Académique Documents
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1) INDUSTRY PROFILE
Non-Banking Financial Companies (NBFCs) are fast emerging as an important
segment of the Indian Financial System. It is a heterogeneous group of institutions
(other than commercial and co-operative banks) performing financial intermediation
in a variety of ways, like accepting deposits, making loans and advances, leasing, hire
purchase etc. They raise funds from the public and then lend them to ultimate
spenders. They advance loans to the various wholesale and retail traders, small-scale
industries and self-employed persons. Thus, they have broadened and diversified the
range of products and services offered by the financial sector.
Gradually, they are being recognized as complementary to the banking sector due to
customer- oriented services, simplified procedures and attractive rates of return on
deposits, flexibility and timeliness in meeting the credit needs of the specified sectors.
The working and operation of NBFC are regulated by the Reserve Bank of India
within the Reserve Bank of India Act of 1934.
As per the RBI, a non-banking financial company is defined as:
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NBFCs cannot accept demand deposits (Demand Deposits are funds deposited
in an institution that are payable immediately on demand, e.g.-savings deposit,
current account, etc.)
A NBFC cannot issue cheques to their customers and is not a part of their
payment and settlement system.
They cannot offer interest rates higher than the ceiling rates prescribed by the
RBI from time to time (Currently the ceiling rate is 12.5%)
They cannot offer gifts, incentives or any other additional benefit to its
depositors.
They should have minimum investment grade credit rating from the credit
rating agencies.
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The journey of Shriram has seen them making several financial innovations while
standing at the very edge of Organized Finance. The Banks and other Financial
Institutions were guided by the Economists Vision, the small truck owner who
always fell on their blind side, was given a miss.
With a track record of almost 35 years, STFC is now among the leading organized
finance provider for the commercial vehicle segment with a focus to provide various
credit facilities to Small Road Transport Operators (SRTOs).
STFC, being a pioneer in pre-owned CV segment, has institutionalized its expertise in
loan origination, valuation and collection. Over the years, STFC has created an
ecosystem of empowerment by expanding its products and services to encompass
similar asset classes (pre-owned and new commercial and passenger vehicles, tractors,
3 wheelers, multi-utility vehicles, etc.) and ancillary services (Finance for working
capital, engine replacement, bill discounting, credit cards and tyre loans as holistic
financing support).
For employees at Shriram, credit-worthiness of the Small Truck Owner has always
been an article of faith. This faith has guided their journey from its pioneering days in
financing Small Truck Owners to the present day leadership. Today they are not only
the leader in Truck Finance; but are also India's largest Asset Based Non-Banking
Finance Company.
STFCs pan-India presence through its widespread network of branches has helped in
its overall growth over the years. As on March 2014,it has 654 branch offices and 629
rural centres and tie up with over 500 private financiers across the country. As on
March, 2014 STFCs employee strength was 18122, including more than 11,209
product executives and credit executives who are colloquially referred to as our field
force.
STFC has demonstrated consistent growth in its business and profitability. Today,
STFC has approximately 20-25% market-share in pre-owned commercial vehicles
and approximately 7-8% market share in new commercial vehicles with more than
9,50,000 customers.
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31.03.12
31.03.13
31.03.14
ASSET
41922.41
52,000
56,520
UNDER
MANAGEMENT
MARKETSHARE
22-25%
22-25%
22-25%
6-7%
6-7%
6-7%
A)PRE
OWNED
B)NEW
TRUCKS
CREDITRATING
Stable
NET PROFIT
1257.45
1360.62
1264.21
DIVIDEND
62%
65 %
70 %
NET NPA
0.40%
0.77 %
0.83%
16178
18122
TOTAL
NO
OF 15467
Stable
High Safety
EMPLOYEES
Table-1.1
Here we can see that Asset under management is increasing Asset Under management
is the value of documents on which company has hypothecation. As NBFCs are not
allowed to take deposit as a debt so it is the only assets with the company. So an
increasing trend shows that company is in a good state. Market share is remained
same. Credit Rating of the company is also improved which is again is good for the
company. But net profit is decreasing which is because finance charges are increasing.
Dividend given to per share to the share holder is increasing which will further boost
the shareholders faith and their investment motive. Though the NPA is still under the
percentage fixed by the RBI, but it is increasing which shows company should take a
corrective measure while providing loans. Increase in number of employees depict
that outreach of the company is increasing year by year.
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RATING
PROVIDED
BY
DIFFERENT
CREDIT
RATING
INSTITUTIONS
Credit Rating Agency
Instruments
Ratings
CARE
Non-Convertible
CARE AA+
Debentures
CARE
Subordinate Debt
CARE AA+
CRISIL
Fixed Deposit
CRISIL AA+/Stable
CRISIL
Subordinate Debt
CRISIL AA/Stable
CRISIL
Non-Convertible
CRISIL AA+/Stable
Debentures-Public
CRISIL
Short-Term Debt
CRISIL A1+
CRISIL
ICRA
Fixed Deposit
MAA+
with
Stable
outlook
Table-1.2
Because many times concerned branch is tried to manipulate the data related to audit
so that they can get good rank in auditing.
Stock audit- In this type of auditing closing and opining stock is evaluated. This is
related to inventory management.
After doing internal audit risk is basically measured. Risk is categorized in 6 types
depending upon the amount get defaulted at branch level.
Insignificant risk- no cash mismatch only entry is done wrongly.
Major risk- when default of 51 lakh-1 crore
Minor risk- up to 10 lakh
Moderate risk- 11-50 lakh
Catastrophic risk- of more than 1 crore.
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Fig-1.1
ABREVIATIONS:
PE-Product Executive
numbers related to vehicle like its chessis number, engine number, registration
number etc. It is done to know whether vehicle is already financed from the company
or not. If after filling any number UNO generates data related to it that means vehicle
is already being financed by the company and so loan will not be processed if all
things related to previous loan are cleared but if all EMI and ODCs are clear it is
being preceded. After it we go for customer deduping also called deduping. In it again
we give unique numbers related to the customer likes customer ID, customer name
etc. Through it we searched about customer whether he/she is already taken loan from
company or not and also searched is he/she acts as a guarantor. If customer is old then
we check his track record that is as a guarantor or as a borrower what was his
repayment tendency. That is we checked his credit worthiness. If customer is new
then company generate new customer ID. After that check all details related to the
vehicle and using oracle try to decide the amount of loan should be given on the
vehicle.
STAGE II - This stage is related to the documentation. Verify whether documents
like tax invoice, RC, quotation, receipt of margin money, particular and insurance etc
is available or not. Then company do Telly Verification to cross check the borrower.
STAGE III -Here we fixed EMI. That is amount of EMI and also scheme through
which EMI Is provided. Fes decides which type and pattern should be applied so that
IRR will be maintained and customer should also be comfortable in repaying it.
