Académique Documents
Professionnel Documents
Culture Documents
TABLE OF CONTENTS
Chapters
1. INTRODUCTION
• Reason for selecting the project
• Scheme of the project
• Research Methodology
• Limitation of the study
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6. CONCLUSION
• Conclusion
BIBLIOGRAPHY
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Introduction
The last year financial crises have become the main cause for recession which was started in
2006 from US and was spread across the world. The world economy has been majorly
affected from the crisis. The securities in stock exchange have fallen down drastically which
has become the root cause of bankruptcy of many financial institutions and individuals. The
root cause of the economic and financial crisis is credit default of big companies and
individuals which has badly impacted the world economy. So in the present scenario
analysing one’s credit worthiness has become very important for any financial institution
before providing any form of credit facility so that such situation doesn’t arise in near future
again.
Analysis of the credit worthiness of the borrowers is known as Credit Appraisal. In order to
understand the credit appraisal system followed by the banks this project has been
conducted. The project has analysed the credit appraisal procedure with special reference to
Punjab National Bank which includes knowing about the different credit facilities provided
by the banks to its customers, how a loan proposal is being made, what are the formalities
that is to be satisfied and most importantly knowing about the various credit appraisal
techniques which are different for each type of credit facility.
Before going further it is necessary to understand the need and basic framework of the
project. Therefore this chapter provides an introduction to the topic, objective of the project,
reasons for selecting the project and the basic structure and framework how the project
proceeds. In order to understand the importance of the topic selected an introduction to the
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overview of the commercial bank , its functions, and present trends and growth in bank credit
are required and it is covered in this chapter.
Whenever an individual or a company uses a credit that means they are borrowing money
that they promise to repay with in a pre-decided period. In order to assess the repaying
capability i.e. to evaluate their credit worthiness banks use various techniques that differ with
the different types of credit facilities provided by the bank. In the current scenario where it is
seen that big companies and financial institutions have been bankrupted just because of
credit default so Credit Appraisal has become an important aspect in the banking sector and
is gaining prime importance.
It is the incident of credit defaults that has given rise to the financial crisis of 2008-09. But in
India the credit default is comparatively less that other countries such as US. One of the
reasons leading to this may be good appraisal techniques used by banks and financial
institutions in India. Eventually the importance of this project is mainly to understand the
credit appraisal techniques used by the banks with special reference to Punjab National
Bank.
It covers the objective and structure of the project which is discussed as follows:-
The overall objective of this project is to under stand the current credit appraisal system used
in banks. The Credit Appraisal system has been analysed as per the different credit facilities
provided by the bank. The detailed explanation about the techniques and process has been
discussed in detail in the further chapters.
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The project first of all makes a study about the commercial banks- its important functions.
Then it highlights on the concept of Bank Credit & its recent trends. The project then
proceeds towards the lending procedure of banks and here it highlights about credit appraisal
being the first step in building up of a loan proposal. Then it discusses the bank credit policy
with respect to Punjab National bank where the project was undertaken.
The project then proceeds with the review of literature i.e. review of some past work
regarding credit appraisal by various researchers. The project then moves towards research
methodology where it covers the information regarding the type of data collected and the
theoretical concepts used in the project are discussed in detail. Then the project proceeds
with the next chapter consisting of the analysis part which covers the analysis of various
techniques used by the banks for the purpose of credit appraisal. Then the project moves to
its next chapter i.e. findings where some results found out are interpreted and then moving on
to the last and the final chapter i.e. the suggestions and conclusions where some steps are
suggested to be implemented to increase the work efficiency and to reduce to work pressure
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Commercial banks are the oldest, biggest and fastest growing financial intermediaries in
India. They are also the most important depositories of public savings and the most important
disbursers of finance. Commercial banking in India is a unique banking system, the like of
which exists nowhere in the world. The truth of this statement becomes clear as one studies
the philosophy and approaches that have contributed to the evolution of banking policy,
programmes and operations in India.
The banking system in India works under constraints that go with social control and public
ownership. The public ownership of banks has been achieved in three stages: 1995, july 1969
and April, 1980. Not only the public sector banks but also the private sector and foreign
banks are required to meet the targets in respect of sectoral deployment of credit, regional
distribution of branches, and regional credit deposit ratios. The operations of banks have
been determined by lead bank scheme, Differential Rate of interest scheme, Credit
authorization scheme, inventory norms and lending systems prescribed by the authorities, the
formulation of credit plans, and service area approach.
Commercial Banks in India have a special role in India. The privileged role of the banks is
the result of their unique features. The liabilities of Bank are money and therefore they are
important part of the payment mechanism of any country. For a financial system to mobilise
and allocate savings of the country successfully and productively and to facilitate day-to-day
transactions there must be a class of financial institutions that the public views are as safe
and convenient outlets for its savings. The structure and working of the banking system are
integral to a country’s financial stability and economic growth. It has been rightly claimed
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that the diversification and development of Indian Economy are in no small measure due to
the active role banks have played financing economic activities of different sectors.
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Bank Credit
The borrowing capacity provided to an individual by the banking system, in the form of
credit or a loan is known as a bank credit. The total bank credit the individual has is the sum
of the borrowing capacity each lender bank provides to the individual.
The operating paradigms of the banking industry in general and credit dispensation in
particular have gone through a major upheaval.
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Types of credit-
Bank in India provide mainly short term credit for financing working capital needs although,
as will be seen subsequently, their term loans have increased over the years. The various
types of advances provide by them are: (a) Term Loans, (b) cash credit, (c) overdrafts, (d)
demand Loans , (e) purchase and discounting of commercial bills, and, (f) instalment or hire
purchase credit.
Volume of Credit-
Commercial banks are a major source of finance to industry and commerce. Outstanding
bank credit has gone on increasing from Rs 727 crore in 1951 to Rs 19,124 crore in 1978, to
Rs 69,713 crore in 1986, Rs 1,01,453 crore in 1989-90 , Rs 2,82,702 crore in 1997 and to Rs
6,09,053 crore in 2002. Banks have introduced many innovative schemes for the
disbursement of credit. Among such schemes are village adoption, agriculture development
branches and equity fund for small units. Recently, most of the banks have introduced
attractive education loan schemes for pursuing studies at home or abroad. They have
introduced attractive educational loan schemes for pursuing studies at home or abroad. They
have moved in the direction of bridging certain defects or gaps in their policies, such as
giving too much credit to large scale industrial units and commerce and giving too little
credit to agriculture, small industries and so on.
The Public Sector Banks are still the leading lenders though growth has declined compared
to previous quarter. The credit growth rate has dipped sharply in foreign and private banks
compared to previous quarter. In all, the credit growth has slipped in this quarter.
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The rates have gone down compared to previous quarter when it was seen that there was no
changes in loan rates in private and foreign banks. But then compared to rate cuts done by
RBI, they still need to go lower.
Change (from
BPLR Oct – 08 Mar – 09 Apr – 09
Oct to Apr)
13.75-
Public Sector Banks 11.50-14.00 11.50-13.50 125-225
14.75
13.75-
Private Sector Banks 12.75-16.75 12.50-16.75 100-125
17.75
Five Major Foreign14.25-
14.25-15.75 14.25-15.75 0-100
Banks 16.75
Sector-wise credit points credit has increased to agriculture, industry and real estate whereas
has declined to NBFCs and Housing. A bank group wise sectoral allocation is also given
which suggests private banks have increases exposure to agriculture and real estate but has
declined to industry. Public sector banks have increased allocation to industry and real estate.
There is a more detailed analysis in the macroeconomic report released before the monetary
policy.
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As on As on
Sector February 15, February
2008 27, 2009
% share Variations % share Variations
in total (per cent) in total (per cent)
Agriculture 9.2 16.4 13 21.5
Industry 45.2 25.9 52.5 25.8
Real Estate 3.1 26.7 8.5 61.4
Housing 7.3 12 4.7 7.5
NBFCs 5.7 48.6 6.6 41.7
Overall Credit 100 22 100 19.5
To sum up, the credit conditions seems to have worsened after January 2009. The rates have
declined but lending has not really picked up. However, the question still remains – whether
credit decline is because banks are not lending (supply) or because people/corporates are not
borrowing (lack of demand). It is usually seen that all financial variables as lead indicators
say if credit growth (along with other fin indicators) is picking, actual growth will also rise.
However, it is actually seen the relation is far from clear. In fact, the financial
indicators hardly help predict any change in business cycle. Most rise in good times and fall
in bad times. Most financial indicators failed to predict this global financial crisis and kept
rising making everyone all the more complacent.
Bank lending was done for a long time by assessing the working capital needs based on the
concept of MPBF (maximum permissible bank finance). This practice has been withdrawn
with the effect from April 15th 1997 in the sense that the date, banks have been left free to
choose their own method ( from the method such as turnover , cash budget, present MPBF ,
or any other theory) of assessing working Capital requirement of the borrowers.
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The cash credit system has been the bane, yet it has exhibited a remarkable strength of
survival all these years. In spite of many efforts which were direct in nature, only a slow
progress has been made to reduce its importance and increase bill financing. Therefore a
concrete and direct policy step was taken on April 21, 1995 which made it mandatory for
banks, consortia, syndicates to restrict cash credit components to the prescribed limit , the
balance being given in the form of a short term loan, which would be a demand loan for a
maximum period of one year, or in case of seasonal industries , for six months. The interest
rates on the cash credit and loan components are to be fixed in accordance with the prime
lending rates fixed by the banks. This “loan system” was first made applicable to the
borrowers with an MPBF of Rs 20 crore and above; and in their case , the ratio of cash credit
(loan) to MPBF was progressively reduced(increased) from 75 (25) per cent in April 1995 ,
to 60 (40) percent in September 1995, 40 (60) per cent in April 1996 , and 20 (80) percent in
April 1997. With the withdrawal of instructions about the MPBF in April 1997 , the
prescribed cash credit and loan components came to be related to the working capital limit
arrived in banks as per the method of their choice.
