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Project report on

CREDIT MANAGEMENT

Of

RAJKOT NAGARIK SAHAKARI BANK LTD. - RAJKOT

Submitted to

N.R. INSTITUTE OF BUSINESS MANAGEMENT, AHMEDABAD

On

july 19, 2004

In partial fulfill ment of summer training as a part of study

In Master of Business Administration programme

By

Manoj Chorada (03016)


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PREFACE

Banks are regarded as the blood of the nations economy without them one cannot

imagine economy moving. Therefore banks should be operated very efficiently, co-

operative banks although a small part of whole banking system in India, but they are very

important not only from economical point of view but also from social point of view as it

is more concerned about common peoples welfare and development.

Advance is heart and recovery is oxygen for the bank and for the bank to survive it is

necessary to give advances and recover the amount at the appropriate time. Through

credit management I have tried to cover the various aspects like credit appraisal, NPA

management, recovery management, etc. E.g. credit management covers all the areas

right form the beginning like inquiry till the loan has been paid up.

Though credit management, a very vast topic, I have tried to incorporate to the best of my

capacity from all possible aspects in this project.

I do hope that institution will appreciate this project.


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ACHNOWLEDGEMENT

We can not determine milk of how many cows feed our body. Anon

I believe an ocean is filled by drops and each and every drop should count, similarly I

should count favor of all my helpers here but this not possible. So forgive me for the

same.

First of all I would like to thankBoard of Directors.

I am thankful to managerG.C.Raolto give me permission for the summer training.

I want to express my sincere obligation to Kotak Sir, Kumarilbhai, Shileshbhai

Nathwani,Hiteshbhai Rachchh, and all the staff members of RNSB, where I worked so

long in a homely pleasant atmosphere.

Especially, I would like to thankSalimbhai Bloch andRajnibhai Raichura, my mentor

who guided me in my work.

I am thankful to Mr. Khandelwal (principal of our college) and Mr. viral sir for their

guidance andMr. Niraj Amarnanifor the arrangement of summer placement.

Last but not least my family, which is always behind me in my work for support any

time.


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OBJECTIVE OF STUDY

Banking is the activity of my interest. I have seen from the annual reports of the various

banks and find that most of their income is from the interest getting on the credit given so

I choose and hence I studied on credit management.

Game of statistics is always attracts me and banking is one the place where we can learn

it very well. So I have selected bank and have preferred credit management as topic for

my project.


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RESEARCH METHODOLOGY

There are many methods, which are well known today for research methodology, out of

which one I have chosen is sampling method, which is really easier, still producing

accurate results.

Sampling in laymens language, is nothing but selecting pockets or samples representing

the whole group and analysis of these samples gives the idea about the respective groups.

On the basis of this, prediction is done and full information about group is integrated.

Though this is not a first hand method, it gives sufficiently good outcomes if used

carefully by experts. It saves the time and energy. The only care should be taken, in order

to have great accuracy, is selection of sample should be such that it should represent the

whole group and information we get from them should be cent percent reliable.

Salient features of my chosen sample

The biggest co-operative bank having head office in my vicinity enables me to do

my work efficiently. This is the striking feature of my sample.

The exclusive schedule bank in Rajkot and hence gets priority over the others.

Generally the new bank lacks the experience so it is mandatory to select a sample,

which has enormous experience. RNSB has a gigantic experience of successful 50

years, under the lights of which work becomes easier.

The other enchanting point is that RNSB have maximum number of shareholder

i.e. above 2 lacs.


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CONTENT

Preface

Acknowledgement

Objective of study

Research methodology

Content

INTRODUCTION

Early history of banking

Origin of word bank

Status wise bifurcation of bank

Types of bank

RNSB - The Small Mans Big Bank

PROJECT

Main Fund Inflow (sources of funds)

Main fund outflow (funds used)

Meaning of credit and credit management

Forms of credit/advances

Time wise bifurcation of advancesSecurity wise bifurcation of advances

Process of credit

CREDIT POLICY

General eligibility criteria for credit in RNSB

Table of interest rate on various advances

Scrutiny of credit

Types of credit

Explanation of all types of credit

Data analysis and observation and suggestion


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CREDIT APPRAISAL

Appraisal format

Observation and suggestion

CREDIT MONITORING, FOLLOW UP AND REVIEW

Credit monitoring system in RNSB

Follow up actions for credit monitoring in RNSB

Observation and suggestion

NPA MANAGEMENT

Identification of Non Performing Advances

Asset classification

Classification of Non Performing Advances

Provision for NPA

Findings (reason for NPA)

Suggestions (NPA reduction techniques)

RECOVERY

Process of recovery

Finding/observation

LIMITATION OF STUDY

BIBLIOGRAPHY


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INTRODUCTIONINTRODUCTION


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EARLY HISTORY OF BANKING

As early as 2000 B.C., the Babylonians has developed a banking system. There is

evidence to show the temples of Babylon were used as banks. After a period of time,

there was a spread of irreligion, which soon destroyed the public sense of security in

depositing money and valuable in temples. The priests were longer acting as financial 45

agents. The Romans did minute regulations, as to conduct private banking and to create

confidence in it. Loan banks were also common in Rome. From these the poor citizens

received loans without paying interest, against security of land for 3 or 4 years.

During the early periods, although private individuals mostly did the banking business,

many countries established public banks either for the purpose of facilitating commerce

or to serve the government.

However, upon the revival of civilization, growing necessity forced the issued in the

middle of the 12th century and banks were established at Venice and Genoa. The Bank of

Venice established in 1157 is supposed to be the most ancient bank. Originally, it was not

a bank in the modern sense, during simply an office for the transfer of the public debt.

Again the origin of modern banking may be traced to the money dealers in Florence, whoreceived money on deposit, and were lenders of money in the 14 th century and also in

1349, the business of banking was carried on by drapers of Barcelona.

In India, as early as the Vedic Period, banking, in most crude from existed. The books of

Manu contain references regarding deposits, pledges, policy of loans, and rate of interest.

True, the banking in those days largely mint money lending and they did not know the

complicated mechanism of modern banking.

This is true not only in the case of India but also of other countries. Although, the

business of banking is as old as authentic history, banking institutions have since than

changed in character and content very much. They have developed from a few simple

operation involving the satisfaction of a few individual wants to the complicated


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mechanism of modern banking, involving the satisfaction of capital slowly seeking

employment and thus providing the very life blood of commerce.

THE ORIGIN OF WORD BANK

The word Bank itself derived from the word bancus or banque that is a French.

There were others of the opinion that the word Bank is originally derived from the

German word back meaning joint for which was Italianised into banco.


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STATUS WISE BIFURCATION OF BANKS

Scheduled Banks.

Non-Scheduled Banks.

Scheduled Banks

In first schedule, Government of India notifies the Primary Banks, which are licensed and

whose demand and time liability are not less than 50 crores in 1987.

Government of India notifies the Primary banks, which are licensed and whose demand

and time liability are not less than 100 crores can only qualify to be included in the

second schedule since 1993.

A bank becomes scheduled when it fulfils the followings:

A grade rating from RBI

Demand and Time Liability over 100 Crores

Satisfy the RBI guidelines related to CRR and SLR

As per the norms Priority Sector wise lending

Benefits of Being a Scheduled co-operative are described below:

RBI would provide Rediscounting facility at nominal rate

RBI gives remittance facility at par

The demerit of being a scheduled co-operative bank is that the bank will not get 0.5%

subsidy from RBI.The conferment of scheduled status on the banks has certain advantages like refinance

facility, directly industrial finance from Reserve Bank of India, avail of Reserve Bank of

India Remittance facility scheme, accept deposits from local bodies, quasi-government

organization, religious, and charitable institutions, guarantees and cheques issued by

Banks are accepted by Government Departments. At the same time, it casts greater

responsibility on the banks in the maintenance of books of accounts and submission of

returns.

Non-Scheduled Bank

The banks, which are not applicable as per the criteria of Scheduled Banks, are called as a

Non-scheduled Banks. These are very small banks.

TYPES OF BANKS


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Regional Rural Bank

Nationalize Bank

State Bank Group

Co-operative Bank

Private Bank

Foreign Bank

RESERVE BANK OF INDIA

The Hilton-young commission, appointed in 1926 has recommended the necessity of

centrally empowered institution to have effective control over currency and financial

transaction in the country. Accordingly, the Government had then passed Reserve Bank

of India Act, 1934 and established the Reserve Bank of India with effect from 1st April

1935. The principal aim behind this was to organize proper control over the currency

management in the interest of country benefits and to maintain financial stability. With

this, the RBI mainly looks after the following important functions:

To keep effective control over creation of credits and currency supply

To control the Banking transactions of Central and State Governments

To act as Central administered Authority of all other Banks in the Country.