INSURANCE
IRDA (INSRANCE REGULATORY DEPATMENT AND AUTHORITY) is in India
to look over insurance cases. Two types of insurance are available in India First Party
Insurance and Second Party Insurance. According to Motor Vehicle ACT 1988 Third
party insurance is mandatory. It is also called incomprehensive insurance. It insured
the third party only thats why called so. Borrower or the owner of the vehicle is
considered as the first party, insurance company is considered as the second party and
the anything that adversely get affected by any type accident by this vehicle is
considered as the third party. In first party insurance both the owner and the thing
which is hitted by the vehicle are insured. That is why it is also called comprehensive
insurance policy. If we talk about STFC here comprehensive policy is mandatory for
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the vehicle but in some cases Third party insurance is also taken like (i) if customer
wants to do settlement (ii) if financing amount is of less than 1 lac. Before giving
insurance we check following things-:
(i) Vehicle number is right or not
(ii) Name of the owner on the RC.
(iii) HPN is on the insurance or not
(iv) Also match chessis and engine number from the RC.
(v) Check validity of the policy.
DEPOSITS
As we know STFC is a deposit taking non banking financial company.
Deposit taking NBFC like our company has to be rated by rating agencies
such as CRISIL, CAMEL, CARE, FRIPL, FITCH, Standard & Poor, Moodys
etc. This rating has to be done every year.
The best rated NBFC can get a maximum rating of AAA in respect of
deposits.
Even AAA rating NBFCs can accept deposit only to the maximum extent of 4
times of their Net Owned Funds. If the grading comes down like AA or A, the
quantum of accepting public deposit will also get reduced to 3 times, 2 times
respectively of NOF.
Out of the deposit amount, 15% must be invested in government approved
securities (such as RBI Bond, IDBI Bond, ICICI Bond, Central & State
Government Bonds etc).
The minimum period of deposit is 1 year and the maximum period is 5 years.
MAIN PRODUCTS: -Shriram has divided its vehicle segments on the basis
of certain criteria and conditions in five segments. They are as follows:
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Segments of STFC
Fig-1.2:
Let us now develop a brief understanding into each of this segment:
Heavy Goods Vehicle and Construction Vehicle:- As per RTO this segment
consists of vehicles and machinery used for construction with a Gross Vehicle
Weight of greater than 16 tonnes and if we take Shriram into picture then this
segment consists of all vehicles above 6 wheelers and all machinery.
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EXAMPLE: - Tata Turbo Truck, Ashok Leyland 3116, Ashok Leyland 2216,
JCB 3DX.
Hence, all vehicles that come for financing under Shriram Transport Finance
Company ltd are classified under these segments. Thus, providing loans on
Commercial vehicles is considered to be the main product of Shriram Transport
Finance Company Ltd.
a) TYRE LOAN:
Based on the Dealer quote, STFC at its discretion extend the loan. ( with or
without margin money)
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Medical expenses
Loan cannot be against jewel with very low gold weight e.g. - gross weight
of 200 grams and net pure weight of 20 grams only. Any collateral item
which has iron or copper as major weight contributing should not be
funded.
Market value of gold- as per UNO (Net pure wet*UNO gold rate)
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1.
f) CREDIT CARD:
Interest charged @ 2.95 per month from the date of withdrawal &
compounded monthly.
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g) CHALLAN DISCOUNTING:
Kinds of Deposits:i.
ii.
Application Procedure
For resident individuals, the list of documents required is:
Fresh application form
A/c payee cheque / Demand Draft / Pay order favouring Shriram Transport Finance
Company Ltd.
To comply with? Know your customer? Guidelines for NBFCs prescribed by the
Reserve Bank of India, first applicant should provide a copy of any one of the
following documents (which contains the photograph of the concerned first depositor)
for identification and proof of residential address.
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Passport
PAN card
Driving license
In case the address mentioned in the above document differs from the current address
mentioned in the application form then a copy of any one of the following documents
should be furnished as proof of residential address.
Telephone bill
Electricity Bill
Ration Card
DD
THE CSR ACTIVITIES OF THE COMPANY INCLUDE:1. Providing education to the backward and weaker sections of the society.
2. Empowerment of Common Man and women
3. Providing Vocational Training for income generation and enhancing
employability of marginalized/ unprivileged people of the society.
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Strong financial track record driven by fast growth in AUM with low NonPerforming Asset.
WEAKNESSES:
The Companys business and its growth are directly linked to the GDP growth
of the country.
OPPORTUNITIES:
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Partnerships with private financers will enable the company to enhance its
reach without significant investments in building infrastructure.
THREAT:
Defining the pricing bands-- The grade on the rating scale is expected to
define the pricing and related terms and conditions for the accepted credit
exposures. It is possible to define broad pricing bands and directly link the
band with the grade on the rating scale. Higher the risk, higher could be the
price charged.
II.
Limits on exposure-- The amount sanctioned would depend on the creditscore on the RAM. These limits could be linked to specific parameters like, a
certain percentage of the total debt required by the borrower. This would help
in a larger dispersion of risk amongst lenders and limit risk concentration in
moderate credit-quality projects.
III.
Tenure of loans-- The rating scale could also be used for deciding on the
tenure of the proposed assistance. A longer term could be offered to safe
customers.
IV.
Monitoring the exposures-- Banks may also use the rating scale to keep a
close track of deteriorating credit quality and decide on the remedial
measures. For instance, the frequency of surveillance on category 4 exposures
could be kept at quarterly intervals, while those on category 2 loans could be
half-yearly.
Macaulay (1988) conducted a survey in the United States and found credit risk
management is best practice in bank and above 90% of the bank in country have
adopted the best practice. Inadequate credit policies are still the main source of
serious problem in the banking industry as result effective credit risk management has
gained an increased focus in recent years. The main role of an effective credit risk
management policy must be to maximize a banks risk adjusted rate of return by
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uncertainty implies risks to the profit of the firm, a company needs to manage its risk
exposure (Retzlaff, 2007, p.9).
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with some losses due to risk occurrence (Smithson, Smith & Wilford, 1995, p.121). A
lack of financial funds can cause problems in the ability of the firm to pay its bills on
time and by that lead to additional costs (Brner, 2006, p.298). On the one hand costs
occur for arrears fees. On the other hand the rating of the company can be lower and
therefore future financing leads to higher interest payments (Eichhorn, 2004, p.44).
Due to that the financing risk becomes more urgent and can lead to higher liquidity
and solvency risks.
As external and internal financial risks can have a huge impact on the company and
its business continuity, a management of these risks is essential also for non-financial
companies.
This is because of market frictions that are absent in the Modigliani-Miller world,
which means that corporate risk management can only be relevant if markets are
imperfect. (Oosterhof, 2001, p.2)
In real business environment there are market imperfections, which are absent in the
Modigliani-Miller assumptions. Corporate risk management can therefore add
additional value to the shareholders although the financial theory of Modigliani Miller
says it is obsolete (Oosterhof, 2001, p.2). One aspect is that in reality not all investors
are likely to have the opportunity to diversify their portfolios. Moreover, under the
perfect market assumptions taxes and transaction costs are neglected. These factors
are however part of reality and might make risk management reasonable (Berk, 2009,
p.384). Furthermore there are costs related to defaulting, like direct costs of
bankruptcy or financial distress (Triantis, 2000, p.560). In the long run, which is the
perspective of the theory, gains and losses due to volatility might even out. However
this might be different in a short-term point of view, which is important to the
company. In the short run, losses might lead to financial distress and cause costs to
the company, which can be avoided by risk management (Dhanini et al., 2007, p.73).
