and increase profits. Her daily income

has increased by thirty percent as a result.

Bag makers achieve success

Members of Self Help Group, Chand Jan Sambal, make a living

from manufacturing bags made of fiber in Alwar, Rajasthan. A

two lac rupee loan from HDFC Bank enabled them to sell their

bags in bulk at the local market at Alwar. Proceeds from the

sale are distributed to all members.

Each of the ten members now earns almost three thousand

rupees as pure profit every month.

Flora’s business prospers

Flora, a resident of Margao, runs a fruit and vegetable stall

promoted by the Goa State Horticulture Corporation. A loan of

ten thousand rupees

from HDFC Bank has helped her hold more stock at her stall.

Flora’s daily income has increased by ten percent as a result.

Through such initiatives we have reached out to 1.2

million households from the bottom of the pyramid and

provide banking services on a

sustainable basis. We have a board approved program

to financially include 10 million households at the

bottom of the pyramid in the next

5 years.

FINANCIAL PERFORMANCE

(Rs. in crore)

For the year ended

March 31,

2012

March 31,

2011

Deposits and Other Borrowings 270,553.0 222,980.5

Advances 195,420.0 159,982.7

Total Income 32,530.0 24,263.4

Profit before Depreciation and Tax 8,055.7 6,316.1

Net Profit 5,167.1 3,926.4

Profit brought forward 6,174.2 4,532.8

Total Profit available for Appropriation 11,341.3 8,459.2

Appropriations:

Transfer to Statutory Reserve 1,291.8 981.6

Transfer to General Reserve 516.7 392.6

Transfer to Capital Reserve - 0.4

Transfer to / (from) Investment Reserve (41.7) 15.6

Proposed Dividend 1,009.1 767.6

Tax Including Surcharge and Education Cess on

Dividend

163.7 124.5

Dividend (including tax/cess thereon) pertaining

to previous year paid during the year

2.1 2.6

Balance carried over to Balance Sheet 8,399.6 6,174.2

The Bank posted total income and net profit of ` 32,530.0 crore and `

5,167.1 crore respectively for the financial year ended March 31, 2012

as against ` 24,263.4 crore and ` 3,926.4 crore respectively in the

previous year. Appropriations from net profit have been effected as per

the table given above.

What is involved in underwriting commercial loans

The process of underwriting commercial loans varies depending on the

businesses seeking the loan and the lenders themselves. It is a common practice

in today’s business environment. If a person wishes to start or expand a

business, then he will likely have to take out a commercial loan in order to

cover his costs. A lender will underwrite the loan, assessing the risk taken, and

give the business owner some if not all of the money that he requires.

Underwriting commercial loans involves evaluating the credit rating of the

individual requesting the loan and comparing it with the amount of income he

expects to receive during a set amount of time. The profit margin of the

business will be estimated and taken into account, as will the borrower's credit

rating. The amount of debt owed to the lender compared with the estimated

amount of profits the business expects is called the debt service to coverage

ratio (DSCR). These are major considerations for the lender.

It can be difficult to make an educated guess about the potential profit margin of

a loan-seeking business. Commercial underwriters must take many outside

factors into account. Most important would be the amount of money required to

make the business reach its profit potential. Then, the net operating income

would be considered. This might include the amount of money required to rent a

storefront, or other physical business location, the cost of bringing it up to code,

any necessary taxes and insurance, and the cost of staffing.

Other factors to be considered when underwriting commercial loans would

include the demand for the product or service the business supplies, and the

proposed location of the business and/or its means of distributing services. In

addition, the underwriter will take into account the cost of advertising; the

amount of time required to have the business up and running; the status of

competitors, and more. Loan underwriters consider all of these and use the

information they gather to determine the DSCR. If the DSCR is too high, then

the lender is unlikely to underwrite the loan. A high DSCR would mean that the

lender is unable to make a large enough profit to make the investment

worthwhile.

When most lenders consider underwriting commercial loans for a business to

purchase more property, it is unlikely that they will loan the business the entire

amount. The rest is usually covered by the business. The amount a business is

expected to cover varies with the type of business and building in question.

Restaurants generally receive the least, while retail establishments and owner-

occupied buildings receive more coverage.

Due to the high costs of starting up a business, and the need for businesses to

expand occasionally, the process of underwriting commercial loans is a business

in itself. It requires knowledge of the business world and expert risk estimation

skills. Though it is a tedious process for owners of expanding businesses, it is

not unmanageable for an entrepreneur with a marketable idea.

The loan loss reserve and the loan loss provision

Banks are in the business of using the funds provided by depositors to make

loans and invest in securities. Lending entails assuming the risk that some loans

won’t be repaid. Banks maintain loan loss reserves for this likelihood.