With effect from September 3, 1997, the RBI has permitted banks to raise their existing
exposure limit to a business group from 50% to 60%; the additional 10% limit being
exclusively meant for investment in infrastructure projects.
The term lending by banks also has subject to the limits fixed by RBI. In 1993, this limit was
raised from Rs 10 crore to Rs 50 crore in case of a loan for a single project by a single bank,
and from Rs 150 crore to Rs 200 crore for a single project by all the banks. The latter limit
was subsequently raised to Rs 500 crore in the case of general projects and Rs 1000 crore for
power projects. From September3, 1997 these caps on term lending by banks were removed
subject to their compliance with the prudential exposure norms.
The banks can invest in and underwrite shares and debentures of corporate bodies. At
present, they can invest five percent of their incremental deposits in equities of companies
including other banks. Their investment in shares/ Bonds of DFHI, Securities trading
Corporation of India (STCI), all Indian financial institutions and bonds (debentures) and
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preference shares of the companies are excluded from this ceiling of five per cent with affect
from April 1997 . From the same date banks could extend loans within this ceiling to the
corporate against shares held by them. They could also offer overdraft facilities to stock
brokers registered with help of SEBI against shares and debentures held by them for nine
months without change of ownership.
The weaknesses in the Cash Credit system have persisted with the non-implementation of
one of the crucial recommendations of the Committee. In the background of credit expansion
seen in 1977-79 and its ill effects on the economy, RBI appointed a working group to study
and suggest-
ii) Alternate type of credit facilities to ensure better credit discipline and co relation between
credit and production. The Group was headed by Sh. K.B. Chore of RBI and was named
Chore Committee.
Another group headed by Sh. P.R. Nayak (Nayak Committee) was entrusted the job of
looking into the difficulties faced by Small Scale Industries due to the sophisticated nature of
Tandon & Chore Committee recommendations. His report is applicable to units with credit
requirements of less than Rs.50 lacs.
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The face of Indian banking has changed radically in the last decade. A perusal of the Basic
Statistical Returns submitted by banks to the Reserve Bank of India shows that between 1996
and 2005, personal loans have been the fastest growing asset, increasing from 9.3 per cent of
the total bank credit in 1996 to 22.2 per cent in 2005. Of course, this is partly due to the huge
rise in housing loans, which rose from 2.8 per cent of the bank credit to 11 per cent over the
period, but ‘other personal loans’ — comprising loans against fixed deposits, gold loans and
unsecured personal loans — also rose from 6.1 per cent to 10.7 per cent. Other categories
whose share increased were loans to professionals and loans to finance companies. In
contrast, there has been a sharp decline in the share of lendings to industry. Credit to small
scale industries fell from 10.1 per cent of the total in 1996 to 4.1 per cent in 2005.
A major share of the economic growth has been led by the expansion of the service
sector
Capital intensity and investment intensity required for growth in the current economic
context may not be as high as it used to be in the past.
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The other trend has been the substantial drop in the share of rural credit, while the share of
metropolitan centres has increased. While bankers say that up gradation of rural centres into
semi-urban could be one reason (the share of semi-urban centres has gone up), it is also true
that the reforms have been urban-centric and have tended to benefit the metros more. The
number of rural bank offices fell from 32,981 in March 1996 to 31,967 by March 2005.
The states have been the main beneficiaries of bank credit are the northern region as it has
increased its share from 18.7 per cent of the total credit in 1996 to 22.2 per cent in 2005. As
it was seen that Delhi’s share went up from 9.5 per cent to 12.1 per cent over the period. This
is not due to food credit, the account of which is maintained in Delhi. Clearly, the national
capital has gained a lot from liberalisation.
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2008-09 as against an absolute fall of Rs 2,121 crore in 2007-08. Non-food credit growth at Rs
406,287 (17.5%) has been slower than in the previous year at Rs 432,846 (23.0%).
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From the above chart we can see that Credit Appraisal is the core and the basic function of a
bank before providing loan to any person/company, etc. It is the most important aspect of the
lending procedure and therefore it is discussed in detail as below.
Credit Appraisal
Meaning - The process by which a lender appraises the creditworthiness of the prospective
borrower is known as Credit Appraisal. This normally involves appraising the borrower’s
payment history and establishing the quality and sustainability of his income. The lender
satisfies himself of the good intentions of the borrower, usually through an interview.
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• In such cases due diligence on the inability of the projects are well defined and
assessed. State government guarantee may not be taken as a substitute for satisfactory
credit appraisal.
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instances of the “failure” of some weak banks have often threatened the stability of the
system. Structural weaknesses such as a fragmented industry structure, restrictions on capital
availability and deployment, lack of institutional support infrastructure, restrictive labour
laws, weak corporate governance and ineffective regulations beyond Scheduled Commercial
Banks (SCBs), unless addressed, could seriously weaken the health of the sector. Further, the
inability of bank managements (with some notable exceptions) to improve capital allocation,
increase the productivity of their service platforms and improve the performance ethic in
their organisations could seriously affect future performance. India has a better banking
system in place Vis a Vis other developing countries, but there are several issues that need to
be ironed out. Major challenges of Indian banking sector are mentioned below.
Interest rate risk
Interest rate risk can be defined as exposure of bank's net interest income to adverse
movements in interest rates. A bank's balance sheet consists mainly of rupee assets and
liabilities. Any movement in domestic interest rate is the main source of interest rate risk.
Over the last few years the treasury departments of banks have been responsible for a
substantial part of profits made by banks. Between July 1997 and Oct 2003, as interest rates
fell, the yield on 10-year government bonds (a barometer for domestic interest rates) fell,
from 13 per cent to 4.9 per cent. With yields falling the banks made huge profits on their
bond portfolios. Now as yields go up (with the rise in inflation, bond yields go up and bond
prices fall as the debt market starts factoring a possible interest rate hike), the banks will
have to set aside funds to mark to market their investment. This will make it difficult to show
huge profits from treasury operations. This concern becomes much stronger because a
substantial percentage of bank deposits remain invested in government bonds. Banking in the
recent years had been reduced to a trading operation in government securities. Recent
months have shown a rise in the bond yields has led to the profit from treasury operations
falling. The latest quarterly reports of banks clearly show several banks making losses on
their treasury operations. If the rise in yields continues the banks might end up posting huge
losses on their trading books. Given these facts, banks will have to look at alternative sources
of investment.
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The best indicator of the health of the banking industry in a country is its level of NPAs.
Given this fact, Indian banks seem to be better placed than they were in the past. A few
banks have even managed to reduce their net NPAs to less than one percent (before the
merger of Global Trust Bank into Oriental Bank of Commerce OBC was a zero NPA bank).
But as the bond yields start to rise the chances are the net NPAs will also start to go up. This
will happen because the banks have been making huge provisions against the money they
made on their bond portfolios in a scenario where bond yields were falling.
Reduced NPAs generally gives the impression that banks have strengthened their credit
appraisal processes over the years. This does not seem to be the case. With increasing bond
yields, treasury income will come down and if the banks wish to make large provisions, the
money will have to come from their interest income, and this in turn, shall bring down the
profitability of banks.
The entry of new generation private sector banks has changed the entire scenario. Earlier the
household savings went into banks and the banks then lent out money to corporate. Now they
need to sell banking. The retail segment, which was earlier ignored, is now the most
important of the lot, with the banks jumping over one another to give out loans. The
consumer has never been so lucky with so many banks offering so many products to choose
from. With supply far exceeding demand it has been a race to the bottom, with the banks
undercutting one another. A lot of foreign banks have already burnt their fingers in the retail
game and have now decided to get out of a few retail segments completely.The nimble
footed new generation private sector banks have taken a lead on this front and the public
sector banks are trying to play catch up. The PSBs have been losing business to the private
sector banks in this segment. PSBs need to figure out the means to generate profitable
business from this segment in the days to come.
In the recent past there has been a lot of talk about Indian Banks lacking in scale and size.
The State Bank of India is the only bank from India to make it to the list of Top 100 banks,
globally. Most of the PSBs are either looking to pick up a smaller bank or waiting to be
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picked up by a larger bank. The central government also seems to be game about the issue
and is seen to be encouraging PSBs to merge or acquire other banks. Global evidence seems
to suggest that even though there is great enthusiasm when companies merge or get acquired,
majority of the mergers/acquisitions do not really work. So in the zeal to merge with or
acquire another bank the PSBs should not let their common sense take a back seat. Before a
merger is carried out cultural issues should be looked into. A bank based primarily out of
North India might want to acquire a bank based primarily out of South India to increase its
geographical presence but their cultures might be very different. So the integration process
might become very difficult. Technological compatibility is another issue that needs to be
looked into in details before any merger or acquisition is carried out.
Banking is a commodity business. The margins on the products that banks offer to its
customers are extremely thin vis a vis other businesses. As a result, for banks to earn an
adequate return of equity and compete for capital along with other industries, they need to be
highly leveraged. The primary function of the bank's capital is to absorb any losses a bank
suffers (which can be written off against bank's capital).Norms set in the Swiss town of Basel
determine the ground rules for the way banks around the world account for loans they give
out. These rules were formulated by the Bank for International Settlements in 1988.
