study on business loans
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INTRODUCTION
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FINANCE
Finance is the study of funds and management. Its general areas are business
finance, personal finance, and public finance. It also deals with the concepts of
time, money, risk, and the interrelation between the given factors. It is basically
focused on how the money is spent and budgeted. It is one of the most important
aspects in handling business. Finance addresses the methods wherein business
entities used their financial resources on a certain period of time. It is the
application of a set of techniques used by organizations in managing their
financial affairs. The income and expenditure are emphasized in finance and its
differences can easily be indicated.
Nowadays, loans have been packaged for resale. This means that the debt hasbeen bought by an investor from the bank. These bonds are sold to investors by
financial corporations who have exceeded beyond their expenditures. The
investor can now collect all the interests and be sold again through a secondary
market. Banks serve as facilitators to companies in the provision of credit and
mutual funds. Investments are managed carefully under a financial risk
management to control gambling chances of these financial assets. Financial
instruments are also used to secure these assets on securities exchanges such as
stock exchanges and bonds. A bank provokes the activities of both borrowers and
lenders. Lenders pay deposits to banks on which it pays the interest rates. The
central banks are the last resorts that handle the monetary funds. These banks
affect the interest rates being charged such as an increase in the money supply
will result to a decrease in the interest rates.
Financial capital is a monetary resource allows businesses to purchase items that
will create goods for production and other services. The budget is the
documentation of the entire entrepreneurship. The outline includes the objectives
of the business, the target sets, resulting costs, required investment, planned sales,
growth, financing source, and financial results. It can be directed on long term or
on a short term basis. The capital budget is mainly concerned with the proposedfixed asset requirements. The financing of the expenditure is also indicated in the
capital budget. A detailed plan of all the sources and cash usage is emphasized in
the cash budget. It has six main sections such as the beginning cash balance, cash
collections, cash disbursements, cash excess, cash deficiencies, financing, the
ending cash balance, and the management of current assets.
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A credit comes in various forms such as of open accounts, instalment sales, credit
cards, and supplier credits. The advantages of a credit trade are gaining loyalty and
goodwill amongst costumers, drawing in more customers than cash trades,
stimulates agricultural and industrial production, and increases rates. But there arealso disadvantages to credit trades as well such as risks of bad debt, high
administration expenses, necessitates more working capital, risks of bankruptcy
declaration, and leading to purchasing nonessential items.
An effective credit control may lead to increase in sales, increase in profits,
reduces bad debts, builds customer loyalty, and increases company capitalization.
The information on creditworthiness is acquired through credit agencies, bank
references, credit agencies, chambers of commerce, and credit application forms.Taking legal actions is one part of the many duties of the credit department.
Meanwhile, a corporate finance holds a task in providing financial resources for
certain organizations and balances risks and profitability. It is referred as SME
finance for small enterprises. Managerial finance maximizes a companys wealth
and it also values the stocks. Bonds are long-term funds created by ownership
equity and long-term credits. Short-term funding comes from a line of credit
given by banks as a working capital.
Studying finance will lead you in wiser decisions making on your financial funds.
It can help you identify risks and benefits if you are planning to put up your own
business. Finance discipline requires you certain abilities and trainings which can
be developed over a period of time. Finally, it will give you optimum control over
your financial assets which will certainly help you in attaining a financially
secured life.
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Why Finance is important to the economy?
From a macro perspective, Finance is merely the practical application of
economics. The Financial System is the means by which an economy allocates
money to its highest valued use. In English, it is how people, businesses, and
governments raise the cash needed to do business.
The goal of any financial system is to make sure that those with good ideas get
the money necessary to implement the ideas. How this is accomplished in amarket-based economy is through the stock and bond markets.
In a market-based economy, investors invest in a firm and the firm takes the
investment and uses it to implement the business ideas.
People do not give money without the expectation of getting something in return.If money is given, something is expected back in return. In this case more
money.
The way to get the most money back is to invest in firms that will put the money
to the best use. Of course others know this as well. As more invest with a firm
the value of the firm's stock rises.
In competition for more money, firms will strive to find better investments. This
leads to economic growth, more jobs, and hopefully a higher standard of living.
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FINANCIAL INSTITUTION
Infinancial economics,a financial institution is aninstitution that
providesfinancial services for its clients or members. Probably the most
important financial service provided by financial institutions is acting asfinancial
intermediaries.Most financial institutions are highlyregulatedbygovernment.
Broadly speaking, there are three major types of financial institutions:
1. Deposit-taking institutions that accept and manage deposits and makeloans,
includingbanks,building societies,credit unions,trust companies,andmortgage
loan companies.
2.
Insurance companies andpension funds;and
3. Brokers,underwriters andinvestment funds.
Financial institutions provide service as intermediaries of financial markets. They
are responsible for transferring funds from investors to companies in need of
those funds. Financial institutions facilitate the flow of money through the
economy. To do so, savings a risk brought to provide funds for loans. Such is the
primary means for depository institutions to develop revenue. Should theyield
curvebecome inverse, firms in this arena will offer additional fee-generating
services including securities underwriting, and pre. Fds.Financial institutions in most countries operate in a heavily regulated
environment as they are critical parts of countries' economies. Regulation
structures differ in each country, but typically involve prudential regulation as
well as consumer protection and market stability. Some countries have one
consolidated agency that regulates all financial institutions while others have
separate agencies for different types of institutions such as banks, insurance
companies and brokers.
Countries that have separate agencies include the United States,where the key
governing bodies are theFederal Financial Institutions ExaminationCouncil (FFIEC),Office of the Comptroller of the Currency - National
Banks,Federal Deposit Insurance Corporation (FDIC) State "non-member"
banks,National Credit Union Administration (NCUA) - Credit Unions,Federal
Reserve (Fed) - "member" Banks,Office of Thrift Supervision - National Savings
& Loan Association, State governments each often regulate and charter financial
institutions.
http://en.wikipedia.org/wiki/Financial_economicshttp://en.wikipedia.org/wiki/Institutionhttp://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/Financial_intermediaryhttp://en.wikipedia.org/wiki/Financial_intermediaryhttp://en.wikipedia.org/wiki/Financial_regulationhttp://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Building_societyhttp://en.wikipedia.org/wiki/Credit_unionhttp://en.wikipedia.org/wiki/Trust_companyhttp://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Pension_fundhttp://en.wikipedia.org/wiki/Brokerhttp://en.wikipedia.org/wiki/Underwritinghttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Yield_curvehttp://en.wikipedia.org/wiki/Yield_curvehttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Federal_Financial_Institutions_Examination_Councilhttp://en.wikipedia.org/wiki/Federal_Financial_Institutions_Examination_Councilhttp://en.wikipedia.org/wiki/Office_of_the_Comptroller_of_the_Currencyhttp://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporationhttp://en.wikipedia.org/wiki/National_Credit_Union_Administrationhttp://en.wikipedia.org/wiki/Federal_Reserve_Systemhttp://en.wikipedia.org/wiki/Federal_Reserve_Systemhttp://en.wikipedia.org/wiki/Office_of_Thrift_Supervisionhttp://en.wikipedia.org/wiki/Office_of_Thrift_Supervisionhttp://en.wikipedia.org/wiki/Federal_Reserve_Systemhttp://en.wikipedia.org/wiki/Federal_Reserve_Systemhttp://en.wikipedia.org/wiki/National_Credit_Union_Administrationhttp://en.wikipedia.org/wiki/Federal_Deposit_Insurance_Corporationhttp://en.wikipedia.org/wiki/Office_of_the_Comptroller_of_the_Currencyhttp://en.wikipedia.org/wiki/Federal_Financial_Institutions_Examination_Councilhttp://en.wikipedia.org/wiki/Federal_Financial_Institutions_Examination_Councilhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Yield_curvehttp://en.wikipedia.org/wiki/Yield_curvehttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Underwritinghttp://en.wikipedia.org/wiki/Brokerhttp://en.wikipedia.org/wiki/Pension_fundhttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/wiki/Trust_companyhttp://en.wikipedia.org/wiki/Credit_unionhttp://en.wikipedia.org/wiki/Building_societyhttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Financial_regulationhttp://en.wikipedia.org/wiki/Financial_intermediaryhttp://en.wikipedia.org/wiki/Financial_intermediaryhttp://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/Institutionhttp://en.wikipedia.org/wiki/Financial_economics -
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CORPORATE FINANCE
Corporate finance is the area offinance dealing with monetary decisions
thatbusiness enterprises make and the tools and analysis used to make these
decisions. The primary goal of corporate finance is tomaximizeshareholder
value.Although it is in principle different frommanagerial finance which studies
the financial decisions of all firms, rather than corporations alone, the main
concepts in the study of corporate finance are applicable to the financial problems
of all kinds of firms.