Basically, the loan loss reserve reflects management’s estimate of the losses

inherent in a bank’s loan portfolio at a given moment of time. Banks charge off

bad loans against the reserve rather than directly against earnings. For each

bank report in Value Line’s Ratings & Reports, the loan loss reserve is shown at

the bottom of the Asset/Liability box, on the left side of the page.

To adjust the loan loss reserve for increases in bad loans during a quarter or a

year, banks make non-cash provisions to their loan loss reserves that, like other

expenses, reduce earnings. In Ratings & Reports, the loan loss provision is

shown on line eleven of the Statistical Array, in the center of each bank report

page.

In a nutshell, loan loss provisions add to the reserve but reduce earnings.

Charge-offs of bad loans reduce the reserve, and recoveries of loans that were

written off in the past increase the reserve. Neither loan charge-offs nor

recoveries directly affects earnings.   

Banks take into account the type of borrower in figuring how much to add to the

loan loss reserve. For their larger loans, including most of their business,

construction, and commercial real estate credits, they assign specific reserves to 

loans. The allocations rely on management’s assessment of the borrower’s

financial condition, the state of the economy, the current value of the collateral

behind the loan, the loan structure, the industry of the borrower, and other

factors, and are somewhat subjective. Moreover, the timing of when different

banks charge off bad loans and build reserves also varies from bank to bank. 

Banks also add a general component to the loan loss reserve for pools of loans

that share characteristics and are collectively evaluated using statistical

estimates. Most consumer loans, which are generally charged off after they are

delinquent for a set number of days, fall into this category.

The size of loan loss provisions tracks the economic cycle. During recessions,

problem loans typically rise, as economic pressures mount and borrowers

experience difficulty in meeting their financial obligations. In such times, banks

make larger provisions to their loan loss reserves to absorb higher levels of loan

losses. Of all the items on bank income statements, the loan loss provision has

been among the most volatile over the past five years, rising sharply during the

2007-2009 recession. Fifth Third Bancorp (FITB), whose problem loans

doubled in 2008,  made a total of $4.6 billion of provisions to its loan loss

reserve that year, which nearly tripled the size of its reserve.

On the other hand, when economic activity strengthens, and consumers and

businesses regain their financial footing, problem loans typically decline, and

some of the loan loss reserve is no longer needed. In such times, banks often

reduce the reserve by making loan loss provisions that don’t fully offset loans

charged off within a given period. In response to improvement in its credit

quality, Fifth Third reduced its loan loss reserve in 2010 by making quarterly

loan loss provisions totaling $1.5 billion that didn’t fully offset its $2.3 billion

of net loan losses that year. As economic activity in the U.S. ramps up modestly

in 2011, most banks’ loan loss reserves will probably decline further.

In the past, some banks have occasionally made zero or negative provisions to

their loan loss reserves (they added a portion of the provisions taken in past

periods back to earnings). Following a few years of dramatic asset-quality

improvement, Bank of Hawaii (BOH) reversed a small portion of its loan loss

reserve in 2004.

It may surprise many investors that banks don’t build extra reserves for a

possible rainy day. Under current accounting rules, banks need to justify

additions to their loan loss reserves based on the condition of their loan

portfolios at a point of time. Although bank regulators want banks to have

strong reserves, banks need to avoid managing earnings, that is, using surplus

reserves to bolster earnings in tough times, which would raise quality-of-

earnings issues with investors.

Back in 1998, the Securities And Exchange Commission became concerned that

some banks were keeping excess reserves. Following a review by the SEC that

year, SunTrust Banks (STI) reduced its loan loss provisions for the 1994-1996

period by $100 million and restated its earnings. Since then, there has been

occasional discussion regarding the advantages and disadvantages of the current

practice of reserving for probable loan losses (which results in wide swings in

loan loss provisions and earnings over the economic cycle) as opposed to

building up the reserve in good times and drawing down reserves in tough times

(which might result in a smoother earnings trajectory).

Under current accounting practices, banks tend to add the least to their loan loss

reserves when business activity is the strongest, which may result in earnings

being overstated. Some in the industry have pointed out that, in the past, banks

have relaxed lending standards in good times, so it’s appropriate that they build

up loan loss reserves then. But we don’t currently see any signs that the rules

regarding loan loss reserves are likely to change. 

