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A STUDY ON LOAN APPRAISAL PROCESS AT PUNJAB
NATIONAL BANK
A Summer Training Project ReportSubmitted in partial fulfillment of the requirement for the
Award of Degree of Master of Business Administration
2014 – 2016
SUBMITTED BY IN THE GUIDANCE OF
ABHISHEK SINGH DR V.K. KHURANA
072140!"14
DEPARTMENT OF MANAGEMENT
MAHARAJA AGRASEN INSTITUTE OF TECHNOLOGY
#A$$%&%'()* (+ G.G.S.I.P. U,%-)/%(
S)(+ – 223 R+%,%3 D)&% 511006A, ISO "001200 C)(%$%)* I,/(%(()
AICTE NBA A)*%()* I,/(%(()
1
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STUDENT UNDERTAKING
This is to certif that ! AB"!S"#$ S!%&" had completed the Project
titled 'ST(D) *% +*A% APPRA!SA+ PR*,#SS AT P(%-AB
%AT!*%A+ BA%$. in P(%-AB %AT!*%A+ BA%$ under the guidance
of Dr/0/$ $"(RA%A in the partial fulfillment of the requirement for the
award of degree of MBA from Maharaja Agrasen !nstitute of Technolog
Affiliated to &/&/S/!/P/ (ni2ersit34 %ew Delhi/ This is an original piece of
wor5 and ! had neither copied nor submitted it earlier elsewhere/
S(*),( N'8) ',* S%9,'()
C+/)
D'()* 5
6
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C)(%$%'() $+8 G%*)
This is to certif that the project titled 'A ST(D) *% +*A% APPRA!SA+
PR*,#SS AT P(%-AB %AT!*%A+ BA%$. is an academic wor5 done b
'AB"!S"#$ S!%&". submitted in the partial fulfillment of the
requirement for the award of the Degree of MBA from Maharaja Agrasen
!nstitute of Technolog Affiliated to &/&/S/!/P/ (ni2ersit34 %ew Delhiunder m guidance and direction/ To the best of m 5nowledge and belief
the data and information presented b him7her in the project has not been
submitted earlier/
N'8) ',* /%9,'() +$ F'&( G%*)
D)/%9,'(%+,
8
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ACKNO:LEDGEMENT
! would li5e to than5 all those who helped me through the project of
familiari9ation ! would li5e to e:press m sincere appreciation to m guide
Dr/0/$/$"(RA%A for his enlightenment of m 5nowledge of feed bac5
and the Ban5ing industr4 2aluable ad2ice and 5ind support throughout the
process of dissertation completion
Most importantl4 ! would li5e to than5 m parents and sister who were
alwas there to moti2ate me/ ! would li5e to than5 all the focus group
members for gi2ing their 2aluable time and thoughts to m project/
! would li5e to than5 all the customers and emploees of Ban5ing for
sharing their 2aluable thoughts which helped me shape this project
;
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E;ECUTIVE SUMMARY
Ban5ing means transacting business with a ban5 depositing or withdrawing
funds or requesting a loan etc/ or engaging in the business of ban5ing
maintaining sa2ings and chec5ing accounts and issuing loans and credit etc/
The ban5s pro2ide the necessar financial assistance to the go2ernment in
the process of attaining its socio and economic objecti2es/ %owadas the
ban5s ha2e ta5en the primar responsibilit in the implementation of 2arious
schemes and program sponsored b the go2ernment/ A ban5 ma be defined
as a credit institution/ !t is an institution which studied deals in and
guarantees credit/
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INDE;
S
N
CONTENTS PAGE
NO.
1 C'
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CHAPTER 1
INTRODUCTION
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1. INDIAN BANKING INDUSTRY
A ban5 is a financial institution that pro2ides ban5ing and other financial
ser2ices to their customers/ A ban5 is generall understood as an institution
which pro2ides fundamental ban5ing ser2ices such as accepting deposits and
pro2iding loans/ There are also nonban5ing institutions that pro2ide certain
ban5ing ser2ices without meeting the legal definition of a ban5/ Ban5s are a
subset of the financial ser2ices industr/ A ban5ing sstem also referred as a
sstem pro2ided b the ban5 which offers cash management ser2ices for
customers4 reporting the transactions of their accounts and portfolios4
throughout the da/ The ban5ing sstem in !ndia should not onl be hassle
free but it should be able to meet the new challenges posed b the
technolog and an other e:ternal and internal factors/ @or the past three
decades4 !ndias ban5ing sstem has se2eral outstanding achie2ements to its
credit/ The Ban5s are the main participants of the financial sstem in !ndia/
The Ban5ing sector offers se2eral facilities and opportunities to their
customers/ All the ban5s safeguards the mone and 2aluables and pro2ide
loans4 credit4 and pament ser2ices4 such as chec5ing accounts4 mone
orders4 and cashiers cheques/ The ban5s also offer in2estment and insurance
products/
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N))* +$ () B',>/
Before the establishment of ban5s4 the financial acti2ities were handled b
mone lenders and indi2iduals/ At that time the interest rates were 2er high/
Again there were no securit of public sa2ings and no uniformit regarding
loans/ So as to o2ercome such problems the organi9ed ban5ing sector was
established4 which was full regulated b the go2ernment/ The organi9ed
ban5ing sector wor5s within the financial sstem to pro2ide loans4 accept
deposits and pro2ide other ser2ices to their customers/
H%/(+ +$ I,*%', B',>%,9 S/()8
The first ban5 in !ndia4 called The &eneral Ban5 of !ndia was established in
the ear 1?>/ The #ast !ndia ,ompan established The Ban5 of
Bengal7,alcutta 1C34 Ban5 of Bomba 1;C3 and Ban5 of Madras
1;83/ The ne:t ban5 was Ban5 of "industan which was established in
1?C/ These three indi2idual units Ban5 of ,alcutta4 Ban5 of Bomba4 and
Ban5 of Madras3 were called as Presidenc Ban5s/ Allahabad Ban5 which
was established in 1>= was for the first time completel run b !ndians/
Punjab %ational Ban5 +td/ was set up in 1; with head quarters at +ahore/
Between 1C> and 1184 Ban5 of !ndia4 ,entral Ban5 of !ndia4 Ban5 of
Baroda4 ,anara Ban54 !ndian Ban54 and Ban5 of Msore were set up/ !n
1614 all presidenc ban5s were amalgamated to 66 from the !mperial Ban5
of !ndia which was run b #uropean Shareholders/ After that the Reser2e
Ban5 of !ndia was established in April 18=/
At the time of first phase the growth of ban5ing sector was 2er slow/
Between 118 and 1; there were appro:imatel 11CC small ban5s in
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!ndia/ To streamline the functioning and acti2ities of commercial ban5s4 the
&o2ernment of !ndia came up with the Ban5ing ,ompanies Act4 1; which
was later changed to Ban5ing Regulation Act 1; as per amending Act of
1>= Act %o/68 of 1>=3/ Reser2e Ban5 of !ndia was 2ested with e:tensi2e
powers for the super2ision of ban5ing in !ndia as a ,entral Ban5ing
Authorit/ After independence4 &o2ernment has ta5en most important steps
in regard of !ndian Ban5ing Sector reforms/ !n 1==4 the !mperial Ban5 of
!ndia was nationali9ed and was gi2en the name EState Ban5 of !ndiaE4 to act
as the principal agent of RB! and to handle ban5ing transactions all o2er the
countr/ !t was established under State Ban5 of !ndia Act4 1==/ Se2en ban5s
forming subsidiar of State Ban5 of !ndia was nationali9ed in 1>C/ *n 1th
-ul4 1>4 major process of nationali9ation was carried out/ At the same
time 1; major !ndian commercial ban5s of the countr were nationali9ed/ !n
