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ON
STUDY ON LOAN APPRAISAL PROCESS
OF PUNJAB NATIONAL BANK
SUBMITTED BY
ABHSIHEK SINGH
IN THE GUIDANCE OF
DR V.K. KHURANA
07214803914
DEPARTMENT OF MANAGEMENT
MAHARAJA AGRASEN INSTITUTE OF TECHNOLOGY
(Affiliated to G.G.S.I.P. University)
Sector 22, Rohini, Delhi -110086
An ISO 9001:2008 Certified Institute
AICTE NBA Accredited Institute
INDEX
GUIDE CERTIFICATE
ACKNOWLEDGEMENT
ABSTRACT
INTRODUCTION
COMPANY PROFILE
PRODUCTS
LITERATURE REVIEW
RESEARCH METHOLOGY
DATA ANLYSIS
CONCLUSION
REFERENCE
STUDENT UNDERTAKING
This is to certify that I ____________________________
had completed
the Project titled title of the project in (name of the company) under the
guidance of Mr./Ms. (Faculty guide) in the partial fulfillment of the
requirement for the award of degree of MBA from Maharaja Agrasen
Institute of Technology (Affiliated to G.G.S.I.P. University), New Delhi.
This is an original piece of work and I had neither copied nor submitted it
earlier elsewhere.
Student Name and Signature
Course
Dated -
of Technology (Affiliated to
ACKNOWLEDGEMENT
I would like to thank all those who helped me through the project of
familiarization I would like to express my sincere appreciation to my guide
________________ for his enlightenment of my knowledge of feed back
and the hotel industry, valuable advice and kind support throughout the
process of dissertation completion
Most importantly, I would like to thank my parents and sister who were
always there to motivate me.
ABSTRACT
Banking means transacting business with a bank depositing or withdrawing
funds or requesting a loan etc. or engaging in the business of banking
maintaining savings and checking accounts and issuing loans and credit etc.
The banks provide the necessary financial assistance to the government in
the process of attaining its socio and economic objectives. Nowadays the
banks have taken the primary responsibility in the implementation of various
schemes and program sponsored by the government. A bank may be defined
as a credit institution. It is an institution which studied deals in and
guarantees credit. While the bank receives large sum of money in the form
of deposits and lend to public in the form of loans. Such operations are
subordinate to the one great function that of granting credit. Banking has
been developed to meet the needs of business. Hence the extensively bank
credit is used and the more extensively bank credit is used and the more
important banking becomes in the transaction amount of money.
INTRODUCTION
PNB was founded in the year 1894 at Lahore (presently in Pakistan) as an
off-shoot of the Swadeshi Movement. Among the inspired founders were
Sardar Dayal Singh Majithia, Lala HarKishen Lal, Lala Lalchand, Shri Kali
Prosanna Roy, Shri E.C. Jessawala, Shri Prabhu Dayal, Bakshi Jaishi Ram,
Lala Dholan Dass.
With a common missionary zeal they set about establishing a national bank;
the first one with Indian capital owned, managed and operated by the
Indians for the benefit of the Indians. The Lion of Punjab, Lala Lajpat Rai,
was actively associated with the management of the Bank in its formative
years.
The Bank made steady progress right from its inception. It has shown
resilience to tide over many a crisis. It withstood the crisis in banking
industry of 1913 and the severe depression of the thirties.
It survived the most critical period in its history the Partlition of
1947 when it was uprooted from its major area of operations. It was the
farsightedness of the management that the registered office of the Bank was
shifted from Lahore to Delhi in June 1947 even before the announcement
of the Partition.
are Indian conglomerates, medium and small industrial units, exporters, nonresident Indians and multinational companies. Punjab National Bank was
incorporated in the year 1895. Since its humble beginning over hundred
years ago, the bank has grown in stature to become one of the leading
banking institutions in India. PNB is the second largest PSU bank in India
with a dominant presence in north India. Keeping in tune with changing
times and to provide its customers more efficient and speedy service, the
Bank has taken major initiative in the field of computerization. All the
Branches of the Bank have been computerized. The Bank has also launched
aggressively the concept of "Any Time, Any Where Banking" through the
introduction of Centralized Banking Solution (CBS) and over 2000 offices
have already been brought under its ambit.
