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Credit Appraisal Management

CHAPTER 1

1.1 Industry Profile:

The growth in the Indian Banking Industry has been more qualitative than

quantitative and it is expected to remain the same in the coming years. Based on the

projections made in the "India Vision 2020" prepared by the Planning Commission

and the Draft 10th Plan, the report forecasts that the pace of expansion in the balance-

sheets of banks is likely to decelerate.

The total assets of all scheduled commercial banks by end-March 2010 is

estimated at Rs 40,90,000 crores. That will comprise about 65 per cent of GDP at

current market prices as compared to 67 per cent in 2002-03. Bank assets are expected

to grow at an annual composite rate of 13.4 per cent during the rest of the decade as

against the growth rate of 16.7 per cent that existed between 1994-95 and 2002-03.

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Co-operative banks:

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The Co-operative banks have a history of almost 100 years. The Co-operative

banks are an important constituent of the Indian Financial System, judging by the role

assigned to them, the expectations they are supposed to fulfil, their number, and the

number of offices they operate. The co-operative movement originated in the West,

but the importance that such banks have assumed in India is rarely paralleled

anywhere else in the world. Their role in rural financing continues to be importanteven today, and their business in the urban areas also has increased phenomenally in

recent years mainly due to the sharp increase in the number of primary co-operative

banks.

While the co-operative banks in rural areas mainly finance agricultural based

activities including farming, cattle, milk, hatchery, personal finance etc. along with

some small scale industries and self-employment driven activities, the co-operative

banks in urban areas mainly finance various categories of people for self-employment,

industries, small scale units, home finance, consumer finance, personal finance, etc.

Some of the co-operative banks are quite forward looking and have developedsufficient core competencies to challenge state and private sector banks. According to

NAFCUB the total deposits & lendings of Co-operative Banks is much more than Old

Private Sector Banks & also the New Private Sector Banks. This exponential growth

of Co-operative Banks is attributed mainly to their much better local reach, personal

interaction with customers, and their ability to catch the nerve of the local clientele.

Though registered under the Co-operative Societies Act of the Respective

States (where formed originally) the banking related activities of the co-operative

banks are also regulated by the Reserve Bank of India. They are governed by the

Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.

Categories:

There are two main categories of the co-operative banks.

(a) Short term lending oriented co-operative Banks - within this category there are

three sub categories of banks viz state co-operative banks, District co-operative banks

and Primary Agricultural co-operative societies.

(b) Long term lending oriented co-operative Banks - within the second category

there are land development banks at three levels state level, district level and villagelevel.

The co-operative banking structure in India is divided into following main 5

categories:

Primary Urban Co-op Banks

Primary Agricultural Credit Societies

District Central Co-op Banks

State Co-operative Banks

Land Development Banks.

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Banking credit is the elemental source of all other forms of credit in the

society. The other significance ofbank credit is in the form ofchecking account

credit. The primary source for this credit comes from the depositor's savings account.

Forms of Banking Credit:

Loans:

Loan is a type of debt in which the lender lends money to the borrower and

the borrower pays back the loan with interest either in installments or as a whole after

a specified period of time. Both the lender and borrower can be a person or an

organization. In present times the group of lenders has been typically reduced to

commercial banks.

The moneylenders have been eliminated as they used to charge a higher rate of

interest and imposed stringent terms and conditions. In the process of lending,

banking credit flows out to satisfy desirable needs of people whose dreams couldn'thave been otherwise realized. There is a list of pre-specified terms and conditions laid

down by the bank. The bank keeps an asset of the borrower as collateral to secure the

loan.

Appraisal:

The appraisal of projects is a comprehensive and systematic review of all the

aspects of the project. It can be considered as a second look by an independent agency

of the project submitted by the Farmers / Entrepreneurs / sponsoring agency.

The appraisal takes independent view of the project with the intention of

improving and revamping the projects with the co-operation of the promoters. The

following important aspects generally covered all the things. They are

Technical aspects

Financial aspects

Economic aspects

Commercial aspects

Managerial aspects

Organisational aspects.

The appraisal of these aspects provides information about the soundness of project for

its effective implementation.

Credit appraisal:

It is the process by which the lender assesses the credit worthiness of the

borrower. It revolves around character, collateral capability and capacity. It takes into

account various factors like

Income of the applicants Number of dependents

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Monthly expenditure

Repayment capacity

Employment history

Number of years of service and

Other factors.