To organize control over Foreign Currency TransactionTo assist for improvement in financial aspects of the country

Nationalize Banks

The Banking Company Act establishes it in July 1969 by nationalization of 14 major

banks of India. The sent percent ownership of the bank is of government of India.

State Bank Group

The State Bank of India was established under the State Bank of India Act, 1955, the

subsidiary banks under the State Bank of India (subsidiary Banks) Act, 1959. The

Reserve Bank of India owns the State Bank of India, to a large extent, and rest of the part

is some private ownership in the share capital of State Bank of India. The State Bank of

India owns the subsidiary Banks.


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Old Private Banks

These banks are registered under Company Act, 1956. Basic difference between co-

operative banks and private banks is its aim. Co-operative banks work for its member and

private banks work for earn profit.

New Private Banks

These banks lead the market of Indian banking business in very short period, because of

its variety of services and approach to handle customer, also because of long working

hours and speed of services. This is also registered under the Company Act, 1956.

Foreign Banks

Foreign Bank means multi-countries bank. In case of India Foreign Banks are such

Banks, which open its branch office in India and their head office is outside of India.

Regional Rural Banks (RRB)

Regional Rural Banks are added in Indian Banking since October 1975. The Government

of India in terms of the provision of the Regional Rural Bank Act 1976 has established

these banks. The distinctive feature of Regional Rural Bank is that through it is a separate

body corporate with the Commercial Bank, which has sponsored the proposal to establish

it. The Central Government, while establishing a Regional Rural Bank at the request of aCommercial Bank, shall specify the local limits within which it shall operate. The

Regional Rural Bank may establish its branches or agencies at any place within the

notified area.

State Bank of Saurashtra sponsors Regional Rural Banks in Saurashtra.

Co-operative Banks

State Co-operative Banks

State Co-operative Bank means the principal Co-operative society in the state. The

primary objective of which is the financing other co-operative societies in the state.

Central / District Co-operative Banks


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Central / District co-operative Bank means the principal co-operative society in a district,

the primary objective of which is the financing of other co-operative in that particular

district.

Primary / Urban Co-operative Banks

The primary objective of principal business of which the transaction is of banking

business and paid up share capital and reserve of which are not less than rupees 100,000

and bye-laws of which do not permit admission of any other co-operative society as a

member.


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RNSB - The Small Mans Big Bank

Rajkot Nagarik Sahakari Bank is a leading Co-Operative Bank in Gujarat State, India.

Bank was established on 5th October 1953 With a small Capital Of Rs. 4890 and

Membership of 59 persons under the leadership of Late Keshavlal Amrutlal Parekh as aChairman, and Late Janmashankar Antani as a M.D. Bank has made tremendous & real

progress under the leadership of former Chairman Late Shri Arvindbhai Maniar.

Bank is celebrating its 50th anniversary (Golden Jubilee) year this year. During past years

bank has played vital & leading role for the development of industries, business &

Economy of Rajkot City, Development and nursing of Co-operative movement in the

Saurashtra region of Gujarat State. Bank was the first co-operative institute to start

functioning in the erstwhile state of Saurashtra. SAHAKAR MAHARSHI late Shri

Vainkunthbhai Metha inaugurated bank.

Bank has developed in manifolds with the time. Membership (Share Holder) of bank is

mounting towards 2,50,000/-, which is a record by itself & provides an example of how a

mass movement can be turned into the instrument for social upliftment. To day Bank has

more than 600,000+ deposit accounts with a deposit base of 711+ Crores, And 40000+

Establishments/Individuals enjoy the facility of Rs 485+ Crores of Advances.

Since inception the people with foresight & vision, which Includes the names Like Shri

Keshubhai Patel, Shri Vajubhai Vala, Shri Shashikant Mehta, Shri Vasantbhai Khokhani,

Shri Pravinbhai Maniyar, Shri Shivlalbhai Vekaria etc, guided bank.

Being in the service sector, with a vision of current & future trends, Bank started

automation & modernization way back in 1987 and by 1995 all the Branches were

computerized.

Bank is enjoying the SCHEDULE BANK Status since 1989. Recently in year 2001 Bank

was registered UNDER MULTI-STATE CO-OPERATIVE SOCIETY ACT. With this

Bank has opened a Branch In Mumbai, Economic Capital of India and become MULTI-

STATE SCHEDULE CO-OPERATIVE BANK.

Parameters for Multi-State:

NPA level is 15% bellow of total advances.

Not penalized for continuous 3 years for SLR and CRR.


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Customers are the key to success of any commercial organization. The bank has taken up

number of projects to improve its customer services as well as facilities during the year.

Some of these are listed below:

Banks has started its own website www.rsnbindia.com for the benefit of

customers.

A kiosk has been installed at the Para Bazaar branch for facilitating the customer

needs for account balances and status without the help of banks staff. This also

ensures secrecy of customer account.

Banks has started issuance of free drafts on its own branches for the benefit of

customers.

Drafts as well as term deposit receipt are now being issued online (immediately)

at all branches.

Computerized passbook printers have been installed at all branches.

Bank has also taken up the project of installing technologically upgraded core banking

solution that will network all the branches as well as provide anywhere banking services.

This project has already been launched and the work is progressing at a fast pace.

Bank has recently started five new credit products for customers:

Small business and industrial credit scheme:

This scheme covers the business and industries, which are in existence for minimum 3

years. This scheme is for the working capital requirement of business or industry in the

form of overdraft. One guarantor and stock statement once a year - is specialty of this

scheme.

Tatkal (On the spot) credit scheme:

Purpose of this scheme is to fulfill the current requirement (like business, marriage,medical treatment, education). This is given in the limit of Rs.1 lac against the security of

immovable property. This loan is required to be paid in the monthly installments of 12 to

24. Specialty of the scheme is that within 24 hour you can get the loan
http://www.rsnbindia.com/http://www.rsnbindia.com/


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Scheme for the social responsibilities requirement:

This scheme covers the social responsibilities, medical treatment and other occasions. In

this scheme loan is sanctioned against security of immovable property in the limit of Rs.5

lac. Maximum loan repayment period is 36 months.

Building repairing/renovation loan scheme:

Recently bank has increased limit of loan amount from Rs.75000 to Rs.200000 for the

Rajkot, Ahmedabad, Surat city and for other branches to Rs.100000.

Loan against N.S.C. / K.V.P. / L.I.C. Policy scheme:

The loan amount is given in the form of overdraft.


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PROJECTPROJECT


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MAIN FUND OUTFLOW (FUNDS USED)

CRR (Cash Reserve Ratio) with Reserve Bank of India

SLR (Statutory Liquidity Ratio) in Reserve Bank of India approved securities

Loanable Fund

Others

CRR (Cash Reserve Ratio) with Reserve Bank Of India

The capacity of credits creation of bank is depending upon their cash flow received. To

restrict this credit creation, the reserve bank of India has directed their terms. In case of

scheduled banks and sec.18 of banking regulation act are required to maintain the cash

reserve ratio *@ 4.75% and non-scheduled bank @ 3% of their demand and time liability

amounts separately. The scheduled banks are required to deposit the cash reserve ratio

amount with Reserve Bank of India while the non-scheduled banks are required to

maintain separate account for this. The Reserve Bank of India is also empowered to raise

the cash reserve ratio up to 15% only in respect of scheduled banks. It is maintained

reported to RBI every fortnight.

*30th April RBI declared new credit policy and as per that RBI reduced CRR with 0.25%

Demand and time liability:

Time liability is related with time like, fixed depositsDemand liability is related with the demand like, Current deposits, inoperative deposit,

and matured fixed deposits

SLR (Statutory Liquidity Ratio)

The cash flow for regular banking transactions mainly depends upon deposit received in

the bank. The reserve bank of India there fore puts some restrictions on utilization of

these amounts. The scheduled and non-scheduled banks are required to deposit 25%

amount of their demand and time liability amount in the security approved by reserve

bank of India. These securities are converted into cash and therefore they are termed as

liquid assets and 25% amount termed as liquid ratio. The reserve bank of India is

empowered to raise this liquidity ratio from 25% to 40%. It is maintained average

fortnight and reported to RBI.


