study on loan apprasa processl pnb

8/18/2019 Study on Loan Apprasa Processl Pnb

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INDE

GUIDE CERTIFICATE

ACKNO9LEDGEMENT

ABSTRACT

INTRODUCTION

COMPANY PROFILE

PRODUCTS

LITERATURE REVIE9

RESEARCH METHOLOGY

DATA ANLYSIS

CONCLUSION

REFERENCE


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STUDENT UNDERTAKING

This is to certify that I ____________________________ had completed

the Project titled “ title of the project” in (name of the company) under the

guidance of Mr./Ms. (aculty guide) in the partial fulfillment of the

re!uirement for the a"ard of degree of M#$ from Maharaja $grasen

Institute of Technology ($ffiliated to %.%.&.I.P. 'niersity) *e" +elhi.

This is an original piece of "or, and I had neither copied nor su-mitted it

earlier else"here.

S&('*& N%:' %*( S#;*%&,'

C),-'

D%&'(


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C',"#%&' ",): G#('

This is to certify that the project titled “_____________________________”

is an academic "or, done -y “________________________” su-mitted in

the partial fulfillment of the re!uirement for the a"ard of the +egree of

M#$ from Maharaja $grasen Institute of Technology ($ffiliated to

%.%.&.I.P. 'niersity) *e" +elhi under my guidance and direction. To the

-est of my ,no"ledge and -elief the data and information presented -y

him/her in the project has not -een su-mitted earlier.

N%:' %*( -#;*%&,' )" F%$& G#('

D'-#;*%)*


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ACKNO9LEDGEMENT

I "ould li,e to than, all those "ho helped me through the project of

familiariation I "ould li,e to epress my sincere appreciation to my guide

________________ for his enlightenment of my ,no"ledge of feed -ac,

and the hotel industry alua-le adice and ,ind support throughout the

process of dissertation completion

Most importantly I "ould li,e to than, my parents and sister "ho "ere

al"ays there to motiate me. I "ould li,e to than, all the focus group

mem-ers for giing their alua-le time and thoughts to my project.

I "ould li,e to than, all the customers and employees of hotel for sharing

their alua-le thoughts "hich helped me shape this project


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ABSTRACT

#an,ing means transacting -usiness "ith a -an, depositing or "ithdra"ingfunds or re!uesting a loan etc. or engaging in the -usiness of -an,ing

maintaining saings and chec,ing accounts and issuing loans and credit etc.

The -an,s proide the necessary financial assistance to the goernment in

the process of attaining its socio and economic o-jecties. *o"adays the

-an,s hae ta,en the primary responsi-ility in the implementation of arious

schemes and program sponsored -y the goernment. $ -an, may -e defined

as a credit institution. It is an institution "hich studied deals in and

guarantees credit. 0hile the -an, receies large sum of money in the form

of deposits and lend to pu-lic in the form of loans. &uch operations are

su-ordinate to the one great function that of granting credit. #an,ing has

-een deeloped to meet the needs of -usiness. 1ence the etensiely -an,

credit is used and the more etensiely -an, credit is used and the more

important -an,ing -ecomes in the transaction amount of money.


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INTRODUCTION

P*# "as founded in the year 2345 at 6ahore (presently in Pa,istan) as an

off7shoot of the &"adeshi Moement. $mong the inspired founders "ere

&ardar +ayal &ingh Majithia 6ala 1ar8ishen 6al 6ala 6alchand &hri 8ali

Prosanna 9oy &hri :.;. o"ned managed and operated -y the

Indians for the -enefit of the Indians. The 6ion of Punja- 6ala 6ajpat 9ai

"as actiely associated "ith the management of the #an, in its formatie

years.

The #an, made steady progress right from its inception. It has sho"n

resilience to tide oer many a crisis. It "ithstood the crisis in -an,ing

industry of 242? and the seere depression of the thirties.

It suried the most critical period in its history > the Partlition of

245@ > "hen it "as uprooted from its major area of operations. It "as the

farsightedness of the management that the registered office of the #an, "as

shifted from 6ahore to +elhi in een -efore the announcement

of the Partition.


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LALA LAJPAT RAI

0ith the passage of time the #an, gre" to strength spreading its "ings from

one corner of the country to another. &ome smaller -an,s li,e The #hag"an

+ass #an, 6imited 'niersal #an, of India The #harat #an, 6imited The

Indo7;ommercial #an, 6imited The 1industan ;ommercial #an, 6imited

and The *edungadi #an, "ere -rought "ithin its fold.

P*# has the priilege of maintaining accounts of the illustrious national

leaders li,e Mahatma %andhi &hri


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are Indian conglomerates medium and small industrial units eporters non7

resident Indians and multinational companies. Punja- *ational #an, "as

incorporated in the year 234C. &ince its hum-le -eginning oer hundredyears ago the -an, has gro"n in stature to -ecome one of the leading

-an,ing institutions in India. P*# is the second largest P&' -an, in India

"ith a dominant presence in north India. 8eeping in tune "ith changing

times and to proide its customers more efficient and speedy serice the

#an, has ta,en major initiatie in the field of computeriation. $ll the

#ranches of the #an, hae -een computeried. The #an, has also launched

aggressiely the concept of D$ny Time $ny 0here #an,ingD through the

introduction of ;entralied #an,ing &olution (;#&) and oer EFFF offices

hae already -een -rought under its am-it.


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COMPANY PROFILE

Punja- *ational #an, is a state7o"ned commercial -an, located in *e"+elhi. The #an, is one of the #ig our #an,s of India. They offer -an,ing

products and also operate credit card and de-it card -usiness -ullion

-usiness life and non7life insurance -usiness and gold coins and asset

management -usiness. They are recognied as the #an, offering highest

leels of customer satisfaction in +elhi and ;hennai. The #an, has the

largest domestic net"or, of 544@ offices including 5A etension counters

among *ationalied #an,s. $ll their -ranches offer ;ore/ ;entralied

#an,ing &olution (;#&) along "ith a ariety of financial products catering

to different mar,et segments. They has international presence in 4 countries

"ith a -ranch at 8a-ul E -ranches in 1ong 8ong representatie offices at

$lmaty +u-ai &hanghai and Gslo a "holly o"ned su-sidiary in '8 ("ith

C -ranches) and a joint enture "ith :erest #an, 6td *epal. Punja-

*ational #an, "as incorporated in the year 234C at 6ahore undiided India.

The #an, has the distinction of -eing the first Indian -an, to hae -een

started solely "ith Indian capital. In the year 245F the #an, a-sor-ed

#hag"an +ass #an, a scheduled -an, located in +elhi circle. In the year

24C2 they ac!uired the ?4 -ranches of #harat #an, and in the year 24A2

they ac!uired 'niersal #an, of India. Punja- *ational #an, "as

nationalied in


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-ranches. In the year they set up a representatie office in $lmaty8aa,hstan. In the year EFFF the #an, has introduced a scheme for

proiding finance against mortgage of immoa-le property. In &eptem-er

EFFF they commenced their gold -usiness in the form of %old Import

&cheme. In *oem-er EFFF they launched an International ;o7-randed

;redit ;ard of Punja- *ational #an, and 1ong,ong H &hanghai #an,ing

;orporation (1P*#;) in *e" +elhi. In March EFFE the #an, came out

"ith their first Initial pu-lic offer (IPG) for C?FAF@FF e!uity shares of 9s

2F each "hich resulted in the reduction of the goernmentBs shareholding in

the #an,. +uring the year EFFE they started their -ranch in M.%. 9oad

#angalore named as Mid7;orporate #ranch (M;+) to proide their

corporate clients "ith a credit limit of 9s ?.C crore and a-oe. They made

joint enture "ith Infosys for the implementation of a ;entralied #an,ing

&olution for them. $lso they made a tie up "ith ;isco &ystems for

net"or,ing ?3@F -ranches as part of their 9s 2CF crore plan. In the year

EFF? the #an, too, oer 8ohi,ode7-ased *edungadi #an, 6td (*#6).