COMPANY PROFILE
Punjab National Bank is a state-owned commercial bank located in New
Delhi. The Bank is one of the Big Four Banks of India. They offer banking
products, and also operate credit card and debit card business, bullion
business, life and non-life insurance business, and gold coins and asset
management business. They are recognized as the Bank offering highest
levels of customer satisfaction in Delhi and Chennai. The Bank has the
largest domestic network of 4997 offices, including 46 extension counters
among Nationalized Banks. All their branches offer Core/ Centralized
Banking Solution (CBS) along with a variety of financial products catering
to different market segments. They has international presence in 9 countries,
with a branch at Kabul, 2 branches in Hong Kong, representative offices at
Almaty, Dubai, Shanghai and Oslo, a wholly owned subsidiary in UK (with
5 branches), and a joint venture with Everest Bank Ltd, Nepal. Punjab
National Bank was incorporated in the year 1895 at Lahore, undivided India.
The Bank has the distinction of being the first Indian bank to have been
started solely with Indian capital. In the year 1940, the Bank absorbed
Bhagwan Dass Bank, a scheduled bank located in Delhi circle. In the year
1951, they acquired the 39 branches of Bharat Bank and in the year 1961,
they acquired Universal Bank of India. Punjab National Bank was
nationalized in July 1969 along with 13 other banks. In the year 1986, they
acquired Hindustan Commercial, which added Hindustan's 142 branches to
the Bank's network. In the year 1993, they acquired New Bank of India
which the GOI. During the year 1996, they developed a packaged for
corporate customers for fast remittance of funds from different up-country
domestic companies. In the year 2004, the Bank acquired the assets of
Hindustan Transmission Product Ltd. They signed a corporate agency
agreement with Export Credit Guarantee Corporation of India Ltd (ECGC)
for marketing ECGC's export credit insurance products through the network
of the bank's branches. Also, an MoU was signed with Intel for the
deployment of various IT-related solutions. During the year, the Bank signed
an MoU with ICICI Bank for ATM network sharing. They awarded a project
to Tata Consultancy Services (TCS) for implement human capital
management and payroll solution. They established a branch office in Kabul,
Afghanistan. Also, they opened a representative office in Shanghai. The
bank 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. In the year 2005, the Bank unveiled ATM at Edappal.
Also, they opened a representative office in Dubai. In the year 2006, the
Bank made a tie up with MasterCard International to launch a signaturebased debit card. Also, they made a tie up with Indian Airlines for online
booking of air tickets. They opened a new branch in Uttarakhand. In October
2007, the Bank entered into MoU with India Infrastructure Finance
Company with an aim to extend their cooperation and support to IIFC in
areas of creating a deal flow of infrastructure projects. In January 2008, the
Bank commenced commercial banking operations in Hong Kong. During the
year 2008-09, the Bank opened 168 branches, out of which 90 are new
branches and 78 branches was added through upgradation of Extension
Counters. They made collaboration with LIC for selling insurance policies
and also made a toe up with Oriental Insurance for selling non-life policies
on a referral basis. In June 2008, they entered into an MoU with ILFS
Cluster Development Initiative Ltd for providing finance for various
industrial infrastructure projects in the country. In September 2008, they
signed an MoU with SMC Global Securities Ltd and Networth Stock
Broking Ltd for providing online trading facility to Company's customers.