Essentially, these rules tell the banks how much capital the banks should have to cover up for
the risk that their loans might go bad. The rules set in 1988 led the banks to differentiate
among the customers it lent out money to. Different weightage was given to various forms of
assets, with zero percentage weightings being given to cash, deposits with the central
bank/govt. etc, and 100 per cent weighting to claims on private sector, fixed assets, real
estate etc. The summation of these assets gave us the risk-weighted assets. Against these risk
weighted assets the banks had to maintain a (Tier I + Tier II) capital of 9 per cent i.e. every
Rs100 of risk assets had to be backed by Rs 9 of Tier I + Tier II capital. To put it simply the
banks had to maintain a capital adequacy ratio of 9 percent. The problem with these rules is
that they do not distinguish within a category i.e. all lending to private sector is assigned a
100 per cent risk weighting, be it a company with the best credit rating or company which is
in the doldrums and has a very low credit rating. This is not an efficient use of capital. The
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company with the best credit rating is more likely to repay the loan vis a vis the company
with a low credit rating. So the bank should be setting aside a far lesser amount of capital
against the risk of a company with the best credit rating defaulting vis a vis the company
with a low credit rating. With the BASEL-II norms the bank can decide on the amount of
capital to set aside depending on the credit rating of the company. Credit risk is not the only
type of risk that banks face. These days the operational risks that banks face are huge. The
various risks that come under operational risk are competition risk, technology risk, casualty
risk, crime risk etc. The original BASEL rules did not take into account the operational risks.
As per the BASEL-II norms, banks will have to set aside 15 per cent of net income to protect
themselves against operational risks.
Over the last few years, the falling interest rates, gave banks very little incentive to lend to
projects, as the return did not compensate them for the risk involved. This led to the banks
getting into the retail segment big time. It also led to a lot of banks playing it safe and putting
in most of the deposits they collected into government bonds. Now with the bond party over
and the bond yields starting to go up, the banks will have to concentrate on their core
function of lending. The banking sector in India needs to tackle these challenges successfully
to keep growing and strengthen the Indian financial system.
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Punjab National Bank (PNB) was established in 1895 in anarkali bazaar at Lahore,
undivided India, Punjab National Bank (PNB) has the distinction of being the first Indian
bank to have been started solely with Indian capital. The bank was nationalised in July 1969
along with 13 other banks. From its modest beginning, the bank has grown in size and stature
to become a front-line banking institution in India at present. Today, the Bank is the second
largest government-owned commercial bank in India with about 5000 branches across 764
cities. It serves over 37 million customers. The bank has been ranked 248th biggest bank in
the world by the Bankers Almanac, London. The bank's total assets for financial year 2007
were about US$60 billion. It has Strong correspondent banking relationships with more than
217 international banks of the world. More than 50 renowned international banks maintain
their Rupee Accounts with PNB. PNB has a banking subsidiary in the UK, as well as
branches in Hong Kong, Dubai and Kabul, and representative offices in
Almaty, Dubai, Oslo, and Shanghai. PNB's founders included several leaders of
the Swadeshi movement such as Dyal Singh Majithia and Lala HarKishen Lal Lala
Lalchand, Shri Kali Prosanna Roy, Shri E.C. Jessawala, Shri Prabhu Dayal, Bakshi Jaishi
Ram, and Lala Dholan Dass. Lala Lajpat Rai was actively associated with the management
of the Bank in its early years.
HISTORY
1895: PNB commenced its operations in Lahore.
1904: PNB established branches in Karachi and Peshawar.
1940: PNB absorbed Bhagwan Dass Bank, a scheduled bank located in Delhi circle.
1947: Partition of India and Pakistan at Independence. PNB lost its premises in
Lahore, but continued to operate in Pakistan.
1951: PNB acquired the 39 branches of Bharat Bank (est. 1942); Bharat Bank
became Bharat Nidhi Ltd.
1961: PNB acquired Universal Bank of India.
1963: The Government of Burma nationalized PNB's branch in Rangoon (Yangon).
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1965: After the Indo-Pak war the government of Pakistan seized all the offices in
Pakistan of Indian banks, including PNB's head office, which may have moved to
Karachi. PNB also had one or more branches in East Pakistan Bangladesh.
1960s: PNB amalgamated Indo Commercial Bank (est. 1933) in a rescue.
1969: The Government of India (GOI) nationalized PNB and 13 other major
commercial banks, on July 19, 1969.
1976 or 1978: PNB opened a branch in London.
1986 The Reserve Bank of India required PNB to transfer its London branch to State
Bank of India after the branch was involved in a fraud scandal.
1988: PNB acquired Hindustan Commercial Bank (est. 1943) in a rescue. The
acquisition added Hindustan's 142 branches to PNB's network.
1993: PNB acquired New Bank of India, which the GOI had nationalized in 1980.
1998: PNB set up a representative office in Almaty, Kazakhstan.
2003: PNB took over Nedungadi Bank, the oldest private sector bank in Kerala. At
the time of the merger with PNB, Nedungadi Bank's shares had zero value, with the
result that its shareholders received no payment for their shares.
PNB also opened a representative office in London
2004: PNB established a branch in Kabul, Afghanistan.
PNB also opened a representative office in Shanghai.
PNB established an alliance with Everest Bank in Nepal that permits migrants to
transfer funds easily between India and Everest Bank's 12 branches in Nepal.
2005: PNB opened a representative office in Dubai.
2007: PNB established PNBIL - Punjab National Bank (International) - in the UK,
with two offices, one in London, and one in South Hall. Since then it has opened a
third branch in Leicester, and is planning a fourth in Birmingham.
2008: PNB opened a branch in Hong Kong.
2009: PNB opened a representative office in Oslo, Norway, and a second branch in
Hong Kong, this in Kowloon.
2010: PNB received permission to upgrade its representative office in the Dubai
International Financial Centre to a branch.
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Bank with over 56 million satisfied customers and 5002 offices, PNB continue
to retain its leadership position among nationalised banks. The bank enjoys strong
fundamental, large franchise value and good brand image. Besides being ranked as
one of India's top service brands, PNB has remained fully committed to its
guiding principles of sound and prudent banking. Apart from offering banking products, the
bank has also entered the credit card & debit card business; bullion business; life and non-life
insurance business; Gold coins & asset management business, etc.
PNB has achieved significant growth in business which at the end of March 2010
amounted to Rs 435931 crore. Today, with assets of more than Rs 2,96,633 crore, PNB is
ranked as the 3rd largest bank in the country (after SBI and ICICI Bank) and has the 2nd
largest network of branches (5002 offices including 5 overseas branches ).During the FY
2009-10, with 40.85% share of CASA deposits, the bank achieved a net profit of Rs 3905
crore. Bank has a strong capital base with capital adequacy ratio of 14.16% as on Mar’10 as
per Basel II with Tier I and Tier II capital ratio at 9.15% and 5.01% respectively. As on
March’10, the Bank has the Gross and Net NPA ratio of 1.71% and 0.53% respectively.
During the FY 2009-10, its’ ratio of Priority Sector Credit to Adjusted Net Bank Credit at
40.5% & Agriculture Credit to Adjusted Net Bank Credit at 19.7% was also higher than the
stipulated requirement of 40% & 18%. The Bank has maintained its stake holder’s interest by
posting an improved NIM of 3.57% in Mar’10 (3.52% Mar’09) and a Return on Assets of
1.44% (1.39% Mar’09). The Earning per Share improved to Rs 123.98 (Rs 98.03 Mar’09)
while the Book value per share improved to Rs 514.77 (Rs 416.74 Mar’09)
Punjab National Bank continues to maintain its frontline position in the Indian banking
industry. In particular, the bank has retained its NUMBER ONE position among the
nationalized banks in terms of number of branches, Deposit, Advances, total Business,
Assets, Operating and Net profit in the year 2009-10. The impressive operational and
financial performance has been brought about by Bank’s focus on customer based business
with thrust on CASA deposits, Retail, SME & Agri Advances and with more inclusive
approach to banking; better asset liability management; improved margin management,
thrust on recovery and increased efficiency in core operations of the Bank. The performance
highlights of the bank in terms of business and profit are shown below: Rs in Crore
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PNB has always looked at technology as a key facilitator to provide better customer service
and ensured that its ‘IT strategy’ follows the ‘Business strategy’ so as to arrive at “Best Fit”.
The bank has made rapid strides in this direction. All branches of the Bank are under Core
Banking Solution (CBS) since Dec’08, thus covering 100% of its business and providing
‘Anytime Anywhere’ banking facility to all customers including customers of more than
3000 rural & semi urban branches. The bank has also been offering Internet banking services
to the customers of CBS branches like booking of tickets, payment of bills of utilities,
purchase of airline tickets etc. Towards developing a cost effective alternative channels of
delivery, the bank with more than 3500 ATMs has the largest ATM network amongst
Nationalized Banks.
With the help of advanced technology, the Bank has been a frontrunner in the
industry so far as the initiatives for Financial Inclusion is concerned. With its policy of
inclusive growth in the Indo-Genetics belt, the Bank’s mission is “Banking for Unbanked”.
The Bank has launched a drive for biometric smart card based technology enabled Financial
Inclusion with the help of Business Correspondents/Business Facilitators (BC/BF) so as to
reach out to the last mile customer. The Bank has started several innovative initiatives for
marginal groups like rickshaw pullers, vegetable vendors, dairy farmers, construction
workers, etc. Under Branchless Banking model, the Bank is implementing 40 projects in 16
States. The Bank launched an ambitious ‘Project Namaskar’ under which 1 lakh touch points
will be established in unbanked villages by 2013 to extend the Bank’s outreach. Under this,
30 Kiosks have been opened covering 119 Villages reaching 1.32 Lakh beneficiaries.
Backed by strong domestic performance, the bank is planning to realize its global
aspirations. Bank continues its selective foray in international markets with presence in 9
countries, with branches at Kabul and Dubai, Hong Kong & representative offices at Almaty,
Dubai, Shanghai and Oslo, a wholly owned subsidiary in UK, a joint venture with Everest
Bank Ltd. Nepal and a JV banking subsidiary “DRUK PNB Bank Ltd.” in Bhutan. Bank is
pursuing up gradation of its representative offices in China & Norway and is in the process
of setting up a representative office in Sydney, Australia and taking controlling stake in JSC
Dana Bank in Kazakhstan.