The discipline can be divided into long-term and short-term decisions and
techniques.Capital investment decisions are long-term choices about whichprojects receive investment, whether to finance that investment
withequity ordebt,and when or whether to paydividends toshareholders.On the
other hand, short term decisions deal with the short-term balance ofcurrent
assets andcurrent liabilities;the focus here is on managing cash,inventories,and
short-term borrowing and lending (such as the terms on credit extended to
customers).
The terms corporate finance and corporate financier are also associated
withinvestment banking.The typical role of aninvestment bank is to evaluate the
company's financial needs and raise the appropriate type of capital that best fits
those needs. Thus, the terms corporate finance and corporate financier may
be associated with transactions in which capital is raised in order to create,
develop, grow or acquire businesses.
http://en.wikipedia.org/wiki/Financehttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Shareholder_valuehttp://en.wikipedia.org/wiki/Valuation_(finance)http://en.wikipedia.org/wiki/Valuation_(finance)http://en.wikipedia.org/wiki/Managerial_financehttp://en.wikipedia.org/wiki/Capital_investmenthttp://en.wikipedia.org/wiki/Ownership_equityhttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Dividendshttp://en.wikipedia.org/wiki/Shareholdershttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Liabilitieshttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Investment_bankinghttp://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Investment_bankhttp://en.wikipedia.org/wiki/Investment_bankinghttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Liabilitieshttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Shareholdershttp://en.wikipedia.org/wiki/Dividendshttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Ownership_equityhttp://en.wikipedia.org/wiki/Capital_investmenthttp://en.wikipedia.org/wiki/Managerial_financehttp://en.wikipedia.org/wiki/Valuation_(finance)http://en.wikipedia.org/wiki/Valuation_(finance)http://en.wikipedia.org/wiki/Shareholder_valuehttp://en.wikipedia.org/wiki/Businesshttp://en.wikipedia.org/wiki/Finance -
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BANK
A bank is afinancial institution and afinancial intermediary that
acceptsdeposits and channels those deposits intolending activities, either directly
or throughcapital markets.A bank connects customers with capital deficits to
customers with capital surpluses.
Banking activities
Banks act as payment agents by conductingchecking or current accounts for
customers, payingcheck drawn by customers on the bank, and collecting checks
deposited to customers' current accounts. Banks also enable customer payments
via other payment methods such asAutomated Clearing House (ACH),Wire
transfers ortelegraphic transfer,EFTPOS,andautomated teller machine (ATM).
Banks borrow money by accepting funds deposited on current accounts, by
acceptingterm deposits,and by issuing debt securities such asbanknotes
andbonds.Banks lend money by making advances to customers on current
accounts, by makinginstalment loans,and by investing in marketable debt
securities and other forms of money lending.
Banks provide almost all payment services, and a bank account is considered
indispensable by most businesses, individuals and governments. Non-banks that
provide payment services such as remittance companies are not normally
considered an adequate substitute for having a bank account.
Banks borrow most funds from households and non-financial businesses, and
lend most funds to households and non-financial businesses, but non-bank lenders
provide a significant and in many cases adequate substitute for bank loans, and
money market funds, cash management trusts and othernon-bank financial
institutions in many cases provide an adequate substitute to banks for lending
savings too.
http://en.wikipedia.org/wiki/Financial_institutionhttp://en.wikipedia.org/wiki/Financial_intermediaryhttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Transactional_accounthttp://en.wikipedia.org/wiki/Checkhttp://en.wikipedia.org/wiki/Automated_Clearing_Househttp://en.wikipedia.org/wiki/Wire_transferhttp://en.wikipedia.org/wiki/Wire_transferhttp://en.wikipedia.org/wiki/Telegraphic_transferhttp://en.wikipedia.org/wiki/EFTPOShttp://en.wikipedia.org/wiki/Automated_teller_machinehttp://en.wikipedia.org/wiki/Term_deposithttp://en.wikipedia.org/wiki/Banknoteshttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Installment_loanhttp://en.wikipedia.org/wiki/Non-bank_financial_institutionhttp://en.wikipedia.org/wiki/Non-bank_financial_institutionhttp://en.wikipedia.org/wiki/Non-bank_financial_institutionhttp://en.wikipedia.org/wiki/Non-bank_financial_institutionhttp://en.wikipedia.org/wiki/Installment_loanhttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Banknoteshttp://en.wikipedia.org/wiki/Term_deposithttp://en.wikipedia.org/wiki/Automated_teller_machinehttp://en.wikipedia.org/wiki/EFTPOShttp://en.wikipedia.org/wiki/Telegraphic_transferhttp://en.wikipedia.org/wiki/Wire_transferhttp://en.wikipedia.org/wiki/Wire_transferhttp://en.wikipedia.org/wiki/Automated_Clearing_Househttp://en.wikipedia.org/wiki/Checkhttp://en.wikipedia.org/wiki/Transactional_accounthttp://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Deposit_accounthttp://en.wikipedia.org/wiki/Financial_intermediaryhttp://en.wikipedia.org/wiki/Financial_institution -
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BANKING IN INDIA
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Banking in India originated in the last decades of the 18th century. The
first banks were The General Bank of India, which started in 1786, and Bank of
Hindustan, which started in 1790; both are now defunct. The oldest bank in
existence in India is the State Bank of India, which originated in the Bank of
Calcutta in June 1806, which almost immediately became theBank of Bengal.
This was one of the three presidency banks, the other two being theBank of
Bombay and theBank of Madras,all three of which were established under
charters from the British East India Company. For many years the Presidency
banks acted as quasi-central banks, as did their successors. The three banks
merged in 1921 to form theImperial Bank of India,which, upon India's
independence, became theState Bank of India in 1955.
Indian merchants in Calcutta established the Union Bank in 1839, but it
failed in 1848 as a consequence of the economic crisis of 1848-49. The
Allahabad, established in 1865 and still functioning today, is the oldest Joint
Stock bank in India.(Joint Stock Bank: A company that issues stock and requires
shareholders to be held liable for the company's debt) It was not the first though.
That honour belongs to the Bank of Upper India, which was established in 1863,
and which survived until 1913, when it failed, with some of its assets and
liabilities being transferred to theAlliance Bank of Simla.
When theAmerican Civil War stopped the supply of cotton
toLancashire from theConfederate States,promoters opened banks to finance
trading in Indian cotton. With large exposure to speculative ventures, most of the
banks opened in India during that period failed. The depositors lost money and
lost interest in keeping deposits with banks. Subsequently, banking in India
remained the exclusive domain of Europeans for next several decades until the
beginning of the 20th century.
Foreign banks too started to arrive, particularly inCalcutta,in the 1860s.
TheComptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and
another inBombay in 1862; branches inMadras andPondicherry,then a French
colony, followed.HSBC established itself inBengal in 1869. Calcutta was the
most active trading port in India, mainly due to the trade of theBritish Empire,
and so became a banking centre.
http://en.wikipedia.org/wiki/Bank_of_Bengalhttp://en.wikipedia.org/wiki/Bank_of_Bombayhttp://en.wikipedia.org/wiki/Bank_of_Bombayhttp://en.wikipedia.org/wiki/Bank_of_Madrashttp://en.wikipedia.org/wiki/Imperial_Bank_of_Indiahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/Alliance_Bank_of_Simlahttp://en.wikipedia.org/wiki/American_Civil_Warhttp://en.wikipedia.org/wiki/Lancashirehttp://en.wikipedia.org/wiki/Confederate_Stateshttp://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/w/index.php?title=Comptoire_d%27Escompte_de_Paris&action=edit&redlink=1http://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Pondicherryhttp://en.wikipedia.org/wiki/HSBChttp://en.wikipedia.org/wiki/Bengalhttp://en.wikipedia.org/wiki/British_Rajhttp://en.wikipedia.org/wiki/British_Rajhttp://en.wikipedia.org/wiki/Bengalhttp://en.wikipedia.org/wiki/HSBChttp://en.wikipedia.org/wiki/Pondicherryhttp://en.wikipedia.org/wiki/Chennaihttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/w/index.php?title=Comptoire_d%27Escompte_de_Paris&action=edit&redlink=1http://en.wikipedia.org/wiki/Kolkatahttp://en.wikipedia.org/wiki/Confederate_Stateshttp://en.wikipedia.org/wiki/Lancashirehttp://en.wikipedia.org/wiki/American_Civil_Warhttp://en.wikipedia.org/wiki/Alliance_Bank_of_Simlahttp://en.wikipedia.org/wiki/State_Bank_of_Indiahttp://en.wikipedia.org/wiki/Imperial_Bank_of_Indiahttp://en.wikipedia.org/wiki/Bank_of_Madrashttp://en.wikipedia.org/wiki/Bank_of_Bombayhttp://en.wikipedia.org/wiki/Bank_of_Bombayhttp://en.wikipedia.org/wiki/Bank_of_Bengal -
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LOANS
A loan is a type ofdebt.Like all debt instruments, a loan entails the redistributionof financialassets over time, between thelender and theborrower.
In a loan, the borrower initially receives or borrowsan amount ofmoney,called
theprincipal, from the lender, and is obligated topay backor repayan equal
amount of money to the lender at a later time. Typically, the money is paid back
in regular instalments, or partial repayments; in anannuity,each instalment is the
same amount.
The loan is generally provided at a cost, referred to asinterest on thedebt,which
provides an incentive for the lender to engage in the loan. In a legal loan, each of
these obligations and restrictions is enforced bycontract,which can also place the
borrower under additional restrictions known asloan covenants.Although this
article focuses on monetary loans, in practice any material object might be lent.
Acting as a provider of loans is one of the principal tasks forfinancial
institutions.For other institutions, issuing ofdebt contracts such asbonds is a
typical source of funding.
http://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Assethttp://en.wiktionary.org/wiki/lenderhttp://en.wiktionary.org/wiki/borrowerhttp://en.wikipedia.org/wiki/Moneyhttp://en.wikipedia.org/wiki/Annuity_(finance_theory)http://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Contracthttp://en.wikipedia.org/wiki/Loan_covenanthttp://en.wikipedia.org/wiki/Financial_institutionhttp://en.wikipedia.org/wiki/Financial_institutionhttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Financial_institutionhttp://en.wikipedia.org/wiki/Financial_institutionhttp://en.wikipedia.org/wiki/Loan_covenanthttp://en.wikipedia.org/wiki/Contracthttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Annuity_(finance_theory)http://en.wikipedia.org/wiki/Moneyhttp://en.wiktionary.org/wiki/borrowerhttp://en.wiktionary.org/wiki/lenderhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Debt -
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Types of loans
1.
SecuredAsecured loan is a loan in which the borrowerpledges some asset (e.g. a
car or property) ascollateral.Amortgage loan is a very common type of debt
instrument, used by many individuals to purchasehousing.In this arrangement,
the money is used to purchase the property. The financial institution, however, is
given securityalien on the title to the houseuntil the mortgage is paid off
in full. If the borrowerdefaults on the loan, the bank would have the legal right to
repossess the house and sell it, to recover sums owing to it.
In some instances, a loan taken out to purchase a new or used car may be
secured by the car; in much the same way as a mortgage is secured by housing.The duration of the loan period is considerably shorteroften corresponding to
the useful life of the car. There are two types of auto loans, direct and indirect. A
direct auto loan is where a bank gives the loan directly to a consumer. An indirect
auto loan is where a car dealership acts as an intermediary between the bank or
financial institution and the consumer.
2. Unsecured
Unsecured loans are monetary loans that are not secured against the borrower'sassets. These may be available from financial institutions under many different
guises or marketing packages:
credit card debt
personal loans
bankoverdrafts
credit facilities or lines of credit
corporate bonds (may be secured or unsecured)
Theinterest rates applicable to these different forms may vary depending on thelender and the borrower. These may or may not be regulated by law. In the
United Kingdom, when applied to individuals, these may come under
theConsumer Credit Act 1974.
http://en.wikipedia.org/wiki/Secured_loanhttp://en.wikipedia.org/wiki/Pledge_(law)http://en.wikipedia.org/wiki/Collateral_(finance)http://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/wiki/Househttp://en.wikipedia.org/wiki/Lienhttp://en.wikipedia.org/wiki/Default_(finance)http://en.wikipedia.org/wiki/Credit_cardhttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Overdrafthttp://en.wikipedia.org/wiki/Corporate_bondhttp://en.wikipedia.org/wiki/Interest_ratehttp://en.wikipedia.org/wiki/Consumer_Credit_Act_1974http://en.wikipedia.org/wiki/Consumer_Credit_Act_1974http://en.wikipedia.org/wiki/Interest_ratehttp://en.wikipedia.org/wiki/Corporate_bondhttp://en.wikipedia.org/wiki/Overdrafthttp://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Credit_cardhttp://en.wikipedia.org/wiki/Default_(finance)http://en.wikipedia.org/wiki/Lienhttp://en.wikipedia.org/wiki/Househttp://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/wiki/Collateral_(finance)http://en.wikipedia.org/wiki/Pledge_(law)http://en.wikipedia.org/wiki/Secured_loan -
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Interest rates on unsecured loans are nearly always higher than for secured loans,
because an unsecured lender's options for recourse against the borrower in the
event of default are severely limited. An unsecured lender must sue the borrower,
obtain a money judgment for breach of contract, and then pursue execution of thejudgment against the borrower's unencumbered assets (that is, the ones not
already pledged to secured lenders). In insolvency proceedings, secured lenders
traditionally have priority over unsecured lenders when a court divides up the
borrower's assets. Thus, a higher interest rate reflects the additional risk that in
the event of insolvency, the debt may be uncollectible.
3. Demand
Demand loans are short term loans (typically no more than 180 days) that areatypical in that they do not have fixed dates for repayment and carry a floating
interest rate which varies according to the prime rate. They can be "called" for
repayment by the lending institution at any time. Demand loans may be
unsecured or secured.
4. Subsidized
A subsidized loan is a loan on which the interest is reduced by an explicit or
hiddensubsidy.In the context of college loans in theUnited States,it refers to a
loan on which no interest is accrued while a student remains enrolled in
education.[2]Otherwise, it may refer to a loan on which an artificially low rate of
interest (or none at all) is charged to the borrower.
An unsubsidized loan is a loan that gains interest at a market rate from the date of
disbursement.
http://en.wikipedia.org/wiki/Subsidyhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Loan#cite_note-1http://en.wikipedia.org/wiki/Loan#cite_note-1http://en.wikipedia.org/wiki/Loan#cite_note-1http://en.wikipedia.org/wiki/Loan#cite_note-1http://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Subsidy -
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BUSINESS LOANS
Business loans are most important for any companys survival. Money isnecessary for making growth and investment. The challenges that company face
is in actually arrange the money, and pay the debt. The first option of many
businesses is to go to the bank, but the problem is that the banks will only deal
with companies who have solid operating records.
A key point of funding that many businesses take advantage of is personal
savings. With personal savings there is no one to repay a debt to, so issues such as
interest and monthly payments become moot. Consider it a personal-favour
business loan. The obvious risk is that if your business does fail, it is your
personal funding that is taking the hit.
While money is a large part of keeping a business intact, there are many
other important aspects such as knowledge, experience, and organization.
Keeping a business plan and following a schedule can be the difference between
failure and success. When loaning your funds, take a second and think of how
much you will need and why. The cost of borrowing money can be very high in
the end.
Importance of business loans
Business and SME loans are becoming increasingly popular financing options
across the world and more and more people are going for business loans since
they need capital for their businesses and business loans can satisfy their
requirements.
Small businesses cannot build capital solely by issuing shares and debentures.
To deal with the interim requirements and fluctuating profits, and at the same
time to pay dividends to the shareholders, business loan becomes a necessity.
A business loan helps the businesses to flourish and thus it contributes to theeconomic growth of the country.