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Loanable Fund

Credit deposit ratio is not more than 70%.

Loanable funds means amount of money, which is applicable for lending. Three main

factors own fund, deposits, and borrowings decide it. Advances can never be more than

loanable fund.

Loanable fund is a total of:

75% of own funds

70% of deposits

100% of borrowings

Others

Purchase of fixed assets, purchase of marketable securities, addition to advances, addition

to inventories, payment to creditors, payment of dividend, etc..


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Meaning of CREDIT

The word credit is actually derived from the Latin word Credere. Credere means to

have trust or faith. Thus credit is directly related with trust. That is why State Ford

stated that Credit is nothing more than that of trust. By this we can say that credit is a

tool that is resulted by the complete mutual trust/faith.

Credit creation implies a situation when a bank may receive interest simply by

permitting customer to overdraw their accounts or by purchasing securities and paying

for them its own cheque or bank may pay amount to borrower or directly to seller of

goods whom against borrower get amount.

CREDIT MANAGEMENT

Credit management means the total process of lending start from inquiry from potential

borrower to recover the lending amount from borrower. Whenever my study is concern,

credit management in sense of banking sector is the set of activities like Except

application, loan appraisal, Shakh posting, monitoring, recovery, NPA management, etc.


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FORMS OF CREDIT/ADVANCES

Loan (term loan)

Cash credit and overdrafts

Purchase /discounting of bills

Bank guarantee

Loan/term loan

In case of a loan a specified amount is sanctioned by the banker to the customer, who

may either draw the amount in case immediately or may like the amount to be credited to

his current account. But legally it is presumed that he has withdrawn the amount from the

bank and deposited it in his current account. He is required to pay interest on the full

amount from the date of sanction. A loan may be repayable in installments or in lump

sum.

Cash credit

Cash credit is the main method of lending in India and accounts for above 70% of total

bank credit. Under the system, the banker specifies the limit, called the cash credit limit

for each customer, up to which the customer is permitted to borrower against the security

of tangible assets or guarantees. The customer withdraws from his cash credit account asand when requires the funds and deposits any amount of money, which he finds surplus

with him on any day. The cash credit amount is thus an active and running account to

which deposits and withdrawals may be affected frequently. The customer is required to

provide tangible assets as security to cover the amount borrowed from the banker. The

borrower is charged interest on the actual amount utilized by borrower and for the period

actually utilized only.

Overdrafts

When a current amount holder is permitted by the banker to draw more than what stands

to his credit, such an advance is called an overdraft. The banker may take some collateral

security or may grant such advance on the personal security of the borrower. The

customer is permitted to withdraw the amount as and when he needs it and to repay it by


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means of deposit in his account as and when it is feasible for him. Interest is charged on

the exact amount overdrawn by the customer and for the period of its actual utilization

Bills Purchase

The Banker credits customers account with the amount of the bill after deduction his

charges. As the demand bills are repayable on demand and there is no maturity, the

banker is entitled to demand their payment immediately on presentation before of

drawee. Their practice adopted in the case of demand bills, is known as purchase of the

bills.

Bills Discount

In case of bills discounting, a bank credits the amount of the bill to the drawers account

before the realization of the bill and thus lends its funds to him after deduction his

charges. The bills purchased and bills discounted by a bank are, therefore, shown in its

balance sheet as part of loans and advances. In case of a bill maturing after a period of

time maximum for 180 days in RNSB, the banker retains the bill for that period and

realizes the amount of bill from the drawee on its due date. This practice is called

discounting of the bill.

Bank GuaranteeIt is a contract to perform the promise or discharge the liability of a third person in case

of his default. In case of guarantee, Bank is taking responsibility to pay the amount to

seller if buyer will not pay amount in time.


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TIME WISE BIFURCATION OF ADVANCES

- Short-term Finance : Up to 26 months

- Medium-term Finance : 26 to 66 months

- Long-term Finance : Above 66 months

SECURITY WISE BIFURCATION OF ADVANCES

Secured Finance / Advances:

Secured Advances are those advances, which provide absolute safety to the Banker by

means of a charge, created on the tangible assets of the borrower in favor of the Banker.

In such cases, the Banker gets certain rights in the tangible assets over which a charge is

created. A Secured Loan or Advance means a loan or advance made on the security of

assets, the market value of which is not at any time less than the amount of such loan or

advance.

Unsecured Finance / Advances:

Unsecured Loan or Advance means a loan or advance, which are not secured, this types

of advances is not preferable for any banking institutions.


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PROCESS OF CREDIT

Application inward

Shakh report

Advocate report

Branch report

Loan report

Inspection report

Committee report

Fulfill conditions

Equitable mortgage and equitable extension

Make/sign document

Open account

Insurance posting

Record department - filing

Inward application

A customer seeking an advance is required to submit an appropriate application form.

There are different types of application forms for different types of advances available.

The information furnished in the application covers, inter alias, the following: name andaddress of the borrower and his establishment, the details of borrowers business, the

nature and amount of security offered. The application form has to be supported by

various ancillary statements like the financial statements and financial projections of the

firm. A separate inquiry department is set under the loan department. Here, different

types of application forms are available and collect process charge from borrower;

application is accepted and entered into computer.

Shakh report

This is one of the strangest facility of RNSB compare with other co-operative banks in

Rajkot district because of its computerization. This facility provides bank to total

kundali of the borrower related to dealing with bank not only as a borrower but also as

partner, as a director also as a guarantor and same detail of the guarantor also and also


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about all the types of loans, which are already paid up, which are overdue, which are

running and also about past performance of particular.

Advocate report

Bank through its legal departments staff in two matters prepares advocate report mostly,

which are given below:

In case of land and building loan

Before equitable of immovable property as a security

When the bank prepares advocate report, bank charges some amount from borrower.

Branch turn over report

This report mostly prepare in case of cash credit review/renew, is also known as a branch

turn over report. This report presents:

Performance of borrower with the branch in previous year

Debit-credit transaction of borrower,

Submission of stock statement,

Payment of interest

Last outstanding balance

Processing of application/loan report

The application is processed by the clerical staff and checked and passed by senior loan

officer and monitoring by loan manager. The preliminary involves an examination of the

following factors:

Ability, integrity, and experience of the borrower in the particular business

General prospects of the borrowers business

Purpose of advance

Requirement of the borrower and its reasonableness

Adequacy of the margin

Provision of security

Period of payment

And prepare the appraisal report for committee approval


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Inspection report

Before presenting appraisal report against the committee, bank sends his field

officer/inspection officer to on site inspection. The situation which created by borrower

by providing information of his business to bank is it fact or not? After the inspection

report, this application is ready for putting against the loan committee of the bank.

Inspection varies according to the various loans. For e.g.

In case of cash credit he personally visits the business site and verifies the original books

of accounts with that of submitted books of accounts. He verifies the real stock with the

stock mentioned if any difference is found it is clearly mentioned in the report.

In case of housing loan inspection officer visits the place and check whether the building

is really in existence or not, whether the construction is as per the statical figure provided

to him and plan is as per sanctioned by the municipal corporation.

Committee approval and terms and conditions

Once the application is duly processed, it is put for sanction to the appropriate authority.