Which affect the credit rating of the borrower.

Credit Appraisal is a process to ascertain the risks associated with the

extension of the credit facility. It is generally carried by the financial institutions

which are involved in providing financial funding to its customers.

Credit risk:

Credit risk is a risk related to non repayment of the credit obtained by the

customer of a bank. Thus it is necessary to appraise the credibility of the customer in

order to mitigate the credit risk. Proper evaluation of the customer is performed whichmeasures the financial condition and the ability of the customer to repay back the loan

in future.

Generally the credit facilities are extended against the security know as

collateral. But even though the loans are backed by the collateral, banks are normally

interested in the actual loan amount to be repaid along with the interest. Thus, the

customer's cash flows are ascertained to ensure the timely payment of the principal

and the interest.

Scope of study:

This study may help the bank

To improve the performance of the bank.

To strengthen the appraisal process.

To reduce Manual works and errors.

To reduce Non-Performing Asset (NPA).

To focus on remedial measures for loss prevention and deduction.

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Organisation Profile:

1. Organization name: Coimbatore District Central Co-operative Bank Ltd.

2. Industry it belongs to: Banking Sector.

3. Chairman / Managing Director :

Join Register /Special officer - R.Indumathi MA.HDCM.,

4. Organizational Structure :

5. List of competitors :

Other District Central Co-Operative Banks

Commercial Banks

Private Banks Foreign Banks

Other Financial Institutions.

6. Major players in the Industry :

Primary Agricultural Co-Operative Credit Societies.

Agricultural Market Societies.

District Consumer Co-Operative Whole Sale Stores.

Employee Co-Operative Thrist and Credit Societies.

Handloom Weavers Co-Operative Societies.

Power loom Weavers Co-Operative Societies. Co-Operative Sugar Mills.

TamilNadu State Apex Bank

District Central Co-operative

Bank

Primary agricultural Co-operative

Credit Societies

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Urban Co-Operative Bank.

Primary Agricultural and Rural Development Banks.

7. Operating region: Coimbatore District and Tirupur District.

8. Industry Contribution to Economy :

Small Scales Industry Loan (SSI).

Small and Marginal Enterprise Loan (SME).

Term Loan.

Short Term Loan Agriculture.

Agriculture.

Non-Agriculture.

Medium Term Loan Agriculture.

9. Entry & Exit barriers :

Entry :Affiliated and Link Societies.

Exit :

TNSC, NABARD.

10. Awards / Achievements / Quality Certification :

SHG Loans.

District Achieve.

11. Branches of Bank:

Head office: Coimbatore.Other Branches:

1. R.S.Puram

2. Udamalpet

3. Pollachi

4. Krishnapuram

5. Tirupur

6. Avinashi

7. Kinathukadavu

8. Mettupalayam

9. Sulur

10. Annur11. Palladam

12. Perianaickenpalayam

13. Kottur

14. Dr.Najappa Road

15. Ramanathapuram

16. Negamam

17. Madathukulam

18. Thondamuthur

19. Madhukkarai

20. Perur

21. Kavundampalayam22. Singanallur

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23. Anaimalai

24. Pethappampatti

25. Ghandhimanagar

26. Kurichi.

CHAPTER 2

Organisation Stucture :

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HR Information:

Joint registered / special

officer

Deputy Register/ Chief /Revenue officer

Co-operative RegisterPersonnel officer

Chief General Manager General Manager

Assistant General Manager

Banking


credit


Non Credit


Development


Administration

Chief Manager

Manager

Assistant Manager

Assistant

Sub Staff (Peon)

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1. HR Initiatives:

1. Total number of employees:

Manager 1 Assistant Manager 5

Assistant 2

Cashier / Shroff 1.

2. Recruitment & Selection Process:

The above categories of employees are well trained to customer

relationship, public relationship and provide sufficient banking functional

trainings. Appointment procedure Coimbatore District Central Co-operative

Bank recruited through district employment office those who are completed in

any degree with diploma in cooperative training on the basis of registrationunder senior most.

The recruiter will recruit the candidate under return examination & oral

interview test. It contains the syllabus or cooperative law organizational

structure & rules & regulation & clerical aptitude numerical ability.

30% of the appointments are by

Affiliated society staff.