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IMPORTANCE OF BUSINESS LOANS TO BANKS
It involves only short term transactions.
No bargaining capacity is involved since the bank regulates the
interest rates according to the RBI guidelines.
It helps to create connection with other businesses.
Yields and returns are more compared to other types of loans.
Losses can be compensated since the loans provided are widely
spread.
Better rated.
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Types of business loans
Unsecured Business Loans:
In this type of loan no collateral is offered as security and loans are granted
based on ones credit history and capability to make repayments in time. It may
be difficult to get an unsecured loan but then impressive line of credit can also be
secured. What matters is credit rating of the business organization and its
repayment capability. Once this gets established, financers do not put any
restrictions on the amount granted.
Secured Business Loans:
In this type of loan, the borrower has to give some kind of guarantee that it is
going to repay back the loan in time. This guarantee normally is in the form of
collaterals wherein creditors receive some property documents from the borrower
as security for the money received. This makes it possible for the lender to get
back the amount lent out, just in case, if the borrower defaults. The assets pledged
are, however, returned back by the creditor whenever the borrower makes full
repayment of loans along with interest. Secured loan provides security to the
creditor as they can sell the collateral to regain the amount of money that is
loaned.
Trade loans:
Trade loans are made available to owners so as to help them start a new
entrepreneurship or continue with an existing one. The amount of the loan can
range from Rs. 25000 to Rs 100 lakh and it depends upon the age of the customer,
his financial standing, repayment capacity and period within which it has to be
repaid (tenure).
Professional Loans:
As the name goes, this form of loan is meant for self employed professionals like
architects, doctors, interior designers, chartered accountants, etc. This type of
loan is also unsecured in nature and cannot be given to units that are in
manufacturing, trading or processing. This form of loan can vary from Rs 25000
to 25 lakhs keeping into consideration applicants age, financial standing, and
repayment capacity. The tenure of the loan is maximum up-to 5 yrs.
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Short term business loan:
This form of loan is provided to people who all of a sudden run in a crisis
situation and need instant cash. This form of loans have short repayment periodand normally the borrower has to pay back within one year span. The loan
amount granted is substantial but then since it is provided instantly so the
repayment period is kept short.
Intermediate Business Loans:
This form of loan has a repayment period of 1 to 3 years. It is given to
entrepreneurs who are in need of capital for starting a new business, to buy
equipment, for building inventory and for increasing working capital.
Long term business loans:
This form of loan is meant for business organizations that are well established. It
allows enterprises to increase their fixed assets for business expansion and
acquisition. The loan has period of 3 to 5 years within which it has to be returned.
This form of funding can be used for start-up businesses, to provide money for
construction efforts, for purchasing land or buildings, and to support long term
working capital with sufficient funds.
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How banks set the price for loans to small businesses
Bank lending to small businesses is one of the most important services banks
undertake. Lending enables businesses to grow, take on more employees and
ultimately generate greater wealth. While the benefits of lending to small- tomedium-sized enterprises (SMEs) and to the wider society are clear, it is
important that banks can earn a return on this activity in order to sustain that
service throughout the business cycle.
Ultimately, the price of lending is determined by the market. Lending is one of
the key areas for competition as firms choose where to place their business or
switch banks: banks that overprice will lose business, while those that underprice
will not be able to sustain their operations.
There are three key drivers behind how banks price lending:
cost of funds;
cost of risk and capital; and
Administration costs.
Cost of funds
In order to lend money to businesses, banks need to attract funds from depositors
by paying them interest. They also need to aim to hold deposits for similar
lengths of time as the term of loans financed. For this reason many institutions
must pay higher interest rates for deposits.
Cost of risk and capital
For every loan a bank makes, it must set capital aside to ensure the bank remains
solvent and depositors are secure, even if that loan isnt repaid. To ensure the
confidence and security of savers, all banks around the world are currently
holding higher levels of capital than in recent years. There is a cost to holding this
capital and, as banks have increased the amount set aside, this cost has risen along
with it.
Price reflects the probabilityin the banks experience and according to its data of the borrower not being able to repay the debt. The higher the level of risk, the
higher the price must be to cover the likely loss. This amount of risk is also
influenced by the level of security offered by the borrowing, so that when the
value of security falls, such as commercial property values, the risk increases, and
vice versa. The methodology and calculations used to determine the cost
associated with the risk of lending are set by the Basel III regulatory framework.
Risk-reflective pricing enables higher-risk, but still viable businesses, to access
finance, whilst lower-risk and well-managed firms get the benefit of lower-cost
funding. Pricing to risk is in businesses interest: even more marginal businesses
can still get access to finance.
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Cost of administration
Meeting a business customer, assessing an application for finance, setting up a
facility, providing the documentation, then monitoring and controlling thatfacility as well as providing regular information and revising facilities as required
has a cost. While banks may use credit and performance-scoring tools, most will
also require a judgement to be made by an experienced relationship manager.
Smaller facilities tend to have a relatively higher administrative cost per pound
lent than larger facilities, and not all of that cost can be recovered through fees.
So small facilities tend to bear higher margins, even if the risk is comparable with
larger lending.
Changes since the financial crisis
In the run-up to 2007, some banks used the wholesale markets to source aproportion of their deposits that they lent to businesses. At the time, that money
was relatively inexpensive and enabled banks to offer lower lending prices than
was historically normal. However, from 2008, with the dramatic freezing of
wholesale markets, this source of funding proved much less attractive. This has
increased demand for other, more traditional funding sources, such as retail
deposits, which in turn has increased the costs of banks raising funds to lend to
something more like a historical norm.
Banks have also been asked by regulators to raise deposits over longer terms than
they have historically, and to hold greater liquidity buffers against unforeseen
circumstances. This means that banks must pay higher market rates for longer
term deposits, and that a higher proportion of those deposits raised cannot be lent
to customers but must be put aside, incurring additional cost.
Combined, these factors mean that (although reference rates like Bank of England
base rate and LIBOR continue to be used in quoting finance costsfor example,
two per cent over Bank of England base rate) they do not reflect the real cost of
funding and banks real costs are considerably higher.
In addition to changes in how banks fund lending, the amount of capital banks are
required to hold by regulators has risen sharply, leading to a corresponding
increase in the cost of capital that is included in the price of debt.
All these factors have considerably increased the cost to banks of providing
finance compared to the more benign economic conditions up to 2007.
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Changes in the cost of finance for SMEs
The vast majority of SMEs are paying substantially less than two years ago in
absolute terms, as a result of reductions in the Bank of England base rate (andother reference rates such as LIBOR) having been passed on to customers in full.
The Bank of England base rate is currently the lowest since World War II.
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The key aspects which bank considers before providing the business loan:
Constitution acts and laws.
Nature of the business.
What all types of business does the bank finance.
Character.
Capacity.
Credit worthiness.
Volume of the business.
Securities provided.
Performance (past and future forecast) of the security.
In case of a new company analysis of the projected financial statement.
In case of existing business 3 years financial statements along with projections for
the next two years.
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DESIGN OF THE
STUDY
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INTRODUCTION TO THE SUBJECT BACKGROUND
A business loan is funding given to business by a bank, an individual(s), or an
organization usually to be repaid by a certain date with a certain amount ofinterest. The amount of a loan, the amount of interest, the repayment date, the
qualification of the loan recipient to merit the loan, the credit analysis, and the
number of lenders used to achieve the desired loan amount are all variable.
RESEARCH DESIGN
A Research design is defined as a framework or blue print for conducting the
research project. It specifies the details of the procedures necessary for obtaining
the information needed to structure and/or solve the research problems. Thus, aresearch design lays the foundation for conducting the project effectively and
efficiently.
TITLE OF THE STUDY
A project on A Study On Business Loans At Karnataka Bank Limited.
OBJECTIVES OF THE STUDY
1. Study of mechanism of business loans.
2. Policies of banks towards business loans.
3. Securities accepted as guarantee.
4. Procedures for analysing the applications of business loans.
STATEMENT OF PROBLEM
Business loans are needed for the purpose of growth and sustenance of anenterprise. Entrepreneurs venturing into a new business or planning to see
business expansion can see things really happening in their favour if they have
enough capital to support their entrepreneurship goals. Financial institutions that
offer loans help entrepreneurs to bail themselves out of their crippled state.