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MISSION
"Banking for the unbanked"
“TO provide excellent professional services and improve its position as a leader in
financial and related services; build and maintain a team of motivated and committed
workforce with high work ethos; use latest technology aimed at the customer
satisfaction and act as effective catalyst for socio- economic development”
SKOTCH Challenger Award for Change Management for the year 2005-06
Best IT User in Banking & Financial by NASSCOM in partnership with Economic
Services Industry - 2004 Times
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9th amongst India's Top 50 Most A.C Nielson Survey, The Economic Times Dec
Trusted Service Brands 2004
3rd Rank amongst Banking Sector
in India The Bankers' Almanac, January 2006
323rd Rank in the World
368 amongst Top 1000 Global
The Banker, London July 2005
Banks
Winner for becoming a pioneer in public banks
Skoch Challenger Award for
by Skoch consultancy services pvt ltd, Gurgaon
Exemplary Use of Technology
2005
FICCI's Rural Development Award Award for excellence in rural development 2005
Amity Business School, Noida has conferred the
Award to PNB, after an in-depth research to
analyse the strengths and core competencies of
Amity Global Corporate Excellence
the Global 500 companies and banks which have
Award
already made an indelible most admired
impression on the Indian economy. 2008
& 2007 & 2005
IBA, Finacle & TFCI jointly adjudged PNB as
Banking Technology Awards runner up in "Best IT Team of the year Award"
2005
Best IT Implementation 2007
PC Quest Users’ Choice Award
& 2005
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Hierarchy
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Board of Directors
• Sh.K.R. Kamath:- He has been appointed as a chairman and managing director of
Punjab National Bank by Govt. Of India.
• Sh. M.V.Tanksale:- Executive Director
• Sh. Nagesh Pydah:- Executive Director
• Smt. Ravneet Kaur:- Govt. of India Nominee Director
• Shri L.M.Fonseca:- Reserve Bank of India Nominee Director
• Shri Mushtaq A Antulay:- Part-time non-official Director
• Shri Gautam P. Khandelwal:- Part-time non-official Director
• Shri Vinod Kumar Mishra:- Part-time non-official Director
• Shri Tribhuwan Nath Chaturvedi :- Share Holder Director
• Shri G R Sundaravadivel:- Share Holder Director
• Shri Devinder Kumar Singla: Share Holder Director
• Sh. M P Singh:- Workmen Employees Director
• Sh. Pradeep Kumar:- Officer Director
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Review of Literature
Literature review provides available research with respect to the selected topic of the project
or the research findings by an author which has been done with respect to the research topic.
This chapter provides the overall view of the available literature with respect to the topic of
the project. The review of the related research works are described as under:-
1. A research work on the topic “ On the appraisal on consumer credit banking products
with the asset quality frame: A multiple criteria application.” done by Panagiotis Xidonas,
Alexandros Flamos, Sortirios Koussouris, Dimitrious Askouins & Ioannis Psarras from
National Technical University of Athens in 2007 says that Asset quality refers to the
likelihood that the bank's earning assets will continue to perform and requires both a
qualitative and quantitative assessment. Decision problems like the "internal appraisal of
banking products", are problems with strong multiple-criteria character and it seems that the
methodological framework of Multiple Criteria Decision Making could provide a reliable
solution. In this paper, the Asset Quality banking indicators are the, so called, "criteria", the
value of these indicators are the, so called, "scores" in each criterion and the
P.R.O.METH.E.E. [Preference Ranking Organization Method of Enrichment Evaluations,
Brans & Vincke (1985)] Multiple Criteria method is applied, towards modelling banking
products appraisal problems. A Multiple Criteria process, strictly mathematically defined,
integrates the behaviour of each indicator-criterion and utilizes each score in order to rank
the so called "alternatives", i.e. categories of banking products.
2. The research Paper on “Evaluation of decision support systems for credit management
decisions” by S. Kanungo, S.Sharma, P.K. Jain from Department of studies, IIT Delhi have
conducted a study to evaluate the efficiency of decision support system (DSS) for credit
management. This study formed a larger initiative to access the effectiveness of the I.T based
credit management process at SBI. Such a study was necessitated since credit appraisal has
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become an integral sub-function of the Indian banks in view of growing incidence of non-
performing assets. The DSS they have assessed was a credit appraisal system developed by
Quuattro pro at SBI. This system helps in analysis of balance sheets, Calculation of financial
ratios, cash flow analysis, future projections, sensitivity analysis and risk evaluation as per
SBI norms. They have also used a strong Quassi experimental design called Solomon’s four
group design for the assessment. In the experiment the managers of SBI who attended the
training programme were the subjects the experiment consisted of the measurements that
were taken as pre and post tests. An experimental intervention was applied between the pre-
tests and the pro-tests. The intervention or stimulus consisted of DSS training and use. There
were four groups in the experiment. The stimulus remained constant as the they took care to
ensure that the course content as well as the instructors remained the same during the course
of the experiment. Two were experimental groups and two were control groups. All four
groups underwent training in credit management between the pre and the post tests. Results
from research shows that while the DSS is effective, improvement needs to be done in the
methodology to assess such improvements. Moreover such assessment frameworks while
being adequate from a DSS-centric viewpoint do not respond to the assessment of DSS in an
organizational setting . In the concluding section they have discussed how this evaluative
framework can be strengthened to initiate an activity that will allow the long term and
possibly the only meaningful evaluation framework for such a system.
3. The research paper on the topic “Towards an appraisal of the FMHA farm credit
program: A case study of the efficiency of borrower by S. Mehdian, Wm. McD. Herr, Phil
Eberle, and Richard Grabowski” have studied that the a production frontier methodology is
used to measure the overall efficiency of a sample of farmers home administration(FMHA)
compared to non participants. The study did not find evidence that the efficiency FMHA
farms improved between a time period Results indicated that overall efficiency of FMHA
borrowers is associated with selected financial characteristics of the farms. A review of the
literature shows that agricultural finance specialists have not been successful in evaluating
whether FMHA pro- grams improve the efficiency and income of probability of success.
Liberal loan policies
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Eligible borrowers. Inadequate evaluation of the FMHA program occurs partly because of
because the difficulty of adequately deter-mining the impacts of changes in the econ-
borrowers in a more normal period of the loan. This study addressed these difficulties by
utilizing a nonparametric production frontier technique to measure overall efficiency and a
matched pair statistical procedure to measure how efficiency of farms receiving FMHA
credit changed relative to a Non-FMHA farmers.
4. The book named “Financial Analysis for Bank Lending in Liberalised Economy” by
Sampat.P.Singh and Dr.S.Singh have discussed the subject financial analysis for bank
lending has assumed considerable importance, particularly since early 1990's when, like
most of the countries, India opted for the policy of liberalisation and globalisation after 1991.
The present volume is meant to be a standard reference as well as text book on the varied
facets of financial analysis with reference to credit management by Banks and Financial
Institutions. The book consists of three parts. Part I discusses the concepts and tools of
Financial Analysis; Part II explains various concepts of working capital in its historical
context; while Part III demonstrates the application of these tools in the changing context of
liberalised economy by focusing on new concepts like 'Credit Worthiness', Risk-Analysis,
Credit Rating, Products-Differentiation, Pricing-Differentiation, Asset-Liability
Management, etc. The book contains- Bank Lending and Industrial Finance in India ,Basic
Economics for Bankers and Business Managers ,Introduction to Fundamentals Accounting
Principles ,Profit and Loss Account (Operating Statement) ,Analysis of Profit and Loss
Account (Operating Statement) ,Structure and Analysis of Balance Sheet ,Ratios as Tools of
Financial Statements Analysis ,Accounting Flows : Income, Cash and Funds ,Break-even
Analysis and Margin of Safety ,Appraisal of Capital Projects ,New Conceptual Framework
for Analysis, Liberalised Era and New Focus of Bank Lending ,Managing Working Capital
by Strategic Choice , Financing Working Capital : Conceptual and Historical
Exposition,Creditworthiness and Credit Rating : At Centre stage Nucleus of Credit Appraisal
, Working Capital Management-I : MPBF System of Appraisal and Bifurcation of Fund-
Based Limit in Two Components Working Capital Management-II : Alternative Methods of
Appraisal ,Working Capital Management-III : Follow-up and Supervision , Appraisal of a
New Project Involving Term Loan , Management of Problem Accounts , Management of
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5. The research paper on the topic “Competitive analysis in banking: Appraisal of the
methodologies” by Nicola Cetorelli has discussed about the U.S. banking industry has
experienced significant structural changes as the result of an intense process of consolidation.
From 1975 to 1997, the number of commercial banks decreased by about 35 percent, from
14,318 to 9,215. Since the early 1980s, there have been an average of more than
400 mergers per year (see Avery et al., 1997, and Simmons and Stavins, 1998). The
relaxation of intrastate branching restrictions, effective to differing degrees in all states by
1992, and the passage in 1994 of the Riegle.Neal Interstate Banking and Branching
Efficiency Act, which allows bank holding companies to acquire banks in any state and,
since June 1, 1997, to open interstate branches, is certainly accelerating the process of
consolidation. These significant changes raise important policy concerns. On the one hand,
one could argue that banks are merging to fully exploit potential economies of scale and/or
scope. The possible improvements in efficiency may translate into welfare gains for the
economy, to the extent that customers pay lower prices for banks. services or are able to
obtain higher quality services or services that could not have been offered before.1 On the
other hand, from the point of view of public policy it is equally important to focus on the
effect of this restructuring process on the competitive conditions of the banking industry. Do
banks gain market power from merging? If so, they will be able to charge higher than
competitive prices for their products, thus inflicting welfare costs that could more than offset
any presumed benefit associated with mergers. In this article, analysis of competition in the
banking industry is done highlighting a very fundamental issue: How market power is
measured and how do regulators rely on accurate and effective procedures to evaluate the
competitive effects of a merger.
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An ideal advance is the one given to a reliable customer for an approval purpose with
adequate experience, safe in knowledge that the money will be used to advantage and
repayment will be made within a reasonable period from trade receipts or known maturities
due on or about given dates.