The #an, entered into an alliance "ith *e" India $ssurance for selling their

general insurance products. $lso they opened a representatie office in

6ondon. +uring the year P*# ;apital &erice 6td "as amalgamated "ith

the #an,. In


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domestic companies. In the year EFF5 the #an, ac!uired the assets of 1industan Transmission Product 6td. They signed a corporate agency

agreement "ith :port ;redit %uarantee ;orporation of India 6td (:;%;)

for mar,eting :;%;Bs eport credit insurance products through the net"or,

of the -an,Bs -ranches. $lso an Mo' "as signed "ith Intel for the

deployment of arious IT7related solutions. +uring the year the #an, signed

an Mo' "ith I;I;I #an, for $TM net"or, sharing. They a"arded a project

to Tata ;onsultancy &erices (T;&) for implement human capital

management and payroll solution. They esta-lished a -ranch office in 8a-ul

$fghanistan. $lso they opened a representatie office in &hanghai. The

-an, esta-lished an alliance "ith :erest #an, in *epal that permits

migrants to transfer funds easily -et"een India and :erest #an,Bs 2E

-ranches in *epal. In the year EFFC the #an, uneiled $TM at :dappal.

$lso they opened a representatie office in +u-ai. In the year EFFA the

#an, made a tie up "ith Master;ard International to launch a signature7

-ased de-it card. $lso they made a tie up "ith Indian $irlines for online

-oo,ing of air tic,ets. They opened a ne" -ranch in 'ttara,hand. In Gcto-er

EFF@ the #an, entered into Mo' "ith India Infrastructure inance

;ompany "ith an aim to etend their cooperation and support to II; in

areas of creating a deal flo" of infrastructure projects. In


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and also made a toe up "ith Griental Insurance for selling non7life policieson a referral -asis. In


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;ard "ith Indiidual lia-ility. $lso they launched Merchant $c!uiring#usiness through installation of Point of &ale (Po&) Terminals at Merchant

:sta-lishments and Internet Payment %ate"ay -y integrating through

Merchant 0e-site "ith #rand *ame P*# #i. In May EFF4 the #an,

incorporated a su-sidiary company namely P*# Inestment &erices 6td. In

*oem-er EFF4 they entered into an agreement "ith IM #an, (Malta)

#anca II& Italy and #lend inancial &erices 6td Mum-ai for setting up a

joint enture company for proiding factoring forfeiting and trade finance

related -usiness. +uring the year EF2F722 the #an, introduced ne" set of

products and serices such as P*# 'phaar P*# &uidha and 0orld Trael

;ard. In +ecem-er 2? EF2F they ac!uired A?.A5J sta,e in


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International &erice #ranch. #esides 52 #ac, Gffices E &pecial oreign:change Gffices 2@ &pecial MI;9 ;enters 52 &erice (9egional ;learing

;entre) centers 5 inancial Inclusion &erice ;enters ? ;entralied +raft

Paya-le ;enters 2 ;entral ;learing &erice ;entre and 2 +epository #ac,

Gffice are esta-lished to reduce deliery time and improe response time.

The #an, receied permission from 9#I for setting up a representatie

office in &ydney $ustralia. $lso they are in the process of entering into

;anada. The company is haing an aim to increase the customer -ase to 2CF

million -y the year EF2?.


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REVIE9 OF LITERATURE

The year EF2?7EF25 "as a year that "itnessed perfect storm7olatile oil prices asset -u--les and oer leeraged -an,s in a much interconnected

"orld7all leading to unargua-ly the greatest glo-al financial crisis "itnessed

in the human historyK The Indian -an,ing industry has not seen a collapse

li,e that of 6ehman #rothers or Merrill 6ynch or not fully recession proof.

The year EF2?7EF25 "as a ery difficult year for the Indian -an,s. Many

large Indian -an,s "ere facing the pro-lem of achieing a satisfactory

financial performance. Thus it -ecomes important to analye the

performance of leading -an,s of India for the year from EF2?7EF25.This

study tests the performance of a set of fie leading Indian -an,s during the

year EF2?7EF25.the -an,s selected for the study are the -an,s that got the

top fie ran,ing in the category of -alance sheet sie of more than amounts

in the surey -y a leading -usiness magaine -usiness today during the year

EF2?7 EF25. The year EF2?7EF25 "as chosen for this study -ecause of the

fact that it is "as a crucial year for the financial systems of the "hole "orld.

This study ealuates the performance of the -an,s -ased on eight

parameters7 *et Interest Income ;ost to Income 9atio ;apital $de!uacy

9atio *et *P$s +eposit %ro"th 9eturn on $ssets 9eturn on ;apital

:mployed and Gperating Profit. These parameters hae -een identified as

the ,ey performance indicators of -an,s -y industry eperts. This studyhelps us to understand the commonly used performance measures of -an,s.

It helps to identify the -an, that performs the -est "ith regard to each

performance parameter. This study also analyses the strengths and

"ea,nesses of each -an, selected for the study. 9eie" of literature has


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CREDIT APPRAISAL PROCESS

9eceipt of application from applicant

9eceipt of documents (#alance sheet 8; papers +ifferent got.

registration no. MG$ $G$ and Properties documents)

Pre7sanction isit -y -an, officers

;hec, for 9#I defaulters list "illful defaulters list ;I#I6 data

:;%; caution list etc. Title clearance reports of the properties to -e o-tained from

empanelled adocates

aluation reports of the properties to -e o-tained from empanelled

aluer/engineers

Preparation of financial data

Proposal preparation

$ssessment of proposal

&anction/approal of proposal -y appropriate sanctioning authority

+ocumentations agreements mortgages

+iP*#ursement of loan


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RESEARCH METHODOLOGY

The present paper is a case study "hich is restricted to -ranch of P*# in

+:61I The o-jectie of research paper is to study the ;redit 9is,

$ssessment Model of P*# and to chec, the commercial financial H

technical ia-ility of the project proposed H its funding pattern. To o-sere

the moements to reduce arious ris, parameters "hich are -roadly

categoried into financial ris, -usiness ris, industrial ris, H management

ris,. or the purpose the secondary data is collected through the #oo,s H

magaines +ata-ase at P*# 0e-sites :7circulars of P*#.

DATA ANALYSIS

A/ CREDIT RISK ASSESSMENT < APPRAISAL PROCESS OF PNB

CREDIT RISK ASSESSMENT RISK

9is, is ina-ility or un"illingness of -orro"er7customer or counter7party to

meet their repayment o-ligations/ honor their commitments as per the

stipulated terms.