1C4 another si: ban5s were nationali9ed4 and thus raising the number of
nationali9ed ban5s to 6C/ Se2en more ban5s were nationali9ed with deposits
o2er 6CC ,rores/ Till the ear 1C appro:imatel CF of the ban5ing
segment in !ndia was under go2ernments ownership/ *n the suggestions of
%arsimhan ,ommittee4 the Ban5ing Regulation Act was amended in 18
and thus the gates for the new pri2ate sector ban5s were opened/
2. PUNJAB NATION BANK
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INTRODUCTION
P%B was founded in the ear 1; at +ahore presentl in Pa5istan3 as an
offGshoot of the Swadeshi Mo2ement/ Among the inspired founders were
Sardar Daal Singh Majithia4 +ala "ar$ishen +al4 +ala +alchand4 Shri $ali
Prosanna Ro4 Shri #/,/ -essawala4 Shri Prabhu Daal4 Ba5shi -aishi Ram/
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ears ago4 the ban5 has grown in stature to become one of the leading
ban5ing institutions in !ndia/ P%B is the second largest PS( ban5 in !ndia
with a dominant presence in north !ndia/ $eeping in tune with changing
times and to pro2ide its customers more efficient and speed ser2ice4 the
Ban5 has ta5en major initiati2e in the field of computeri9ation/ All the
Branches of the Ban5 ha2e been computeri9ed/ The Ban5 has also launched
aggressi2el the concept of EAn Time4 An e:tension counters
among %ationali9ed Ban5s/ All their branches offer ,ore7 ,entrali9ed
Ban5ing Solution ,BS3 along with a 2ariet of financial products catering
to different mar5et segments/ The has international presence in countries4
with a branch at $abul4 6 branches in "ong $ong4 representati2e offices at
Almat4 Dubai4 Shanghai and *slo4 a wholl owned subsidiar in ($ with
= branches34 and a joint 2enture with #2erest Ban5 +td4 %epal/ Punjab
%ational Ban5 was incorporated in the ear 1= at +ahore4 undi2ided !ndia/
The Ban5 has the distinction of being the first !ndian ban5 to ha2e been
started solel with !ndian capital/ !n the ear 1;C4 the Ban5 absorbed
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Bhagwan Dass Ban54 a scheduled ban5 located in Delhi circle/ !n the ear
1=14 the acquired the 8 branches of Bharat Ban5 and in the ear 1>14
the acquired (ni2ersal Ban5 of !ndia/ Punjab %ational Ban5 was
nationali9ed in -ul 1> along with 18 other ban5s/ !n the ear 1>4 the
acquired "industan ,ommercial4 which added "industanJs 1;6 branches to
the Ban5Js networ5/ !n the ear 184 the acquired %ew Ban5 of !ndia
which the &*!/ During the ear 1>4 the de2eloped a pac5aged for
corporate customers for fast remittance of funds from different upGcountr
branches/ !n the ear4 the set up a representati2e office in Almat4
$a9a5hstan/ !n the ear 6CCC4 the Ban5 has introduced a scheme for
pro2iding finance against mortgage of immo2able propert/ !n September
6CCC4 the commenced their gold business in the form of &old !mport
Scheme/ !n %o2ember 6CCC4 the launched an !nternational ,oGbranded
,redit ,ard of Punjab %ational Ban5 and "ong5ong K Shanghai Ban5ing
,orporation "P%B,3 in %ew Delhi/ !n March 6CC64 the Ban5 came out
with their first !nitial public offer !P*3 for =48C4>C4?CC equit shares of Rs
1C each which resulted in the reduction of the go2ernmentJs shareholding in
the Ban5/ During the ear 6CC64 the started their branch in M/&/ Road4
Bangalore named as MidG,orporate Branch M,D3 to pro2ide their
corporate clients with a credit limit of Rs 8/= crore and abo2e/ The made
joint 2enture with !nfoss for the implementation of a ,entrali9ed Ban5ing
Solution for them/ Also4 the made a tie up with ,isco Sstems for
networ5ing 84?C branches as part of their Rs 1=C crore plan/ !n the ear
6CC84 the Ban5 too5 o2er $o9hi5odeGbased %edungadi Ban5 +td %B+3/
The Ban5 entered into an alliance with %ew !ndia Assurance for selling their
general insurance products/ Also4 the opened a representati2e office in
+ondon/ During the ear4 P%B ,apital Ser2ice +td was amalgamated with
1;
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the Ban5/ !n -une 6CC84 the Ban5 entered into a Mo( with Principal
@inancial Ser2ices !nc (SA3 and 0ijaa Ban5 for joint 2enture partnership
in +ife !nsurance4 Pensions and Asset Managements M@3 business/ Also4
the formed a strategic alliance with !nfrastructure +easing and @inancial
Ser2ices +td !+K@S3 for setting up a pri2ate equit fund for in2esting in
Domestic companies/ !n the ear 6CC;4 the Ban5 acquired the assets of
"industan Transmission Product +td/ The signed a corporate agenc
agreement with #:port ,redit &uarantee ,orporation of !ndia +td #,&,3
for mar5eting #,&,Js e:port credit insurance products through the networ5
of the ban5Js branches/ Also4 a Mo( was signed with !ntel for the
deploment of 2arious !TGrelated solutions/ During the ear4 the Ban5 signed
a Mo( with !,!,! Ban5 for ATM networ5 sharing/ The awarded a project
to Tata ,onsultanc Ser2ices T,S3 for implement human capital
management and paroll solution/ The established a branch office in $abul4
Afghanistan/ Also4 the opened a representati2e office in Shanghai/ The
ban5 established an alliance with #2erest Ban5 in %epal that permits
migrants to transfer funds easil between !ndia and #2erest Ban5Js 16
branches in %epal/ !n the ear 6CC=4 the Ban5 un2eiled ATM at #dappal/
Also4 the opened a representati2e office in Dubai/ !n the ear 6CC>4 the
Ban5 made a tie up with Master,ard !nternational to launch a signatureG
based debit card/ Also4 the made a tie up with !ndian Airlines for online
boo5ing of air tic5ets/ The opened a new branch in (ttara5hand/ !n *ctober
6CC?4 the Ban5 entered into Mo( with !ndia !nfrastructure @inance
,ompan with an aim to e:tend their cooperation and support to !!@, in
areas of creating a deal flow of infrastructure projects/ !n -anuar 6CC4 the
Ban5 commenced commercial ban5ing operations in "ong $ong/ During the
ear 6CCGC4 the Ban5 opened 1> branches4 out of which C are new
1=
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branches and ? branches was added through up gradation of #:tension
,ounters/ The made collaboration with +!, for selling insurance policies
And also made a toe up with *riental !nsurance for selling nonGlife policies
on a referral basis/ !n -une 6CC4 the entered into a Mo( with !+@S ,luster
De2elopment !nitiati2e +td for pro2iding finance for 2arious industrial
infrastructure projects in the countr/ !n September 6CC4 the signed a Mo(
with SM, &lobal Securities +td and %et worth Stoc5 Bro5ing +td for
pro2iding online trading facilit to ,ompanJs customers/ The offered a
unique J8 in 1 accountJ comprising of Sa2ing4 Demat and Trading account/ !n
@ebruar 6CC4 the commerciall launched their credit cards with 6 tpes
of consumer credit cards4 namel &old and ,lassic/ Also4 the entered into
an agreement with *riental !nsurance ,ompan to mar5et insurance
products4 a practice also 5nown as ban assurance/ !n March 6CC4 the Ban5
entered into an understanding with Tata Motors for financing entire range of
passenger cars/ Also4 the e:ecuted an agreement with The +ife !nsurance
,orporation of !ndia for banc assurance4 life insurance under the pro2isions
of !RDAJs Referral Arrangement/ During the ear 6CCG1C4 the Ban5 opened
=6; domestic branches4 out of which 8;? are at new locations while 1??