Primary agricultural co-operative banks,

Land development banks, Co-operative Marketing societies,

HR INITATIVES

MANAGER

ASSISTANT MANAGER

ASSISTANTS

CASHIER / SHROFF

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Consumer co-operative whole sale stores,

Employees co-operative thrift and credits societies.

Weavers co-operative societies.

70% of the appointment through district employment exchange.

2008 2009:

Membership and Share Capital:

There were 1065 members at the end of the year as against 1056 at the

beginning year. The Share Capital of the members amounted to Rs.2195.27 lakhs.

When compared to 2007-2008 Rs.42.19 lakhs has increased at 1.96%.

(Rs.Lakhs)

31.3.2007 31.3.2008 31.3.2009

1865.75 1935.98 2018.17117.10 117.10 117.10

I.C.D.P 100.00 100.00 60.00

Total 2082.85 2153.08 2195.27

Deposits and Borrowings:

The outstanding under this head at the end of the year has been Rs.13740.45

Lakhs has increased by Rs.1565.57 when compared to last year and at 12.86%.

Reserves and Surplus:

The outstanding under this head at the end of the year has been Rs.9, 469.45

Lakhs as against Rs.8,404.56 Lakhs at the end of the previous year.

Other Liabilities:

The outstanding under this head at the year has been Rs.1,606.64 Lakhs as

against Rs.1,351.03 Lakhs at the end of the previous year.

Investment:

The outstanding under this head at the year has been Rs.160,79.32 Lakhs as

against Rs. 154,87.59 Lakhs at the end of the previous year.

Loans and Advances:

The outstanding under this head at the year has been Rs.39,692.61 Lakhs asagainst Rs.38,856.85 Lakhs at the end of the previous year.

Non-Performing Assets:

The gross NPA to total loans is 13.14% as against 22.80% in the previous

year resulting decrease of NPA.

Net Result:

The bank has earned net PROFIT of Rs.7,68,81,244.42 at the end of the

year. The net profit of the Bank may be distributed in accordance with the Act and

Rules and Bylaws of the Bank.

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Classification:

The Bank is placed under B class for the year of Audit.

General:

A Copy of the schedule of defects on the Final Audit of the Bank for the year ended31st March 2007 as furnished by the auditor is communicated herewith. The Bank will

keep

The Audit Certificate

The Receipts and Disbursements Statement

The Profit and Loss account and

The Balance sheet open for inspection by any member of the Bank and

shall read out the summary of Audit Memorandum at the General

Body Meeting.

The Bank is also requested to take steps to rectify the defects and settle the Audit

objections within a period of three months and communicate the same to the authorityconcerned.

CHAPTER 3

Objective of the study:

To know about the process of Credit appraisal on CDCC Bank.

To analyze the appraisal Process.

Economically weaker section people and below poverty line to growtheconomic development through arrangement of banking loans and finance supporting

to the growth of life styles.

(i.e.) People like public, street vendors, cottage industries and small traders.

To issue of loans like

Micro credit

Revamped Micro credit

Petty traders loan

Small scale industries.

The focus of the study is on

Most of the agriculture loans Short Term, Medium Term, Long Term provided

to the agriculturist are through Primary Agricultural Co-operative Banks.

To facilitate the farmers, the Primary Agricultural Co-operative banks are

located in rural areas for easy reach.

To evaluate the quantum of subsidiary interest and principle wavier to the

borrowers by the government.

Co-operative Banks are the Lender of the last resort to the farmers.

Co-operative Banks are framed under Scale of finance under scale of financesystem utilized by the central and state government committee.

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During the scarcity of pesticides, fertilisers and manures to the farmers the

Co-operative Banks arranged to supply the above through TN consumer

Co-operative federation at consessional rate.

The DCCB is the financial /bank to the primary agriculture co-operative

Banks.

The Central Co-operative Bank is the lead Banks of the primary agriculture

Co-operative Banks. The lead bank conducted a review meeting to the primary

agriculture Co-operative Banks secretaries and officers. The purpose of review

meeting is to develop the Bank issue of loan to the farmers, introduced

systematic loans & guidelines to the agriculture development like Agricultural

clinic Integrated agricultural development program is used to the agriculture

farmers.

The above facilities and guide line to the farmers are easily available loans and

advances. This sector is very useful to integral study to the farmers & I take

interest to study this topic.