Another aspect are indirect costs associated with difficulties of entering contracts
under high risk of defaulting, which can also be avoided or at least reduced (Triantis,
2000, p.560). The indirect costs of entering contracts refer to stakeholders of the
company that are neglected in the theory of Modigliani and Miller. Suppliers,
employees and banks, might suffer from the occurrence of a risk (Berk, 2009, p.384).
Due to that, stakeholders might demand a premium for entering a business
relationship with the company (Triantis, 2000, p.560). The premium paid to banks is
even more present, since Basel II is in force. The aim of the act is to increase the
stability in the banking sector. One way to achieve this is that banks are obliged to
have a risk sensitive amount of equity for each loan outstanding. The higher the risk
of the debtor the more equity is required from the banks to support the loan. Risky
loans cause higher costs to the bank. Therefore interest rates for loans include a risk
premium, which depends on the default risk of the borrower (Schnborn, 2010, p.13).
Although Basel II does not explicitly demand the implementation of a risk
management system, when rating a company the bank will check the existing
management instruments and also the risk assessment (Henschel, 2008, p.4). The
existence of a risk management can improve the rating of a company and increase the
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likelihood of access to new capital and decrease the interest rates for credit financing
(Jonen & Simgen-Weber, 2008, p.102).
Therefore risk management can be of value not only to the investors of a company but
also to its other stakeholders (Berk, 2009, p.384). Its overall aim is to secure
business continuity and support the achievement of the companys goals by
preventing dangerous situations in an efficient way (Hermann, 1996, p.38; Retzlaff,
2007, p.14). However, it is not the goal to offset each single risk the company is
confronted with, as risk is essential to business activity and risk elimination also
decreases chances (Liekweg & Weber, 2000, p.280).
Risk AssessmentRisk assessment is used for estimating the likelihood and the outcome of risks to
human health, safety and the environment and for enlightening decisions about how to
deal with those risks. Risk assessments are tools that used for preparing a scientific
basis to reduce the risk. The tools were selected as recommended by API 14J risk
assessment method for hazard analysis because the wide applicability and success in
making decisions such as HAZOP, HAZID, FMEA, FTA, ETA, etc
2.5.1 FMEA (Failure Mode Effect and Analysis) FTA (Fault Tree
Analysis) Moss and Kurty (1983) calculate the reliability analysis of preliminary
design of Tension Leg Platform (TLP) using FMEA and FTA. All possible failures
and their impacts are identified and examined using FMEA. FTA is constructed based
on the cause/impact correlation identified in FMEA. The FTA systematically
describes all causes of undesired events leading to the failure mode.
Geum et al
(2009) used FTA to describe the customers selection to proposed Service Tree
Analysis (STA) which of service tree construction, qualitative analysis and
quantitative analysis. The weakness of this method is the subjectivity.
Methodology
for
Risk
Assessment
Targoutzidis
(2009)
Safety
2.5.3. FETI (Fire Explosion and Toxicity Index) HAZOP (Hazard and
Operability) FTA (Fault Tree Analysis) Roy et al (2003) studied the quantitative
risk assessment for storage and purification section of a titanium sponge production
facility using FETI, HAZOP and FTA. FETI and HAZOP were used to find the most
hazardous section in the entire plant which is Titanium tetra chlodride (TiCl4), FTA is
used as probabilistic analysis to describe the root cause of an events.
2.5.4. FTA (Fault Tree Analysis) and ETA (Event Tree Analysis)
known as Bow Tie Analysis- Dianous & Fievez (2005) built methodology for
risk assessment in industry using bow tie diagrams to identify the major accidents and
the barriers. To assess the number and the reliability of the safety functions risk graph
is used so that a good risk control can be reached. Jacinto & Silva (2009) applied the
bow tie method in large shipyard. Firstly, it was used to initial qualitative analysis and
secondly to calculate the semi quantitative assessment. The accident risk level and
acceptance criteria were carried out using scoring system. Targoutzidis (2009) applied
methodological tool in the process of risk assessment for incorporation of human
factors. FTA is used to define and assess pre condition and structures examination of
human factors. ETA stage only considered human error supplement which is subject
to risk taking or skill based behavior. Risk is developed from product of risk
perception and risk motivation that includes economic, social or other benefits.
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(impact) is often quite difficult for immaterial assets. Asset valuation is another
question that needs to be addressed. Thus, best educated opinions and available
statistics are the primary sources of information. Nevertheless, risk assessment should
produce such information for the management of the organization that the primary
risks are easy to understand and that the risk management decisions may be
prioritized. Thus, there have been several theories and attempts to quantify risks.
unstable parameters and altering variances. In addition, the model may not work well
if based on small sample (Stulz, 2000).
(2.7)
LITERATURE
REVIEW
INTERNATIONAL
PERSPECTIVE
Crouhy, Gala, Marick(26) have summarised the core principles of Enterprise wide
Risk Management. As per the authors Risk Management culture should percolate
from the Board Level to the lowest level employee. Firms will be required to make
significant investment necessary to comply with the latest best practices in the new
generation of Risk Regulation and Management. Corporate Governance regulation
with the advent of Sarbanes-Oxley Act in US and several other legislations in various
countries also provide the framework for sound Risk Management structures.
Hitherto, Enterprise wide Risk Management existed only for name sake. Generally
firms did not institute a truly integrated set of Risk measures, methodologies or Risk
Management Architecture. The ensuing decades will usher in a new set of Risk
Management tools encompassing all the activities of a Corporation. The integrated
Risk Management infrastructure would cover areas like Corporate Compliance,
Corporate Governance, Capital Management etc. Areas like business risk, reputation
risk and strategic risk also will be incorporated in the overall Risk Architecture more
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formally. As always it will be the Banks and the Financial Services firms which will
lead the way in this evolutionary process. The compliance requirements of Basel II
and III accords will also oblige Banks and Financial institutions to put in place robust
Risk Management methodologies. The authors felt that it is generally felt that Risk
Management concerns largely with activities within the firm. However, during the
next decade Governments in different countries would desire to have innovatively
drawn Risk Management system for the whole country. The authors draw reference to
the suggestions of Nobel Laureate Robert Merton who suggested that a country with
exposure to a few concentrated industries should be obliged to diversify its excessive
exposures by arranging appropriate swaps with other countries with similar problems.
Risk Management offers many other potential macro applications to improve the
management of their social security measures etc. They draw references to the spread
of Risk Management Education worldwide.
Hannan and Hanweckfelt that the insolvency for Banks become true when current
losses exhaust capital completely. It also occurs when the return on assets (ROA) is
less than the negative capital-asset ratio. The probability of insolvency is explained in
terms of an equation p, 1/(2(Z2 ). The help of Z-statistics is commonly employed by
Academicians in computing probabilities. Daniele Nouy elaborates the Basel Core
Principles for effective Banking Supervision, its innovativeness, content and the
challenges of quality implementation.
incentivise the Banks to transfer certain operations that are heavily taxed in terms of
capital requirements to shadow Banking to avoid the scope of regulation. The risks of
such a practice might affect the financial stability.
overnight positions to ensure that the Foreign Exchange risk is under control.