LENDER= TASK

Identify the ris, factors and

Mitigate the ris,


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LENDING DESPITE RISKS

&o ris, should not deter a #an,er from lending.

$ -an,erNs tas, is to identify/ assess the ris, factors/ parameters H

manage / mitigate them on a continuous -asis.

#ut itNs al"ays prudent to hae some idea a-out the degree of ris,

associated "ith any credit proposal. The -an,er has to ta,e a calculated ris, -ased on ris,7a-sorption/

ris,7hedging capacity H ris,7mitigation techni!ues of the #an,.

CREDIT RISK ASSESSMENT !CRA/ MINIMUM SCORES >

HURDLE RATES

2. The ;9$ models adopted -y the #an, ta,e into account all possi-le

factors "hich go into appraising the ris,s associated "ith a loan. These hae

-een categoried -roadly into financial -usiness industrial H management

ris,s and are rated separately. To arrie at the oerall ris, rating the factors

duly "eighted are aggregated H cali-rated to arrie at a single point

indicator of ris, associated "ith the credit decision.

2. FINANCIAL PARAMETERS6

The assessment of financial ris, inoles appraisal of the financial strength

of the -orro"er -ased on performance H financial indicators. The oerall

financial ris, is assessed in terms of static ratios future prospects H ris,

mitigation (collateral security / financial standing).


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3. INDUSTRY PARAMETERSL The follo"ing characteristics of an

industry "hich pose arying degrees of ris, are -uilt into #an,Ns ;9$

modelL

;ompetition

Industry outloo,

9egulatory ris,

;ontemporary issues li,e 0TG etc.

5. M$*$%:M:*T P$9$M:T:9&L The management of an enterprise /

group is rated on the follo"ing parametersL

Integrity (corporate goernance)

Trac, record

Managerial competence / commitment

:pertise

&tructure H systems

:perience in the industry

;redi-ility a-ility to meet sales projections

;redi-ility a-ility to meet profit (P$T) projections

Payment record

&trategic initiaties

6ength of relationship "ith the #an,

C. The ris, parameters as mentioned a-oe are indiidually scored to

arrie at an aggregate score of 2FF (su-ject to !ualitatie factors O


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negatie parameters). The oerall score thus o-tained (out of a ma. of

2FF) is rated on an 3 point scale from P*#/P*#T62 to P*# 3 /P*#T63.

SALIENT FEATURES OF CRA MODELS

!A/ TYPE OF MODELS

&. *o :posure 6eel (# *#

6imits )

*on O Trading

&ector (;HI &&I

$%6)

Trading &ector ( Trade

H &erices)

1 Ger 9s. C.FF crore 9egular Model 9egular Model

2 9s F.EC crore to 9s. C.FF crore &implified Model &implified Model

!B/ TYPE OF RATINGS

&. *o. Model Type of 9ating

1 9egular Model #orro"er 9ating

acility 9ating2 &implified Model #orro"er 9ating

*e" 9ating &cales O #orro"er 9atingL 2A 9ating %rades

T',' #- (#""','*& ,%*; ;#+'* &) &' (#""','*& ?%*@-. F), '%:$'

&. *o. #orro"er

9ating

9ange

of

scores

9is, leel ;omfort 6eel

2 P*# 2 4572FF irtually Qero ris, irtually $-solute

safety

E P*# E 4F74? 6o"est 9is, 1ighest safety

? P*# ? 3A734 6o"er 9is, 1igher safety

5 P*# 5 3273C 6o" 9is, 1igh safety


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C P*# C @A73F Moderate 9is, "ith

$de!uate ;ushion

$de!uate safety

A P*# A @F7@C Moderate 9is, Moderate &afety

@ P*# @ A57A4

3 P*# 3 C@7A? $erage ris, $-oe &afety

Threshold

4 P*# 4 CF7CA

10 PNB 10 44 A'&%?$' R#-@ !R#-@

T)$',%*' T,'-)$(/

S%"'& T,'-)$(

22 P*# 22 5F755 #orderline ris, Inade!uate safety

2E P*# 2E ?C7?4 1igh 9is, 6o" safety

2? P*# 2? ?F7?5 1igher ris, 6o"er safety25 P*# 25 EC7E4 &u-stantial ris, 6o"est safety

2C P*# 2C 24 Pre7+efault 9is,

(etremely ulnera-le to

default)

*il

15 P*# 2A +efault %rade

#an, has introduced *e" 9ating &cales for -orro"er for giing loans.

9ating is gien on the -asis of scores out of 2FF. #an, gies loans to the

-orro"er as per their rating li,e P*# gies loans to the -orro"er up to

P*#3 rating as it has aerage ris, till P*#3 rating. rom P*#4 rating the

ris, increases. &o -an,s do not gie loans after P*#3 rating.

$ud. $ud. :sti :sti Proj. Proj. Proj.

?2st March EFF4 EF2F EF22 EF2E EF2? 2014 201


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*et &ales CF2.@3 C5A.AC @2?.3E 343.AC 343.AC 343.AC 343.AC

Gperating

Profit (after

interest)

254.A5 23E.4E E?5.E5 ?EA.A4 ?@5.?E 5F5.F3 5EC.FA

P#T 2.EF E.4F EE.53 4E.AE 2EC.5@ 25?.C2 2C2.4A

P#T/&ales

(J)

F.E5 F.C? ?.2C 2F.?2 2?.4A 2C.4@ 2A.42

P$T 2.EF E.4F EE.53 4E.AE 2EC.5@ 25?.C2 2C2.4A

;ash $ccruals ?4.FC 5F.C2 2E4.EC E??.@5 EE5.EC E2E.AA EFF.?A

P#+IT C5.55 CE.52 2CF.F2 EAA.44 [email protected] EEA.EF EF?.@E

Paid up

;apital

E2.F5 EE.CA 42.FF 22?.53 232.2F ECA.C@ ?5F.F3

T*0 E2.F5 EE.CA 22?.53 232.2F ECA.C@ ?5F.F3 [email protected]

$djusted

T*0

E2.F5 EE.CA 22?.53 232.2F ECA.C@ ?5F.F3 [email protected]

TG6/T*0 2E.EE 2E.3F C.F5 E.2C 2.F2 F.5@ F.E@

TG6/$djusted

T*0

2E.EE 2E.3F C.F5 E.2C 2.F2 F.5@ F.E@

;urrent 9atio 2.C@ 2.5E E.EE E.C? E.@2 ?.3F A.5@

;urrent 9atio

(:cl. T6

installments)

E.?5 2.4@ E.EE 5.54 C.AA C.3? A.5@

*0; 2FF.EF 2F?.3@ 3A.25 ?54.23 ?E?.3F ?A2.E4 5?3.EC

MOVEMENT IN TN9 (9s. in lacs)

200 2010 2011 2012 2013 2014 201

Gpening T*0 [email protected]? E2.F5 EE.CA 22?.53 232.2F ECA.C@ ?5F.F3$dd P$T 2.EF E.4F EE.53 4E.AE 2EC.5@ 25?.C2 2C2.4A

$dd. Increasein e!uity /

premium

3.5E 2F.2@ A3.55

$dd./&u-tractchange in


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intangi-leassets

$djust prior

year epenses+educt+iidendPayment/0ithdra"als

A.E2 22.CC EC.FF CF.FF AF.FF AC.FF

;losing T*0 21.04 22.5 113.48 181.10 25.7 340.08 427.04

APPRAISAL MEMORANDUM FOR TERM LOAN

CIRCLE6 +:61I

BRANCH6 +:61I

ANALYSIS AND INTERPRETATION OF DATA

9ITH OTHER BANKS

+ata collected from pu-lished annual reports "as ta-ulated and analyed

using appropriate ratio. The ratio "ere calculated "ith the help of Microsoft

ecel. The comparatie analyses of performance of -an,s "ere done "ith

the help of ta-les -ar charts and pie charts. The period selected for study is

the year EF2?7EF25 as this year "as a ery crucial year for the financial

systems around the "orld due to the financial meltdo"n faced -y the "orld.