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CHAPTER 4

Loan Types:

Loan

Types

Agriculture

Loans

Other

Advances

Cash

Credit

Non-Agri

LoanCrop

LoanJewel Loan

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House

Mortgage

Loan

(HML)

Salary

Loan

Jewel

Loan

Handy

Capped

Loan

TABSET

COLoan

TAMCO

Loan

Self - Help

GroupLoan

Consumer

Durable

Loan

House

Construction

Loan

(HCL)

Small Scale

Industry

(SSI)

Non - Farms

Loan

Non Farm Loan:

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Non Performing Asset:

NPA Period:

NFS 180 Days.

Crop Loan 1 Year.

Ageing of Credit:

Agriculture 1 Year.

Non - Agriculture:

Short Term 1 Year.

Medium Term 3 Years.

Long Term 5 Years.

NFS 5 Years.

Interest:

Short Term Agriculture Loan 5%.

Non Agriculture 9%.

Empty Non - Agriculture 11%.

House Mortgage Loan 14%.

House Construction Loan 14%.

Small Scale Industry 14%.

Jewel Loan:

Jewel loan Amount

Member Associated Fee

Rs.5

Interest (Max 1 year)

(o.d 11% + 3%)

11%

Fine (Exceeds 1 year)

3%

Appraisal Fees (Above 27000)

Rs.100

Service Tax

Rs.10

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Insurance

Rs.15

Duplicate Receipt

Rs.55

Applicable Fees slab for Jewel Loan:

S.No Amount Appraisal Fees Service Tax

1 3000 15 2

2 4000 20 2

3 5000 25 3

4 6000 30 3

5 7000 35 46 8000 40 4

7 9000 45 5

8 10000 50 5

9 11000 53 5

10 12000 56 6

11 13000 59 6

12 14000 62 6

13 15000 65 7

14 16000 68 7

15 17000 71 716 18000 74 8

17 19000 77 8

18 20000 80 8

19 21000 83 9

20 22000 86 9

21 23000 89 9

22 24000 92 9

23 25000 95 10

24 26000 98 10

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Jewel loan:

To get a jewel loan in cooperative bank we want to be a Member first for

that we have to pay or deposit Rs.5. then we have to enter our name, address, phone

number and other details in the given application form that is Associated MembersAdmission Register.

o Associated Member card

o Associated Member Application

o Jewel Loan Application

o Pro Note

o Payment Receipt

o Jewel loan /receipt

o Appraiser fees application

o Release Form

o Jewel Loan card.

Small Scale Industries Loan

SSI Loan Application:

The company submit their application for enclosed following documents:

SSI Application Form.

Asset Document.

Parent document

Original document

Engineer Asset Valuation Certificate

Income Tax written file for last 3 years

Income proof certificates

Business project for last 5 years

Address proof

Ration card Xerox.

Voter ID Card.

Corporation & TNEB Tax Chelan

Company registration certification copy.

SSI LOAN:

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Small Scale Industry loan is a medium term loan sanction for a period of 5

years (i.e.) 60 equal instalments the loan issued on the purpose of small & medium

entrepreneur to promote their business like

Textiles

Clothing

Power loom

Hosieries

Medical shop

Yarn business units

Mini super markets

Weaving mills

Stream calendaring or warping

Screen printing.

The loan sanction by the bank for the following conditions to the borrowers:

The borrowers should open Current account in the bank. Topography of the business unit.

Original asset documents with encumbrance certificate for last

15 years.

Business project for the last 5 years.

Every month stock position of the business unit. The borrowers

should submit the monthly performance Report of the business.

The borrower and securities are registered as a associate

member in the bank.

The borrower will submit the utilization of loan amount.

The borrower get a loan from bank, the loan amount should beutilized, to which purpose should be mentioned on the loan application.

House Mortgage Loan (HML):

1. Loan Application.

2. Asset Document.

3. Parent document.

4. Engineer Asset Valuation Certificate.

5. Purpose of Loan.

(i.e.,) Textile, Fabrics, Netting, automobile works.

6. Income Tax written file for last 3 years.7. Address proof certificate.

i. Ration card Xerox.

ii. Voter ID Card.

8. Panchayatt, Municipal Corporation, Tax Payment & Receipts.

9. Encumbrance Certificate for last 20 years from Register office.

10. Project Report.

11. The borrowers are eligible for loan available so loan disbursement on the date.

12. Loan Repayment on 60 Months Equal instalments

House Construction Loan (HCL):

1. Loan Application.

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2. Asset Document.