branches was added through up gradation of e:isting #:tension ,ounters/
The deploed 1;CC ATMs ta5ing the the total count of ATMs to more than
8=CC %os/ The opened two o2erseas branches 1 in "ong $ong
and another at D!@, Dubai and started a -0 ban5ing subsidiar JDR($ P%B
Ban5 +tdJ in Bhutan/ Also4 the opened a representati2e office in *slo4
%orwa/ During the ear4 the Ban5 sold >/=F of their sta5e in (T! Assets
Management ,o +td and (T! Trustee P2t +td4 thus bringing down their
sta5e in both these companies to 1/=F/ The launched ,orporate ,redit
,ard with !ndi2idual liabilit/ Also the launched Merchant Acquiring
1>
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Business through installation of Point of Sale PoS3 Terminals at Merchant
#stablishments and !nternet Pament &atewa b integrating through
Merchant ;F sta5e in -S, Dana Ban5
of $a9a5hstan/ !n -anuar 164 6C114 the Ban5Js joint 2enture !ndia factoring
and @inance Solutions P2t +td started its commercial operations from Delhi4
Mumbai K ,hennai/ The total number of branches at the end of March 6C11
rose to =1/ The branch networ5 comprises 6C;? Rural4 11=; Semi (rban4
1111 (rban and ?? Metropolitan branches/ During the re2iew period 61C
domestic branches were opened/ Micro @inance branches4 = SM#
branches4 11 !nternational Ban5ing Branches4 1? Asset Reco2er
Management Branches4 18 Mid ,orporate Branches4 11 +arge ,orporate
Branches4 ?8 Retail Asset Branches4 11 Agriculture @inance Branches4 8
highGtech agriculture branches4 1 ,apital Mar5et Ser2ices Branch and 1
!nternational Ser2ice Branch/ Besides4 ;1 Bac5 *ffices4 6 Special @oreign
#:change *ffices4 1? Special M!,R ,enters4 ;1 Ser2ice Regional ,learing
,entre3 centers4 ; @inancial !nclusion Ser2ice ,enters4 8 ,entrali9ed Draft
Paable ,enters4 1 ,entral ,learing Ser2ice ,entre and 1 Depositor Bac5
1?
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*ffice are established to reduce deli2er time and impro2e response time/
The Ban5 recei2ed permission from RB! for setting up a representati2e
office in Sdne4 Australia/ Also4 the are in the process of entering into
,anada/ The compan is ha2ing an aim to increase the customer base to 1=C
million b the ear 6C18/
REVIE: OF LITERATURE
The ear 6C18G6C1; was a ear that witnessed perfect stormG2olatile oil
prices4 asset bubbles and o2er le2eraged ban5s4 in a much interconnected
worldGall leading to unarguabl the greatest global financial crisis witnessed
in the human historL The !ndian ban5ing industr has not seen a collapse
li5e that of +ehman Brothers or Merrill +nch4 or not full recession proof/
The ear 6C18G6C1; was a 2er difficult ear for the !ndian ban5s/ Man
large !ndian ban5s were facing the problem of achie2ing a satisfactor
financial performance/ Thus4 it becomes important to anal9e the
performance of leading ban5s of !ndia for the ear from 6C18G6C1;/This
stud tests the performance of a set of fi2e leading !ndian ban5s during the
ear 6C18G6C1;/the ban5s selected for the stud are the ban5s that got the
top fi2e ran5ing in the categor of balance sheet si9e of more than amounts
in the sur2e b a leading business maga9ine business toda during the ear
6C18G 6C1;/ The ear 6C18G6C1; was chosen for this stud because of the
fact that it is was a crucial ear for the financial sstems of the whole world/
This stud e2aluates the performance of the ban5s based on eight
parametersG %et !nterest !ncome4 ,ost to !ncome Ratio4 ,apital Adequac
Ratio4 %et %PAs4 Deposit &rowth4 Return on Assets4 Return on ,apital
#mploed and *perating Profit/ These parameters ha2e been identified as
the 5e performance indicators of ban5s b industr e:perts/ This stud
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helps us to understand the commonl used performance measures of ban5s/
!t helps to identif the ban5 that performs the best with regard to each
Performance parameter/ This stud also analses the strengths and
wea5nesses of each ban5 selected for the stud/ Re2iew of literature has 2ital
rele2ance with an research wor5 due to literature re2iew the possibilit of
repetition of stud can be eliminated and another dimension can be selected
for the stud/ The literature re2iew helps researcher to remo2e limitations of
e:isting wor5 or ma assist to e:tend pre2ailing stud/ Se2eral researches
ha2e been conducted to anal9e the different aspects of performance of
commercial ban5s in !ndia and abroad/ But there are 2er few research and
literature a2ailable on the subject related to financial reforms and its impact
on !ndian ban5s/ The a2ailable literature and research are di2ided into four
major parts according to the area of research i/e/4 literature related to
Re2iew of literature related to performance appraisal of ban5s
Re2iew of literature related to polic framewor5 and
recommendations for ban5s/
/ Re2iew of literature related to impact of reforms on !ndian ban5s
/ Re2iew of literature related to ser2ice qualit of !ndian ban5s The
abo2e mentioned literature ha2e been obtained from following four
major sources such
PRODUCTS
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P%B has a wide 2ariet of products and ser2ices that meet di2erse
requirements of its 2ast customer base/ !n the light of growing importance of
financial inclusion4 the ban5 has introduced P%B Mitra G a noGfrills sa2ings
ban5 account that can be opened either b an indi2idual4 or jointl/ A number
of deposit and loan schemes are a2ailable to customers such as housing
loans4 car finance4 customer finance4 personal and se2eral tpes of
educational loans/ !t has an international credit card4 issued in collaboration
with "ong $ong and Shanghai Ban5ing ,orporation/ "P%B, is the issuer
ban5 for the co branded credit card and it underta5es all frontGend and bac5G
end operations relating to the coGbranded credit card/ Punjab %ational Ban5
has formulated the &old ,ard Scheme for its e:porter clients based on the
scheme drawn up b Reser2e Ban5 of !ndia/ The scheme ensures eas
a2ailabilit of e:port credit on best terms to credit worth e:porters with a
good trac5 record/ The card offered b P%B is 5nown as P%B #:po &old
,ard/ The ban5 offers 16Ghour ban5ing ser2ices in ?? branches across !ndia/
S:OT ANALYSIS OF PUNJAB NATIONAL BANK
S(),9(/
• P%B has a wide networ5 of branches and ATMs allowing it to cater to
large no/ of customers
• +arge customer base
• The P%B brand is well established and 2er well recogni9ed
• P%B has adapted to technological changes in the ban5ing sector and
can le2erage it to cut costs as well as impro2e its ser2ices
• P%B has all the products under its belt4 which help it to e:tend the
relationship with e:isting customer/ P%B has umbrella of products to
offer their customers4 if once customer has relationship with the ban5
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:)'>,)//)/
• ,asual beha2ior of ban5 emploees towards customers
• 0er high le2els of gross %PA
• ,orruption and red tapism pre2alent right through the organi9ation
tpical of a PS( setup
• Slow decision ma5ing due to large hierarch
• P%B has a defensi2e approach in lending/ Because of this polic
companies prefer other ban5s and P%B in turn sometimes loose
potential customers/
• P%B is ha2ing little presence *utside !ndia4 because of which
companies prefer M%, Ban5s/ So if P%B tries to emerge outside
!ndia then it has a huge potential of customers/
•
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• Ad2ent of M%, ban5s +arge numbers of M%, ban5s are
mushrooming in the !ndian mar5et duet the friendl policies adopted
b the go2ernment/ This can increase the le2el of competition and
pro2e a potential threat for the mar5et share of P%B/• Dissatisfied ,ustomers Poor customer support7 ser2ice is creating a
lot of dissatisfaction among the customers4 this can pro2e to be a
serious problem as far as the mar5et reputation of the ban5 is
concerned and cane be a major threat in future business acquisition
• !ncreasing competition from other nationali9ed ban5s because of their
e2er impro2ing ser2ice standards
!. CREDIT APPRAISAL
,redit Appraisal means an in2estigation7assessment done b the ban5
prior before pro2iding an loans K ad2ances7project finance K also
chec5s the commercial4 financial K technical 2iabilit of the project
proposed/
Proper e2aluation of the customer is preferred this measures the financial
condition K abilit to repa bac5 the loan in future/
CREDIT APPRAISAL PROCESS
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Receipt of application from applicant
Receipt of documents Balance sheet4 $), papers4 Different go2t/
registration no/4 M*A4 A*A4 and Properties documents3
PreGsanction 2isit b ban5 officers