Business loans are provided by banks to enterprises so as to help them meet their
short and long term financial need.
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COMPANY
PROFILE
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Company profile
Karnataka Bank Ltd, a leading A Class scheduled commercial Bank. InIndia, was incorporated on Feb 18th 1924 with a registered office at Mangalore.
The Bank commenced its business on 23rd May 1924 with an Initial Paid up
Capital of Rs. 11,580 contributed by 113 shareholders.
Sri.B.R.Vyasaraya Achar was the first president of the Bank. The Banks
memorandum of Association in its Objective Clause states that the Bank apart
from carrying on the general function of banking business, would set apart and
appropriate from the annual net profit towards the general, mental, moral and
physical advancement of other beneficial purpose of the members of the
Dravidian Brahmin community, such sums as may be deemed fit.
The first three branches of the Bank were at Mangalore Dongerkery,
Madras George, and Udupi Car Street. Sri Kalmadi Gopal Krishna had the
distinguishion of becoming the first Branch Manager. At the end of the Banks
first year of operations the Banks deposits stood at Rs. 0.68 Lakhs and advances
were Rs. 1.22 Lakhs. The Bank celebrated its Silver Jubilee in the year 1949 in its
Silver Jubilee year of operation the Bank earned a net profit of Rs. 0.75 Lakhs
with deposits of Rs.55.59 Lakhs and Advances of Rs. 39.39 lakhs.
Revenue 531.699 ( USD in Millions )
Market Cap 12820.8142206 ( Rs. in Millions )
Corporate Address P B No 599,Mahaveera
Circle,KankanadyMangalore-575002,
Karnataka
www.karnatakabank.com
Management Details Chairperson - Ananthakrishna
MD- P Jayarama Bhat
Directors- Ananthakrishna, H
Ramamohan, Harshendra Kumar, Jairama
Hande P, M Bheema Bhat, P Jayarama
Bhat, R V Shastri, S R Hedge, S V
Manjunath, Sitarama Murty M, T S
Vishwanath, TR Chandrasekaran, U R Bhat,
UR Bhat, Y V Balachandra
Business Operation Bank - Private
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Corporate Goal
The Bank has envisaged to achieve a total business turnover of Rs. 28, 500 Crore,
comprising of a deposit target of Rs. 17, 000 Crore and advance target of Rs. 1,
500 Crore for the year ending March 31, 2008.
The Bank is confident of achieving the same through better customer services and
operational efficiency. Besides, the Bank has plans to increase its total number of
business units to 580, by increasing the total number of branches to 430 and own
ATM network to 150 by March 2008.
Nature of the Business
In the words of Late Shri T.A.Pai Some people believe that Banking means
money lending and that a Banker is not but a glorified Money lender. But
Banking is not money-lending as money lender does not take the risk whereas the
Banker does. Bank is into pooling together the savings of the community
scattered all over and from the very same pool granting loans to the needy in the
society. Thus it acts as a link between the savers and the needy. Thus the two
main products of the Bank are
Deposits and
Loans.
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History
Sri.K.S.N.Adiga became the chairman of the Bank on 23rd Nov 1958. The First
real recognition for the Mangalore based Bank came in the year 1959 with theBank being elevated from C class to B Class. In the stride ofprogress and
expansion, the Bank got reinforced by the takeover of 3banks namely:
Shringeri Sharada Bank Ltd on 1st April1960.
Chitradurga Bank Ltd on December 30th 1964.
Bank of Karnataka Ltd on Dec 29th1966.
In the year 1969 the Bank opened its 75th branch where its deposits crossed Rs.
10 Crore mark to reach Rs. 12.63 Crores, Advances were at Rs. 8.90 Crore and
Net profits were Rs. 3.05 Lakhs. In year 1971 the Bank opened its first branch in
the countrys financialcapital. The following year the Bank was elevated to A
class by the Reserve Bank of India. In its Golden Jubilee year of its operation the
banks total deposits were Rs. 33.14 Crores and Advances were Rs.22.09 Crore
with 146 branches and 126 employees. In 1977 Karnataka Bank Ltd., adopted the
star symbol as its unique visual identity symbol. A product of Late Dr. Shivarama
Karanth, it symbolises stability, discipline, harmony and confidence. The Staff
Training College of the Bank was started at Mangalore Dongerkery on Sept
27th1977. In 1977 the foreign exchange Business of the bank was opened with a
separate department was established In Bangalore as central foreign exchange
department which was later shifted to Mumbai (1979).
The Bank achieved the target of Rs. 100 Crores mark in deposits with the
aggregate deposits being Rs. 104.24 Crores as on 31-12-1979. In 1980 the
Madras George Town Branch celebrated its golden jubilee. In the diamond
jubilee year of the Bank, the deposits of the bank were Rs. 211.34 Crores and
Advances was Rs. 122.22 Crores respectively. In 1989 the Banking year was
extended from 12 months to 15 months to end on 31st March. The Banks
Mumbai Borivili branch was declared as the first Model Branch of the Bank. In
1994-95 the first service branch was opened At Mumbai. The first IndustrialFinance Branch was also opened at Bangalore on 20th March 1995. The first
Agricultural Development Branch of the Bank was opened on 1stApril 1995. The
Bank made it into the stock markets on October 1995with a public issue of Rs. 81
Crores which was oversubscribed by about 2.5 times despite depressed market
condition. During the year 2003, the Bank has taken up corporate agency for
marketing the various life policies of Met Life India Insurance Company Ltd. It
has also taken up corporate agency of Bajaj Allianz General Insurance Co. Ltd for
marketing general insurance products. The banks all round excellence in the twin
parameters of growth and stability has earned it rich laurels in the form of P1+
rating for certificate of deposits from CRISIL.
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Vision, Mission, and Quality Policy
Vision
Bank is a professional managed with good track record of customer loyalty and
consistent profitability. The bank has the resilience to face the new challenges
successfully and achieve the goals in vision by its management. Adopting ethical
management practices, Bank reiterates its commitment to fulfil national and
social priorities, present sound financial and above of all else improve and
innovate to meet the challenges posed by a customer driven banking industry.
Mission
The Mission statement of any organisation generally represents its long term
goals and strategies. Every organisation must have its ownmission, which
describes present business scope of the organisation. The mission statement of
Karnataka Bank Ltd is as follows:
To be a technology savvy, customer centric progressive bank with anational
presence, driven by the highest standards of corporate governance and guided by
sound ethical values.
Quality Policy
The Quality policy of Karnataka Bank Ltd is of providing Quick and Better
service and their by achieving Customer Satisfaction.
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Product/Service Profile
Product for Financial Salaried Persons
Today, personal finance is the fastest growing segment of banks credit
Deployment. Among personal banking products, loans to salaried class, occupies
a prominent place. With this backdrop this loan product has been modified from
time to time.
The purposes for which this loan scheme can be used are Purchase
household articles/consumer durables, Childrens Education, Marriage and thread
ceremony of self/dependents, Medical expenses of self\dependents, Obsequies
Expenses, Repair to own house and any other purpose as to the satisfaction of
sanctioning authority. The quantum of loan provided shall be to a maximum of 10
times of the monthly gross salary or composite credit limit consisting of fixed
loan and overdraft not exceeding 10 times of the monthly gross salary out of
which, the overdraft component shall not exceed 5 times of the gross salary. The
loan has to be repaid with interest within 5 Years.
KBL APNA GHAR
KBL Apna Ghar scheme was introduced in November 2001, duly
reviewing/ modifying Banks erstwhile housing finance scheme. Theterms andconditions of the scheme have been reviewed/ refined from time to time. The
purpose for which loan can be provided are for construction of house/purchase of
ready built house or flat/purchase of site and build house thereon. Renovation
/remodelling/repairs to the existing house/flat.
The quantum of loan provided shall be to a maximum of 60 times of latest
monthly take home (net) salary in the case of salaried or 5 times of latest annual
Net income plus depreciation provided if any, as per P&L a/c in the case of
traders /self employed persons/professionals Or Rs. 75.00 Lakhs. Whichever isless. The quantum of loan provided in the case of renovation/remodelling/repairs.