5. In this part a comparison has -een made of the performance of the top

fie -an,s (as per the #usiness Today &urey) during the year EF2?7EF25 -y

testing their performance "ith the help of arious ratios. #usiness today had


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gien the follo"ing ran,ing for -an,s "ith a -alance sheet sie of more

than amount during the year EF2?7EF25.

T%?$' 16 T) F#+' B%*@- )" I*(#%

9an, #an,s

2 B%*@ )" I*(#%

E P*%? N%)*%$ B%*@

? B%*@ )" B%,)(

5 I*(#%* B%*@

C U*#)* B%*@ )" I*(#%

These -an,s performances are analyed "ith the a-oe mentioned

parameters. The adantages of these parameters are that many of them are

specifically designed for ealuating -an, performance.

$ detailed analysis of these performance parameters is done. 0hich is as

follo"sK

I. GP:9$TI*% P9GITL

The profit earned from a firms normal core -usiness operations. This alue

does not include any profit earned from the firmNs inestments (such as

earnings from firms in "hich the company has partial interest) and the

effects of interest and taes. It is also ,no"n as “earnings -efore interest and

ta” (:#IT) or “operating income”. ;alculated as

Gperating reenue7operating epenses (Gr) Gperating profit per share (9s)R

*um-er of shares


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1ere the operating profit of arious -an,s is compared in order to ,no"

their operational efficiency. The ta-le E -elo" sho"s the operating profit of

the selected fie -an,s for the year EF2?7EF25T%?$' 26 O',%*; ,)"#& R%) )" "#+' L'%(#*; B%*@-

#an, Gperating Profit#an, of India 2534.EA

Punja- *ational #an, @2AF.2C

#an, of #aroda C2@?.?2

Indian #an, 2A??.53

'nion #an, of India EC4F.?5

Source: Annual Report of the Banks

INTERPRETATION6

The ta-le E indicates that the operating profit of Punja- national -an,

(@2AF.2C) is the highest profit among the top fie -an,s the -an, of India

(2534.EA) sho"s that the lo"est profit among the fie -an,s

T%?$' 36 N'& I*&','-& I*):' R%) )" "#+' L'%(#*; B%*@-

#an, *et Interest Income#an, of India E.22

Punja- *ational #an, ?.25

#an, of #aroda 2.43

Indian #an, E.54

'nion #an, of India E.?@

S),'6 $nnual 9eport of the #an,sINTERPRETATION6

The ta-le7? indicates that the *et Interest Income is highest for Punja-

national -an, (?.25J).The net interest income is ery less for #an, of


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#aroda (2.43J)so it should ta,e urgent measures to improe its net interest

income so that it can improe its profita-ility

O',%*; E'*-'- O',%*; I*):'

T%?$' 46 )-& &) I*):' R%) )" "#+' L'%(#*; B%*@-

#an, ;ost to Income#an, of India F.55

Punja- *ational #an, F.5C

#an, of #aroda F.5?

Indian #an, F.54

'nion #an, of India F.C2

INTERPRETATIONL

The ta-le75 sho"s that the performance of -an, of #aroda is the -est

regarding cost to income ratio as it has the lo"est ratio (F.5?) among the

fie -an,s union -an, of India has high cost to income ratio (F.C2). Thus

union -an, of India has to ta,e urgent measures to lo"er its costs so that it

can improe its profita-ility.

T%?$' 6 C%#&%$ A('% R%) )" "#+' $'%(#*; B%*@-

#an, ;apital $de!uacy 9atio#an, of India 2F.@A

Punja- *ational #an, 2E.E4

#an, of #aroda 2E.E3

Indian #an, 2?.2F

'nion #an, of India 2F.3F

&ourceL $nnual 9eport of the #an,s

INTERPRETATION6

The ta-le 7C indicates that the capital ade!uacy ratio of Indian -an, (2?.2F)

is the highest ratio among the top fie -an,s the -an, of India (2F.@A)

sho"s that the lo"est ratio among the top fie -an,s.


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9HAT IS A LOAN DEFINITION TYPES ADVANTAGES <

DISADVANTAGES

DEFINITION

If you hae neer receied a loan to purchase something you certainly are in

the minorityS 6oans can -e a great thing -ut they can also get you into

trou-le. Gne of the ,eys to -eing financially successful is understanding

"hen loans are a good solution for your situation. 6oans are neer a good

idea if you canBt afford to pay them -ac, in the re!uired time frame. 6etBs

eplore "hat a loan is and find out some of the common "ays to -orro"

money.

$ loan is "hen you receie money from a friend -an, or financial

institution in echange for future repayment of the principal plus interest.

The principal is the amount you -orro"ed and the interest is the amount

charged for receiing the loan. &ince lenders are ta,ing a ris, that you maynot repay the loan they hae to offset that ris, -y charging a fee 7 ,no"n as

the interest. 6oans typically are secured or unsecured. $ secured loan

inoles pledging an asset (such as a car -oat or house) as collateral for the

loan. If the -orro"er defaults or doesnBt pay -ac, the loan the lender ta,es


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possession of the asset. $n unsecured loan option is preferred -ut not as

common. If the -orro"er doesnBt pay -ac, the unsecured loan the lender

doesnBt hae the right to ta,e anything in return.

TYPES OF LOANS

Personal 6oans 7 ou can get these loans at almost any -an,. The good ne"s

is that you can usually spend the money ho"eer you li,e. ou might go on

acation -uy a jet s,i or get a ne" teleision. Personal loans are often

unsecured and fairly easy to get if you hae aerage credit history. The

do"nside is that they are usually for small amounts typically not going oer

CFFF and the interest rates are higher than secured loans.

;ash $dances 7 If you are in a pinch and need money !uic,ly cash

adances from your credit card company or other pay day loan institutions

are an option. These loans are easy to get -ut can hae etremely high

interest rates. They usually are only for small amountsL typically 2FFF or

less. These loans should really only -e considered "hen there are no other

alternatie "ays to get money.

STUDENT LOANS These are great "ays to help finance a collegeeducation. The most common loans are &tafford loans and Per,ins loans.

The interest rates are ery reasona-le and you usually donBt hae to pay the

loans -ac, "hile you are a full7time college student. The do"nside is that


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these loans can add up to "ell oer 2FFFFF in the course of 5 A or 3 years

leaing ne" graduates "ith huge de-ts as they em-ar, on their ne" careers.