,hec5 for RB! defaulters list4 willful defaulters list4 ,!B!+ data4
#,&, caution list4 etc/
Title clearance reports of the properties to be obtained from
empanelled ad2ocates
0aluation reports of the properties to be obtained from empanelled
2alue7engineers
Preparation of financial data
Proposal preparation
Assessment of proposal
Sanction7appro2al of proposal b appropriate sanctioning authorit
Documentations4 agreements4 mortgages
DiP%Bursement of loan
CREDIT APPRAISAL OF TERM LOANS BY FINANCIAL
INSTITUTIONS LIKE BANKS
,redit appraisal of a term loan denotes e2aluating the proposal of the loan to
find out repament capacit of the borrower/ The primar objecti2e is to
ensure safet of the mone of the ban5 and its customers/ The processin2ol2es appraisal of mar5et4 management4 technical4 and financial/
&etting a term loan from financial institution is not so eas/ The corporate
as5ing for the term loan has to go through se2eral tests/ The ban5 follows an
e:tensi2e process of credit appraisal before sanctioning an loan/ !t analses
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the loan proposal from all angles/ The primar objecti2e of credit appraisal
is to ensure that the mone is gi2en in right hands and the capital and
interest income of the ban5 is relati2el secured/
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loan/ The management needs to be strong in terms of their 5nowledge about
business4 commitment towards achie2ing the set goals etc/
TECHNICAL APPRAISAL
Technical appraisal is subject to the 5ind of business and industr of the
borrower/ !f its a manufacturing concern4 all those parameters li5e project
site4 a2ailabilit of raw material and labor4 capacit utili9ation4 2icinit to
selling mar5et4 transportation etc would be e:amined/ A project needs to be
technicall 2er sound to be able to sustain all business ccles/
FINANCIAL APPRAISAL
After all the other 5inds of appraisal4 e2erthing boils down to financial
appraisal/ This probabl is the most important part of credit appraisal of a
business loans/ The reason is that it e:presses e2erthing in terms of mone/
@inancial appraisal tries to assess the correctness or reasonabilit of the
estimates of costs and e:penses and also the projected re2enues/ These ma
include the estimation of selling price4 cost of machiner4 the o2erall cost of
project and the means of financing/
@inancial appraisal in2ol2es e:tensi2e financial modeling in e:cel/ Basicall4
it ta5es the financial statements of pre2ious periods and forecasts the future
financial position for at least till the loan matures/ @rom that4 the cash flows
of each ear are compared with the installment of loan because ultimatel
the cash flows are going to honor the paments of ban5/
@easibilit of the project is e2aluated in terms of debt ser2icing capacit of
the firm/ Debt ser2ice co2erage ratio is a 5e ratio which is calculated for
each future financial period and if that ratio is satisfing the norms accepted
b the ban54 the loan would get another green signal/
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!t is difficult to e:plain the process of appraisal in an article or e2en a set of
articles/ !t is a 2er e:tensi2e wor5 being done at financial institutions/ The
ha2e a separate team of professionals for conducting such project appraisals/
APPRAISALS AND APPRAISED VALUE
An 'appraisal. is a comprehensi2e report that determines the 2alue of our
propert based on a number of 2aluation factors4 ranging from gross li2ing
space4 to the 2iew and the ear a propert was built/
!f ou plan on purchasing a new home or refinancing our current loan4 ou
will most li5el need to order an appraisal/ Tpicall4 a ban5 or mortgage
bro5er will handle this for ou4 but ou will still ha2e to foot the bill unless
its built into our mortgage rate/
APPRAISAL COSTS
Appraisals tpicall cost anwhere from N6=C to N=CC/ The cost will 2ar
based on propert tpe4 location4 and square footage/ MultiGunit properties
and properties in rural areas will usuall cost more to be appraised than a
singleGfamil residence in a densel populated area/
The most common tpe of appraisal is the (niform Residential Appraisal
Report4 or (RAR/ !t consists of interior and e:terior photos4 comparison
sales comps34 and a complete cost brea5down of the propert/ This tpe of
appraisal is a blend of both a mar5et and cost approach/
HO: IS MY HOME APPRAISED?
The cost approach establishes 2alue b determining what the cost would be
to rebuild the structure from the ground up/ The 2alue approach determines
2alue using comparison sales in the immediate area that ha2e sold within a
recent period of time/
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The comparison sales are bro5en down in the appraisal report as well4 and
compared to the subject propert/ #ach comparison sale is gi2en or deducted
2alue in a number of categories based on how it stac5s up against the subject
propert/ The net 2alue of the comparison sales are then a2eraged to come
up with a median appraised 2alue for the subject propert/
The 2alue of the subject propert is reall the most important factor when it
comes to securing financing/ Ban5s and mortgage lenders need to ensure
our propert is in good condition4 and trul worth what ou or our bro5er
sa its worth/ An possible 2aluation inconsistencies will li5el cause
in2estors to sh awa from purchasing the mortgage4 lea2ing the ban5 or
lender with a 2acant propert and a major loss if the propert declines in
2alue/ #2en Donald Trump could bu a shac5 and fail to obtain a
mortgage because the propert itself simpl isnt mar5etable/
THE APPRAISAL REVIE:
*nce an appraisal is ordered4 most ban5s and lenders will order a re2iew of
the appraisal/ The re2iew will be conducted b another appraiser or simpl
b the use of an A0M4 or Automated 0aluation Model/ This is where man
borrowers get into trouble/ !f the re2iew comes in low4 or if the propert is
deemed incomplete4 ha9ardous4 or unique in an wa4 a ban5 ma decline
the loan and den financing to the potential borrower/ #2en if the borrower
has outstanding credit and assets galore4 a fault4 unique4 or o2er2alued
propert can 5ill the deal/ Thats wh its alwas important to use a qualified
appraiser who assigns a realistic 2alue to our home so there arent an
surprises when its doGorGdie time/ !ts better to 5now the true 2alue of our
home upfront before ou sign an contingencies or purchase contracts/ And
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remember that the qualit of our appraisal will determine the qualit of
our re2iew unless its automated3/
The re2iew appraiser will alwas find the 2alue based on whats gi2en to
them/ !f the recei2e a poor appraisal report4 the will li5el assign a poor
2alue/ !2e seen bro5ers submit multiple appraisals and recei2e completel
different 2alues based solel on the original appraisal itself/
,ome -anuar 6>th4 6C1=4 @annie Mae will let lenders use a proprietar tool
called ',ollateral (nderwriter4. which pro2ides an automated appraisal ris5
assessment complete with a ris5 score4 ris5 flags potential o2er2aluation34
and messages to the submitting lender that warrant further re2iew/
,( wor5s b le2eraging an e:tensi2e database of propert records4 mar5et
data4 and analtical models to anal9e appraisals for qualit control and ris5
management purposes/
!n the future4 lenders ma be granted wai2er of representations and
warranties on 2alue so the can lend more freel4 at least when it comes to
questionable propert 2alues/
:HAT IF THE APPRAISAL IS LO:ER THAN THE PURCHASE
PRICE?
*ne issue that happens prett frequentl is the appraised 2alue coming in
lower than the agreed upon purchase price/
@or e:ample4 if ou agree to bu a home for N6CC4CCC4 and appl for a loan
with 6CF down4 oud need a loan of N1>C4CCC and a N;C4CCC down
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pament/ That equates to a loanGtoG2alue ratio of CF4 which is simpl
N1>C5 di2ided b N6CC5/
%ow imagine the lender comes bac5 and tells ou that the propert onl
appraised for N1C4CCC/ )our N1>C4CCC loan amount based on the N1C4CCC
2alue would push the +T0 to O;F/ And es4 lenders use the lower of the
sales price or the current appraised 2alue/ The dont care what oure
willing to pa for it/
This is a problem because our loan would now require pri2ate mortgage
insurance4 and thats if the lender can e2en offer ou a loan abo2e CF +T0/
The solution would be to either as5 for a re2iew of the appraisal4 renegotiate
the purchase price lower3 with the seller4 or put more mone down4
assuming ou ha2e e:tra cash on hand/ *f course4 ou might wonder if
oure o2erpaing for the propert if it doesnt come in 'at 2alue/.