Of the existing house /flat maximum Rs.10.00 lakh or up to 60% of the value of
the house /flat owned by the applicant, whichever is lower subject to maintaining
a margin of 25% on estimated repairs . A maximum period of 15 years (including
a repayment holiday at the option of beneficiary till the completion of
construction or 18 months from the date of first disbursal of the loan whichever is
earlier ) for construction /purchase of house/ flat, For repairs /
renovations/remodelling- Maximum period of 7 years.
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KBL-VARTHAK LOAN
It was formulated during February 2000, for financing traders/business persons.
The purpose for which KBL-Varthak loan scheme was introduced was in order toprovide for the Working Capital requirements of traders and business persons.
The maximum amount that can provided to individual trader/Businessman are Rs.
25.00 Lakh per Borrower. The repayment conditions for KBL- Varthak Loan are
that in case of Overdraft Accounts the amount has to be paid within a period of
one year and No Holiday period is given. And the loan is Repayable either in
monthly or quarterly instalments.
KBL UDYOG MITHRA
This scheme was introduced during February and the purposes for which the loan
can be availed are for
1. Purchase of Medical Equipment/ Machineries/ Computers,
2. Furnishing the Office, Purchase of Furniture, Books etc.
3. Payment of Advance rent for setting up of an Office.
The maximum Amount of loan facility that can be availed is as follows:
Maximum amount up to 90% of the cost of assets to be purchased.
Maximum amount up to 80% of the cost in the case of purpose specified under
2 and 3. For setting up of an office Doctors, Chartered Accountants, Engineering
consultants the maximum quantum of Advance is restricted to:
1. Rs. 75,000in case of rural branches
2. Rs. 1, 00,000in case of Semi-urban branches.
3. Rs. 1, 50,000in the case of urban branches.
4. Rs. 2, 00,000in the case of Metropolitan branches.
VIDYANIDHI EDUCATIONAL LOAN SCHEME
Was introduced in the year 1998 on the occasion of platinum Jubilee Year
of the Bank .The scheme was designed to provide financial support to the
reserving and meritorious students for continuing their studies in India and
abroad. The amount of loan facility which are provided for students studying in
India is a Maximum of Rs. 7.50 Lakh and for students studying abroad it is a
Maximum Rs. 15.00 Lakh repayment holiday/moratorium is course period +1
year or 6 months after getting job in earlier. The interest is to be debited on
simple basis during repayment holiday/moratorium period. Thereafter on
compounding basis with monthly rests. The loan has to be repaid in 5 to 7 years
after commencement of repayment.
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KBL EASY RIDE
The scheme was formulated during October 2001 for the purchase of two
wheelers. The loan scheme was introduced for the purpose of acquisition of newtwo wheelers of popular brand and make (such as Bajaj, Hero Honda, TVS,
Kinetic, Honda etc.).
1. Maximum amount of loan that can be availed under this facility is 1. 15 times of
net take home salary in the case of salaried persons, Or
2. Equivalent of annual gross income declared in the case of professionals /
businessmen/ self-employed persons, or
3. Maximum up to 100% of the invoice value of the vehicle excluding Comp.
Insurance, Road Tax and extra fittings 1, 2, and 3 whichever is less. However, the
maximum amount of loan that can be considered as fixed at Rs. 75,000/- per
borrower. The loan has to be repaid within a Maximum period of 60 months.
KBL- KRISHIK SARATHI SCHEME
The KBL- Krishik Sarathi Scheme was introduced for purchase of Farm
machineries like Tractor/Power Tiller, Trailer/other implements, Harvester,
Sprayer/ Duster/Other Farm Machineries and Farm vehicles by Agriculture. A
Maximum amount of loan is up to 90% of the cost (excluding Tax, Registration
& Insurance) of new farm Machinery/Vehicle Max Limit Rs. 10.00 Lakh. Theloan amount has to be repaid within 9 years. In case of Tractor/combine in case of
Power Tillers /Threshers its 7 years in case of other Implements /Machineries/ 2
wheelers its 5 years and in case of Farm Vehicles (4 wheelers) its 7 years.
KBL KRISHIK SICHANA SCHEME
The Purpose of the scheme is to provide for all types of Minor Irrigation
development works like Purchase of oil engine/Electric Pump
sets/Drip/Sprinkler/Other Irrigation Systems including purchase of pipes /
Generators. / Repair or replacement of irrigation system/Generators, open well,
Bore well, Tube well. A Maximum amount of up to 85% of the cost of new
irrigation equipments or 60% of the Land value whichever is less. And Max.
Limit being Rs.5.00lakhs. The loan amount has to be repaid between5-7 years.
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Competitors
THE MAJOR PLAYERS (INCLUDING PUBLIC, PRIVATE, AND
FOREIGN SECTOR).
Public Sector Banks
1. Bank of Baroda,
2. State Bank of India,
3. Canara Bank,
4. Punjab National Bank,
5. Allahabad Bank.
Private Sector Banks
1. HDFC Bank,
2. ICICI bank,
3. Kotak Mahindra Bank,
4. UTI Bank.
Foreign Sector Banks
1. Citi Bank,
2.
Standard Chartered PLC,
3. HSBC Bank,
4. ABN AMRO Bank,
5. American Express.
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CompanySales
(Rs.Million)
Current
Price
Change
(%)
P/E
Ratio
Market
Cap.(Rs.Million)
52-Week
High/Low
HDFC Bank 199282.12 437.60 -1.22 22.83 1024187.40 520/396
ICICI Bank 259740.53 721.95 -0.71 14.54 832073.92 1158/641
Axis Bank 151548.06 878.50 0.60 9.60 362446.96 1461/810
Kotak
Mahindra
Bank
43035.58 456.70 -1.46 35.59 337578.56 515/333
Indusind Bank 35893.57 239.60 -2.22 16.00 111829.03 292/181
Yes Bank 40417.47 252.00 -2.02 10.49 88686.35 341/234
Centurion Bk
of Punj12685.30 41.40 0.00 52.93 78932.68 43/41
Federal Bank 40520.28 352.20 -1.99 9.24 60242.93 477/326
ING Vysya
Bank26940.64 290.00 -0.15 11.33 43459.66 390/275
Karur Vysya
Bank22176.95 345.45 -1.57 8.08 37039.49 479/344
Bank of Raj 13594.89 212.10 1.80 0.00 34222.35 214/207
J&K Bank 37131.32 692.25 0.26 4.88 33558.76 915/645
South Indian
Bank24460.17 20.55 0.00 6.94 23223.83 26/17
Standard
Chartered63524.25 75.20 -0.53 0.88 18048.00 135/69
City Union
Bank12184.08 41.90 4.10 6.96 17068.19 51/36
Karnataka
Bank23708.47 68.10 -1.66 5.82 12820.81 155/66
Lakshmi Vilas
Bank10648.36 83.45 0.91 7.62 8138.53 130/80
Devp Credit
Bank5362.62 34.60 -1.98 16.63 6930.61 66/33
Dhanlakshmi
Bank9064.18 48.65 -0.61 15.83 4141.88 136/46
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Organisation structure
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Balance sheet of KBL
Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07
Sources of funds
Owner's fund
Equity share capital 188.20 133.99 121.58 121.35 121.35
Share application money - - - - -
Preference share capital - - - - -
Reserves & surplus 2,240.89 1,698.76 1,445.44 1,258.25 1,117.27
Loan funds
Secured loans - - - - -
Unsecured loans 27,336.45 23,730.65 20,333.29 17,016.19 14,037.44
Total 29,765.53 25,563.40 21,900.31 18,395.80 15,276.06
Uses of funds
Fixed assets
Gross block 328.91 313.85 292.41 261.65 235.50
Less : revaluation reserve - - - - -
Less : accumulated depreciation 183.38 165.77 153.92 141.88 128.68
Net block 145.53 148.08 138.49 119.77 106.82
Capital work-in-progress - - - - -
Investments 11,506.34 9,992.05 8,961.49 5,963.71 5,048.16
Net current assets
Current assets, loans & advances 707.01 653.80 487.05 430.11 353.34
Less : current liabilities & provisions 841.14 1,130.12 953.52 801.83 525.71
Total net current assets -134.13 -476.32 -466.47 -371.71 -172.38
Miscellaneous expenses not written - - - - -
Total 11,517.74 9,663.81 8,633.50 5,711.77 4,982.61
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Capital structure (in crores)
From
Year
To
Year
Class Of
Share
Authorized
Capital
Issued
Capital
Paid Up
Shares (Nos)
Paid Up
Face
Value
Paid
Up
Capital
2010 2011
Equity
Share 200.00 188.22 188190652 10 188.19
2009 2010
Equity
Share 200.00 134.00 133976322 10 133.98
2008 2009
Equity
Share 200.00 121.60 121574878 10 121.57
2007 2008Equity
Share 150.00 121.40 121343548 10 121.34
2006 2007EquityShare 150.00 121.40 121343548 10 121.34
2005 2006
Equity
Share 150.00 121.40 121260348 10 121.26
2004 2005
Equity
Share 150.00 121.40 121240348 10 121.24
2003 2004
Equity
Share 50.00 40.48 40424716 10 40.42
2002 2003
Equity
Share 50.00 40.48 40416966 10 40.42
2001 2002
Equity
Share 20.00 13.51 13486222 10 13.49
2000 2001Equity
Share 20.00 13.51 13486222 10 13.49
1998 1999
Equity
Share 20.00 13.51 13486222 10 13.49
1997 1998
Equity
Share 20.00 13.51 13502772 10 13.50
1996 1997
Equity
Share 20.00 13.51 13502772 10 13.50
1995 1996
Equity
Share 20.00 13.50 13501310 10 13.50
1994 1995
Equity
Share 20.00 4.50 4500000 10 4.50
1978 1979
Equity
Share 1.00 0.50 250000 20 0.50
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SWOT Analysis
1. Strength
Karnataka Bank Ltd. has posted a net profit of Rs.90.86 crore for the SIX monthsperiod ended September, 2011 as against Rs. 75.20 Crore as at 30.09.2010
showing a growth rate of 20.82%.