CHAPTER-5

FINDINGS AND SUGGESTIONS

Findings

1. It is found that HDFC Bank is a favorable Bank

Total loan loss provisions consisting of specific provisions for non-performing

assets and floating provisions decreased from ` 1,433.0 crore to ` 1,351.6 crore

for the financial year ended March 31, 2012, on account of healthy asset quality

across both retail and wholesale customer segments. Your Bank’s provisioning

policies for specific loan loss provisions remain higher than regulatory

requirements, the coverage ratio based on specific provisions alone without

including write-offs was 82.4% and that including general and floating

provisions was 199.7% as on March 31, 2012. Your Bank made general

provisions of ` 150.5 crore during the financial year ended March 31, 2012.

SUGGESTIONS During the survey, it was found the customer had to wait too long for

the loans to get disbursed. The processing time is too long. Customer had to wait for their loan processing done by the staff. Efforts should be made to reduce it.

It was found out that there is lot of formalities in the loan disbursement process. Too much documentation is done. Customer is not aware of all the formalities to be done which he is asked to do. Reading loan agreement at the time of taking loan is time consuming. Therefore paper work should be more friendly and clear.

After sales service is not up to the mark. Customers facing problems are not attended on time. Staff is generally co-operative only at the time of loan is sanctioned and disbursed. Therefore after sales service should be improved up to satisfaction level of the customer.

Customers should be given proper information about EMI. They are generally not told how their EMI are calculated. They should know its calculation and its amount.

Public dealing hours should be increased to some later time period because majority of the customers were found out to be salaried in the survey.

Website of HDFC Bank should be up dated and should give more options and features to customers so that they can get maximum information sitting at home.

Bank should make efforts to attract more and more customers through increased advertisement.

PERFORMANCE & APPRAISAL

A performance appraisal, employee appraisal, performance review, or

(career) development discussion is a method by which the job performance of

an employee is evaluated (generally in terms of quality, quantity, cost, and

time) typically by the corresponding manager or supervisor. A performance

appraisal is a part of guiding and managing career development. It is the

process of obtaining, analyzing, and recording information about the relative

worth of an employee to the organization. Performance appraisal is an analysis

of an employee's recent successes and failures, personal strengths and

weaknesses, and suitability for promotion or further training. It is also the

judgment of an employee's performance in a job based on considerations

other than productivity alone.

AIMS behind these are –

Generally, the aims of a performance appraisal are to:

Give employees feedback on performance

Identify employee training needs

Document criteria used to allocate organizational rewards

Form a basis for personnel decisions: salary increases, promotions,

disciplinary actions, bonuses, etc.

Provide the opportunity for organizational diagnosis and development

Facilitate communication between employee and employer

Validate selection techniques and human resource policies to meet federal

Equal Employment Opportunity requirements.

To improve performance through counseling, coaching and development.

METHODS USED AT BRANCH LEVEL

A common approach to assessing performance is to use a numerical or

scalar rating system whereby managers are asked to score an individual against

a number of objectives/attributes. In some companies, employees receive

assessments from their manager, peers, subordinates, and customers, while also

performing a self assessment this is known as a 360-degree appraisal and forms

good communication patterns.

The most popular methods used in the performance appraisal process include

the following:

Management by objectives

360-degree appraisal

Behavioral observation scale

Behaviorally anchored rating scales

Trait-based systems, which rely on factors such as integrity and

conscientiousness, are also used by businesses but have been replaced primarily

by more objective and results-oriented methods. The scientific literature on the

subject provides evidence that assessing employees on factors such as these

should be avoided. The reasons for this are twofold:

1) Trait-based systems are by definition based on personality traits and as such

may not be related directly to successful job performance. In addition,

personality dimensions tend to be static, and while an employee can change a

behavior they cannot change their personality. For example, a person who lacks

integrity may stop lying to a manager because they have been caught, but they

still have low integrity and are likely to lie again when the threat of being

caught is gone.

2) Trait-based systems, because they are vague, are more easily influenced by

office politics, causing them to be less reliable as a source of information on an

employee's true performance. The vagueness of these instruments allows

managers to assess the employee based upon subjective feelings instead of

objective observations about how the employee has performed his or her

specific duties. These systems are also more likely to leave a company open to

discrimination claims because a manager can make biased decisions without

having to back them up with specific behavioral information.

LINES FOLLOWD AT BRANCH LEVEL

HDFC Bank is one of the few Indian companies to have a fully operational

Business Continuity Plan (BCP) to ensure minimal impact to the organisation,

its people, and most importantly, its customers. Our Business Continuity

Planning (BCP) Program is a response plan which would ensure that in the

event of a disaster we would be able to restore and recover operations for

critical processes within a predetermined time after the disaster.