CURRENT SCENARIO
!mportant &uidelines and Schemes Regarding "ousing @inance "ousing
+oans under Priorit Sector +ending +oans• up to Rs/ 6= +a5h in
metropolitan centres with population abo2e 1C +a5h and Rs/ 1= +a5h in
other centres to indi2iduals for purchase7construction of a dwelling unit per
famil4 e:cluding loans granted b ban5s to their own emploees4 w/e/f/
C1/C;/6C11/ +oan To 0alue +T03 Ratio The +T0 ratio in respect of
housing loans should not e:ceed CF/ "owe2er4 for small 2alue housing
loans i/e/ housing loans up to Rs/ 6C la5h which get categori9ed as priorit
sector ad2ances34 the +T0 ratio should not e:ceed CF/ @actors for
determining eligibilit The main concern of the ban5 is to ma5e sure that
borrowers comfortabl repa the loan on time and ensure end use/ The
higher the monthl disposable income4 higher will be the amount customer
will be eligible for loan/ Tpicall a ban5 assumes that about =CG>C F of
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monthl disposable7surplus income is a2ailable for repament of loan/ The
amount of the loan also depends on applicants age4 tenure of the loan and
the interest rate/
INTEREST RATES
Ban5s generall offer either of the following loan options4 @loating Rate
"ome +oans and @i:ed Rate "ome +oans/ @or a @i:ed Rate +oan4 the rate
of interest is fi:ed either for the entire tenure of the loan or a certain part of
the tenure of the loan/ !n case of a pure fi:ed loan4 the #M! #quated
Monthl !nstallment3 due to the ban5 remains constant/ The floating interest
rate is made up of two parts the inde: and the spread/ The inde: is a
measure of interest rates generall based on sa4 go2ernment securities
prices34 and the spread is an e:tra amount that the ban5er adds to co2er
credit ris54 profit mar5Gup etc/ The prime lending rate or the base rate 1CG
1C/6=F presentl3 is used as a basis for calculating the floating rate and the
interest rate charged is the prime interest rate 7 base rate plus a certain
spread/ The #M! of a @loating Rate loan changes with changes in mar5et
interest rates/ !f mar5et rates increase4 repament increases/
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or litigation4 which is li5el to affect the title to the propert ad2ersel3/
CERSAI REGISTRATION
To pre2ent frauds in loan cases the &o2ernment has facilitated setting up of
the ,entral Registr of Securiti9ation Asset Reconstruction and Securit
!nterest of !ndia ,#RSA!3 under the Securiti9ation and Reconstruction of
@inancial Assets and #nforcement of Securit !nterest Act4 6CC6
SAR@A#S! Act4 6CC63/ This Registr has become operational with effect
from March 814 6C11/ The objecti2e of setting up the ,entral Registr is to
pro2ide a database of securit interest o2er propert rights to secure loans
and ad2ances granted b ban5s and financial institutions/ A2ailabilit of
encumbrance status4 inter alia4 help in pre2enting frauds in2ol2ing cases
where loans are ta5en from different lenders against the same immo2able
propert b creating multiple mortgages b deposit of title deeds as well as
fraudulent sale of propert without disclosing the securit interest o2er such
propert/ The operation of ,#RSA! is currentl being managed b %ational
"ousing Ban5 partiall/
FEES A home loan often requires pament of 2arious fees4 such as loan
origination or processing charges4 administrati2e charges4 documentation4
late pament4 changing the loan tenure4 switching to different loan pac5age
during the loan tenure4 restructuring of loan4 changing from fi:ed to floating
interest rate loan and 2ice 2ersa4 legal fee4 technical inspection fee4 recurring
annual ser2ice fee4 document retrie2al charges and preGpament charges4 if
someone wants to prepa the loan/ Man of these fees are negotiable 7 can
be wai2ed also/
TA; BENEFIT ON THE LOAN
Resident !ndians are eligible for certain ta: benefits on both principal and
interest components of loan installments under the !ncome Ta: Act4 1>1/
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Section C, and Section 6;B grant income ta: rebates to people who ha2e
ta5en home loans/
Section ,omponent Benefits per annum w/e/f 1/C;/1;3C, Principal Rs/ 14=C4CCC 7G
6;B !nterest Rs/ 64CC4CCC 7
CREDIT HISTORY CHECKING
A ,redit "istor is basicall a record of an indi2idualJs or companJs past
borrowing4 repaments of loans and credit card bills including information
about late paments K ban5ruptc/ There is a central database a2ailable with
the ,redit !nformation Bureau !ndia3 +imited ,!B!+3 which collects and
maintains records of an indi2iduals paments pertaining to loans and credit
cards/ These records are submitted to ,!B!+ b member ban5s and credit
institutions4 on a monthl basis/ The ,!B!+ Trans (nion Score is a 8 digit
numeric summar of a persons credit histor which indicates applicants
financial K credit health/ The Score is deri2ed from the credit histor as
detailed in the ,redit !nformation Report ,!RQ and ranges from 8CC to CC
points/ ,redit score tells the lender how li5el the applicant is to pa bac5
loan or credit card dues based on past repament beha2ior/ The higher is the
score4 the more is the chance of parts loan application getting appro2ed
Before appro2ing a loan a financial institution alwas chec5s with ,!B!+ on
applicants repament trac5 record/ ;/ "ousing +oan Polic of !ndian
*2erseas Ban5 !*B is offering home loans under different schemes for the!ndian residents and %R!s at attracti2e interest rates for both the emploed
and selfGemploed persons instantl with 2er less documentation/ Thus4
with the simple processing of a few steps4 people can get the "ome loan
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from !ndian *2erseas Ban5 for purchasing a new house 7 flat or to reno2ate 7
rebuild an e:isting home/
ELIGIBILITY GROUPS OF INDIVIDUALS
Members of ,oGoperati2e Societies/
!ndi2iduals not more than == ears of age/
"owe2er indi2iduals ma be considered at the age of >C pro2ided
their legal heirs join along with them/
+oan must be liquidated before attaining >= )ears of age/
@or salaried indi2idual
A permanent job with a minimum of 6 or 8 ears ser2ice/
@or selfGemploed professional
A minimum period of three ears of acti2it in the related field/
PURPOSE
To purchase 7 construct 7 repair 7 reno2ate flat or house/
@UANTUM OF LOAN
A ma:imum of CF of the cost of the house 7 flat e:cluding Registration and
Documentation charges/ The amount depends on applicants age and
repament capacit/
MARGIN
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The minimum margin is 1CF of the estimated cost including the cost of the
land3 for new as well as old houses7flats/
RATE OF INTEREST
!nterest Rate F p/a/ !rrespecti2e of Tenor
+oan Amount *thers
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An application form Salar certificate as a proof of income for emploed
indi2iduals3
@inancial statements for professionals4 businessman3 Agreement for sale of
house7flat Proof of membership for coGoperati2e societies etc/3 Proof for
e:perience in the line of acti2it for professionals4 business people etc/3
#stimates for ,onstruction 7 0aluation Report for Acquisition 7 +egal
opinion on the Propert from Ban5 appro2ed #ngineer 7 +awer
6. L+', R)-%) M)',%/8
+oan Re2iew Mechanism +RM3 is an effecti2e tool for constantl
e2aluating the qualit of loan boo5 and to bring about qualitati2e