The business Turnover of the bank has touched Rs. 47916 crore registering a
growth of 17.65 % on a year-on-year basis. The deposit of the bank grew from
Rs. 25045 Crore to Rs. 28849 Crore (15.19% increase) and advances grew from
Rs. 15683 Crore to Rs. 19067crore (21.58 % increase).
The half yearly Gross income of the bank has increased from Rs. 1248.74 Crore
to Rs. 1609.22 Crore recording a growth rate of 28.87%. The operating profit of
the Bank has increased from Rs. 151.11crore to Rs. 223.79 Crore showing a
growth rate of 48.10%. The Net Interest Income has increased by 34.57% on a
year-on-year basis to Rs. 335.33 Crore from Rs. 249.19 Crore.
The capital adequacy ratio of the Bank stood at 12.85% (under Basel II) as at the
end of September, 2011.
The Bank has retained its "A1+" (pronounced as A one plus) Rating to its
Certificate of Deposits programme of Rs. 2000 Crore. This rating is the highest-
credit-quality rating assigned by ICRA to short term debt instruments.
Instruments rated in this category carry the lowest credit risk in the short term.
The Bank has a wide range of technology backed services such as MoneyplantTM
International Debit Card, Internet banking facility, e-shopping, online railway
ticket booking, VISA bill payment, etc.
2. Weakness
Less reach across country in terms of ATMs, branches as compared to.
Brand visibility is less due to lack of advertising.
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3. Opportunities
The Bank has its presence in 20 States and 2 Union Territories of the country has
486 Branches and 299 ATMs as on date. The Bank has plans to increase thenumber of branches to above 500 and take the tally of its ATMs to 325 by March
2012.
All the 486 branches have been networked under core banking solution covering
100% business.
The Bank is tech savvy and is keen on upgrading its technology-driven offerings
periodically to meet the varying needs and demands of its clients and be at par
with other leading private and public sector banks in the country.
The Bank by networking all its branches under Core Banking solution is offering
Anytime Anywhere banking facility to its customers.
The Bank has introduced a slew of new products which include Point of Sale
(POS) terminal facility also.
The Bank has a strategic tie up with M/s Way2Wealth Brokers Pvt. Ltd. for
providing Online Trading facility. Way2Wealth Online trading platform is
available to the Karnataka Bank's account holders. It will enable the customers of
the bank to trade from any Internet-enabled location.
Bank has bagged the Best Bank Award for "Managing IT Risk" under small
bank category for the year 2010-11, instituted by Institute for Development and
Research in Banking Technology (IDRBT).
This is for the second consecutive year that the Bank has won the award. The
Bank had bagged "Special Award for use of IT for Internal effectiveness" for the
year 2009 instituted by IDRBT.
The Bank which is tech savvy is the first private sector bank to have introduced
core banking solution way back in 2000. The Bank which has adopted
"FINACLE" designed and developed by the IT major Infosys Technologies has
networked all its existing 483 branches thereby ensuring Anywhere Anytime
banking facility to its customers.
The Bank proposes to introduce Gift card, Travel card and ASBA (Application
Supported by Blocked Amount) facilities for its customers during the currentfinancial year.
4. Threats
Economic slowdown
Highly competitive environment
Stringent Banking Norms.
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DATA ANALYSIS
AND
INTERPRETATION
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1.0 Analysis on the basis of Type of business:
This data analysis was made to find out what types of business are they
currently running i.e. the nature of business they are running and the activities
they are into.
ANALYSIS
According to this table we came to know that majority of the business concerns
are trading businesses. The next highest is the manufacturing businesses and
remaining consists of distributing firms and others like (professionals).It is
represented graphically:
SPECIFICATIONS REPONDENTS %
MANUFACTURING 13 26%
TRADING 28 56%
DISTRIBUTION 08 16%
OTHERS 01 02%
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INTERPRETATION
The above graph shows that majority of the business concerns who haveborrowed loans from the bank are trading based companies (56%). This shows
the market side of the business loan category. The manufacturing units or
concerns are next to follow (26%) followed by the firms who involve in
distribution activities. Others (2%) refer to private agencies etc.
MANUFACTURI
NG26%
TRADING
56%
DISTRIBUTION
16%
OTHERS
2%
Type of business
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1.1 Analysis on the basis of form of business:
This data analysis was made to find out what form of business are they
currently running i.e. the ownership pattern of business they are running.
ANALYSIS
According to this table we came to know that majority of the business concerns
are single or sole proprietorship businesses. The next highest partnership
businesses and remaining consists of private and public limited companies. It is
represented graphically:
SPECIFICATIONS REPONDENTS %
SOLE
PROPRIETORSHIP
28 56%
PRIVATE LTD 03 06%
PARTNERSHIP 18 36%
PUBLIC CO 01 02%
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INTERPRETATION
The above graph shows that most of the companys ownership patterns are based
on sole proprietorship i.e. single ownership led company (56%). The next highest
are the partnership based company (36%). The least of the sample indicates the
private and public limited companies.
SOLE
PROPRIETORSHI
P
56%
PRIVATE LTD
6%
PARTNERSHIP
36%
PUBLIC CO
2%
Form of business
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1.2 Analysis on the basis of term of the business:
This data analysis was made to find the term of the business i.e. the
duration through which the business has been running.
ANALYSIS
According to this table we can infer that there is narrow gap in the sample size
between the business concerns running from (35 years and 510 years). And
the business running from past ten years are in minority. It is represented
graphically:
SPECIFICATIONS REPONDENTS %
< 3 YEARS 05 10%
35 YEARS 19 38%
510 YEARS 18 36%
ABOVE 10
YEARS
08 16%
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INTERPRETATION
From the above graph we can say that business concerns running from 3-5 yearsand 5-10 years are in majority of the sample collected. The minority percentage is
gained by the business concerns whose life span is less than 3 years.
< 3 YEARS
10%
35 YEARS
38%510 YEARS
36%
ABOVE 10
YEARS16%
Term of the business
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1.3 Analysis to find out the purpose for borrowing the loan:
This data analysis is made to find out the various purposes for which the
business loan has been availed by the business concern.
ANALYSIS
According to the table we can conclude that majority of the sample size borrow
loans for the purpose running current business i.e. day to day business
transactions, working capital etc. Funds are also borrowed for the purpose of
expanding the business. It is represented graphically:
SPECIFICATIONS REPONDENTS %
STARTING NEW
BUSINESS
07 14%
EXPANSION 12 24%
RUNNING
CURRENT
BUSINESS
29 58%
OTHERS 02 04%
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INTERPRETATION
From the above graph we can say that more than half of the majority (58%)
borrows business loans for the purpose of running current business activities. The
next highest percent is used for expanding the scale of business and the remaining
is distributed for starting up of a new business and other purposes like
modernisation, new product line (diversification).