They offered a unique '3 in 1 account' comprising of Saving, Demat and
Trading account. In February 2009, they commercially launched their credit
cards with 2 types of consumer credit cards, namely Gold and Classic. Also,
they entered into an agreement with Oriental Insurance Company to market
insurance products, a practice also known as bancassurance. In March 2009,
the Bank entered into an understanding with Tata Motors for financing entire
range of passenger cars. Also, they executed an agreement with The Life
Insurance Corporation of India for banc assurance, life insurance under the
provisions of IRDA's Referral Arrangement. During the year 2009-10, the
Bank opened 524 domestic branches, out of which 347 are at new locations
while 177 branches was added through up gradation of existing Extension
Counters. They deployed 1400 ATMs taking the the total count of ATMs to
more than 3500 Nos. They opened two overseas branches 1 in Hong Kong
and another at DIFC Dubai and started a JV banking subsidiary 'DRUK PNB
Bank Ltd' in Bhutan. Also, they opened a representative office in Oslo,
Norway. During the year, the Bank sold 6.5% of their stake in UTI Assets
Management Co Ltd and UTI Trustee Pvt Ltd, thus bringing down their
stake in both these companies to 18.5%. They launched Corporate Credit
REVIEW OF LITERATURE
The year 2013-2014 was a year that witnessed perfect storm-volatile oil
prices, asset bubbles and over leveraged banks, in a much interconnected
world-all leading to unarguably the greatest global financial crisis witnessed
in the human history? The Indian banking industry has not seen a collapse
like that of Lehman Brothers or Merrill Lynch, or not fully recession proof.
The year 2013-2014 was a very difficult year for the Indian banks. Many
large Indian banks were facing the problem of achieving a satisfactory
financial performance. Thus, it becomes important to analyze the
performance of leading banks of India for the year from 2013-2014.This
study tests the performance of a set of five leading Indian banks during the
year 2013-2014.the banks selected for the study are the banks that got the
top five ranking in the category of balance sheet size of more than amounts
in the survey by a leading business magazine business today during the year
2013- 2014. The year 2013-2014 was chosen for this study because of the
fact that it is was a crucial year for the financial systems of the whole world.
This study evaluates the performance of the banks based on eight
parameters- Net Interest Income, Cost to Income Ratio, Capital Adequacy
Ratio, Net NPAs, Deposit Growth, Return on Assets, Return on Capital
Employed and Operating Profit. These parameters have been identified as
the key performance indicators of banks by industry experts. This study
helps us to understand the commonly used performance measures of banks.
It helps to identify the bank that performs the best with regard to each
performance parameter. This study also analyses the strengths and
weaknesses of each bank selected for the study. Review of literature has
vital relevance with any research work due to literature review the
possibility of repetition of study can be eliminated and another dimension
can be selected for the study. The literature review helps researcher to
remove limitations of existing work or may assist to extend prevailing study.
Several researches have been conducted to analyze the different aspects of
performance of commercial banks in India and abroad. But there are very
few research and literature available on the subject related to financial
reforms and its impact on Indian banks. The available literature and research
are divided into four major parts according to the area of research i.e.,
literature related to:
Review of literature related to performance appraisal of banks
Review
of
literature
related
to
policy
framework
and
PRODUCTS
PNB has a wide variety of products and services that meet diverse
requirements of its vast customer base. In the light of growing importance of
financial inclusion, the bank has introduced PNB Mitra - a no-frills savings
bank account that can be opened either by an individual, or jointly. A number
of deposit and loan schemes are available to customers such as housing
loans, car finance, customer finance, personal and several types of
educational loans. It has an international credit card, issued in collaboration
with Hong Kong and Shanghai Banking Corporation. HPNBC is the issuer
bank for the co branded credit card and it undertakes all front-end and backend operations relating to the co-branded credit card. Punjab National Bank
has formulated the Gold Card Scheme for its exporter clients based on the
scheme drawn up by Reserve Bank of India. The scheme ensures easy
availability of export credit on best terms to credit worthy exporters with a
good track record. The card offered by PNB is known as PNB Expo Gold
Card. The bank offers 12-hour banking services in 77 branches across India.