impro2ements in credit administration/ Ban5s should4 therefore4 put in place
proper +oan Re2iew Mechanism for large 2alue accounts with
responsibilities assigned in 2arious areas such as4 e2aluating the
effecti2eness of loan administration4 maintaining the integrit of
credit grading process4 assessing the loan loss pro2ision4 portfolio qualit4
etc/ The purpose of +RM is to detect problem accounts
earl and to mitigate against probable losses either through loan
restructuring or the termination of poor qualit loans/
The main objecti2es of +RM could be
To identif loans promptl which de2elop credit wea5nesses and initiate
timel correcti2e actionH
To e2aluate portfolio qualit and isolate potential problem areasH
To pro2ide information for determining adequac of loan loss pro2isionH
To assess the adequac of and adherence to4 loan policies and procedures4
and to monitor compliance with rele2ant laws and regulationsH and
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To pro2ide top management with information on credit administration4
including credit sanction process4 ris5 e2aluation and postGsanction followG
up/
The loan appro2al process comprises of processing and e2aluating loan
applications4 documenting loan decisions and distributing loan funds/ !t is
important that management establish a loan appro2al process which includes
controls o2er lending authorit and accountabilit/
A properl functioning loan appro2al process requires the following
+oans follow a preGestablished loan processing flow4 which sets out the
proper mo2ement of loan applications within the credit unionH
Borrower information and credit analsis are properl documented
against established credit criteriaH
+oans decisions are made and appro2ed b appropriate staff4 with the
appropriate authori9ation and accountabilitH
+oan funds are disbursed4 after applicable securit is in place4 through
proper channels4 with proper safeguards against theft or fraud/
The process should co2er the entire credit ccle starting from the origination
of the credit in a financial institutions boo5s to the point the credit is
e:tinguished from the boo5s/ !t should pro2ide for sound practices in
,redit Processing7AppraisalH
,redit Appro2al7SanctionH
,redit DocumentationH
,redit AdministrationH
DisbursementH
Monitoring and ,ontrol *f !ndi2idual ,reditsH
Monitoring the *2erall ,redit Portfolio Stress Testing3
,redit ,lassificationH And
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Managing Problem ,redits 7Reco2er/
C)*%( P+)//%,9A
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(nderstanding ris5 profile of the borrower
@orecast operating en2ironment of the borrower
!nspection of the borrowers business premises as well as the facilit that
is the subject of the proposed financing
#nsuring goodwill of applicant
ASSET5BASED LENDING ADVANTAGES VS. DISADVANTAGES
Small as well as large businesses ha2e been greatl influenced b the
recent financial crisis in the econom/ This has tightened the lending
structure for businesses/ (nsecured loans of man companies are not getting
passed these das due to changes in the lending sstem/
Man companies ha2e ta5en the option of VassetGbased lending to o2ercome
this problem/ !nterestingl4 this option of lending was considered the last
resort b man companies4 but it is now growing to be a preferred lending
form/ AssetGbased lending is generall done when it is not possible for the
compan to raise funds thorough normal lending routes/ %ormal lending is
done b selling bonds in the capital mar5et4 mortgage secured or normal
unsecured lending from the ban5/ AssetGbased lending is also preferred when
the companies need immediate capital for financing their projects b
purchasing in2entor as well as debt4 mergers4 and acquisitions/
This is a fa2ored choice for companies that do not ha2e enough creditran5ing4 time or capacit4 and trac5 record to opt for traditional capital
sources/ !t is also a good wa for companies to satisf their shortGterm
requirements of cash/ !t has four major asset classes namel in2entor4 real
8
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estate4 accounts recei2able4 and equipment/ Recentl4 addition of intangible
assets li5e customer lists and trademar5s ha2e been added to it/
ADVANTAGES OF ASSET5BASED LENDING
*ne of the biggest ad2antages of this tpe of lending is that it pro2ides
mone to fast growing organi9ations/ This helps them to a great e:tent b
addressing the cash flow problem of the companies/
The are also a good choice for those companies that do not ha2e
outstanding credit/ The companies can ma5e use of intangible assets to get
the loan/
Another ad2antage of assetGbased lending sstem is that it is 2er fast/
Appling for a loan to the ban5 is a length and complicated process/ But
assetGbased lending sstem is much faster/ !t also offers a 2ariet of related
ser2ices li5e accounts recei2able processing4 in2oices4 and collection/ The
fle:ibilit and speed that this lending sstem pro2ides helps e2en the
companies with poor credit ratings/
This lending sstem offers 2er good 2alue when the lent assets are good/
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"igh rate of interest on the assets is another disad2antage of this lending
sstem/
As opposed to the high rate of interest4 the limit of lending ma be lower in
this approach/
!t requires a lot of monitoring and auditing/
!t also has man appraisal costs/
Another disad2antage of assetGbased lending is that the upGfront legal costs
of this sstem are high/
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CHAPTER II
RESEARCH METHODOLOGY
RESEARCH METHODOLOGY
The present paper is a case stud which is restricted to branch of P%B in
Delhi/ The objecti2e of research paper is to stud the ,redit Ris5
Assessment Model of P%B and to chec5 the commercial4 financial K
technical 2iabilit of the project proposed K its funding pattern/ To obser2e
the mo2ements to reduce 2arious ris5 parameters which are broadl
;1
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categori9ed into financial ris54 business ris54 industrial ris5 K management
ris5/ @or the purpose4 the secondar data is collected through the Boo5s K
maga9ines4 Database at P%B4
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Adequate financial strength
CREDIT RISK
&o hand in hand/
The are li5e twin brothers/
The can be compared to two sides of the same coin/
All credit proposals ha2e some inherent ris5s4 e:cepting the almost
negligible 2olume of lending against liquid collaterals with adequate
margin
LENDING DESPITE RISKS
So4 ris5 should not deter a Ban5er from lending/
A ban5ers tas5 is to identif7 assess the ris5 factors7 parameters K
manage 7 mitigate them on a continuous basis/
But its alwas prudent to ha2e some idea about the degree of ris5
associated with an credit proposal/
The ban5er has to ta5e a calculated ris54 based on ris5Gabsorption7
ris5Ghedging capacit K ris5Gmitigation techniques of the Ban5/
CREDIT RISK ASSESSMENT #CRA – MINIMUM SCORES
HURDLE RATES
1/ The ,RA models adopted b the Ban5 ta5e into account all possible
factors which go into appraising the ris5s associated with a loan/ These ha2e
been categori9ed broadl into financial4 business4 industrial K management