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Chief Risk Officer, Alden Toevs of Commonwealth Bank of Australia states that a
major failure of risk management highlighted by the global financial crisis was the
inability of financial institutions to view risk on a holistic basis. The global financial
crisis exposed, with chilling clarity, the dangers of thinking in silos, particularly
where risk management is concerned says the author. The malady is due to the Banks
focussing on individual risk exposures without taking into consideration the broader
picture. As per the author the root of the problem is the failure of the Banks to
consider risks on an enterprise-wide basis.
misplaced. As per him, it may be just one to two per cent of Banks risk. For this
small fraction, instituting an elaborate mechanism may be unwarranted. A well laid
out Risk Management System should give its best attention to Credit Risk and Market
Risk. In instituting the Risk Management apparatus, Banks seem to be giving equal
priority to these three Risks viz., Credit Risk, Operational Risk and Market Risk. This
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transferring the asset to concentrate on their loan book to secure that the quality of the
portfolio does not deteriorate. The act contains severe penalties on the debtors. The
AMC is vested with the power of issuing notices to the Borrowers calling for
repayment within 60 days. If the borrower fails to meet the commitment, the AMC
can take possession of the secured assets and appoint any Agency to manage the
secured assets. Borrowers are given the option of appealing to the Debt Tribunal, but
only after paying 75% of the amount claimed by the AMC. There are strict provisions
of penalties for offences or default by the securitisation or reconstruction company.
In case of default in registration of transactions, the company officials would be fined
upto Rs.5,000/- per day. Similarly non-compliance of the RBI directions also attract
fine up to Rs.5 lakhs and additional fine of Rs.10,000/- per day. This has proved to be
a very effective Risk Management Tool in the hands of the Banks.
Dr. Atul Mehrotra, Dean, Vishwakarma Institute of Management emphasises the
need for promotion of Corporate Governance in Banks in these uncertain and risky
times. This paper discussed at length Corporate Governance related aspects in Banks
as also touches upon the principles for enhancing Corporate Governance in Banks as
suggested by BCBS. The author felt that despite the RBIs initiatives on the
recommendations of the Consultative Group of Directors of Banks/Financial
Institutions under the Chairmanship of Dr. A.S. Ganguly, member of the Board for
Financial Supervision, there is more ground to be covered before Indian Banks are in
a position to attain good Governance Standards.
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basis of the Draft Guidelines and issued final Guidelines in February 2003. These
guidelines were made applicable to countries where an Indian Bank has more than 2
per cent or more of its assets. The guidelines are fairly detailed in nature with policy
and procedures. The RBI wanted the Banks to follow a rigorous CRM policy and
implement the Know Your Customer (KYC) guidelines strictly in their International
activities. RBI further defined the scope of these guidelines to include both funded
and non-funded exposures from their domestic as well as foreign branches for the
purpose of identifying, measuring, monitoring and controlling country risks.
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Sources Of Data :
(a) Primary data:
Primary data required for study will be collected through direct interaction with
financial executives of the establishment. Since a good rapport has been maintained
the management has assured timely guidance and assistance and availability of
relevant information through risk analysis tools and documents. I worked on UNO,
OMNI DOCS, west report etc and filled credit sheet which is the main source of data
for customer analysis part.
(b)Secondary dataSecondary data will consist of annual reports, publications, audited financial
statement issued, day-to-day working files and budgets for different years. Which will
be obtain from their websites- stfc.co.in,
This data basically help in calculating ratios for ratio analysis part.
(c)Interview with key PersonnelData will also be collected by interviewing the key personnel of the firm. How the
balance between the risk and Profitability is maintained and how risk is diversified is
explained by them. Branch visit play a key role for it. There got opportunity to meet
with a number of product executives, branch manager, Branch team leader, and other
employee working there.
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Net Profit trend - The final profit figure arrived at after charging all the expenses of
the firm against all its income is called net profit. A banker would look at the trend of
net profit over the years. A company, which has been consistently achieving positive
growth rates, reflects a healthy industry position and the managements commitment
to the business, effective steps taken by the management to promote their sales in the
market. The company with positive growth is favored than those whose growth is
static or negative
Cash Profit trend - Cash profit represents the annual profit arrived at before charging
depreciation.
Fixed Assets Turnover Ratio-This ratio measures the sales per rupee of investment
in fixed assets or the efficiency with which fixed assets are employed. A high ratio
indicates a high degree of efficiency in asset utilization and a low ratio reflects
inefficient use of assets.
Total Assets Turnover Ratio - This takes the total view of the business as a
producing unit. It determines the produce ability of the assets of the business, which
also indicates the managerial capacity of the entrepreneur in putting the assets to best
use.
Return on Investments Return on Investments The ROI is the key factor of
profitability of a business. It matches the operating profit with the assets, which earn
this profit. Efficient utilization of assets will have a relatively high return, while a less
efficient use will have a low return. Higher profitability implies greater cushion to
debt holders.
Return on Capital Employed - ROCE is a useful metric for comparing profitability
across companies based on the amount of capital they use. A higher ROCE indicates
more efficient use of capital. ROCE should be higher than the companys capital cost;
otherwise it indicates that the company is not employing its capital effectively and is
not generating shareholder value.
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CUSTOMER ANALYSIS
Free Assets to Total AssetsThis ratio indicates on what value of asset out of the
total asset is used as collateral for taking loans.
Revenue (/km or /hr)- Revenue per KM/HR Expected revenue generated on the
financed vehicle will form one of the criteria for assessing the viability. This will
show the banker whether the customer will be in a position to repay the loan.
Operating cost (/km or /hr)- The operating cost may be classified into fixed and
variable cost. Study under this classification helps in arriving at the optimal level of
utilization of the equipment. However, the operating cost and revenue for the vehicle
cannot be measured in isolation. The profitability of the equipment is what matters at
the end of the day.
Fleet strength- Fleet Strength Fleet strength is the number of equipments/vehicles
held by the customer and gives an idea about the size of the business. A lender
generally looks at a small business with high caution, as there are only few assets to
turn to in case the debts turn bad.
Work Orders on hand- The number of work orders that one has helps to check how
well the business is progressing. Generally, when the business has many, steady work
orders, it shows that they have constant business. However, those customers who have
unsteady number of work orders need a close watch. It also shows the trend of the
business in the market
Percentage funding to total cost - This helps us measure the level of financial
commitment of the borrower in the proposal. Lower ratio means more contribution
from the borrower and the risk on the bankers end is low. Value and liquidity of
collateral offered As a driving note collateral must not drive lending decisions. The
best security of a lender is a thriving business on which the appraisal should focus.
Whenever, the bank is forced to foreclose the collaterals, it demonstrates that the
lending decision in the first place had been unsound.
Repayment Track with Others- The repayment track of the borrower with others
determines how well they have carried out their business in the past years. A business
Page | 45
with prompt payment has less credit risks than those whose reputation is a question
mark in the market.