COLLEGE LOAN

Mortgage 6oans 7 This is most li,ely the -iggest loan you "ill eer getS If

you are loo,ing to purchase your first home or some form of real estate this

is li,ely the -est option. These loans are secured -y the house or property

you are -uying. That means if you donBt ma,e your payments in a timely

manner the -an, or lender can ta,e your house or property -ac,S Mortgages

help people get into homes that "ould other"ise ta,e years to sae for. They

are often structured in 2F7 2C7 or ?F7year terms and the interest you pay is

ta7deducti-le and fairly lo" compared to other loans.

HOME LOAN

1ome7:!uity 6oans and 6ines of ;redit 7 1omeo"ners can -orro" against

e!uity they hae in their house "ith these types of loans. The e!uity or loan

amount "ould -e the difference -et"een the appraised alue of your home

and the amount you still o"e on your mortgage. These loans are good for

home additions home improements or de-t consolidation. The interest rate

is often ta deducti-le and also fairly lo" compared to other loans.

&mall #usiness 6oans 7 our local -an,s usually offer these loans to people

loo,ing to start a -usiness. They do re!uire a little more "or, than normal

and often re!uire a -usiness plan to sho" the alidity of "hat you are doing.These are often secured loans so you "ill hae to pledge some personal

assets as collateral in case the -usiness fails.


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&1G'6+ G' '&: $* G*6I*: MG9T%$%: 6:*+:9K T1: P9G&

$*+ ;G*& G %:TTI*% $ MG9T%$%: G*6I*:

Gnline lenders > less time7consuming and sometimes cheaper %enerally spea,ing the home loan application process through online

lenders is a -it “dum-ed7do"n” compared to going to a large financial

institution or meeting one7on7one "ith a mortgage -ro,er. ThatNs one of the

main reasons they are so popular= "ho doesNt "ant to apply for a mortgage

"hile "atching T and eating dinner at the same timeK

0ith an online lender there is no need to hae time7consuming in7person

meetings "hich can sae time.

Gnline lenders tend to undercut traditional mortgage -ro,ers on rates and

fees too. +ue to the tough competition for online lending these lenders

realie the -est "ay to gra- more customers is -y offering the lo"est interest

rates and most flei-le payment terms out there. They also hae lo" closing

costs -ecause they donNt hae to pay for the same type of epenses (offices

etc.) as mortgage -ro,ers do.

If your credit score is lo"er than @FF itNs another reason you may "ant to

try applying for a loan "ith an online lender. They donNt al"ays use the

same under"riting inestors as the -ig -an,s do so you may -e a-le to

!ualify for a loan een if you "ere rejected -y a local -an,.

The “cons” of online mortgage lenders

$s you might epect there is an increased ris, of fraud scams and illegal -usiness practices "ith online mortgage lending. ou hae to ,no" "ho

youNre dealing "ith.

ou should neer need to pay money for a pre7approal or !uote. Many

lenders charge an application fee that coers your appraisal credit chec,


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and other epenses -ut you should not need to pay this fee until later in the

application process.

ItNs also !uite common (though illegal) for online lenders to adertise erylo" rates in order to entice you to fill out an application. Gnce they get your

"hole application run your credit and get the process started theyNll tell you

that introductory rate is no longer aaila-le. ThereNs little you can do to

aoid this ecept to ,eep your options open and pay close attention to eery

step of the process.

$lthough online lenders tend to approe applicants "ith lo"er credit scores

that mortgage -ro,ers "ill turn do"n the interest rates tend to -e etremely

high for -orro"ers "ith poor credit.


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If you hae an issue "ith the appraisal or the loan funding and the call center

is closed for the "ee,end or holiday it might ,ill the "hole deal. Therefore

as, plenty of !uestions a-out the lenderNs aaila-ility and response time.$fter all "hat is the point of going to an online lender "ho offers lo"er

closing costs than your mortgage -ro,er "ould if they cause you to fall out

of escro" and lose your earnest money.

Mortgage -ro,ers > trust and relia-ility

0hereas tailored adice hand7holding may -e online lendersN "ea,ness itNs

the greatest strength of local mortgage -ro,ers.

Mortgage -ro,ers "ant to "in your -usiness and they ,no" one of the -est

"ays to do that is -y offering superior customer serice. $ good mortgage

-ro,er just li,e a good real estate -ro,er creates a relationship of trust and

relia-ility. They "ill hold your hand through the process help preent you

from ma,ing major mista,es and ans"er all of your !uestions.

drien in many cases -y personal relationships "ith local loan officers” says


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the loan that -est suits your needs. They may een end up saing you

money.

0e recommend you consider -oth online mortgage lenders and a local -ro,er > perhaps getting mortgage pre7approal from -oth > -efore

committing to a lender. 0ith online lenders thin, conenience and

competitie rates. 6oo, to local -ro,ers and -an,s for personal face7to7face

serice.

CREDIT APPRAISAL OF TERM LOANS BY FINANCIAL

INSTITUTIONS LIKE BANKS

;redit appraisal of a term loan denotes ealuating the proposal of the loan to

find out repayment capacity of the -orro"er. The primary o-jectie is to

ensure safety of the money of the -an, and its customers. The process

inoles appraisal of mar,et management technical and financial.

%etting a term loan from financial institution is not so easy. The corporate

as,ing for the term loan has to go through seeral tests. The -an, follo"s an

etensie process of credit appraisal -efore sanctioning any loan. It analyses

the loan proposal from all angles. The primary o-jectie of credit appraisal

is to ensure that the money is gien in right hands and the capital and

interest income of the -an, is relatiely secured.0hile appraising a term loan a financial institution "ould focus on

ealuating the credit "orthiness of the company and future epected stream

of cash flo" "ith the amount of ris, attached to them. ;redit "orthiness is


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assessed "ith parameters such as "illingness of promoters to pay the money

-ac, and repayment capacity of the -orro"er.

our -road areas of appraisal -y -an,s are mar,et management technicaland management.

MARKET APPRAISALL

$s part of mar,et appraisal the ery first thing a financial institution "ould

loo, at is the gap -et"een demand and supply. #igger the demand supply

gap higher is the chances of flourishing of that -usiness. The demand ersus

the proposed supply -y the -orro"er should hae a "ide difference li,e

demand of CFFFF units against the proposed supply of 2FFFF units.

$nother most important parameter is mar,eting efforts and infrastructure.

This is the factor "hich conerts a demand into sales for a -usiness.

Mar,eting side of the company needs to -e ery strong as it is ery critical

to the success of the enture.

MANAGEMENT APPRAISALL

Management of the company needs to -e appraised for their intentions,no"ledge and dedication to"ards the project. #y intention it is meant to

ealuate the "illingness of the promoters of the company to pay the money

-ac,. It needs to ealuate the real o-jectie of -orro"ing.


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Gnly good intentions "ould not generate cash flo"s to honor the

installments of the loan. The management needs to -e strong in terms of

their ,no"ledge a-out -usiness commitment to"ards achieing the setgoals etc.

TECHNICAL APPRAISAL6

Technical appraisal is su-ject to the ,ind of -usiness and industry of the

-orro"er. If itNs a manufacturing concern all those parameters li,e project

site aaila-ility of ra" material and la-or capacity utiliation icinity to

selling mar,et transportation etc "ould -e eamined. $ project needs to -e

technically ery sound to -e a-le to sustain all -usiness cycles.