Credit philosophy – “To achieve credit expansion required for sustaining the
profitability of the bank and emphasis on quality assets, profitable relationships and
prudent growth.”
CREDIT POLICY
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2. Adoption of a forward looking and market responsive approach for moving into
profitable new areas on lending which emerge, within the pre determined exposure
ceilings.
3. Sound risk management practices to identify measure, monitor and control risks.
4. Maximize interest yields from credit portfolio through a judicious management of
varying spreads of loan assets based upon their size, credit rating and tenure.
5. Leverage on strong relationships with existing long-standing clients to source a bulk
of new business by addressing their requirements comprehensively.
6. Ensure due compliance of various regulatory norms including CAR, income
recognition and asset classification
7. Accomplish balanced development of credit to various sectors and geographical
regions.
8. Achieve growth of credit to priority sectors / subsectors and continue to surpass the
targets stipulated by reserve bank of India.
9. Using of pricing as a tool of competitive advantage ensuring however that earnings
are protected.
10. Develop and maintain enhanced competencies in credit management at all levels
through a combination of training initiatives, promotion of self directed learning and
dissemination of best practices.
Objectives in Credit
• Credit volumes
• Earnings
• Asset quality
within the framework of regulatory prescriptions, corporate goals and bank’s social
responsibilities.
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Introduction to loans
Loans are advances for fixed amounts repayable on demand or in instalment. They are
normally made in lump sums and interest is paid on the entire amount. The borrower cannot
draw funds beyond the amount sanctioned.
Classification of Loans
Loans/Advances
Loans/Advances
Retail Loan
Bank Guarantee
Export Finance
Letter of Credit
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Bank provides credit in various forms. These are broadly classified into two categories-
Fund based and Non –Fund Based. Fund based refers to the type of credit where cash is
directly involved i.e. where bank provides money to the seeker in anticipation of getting it
back. Where as in a Non-fund Based, Bank doesn’t pay cash directly but gives assurance or
takes guarantee on behalf of its customer to pay if they fail to do so. In case on Fund Based
there are different categories of loans which are discussed as follows
I. RETAIL LOANS-
Retail banking in India is not a new phenomenon. It has always been prevalent in India in
various forms. For the last few years it has become synonymous with mainstream banking
for many banks.
The typical products offered in the Indian retail banking segment are:-
• Housing loans
• Consumer loans for purchase of durables
• Auto loans
• Educational loans
• Credit Cost.
• Personal loans
Retail loan is the practice of loaning money to individuals rather than institutions. Retail
lending is done by banks, credit unions, and savings and loan associations. These institutions
make loans for automobile purchases, home purchases, medical care, home repair, vacations,
and other consumer uses. Retail lending has taken a prominent role in the lending activities
of banks, as the availability of credit and the number of products offered for retail lending
have grown. The amounts loaned through retail lending are usually smaller than those loaned
to businesses. Retail lending may take the form of instalment loans, which must be paid off
little by little over the course of years, or non-instalment loans, which are paid off in one
lump sum.
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These loans are marketed under attractive brand names to differentiate the products offered
by different banks. As the Report on Trend and Progress of India, 2007-08 has shown that
the loan values of these retail lending typically range between Rs.20, 000 to Rs.100 lakh. The
loans are generally for duration of five to seven years with housing loans granted for a longer
duration of 15 years. Credit card is another rapidly growing sub-segment of this product
group. In recent past retail lending has turned out to be a key profit driver for banks with
retail portfolio. The overall impairment of the retail loan portfolio worked out much less then
the Gross NPA ratio for the entire loan portfolio. Within the retail segment, the housing loans
had the least gross asset impairment. In fact, retailing make ample business sense in the
banking sector.
Basic reasons that have contributed to the retail growth in India are-
• First, economic prosperity and the consequent increase in purchasing power has
given a fillip to a consumer boom. Note that during the 10 years after 1992, India's
economy grew at an average rate of 6.8 percent and continues to grow at the almost
the same rate – not many countries in the world match this performance.
• Second, changing consumer demographics indicate vast potential for growth in
consumption both qualitatively and quantitatively. India is one of the countries
having highest proportion (70%) of the population below 35 years of age (young
population). The BRIC report of the Goldman-Sachs, which predicted a bright future
for Brazil, Russia, India and China, mentioned Indian demographic advantage as an
important positive factor for India.
• Third, technological factors played a major role. Convenience banking in the form of
debit cards, internet and phone-banking, anywhere and anytime banking has attracted
many new customers into the banking field. Technological innovations relating to
increasing use of credit / debit cards, ATMs, direct debits and phone banking has
contributed to the growth of retail banking in India.
• Fourth, the Treasury income of the banks, which had strengthened the bottom lines of
banks for the past few years, has been on the decline during the last two years. In
such a scenario, retail business provides a good vehicle of profit maximisation.
Considering the fact that retail’s share in impaired assets is far lower than the overall
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bank loans and advances, retail loans have put comparatively less provisioning
burden on banks apart from diversifying their income streams.
• Fifth, decline in interest rates have also contributed to the growth of retail credit by
generating the demand for such credit.
According to K V Kamath, the changing demographic profile and a downward trend of the
interest rates will propel retail credit in India."There is a huge retail credit opportunity that is
surfacing. Banks have low penetration in this segment currently. But it is the one area that is
providing the momentum in the banking business now,” India has among the lowest
penetration of retail loans in Asia. Though the sector has been growing at around 15 per cent,
there is still a huge opportunity to tap into.
Middle and -high-income homes in India has increased to 2.57 crore (25.7 million). Interest
rates on retail loans have been dropping rapidly too. For instance residential mortgages
slumped by 7 per cent over the last four years."The entry of a number of banks in India in the
last few years has helped provide increased coverage and a number of new products in the
market," says Kamath.
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Term loans are the basic vanilla commercial loan. They typically carry fixed interest rates,
and monthly or quarterly repayment schedules and include a set maturity date. Bankers tend
to classify term loans into two categories:
• Intermediate-term loans: Usually running less than three years, these loans are generally
repaid in monthly instalments (sometimes with balloon payments) from a business's cash
flow. According to the American Bankers Association, repayment is often tied directly to
the useful life of the asset being financed.
• Long-term loans: These loans are commonly set for more than three years. Most are
between three and 10 years, and some run for as long as 20 years. Long-term loans are
collateralized by a business's assets and typically require quarterly or monthly payments
derived from profits or cash flow. These loans usually carry wording that limits the
amount of additional financial commitments the business may take on (including other
debts but also dividends or principals' salaries), and they sometimes require that a certain
amount of profit be set-aside to repay the loan.
Appropriate For: Established small businesses that can leverage sound financial statements
and substantial down payments to minimize monthly payments and total loan costs.
Repayment is typically linked in some way to the item financed. Term loans require
collateral and a relatively rigorous approval process but can help reduce risk by minimizing
costs. Before deciding to finance equipment, borrowers should be sure they can they make
full use of ownership-related benefits, such as depreciation, and should compare the cost
with that leasing.
Supply: Abundant but highly differentiated. The degree of financial strength required to
receive loan approval can vary tremendously from bank to bank, depending on the level of
risk the bank is willing to take on.
I. BILL DISCOUNTING
While discounting a bill, the Bank buys the bill (i.e. Bill of Exchange or Promissory Note)
before it is due and credits the value of the bill after a discount charge to the customer's
account. The transaction is practically an advance against the security of the bill and the
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discount represents the interest on the advance from the date of purchase of the bill until it is
due for payment.
Bills of exchange- A bill of exchange or "draft" is a written order by the drawer to the
drawee to pay money to the payee. A common type of bill of exchange is the cheque (check
in American English), defined as a bill of exchange drawn on a banker and payable on
demand. Bills of exchange are used primarily in international trade, and are written orders by
one person to his bank to pay the bearer a specific sum on a specific date. Prior to the advent
of paper currency, bills of exchange were a common means of exchange. They are not used
as often today.
A bill of exchange requires in its inception three parties--the drawer, the drawee, and the
payee.
The person who draws the bill is called the drawer. He gives the order to pay money to third
party. The party upon whom the bill is drawn id called the drawee. He is the person to whom
the bill is addressed and who is ordered to pay. He becomes an acceptor when he indicates
his willingness to pay the bill. The party in whose favor the bill is drawn or is payable is
called the payee.
Promissory Note- A promissory note is a written promise by the maker to pay money to the
payee. Bank note is frequently transferred as a promissory note, a promissory note made by a
bank and payable to bearer on demand. A maker of a promissory note promises to
unconditionally pay the payee (beneficiary) a specific amount on a specified date.
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• Pre Shipment Finance is issued by a financial institution when the seller want the
payment of the goods before shipment.
Non Fund Based loans generate income for the bank without committing the funds of
the bank. Bank generates substantial income under this head. There are two types of credit
under this category which are discussed as follows:-
I. BANK GUARANTEE-
A bank guarantee is a written contract given by a bank on the behalf of a customer. By
issuing this guarantee, a bank takes responsibility for payment of a sum of money in case, if
it is not paid by the customer on whose behalf the guarantee has been issued. In return, a
bank gets some commission for issuing the guarantee.
Any one can apply for a bank guarantee, if his or her company has obligations towards a
third party for which funds need to be blocked in order to guarantee that his or her company
fulfils its obligations (for example carrying out certain works, payment of a debt, etc.).
In case of any changes or cancellation during the transaction process, a bank guarantee
remains valid until the customer dully releases the bank from its liability.
In the situations, where a customer fails to pay the money, the bank must pay the amount
within three working days. This payment can also be refused by the bank, if the claim is
found to be unlawful.
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The LC can also be the source of payment for traction, meaning that redeeming the letter of
credit will pay an exporter. Letters of credit are used primarily in international trade
transactions of significant value, for deals between a supplier in one country and a customer
in another. They are also used in the land development process to ensure that approved
public facilities (streets, sidewalks, storm water ponds, etc.) will be built. The parties to a
letter of credit are usually a beneficiary who is to receive the money, the issuing bank of
whom the applicant is a client, and the advising bank of whom the beneficiary is a client.