Here appropriate authority means various loan committees, standing committee and

board of directors. Loan manager is a sanctioning authority only in case of review of cash

credit facility. Types of committee and its lending powers are given below:If appropriate authority gives sanction, along with the sanction of advance the

bank specifies the terms and conditions applicable to the advance. These usually cover

the followings:

The amount of loan or maximum limit of the advances

The nature of the advances

The period for which advance is valid

The rate of interest applicable to the advance

The primary security to be charged

The insurance of the security

The detail of collateral security, if any, to be provided

The margin to be maintain


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Other restrictions or obligations on the part of the borrower

It is common banking practice to incorporate important terms and conditions on a

stamped security document to be executed by the borrower. Rate of stamp duties are

given follows:

Demand promissory note : Rs. 1

Letter of guarantee : Rs. 60*Agreement letter Up to 5,00,000 : Rs. 50

(Letter of lien) Above 5,00,000 : Rs. 2/thousand

Letter of pledge : Rs. 50

Letter of continuity : Rs. 50

Agreement letter for Cash credit/Overdraft

Name Of Committee

1. Board of directors

2. Standing committee

3. Reconsideration committee

4. Loan committee (Rs.500001 to 1000000)5. Loan committee (Rs.300001 to 500000)

6. Loan sub-committee/1 (Rs.150001 to 300000)

7. Loan sub-committee/2 (Rs.75001 to 150000)

8. Loan sub-committee/3 (Up to Rs.75000)

9. Loan sub-committee/4 (Up to Rs.5,000)

10. Committee for loan against immovable property/1 (Rs.2,50,001 to 5,00,000)

11. Committee for loan against immovable property/2 (Rs.1,50,001 to 2,50,000)

12. Committee for loan against immovable property/3 (Rs.25,001 to 1,50,000)

13. Committee for loan against immovable property/4 (Up to Rs.25,000)

14. Recovery committee/1 (more than Rs.3,00,000)

15. Recovery committee/2 (Rs.1,50001 to 3,00,000)

16. Recovery committee/3 (Up to Rs.1,50,000)


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Up to 5,00,000 : Rs. 110

Above 5,00,000 : Rs. 2/thousand

Maximum limit of stamp duty is Rs. 2,00,000

*Agreement letter is in case of vehicle loan, security loan, bills purchase, bills

discounting, guarantee, education loan, etc.

Equitable Mortgage And Equitable Extension

When the loan is sanctioned with condition that to put the real document as a mortgage in

security (prime/collateral), it is must that to make the equitable mortgage of the property.

Some time a property which given in mortgage by borrower is already put before the

bank in case of other loan as a security at that time equitable mortgage is already done by

party so there is no need of equitable mortgage again but the equitable extension is only

needed.

Equitable mortgage on non-judicial stamp paper

Amount of sanctioned loan loan of non-judicial stamp paper for equitable mortgage

Up to 15,00,000 1/2% of sanctioned loan

Above 15,00,000 1% of sanctioned loan OR Rs. 1,00,000

(Whichever is less)

Make/sign document

This application is now in the document department, document department take signature

of loanee and guarantors in specimen card and also on the sanction letter to seat beside

and verify all the documents. Types of documents are discussed in each type of loan

separately. This process is last for borrower, after this loan is sanctioned. No formality is

remaining at the borrower side.

Open account

Now loan is sanctioned, all formalities are completed. So bank is giving your amount of

loan either by credited in your account or pay the amount to the party, whose quotation is


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provided by borrower to bank. Bank opens your account with himself to get the actual

transaction between bank and borrower.

Insurance posting

It is must for loanee to insure the property or equipment, which is hypothecated with the

bank against loan as a security. This policy is assigned in favor of bank, which is also

required. In case of immovable property or new purchase of machinery, equipment, etc.

insurance of same amount and in case of old machinery, goods stock, etc. twice of the

price insurance is needed. In case of education loan, the life insurance of student is

required. Shakh department is posting it in borrowers account.

Record department filing

Now total process is over and whole documents are need filing for bank record. Record

department does this work. Record department file the documents and store it to proper

place.


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CREDITCREDIT

POLICYPOLICY


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General Eligibility Criteria For Credit In RNSB

As per the rules of co-operatives, any one who wants to avail finance has to

become a member of the bank.

As a shareholder of the bank, he/she have to make compulsory deposit, or the

payment of deposit as per rules and regulations of the bank and thereafter, he/shecan submit the application for loan. In all the practice with the bank, you are

known by bank through your compulsory deposit number.

The application will have to be submitted in the prescribed form, wherein all

details and particulars will have to be furnished as demanded in the form. He/she

has to submit further particulars as may be asked by the bank.

The loanee will be advanced loan against the security and he/she has to submit 1

or 2 guarantors, who will be the recognized member and accepted to the bank.

The interest will be calculated on month-to-month basis.

Taking in view the total amount of loans taken for different purpose by the firm or

individual, the interest will be calculated at the same rate on all the advances.

It will be necessary to make payment of share deposit or loan deposit at the rate of

2.5% of the sanction in case of secured loan and 5% of sanctioned loan or in case

of unsecured loan. The maximum share deposit accepted of Rs.25000 and

additional deposit over Rs.25000 will be accepted as loan deposit.

The rate of interest on share deposit is 15% and that on loan deposit is 10%.

The company, who wants to take loan from bank, has to get its name registered

for the said loan purpose with the registrar of companies and has to submit the

document of registration charge to the bank.

In case of mortgage of immovable property steps are given below:

Title clear report

Equitable mortgage on non-judicial stamp paper

Amount of sanctioned loan loan of non-judicial stamp paper for equitable

mortgage

Up to 15,00,000 1/2% of sanctioned loan

Above 15,00,000 1% of sanctioned loan OR Rs.1,00,000

(Whichever is less)


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Some time a property which given in mortgage by borrower is already put before

the bank in case of other loan as a security at that time equitable mortgage is

already done by party so there is no need of equitable mortgage again but the

equitable extension is only needed.

In case of immovable property or new purchase of machinery, equipment, etc.insurance of same amount and in case of old machinery, goods stock, etc. twice of

the price insurance is needed. In case of education loan, the life insurance of

student is required.

Margin money means gap between purchase value and bank finance. Bank always

does payment directly to the seller. So loanee has to deposit the margin money in

the bank.


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INTEREST RATE ON VARIOUS ADVANCES

Particulars Interest rate Installment /Rs.1000

Number of

installment

Up to 25000(except vehicle loan)

Up to 25000 vehicle loan

25001 to 200000

200001 to 1000000

Above 1000000

Surety loan, home appliances

Gold loan

Land and building (unsecured) up to

25000

Staff surety loan

Loan against fixed deposit

Building repairing up to 75000

Building purchase, construction

75001 to 200000

200001 to1000000

12%

14%

14%

15%

16%

16%

14%

16%

16%

More than2% of F.D.

14%

14%

15%

32

32

32

23

23

32

50

32

23

17

17

17

40

40

40

66

66

40

26

40

66

Till thematurity date

of F.D.

108

108

108


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Scrutiny of credit

While scrutinizing an application from the bank takes into consideration-safety, liquidity,

purpose profitability, security, and spread of advances.

Safety

Bank has to see that the prospective borrower is a reliable user of the finance and banks

money is safe in his hands.

Liquidity

Bank has to find out that the borrower is quite capable in repaying the finance within

reasonable period.

Purpose

The purpose for the finance should not be illegal. It should be creative, service oriented,

development oriented, and like. Banks should check end use of funds.

Profitability

If the project or the purpose of the finance is not profitable in the hands of the borrower

than he will not be in a position of repaying the amount to bank. It should be profitable

enough to generate the income to satisfy his needs and banks dues.

Security

The bank has to take into consideration the character, capacity, and capital of the

prospective borrower. Bigger advances and cash credit are to be secured with collateral

security over and above prime security.

Spread of advances

For having balanced economy the bank should choose to spread the finance amongst

various sectors of the society, so that the risk of incoming bad advances is minimized.

Concentration on one type of advances may turn into bad advances if the scheme

becomes ineffective due to some natural calamities or government rules or change in

taste or demands of the society, by and large.


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TYPES OF CREDIT

Surety Loan

Vehicle Loan

Security Loan

Domestic Appliances Loan

Gold Loan

Land And Building Loan/Industrial Building Loan

Educational Loan

F.D. Loan

Cash Credit

Overdraft

Bankable Loan

Bills Purchase

Bills Discounting

Bank Guarantee

Staff Loans

Staff Surety Loan

Staff Housing Loan

Staff Vehicle LoanStaff Domestic Appliances Loan

Gyan Prakash Yojana


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EXPLANATION OF ALL TYPER OF CREDIT

Surety Loan

Purpose Personal use

Limit Rs. 5000 to 10000

Rate of interest 16%

Period 40 months

Repayable Equate Monthly installments Rs.32 per thousand

Security Personal Guarantee of two members of the bank

Documents Loan Appliances form, Letter of guarantee, DP note, letter of Sanction.

Submit Paper In case of service person pay sleep, in case of businessperson last yearly

business report.

Other terms

% of the loan amount if the loan is sanctioned to the tune of Rs. 5000 and 1% of the

loan amount is sanctioned to the tune of Rs. 10000 will have to be deposited in the

benefit fund.