FINANCIAL APPRAISAL6

$fter all the other ,inds of appraisal eerything -oils do"n to financial

appraisal. This pro-a-ly is the most important part of credit appraisal of a

-usiness loans. The reason is that it epresses eerything in terms of money.

inancial appraisal tries to assess the correctness or reasona-ility of the

estimates of costs and epenses and also the projected reenues. These may

include the estimation of selling price cost of machinery the oerall cost of

project and the means of financing.

inancial appraisal inoles etensie financial modeling in ecel. #asically

it ta,es the financial statements of preious periods and forecasts the futurefinancial position for at least till the loan matures. rom that the cash flo"s

of each year are compared "ith the installment of loan -ecause ultimately

the cash flo"s are going to honor the payments of -an,.


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easi-ility of the project is ealuated in terms of de-t sericing capacity of

the firm. +e-t serice coerage ratio is a ,ey ratio "hich is calculated for

each future financial period and if that ratio is satisfying the norms accepted -y the -an, the loan "ould get another green signal.

It is difficult to eplain the process of appraisal in an article or een a set of

articles. It is a ery etensie "or, -eing done at financial institutions. They

hae a separate team of professionals for conducting such project appraisals.

APPRAISALS AND APPRAISED VALUE

$n “appraisal” is a comprehensie report that determines the alue of your

property -ased on a num-er of aluation factors ranging from gross liing

space to the ie" and the year a property "as -uilt.

If you plan on purchasing a ne" home or refinancing your current loan you

"ill most li,ely need to order an appraisal. Typically a -an, or mortgage

-ro,er "ill handle this for you -ut you "ill still hae to foot the -ill unless

itNs -uilt into your mortgage rate.

APPRAISAL COSTS

$ppraisals typically cost any"here from ECF to CFF. The cost "ill ary

-ased on property type location and s!uare footage. Multi7unit properties

and properties in rural areas "ill usually cost more to -e appraised than a

single7family residence in a densely populated area.

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The most common type of appraisal is the 'niform 9esidential $ppraisal

9eport or '9$9. It consists of interior and eterior photos comparison

sales (comps) and a complete cost -rea,do"n of the property. This type ofappraisal is a -lend of -oth a mar,et and cost approach.

HO9 IS MY HOME APPRAISED

The cost approach esta-lishes alue -y determining "hat the cost "ould -e

to re-uild the structure from the ground up. The alue approach determines

alue using comparison sales in the immediate area that hae sold "ithin a

recent period of time.

The comparison sales are -ro,en do"n in the appraisal report as "ell and

compared to the su-ject property. :ach comparison sale is gien or deducted

alue in a num-er of categories -ased on ho" it stac,s up against the su-ject

property. The net alue of the comparison sales are then aeraged to come

up "ith a median appraised alue for the su-ject property.

The alue of the su-ject property is really the most important factor "hen it

comes to securing financing. #an,s and mortgage lenders need to ensure

your property is in good condition and truly "orth "hat you or your -ro,er

say itNs "orth. $ny possi-le aluation inconsistencies "ill li,ely causeinestors to shy a"ay from purchasing the mortgage leaing the -an, or

lender "ith a acant property and a major loss if the property declines in

alue. :en +onald Trump could -uy a shac, and fail to o-tain a

mortgage -ecause the property itself simply isnNt mar,eta-le.

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THE APPRAISAL REVIE9

Gnce an appraisal is ordered most -an,s and lenders "ill order a reie" of

the appraisal. The reie" "ill -e conducted -y another appraiser or simply -y the use of an $M or $utomated aluation Model. This is "here many

-orro"ers get into trou-le. If the reie" comes in lo" or if the property is

deemed incomplete haardous or uni!ue in any "ay a -an, may decline

the loan and deny financing to the potential -orro"er. :en if the -orro"er

has outstanding credit and assets galore a faulty uni!ue or oeralued

property can ,ill the deal.

ThatNs "hy itNs al"ays important to use a !ualified appraiser "ho assigns a

realistic alue to your home so there arenNt any surprises "hen itNs do7or7die

time. ItNs -etter to ,no" the true alue of your home upfront -efore you sign

any contingencies or purchase contracts. $nd remem-er that the !uality of

your appraisal "ill determine the !uality of your reie" (unless itNs

automated).

The reie" appraiser "ill al"ays find the alue -ased on "hatNs gien to

them. If they receie a poor appraisal report they "ill li,ely assign a pooralue. INe seen -ro,ers su-mit multiple appraisals and receie completely

different alues -ased solely on the original appraisal itself.

;ome


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assessment complete "ith a ris, score ris, flags (potential oeraluation)

and messages to the su-mitting lender that "arrant further reie".

;' "or,s -y leeraging an etensie data-ase of property records mar,etdata and analytical models to analye appraisals for !uality control and ris,

management purposes.

In the future lenders may -e granted "aier of representations and

"arranties on alue so they can lend more freely at least "hen it comes to

!uestiona-le property alues.

9HAT IF THE APPRAISAL IS LO9ER THAN THE PURCHASE

PRICE

Gne issue that happens pretty fre!uently is the appraised alue coming in

lo"er than the agreed upon purchase price.

or eample if you agree to -uy a home for EFFFFF and apply for a loan

"ith EFJ do"n youNd need a loan of 2AFFFF and a 5FFFF do"n

payment. That e!uates to a loan7to7alue ratio of 3FJ "hich is simply

2AF, diided -y EFF,. *o" imagine the lender comes -ac, and tells you that the property only

appraised for 24FFFF. our 2AFFFF loan amount -ased on the 24FFFF

alue "ould push the 6T to U35J. $nd yes lenders use the lo"er of the

http://www.thetruthaboutmortgage.com/what-is-loan-to-value/http://www.thetruthaboutmortgage.com/what-is-loan-to-value/


44/60

sales price or the current appraised alue. They donNt care "hat youNre

"illing to pay for it.

This is a pro-lem -ecause your loan "ould no" re!uire priate mortgageinsurance and thatNs if the lender can een offer you a loan a-oe 3FJ 6T.

The solution "ould -e to either as, for a reie" of the appraisal renegotiate

the purchase price (lo"er) "ith the seller or put more money do"n

assuming you hae etra cash on hand. Gf course you might "onder if

youNre oerpaying for the property if it doesnNt come in “at alue.”

CURRENT SCENARIO

Important %uidelines and &chemes 9egarding 1ousing inance 1ousing

6oans under Priority &ector 6endingL 6oans• up to 9s. EC 6a,h in

metropolitan centres "ith population a-oe 2F 6a,h and 9s. 2C 6a,h in

other centres to indiiduals for purchase/construction of a d"elling unit per

family ecluding loans granted -y -an,s to their o"n employees ".e.f.

F2.F5.EF22. 6oan To alue (6T) 9atioL The 6T ratio in respect of

housing loans should not eceed 3FJ. 1o"eer for small alue housing

loans i.e. housing loans up to 9s. EF la,h ("hich get categoried as priority

sector adances) the 6T ratio should not eceed 4FJ. actors for

determining eligi-ilityL The main concern of the -an, is to ma,e sure that

-orro"ers comforta-ly repay the loan on time and ensure end use. The

higher the monthly disposa-le income higher "ill -e the amount customer

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"ill -e eligi-le for loan. Typically a -an, assumes that a-out CF7AF J of

monthly disposa-le/surplus income is aaila-le for repayment of loan. The

amount of the loan also depends on applicantNs age tenure of the loan andthe interest rate.