RESEARCH METHODOLOGY
The present paper is a case study which is restricted to branch of PNB in
DELHI The objective of research paper is to study the Credit Risk
Assessment Model of PNB and to check the commercial, financial &
technical viability of the project proposed & its funding pattern. To observe
the movements to reduce various risk parameters which are broadly
categorized into financial risk, business risk, industrial risk & management
risk. For the purpose, the secondary data is collected through the Books &
magazines, Database at PNB, Websites, E-circulars of PNB.
DATA ANALYSIS
A) CREDIT RISK ASSESSMENT & APPRAISAL PROCESS OF PNB
CREDIT RISK ASSESSMENT RISK
Risk is inability or unwillingness of borrower-customer or counter-party to
meet their repayment obligations/ honor their commitments, as per the
stipulated terms.
LENDER TASK
Identify the risk factors, and
Mitigate the risk
1
2
Limits )
AGL)
Regular Model
Simplified Model
Regular Model
Simplified Model
Model
Regular Model
Type of Rating
Borrower Rating
Facility Rating
2
Simplified Model Borrower Rating
New Rating Scales Borrower Rating: 16 Rating Grades
There is different rating given to the different banks. For example
S. No.
1
2
3
4
Borrower
Range
Rating
of
PNB 1
scores
94-100
PNB 2
PNB 3
PNB 4
90-93
86-89
81-85
Risk level
Comfort Level
Virtually
Lowest Risk
Lower Risk
Low Risk
safety
Highest safety
Higher safety
High safety
Absolute
5
6
7
8
PNB 5
76-80
PNB 6
PNB 7
PNB 8
70-75
64-69
57-63
Moderate
Risk
Adequate Cushion
Moderate Risk
Moderate Safety
Average risk
Above
Safety
Threshold
9
10
11
12
13
14
15
PNB 9
PNB 10
PNB 11
PNB 12
PNB 13
PNB 14
PNB 15
50-56
45-49
40-44
35-39
30-34
25-29
< 24
Tolerance Threshold)
Borderline risk
High Risk
Higher risk
Substantial risk
Pre-Default
Risk
Inadequate safety
Low safety
Lower safety
Lowest safety
Nil
(extremely Vulnerable to
16
PNB 16
----
default)
Default Grade
---------
Bank has introduced New Rating Scales for borrower for giving loans.
Rating is given on the basis of scores out of 100. Bank gives loans to the
borrower as per their rating like PNB gives loans to the borrower up to
PNB8 rating as it has average risk till PNB8 rating. From PNB9 rating the
risk increases. So banks do not give loans after PNB8 rating.
31st March
Aud.
2009
Aud.
2010
Esti
2011
Esti
2012
Proj.
2013
Proj.
2014
Proj.
2015
Net Sales
Operating
Profit
(after
interest)
PBT
PBT/Sales
1.20
0.24
2.90
0.53
22.48
3.15
92.62
10.31
PAT
Cash Accruals
PBDIT
Paid up
1.20
39.05
54.44
21.04
2.90
40.51
52.41
22.56
22.48
129.25
150.01
91.00
92.62
233.74
266.99
113.48
125.47
224.25
247.21
181.10
Capital
TNW
Adjusted
21.04
21.04
22.56
22.56
TNW
TOL/TNW
12.22
TOL/Adjusted 12.22
12.80
12.80
5.04
5.04
2.15
2.15
1.01
1.01
0.47
0.47
0.27
0.27
TNW
Current Ratio 1.57
Current Ratio 2.34
1.42
1.97
2.22
2.22
2.53
4.49
2.71
5.66
3.80
5.83
6.47
6.47
(%)
(Excl.