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ris5s and are rated separatel/ To arri2e at the o2erall ris5 rating4 the factors
dul weighted are aggregated K calibrated to arri2e at a single point
indicator of ris5 associated with the credit decision/
2. FINANCIAL PARAMETERS
The assessment of financial ris5 in2ol2es appraisal of the financial strength
of the borrower based on performance K financial indicators/ The o2erall
financial ris5 is assessed in terms of static ratios4 future prospects K ris5
mitigation collateral securit 7 financial standing3/
!. INDUSTRY PARAMETERS The following characteristics of an
industr which pose 2aring degrees of ris5 are built into Ban5s ,RA
model
,ompetition
!ndustr outloo5
Regulator ris5
,ontemporar issues li5e
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,redibilit abilit to meet profit PAT3 projections
Pament record
Strategic initiati2es
+ength of relationship with the Ban5
;/ RISK PARAMETERS as mentioned abo2e are indi2iduall scored to
arri2e at an aggregate score of 1CC subject to qualitati2e factors negati2e
parameters3/ The o2erall score thus obtained out of a ma:/ of 1CC3 is rated
on an point scale from P%B7P%BT+1 to P%B 7P%BT+
1.SALIENT FEATURES OF CRA MODELS
#A TYPE OF MODELS
;=
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S/
%o
#:posure +e2el
@B U %@B +imits 3
%on Trading
Sector ,K! 4 SS! 4
A&+3
Trading Sector
Trade K Ser2ices3
1 *2er Rs/ =/CC crore Regular Model Regular Model2 Rs C/6= crore to Rs/ =/CC
crore
Simplified Model Simplified Model
#B TYPE OF RATINGS
S/ %o/ Model Tpe of Rating
1 Regular Model Borrower Rating
@acilit Rating
2 Simplified Model Borrower Rating
%ew Rating Scales Borrower Rating 1> Rating &rades
T)) %/ *%$$)),( '(%,9 9%-), (+ () *%$$)),( ',>/. F+ )'8
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P%B 1 ;G1CC 0irtuall Wero ris5 0irtuall Absolute safet
6 P%B 6 CG8 +owest Ris5 "ighest safet
8 P%B 8 >G +ower Ris5 "igher safet
; P%B ; 1G= +ow Ris5 "igh safet
= P%B = ?>GC Moderate Ris5 with Adequate
,ushion
Adequate safet
> P%B > ?CG?= Moderate Ris5 Moderate Safet
? P%B ? >;G>
P%B =?G>8 A2erage ris5 Abo2e Safet Threshold
P%B =CG=>
1C P%B 1C ;=G; Acceptable Ris5 Ris5
Tolerance Threshold3
Safet Threshold
11 P%B 11 ;CG;; Borderline ris5 !nadequate safet
16 P%B 16 8=G8 "igh Ris5 +ow safet
18 P%B 18 8CG8; "igher ris5 +ower safet
1; P%B 1; 6=G6 Substantial ris5 +owest safet
1= P%B 1= 24 PreGDefault Ris5 e:tremel0ulnerable to default3
%il
16 P%B 1> 5555 Default &rade 555555555
Ban5 has introduced %ew Rating Scales for borrower for gi2ing loans/
Rating is gi2en on the basis of scores out of 1CC/ Ban5 gi2es loans to the
borrower as per their rating li5e P%B gi2es loans to the borrower up to
P%B rating as it has a2erage ris5 till P%B rating/ @rom P%B rating the
ris5 increases/ So ban5s do not gi2e loans after P%B rating/
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Aud/ Aud/ Annual Annual Annual Annual Projected
81st March 6CC 6C1C 6C11 6C16 6C18 2014 201=
%et Sales =C1/? =;>/>= ?18/6 />= />= />= />=
*perating
Profitafterinterest3
1;/>; 16/6 68;/6; 86>/> 8?;/86 ;C;/C ;6=/C>
PBT 1/6C 6/C 66/; 6/>6 16=/;? 1;8/=1 1=1/>
PBT7Sales F3 C/6; C/=8 8/1= 1C/81 18/> 1=/? 1>/1
PAT 1/6C 6/C 66/; 6/>6 16=/;? 1;8/=1 1=1/>
,ash Accruals 8/C= ;C/=1 16/6= 688/?; 66;/6= 616/>> 6CC/8>
PBD!T =;/;; =6/;1 1=C/C1 6>>/ 6;?/61 66>/6C 6C8/?6
Paid up ,apital 61/C; 66/=> 1/CC 118/; 11/1C 6=>/=? 8;C/C
T%< 61/C; 66/=> 118/; 11/1C 6=>/=? 8;C/C ;6?/C;
Adjusted T%< 61/C; 66/=> 118/; 11/1C 6=>/=? 8;C/C ;6?/C;
T*+7T%< 16/66 16/C =/C; 6/1= 1/C1 C/;? C/6?
T*+7Adjusted
T%<
16/66 16/C =/C; 6/1= 1/C1 C/;? C/6?
,urrent Ratio 1/=? 1/;6 6/66 6/=8 6/?1 8/C >/;?
,urrent Ratio
#:cl/T+
installments3
6/8; 1/? 6/66 ;/; =/>> =/8 >/;?
%/1; 8;/1 868/C 8>1/6 ;8/6=
;
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MOVEMENT IN TN: Rs/ in lacs3
200" 2010 2011 2012 201! 2014 201=
*pening T%< 1?/>8 61/C; 66/=> 118/; 11/1C 6=>/=? 8;C/C
Add PAT 1/6C 6/C 66/; 6/>6 16=/;? 1;8/=1 1=1/>
Add/ !ncrease
in equit 7 premium
/;6 1C/1? >/;;
Add/7Subtractchange inintangibleassets
Adjust prior
;
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ear e:penses
DeductDi2idendPament
7/61 11/== 6=/CC =C/CC >C/CC >=/CC
,losing T%< 21.04 22.=6 11!.4 11.10 2=6.=7 !40.0 427.04
CHAPTER III
DATA ANALYSIS
AND
=C
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INTERPRETATION
DATA ANALYSIS AND INTERPRETATION
Data collected from published annual reports was tabulated and anal9ed
using appropriate ratio/ The ratio were calculated with the help of Microsoft
e:cel/ The comparati2e analses of performance of ban5s were done with
the help of tables4 bar charts and pie charts/ The period selected for stud is
the ear 6C18G6C1;4 as this ear was a 2er crucial ear for the financialsstems around the world due to the financial meltdown faced b the world/
!n this part4 a comparison has been made of the performance of the top fi2e
ban5s as per the Business Toda Sur2e3 during the ear 6C18G6C1; b
testing their performance with the help of 2arious ratios/ Business toda had
=1
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gi2en the following ran5ing for ban5s4 with a balance sheet si9e of more
than amount during the ear 6C18G6C1;/
T'&) 1 T+< F%-) B',>/ +$ I,*%'
R',> B',>/
1 B',> +$ I,*%'
2 P,' N'(%+,'& B',>
! B',> +$ B'+*'
4 I,*%', B',>
= U,%+, B',> +$ I,*%'
These ban5s performances are anal9ed with the abo2e mentioned
parameters/ The ad2antages of these parameters are that man of them are
specificall designed for e2aluating ban5 performance/
=6
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A detailed analsis of these performance parameters is done/
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INTERPRETATION
The table 6 indicates that the operating profit of Punjab national ban5
?1>C/1=3 is the highest profit among the top fi2e ban5s4 the ban5 of !ndia
1;/6>3 shows that the lowest profit among the fi2e ban5s
T'&) ! N)( I,())/( I,+8) R'(%+ +$ $%-) L)'*%,9 B',>/
Ban5 %et !nterest !ncomeBan5 of !ndia 6/11
Punjab %ational Ban5 8/1;
Ban5 of Baroda 1/
!ndian Ban5 6/;
(nion Ban5 of !ndia 6/8?
=;
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S+) Annual Report of the Ban5s
INTERPRETATIONThe tableG8 indicates that the %et !nterest !ncome is highest for Punjab
national ban5 8/1;F3/The net interest income is 2er less for Ban5 of
Baroda 1/F34so it should ta5e urgent measures to impro2e its net interest
income4 so that it can impro2e its profitabilit
O/
Ban5 ,ost to !ncomeBan5 of !ndia C/;;
Punjab %ational Ban5 C/;=
Ban5 of Baroda C/;8
!ndian Ban5 C/;
(nion Ban5 of !ndia C/=1
==
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INTERPRETATION
The tableG; shows that the performance of ban5 of Baroda is the best
regarding cost to income ratio4 as it has the lowest ratio C/;83 among thefi2e ban5s4 union ban5 of !ndia has high cost to income ratio C/=13/ Thus
union ban5 of !ndia has to ta5e urgent measures to lower its costs4 so that it
can impro2e its profitabilit/
T'&) = C'
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Source Annual Report of the Ban5s
INTERPRETATION
The table G= indicates that the capital adequac ratio of !ndian ban5 18/1C3is the highest ratio among the top fi2e ban5s4 the ban5 of !ndia 1C/?>3
shows that the lowest ratio among the top fi2e ban5s/
CHAPTER IV
=?