Almost all letters of credit are irrevocable, i.e., cannot be amended or canceled without prior
agreement of the beneficiary, the issuing bank and the confirming bank, if any. In executing
a transaction, letters of credit incorporate functions common to giros and Traveler's cheques.
Typically, the documents a beneficiary has to present in order to receive payment include a
commercial invoice, bill of lading, and documents proving the shipment were insured against
loss or damage in transit. However, the list and form of documents is open to imagination
and negotiation and might contain requirements to present documents issued by a neutral
third party evidencing the quality of the goods shipped, or their place of origin.
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Building Up of a Proposal
1.GATHERING CREDIT INFORMATION:-
Information by definition is that data which is relevant and meaningful for making decisions.
An information system is an aid to the decision making, carrying out and altering decisions.
All information required by the banker in the pre-sanction period should become part of a
system. It should flow into the information system from various sources, such as the
borrower, bank’s own record, environment etc. A significant basis of banker-borrower
relationship is governed by the information which flows between the two parties. After
ascertaining the credit needs of the borrower, the banker looks towards information about his
borrower’s credit worthiness. He seeks out the credit information etc. from his co-bankers,
other borrowers and market information.
Information regarding character, honesty, and financial position has to be discreetly gathered
from following sources:
a. The borrower: the bank should develop as much credit information as possible during
the initial interview with the borrower/partners of firm/ directors of company/
proposed guarantor /co-obligator and principal officials of firms/company, nature of its
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business, past and expected profitability, the degree of competition that the
firm/company faces and whether or not it has had or anticipated any difficulty etc.
Information regarding its principal officers should be collected during such interview.
c. Banks own records: If he is an existing borrower, bank’s own records are a rich
source of additional information. Operations in the borrower’s account and other
dealings at the bank level in regard to collections, discounting/retirement of bills etc.
often useful clues to borrower’s operating and financial transactions. A review of the
previous year’s operations in the account and assessments of borrowers’ financial
statements relating to that period will provide a rich source of information about the
borrower.
d. Opinions: Bank should compile opinions on their borrowers. They should contain
full and reliable records of the character, estimated means and business activities of all
firms and individuals who are under any form of liability to the bank, whether as direct
borrowers or as co-obligators. Full particulars of parties immovable properties where
they are situated, whether they are free from encumbrance and in the case of land,
acreage should be recorded together with fair estimates of their value. As far as
possible written statements of their properties should be taken in evaluating properties
owned by parties jointly with others and as a rule such properties should be
disregarded in arriving at the net means.
e. From other banks: in respect of fresh proposals, enquiries with local banks should be
made before entertaining the proposal to avoid multiple financing without our full
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knowledge. In case of new customer having dealings with other banks, confidential
opinion of his banker has to be obtained.
f. Income tax assessment order- Income tax assessment orders agricultural income tax
assessment orders give an insight into the borrower’s account and the extent to which
it is profitable. Comments thereon by the income tax office shall indicate the
shortcomings (lacunae) in the business. In the case of estate owners agricultural tax
assessment orders to be obtained to arrive at parties credit worthiness.
g. Sales tax assessment orders: Sales tax assessment orders will reveal the turnover in
business and when read with trading/ manufacturing and profit & loss account, it may
be possible to have a fair assessment of tendencies in trade i.e., whether over-trading
or carefully trading within recourses at command or trading entirely on the borrowed
funds.
h. Wealth tax assessment orders: wealth tax assessment order will indicate the net
worth of individuals and reveals the liquid source available to bring the required
margin money for the venture.
i. Market sources: Constant touch with the market will help to have first hand
information about the gains or losses in particular business transactions of the
borrowers.
j. Property statements: The property statement of borrower will give an idea of his
worth, liabilities and his income from real estate’s (immovable properties).
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l. Other external sources: other external sources, if any, like stock exchange directory,
business periodicals/magazines/journals etc.
1. Partnership:
• Copy of partnership deed
• Copy of certificate of registration of firm (if registered)
1. Company :
• Memorandum and articles of association
• Certificate of incorporation
• Certificate of commencement of business
• Search report indicating subsisting charges on the assets of the company.
• Board resolution for borrowings, creation on the assets of the company and
execution of the documents.
1. Cooperative societies
• Bylaws
• Permission from registrar for the borrowings, creation of charge on the assets
of the society and execution of documents.
1. Trusts
• Trust deed
• Resolution for the borrowings and execution of documents.
1. Industrial units :
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FINANCIAL APPRAISAL
On receipt of a loan application the banker begins the process of financial appraisal. The first
thing done is to analyze the financial statements. Therefore, an understanding of these
financial statements is important for the appraiser.
Once balance sheet is taken for analysis the following items are checked up:
1. Fixed assets: To find out any revaluation of fixed assets done by the company to
improve their net worth.
• The schedules of the fixed assets should be checked up.
• Study notes on accounts and comments of auditors should be checked.
• Schedule for reserve should be studied
• Any change in the accounting procedure of depreciation should be checked
2. Current assets: to find out whether the assets stated are really liquid or
not.
• The schedules under current liabilities and current assets to ascertain any
obsolete or slow moving raw material or finished good and old debtors or
receivables should be checked
• The auditor’s report should be read and understood properly.
• The claims lodged against receivables must be studied
• The receivables due from sister/associate concerns must be studied.
3. Other Current Assets: Their reasonableness and their need to maintain them for the
business.
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• Various components of other current assets and if the same is more than 5%
-10%, ascertain the nature and need for maintaining such amount ; any assets
which is not used in the into day business activity shall be removed and proper
treatment is to be made accordingly.
• Bank guarantee or letter of credit margin shall be shown as non- current assets.
3. Term liabilities: To find out whether the liabilities are long term or short term, and
its needs and regularity
• This shall be decreasing year after year; if it has increased, then the reason for
the same is to be looked into (may be irregular or new term loan availed for
expansion etc.)
• The term liabilities with repayment of the same and the amount payable during
the year shall be deducted from the term liabilities as current liabilities for
finding out liquidity position of the company should be checked.
3. Stocks:
• The stock statements and QIS forms to find the authenticity of the figures
reported under stock/receivables.
• Change in the valuation of the stock/finished goods, if any, is to be verified to
find out its effect on the profitability of the company.
3. Intangible assets :
• Any abnormal increase in this figure shall be studied to find out the reasons for
the same; this may be due to take over by others also.
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3. Accounting Norms:
• Any change in the accounting norms from the past shall be studied to find out
the reasons for the same; its effect on the net profit, net worth of the company
is to be ascertained.
• Increased in last year sales are always good; if the net profit also has increased
correspondingly the performance can be noted as satisfactory.
• If the sales has come down or the net profit has also come down then the
reason has to be ascertained. If the unit earned at least cash profit then the
position may be considered as satisfactory.
• If the NP to N/sales is positive, that is sufficient for accepting as
satisfactory; but as per the credit rating chart maximum marks are assigned if
the borrower achieves 8% as percentage of net profit/net sales.
• Return on investment or Return on equity may also be used to find out the
return on capital invested.
1. Long term Strength of a company is calculated based on the level of the net worth
of the company /promoters stake/loans from close relatives-
• If the net worth has increased due to infusion of fresh capital or plough back
of profit, it can be termed as satisfactory; even increase of loan from friends &
relatives is a good sign.
• If the net worth is decreasing, reason may due to net loss or diversion; true
reason needs to be ascertained.
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• If the D/E ratio is less than 2:1 the same is good; further if the TOL/TNW is
less than 5:1 then the unit’s solvency is noted to be satisfactory. The ratio
indicates that borrower has not borrowed much and the outside debts within a
reasonable limit.
• If the current ratio is increasing and nearer to 1.5 and above then we can note
the position is satisfactory.
• Expected Current ratio is 1.22:1 and above; if the ratio is less than 1.22:1 then
the promoter’s margin (Net working capital) towards Working Capital may
not be sufficient to cover the working capital limit; care shall be taken to
ensure that sufficient Net working capital for the working capital enjoyed is
available.
• When the Current ratio is poor and the Net working capital is not sufficient to
cover the existing limit, no further term loan shall be sanctioned and the party
is to be advised not to take up any fresh investment in fixed assets.
4. Contingent liability:
• The effect of this liability on the net worth of the company; if it’s effect is
less than 5-10 % of the net worth of the company ,the same may be noted; but
if it threatens the existence of the company then the position needs serious
analysis.
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Credit appraisal techniques act as tool for the credit portfolio managers to take right
decisions. It is the first and the prime most function performed by the Credit Appraisal Cell
before providing any sort loans or advances. The appraisal technique for each type of loan is
separate from each other. Each type of loan whether secured or unsecured has to be analyzed
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in a different way. The different techniques of credit analysis or credit appraisal are
discussed as under:
Term loans- Loans which are repayable in not less than 36 months are referred to as term
loans. In the interest of sound risk management practices, banks monitor the percentage of
Term loans in their credit portfolio with a view to keeping the term loan component within a
pre-determined percentage.
Requirements to be obtained with the proposal:
b) Where loan is on participation basis, a copy of the appraisal note of the lead institution /
bank should be obtained.
c) Scrutiny of proposals
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Assessment :
For assessment purposes the forms prescribed are used and debt equity ratio, average DSCR,
BEP, pay back period, etc. are taken into consideration. The following minimum financial
parameters are required to be satisfied for a Term loan proposal to merit consideration:
It should be noted that the banks generally consider only term loans repayable
within 5 to 7 yrs. Term loans with maturity beyond 7 yrs are normally not
experienced except infrastructure loans.
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Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal financial
statements as well as companies'.