Under the above scheme, if the death of the loanee under surety loan occurs, in the said

circumstances, in remaining loan in his account will be credited from this account under

his loan account and an amount of Rs. 1000, as Assistance will be paid to the heirs of the

loanee immediately from this fundThe confirmed government employee can be granted a loan of Rs. 10000 on acceptance

letter taken from his employer to the effect that they will deduct the installment from his

salary every month regularly and remit the same to Bank.

It is not applicable that the surety loan of other co-operative society is in presence.

Domestic Appliances Loan

Purpose For purchasing consumer durable articles viz. freeze, washing machine,

flour mill, T.V. VCD, sewing machine, room heater, room conditioner,

etc.,

Limit Minimum Rs. 5000 Maximum Rs. 20000

Margin 40%



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Period 40 months

Repayable Equate Monthly installments Rs.32 per thousand

Security Hypothecation of goods, personal guarantee of two members of the bank

Documents Loan Appliances form, Letter of guarantee, DP note, Hypothecation of

goods/articles purchased, insurance policy


business report, quotation of the item obtained from Authorized Dealer

Security Loan (Against Machinery/Furniture & Fixtures/Equipments)

Purpose For purchasing NEW/OLD machineries/furniture for business purpose

Limit Any limit as per requirement

Margin 25% to 40%

Rate of interest Up to 25000 12%,

25001 to 200000 14%

200001 to 1000000 15%

Above 1000000 16%

Period 40 months up to 200000, 66 months above 200000

Repayable Equate Monthly installments Rs.32 up to 200000, In case of more than

200000 Rs.23 per thousand

Security The Hypothecation of machinery/furniture purchased as a primesecurity, as a collateral security

(A) Existing old machineries

(B) Equitable mortgage of land and building

(C) Guarantee of two members of the bank as guarantors

Documents Loan Application form, Letter of guarantee, DP note, Hypothecation of

machineries old/new, insurance policy, letter of sanction

Submit Paper Last three-year business report, Shop Act License, SSI license, Elec.

Connection proof, IT Return (in case of new firm project report)

If applicant is a Partnership Firm

Partnership deed copy, Reg., of firms

If applicant is a limited company


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Resolution for getting loan, Memorandum of association, Articles

of association, letter of assurance for registration in Reg. of

Companies

Other terms

The payment of this kind of loan is given to the seller directly by Bank.

In case of mortgage of old security the insurance of the double amount of old security and

about new security, the insurance of the value of purchase price, is required to the taken

out from the insurance company recognized by bank and the said insurance policy is

required to be recognized to be assigned in favor of the bank.

The immovable property of either loanee of guarantor will have to be assigned as

collateral security to the bank.

Security Loan (Against Good Stock)

Purpose Provide loan against good stock

Limit Any limit as per requirement

Margin 40%

Rate of interest Up to 25000 12%,

25001 to 200000 14%,

200001 to 1000000 15%,

Above 1000000 16%Period 40 months up to 200000, 66 months above 200000

Repayable Equate Monthly installments Rs.32 per thousand up to Rs.200000, in

case of more than 200000 Rs. 23 per thousand

Security The Hypothecation of goods purchased as a prime security, As a

Collateral security

(A) Equitable mortgage of land and building

(B) Guarantee of two members of the bank as guarantors.

Documents Loan Appliances form, Letter of guarantee, DP note, Hypothecation of

goods, insurance policy, letter of sanction, equitable mortgage of land

and building

Submit Paper Last three-year business report, Shop Act License, SSI license, Elec.

Connection proof, IT Return, Rent receipt


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If applicant is a Partnership Firm

Partnership deed copy, Reg., of firms,




Companies

Other terms

The payment of this kind of loan is given to the loanee by Bank.

Insurance is twice of the value of goods price, is required to the taken out from the

insurance company recognized by bank and the said insurance policy is required to be

recognized in favor of the bank.

The immovable property of either loanee of guarantor will have to be assigned as

collateral security to the bank.

Land And Building / Industrial Building Loan

Purpose For purchase or construction or repairing of immovable property

Limit Rs. 1000000 or value of the property which ever is less in case of secured loan for

housing purchase or construction

For industrial purpose as per requirement

Rs. 75000 Maximum (in case of secured loan repairing of houseproperty)

Rs. 75000 Maximum (land less than 50 yards in case of purchase)

Rs. 40000 Maximum (repairing of building and less than 50 yards)

Rs. 25000 Maximum (in case of unsecured loan for repairing of

house property)

Margin 30% (in case of secured loan for repairing of house property)

Rate of interest 16% (unsecured loan) and 75001 to 200000 14% and 200001 to

1000000 15 %( secured loan (purchase /construction))

14% (housing repairing (secured loan))

Period 40 months (unsecured loan)

108 months (secured loan (purchase / construction) / repairing).

Repayable Equate Monthly installments Rs.32 (unsecured loan repairing)


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Rs. 17 (secured loan (purchase/construction/repairing) per thousand.

Security Equitable mortgage of property, two guarantors guarantee

Documents Original Lekh, certified copy of sequential document of the property,

loan application form, letter of guarantee, equitable mortgage of

property/indemnity Bond, insurance policy, letter of sanction

Submit Paper Last three-year business report, shop Act License, IT Return, (In case of

new project, project report), approved plan and estimate.

If applicant is a partnership Firm

Partnership deed Copy, Reg. of firms




Companies

Other terms

Loanee is required to pay the document inspection and advocate fee along with process

charge as per the rate time-time decided by the bank.

In case of secured loan, when the loan is given for purchase of construction of the

immovable property, the full insurance of the value of construction is required to be taken

out. In case of collateral of unsecured loan, the insurance of double the value of the

sanctioned loan is required to be taken out from the insurance company recognized by thebank. The insurance policy is required to the assigned to the bank.

In case of unsecured loan, the applicant has to submit the original document showing the

ownership of the immovable property. For this type of loan, no insistence is given for

title clearance. But the applicant has to submit Indemnity Bond on stamp paper of 150

whenever the demand of bank and necessary as per the advice of the legal retainer of the

bank. The insurance for the value of building will have to be taken over and the insurance

policy will have to be assigned to the bank.


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Construction Level And Amount Passing Slab Chart

NO. OF

INSTALME

NT

PARTICUL

AR

UPTO

GROUND

FLOOR

UPTO 1St.

FLOOR

UPTO 2 ND

FLOOR

1 Plinth level 20% 20% 20%

2 Lintel level 20% 20%

10%

20%

10%3 Slab 30% 10%

10%

10%

10%

4 Plaster, tiles,

electric,

Plumbing

20% 20% 20%

5 Completion 10% 10% 10%

Vehicle Loan

Purpose Purchase of new two wheeler/purchase of four wheeler old/new

Limit As per demand

Margin 25% (in case of new vehicle purchase)

OLD KIND OF

VEHICLE

YEAR OLD

MODEL

% OF VALUATION OF VEHICLE

PASSEDTruck, Tractor 2 years 60%Matador 3-4 years

5 years

6-7 years

8-10 years

11-15 years

55%

50%

40%

30%

25%

Petrol Motor 10 years

11-15 years

50%

30%

Diesel motor 5 years

6-15 years

60%

50%

*Valuation by bank recognized valuer

Period 40 months up to 200000, 66 months above 200000


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Rate of interest 25001 to 200000 14%

200001 to 1000000 15%

Above 1000000 16%

Repayable Equated monthly installments Rs. 32 up to 200000 Rs. 23 more than

200000 per thousand

Security Hypothecation of the vehicle, two guarantors guarantee as a collateral

security immovable property of loanee or guarantor

Documents Copy of registration of vehicle in RTO in particular city, Higher

purchase agreement in favor of bank, loan application form, Vehicle

dealers guarantee letter, DP note, letter of sanction, insurance policy,

equitable mortgage or extension of property


business report, IT return, Quotation of vehicle

Other terms

It is necessary to take full comprehensive insurance for the vehicle, for which the higher

purchase agreement is done in favor of the bank. The above insurance will have to be

taken from the insurance company recognized by bank and will have assign in favor of

the bank.

Bank shall make direct payment to the dealer/seller.

In case of second hand vehicle, necessary valuation report from a recognized valuer to besubmitted to the bank.

Gold Loan


Limit Rs. 50000 (in Rajkot city) 20000 (out of Rajkot)

Period 26 months


Repayable Equated monthly installments Rs. 50 per thousand.

Security Gold silver ornaments or items on Re-pledge

Documents Loan application form, DP note


business report


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Other terms

This kind of loan is given on the re-pledge of ornaments or items of gold-silver. This kind

of loan is not available to the merchants of gold-silver for the purpose of buying selling.