STARTING NEW
BUSINESS
14%
EXPANSION
24%
RUNNING
CURRENT
BUSINESS
58%
OTHERS
4%
Purpose for borrowing loan
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1.4 Analysis to find out about the amount of loan borrowed:
This data analysis is made to find out the limit of loan borrowed by the
business concern from the bank.
ANALYSIS
According to the table we came to the conclusion that most of the business
concerns have borrowed smaller limit of loan (1030 Lakhs). And there is a
moderate borrowing in the range from (3060 Lakhs).and there is also a high
percentage of borrowers who have borrowed more than one Crore. It is
represented graphically:
SPECIFICATIONS REPONDENTS %
1030 LAKHS 20 40%
3060 LAKHS 16 32%
6090 LAKHS 03 06%
1 CRORE AND
ABOVE
11 22%
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INTERPRETATION
From the above graph we can infer that majority of the sample size are borrowers
who have borrowed mostly from the range of 1060 lakhs. There is also a high
percentage of borrowers who have borrowed from the range of 1 Crore and
above.
1030 LAKHS
40%
3060 LAKHS
32%
6090 LAKHS
6%
1 CRORE AND
ABOVE
22%
Amount of Loan borrowed
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1.5 Analysis on the basis of type of business loan borrowed:
This data analysis was made to find what kind of business loan is
borrowed by the business concern.
ANALYSIS
According to this table we can conclude that majority of the survey have opted
for overdraft facility. After the overdraft majority prefer to borrow term loan.
While only a minority of the sample prefer bank guarantee and letter of credit. It
is represented graphically:
SPECIFICATIONS REPONDENTS %
CASH CREDIT/
OVERDRAFT
27 54%
TERM LOAN 12 24%
BANK
GUARANTTEE
06 12%
LETTER OF
CREDIT
05 10%
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INTERPRETATION
According to the above graph the majority of the borrowers opt for overdraft/cash
credit facility because it is short term in nature and fund can be raised in quick
time. Business concerns also prefer to go for term loan because of the fixed time
periods of payments and fixed interest rates.
CASH CREDIT/
OVERDRAFT
54%TERM LOAN
24%
BANK
GUARENTTEE
12%
LETTER OF
CREDIT
10%
Type of business loan borrowed
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1.6 Analysis on the basis of time taken to process the loan:
This data analysis was made to find the total time taken by the bank to
analyse, process, and sanction the loan to the business concern.
ANALYSIS
According to the table we can say that majority are of the opinion that it takes a
fortnight to a month to process and sanctioning of the loan. The latter feel that it
takes 1 week to fortnight to process the loan, while others feel that it takes more
than a month to process the loan. It is represented graphically:
SPECIFICATIONS REPONDENTS %
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INTERPRETATION
According to the above graph we can infer that majority of the customers think
that the time taken by the bank to process the loan is fortnight to a month while
the next higher majority feels that the bank takes more than a month to process
the business loan.
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1.7 Analysis on the basis of opinion on interest charged :
This data analysis was made to find what the customers think about the
interest rate that is charged to them in comparison to other banks and the current
market trend.
ANALYSIS
According to this table we came to know that majority of the business concerns
think that the interest rate charged to them is moderate. The next higher majority
says that the interest rate charged by the bank is quite high. While only a minority
thinks that the interest rate is very high. It is represented graphically:
SPECIFICATIONS REPONDENTS %
VERY HIGH 03 06%
HIGH 18 36%
MODERATE 26 52%
LOW 03 06%
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INTERPRETATION
The above graph shows that more than half of the total sample thinks that the
sample rate charged by the bank is moderate when compared to other banks. The
next opinion says that the interest rate charged is high followed by those concerns
who feel the interest rate is quite low. The least of the sample size shows that the
concerns feel that the interest rate is very high.
VERY HIGH
6%
HIGH
36%
MODERATE
52%
LOW
6%
Opinion on interest rate charged
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1.8 Analysis on the basis of type of security mortgaged:
This data analysis was made to find the type of property mortgaged as
security in order to obtain the loan.
ANALYSIS
According to the table majority of the business concerns while obtaining a
particular business loan keep commercial property as security. The next higher
percentages of customers keep industrial property as security. It is represented
graphically:
SPECIFICATIONS RESPONDENTS %
VACANT LAND 08 16%
RESIDENTIALPROPERTY
09 18%
COMMERCIAL
PROPERTY
17 34%
INDUSTRIAL
PROPERTY
13 26%
PLEDGE OF
DEPOSITS
03 06%
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INTERPRETATION
From the above graph we can conclude that most of the customers have pledged
their commercial property as security to obtain the loan, while few others have
pledged the securities in the form vacant land, industrial property, residential
property, and pledging of deposits.
VACANT LAND
16%
RESIDENTIAL
PROPERTY
18%
COMMERCIALPROPERTY
34%
INDUSTRIAL
PROPERTY
26%
DEPOSITS
6%
Type of propert motgaged as security
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1.9 Analysis on the basis of reason for borrowing the loan from KBL:
This data analysis was made to find the reason for which the particular
business concern has borrowed the loan from Karnataka Bank Limited.
ANALYSIS
According to this table we can say that the majority of business concerns prefer to
borrow business loans from KBL because of the rate of interest offered by the
bank and quality of service provided by them. It is represented graphically:
SPECIFICATIONS REPONDENTS %
RATE OF
INTEREST
20 40%
SERVICES 20 40%
PROXIMITY OF
BRANCH
08 16%
OTHERS 02 04%
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INTERPRETATION
From the above graph we can infer that majority of the customers of KBLappreciate the bank for the quality of the services provided by them and the rate
of interest. While the minority states that proximity or availability of various
branches as the reason to opt for KBL.
RATE OF
INTEREST
40%
SERVICES
40%
PROXIMITY OF
BRANCH
16%
OTHERS
4%
Reason for borrowing the loan from KBL
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INTERPRETATION
From the above graph we can infer that majority of KBLS customers have been
with them from past 5-10 years. There is also a significant percent of customers
(16%) who have been availing the services of the bank since more than 10 years.
< 1 YEAR
8%
15 YEARS
30%
510 YEARS
46%
ABOVE 10
YEARS
16%
Duration with KBL
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2.1 Analysis on the basis of sources of loan awareness:
This data analysis was made to find what the customers think about the
interest rate that is charged to them in comparison to other banks and the current
market trend.
ANALYSIS
According to the table majority of the information about the business loan has
been obtained from friends and relatives (informal circle) and the next higher
percentage indicates that information is obtained from print media. It is
represented graphically:
SPECIFICATIONS REPONDENTS %
FRIENDS/RELATIVES 20 40%
PRINT MEDIA 15 30%
COLLEAGUES 07 14%
BANK OFFICIALS 08 16%
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INTERPRETATION
The above graph shows that around 40% of the information about the loan has
been obtained from friends and relatives; the next medium through which
information about the loan is obtained is from print media. Print media refers to
news papers, journals, magazines, pamphlets etc. There is a small gap of 2%
between the colleagues and bank officials. Bank officials refer to interaction of
the borrowers with the banks authority.
PRINT MEDIA
30%
BANK OFFICIALS
16%
FRIENDS/RELATIVES
40%
COLLEAGUES
14%
Sources of loan awareness
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2.2 Analysis to find out the opinion about the banks post loan services:
This data analysis was made to find what the customers think about the
post loan services provided to them by the bank in comparison to other banks and
the current market trend.
ANALYSIS
According to the table we came to the conclusion that more than half of the
sample size say the post loan services of the bank has been good and up to the
mark. And 20% of the business entities say that the post loan services of the bank
has been excellent. A few of them suggest certain major changes and grade the
post loan services as average. It is represented graphically:
SPECIFICATIONS REPONDENTS PERCENTAGE
EXCELLENT 09 20%
GOOD 26 52%
AVERAGE 12 24%
POOR 03 06%
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INTERPRETATION
From the above graph we can infer that more than half of the