INTEREST RATESL

#an,s generally offer either of the follo"ing loan options loating 9ate

1ome 6oans and ied 9ate 1ome 6oans. or a ied 9ate 6oan the rate

of interest is fied either for the entire tenure of the loan or a certain part of

the tenure of the loan. In case of a pure fied loan the :MI (:!uated

Monthly Installment) due to the -an, remains constant. The floating interest

rate is made up of t"o partsL the inde and the spread. The inde is a

measure of interest rates generally (-ased on say goernment securities

prices) and the spread is an etra amount that the -an,er adds to coer

credit ris, profit mar,7up etc. The prime lending rate or the -ase rate (2F7

2F.ECJ presently) is used as a -asis for calculating the floating rate and the

interest rate charged is the prime interest rate / -ase rate plus a certain

spread. The :MI of a loating 9ate loan changes "ith changes in mar,et

interest rates. If mar,et rates increase repayment increases. 0hen rates fall

dues also fall. &ecurityL security for a housing loan is typically a first

mortgage of the property normally -y "ay of deposit of title deeds. #an,s

also sometimes as, for other collateral security as may -e necessary.;ollateral security assigned to -an, could -e 6ife Insurance policies the

surrender alue of "hich is set at a certain percentage to the loan amount

guarantees from solent guarantors pledge of shares / securities and

inestments li,e 8P/ *&; etc. that are accepta-le to the -an,er. #an,s


46/60

"ould also re!uire the -orro"er to ensure that the title to the property is free

from any encum-rance. (i.e. there should not -e any eisting mortgage loan

or litigation "hich is li,ely to affect the title to the property adersely).CERSAI REGISTRATIONL

To preent frauds in loan cases the %oernment has facilitated setting up of

the ;entral 9egistry of &ecuritiation $sset 9econstruction and &ecurity

Interest of India (;:9&$I) under the &ecuritiation and 9econstruction of

inancial $ssets and :nforcement of &ecurity Interest $ct EFFE

(&$9$:&I $ct EFFE). This 9egistry has -ecome operational "ith effect

from March ?2 EF22. The o-jectie of setting up the ;entral 9egistry is to

proide a data-ase of security interest oer property rights to secure loans

and adances granted -y -an,s and financial institutions. $aila-ility of

encum-rance status inter alia help in preenting frauds inoling cases

"here loans are ta,en from different lenders against the same immoa-le

property -y creating multiple mortgages -y deposit of title deeds as "ell as

fraudulent sale of property "ithout disclosing the security interest oer such

property. The operation of ;:9&$I is currently -eing managed -y *ational

1ousing #an, partially.

FEESL $ home loan often re!uires payment of arious fees such as loan

origination or processing charges administratie charges documentationlate payment changing the loan tenure s"itching to different loan pac,age

during the loan tenure restructuring of loan changing from fied to floating

interest rate loan and ice ersa legal fee technical inspection fee recurring

annual serice fee document retrieal charges and pre7payment charges if


47/60

someone "ants to prepay the loan. Many of these fees are negotia-le / can

-e "aied also.

TA BENEFIT ON THE LOAN

9esident Indians are eligi-le for certain ta -enefits on -oth principal and

interest components of loan installments under the Income Ta $ct 24A2.

&ection 3F; and &ection E5# grant income ta re-ates to people "ho hae

ta,en home loans.

&ection ;omponent #enefits per annum (".e.f 2.F5.25)

3F; Principal 9s. 2CFFFF /7

E5# Interest 9s. EFFFFF /

CREDIT HISTORY CHECKING

$ ;redit 1istory is -asically a record of an indiidualBs or companyBs past

-orro"ing repayments of loans and credit card -ills including information

a-out late payments H -an,ruptcy. There is a central data-ase aaila-le "ith


48/60

the ;redit Information #ureau (India) 6imited (;I#I6) "hich collects and

maintains records of an indiidualNs payments pertaining to loans and credit

cards. These records are su-mitted to ;I#I6 -y mem-er -an,s and creditinstitutions on a monthly -asis. The ;I#I6 Trans 'nion &core is a ? digit

numeric summary of a personNs credit history "hich indicates applicantNs

financial H credit health. The &core is deried from the credit history as

detailed in the ;redit Information 9eport V;I9W and ranges from ?FF to 4FF

points. ;redit score tells the lender ho" li,ely the applicant is to pay -ac,

loan or credit card dues -ased on past repayment -ehaior. The higher is the

score the more is the chance of partyNs loan application getting approedS

#efore approing a loan a financial institution al"ays chec,s "ith ;I#I6 on

applicantNs repayment trac, record. 5. 1ousing 6oan Policy of Indian

Gerseas #an, IG# is offering home loans under different schemes for the

Indian residents and *9Is at attractie interest rates for -oth the employed

and self7employed persons instantly "ith ery less documentation. Thus

"ith the simple processing of a fe" steps people can get the 1ome loan

from Indian Gerseas #an, for purchasing a ne" house / flat or to renoate /

re-uild an eisting home.

ELIGIBILITY GROUPS OF INDIVIDUALS

Mem-ers of ;o7operatie &ocieties.

Indiiduals not more than CC years of age.

1o"eer indiiduals may -e considered at the age of AF proided

their legal heirs join along "ith them.

6oan must -e li!uidated -efore attaining AC ears of age.


49/60

or salaried indiidualL

$ permanent jo- "ith a minimum of E or ? years serice.

or self7employed professionalL

$ minimum period of three years of actiity in the related field.

PURPOSE

To purchase / construct / repair / renoate flat or house.

UANTUM OF LOAN

$ maimum of 4FJ of the cost of the house / flat ecluding 9egistration and

+ocumentation charges. The amount depends on applicantNs age and

repayment capacity.

MARGIN

The minimum margin is 2FJ of the estimated cost (including the cost of the

land) for ne" as "ell as old houses/flats.

RATE OF INTEREST

Interest 9ate J p.a. O Irrespectie of Tenor

6oan $mount Gthers 0omen #orro"ers

'p to 9s ?F la,hs X #ase 9ate i.e.2F.EC X #ase 9ate i.e.2F.EC

$-oe 9s.?F lacs H up to9s @C lacs

X #ase 9ate i.e.2F.EC X #ase 9ate i.e.2F.EC

$-oe 9s @C la,hs X #ase 9ate F.EC

i.e.2F.CF

X #ase 9ate i.e.2F.EC

REPAYMENT


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9epaya-le in e!uated monthly installments for a maimum• period of ?F

years. *o pre7payment charges

HOLIDAY > MORATORIUM PERIOD

$ maimum holiday period of 23 months from the date of first dis-ursement

or completion of construction 7 "hicheer is earlier. In case the house is

purchased the holiday period is ? months.

.

SECURITY

irst mortgage on the property to -e -ought constructed or renoated The

land should -e in the applicantBs name or jointly "ith spouse "ho should -e

a co7-orro"er &hould hae a clear and mar,eta-le title oer the property

&hould hae comprehensie insurance on the property for ade!uate alue

$dditional security in the form of *&; 6I; 'nits of 'TI "ill also -e

accepted 5.4 +ocuments re!uired

$n application form &alary certificate as a proof of income (for employed

indiiduals)

inancial statements (for professionals -usinessman) $greement for sale of

house/flat Proof of mem-ership (for co7operatie societies etc.) Proof for

eperience in the line of actiity (for professionals -usiness people etc.)