This kind of loan can be given to the member of the bank, but this kind of loan can also

be given to the non-member, taking Rs. 5 as admission fee and giving nominal

membership for the loan only.

The purity of the ornaments or items of Gold, which is given on re-Pledge, should be

minimum 21 Carets.

For the purpose of this kind of loan the bank shall appoint one or more goldsmiths, who

will make valuation of the ornaments or items of gold-silver and the loanee has to accept

his decision arrived at on the basis of the kind/weight etc. of gold-silver ornaments or

items.

Per 11.664 Gram (Per TOLA) Rs. 3000 is Valued & 70 % Valued Amount is Sanctioned

as Loan.

Bankable Loan

Purpose To assist the small scale industry

Limit Rs 200000

Margin 25% to 40%

Period 40 monthsRate of interest Up to 25000 12%

25001 to 200000 14%

Repayable Equated monthly installments of 32 Rs. Per thousand

Security As a collateral security house property of loanee or guarantor or fixed

deposits or national saving certificates as a mortgage 70% of sanctioned

loan, guarantee of two guarantors

Documents Equitable mortgage of property, loan application form, letter of

guarantee, DP note, letter of sanction, insurance policy

Submit Paper Shop Act License, SSI license, Elec. Connection proof, Rent receipt,

project report

Other terms


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This loan is sanctioned on the recommendation of district industrial center after security

and taking in view the value of security given against loan and particulars of guarantor.

Amount of subsidy given and sanctioned to the application is credit in his loan account.

The payment except amount, which is sanctioned against working capital, of this loan is

made directly to the party, who has given the quotation.

Type of business condition of subsidy

Trading firm 7500 or 10% of loan amount whichever is less

Service sector 10000 of 10% of loan amount whichever is less

Manufacturing firm 20000 or 10% of loan amount whichever is less

Over Draft

Purpose To fulfill the need of working capital of business

Limit As per requirement

Margin 40%

Period Up to 1 year

Rate of interest Up to 25000 12%

25001 to 200000 14%

20001 to 1000000 15%

Above 1000000 16%Repayable The customer is permitted to withdraw the amount as and when he needs

it and to repay it by means of deposit in his account as and when it is

feasible for him

Security Hypothecation of goods stock and or equitable mortgage of property

guarantee of two guarantors

Documents Overdraft application form, letter of guarantee, equitable mortgage of

property, DP note, letter of continuity, letter of sanction, insurance

policy

Submit paper Last three-year business report, rent receipt, IT return, shop act license


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Cash credit (good stock)

Purpose To meet the need of working capital business unit

Limit As per require

Margin 40%

Period 12 month (to be reviewed every year and renewed every three year)

Rate of interest Up to Rs. 25000/- 12%, 25001 to 2,00,000 14%, 2,00,001 to 10,00,000

15%, above 10,00,000 16%

Repayable The customer is permitted to withdraw the amount as and when he need

it and to repay it by means of deposit in his account as and when it is

feasible for him

Security a) as a prime security hypothecation of goods stock

b) As a collateral security machinery, furniture equipment, fixed deposit, national

saving certificate, equitable mortgage of immovable property

c) Guarantee of two guarantors

Document Cash Credit Application Form, Agreement Letter, Equitable Mortgage

of Property, Letter Of Sanction, Letter Of Continuity, DP note,

hypothecation of goods, Insurance Policy

Submit paper Last three year Business Report, Shop Act License, SSI License,

electricity connection proof, IT return, rent receipt

If applicant is a partnership firmPartnership deed copy, Reg. of firms


Resolution for getting loan, memorandum of association, articles of the

association, letter of assurance for registration in reg. of companies

Other terms

Loanee has to submit the stock statement to the bank every month regularly.

Loanee has to submit the balance sheet, profit and loss account every year.

Loanee has to submit the copy of income tax return or income tax assessment order every

year.

In the cash credit account facility, the turn over will to be done thrice of the sanctioned

facility within 6 month and the same will have to be done five times of the sanctioned

facility within one year.


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The insurance for twice the value of sanctioned cash credit will have to be taken over and

the insurance policy will have to be assigned to the bank.

In case of cash credit the facility can be availed maintaining the goods stock margin.

Sale of goods and amount of recovery cannot be set off, but the same should be credited

in the bank and the amount of payment should be made by bank cheque all the business

transaction should be made through bank.

As per the norms of the reserve bank of India, a borrower cannot operate two cash credit

account at a time with two different banks.

Education Loan

Purpose This kind of loan is given to the brilliant students, who do not further

their study because of paucity of finance, with a view to building their

career. The bank is giving loan to cooperate and to give assistance to

such students for education purpose

Limit a) Study in India : Rs. 1,50,000

b) Study in abroad : Rs. 2,00,000

Margin Up to 25,000 : nil

25,001 to 1,50,000 : 15%

25,000 to 2,00,000 : 25%

Rate of interest 14%Repayable Equates monthly installments of Rs. 32 per thousand

Security Equitable mortgage of property, guarantee of two guarantors

Document Loan application form, Equitable Mortgage Of Property, Letter Of

Sanction, Letter Of continuity, continuity security letter, DP note,

Insurance Policy of student, which is assigned in favor of bank, letter of

lien and set off, letter of guarantee, stamp application cum agreement

form

Submit paper In case of service person pay sleep, in case of businessperson last yearly

business report, two photograph of student

Other terms

Interest is required to be paid every month

The loan can be sanctioned keeping in view the loanees repaying capacity


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Compulsory first class in every important examination

Loanee is that who has a property on his own name. Student has to join as a co-loanee.

The installment of loan will be stated after 6 months of the completion of study

Fixed deposit loan

Purpose To grant loan / overdraft to an individual or a firm against F.D.R.

Limit As per requirement

Margin 50 % or less

Period Till due date of F.D.R.

Rate of interest 2 % more than F.D.R.

Security Duly discharge F.D.R.

Documents DP note, duly discharge F.D.R., form of application

Other terms Lien should be noted in the FDR account and on the back of the F.D.R.

duly discharged

Bills purchase

Purpose To assist the customer for their short-term need of working capital

Limit As required by applicant

Margin Generally 25 %

Rate of interest 18 % per annumPeriod Actual realization period

Charges Table is given

Documents DP note, letter of guarantee, letter of continuity, agreement letter

Bills Discounting

Purpose To assist the customer to provide them working capital against his post-

dated received bills

Limit As per required by applicant

Margin Generally 25 %

Rate of interest 18 % per annum

Period Maximum 180 days


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Documents Letter of bills discounting undertaking, DP note, letter of guarantee,

letter of continuity, agreement letter

Charges Table is given

Other terms Interest to be covered in advance

Collection Of Cheques (O.B.C.)

Amount Of Cheques Location Listed

Above

All Other Location

Up to Rs. 5000/- Rs. 10.00 Collecting Banks

Commission + Rs.10

Postage Charge

From Rs. 5001 to 10000 Rs. 15.00 Collecting Banks

Commission + Rs.10

Postage Charge

From Rs. 10001 to 1 Lac Rs. 1.50 / 1000 Collecting Banks

Commission + Rs.10

Postage Charge

For Rs. Above 1 Lac Rs. 1.50 / 1000 Collecting Banks

Commission + Rs.10 Postage

Charge

Collection Of Bills (I.B.C)

Amount Of Bill Location Listed

Above

All Other Location

Up to Rs.1000 Rs, 10.00 Collecting Banks

Commission + Rs.10

Postage Charge


Commission + Rs.10

Postage Charge



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Commission + Rs.10

Postage Charge

From Rs. 10001 to 1 Lac Rs. 3.00 / 1000 Collecting Banks

Commission + Rs.15

Postage Charge

For Rs. Above 1 Lac Rs, 3.00 / 1000 Collecting Banks

Commission + Rs.15

Postage Charge

Bank guarantee:

1)Performance guarantee

This type of guarantee does not involve financial obligation

It involves performance with regard to construction of building, installation of

plant and machineries within a given time frame and with agreed

specifications

Performance relating to supply of materials as per agreed terms and conditions

Guarantees may be given to secure advanced payment, in place of security deposit

/ earnest money deposit / tender money deposit etc.

Performance of any other work contract

Performance of plant / machinery up to agreed level capacities

2)Financial guarantee

These guarantees are given for meeting with financial obligations

Purpose To assist the business

Limit As required by applicant

Margin Cash margin (minimum 25 %) by way of F.D.R.