3. Parent document.

4. Encumbrance Certificate for last 20 years.

5. Plan approved from Panchayatt or Municipal Corporation.

6. Engineer Estimate Certificate.

7. Address proof certificate. Ration card Xerox.

Voter ID Card.

8. Sureties.

9. Hypothecation of Asset.

10. Legal opinion Certificate.

11. Project Report.

12. The borrowers are eligible for loan available so loan disbursement on the date.

13. Loan Repayment on 60 Months Equal instalments.

14. The HCL Loan Released on 3 Stages.

AGRILOAN:

Agriculture Loan:

Agri loan can be given by the following method:

S.No

(1)

Crop Name

(2)

Amount

Per acre

(3)

Manure

(4)

Pesticide

(5)

Seeds

(6)

Amount

(4+5+6)

(7)

Total

(3+7)

(8)

1. Rice 7500 2300 700 500 3500 11000

2. Ragi 32001150

600250

100175

100125

800550

40001700

AgriLoan

SmallFarmers

(2.5 acre)

MediumFarmers

(2.5 5

acre)

BigFarmers

(Above 5

acres)

Short Term

Loan(1 year)

Short Term

Loan(1 year)

Short Term

Loan(3 year)

Medium

term

Loan

(3 year)

Medium

term

Loan(5 year)

Long term

Loan(10 year)

Medium

term

Loan

(5 year)

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3. Cotton 6700

3500

2000

1000

2600

800

700

700

5300

2500

12000

6000

4. Onion 4300

5300

2600

2600

1000

1000

2400

1400

6100

5000

10400

10300

5. Turmeric 10000 4000 2500 4350 10850 20850

6. Sunflowers 3250

2150

1100

500

300

200

300

300

1700

1100

4500

3000

7. Tomato 7500

6000

3000

2000

2000

1000

2500

1000

7500

4000

15000

10000

8. Rose 7300 2000 850 -- 2850 10150

9. Jasmine 8000 3000 2000 -- 5000 13000

10. Banana Plant 13600

11000

8000

10000

3000

1800

3400

13200

14400

25000

28000

36000

11. Tea plant 7800 2000 1200 -- 3200 11000

12. Coffee 10000 2000 1500 2000 5500 15500

13. Kambu 3325 900 150 125 1175 4500

14. Cholam 3650

2800

1000

400

150

200

200

100

1350

700

5000

3500

15. Cereals 3600

1800

600

400

900

600

400

200

1900

1200

5500

3000

CASH CREDIT:

CASH CREDIT ACCONUT:

Cash credit loan is an advance payment of particular business under the

hypothecation of goods. Particular amt sanctioned (as per the applicant request) by the

head office .The amount utilized by the borrower as a requirement of the day to day

business. The transaction of Cash Credit under the limit sanction.

CASH CREDIT PUBLIC DISTRIBUTION SYSTEM:

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Cash Credit Public Distribution System (PDS) the advance payment to the

affiliated primary agriculture co-operative Banks under essential commodities of the

ration articles purchased by the PACB to the Tamilnadu civil supply corporation ltd.

CASH CREDIT:

Public Distribution System.

Non - Public Distribution System (Non - PDS).

General Business.

Cash Credit Manure.

Clean Cash Credit.

Jewel Loan Cash Credit.

Handloom NABARD Fund (HWCS).

HWCS Own Fund.

Power Loom Weaver Co operative Society NABARD Fund

(PLWCS). PLWCS Own Fund.

Cash Credit Self Help Group (CCSHG).

Business Cash Credit (Individual CC).

NORMS FOR CASH CREDIT ACCOUNTS OUT OF ORDER:

i. Cash Credit accounts where the limits are not renewed within 90 days

from due date.

ii. Accounts stand over drawn and such over drawings are not regularized

within 90 days.

iii. Accounts where stock deficit is observed and such irregular is not set-

right within 90 days.

iv. Cash Credit accounts where there are no operations in the account

continuously for more than 90 days.

v. Cash Credit accounts where there are no credits to cover the interest

debited, even if the liability is within the limit, for a period of 90 days.

vi. When one account is regular and another account of the same party is

complying with NPA norms, both accounts are to be classified as NPA.

However, this is not PACSs for their On-lending agriculture loans to

their members.

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