Timely Submission- Timely submission of information. The customers are required
to be prompt in submission of information. A delay in such submission is highly
likely to be caused because of tampering of information. This reflects to a great extent
the credibility of the customer. Thus, customers who are always regular in submitting
the information score over those who have an irregular track for submission.
Value of Collateral Offered- As a driving note collateral must not drive lending
decisions. The best security of a lender is a thriving business on which the appraisal
should focus. Whenever, the bank is forced to foreclose the collaterals, it
demonstrates that the lending decision in the first place had been unsound.
Liquidity of Collateral- The demand for collaterals as a condition for a loan is a
sufficient indication that the borrower lacks the required level of credit worthiness.
Collaterals enhance the credit worthiness of a borrower. The test of good collateral
lies in its liquidity, which, in other words means the saleability of the assets. The
higher the liquidity is, the better the collaterals.
MARKET ANALYSIS
Nature of Business - The kind of business in which the customer is in will greatly
influence the risk associated with him. It might be against the policies of the company
to advance loans to a few businesses, like in the case of CBL, advancing of loan to
cab drivers is not entertained. Thus, the preferred businesses might have been realized
from experience or observation.
Net Worth to Net Sales- The net worth of a business provides that important cushion
to withstand shocks from adverse changes in external (economic, financial and legal)
and internal environments of the business. Net worth is thus referred to as the risk
capital. When compared to the sales of the business, it shows the efficiency with
which the capital is rotated in the business.
Reputation of Promoters- The promoters are the ones who initiate a business idea
successfully. The background of the promoters gives an idea of their business
expertise and their talents. A promoter hailing from a highly reputed business family
Page | 46
is less likely to fool the public. A person hailing from a business family, whose
reputation is not established or suspect, is to be looked at with caution, as the
probability of default is high.
Technology status- Obsolescence is another problem that an industry faces. A firms
competitive position is decided based on the technological competence it possesses.
Advances in technology can dramatically alter a firms landscape. The firm is at an
advantageous position when it holds superior technology. The risk is more among the
players in the industry when the technological competence is inferior. The risk of not
keeping up with the progress of changing technology may affect the growth. Hence a
firm with a good technological background is more attractive.
Effect of Business Cycle- Almost every industry suffers from some amount of
cyclical fluctuations. At the downturn of a cycle, credits may be frozen, while in its
upswing, there may be excessive fluctuations of loan volumes. It is important for a
banker to know on which side of the cycle a borrowing unit is operating to adjust to
the credit needs of the borrower and the riskiness of his fund. A business which is
least impacted by the business cycle would be an ideal borrower. As the impact
decreases the risk also declines.
Government Policies- The pace and pattern of growth in a country depends largely
on various policies of the Government. It acts as a regulator and a mediator between
the businessmen and the public. When the government policies are friendly and
favorable towards the industry, then the growth prospects are high. Provision of
incentives such as export subsidy, cash incentives, duty drawbacks, excise relief,
credit at concession rates helps an industry grow. On the contrary, absence of such
positive policies or a very stiff taxation policy may create obstacles to the growth of
that industry.
Turnover ratio Financial Ratios that measures an assets activity and efficiency in
generating or turning over the cash.
Page | 47
(3.6) TECHNIQUES
The technique used in the analysis of the company is excel sheets, graphs and tables
of financial statement for example balance sheet, profit loss a/c, cash flow statement, ,
ratio analysis etc.
Functional Scope
Functional scope of this study is to analyze risk of Bhiwani Branch. And then put it in
another model to add value to it.
Geographical Scope
I worked on 2 branches of STFC. I also worked on the Head Office.
Page | 48
Page | 49
(3.10)
TIME FRAME
Our Internship starts from 22 nd April and completed on 14th June. In this period of 54
days we learn a lot. In respect to project point of view we can divide the time in three
main parts.
(a) Theoretical Time- In initial days we got allotted branches and we have to learn
their all functions of branches. I also started connecting that work to my
project during that days only. I also tried to collect theoretical data related to
my project during this time.
(b) Data Collection Time- This was a big tacks I required risk related data and no
one in initial stage wants to share it. This also took 10-15 days
(c) Analysis of Data- This took almost 20 days.
Page | 50
ANALYSIS OF DATA
(4.1) LENDING PROCESS OF STFC
STAGE I- In this stage two main functions are vehicle deduping and and customer
deduping. Firstly we do vehicle deduping. We go to UNO and give their unique
numbers related to vehicle like its chessis number, engine number, registration
number etc. It is done to know whether vehicle is already financed from the company
or not. If after filling any number UNO generates data related to it that means vehicle
is already being financed by the company and so loan will not be processed if all
things related to previous loan is cleared but if all EMI and ODCs are clear it is being
proceeded. After it we go for customer deduping also called deduping. In it again we
give unique numbers related to the customer likes customer ID, customer name etc.
Through it we searched about customer whether he/she is already taken loan from
company or not and also searched is he/she acts as a guarantor. If customer is old then
we check his track record that is as a guarantor or as a borrower what was his
repayment tendency. That is we checked his credit worthiness. If customer is new
then company generate new customer ID. After that check all details related to the
vehicle and using oracle try to decide the amount of loan should be given on the
vehicle.
STAGE II- This stage is related to the documentation. Verify whether documents like
tax invoice, RC, quotation, receipt of margin money, particular and insurance etc is
available or not. Then company do Telly Verification to cross check the borrower.
Scan Copy of documents required are given below-
Page | 51
Re-Finance/Re-Agreement Cases
Accepted
Accepted
Third party
Policy
No Policy
Accepted
Accepted
Accepted
along with
commitmen
t letter for
Comprehens
ive renewal) Not Accepted
Fig-4.1
Page | 52
Not Accepted
Table showing deviation level for different loan taking condition of the borrower
(i)
Payments to Beneficiaries
Deviation Level
a. Settlement Letter
Seller (Regd Owner)
a. Authorization
letter
for
payment
to
Termination
papers directly
Borrower
a.
Authorization
letter
from
Borrower
for
endorsement.
Any two
Any two
Authorization
letter
from
Borrower
for
payment to Seller
(iv)
Re-Finance/Re-Agreement Cases
a. Payment to Borrower only after STFC RBH/RCH/RPH
endorsement
Table-4.1
Page | 53
Any two
STAGE III-Here we fixed EMI. That is amount of EMI and also scheme through
which EMI Is provided. Fes decides which type and pattern should be applied so that
IRR will be maintained and customer should also be comfortable in repaying it. This
is also very important stage regarding the risk because of two thingsi.
Product Executives tried to collect the main part of the loan in the initial
period only so that risk will get minimized and also a higher IRR will be
maintained.
ii.
But they also have to take care of EMI/Surplus ratio of the customer, because
if customer has enough surpluses then only they will able to repay.