Equitable mortgage (rest of the part)

Period Generally 12 months

Commission 1% per annum in case of 100% cash margin

2% per annum in other cases

Charges 0.1% (upfront)


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Security F.D.R. duly discharged, equitable mortgage of property

Documents Application form, counter guarantee


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Different types of staff loans

Staff surety loan


Limit Rs. 15,000 maximumPeriod 66 months

Rate of interest 16 %

Repayable Equated monthly installments of Rs. 23 / thousand

Security Personal guarantee of two staff members of the bank

Documents application form, letter of sanction, DP note, letter of guarantee

Gyan Prakash Yojana

Purpose this kind of loan is given to the staff members for the higher study of

their two children

Limit a) Study in India : Rs. 3,50,000

b) Study in abroad : Rs. 4,50,000

Margin25 %

Rate of interest Bank rate + 1 %

Repayable Equates monthly installments of Rs. 32 / thousand

Security Equitable mortgage of property

Documents DP note, sanction letter, equitable mortgage charge extension letter, life

insurance policy of student, which assigned in favor of bank, term loan

agreement, rectification letter

Other terms Interest is required to be paid every month

The installment of loan will be stated after 6 months of the completion of study

Staff vehicle loan

Purpose to purchase a new / old two wheeler for personal use

Limit Rs. 40,000

Rate of interest 0 %

Repayable equated monthly installments Rs. 15 / thousand

Security hypothecation of vehicle to be purchased


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Documents DP note, letter of guarantee, hypothecation of vehicle, insurance policy

Staff domestic appliances loan

Purpose For purchasing consumer durables articles viz. freeze, washing machine,

flourmill, T.V., VCD, room conditioner, etc.

Limit Rs. 50,000

Rate of interest for initial 20,000 bank rate for rest amount bench mark rate (current rate)

Repayable equated monthly installments of Rs. 20 / thousand for first 20,000 then

afterward Rs. 23 / thousand

Security hypothecation of vehicle to be purchased

Documents DP note, letter of guarantee, hypothecation of vehicle, insurance policy

Staff housing loan

Purpose To construct / purchase residential building

Limit for officers and other upper cadre : Rs. 5,00,000

For clerk : Rs. 4,00,000

For peon and others : Rs. 3,00,000

Period 20 years

Rate of interest 6.5 %

Repayable equated monthly installments of Rs. 7 / thousandSecurity equitable mortgage of property, two staff members guarantee

Documents DP note, letter of guarantee, letter of sanction, insurance policy,

equitable mortgage of property


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Data analysis and observation and suggestions

Presence of loan policy

In the RSNB, before two year there was not proper policy for loan, but separate circular

for each loan. But at present RSNB have its own loan policy and criteria to sensor the

loan. Coincidently, RBI also declared in near, each and every bank should have its own

loan policy. This is the point, which is striking us the foresightedness of the bank

management and also loan manager of that time Mr. Bhatt who prepare present loan

policy with the help of the some efficient staff members of the loan department.

Revision made on annual basis

RSNB prepare its own loan policy just before two year. So in one sense, we can say

RSNB revised its loan policy in last two year but it is not revised every year regularly. So

I can suggest that to RSNB, for walk with the new era of credit market, bank should try to

improve own self in the field of credit management by revising the loan policy time to

time by learn from past years experience.

Loan policy cover

Delegation of lending power

Method for assessment of working capitalRating of borrowers

Loan pricing

Delegation of lending power

In the past time, RSNB had given delegation of lending power to its selected branch

offices but at present RBI hurdle against this. By effect of it, RSNB cancel all the

delegation power of its branch offices and burden of the head office gives in written in

language of suggestion that what should be the decision? And head office only complete

fulfils the legal formality to sanction the loan. However it takes more time for sanctioning

loan but by the practical approach bank can solve this difficulty.


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Method of assessment of working capital

In the RSNB, there are three methods for working capital, which is useful to bank for

calculating the need of cash credit or short-term loan of firm. This method gives

advantage to bank to find out if the demand borrower is fair. Methods of working capital

calculation are given below:

Capital of borrower, and borrowing from relatives are multiplied by three

Difference between current assets and current liabilities multiply by four

20 % of estimated sales

Borrower contribution 5% of the turnover in working capital is accepted

Above three whichever is less is original working capital demand of the borrower as per

the calculation of RSNB.

Rating of borrowers

RSNB has its own method of credit rating that is beneficial for both the bank and the

borrower. Because through this bank should maintain their customer who deal with bank

regularly and the borrower is appreciated for their performance. Another side borrower

gets benefit through interest rate reduction. This method is given below:

Credit rating of loans

AAA:Cash credit account

In the account, interest is paid regularly; it is paid at the end of every quarter within 10

days.

Stock statement is received regularly.

Overdraft is paid regularly with its interest.

Every document is getting regularly for review and renew of account.

Term loans

In the account, interest and installments are paid regularly.

Notice is not given on account for any reason.


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AA:

Cash credit account

In the account which interest is paid regularly; it is paid at the end of the every quarter

maximum 30 days.

Stock statement is received regularly

Overdraft is paid regularly with its interest.

Term loans

Maximum two installments are due but at the end of the year i.e. on 31 st march, there is

no due installment.

Amount of loan

sanction

Interest concession

25,001 to 2,00,000 0.5 %

2,00,001 to 10,00,000 0.5 %

Above 10,00,000 1%

Loan pricing

RSNB always give more interest on deposit than other bank in Rajkot district to attract

the market, effects the loan pricing. So loan rate of RSNB is higher. Though RSNB get

customer because of its services, its speedy process, practical approach, and its reliability

in market. But here one possibility is also that the payer of higher interest is sometime

reason for future loss or burden on bank. So try to get deposit at lower rate to reduce the

loan pricing. It is also fact that in this critical situation of co-operative banks, it is very

hard to get deposits from the market but if bank management tries to create trust in

public, here one more benefit is that the depositor and the borrower is the shareholder of

Amount of loan

sanctioned

Interest concession

25,001 to 2,00,000 1 %

2,00,001 to 10,00,000 1 %

Above 10,00,000 2 %


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the bank or say owner of the bank. So it is less hard than other types of bank to create

trust.

Reporting format

Reporting format for excess utilization of lending process by branch manager is now not

needed, because as per the new guidelines of the RBI, branch of co-operative bank has no

power to sanction loan.

Identification of sensitive sectors and discounting further lending

RSNB is not that much big bank in compare of commercial bank, though it is needed for

the bank to watch on the general sensitive sectors means lending in that sector which is

risky / dangerous for any financial institutions. For example lending against shares. To

find out the special sensitive sector, we should continuously watch on our borrowers.

Sometimes in case of co-operative banks, reason of their NPA is lending to particular

group or industry. RSNB also keep watch and discouraging further lending. For example

builders developers cash credit.

Monitoring of unduly large exposure to an individual or a group

To stop the unduly large exposure to an individual or a group, in RSNB loan staff

monitor and draw attention of higher authority.


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CREDITCREDIT

APPRAISALAPPRAISAL


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Measurement Ideal Performance of party (remarks)

Credit balance compare with sale

To payoff of overdrafts / excess

Submission of stock statement

monthly

Interest payoff

Equated monthly installments on

loan

Account over due (yes / no)

Similarly in stock

1: 1

Regular

Regular

Regular

Regular

------

10 to 15

%

Difference

INFORMATION OF COLLATERAL SECURITY

IMMOVABLE PROPERTY

Name of owner and designation of him

Address of property

Land in square yard

Construction in square feet

Estimated price of property

(Amount of land is calculated as per the address + Amount of construction is

calculated square feet * 300)

Other liability on it, mention it

MACHINERY/FURNITURE/EQUIPMENT etc.