A high debt/equity ratio generally means that a company has been aggressive in
financing its growth with debt. This can result in volatile earnings as a result of
the additional interest expense. If a lot of debt is used to finance
increased operations (high debt to equity), the company could potentially generate
more earnings than it would have without this outside financing. If this were to
increase earnings by a greater amount than the debt cost (interest), then the
shareholders benefit as more earnings are being spread among the same amount
of shareholders. However, the cost of this debt financing may outweigh the return
that the company generates on the debt through investment and business activities
and become too much for the company to handle. This can lead to bankruptcy,
which would leave shareholders with nothing.
The debt/equity ratio also depends on the industry in which the company
operates. For example for large projects (with project cost Rs. 100 crore and
above) in Power, acceptable level of DER is 2.33:1, in Iron and Steel Industry
2.25:1 , in Infrastructure and Capital Intensive projects 2:1 and in Real Estate,
level of DER is 1.75:1. The CH, GM, ED and CMD have powers to further relax.
The ultimate purpose of project appraisal is to ascertain the viability of a project which has a
direct bearing on the repayment of the instalments under the proposed term loan / deferred
payment guarantee. While the repayment program will depend upon the profitability of a
project, the quantum of annual instalments has to be related to the size of the annual cash
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flows. The repayment schedule should, therefore, be fixed after ascertaining the annual
servicing by the debt service coverage ratio.
The debt service coverage ratio is the core test ratio in project financing. This ratio indicates
the degree of viability of a project and influences in fixing the repayment period, and the
quantum of annual instalments. For the purpose of this ratio , “debt” means maturing term
obligations viz. instalments payable during a year under all the term loans/ deferred payment
guarantees and ‘service’ means cash accruals (service) available to cover the maturing
obligation (debt) during each year.
The debt service coverage ratio indicates the ability of the firm to generate cash
accruals for repayment of installment and interest. For example, a DSCR of 3:1 indicates
that for each Re.1/-long term debt including interest to be paid the business generates cash
accrual of Rs.3/- to be utilized for repayment of debt. The difference between the accruals
and debt is known as margin of safety (Rs.2/- in this case).
The ratio of 1.5 to 2 is considered reasonable. Ratio lower than this should
be further looked into. A very high ratio may indicate the need for lower moratorium
period/repayment of loan in a shorter schedule. This ratio provides a measure of the ability
of an enterprise to service its debts i.e. `interest' and `principal repayment' besides indicating
the margin of safety. The ratio may vary from industry to industry but has to be viewed with
circumspection when it is less than 1.5.
A. The breakeven point is calculated to note the level of production at which the unit neither
earns profit nor incur loss. BEP is the level of operations (in terms of sales or production or
capacity utilization) at which total revenues are equal to total operating costs (fixed and
variable) or, in other words, the operating profit is equal zero. He firm starts earning
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operating profits only after the break-even is reached. At BEP, “contribution” exactly equals
the “fixed costs.
B. The formula for calculating the break-even point for each year is as under:
C. Certain items of the cost that are to be incurred by the unit irrespective of the level of
production are called as fixed cost. The same includes depreciation, repairs and maintenance,
interest, certain portion of salaries, rent, insurance, selling expenses other than variable items
and administrative expenses
D. The variable cost changes with the levels of production. It includes cost of raw materials,
direct wages and other items, which are apportion able to unit of production.
It is a useful method for considering also the risk implications of alternative actions. From
one alternative a firm may expect higher profit and also a higher break-even point, while
another alternative may produce comparatively lower profit but at a lower break-even point.
The firm has to weigh the probability (riskiness) of reaching the break-even in the first case
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before choosing that alternative. Generally, the preferred alternative would be where the
break-even will be reached earlier.
Caution:
➢ Relationship between revenue, variable costs and volume may not be linear.
➢ It is not always easy to have a clean separation of costs into fixed and variable
components.
➢ Fixed costs may be ‘stepped’ – not fixed over all volumes.
Complexity involved in using BEP analysis in multi-product businesses
Illustration:
Assumed:
BEP (sales) : (Fixed cost / Contribution)* Rs. 41.25 lakh = Rs. 20.27 lakh
SENSITIVITY ANALYSIS
Projects do not always run to plan. Costs and benefits estimated at an early stage of a
project may indicate a profitable project, but this profit could be eroded by an increase in
costs or a decrease in the value of the benefits (the revenue). Sensitivity Analysis involves
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changing input variable estimates from an original set of estimates (called the base case)
and determine their impact on a project’s measured results, such as NPV (or IRR) from
investor’s viewpoint, or DSCR from banker’s point of view.
The Sensitivity Analysis helps in arriving at profitability of the project wherein critical or
sensitive elements are identified which are assigned different values and the values assigned
are both optimistic and pessimistic such as increasing or reducing the sale price/sale
volume, increasing or reducing the cost of inputs etc. and then the project viability is
ascertained.
The critical variables can then be thoroughly examined by generally selecting the
pessimistic options so as to make possible improvements in the project and make it
operational on viable lines even in the adverse circumstances.
In the absence of any defined factors and its values for carrying out the sensitivity analysis, a
common 5% sensitivity factor on sale price/cost price of major raw materials is to be
applied in appraisals of all the projects irrespective of the industry. However, 10% sensitivity
factor may be applied in highly volatile industries by assessing the expected volatility in sale
price/ cost price of major raw materials in future on case to case basis.
Working capital for any unit means the total amount of circulating funds required for
meeting day to day requirements of the unit. For proper working a manufacturing unit needs
a specific level of current assets such as raw material, stock in process, finished goods,
receivables and other current assets such as cash in hand/ bank and advances etc. So the
working capital means the funds invested in current assets. The trading units need the
working capital for storing the goods and allowing credit to its customers.
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Gross working capital means the total funds required for financing the total current assets.
Net Working capital means the difference the current assets and liabilities. In other words ,
net working capital denotes the portion of gross working capital contributed from long term
sources. As per practice of Indian banks net working capital should normally be 25% of total
current assets which will give a current ratio of 1.33 to the unit. When net working capital is
negative, it implies that the short term funds have been diverted / used for long term uses and
the unit is facing a liquidity crunch. Such situation may also arise due to losses. In such a
situation, the need of the hour is for raising long term sources. A unit needs working capital
because the production, sales and realizations are not simultaneous. The unit needs cash to
purchase the raw material and pay expenses as there may not be perfect matching between
cash inflows and outflows. The stock of raw material is kept to ensure the uninterrupted and
smooth production. It may also be required to cover the situations of shortages etc.
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6. Type of customers: When there are regular customers, low stock of finished products
is needed. When the sales are to be made to walk- in customers, more level of stock
of finished products is required.
7. Seasonality Factor: When the raw material required is available in a particular season,
the stock for whole of year is to be purchased in the particular season. E.g.
Sugarcane, Cotton, Paddy etc. Similarly the woollen products and products required
in a particular season such as ACs, for keeping the production running, higher level
of finished stocks have to be kept.
Role of Banker:
The unit should have sufficient amount of working capital. A portion of it is to be financed
from long term sources called the liquid surplus or net working capital (NWC). The
remaining is normally financed by the bank in the form of working capital limits. Excess
maintenance of working capital may result in idle resources and high interest cost whereas
less amount of working capital may mean disruption in the working. So both the situations
are to be avoided. That is why the technique of calculation of right amount of working
capital assumes significance. For financing of working capital, a banker should be able to
calculate right amount of working capital needed by the unit being financed. It shall mean
right amount of financing which will result in higher profitability for the unit and safety of
funds of the bank.
Parameters for various stages in computation of working capital:
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The assessment of working capital requirement of business unit has been engaging the
attention of the Govt., RBI and a series of committees were set up to suggest appropriate
modalities of financing working capital as under.
Realising the absence of a proper control system in the flow of bank credit for working
capital, RBI constituted a working group “Tandon Committee’ in July 1974 under the
chairmanship of Shri P.L. Tandon. The main task of the group was:
1. To suggest guidelines to commercial banks to follow up and supervise credit from the
view of ensuring proper end use of the funds and keeping a watch on the safety of the
advances.
2. To suggest as to what constitutes the working capital requirements of industry and to
suggest the sources for financing the minimum working capital requirements.
3. To suggest the maximum level of bank finance and the method to compute the same.
4. To make recommendations as to whether the existing pattern of financing working
capital requirements by cash credit or overdraft etc. requires to be modified. If so, to
suggest suitable modifications.
The group submitted its final report during December 1975. The recommendations of this
Committee are summarised below:
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With a view to curbing speculative and hoarding tendencies, the Committee fixed norms (in
terms of the weeks/month consumption) in respect inventory and receivables which
industrial units may hold. The norms were fixed for 15 major industries and indicate the
maximum permissible limits for inventory holding. Deviations from norms not allowed for
meeting unforeseen situations.
In April 1979, a working group under the chairmanship of Sh K.B.Chore was constituted to
review the system of cash credit. The committee submitted the report in Dec 1980. The
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Presently this limit of Rs. 50 lac has been raised to Rs. 1 Crore.
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Dialogue with the borrower will be initiated to set right the position in regard to defective
credit planning and to ensure that such instances are avoided in future.
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A major recommendation of the working group relates to switching over the borrowers from
the first to the second method of lending. Recognising that in some cases this may not be
possible immediately, Reserve Bank has stipulated that in such cases, the excess borrowings
are to be segregated and treated as WCTL (Working Capital Term Loan), which should be
made repayable in half-yearly instalments within a definite period but not exceeding five
years in any case.
Present Status:
The concept of MPBF was the cornerstone of financing which had emerged as a result of
recommendation of Tandon and Chore. However RBI has now abolished the guidelines for
MPBF and advised the banks to draw the guidelines for credit dispensation. Our bank is still
following MPBF system. However the relaxations on case to cases are being allowed.
To give a comprehensive and straight line method for the assessment of working capital
requirement of the borrowers, RBI constituted a working group under the chairmanship of
Sh P.R.Nayak. The study group gave its recommendations in March 1993. In April, 1993,
RBI implemented the recommendations of Nayak Committee for assessing the credit
requirements of village industries, tiny industries and other SSI units . Initially the
recommendations were for SSI units only but now other units have also been covered.