Page | 54
N/U
Loan
Cost of Asset
Earning
Arrear
Amount
Surender
Used
99,000
1,50,000
45,000
Satish Kr
Used
1,10,000
2,20,000
49,500
Anil
Used
1,79,000
3,00,000
57,200
Satish
Used
3,00,000
6,80,000
54,000
-20
niranjan Singh
Used
99,500
2,00,000
35,280
-1,131
Prmanand
Used
2,00,000
3,27,134
56,000
15,547
Krishan
Used
2,50,000
3,50,000
Anil Kumar
Used
1,20,000
2,00,000
78,000
-15
bhupender
Used
1,50,000
3,00,000
50399
-66
Sunil Kumar
Used
1,37,000
2,50,000
30,000
10,542
Jagdish Singh
Used
99,500
2,00,000
47250
-1,450
Rakesh
Used
1,20,000
1,93,000
42,000
7,135
Pawan Kumar
Used
1,80,000
3,00,000
40320
-1,849
Sonu Kumar
Used
90,000
2,00,000
42,000
Raj Kapoor
USED
2,70,000
3,00,000
N.A
78,659
-25
Table-4.2
Now I will do CUSTOMER ANALYSIS using the various Credit Sheets provided by
the STFC. Customer Analysis is shown in tabular form below.
Page | 55
Free
Party
Nam
e
Earn
ing
Expense
Surpl
us
Surpl
fleet
us/E
stren
mi
gth
Asset
s to
Total
Docs
Exp
Availabl
e
Asset
Arr
ear
F
T
Remark
s
Suren
der
45,00
0
22,55
22,442
1.90
10 Y
0 Y
etr
Insurance
Satis
h kr
49,50
0
16,79
32,710
57,20
Anil
not
2.54
5 available
192
4 N
N.S
0 N
etr
17,74
39,456
1.93
2.00
0.91
10 Y
pa
ss
Satis
h
54,00
0
18,23
35,765
bo
2.30
8 Y
-20 ok
GOOD
ba
niranj
an
Singh
Insurance
35,28
0
10,21
25,070
: Not
1.73 1.00
0.98
7 scanned
- nk
1,13 det
1 ail
GOOD
PAN &
V ID:
Name &
photo
mismatch
, No
HPN on
Prma
56,00
nand
13,25
42,750
Page | 56
RC &
1.30
N.A
5 Insurance
15,5
47 N
Risk
3.0
42,000
22,534
1.0
19,466 0
Dedupe not
0.980
5 clear.
0 N
etr
Raj
Kapo
or
N.A
N.A
N.A
N.
3.0
1 Insurance
0.95
0 not clear.
78,65 Pass
9 Book
Ri
sk
Insurance:
Not
scanned &
Krish
an
0.708
Viability
bank
sheet: Not
a/c
5 available
-25 detail
D
G
Anil
Kum
ar
2.7
78,000
58,567 19,433
Bhup
ender
FC: Not
7 1
7 available
1.6
50399
36,997 13,402
bank
a/c
-15 detail
pass
7 Y
-66 book
Etr
N(
GUR
Guaranter's
mobile
Mobile No.,
no
Sunil
Insurance
nttraca
Kum
ar
30,000
0.973
available
Jagdi
FC &
sh
Insurance:
Sing
h
47250
19,992 27,258
1.7
2.0
Not
0.952
6 available
10,54 ble+FC
2 ntavl)
Ri
sk
G
bank
- a/c
1,450 detail
O
O
D
PE
Rake
sh
2.0
42,000
Page | 57
21,947 20,053
Signature:
N.A
6 Not
ris
7,135 N
available &
discrepancy
in Father's
name
Pawa
Address &
ID Proof:
Kum
ar
2.3
40320
23,236 17,084
Not
2
0.90
8 scanned.
- pass
1,849 book
Table-4.4
1. By using Table 2.1, Table 2.2a and SOA of Anil we got following thingsHe has given its first EMI (new loan). He has given his all documents except
for financial track
2. By using Table 2.1, Table 2.2a and SOA of Satish kr I got following thingsHe has Parent as well as WCL, he has given Rs 7100 but it is even less than
the EMI of his Parent loan so we can categorized it as NS, but cannot say
anything as it is a new loan.
3. By using Table 2.1, Table 2.2a and SOA of Raj Kapoor I found that it was a
bad loan in initial stage as he had not given his initial EMIs till, he came in 6+
bucket, but then he gave about 78,000 and so now we can consider him safe
loan. But then he did not give his documents in proper way also. So we may
say documentation risk is attached with him.
Page | 58
Etr
Fig-4.2
(4.3) ANALYSIS USING IACSIT APPROVED MODEL
I APPLIED IRCSIT APPROVED MODEL ON ALL THE 15 CASES.
This Model analyses the cases using 3 toolsI.
II.
III.
Ratio Analysis
Market Analysis
Customer Analysis
Ratio Analysis and Market Analysis will be same for the all 14 cases as they are
related to the same company and so are exposed to the same market scenario.
Customer Analysis is different for each case and it defined its credit worthiness.
Firstly I will do Ratio Analysis, then Market Analysis and Lastly Customer Analysis
of the samples using this Model.
Page | 59
RATIO ANALYSIS
2014
RATIO ANALYSIS
LIQUIDITY RATIOS
CURRENT RATIO
1.626
Current Assets
2,03,746
7,08,598
16,78,912
Current Liabilities
29,356
12,25,629
44,591
QUICK RATIO
Cash
&
near
cash 7,08,598
1.494
balances
Current Liabilities
29,356
12,25,629
44,591
98.04
TURNOVER
Sales
7,87,812
TOTAL
2014
2013
10,066
6,006
0.168
TURNOVER
Sales
7,87,812
2014
2013
49,22,570
44,45,782
4684176
SOLVENCY RATIOS
DEBT TO EQUITY Total Debt/Total Capital=
Page | 60
4.95
RATIO
Non-Current
Current Liabilities
Liabilities
Total Debt
24,97,082
15,98,166
40,95,248
Equity
Total Equity
8,27,322
1,82,804
CAPITAL EMPLOYED
846653
RETURN
8,27,322
EBIT/CAPITAL EMPLOYED
0.216
ON
INVESTMENT
NET
WORTH
TO
1.050
NET SALE
NET WORTH
NET SALE
INTEREST
EBIT/INTEREST EXPENSES
0.811
0.049
COVERAGE RATIO
EBIT
2,14,946
OPERATING 2,01,619.11
INCOME
TOTAL
DEBT 40,95,248
SERVICE
Table-4.5
Firstly I am calculating Liquidity Risk using Ratios which is already being calculated
in the above table.
Page | 61
Table showing various parameters with their weights. Five parameters have been
identified to measure the liquidity risk. Out of the four categories of risk considered in
the model, liquidity is considered most important and has been assigned a maximum
weightage of 400 points.
Current Ratio
1.5
Liquid Ratio
2.25
2.25
Table-4.6
Now I will assign marks to the each ratio according to the marks allotted to them by
risk assessment model.