143.51
212.66
226.20
256.57
151.96
200.36
203.72
340.08
TL
installments)
NWC
MOVEMENT IN TNW
2009
Opening TNW 17.63
Add PAT
1.20
Add. Increase 8.42
in equity /
premium
Add./Subtract
change in
2010
21.04
2.90
10.17
(Rs. in lacs)
2011
22.56
22.48
68.44
2012
113.48
92.62
2013
181.10
125.47
2014
256.57
143.51
2015
340.08
151.96
intangible
assets
Adjust prior
year expenses
Deduct
6.21
11.55
25.00
50.00
Dividend
Payment
/Withdrawals
Closing TNW 21.04
22.56
113.48 181.10 256.57
APPRAISAL MEMORANDUM FOR TERM LOAN
60.00
65.00
340.08
427.04
CIRCLE: DELHI
BRANCH: DELHI
given the following ranking for banks, with a balance sheet size of more
than amount during the year 2013-2014.
Table 1: Top Five Banks of India
Rank
1
2
3
4
5
Banks
Bank of India
Punjab National Bank
Bank of Barod
Indian Bank
Union Bank of India
Operating Profit
Bank of India
Punjab National Bank
Bank of Baroda
Indian Bank
Union Bank of India
1489.26
7160.15
5173.31
1633.48
2590.34
INTERPRETATION:
The table 2 indicates that the operating profit of Punjab national bank
(7160.15) is the highest profit among the top five banks, the bank of India
(1489.26) shows that the lowest profit among the five banks
Table 3: Net Interest Income Ratio of five Leading Banks
Bank
Bank of India
Punjab National Bank
Bank of Baroda
Indian Bank
Union Bank of India
2.11
3.14
1.98
2.49
2.37
Baroda (1.98%),so it should take urgent measures to improve its net interest
income, so that it can improve its profitability
Operating Expenses Operating Income
Table 4: cost to Income Ratio of five Leading Banks
Bank
Cost to Income
Bank of India
Punjab National Bank
Bank of Baroda
Indian Bank
Union Bank of India
0.44
0.45
0.43
0.49
0.51
INTERPRETATION:
The table-4 shows that the performance of bank of Baroda is the best
regarding cost to income ratio, as it has the lowest ratio (0.43) among the
five banks, union bank of India has high cost to income ratio (0.51). Thus
union bank of India has to take urgent measures to lower its costs, so that it
can improve its profitability.
Table 5: Capital Adequacy Ratio of five leading Banks
Bank
Bank of India
Punjab National Bank
Bank of Baroda
Indian Bank
Union Bank of India
10.76
12.29
12.28
13.10
10.80
TYPES OF LOANS
Personal Loans - You can get these loans at almost any bank. The good news
is that you can usually spend the money however you like. You might go on
vacation, buy a jet ski or get a new television. Personal loans are often
unsecured and fairly easy to get if you have average credit history. The
downside is that they are usually for small amounts, typically not going over
$5,000, and the interest rates are higher than secured loans.
Cash Advances - If you are in a pinch and need money quickly, cash
advances from your credit card company or other pay day loan institutions
are an option. These loans are easy to get, but can have extremely high
interest rates. They usually are only for small amounts: typically $1,000 or
less. These loans should really only be considered when there are no other
alternative ways to get money.
STUDENT LOANS - These are great ways to help finance a college
education. The most common loans are Stafford loans and Perkins loans.
The interest rates are very reasonable, and you usually don't have to pay the
loans back while you are a full-time college student. The downside is that
these loans can add up to well over $100,000 in the course of 4, 6 or 8 years,
leaving new graduates with huge debts as they embark on their new careers.
COLLEGE LOAN
Mortgage Loans - This is most likely the biggest loan you will ever get! If
you are looking to purchase your first home or some form of real estate, this
is likely the best option. These loans are secured by the house or property
you are buying. That means if you don't make your payments in a timely
manner, the bank or lender can take your house or property back! Mortgages
help people get into homes that would otherwise take years to save for. They
are often structured in 10-, 15- or 30-year terms, and the interest you pay is
tax-deductible and fairly low compared to other loans.