 

HDFC Bank Business Continuity Management Policy

 

To have a planned response in the event of any contingency ensuring recovery

of critical activities at agreed levels within agreed timeframe thereby

complying with various regulatory requirements and minimizing the potential

business impact to BSLI. Additionally to create a system that fosters

continuous improvement of business continuity management

 

 

REWARD SYSTEM AT BRANCH LEVEL

Executive and employee reward

We can help you design compensation programs for employees and executives

that will help meet your corporate objectives. These would include staffing

models, overall compensation strategy, benchmarking, equity design and

implementation, and assistance with other operational issues such as proxy

disclosure and communication support.

Equity incentives

We help you create and implement equity-based reward programs that can

improve business performance — by aligning employee motivation with

business objectives and shareholder interests. We can help design an effective

equity plan (or review existing ones) that takes into account the accounting, tax,

and other issues of the participating countries. Our multi-faceted approach and

understanding combined with our methodologies can save you and your

employees money and bother.

HR cost optimization

We can identify initiatives for both HR program (including employee benefits)

and service delivery cost improvements that are customized to meet your

overall financial goals. Using a comprehensive methodology, we perform an

independent, thorough review of each HR program and area to identify actual

cash savings, cash flow improvements, quality, service and/or administrative

improvements.

Transactions and HR due diligence

We utilize a range of tools, techniques and methodologies to help you during all

phases of a corporate transaction:

HR due diligence: we can assist you in evaluating the EPS, tax,

accounting and cash flow impacts from targeted compensation and

benefits programs. We help you to identify and quantify total

compensation risk and liabilities and accelerating cycle time towards

integration.

Day one readiness: after a deal has been finalized, a fast start to

achieving your goals and avoiding early unplanned losses is often critical

to long-term success. Key areas include talent retention, employment

continuity planning, strategic messaging and integration planning.

Deal integration: achieving your goals in any transaction is dependent on

successful integration. You can benefit from our experience and

methodologies so that human resource functions and management

practices can deliver synergies and create a positive environment for your

new organization to thrive.

CONCLUSION

To be the leading provider of Commercial Loan of our customers and adds

value to their lives. The company offers a range of loans in the secured and

unsecured loans space that fulfill the financial needs of its target segment

To continually strive to enhance customer experience through innovative

product offerings, dedicated relationship management and superior service

delivery while striving to interact with our customers in the most convenient

and cost effective manner.

Transparency: Crystal Clear communication to our partners and stakeholders

Value to Customers: A product and service offering in which

customers perceive value

Rock Solid and Delivery on Promise: This translates into being financially

strong, operationally robust and  having clarity in loan process.

Customer-friendly: Advice and support in working with customers and partners

Company honor own commitments and live by our words.

Company offer equal opportunity to all and demonstrate honesty and

transparency in dealings with employee. Company offer simple and best in -

class experience to customers by leveraging research, technology and processes.

Company will invest in simplifying every aspect of the business model in India

and be recognized as the industry leader. Company operate as a high performing

team; we take pride in company work and support each other to achieve our

professional and personal aspirations. Corporate Citizenship commit to take the

benefits of insurance to all strata of society, particularly to our partners'

customers. Company demonstrate responsibility towards society and the

environment through personal loan and policies.

Banking systems have been with us for as long as people have been using

money. Banks and other financial institutions provide security for individuals,

businesses and governments, alike. Let's recap what has been learned with this

tutorial:

In general, what banks do is pretty easy to figure out. For the average person

banks accept deposits, make loans, provide a safe place for money and

valuables, and act as payment agents between merchants and banks.

Banks are quite important to the economy and are involved in such economic

activities as issuing money, settling payments, credit intermediation, maturity

transformation and money creation in the form of fractional reserve banking.

To make money, banks use deposits and whole sale deposits, share equity and

fees and interest from debt, loans and consumer lending, such as credit cards

and bank fees.

In addition to fees and loans, banks are also involved in various other types of

lending and operations including, buy/hold securities, non-interest income,

insurance and leasing and payment treasury services.

History has proven banks to be vulnerable to many risks, however, including

credit, liquidity, market, operating, interesting rate and legal risks. Many global

crises have been the result of such vulnerabilities and this has led to the strict

regulation of state and national banks.

However, other financial institutions exist that are not restricted by such

regulations. Such institutions include: savings and loans, credit unions,

investment and merchant banks, shadow banks, Islamic banks and industrial

banks.

BIBLIOGRAPHY

Business World

Personal Visit to :- HDFC Bank, Circular Road, Ranchi- Jharkhand

WEBSTIES

http://www.hdfcbank.com /business-loan/

www. Google.com

www.moneycontrol.com

www.amfiindia.com

www project world .com