The Risk Assessment Model
\ Best
Worst
Scores
Ratings
10 to 8
8 to 6
6 to 4
4 to 2
2 to 0
1.0 0 - 1.50
1.50 - 2.00
2.00 - 3.00
Above 3.00
Ratio
2 Current Ratio
Above 2.50
2.50 -2.00
2.00 - 1.50
1.50 -1.00
Below 1.00
3 Liquid Ratio
Above 1.50
1.50-1.00
1.00-0.80
0.80 - 0.50
Below 0.50
4.00 -2.50
2.50 - 1.50
1.50-1.00
Below1.00
Coverage Ratio
Page | 62
1.5 0 - 2.50
1.50 -1.25
1.25-1.00
Below 1.00
Increasing
Constant
Inconsistent
Decreasing
Increasing
Constant
Inconsistent
Decreasing
High
Moderate
Low
3.0 0 - 3.50
2.50 - 3.00
2.00 - 2.50
Coverage Ratio
sharply
sharply
Very low
Net Sales
Below 2.00
Turnover Ratio
2.00-1.50
1.33 - 1.50
1.00 - 1.33
Below 1.00
Turnover Ratio
10 % - 12 %
8% - 10%
6% - 8%
Below 6%
High
Moderate
Low
Very low
90-95%
85-90%
Investments
Page | 63
80-85%
75-80%
14
Revenue above
(/km or /hr)
65%
15Operatin
g Very low
cost
55-65%
45-55%
35-45%
25-35%
Low
Moderate
High
Very high
12-10
9-7
6-4
1-3
Low (0)
Very low
(/km or
/hr)
16Experience
Above 12
of
Business(yrs)
17Fleet
Very
strength
(more than 2)
Moderate
(1)
High
Moderate
Low
Very low
65% - 75 %
75% - 80%
80% - 95%
Above 85%
Moderate
Many
Few
&unsteady
&unsteady
of Asset
19%ge
Below 65%
Funding
to
Total Cost
21Reputation
Highly reputed
Reputed
of Promoters
22Repayment
Track
with
others
Page | 64
Moderately
reputed
Very sound
Prompt
Behind
schedule
Unpaid
24Value
of Very high
High
Moderate
High
Moderate
Updated
Comfortable
Collateral
Offered
Collateral
26Technology
Superior
status
27Effect
of No impact
Business Cycle
28Government
Very
impact
Friendly
Favourable
Comfortable
Very good
Good
Moderately
Policies
29Bank
References
30Financial
good
Very good
Good
Statements
good
31Credit
Highly
Investigation
favourable
32Own
Existing
Records
Existing
excellent track
Table-4.7
Page | 65
Moderately
Favourable
customers with
Neutral
Now I will assign points to each 4 ratios used for calculating Liquidity Risk. Each
ratio will get point according to their value as defined in Risk Assessment Model.
Parameters
LIQUIDITY RISK
1
Debt Equity Ratio
2
Current Ratio
3
Liquid Ratio
4
Interest Coverage
Ratio
5 Debt
Service
Coverage Ratio
Sub Total
Table-4.8
Weight
Remark
Score
Wtd score
8
6
9
9
1
5
8
2
8
30
72
18
64
192
IN THE SAME WAY WE CAN FORM TABLE FOR THE OPERATIONAL RISK
ALSO. But here both Ratio Analysis and Customer Analysis is used to find out the
value of each parameters used. Value of ratios is already mentioned in Table-2, for
calculating Free Asset to Total Asset, Revenue, Operating Cost, and Fleet Strength we
used Customer Analysis. I used Documents like FIR, Viability Sheet, and Application
Form of each borrower to reach to the value. Extract of these 4 documents used for
calculation is given below in tabular form for 14 customers.
Page | 66
fleet
Total
Name
Surender
45,000
22,442
22,558
1.90
Satish
49,500
32,710
16,790
2.54
Anil
57,200
39,456
17,744
1.93
2.00
0.914
54,000
35,765
18,235
2.30
0.80
Singh
35,280
25,070
10,210
1.73
0.980
Prmanand
56,000
42,750
13,250
1.30
N.A
Satish
Kumar
niranjan
Krishan
0.708
0.973
2.00
0.952
1.00
0.980
Anil K
Kumar
78,000
58,567
19,433
2.77
bhupender 50399
36,997
13,402
1.63
Sunil
Kumar
30,000
Jagdish
Singh
47250
19,992
27,258
1.70
Rakesh
42,000
21,947
20,053
2.00
40320
23,236
17,084
2.30
42,000
22,534
19,466
3.00
Pawan
Kumar
Sonu
Kumar
Table-4.9
Page | 67
Parameters
Weight
Remark
Score
Wtd score
4.5
18
10
10
0.5
10
2.5
10
30
OPERATIONAL
RISK
6
10
Return on Investments
11
Return
on
0.5
Capital 0.5
Employed
12
13
12
14
12
/hr)
15
Fleet Strength
32
16
32
SUB TOTAL
Table-4.10
Page | 68
158.5
Loan
Amount
99,000
1,10,000
1,79,000
Cost of Funding to
total cost
Asset
1,50,000
0.660
2,20,000
0.500
3,00,000
0.597
FTR
Y
N
N
pass
book
bank
detail
N
bank a/c
detail
bank a/c
detail
pass
book
3,00,000 6,80,000
0.441
99,500 2,00,000
2,00,000 3,27,134
0.498
0.611
Krishan
Anil
Kumar
2,50,000 3,50,000
0.714
1,20,000 2,00,000
0.600
bhupender
Sunil
Kumar
Jagdish
Singh
Rakesh
Pawan
Kumar
Sonu
Kumar
1,50,000 3,00,000
0.500
1,37,000 2,50,000
0.548 N
bank a/c
0.498 detail
0.622 N
pass
0.600 book
Table-4.11
Page | 69
99,500 2,00,000
1,20,000 1,93,000
1,80,000 3,00,000
90,000 2,00,000
0.450 N
17.
18.
19.
20.
21.
22.
CREDIT
RISK
Resale
value
of
Asset
%Funding
to
Total
Cost.
Repayment
Track With
Others.
Timely
Submission.
Value Of
Collaterals
Offered.
Liquidity
Of
Collaterals.
Sub total
Table-4.12
Page | 70
Wtd
score
42
54
36
10
30
4.5
38
4.5
38
238
Parameters
Wtd
score
MARKET
RISK
23. Exp in Yrs.
2.5
17.5
4.5
18
13.5
13.5
18
To Net Sale
25. Reputation
of
Promoters.
26. Technology 1.5
Status.
28. Effect
of 1.5
Business
Cycle
29. Gov.
Policies
SUB
85
TOTAL
Table-4.13
TOTAL SCORE OF ANIL
LIQUIDITY
192
RISK
OPERATIONAL 158.5
RISK
CREDIT RISK
238
MARKET RISK
85
TOTAL
Table-4.14
Page | 71
QUANTITATIVE 673.5
TERM
QUALITATIVE
TOLERABLE
TERM
RISK
Table-4.15
In the same way we can get risk associated with other 14 persons:
Liquidity Risk is same for all 15 borrowers. I have to calculate Operational Risk and
Credit risk Individually for rest 14 borrowers. Out of the total 6 components of the
Market Risk only one Component differ individual wise that is Experience of the
Borrower in Transportation Sector. So market risk is also almost constant for all the
customers. But I preferred to calculate rest three risk individually for all the customers.