HOME LOAN
Home-Equity Loans and Lines of Credit - Homeowners can borrow against
equity they have in their house with these types of loans. The equity or loan
amount would be the difference between the appraised value of your home
and the amount you still owe on your mortgage. These loans are good for
home additions, home improvements or debt consolidation. The interest rate
is often tax deductible and also fairly low compared to other loans.
Small Business Loans - Your local banks usually offer these loans to people
looking to start a business. They do require a little more work than normal
and often require a business plan to show the validity of what you are doing.
These are often secured loans, so you will have to pledge some personal
assets as collateral in case the business fails.
CONS
OF
GETTING
MORTGAGE
ONLINE
and other expenses, but you should not need to pay this fee until later in the
application process.
Its also quite common (though illegal) for online lenders to advertise very
low rates in order to entice you to fill out an application. Once they get your
whole application, run your credit and get the process started, theyll tell you
that introductory rate is no longer available. Theres little you can do to
avoid this, except to keep your options open and pay close attention to every
step of the process.
Although online lenders tend to approve applicants with lower credit scores
that mortgage brokers will turn down, the interest rates tend to be extremely
high for borrowers with poor credit. Just because you can get approved for a
mortgage doesnt mean you can afford to buy a home. If you have a low
enough credit score that youll pay a higher mortgage interest rate, its a
better idea to continue to rent as you pay off debt, build your savings, and
repair your credit rather than buy a home at an above-market rate.
Tread lightly with online forms
If you use an online mortgage lender, be careful with the online forms as
well. Since there is no one there to answer your questions (except maybe a
1-800 number with limited hours), it can be easy to misunderstand the
questions on the loan application. If you misinterpret the questions or click
enter and move on to the next page without reading the fine print, it could
result in higher fees or a problem with your approval later down the line.
And if youre doing a home purchase, you need good communication from
your lender once youre in escrow.
If you have an issue with the appraisal or the loan funding and the call center
is closed for the weekend or holiday, it might kill the whole deal. Therefore,
ask plenty of questions about the lenders availability and response time.
After all, what is the point of going to an online lender who offers lower
closing costs than your mortgage broker would if they cause you to fall out
of escrow and lose your earnest money.
the loan that best suits your needs. They may even end up saving you
money.
We recommend you consider both online mortgage lenders and a local
broker perhaps getting mortgage pre-approval from both before
committing to a lender. With online lenders, think convenience and
competitive rates. Look to local brokers and banks for personal, face-to-face
service.
MARKET APPRAISAL:
As part of market appraisal, the very first thing a financial institution would
look at is the gap between demand and supply. Bigger the demand supply
gap, higher is the chances of flourishing of that business. The demand versus
the proposed supply by the borrower should have a wide difference like
demand of 50000 units against the proposed supply of 10000 units.
Another most important parameter is marketing efforts and infrastructure.
This is the factor which converts a demand into sales for a business.
Marketing side of the company needs to be very strong as it is very critical
to the success of the venture.
MANAGEMENT APPRAISAL:
Management of the company needs to be appraised for their intentions,
knowledge, and dedication towards the project. By intention, it is meant to
evaluate the willingness of the promoters of the company to pay the money
back. It needs to evaluate the real objective of borrowing.
Only good intentions would not generate cash flows to honor the
installments of the loan. The management needs to be strong in terms of
their knowledge about business, commitment towards achieving the set
goals etc.
TECHNICAL APPRAISAL:
Technical appraisal is subject to the kind of business and industry of the
borrower. If its a manufacturing concern, all those parameters like project
site, availability of raw material and labor, capacity utilization, vicinity to
selling market, transportation etc would be examined. A project needs to be
technically very sound to be able to sustain all business cycles.
FINANCIAL APPRAISAL:
After all the other kinds of appraisal, everything boils down to financial
appraisal. This probably is the most important part of credit appraisal of a
business loans. The reason is that it expresses everything in terms of money.
Financial appraisal tries to assess the correctness or reasonability of the
estimates of costs and expenses and also the projected revenues. These may
include the estimation of selling price, cost of machinery, the overall cost of
project and the means of financing.