:stimates for ;onstruction / aluation 9eport for $c!uisition / 6egal

opinion on the Property from #an, approed :ngineer / 6a"yer


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5. L)%* R'+#' M'%*#-:

6oan 9eie" Mechanism (69M) is an effectie tool for constantlyealuating the !uality of loan -oo, and to -ring a-out !ualitatie

improements in credit administration. #an,s should therefore put in place

proper 6oan 9eie" Mechanism for large alue accounts

"ith responsi-ilities assigned in arious areas such as ealuating the

effectieness of loan administration maintaining the integrity of

credit grading process assessing the loan loss proision portfolio !uality

etc. The purpose of 69M is to detect pro-lem accounts

early and to mitigate against pro-a-le losses either through loan

restructuring or the termination of poor !uality loans.

The main o-jecties of 69M could -eL

To identify loans promptly "hich deelop credit "ea,nesses and initiate

timely correctie action=

To ealuate portfolio !uality and isolate potential pro-lem areas=

To proide information for determining ade!uacy of loan loss proision=

To assess the ade!uacy of and adherence to loan policies and procedures

and to monitor compliance "ith releant la"s and regulations= and

To proide top management "ith information on credit administration

including credit sanction process ris, ealuation and post7sanction follo"7

up.The loan approal process comprises of processing and ealuating loan

applications documenting loan decisions and distri-uting loan funds. It is

important that management esta-lish a loan approal process "hich includes

controls oer lending authority and accounta-ility.


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hae a chec,list to ensure that all re!uired information is in fact collected.

This "ould help institutions aoid processing and

screening applications that "ould -e later rejected.The net stage to credit screening is credit appraisal "here the financial

institution assesses the customerNs a-ility to meet his

o-ligations. #an,s should -e e!uipped "ith "ell designed credit appraisal

criteria to ensure that facilities are granted only to

credit"orthy customers "ho can ma,e repayments from reasona-ly

determina-le sources of cash flo" on a timely -asis.

inancial institutions usually re!uire collateral or guarantees in support of a

credit in order to mitigate ris,. #an,s must hae a policy

for aluing collateral ta,ing into account the 9esere #an, of India

guidelines dealing "ith the matter. &uch a policy shall among

other things proide for accepta-ility of arious forms of collateral their

periodic aluation process for ensuring their continuing

legal enforcea-ility and realiation alue.

The appraisal criteria loo, into the follo"ing issues "hile granting loanL

+etermining the amount and purpose of lending

+etermining credit "orthiness of the applicant to assume the credit

o-ligation= 'nderstanding ris, profile of the -orro"er

orecast operating enironment of the -orro"er

Inspection of the -orro"erNs -usiness premises as "ell as the facility that

is the su-ject of the proposed financing


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:nsuring good"ill of applicant

ASSETBASED LENDING6 ADVANTAGES VS. DISADVANTAGES

&mall as "ell as large -usinesses hae -een greatly influenced -y the

recent financial crisis in the economy. This has tightened the lending

structure for -usinesses. 'nsecured loans of many companies are not getting

passed these days due to changes in the lending system.

Many companies hae ta,en the option of Yasset7-ased lendingN to oercome

this pro-lem. Interestingly this option of lending "as considered the last

resort -y many companies -ut it is no" gro"ing to -e a preferred lending

form. $sset7-ased lending is generally done "hen it is not possi-le for the

company to raise funds thorough normal lending routes. *ormal lending is

done -y selling -onds in the capital mar,et mortgage secured or normal

unsecured lending from the -an,. $sset7-ased lending is also preferred "hen

the companies need immediate capital for financing their projects -y

purchasing inentory as "ell as de-t mergers and ac!uisitions.


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This is a faored choice for companies that do not hae enough credit

ran,ing time or capacity and trac, record to opt for traditional capital

sources. It is also a good "ay for companies to satisfy their short7termre!uirements of cash. It has four major asset classes namely inentory real

estate accounts receia-le and e!uipment. 9ecently addition of intangi-le

assets li,e customer lists and trademar,s hae -een added to it.

ADVANTAGES OF ASSETBASED LENDING

• Gne of the -iggest adantages of this type of lending is that it

proides money to fast gro"ing organiations. This helps them to a

great etent -y addressing the cash flo" pro-lem of the companies.

• They are also a good choice for those companies that do not hae

outstanding credit. The companies can ma,e use of intangi-le assets

to get the loan.

• $nother adantage of asset7-ased lending system is that it is ery fast.

$pplying for a loan to the -an, is a lengthy and complicated process.

#ut asset7-ased lending system is much faster. It also offers a ariety

of related serices li,e accounts receia-le processing inoices and

collection. The flei-ility and speed that this lending system proides

helps een the companies "ith poor credit ratings.


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CONCLUSIONS

Z ;redit appraisal is done to chec, the commercial financial H technical

ia-ility of the project proposed its funding pattern H further chec,s the

primary or collateral security coer aaila-le for the recoery of such funds

Z P*# loan policy contains arious norms for sanction of different types of

loans such as

Z These all norms does not apply to each H eery case.

Z P*# norms for proiding loans are flei-le H it may differ from case to

case

Z The ;9$ models adopted -y the -an, ta,e into account all possi-le factors

"hich go into appraising the ris, associated "ith a loan

Z These hae -een categoried -roadly into financial -usiness industrial

and management ris,s H are rated separatelyZ The assessment of financial ris, inoles appraisal of the financial strength

of the -orro"er -ased on performance H financial indicators

Z $fter case study "e found that in some cases loan is sanctioned due to

strong financial parameters


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Z rom the case study analysis it "as also found that in some cases financial

performance of the firm "as poor een though loan "as sanctioned due to

some other strong parameters such as the unit has got confirm order the unit"as an eisting profit ma,ing unit H letter of authority "as receied for

direct payment to the -an, from G*%; "hich is pu-lic sector.

Z +ifferent appraisal scheme has -een introduced -y the -an, to cater

different industries such asL7

+octor plus scheme for doctors

Transport plus scheme for transport

&chool collages H educational institutions

TraderNs easy loan

0arehouse receipt financing for commodity traders

($griculture related stoc, cotton ginning etc.)

Z In the -usiness "orld ris, arises out ofL

+eficiencies / lapses on the part of the management

'ncertainties in the -usiness enironment

'ncertainties in the industrial enironment

0ea,ness in the financial position

Z ;redit is the core actiity of the -an,s H important source of their earnings"hich go to pay interest to depositors salaries to employees H diidend to

shareholders

Z ;redit H ris, go hand in hand


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Z #an,Ns main function is to lend funds/ proide finance -ut it appears that

norms are ta,en as guidelines not as a decision ma,ing

Z $ -an,erNs tas, is to identify/assess the ris, factors/parameters Hmanage/mitigate them on continuous -asis.

REFERENCES

Z '"e 0ehrspohn (EFFC) “;redit 9is, :aluationL Modeling 7 $nalysis 7 Management”

;enter for 9is, H :aluation ol. ?? pp ?5C7?CA


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study on loan apprasa processl pnb

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