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FINDINGS
FINDINGS
:HAT IS A LOAN? 5 DEFINITION3 TYPES3 ADVANTAGES
DISADVANTAGES
DEFINITION
=
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!f ou ha2e ne2er recei2ed a loan to purchase something4 ou certainl are in
the minorit +oans can be a great thing4 but the can also get ou into
trouble/ *ne of the 5es to being financiall successful understands when
loans are a good solution for our situation/ +oans are ne2er a good idea if
ou canJt afford to pa them bac5 in the required time frame/ +etJs e:plore
what a loan is and find out some of the common was to borrow mone/
A loan is when ou recei2e mone from a friend4 ban5 or financial
institution in e:change for future repament of the principal4 plus interest/
The principal is the amount ou borrowed4 and the interest is the amount
charged for recei2ing the loan/ Since lenders are ta5ing a ris5 that ou ma
not repa the loan4 the ha2e to offset that ris5 b charging a fee G 5nown as
the interest/ +oans tpicall are secured or unsecured/ A secured loan
in2ol2es pledging an asset such as a car4 boat or house3 as collateral for the
loan/ !f the borrower defaults4 or doesnJt pa bac5 the loan4 the lender ta5es
possession of the asset/ An unsecured loan option is preferred4 but not as
common/ !f the borrower doesnJt pa bac5 the unsecured loan4 the lender
doesnJt ha2e the right to ta5e anthing in return/
TYPES OF LOANS
Personal +oans G )ou can get these loans at almost an ban5/ The good news
is that ou can usuall spend the mone howe2er ou li5e/ )ou might go on
2acation4 bu a jet s5i or get a new tele2ision/ Personal loans are often
unsecured and fairl eas to get if ou ha2e a2erage credit histor/ The
=
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downside is that the are usuall for small amounts4 tpicall not going o2er
N=4CCC4 and the interest rates are higher than secured loans/
,ash Ad2ances G !f ou are in a pinch and need mone quic5l4 cash
ad2ances from our credit card compan or other pa da loan institutions
are an option/ These loans are eas to get4 but can ha2e e:tremel high
interest rates/ The usuall are onl for small amounts tpicall N14CCC or
less/ These loans should reall onl be considered when there are no other
alternati2e was to get mone/
STUDENT LOANS –
These are great was to help finance a college education/ The most common
loans are Stafford loans and Per5ins loans/ The interest rates are 2er
reasonable4 and ou usuall donJt ha2e to pa the loans bac5 while ou are a
fullGtime college student/ The downside is that these loans can add up to well
o2er N1CC4CCC in the course of ;4 > or ears4 lea2ing new graduates with
huge debts as the embar5 on their new careers/
COLLEGE LOAN
Mortgage +oans G This is most li5el the biggest loan ou will e2er get !f
ou are loo5ing to purchase our first home or some form of real estate4 this
>C
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is li5el the best option/ These loans are secured b the house or propert
ou are buing/ That means if ou donJt ma5e our paments in a timel
manner4 the ban5 or lender can ta5e our house or propert bac5 Mortgages
help people get into homes that would otherwise ta5e ears to sa2e for/ The
are often structured in 1CG4 1=G or 8CGear terms4 and the interest ou pa is
ta:Gdeductible and fairl low compared to other loans/
HOME LOAN
"omeG#quit +oans and +ines of ,redit G "omeowners can borrow against
equit the ha2e in their house with these tpes of loans/ The equit or loan
amount would be the difference between the appraised 2alue of our home
and the amount ou still owe on our mortgage/ These loans are good for
home additions4 home impro2ements or debt consolidation/ The interest rate
is often ta: deductible and also fairl low compared to other loans/
Small Business +oans G )our local ban5s usuall offer these loans to people
loo5ing to start a business/ The do require a little more wor5 than normal
and often require a business plan to show the 2alidit of what ou are doing/
These are often secured loans4 so ou will ha2e to pledge some personal
assets as collateral in case the business fails/
SHOULD YOU USE AN ONLINE MORTGAGE LENDER? THE
PROS AND CONS OF GETTING A MORTGAGE ONLINE
*nline lenders I less timeGconsuming and sometimes cheaper
&enerall spea5ing4 the home loan application process through online
lenders is a bit 'dumpedGdown. compared to going to a large financial
>1
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!nstitution or meeting oneGonGone with a mortgage bro5er/ Thats one of the
main reasons the are so popularH who doesnt want to appl for a mortgage
while watching T0 and eating dinner at the same timeL
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a2oid this4 e:cept to 5eep our options open and pa close attention to e2er
step of the process/
Although online lenders tend to appro2e applicants with lower credit scores
that mortgage bro5ers will turn down4 the interest rates tend to be e:tremel
high for borrowers with poor credit/ -ust because ou can get appro2ed for a
mortgage doesnt mean ou can afford to bu a home/ !f ou ha2e a low
enough credit score that oull pa a higher mortgage interest rate4 its a
better idea to continue to rent as ou pa off debt4 build our sa2ings4 and
repair our credit rather than bu a home at an abo2eGmar5et rate/
Tread lightl with online forms
!f ou use an online mortgage lender4 be careful with the online forms as
well/ Since there is no one there to answer our questions e:cept mabe a
1GCC number with limited hours34 it can be eas to misunderstand the
questions on the loan application/ !f ou misinterpret the questions or clic5
'enter. and mo2e on to the ne:t page without reading the fine print4 it could
result in higher fees or a problem with our appro2al later down the line/
And if oure doing a home purchase4 ou need good communication from
our lender once oure in escrow/
!f ou ha2e an issue with the appraisal or the loan funding and the call center
is closed for the wee5end or holida4 it might 5ill the whole deal/ Therefore4
as5 plent of questions about the lenders a2ailabilit and response time/
After all4 what is the point of going to an online lender who offers lowerL
,losing costs than our mortgage bro5er would if the cause ou to fall out
of escrow and lose our earnest mone/
M+(9'9) +>)/ (/( ',* )&%'%&%(
8
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Mortgage bro5ers want to win our business and the 5now one of the best
was to do that is b offering superior customer ser2ice/ A good mortgage
bro5er4 just li5e a good real estate bro5er4 creates a relationship of trust and
reliabilit/ The will hold our hand through the process4 help pre2ent ou
from ma5ing major mista5es and answer all of our questions/
dri2en in man cases b personal relationships with local loan officers. sas
-ohn Robbins4 ,#* of Be:il American Mortgage4 in an article from
Bloomberg Business/ Man home buers find the faceGtoGface relationship
with their lender to be imperati2e in the alreadGstressful process of buing a
home/
Though interest rates and fees ma be lower with online lenders thin5 less
o2erhead34 it isnt alwas the case/ A mortgage bro5er can shop around to a
2ariet of different lenders4 loan programs and underling in2estors to find
the loan that best suits our needs/ The ma e2en end up sa2ing ou
mone/
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CHAPTER VI
CONCLUSIONS
CONCLUSIONS
,redit appraisal is done to chec5 the commercial4 financial K technical2iabilit of the project proposed its funding pattern K further chec5s the
primar or collateral securit co2er a2ailable for the reco2er of such funds
Y P%B loan polic contains 2arious norms for sanction of different tpes of
loans such as
>=
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Y These all norms does not appl to each K e2er case/
Y P%B norms for pro2iding loans are fle:ible K it ma differ from case to
case
Y The ,RA models adopted b the ban5 ta5e into account all possible factors
which go into appraising the ris5 associated with a loan
Y These ha2e been categori9ed broadl into financial4 business4 industrial4
and management ris5s K are rated separatel
Y The assessment of financial ris5 in2ol2es appraisal of the financial strength
of the borrower based on performance K financial indicators
Y After case stud we found that in some cases4 loan is sanctioned due to
strong financial parameters
Y @rom the case stud analsis it was also found that in some cases4 financial
performance of the firm was poor4 e2en though loan was sanctioned due to
some other strong parameters such as the unit has got confirm order4 the unit
was an e:isting profit ma5ing unit K letter of authorit was recei2ed for
direct pament to the ban5 from *%&, which is public sector/
Y Different appraisal scheme has been introduced b the ban5 to cater
different industries such asG
Doctor plus scheme for doctors
Transport plus scheme for transport
School4 collages K educational institutions
Traders eas loan
>
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(ncertainties in the business en2ironment
(ncertainties in the industrial en2ironment
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Y ,hristian Roland6CC>3 'Ban5ing Sector +iberali9ation in !ndia. !ndian
!nstitute of ,apital Mar5ets th ,apital Mar5ets ,onference Paper4 -anuar
6=4 6CC>/
Y Arnoud
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Y Alan D/ Morrison 6CC13 'Ban5ing Sector +iberali9ation in !ndia . *:ford
@inancial
Research ,entre
Y 4 -une 1;4 6CC=
MA"ARA-A A&RAS#% !%ST!T(T# *@ T#,"%*+*&)
ATT#%DA%,# @*R S(MM#R TRA!%!%& PR*-#,T R#P*RT
%ame of the student
,lass
>
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Roll %o/
%ame of the Super2isor
S.N+. D'() T%8) P+9)//
R)
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1C
XMinimum out of 1C3 CF attendance compulsor/
,oordin
ator
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