Page | 72
CUSTOMER NAME
QULITATIVE RISK
QUANTITATIVE RISK
ASSOCIATED
ASSOCIATED
SURENDER
HIGH RISK
593
SATISH Kr
HIGH RISK
515.5
ANIL
TOLERABLE RISK
648
SATISH
TOLERABLE RISK
624.5
NIRANJAN SINGH
TOLERABLE RISK
665
PARMANAND
HIGH RISK
517.5
SONU KUMAR
TOLERABLE RISK
612.5
RAJ KAPOOR
TOLERABLE RISK
634
ROHTAS
TOLERABLE RISK
624.5
ANIL KUMAR
TOLERABLE RISK
634
BHUPENDER
TOLERABLE RISK
622
SUNIL KUMAR
HIGH RISK
537
JAGDISH SINGH
TOLERABLE RISK
680
RAKESH
HIGH RISK
538
PAWAN KUMAR
TOLERABLE RISK
680.5
Table-4.16
I did the analysis of the borrowers by both the models that is by using STFCs model and by
using IACSIT approved model. Now I will compare the two models using Confusion Matrix
and will try to correlate the two models. For comparing the models in appropriate way I took
some assumptions likeIn case of STFCs model borrowers having the dues of Rs.0-less than Rs 1000 is considered as
of low risk and borrower having dues of above Rs.1000 is considered as of high risk.
Page | 73
IACSIT Method
High Risk
High Risk
Tolerable Risk
Tolerable Risk
Tolerable Risk
High Risk
Tolerable Risk
Tolerable Risk
Tolerable Risk
Tolerable Risk
Tolerable Risk
High Risk
Tolerable Risk
High Risk
Tolerable Risk
STFC Method
Low Risk
Low Risk
Low Risk
Low Risk
Low Risk
High Risk
Low Risk
High Risk
Low Risk
Low Risk
Low Risk
High Risk
Low Risk
High Risk
Low Risk
Table-4.17
Confusion Matrix
IACSIT Method
STFC
Method
High Risk
Low Risk
Grand Total
High
Risk
3
2
5
Tolerable Risk
1
9
10
Grand
Total
4
11
15
Table-4.18
80
20
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The confusion matrix is used to measure the accuracy of a new technique vis-a- visa old
technique. In this case the old STFC technique has classified 11 borrowers as low risk
and 4 borrowers as high risk. The new technique (IACSIT approved) has classified 5 as
high risk and 10 as low risk. Out of the total original high risk the new technique has
classified 3 as high risk and 1 as tolerable risk and out of the 11 low risk it has classified
9 as tolerable risk and 2 as low risk so if we match then a total of 9+3 = 12 respondent
have maintained their risk classification. This gives us an accuracy of 12/15 = 80%.
1. The company had maintained its liquidity position at very high levels. The current ratio
2. was almost double of the ideal ratio, the quick ratio was also maintained at higher than
3. the ideal levels but it is the cash ratio that is at lower than the ideal levels, thus we can
4. say that the other liquidity ratios are maintained at ideal levels for the year 2011 except
5. the cash ratio. Thus, we can say that the company maintains more than sufficient amount
6. of liquid assets but the Cash in hand at cash at bank are kept at somewhat a little less than
7. sufficient amount. But, then if we move ahead in the years we can see that the overall
8. levels of current ratio have been decreasing over the years and have reached less than
the ideal current ratio that should have been maintained. In the year 2013 it was the least
but in the year 2014 it somewhat increased but even then it is less than the ideal level.
The solvency ratios of the company are not even maintained at levels which are close
to the ideal ratio levels, they are maintained at unnecessarly either high or low levels
and so the company should have a check on this ratio, the company should plan about
balancing its debt and equity positions.
9.
(5.1.2)
As depicted in the Table-4.17 customers of STFCs are of low risk. So company can provide
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loan to them. They are under manageable risk. As seen from the credit risk analysis, most
of the customers had deposited their relevant documents. Also, I found that those
customers who were not punctual in depositing their documents showed the same attitude
towards giving their EMI. Thus documents were getting very high weighted in STFC
and we can say that lending process there is basically based on DOCUMENTATION.
A separate loan book is maintained in STFC for the purpose of documentation. Registration
Certificate of the vehicle is the main document they have taken from the customers. This is
the main way how STFC minimized its risk. For any vehicle, Registration Certificate is the
main document and STFC give their Hypothecation on this RC before financing, so if any
customer will try to default STFC naturally become legal owner of the vehicle thus are
legalized to use it for its purpose. Depository Promissory note is the other risk minimizing
document. Executives their mainly relates risk through Financial Track Record of the
customers. If the previous Financial Track Record of the customer is good it is seen
that that customer will perform good. Overall customer analysis shows that customers at
STFC are creditworthy.
(5.1.3)
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Nature of Business
Reputation of Promoters
Technology status
Government Policies
Nature of business is an important factor considered in STFC also for lending purpose. As
they provide loan on the commercial vehicles so they prefer drivers as the borrower. They
prefer those borrowers who have at least 3-4 years of experience. If talk about the
government policies, we can see that it is flexible for the NBFCs which is good for them.
Promoters are of good reputation. Technology status should be improved. As I was in
Karolbag Branch I can easily see that it must have to update itself with respect to the
technology. Kiosk Machine is required for the purpose of Internal Audit but it is not there ,
(5.1.4)
OVERALL FINDING
28 parameters to measure the risk associated with the customer were identified. Liquidity
Risk or the inability of the prospect to meet the immediate liability is considered most
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significant of all kinds of risks. While credit or the willingness of the customer to repay
falls in line next , the operational efficiency is rated third in vitality. Statement
showing financial position rated as top quality information provider. Credit Investigation
and interview with customers are also known to provide reliable information.
Out of the 28
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Close to the ideal debt equity ratio and so we can say that the company does not prefer
to raise funds through issue of shares but prefers taking debt instead. But, the company
is said to be doing good because even the asset under management is showing increasing
trends. So, overall the financial position of STFC can be considered to be satisfactory
as seen from its financial statements and also from the analysis done by its ratio analysis.
(7.1) SUGGESTIONS
As verified in the analysis part using Confusion Matrix that IACSIT approved
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model is 80% accurate accurate , is a scientific model and also will enable the
STFC to measure the risk both in qualitative and quantitative way.
My next suggestion is related to the Human Risk. When I was in Branch for my
training, Branch Manager of that branch started checking HELMETS used by
the Product Executives, he found that 80% of PEs used Helmets of very low cost.
These Helmets are not enough to protect them in proper way. Actually many of
PEs there are new and they dont have enough money to buy Helmets as I
observed. So I think STFC should provide helmets to their PEs free of cost, it
will be a appreciable step by STFC.
Books should be filled in proper way. As my topic was related to risk so when
I was doing training in Branch I used to analyse Loan Books, I found that some
pages are not properly filled, specially Vehicle Evaluation Sheet is filled in a very
random way. Its look like Product Executives actually not checked the part of
the vehicle but they just filled it. Then when I was working in Omni to check the
scan copy of the documents, their also these sheets were not available. I think we
should give worth to this sheet also.
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