Amount of property

SECURITY COVERAGE

Estimated value of collateral securityMinus other liability on same property

Plus other collateral security

Total collateral security

Amount of demand / prevalent facility

*Security coverage: (total collateral security/total facility) * 100


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*Accepted measure 50 %

THREE YEARS FIGURES FOR COMPARISON

Year

ending

Purchase Sales Net

Profit

Net worth Stock Debtors Creditors

FINANCIAL MEASUREMENT

Financial measurement More / less (compare with last year)

Sales

Closing stockGross profit

Net profit

Borrowings from relatives

Net worth

(Capital + reserve proprietor / partners

directors debt)

Financial measurement More / less (compare with ideal)

Current ratio: (current assets/ currentliabilities)

Ideal 1.25 / 1 (minimum)

Debt equity ratio: (Total debt / *total

equity)

*Borrowings from relatives are

included

Ideal 3/1 (maximum)


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FORMAT OF BALANCE SHEET

Capital and liability Property and Assets

Current liability

Bank loan CC/OD

Outstanding expenses

Creditors of

Goods

Others

Total (A)

Medium/long term liability

Bank loan

Finance corp. loan

Other debts

Rnsb term loan

Borrowing from relatives

Others

Total (B)

Capital/reserve

Capital

Reserve

Profit

Other

Total(C)

General total (A+B+C)

Current assets

Stock

Debtors

Stores

Cash on hands

Bank balance

Prepaid expenses

Advances

Others

Total (A)

Fixed assets

Land and building

Machineries

Furniture

Vehicle

Other investments

Total (B)

Proprietor/partner/directors debt

Others

Goodwill

Patent

Loss of previous years

Total(C)

General total (A+B+C)


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ASSESSMENT FOR CASH CREDIT

Capital + borrowings from relatives * 3 __________

(As per the last year balance sheet)

Working capital (current assets current liabilities) * 4 __________

(As per the last year balance sheet)

Estimated sales * 20 % __________

(Current year)

Minimum of above three __________

Demand / prevalent facility __________

Maximum permissible finance __________

(Minimum from above two)


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MACHINERY LOAN APPRAISAL FORMAT

Electricity connection

INFORMATION ABOUT THE MACHINERY TO BE PURCHASED

Suppliers name

Machinerys name

Quantity

Price

As per margin permissible loan

MARGIN OF PERMISSIBLE FINANCE (WORKING UNIT)

Margin on amount of demanded loan

Working capital as per last balance sheet

Estimated reinvestment of the current year profit

Current years estimated working capital (2+3)

Margin of working capital (25 % current asset of last year)

Margin for permissible finance (4-5)

If (6) is less than (1), how can they bring difference of amount from long term sources is

required clarification

ESTIMATED PROFIT AND DSCR (Debt Security Coverage Ratio)

i. New unit

PARTICULARS YEARS

1 2 3 4 5 6

1. Production capacity

2. Utilization capacity (%)3. Production

4. Sales

5. Net profit

6. Depreciation

7. Interest on loan


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8. Cash flow (5+6+7)

9. Amount of EMI of demanded loan

per annum

10. DSCR (8/9)

11. Average DSCR

ii. Working capital

1) Profit of current year

2) Depreciation of current year

3) Cash profit of current year (1+2)

4) Amount of EMI of demanded loan per annum

5) DSCR (3/4)

Minimum Acceptable Measure for DSCR 1.5 to 2

Sometimes in case of new unit, project report present unrealistic picture of future. So

bank should keep it in consideration at the time of calculation of DSCR. Accepted

measure for it is 60 %.


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APPRAISAL OF IMMOVABLE PROPERTY

Name of owner and designation of him

Address of property

Land in square yard

Proposed construction in square feet

Plan of construction passed by Municipal Corporation

Estimated cost of property

(Amount of land is calculated as per the address

+ Amount of construction is calculated square feet * 400)

INSPECTION REPORT

Goods stock

Type of business

Reporting after checking of accounting books, vouchers, etc.

Insurance of stock and mortgaged property is as norms, isnt it?

Is it proper for sanction?

DEPARTMENT NOTE

CREDIT DESERVEDNESS OF LOANEE

Name of facilityRequested amount for credit

Permissible finance as per appraisal

OTHER CRITERIA

Borrowings from relatives are retained in business. Without permission from bank

relative cannot withdraw that amount.

Immovable property is needed to take as a collateral security.

Late/retire partners capital is not withdrawn without permission from bank.

Current ratio

Debt equity ratio

Security coverage

DSCR


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OBSERVATION AND FINDINGS AND SUGGESTIONS

Format for collection of minimum information about potential borrower

It is must for any bank who wants to win market to collect the information about his

potential customer. RSNB a bank which eager to increase own market share also collect

the information about future borrower.

Use of software for credit appraisal

Bank has own computer department to develop the software for bank but this now in

initial stage. Majority time consume work is done by the computer though appraisal of

credit is done by manually.

Revision in appraisal format during last two year

RSNB prepared its policy before two year and decide proper criteria for sanction the

loan.

Different appraisal format for different loan segment

There is one common format for all loans are not possible because each loan require

particular information and calculation. Here in RSNB I find different appraisal format for

different segments. That we see in above appraisal format.

System of fixation of maximum time for loan sanction and sanction within limit

On paper, there is no maximum limit for sanction the loan but generally as per the

opinion of officer within ten days loan is sanctioned. Sometimes because of carelessness

of the borrower or take time for providing needed documents is reason for delay of

sanction the loan.

In house expertise for appraisal of hi tech projects

Special works always need experts but in RNSB we find lack of the expert for appraisal

of hi tech project and it is dangerous pr say risky for any institution. I think RNSB have

to recruit expert for appraisal of hi tech projects who has special knowledge about


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business sector and mastery of project report study and now because of VRS, expert

having experience is easily available at low cost.

Practice of rating of borrower and loan pricing

RNSB give rating to the borrower on the base of their last year dealing with bank. For

that RNSB have software, which give rating to the borrower. At the time of appraisal,

rating is not given.

Compliance of terms and conditions- Promoters contribution, collateral securities,etc.

Before preparing the loan report, it is keeping in view that all types of requirement are

fulfilled. Condition letter is given to customer if customer fulfills all the conditions loan

is sanctioned by bank.

Computation of customer profitability per borrower

Generally I practice, not a single cooperative bank in Rajkot is calculating the customer

profitability per borrower. If it is calculated, bank can know which customers are more

beneficial for them so bank can give attention to maintain them and can increase profit.

Ad hoc sanction rarely done

At present, the various committee of bank considers ad-hoc/additional credit for meetingtemporary requirement only after the borrower has fully utilized/exhausted the existing

limit. In the ad-hoc sanction, nothing is taken as security so this is risky but the previous

dealing of customer with the bank can give the picture of customer.

Sanction of loan

In the co-operative bank, sanctioning powers are only in the hands of board of directors

so sometime loans are sanctioned on the bases of relation, not on the base of the

deservedness of customer. I also consider that the cooperative banks are basically meant

for the benefit of its members but within the limits of Reserve Bank of Indias guidelines.

Slight modification in these rules for well being of members is still allowed.


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CREDITCREDIT

MONITORING,MONITORING,

FOLLOW UP ANDFOLLOW UP AND

REVIEWREVIEW


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CREDIT MONITORING, FOLLOW UP AND REVIEW

When we lend, it is essential for us that to keep watch on it till we recover it. This is

called credit monitoring in terms of banking.

CREDIT MONITORING SYSTEM IN RSNB

In the RNSB, there is system for credit monitoring specially account, which is above

10,00,000 rupees is described below:

Find out the list of potential NPA accounts above 10,00,000 rupees

Statements of potential NPA accounts are submitted to head office from branches

Head office monitoring this every three months and prepare report on it.

Report is submitted to board of directors.

Follow up action for credit monitoring in RNSB

Consolidation of data, which comes from the branches and every month, update the data

and generate this and use it for follow up

Head office directly sends the notice to account holders of such accounts

To stop the slippage of the potential NPA accounts, bank organize the committee under

authorization of Mr. Bhatt(A.G.M.) and Mr. Vadaliya(A.D.M.) with the help every

branch recovery officers, they try to recover. General manager arranges the meeting for

that and gives guidelines to the committee member.


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OBSERVATION FINDINGS AND SUGGESTIONS

System of loan portfolio review and monitoring

There is system of weekly review and monitoring of loan portfolio in the RNSB, every

week a statement is prepare to be acquainted with the present credit deposit ratio, if this

ratio is less than 70% for example 65%, it represent that bank can finance up to 5 % at

present.

Preparation of MIS report for loan portfolio review at board level

Every week, present situation of loan portfolio is putting against board of directors.

Compliance of prudential guidelines

Exposure Ceiling : a) Individual 20% of the total capital fund

: b) Group 50% of the total capital fund

Priority sector lending: Priority 60% of the total advances

Summer Manoj 1

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Transcript of Summer Manoj 1