Presently units covered under these guidelines are those having aggregate fund-based
working capital credit limits less than Rs.200 lacs for other than SSI and Rs. 500 lacs for SSI
from the banking system.
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It has been advised not to apply the norms for inventory and receivables as also the Methods
of Lending. Instead such units be provided working capital limits computed on the basis of a
minimum of 20% of their Projected Annual Turn-Over (PATO) for new as well as existing
units. Their working capital requirement be assessed at a minimum of 25% of their Projected
Annual Turn-Over (PATO) assessed on realistic basis for new as well as existing units. Out
of this, at least 4/5th(20% of their PATO) be provided by the bank and the borrower should
contribute 1/5th of this estimated working capital requirement (5% of PATO) as margin
money of working capital.
- In case the margin with the party is more than 5% , PBF may be adjusted
accordingly.
- The 20% limit is the minimum. As a temporary relief measure for SME Units, RBI
has allowed banks to finance upto 25% under stimulus package. The same shall be
reviewed after 30.6.09. However if the working capital cycle is longer than 3 months,
higher limit may be fixed. If the working capital cycle is less than 3 months, the limit
may be fixed @ 20 % of turnover but actual withdrawal should be allowed only on
the basis of actual D.P. However lower limit can be sanctioned if requested in writing
by the borrower.
The QMS discipline is to be enforced on all borrowers enjoying working capital limits of
Rs.1 crore and over from the banking system, irrespective of whether they are exporters or
otherwise
In case the limits have been sanctioned on the basis of Naik Committtee, QMS forms and
CMA data need not be submitted.
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The forms for QMS and time period for submission are as under.
Form- 1 To be submitted within 6 weeks from the close of quarter to which it relates
Form-11 To be submitted within 2 months from the close of Half Year to which it
relates.
QMS form I gives us the quarterly data of production and sales and quarterly levels of
current assets and current liabilities.
QMS form II gives us half yearly profitability statement and fund flow statements.
By comparing with the projections as given in CMA, we can see whether the performance is
going on as projected.
QIS I:
QIS I which was earlier discontinued has been reintroduced and is to be submitted in
addition to QMS I and QMS II.
- For all borrowed accounts availing fund based working capital credit limits of Rs.5
crore & above from our bank, Quarterly Information System (QIS) Form-I may be
obtained for fixing up of quarterly operative limits in addition to the QMS Forms.
The QIS Form-I is to be submitted in the week preceding the commencement of the
quarter to which it relates.
- Non adherence to the operative limits will attract penal interest.
COMMITMENT CHARGES
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The unutilized part of the limit is found out by calculating the average utilization during the
quarter. While calculating the average utilization, overdrawn portion or excess portion is not
taken into consideration. If the average utilization is less than 85% than commitment
charges is levied on the entire unavailed position.
Commitment charge is not applicable in case of export unit and sick unit.
PENAL INTEREST
In order to instil a sense of credit discipline among the borrowers, RBI has permitted banks
to levy penal intt. over and above the sanctioned rate of interest in case of non compliance of
various terms and conditions
The broad areas of non compliance where bank charges penal interest are:
Default in repayment of loans
Irregularity in cash credit account
Non submission of stock statements and other financial data
Default in adhering to borrowing covenants
Non payment of bills
Excess borrowings arising out of excess current assets
Non submission of information under Quarterly Monitoring System
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I. EDUCATION LOANS
Till some year’s back higher education and quality education was not affordable to some
illustrious students because of the financial constraints. There was no any alternative but to
jump in the job market prematurely. And this led to untimely end of budding talents and their
forceful transformation into to the mediocrity. Scholarships were there, but those were so
less in numbers that only luckier few could avail them. But now the scene has changed
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drastically. The boom in the banking sector has led to release of large amount of funds for
education loans
Student loans in India (popularly known as Education loans) have become a popular
method of funding higher education in India with the cost of educational degrees going
higher. The spread of self-financing institutions(which has less to no funding from the
government) for higher education in fields of engineering, medical and management which
has higher fees than their government aided counterparts have encouraged the trend in India.
Most large public sector and private sector banks offer educational loans.
Under section 80(e) of the Indian Income tax act, a person can exempt the amount paid
against the interest of the education loan - either for self or for his/her spouse or children -
for eight years from the year (s)he starts to repay the loan or for the duration the loan is in
effect, whichever is lesser.
Education loan is becoming popular day by day because of the rising fee structure of higher
education. It came into existence in 1995 started first by SBI bank and after that many banks
started offering study loan.
Studies Abroad
Graduation, PG and Courses offered by CIMA London , CPA in USA
Eligibility • Indian National
• Secured Admission
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Amount of loan Rs. 10.00 lac in India and 20.00 lac for abroad. CH can exercise
higher powers.
Priority Sector Rs. 10.00 lac in India and Rs. 20.00 lac for abroad.
Capital Risk Weight as per BASEL-I 100%
Requirement Risk Weight as per BASEL-II 75%
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Constitutes of Tuition fees, Hostel charges, Exam fees, Library/Lab charges, Books,
loan Equipment, Instruments, Uniform, Building fund, Refundable deposit,
Travel expenses & Computers. (Advances for Computers are allowed in
Computer/Management courses only.)
Fees re- Within 6 months. Circle Head can allow beyond a period of 6 months
imbursement also on merits.(RBD Cir. No. 12/10 Dt. 16/02/2010)
Documents Documents will be executed both by student and the parent/guardian.
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Disposal of It has been decided to curtail the period of disposal of education loan
loan applications to maximum 1 week except cases of CH and above level
applications where the outer limit of disposal will be 2 weeks from the date of receipt
of complete application.
I. VEHICLE LOANS
Today, vehicles can be financed using a number of options such as loans, lease, or hire
purchase agreement. Obtaining a vehicle loan is one of the more straightforward ways of
financing a two or four wheeler. In this manner, the vehicle purchased is actually possessed
by the bank or lending institution. This means the car or motorbike is hypothecated.
Therefore, though the consumer owns the vehicle, the bank or the lending institution is
actually using it as a security against the loan that the consumer has obtained.
Vehicle loan provided by Punjab National Bank are under two categories know as PNB
SARTHI and CAR Loan & details about its processing, eligibility, margin etc are discussed
below:-
PNB SARATHI
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CAR LOAN
Conveyance Loan (Public) for Car
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PNB-(Punjab National Bank) Home Loan offers the most consumer friendly
home loans and housing finance schemes at attractive rates. PNB Housing Loans, with an
aim to make purchase and construction of homes a comfortable task, provides fixed as well
as floating home loans at different rate of interest for different tenures. PNB Housing
Finance covers 80% of the cost of your home or renovation / repairing of your home loan up
to Rs. 10 Lacs for buying land and up to Rs. 2 Lacs for furnishing can be availed from PNB
Home Loan.
The details of housing loan product of Punjab National Bank regarding its
purpose, eligibility criteria, assessment, processing, documentation, cut back, margin,
pre-sanction follow ups, etc. are as foll
1. HOUSING FINANCE (PUBLIC)
Eligibility Individual & Joint Owners
Purpose & Purchase of Plot Rs.20 lac. However, RM & above may
Extent consider Loan upto 50 lac.
Construction of House Need based
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charges
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Overdraft 20%
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Two types of personal loans are being offered by PNB. Personal loan for pensioner is
special category of retail lending scheme being offered by Punjab National Bank to
pensioner. The main intension of this loan is to meet each and every personal needs
including medical expense of senior citizen. Details regarding the same are mentioned
below.
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PNB is the first Public Sector Bank to come out with a Reverse Mortgage concept based
product for senior citizen titled "PNB Baghban". The product addresses one of the very
important requirements of the society in the fast changing culture of Indian society. The
main objective of this scheme is to address the financial needs of senior citizens owning self
occupied property (house), for leading a decent life. The salient features of the product are
given hereunder:
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application of loan:
➢ Cost and year of acquisition of Capital asset.
➢ Cost and year of improvement.
➢ PAN No. of all legal heirs.
➢ Changes, if any made in the Registered Will.
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Conclusion
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Credit appraisal is a process of appraising the credit worthiness of loan applicants. The fund
of depositors i.e. general public are mobilised by means of such advances / investments.
Thus it is extremely important for lender bank to assess the risk associated with credit,
thereby ensure the security for fund deposited by depositors. Therefore my analyses
regarding credit appraisal procedure of Punjab National Bank are as follows:-
✔ In case of retail lending bank strictly follow it’s circular and fulfils all requirement of
necessary documents required for different types of loan so that bank do not suffer
any types of loss.
✔ Bank is very much particular about CIBIL report of borrowers in case of each type of
lending.
✔ Bank lending process in case of retail loan is very much fast after compiling with all
the criteria of bank.
✔ In case of project financing bank follow lengthy norms to check the feasibility of the
project such as:-
I. Firstly personal appraisal of promoter is done by the bank to ensure that
promoters are experienced in the line of business and capable to
implement and run the project efficiently.
II. Secondly detail study about the technical aspect is done to find the
technical soundness of project such as proper scrutiny of financial report
is done, valuation of property by government approved valuer is done
and view regarding each and every area of project is done under technical
analysis.
III. A detail study relating financial viability of project is done by detail
study of cash flow, fund flow statements and by calculating import ratio
which is very much necessary for project appraisal such as DSCR, DER
etc. the main purpose of financial appraisal is insure that project will
ensure sufficient surplus to repay the instalment and interest.
IV. Risk analysis is done by bank to determine the risk associated with the
project. This is mainly done by sensitivity analysis and by PNB credit
rating or scoring. With sensitive analysis feasibility of project is
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This shows that Punjab National Bank has sound credit appraisal system.
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BIBLIOGRAPHY
v. NEWSPAPER
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