Financial appraisal involves extensive financial modeling in excel. Basically,
it takes the financial statements of previous periods and forecasts the future
financial position for at least till the loan matures. From that, the cash flows
of each year are compared with the installment of loan because ultimately
the cash flows are going to honor the payments of bank.
The comparison sales are broken down in the appraisal report as well, and
compared to the subject property. Each comparison sale is given or deducted
value in a number of categories based on how it stacks up against the subject
property. The net value of the comparison sales are then averaged to come
up with a median appraised value for the subject property.
The value of the subject property is really the most important factor when it
comes to securing financing. Banks and mortgage lenders need to ensure
your property is in good condition, and truly worth what you or your broker
say its worth. Any possible valuation inconsistencies will likely cause
investors to shy away from purchasing the mortgage, leaving the bank or
lender with a vacant property and a major loss if the property declines in
value. Even Donald Trump could buy a shack and fail to obtain a
mortgage because the property itself simply isnt marketable.
Thats why its always important to use a qualified appraiser who assigns a
realistic value to your home so there arent any surprises when its do-or-die
time. Its better to know the true value of your home upfront before you sign
any contingencies or purchase contracts. And remember that the quality of
your appraisal will determine the quality of your review (unless its
automated).
The review appraiser will always find the value based on whats given to
them. If they receive a poor appraisal report, they will likely assign a poor
value. Ive seen brokers submit multiple appraisals and receive completely
different values based solely on the original appraisal itself.
Come January 26th, 2015, Fannie Mae will let lenders use a proprietary tool
called Collateral Underwriter, which provides an automated appraisal risk
sales price or the current appraised value. They dont care what youre
willing to pay for it.
This is a problem because your loan would now require private mortgage
insurance, and thats if the lender can even offer you a loan above 80% LTV.
The solution would be to either ask for a review of the appraisal, renegotiate
the purchase price (lower) with the seller, or put more money down,
assuming you have extra cash on hand. Of course, you might wonder if
youre overpaying for the property if it doesnt come in at value.
CURRENT SCENARIO
Important Guidelines and Schemes Regarding Housing Finance Housing
Loans under Priority Sector Lending: Loans up to Rs. 25 Lakh in
metropolitan centres with population above 10 Lakh and Rs. 15 Lakh in
other centres to individuals for purchase/construction of a dwelling unit per
family, excluding loans granted by banks to their own employees, w.e.f.
01.04.2011.
housing loans should not exceed 80%. However, for small value housing
loans i.e. housing loans up to Rs. 20 lakh (which get categorized as priority
sector advances), the LTV ratio should not exceed 90%.
Factors for
determining eligibility: The main concern of the bank is to make sure that
borrowers comfortably repay the loan on time and ensure end use. The
higher the monthly disposable income, higher will be the amount customer
will be eligible for loan. Typically a bank assumes that about 50-60 % of
monthly disposable/surplus income is available for repayment of loan. The
amount of the loan also depends on applicants age, tenure of the loan and
the interest rate.
INTEREST RATES:
Banks generally offer either of the following loan options, Floating Rate
Home Loans and Fixed Rate Home Loans. For a Fixed Rate Loan, the rate
of interest is fixed either for the entire tenure of the loan or a certain part of
the tenure of the loan. In case of a pure fixed loan, the EMI (Equated
Monthly Installment) due to the bank remains constant. The floating interest
rate is made up of two parts: the index and the spread. The index is a
measure of interest rates generally (based on say, government securities
prices), and the spread is an extra amount that the banker adds to cover
credit risk, profit mark-up etc. The prime lending rate or the base rate (1010.25% presently) is used as a basis for calculating the floating rate and the
interest rate charged is the prime interest rate / base rate plus a certain
spread. The EMI of a Floating Rate loan changes with changes in market
interest rates. If market rates increase, repayment increases. When rates fall,
dues also fall. Security: security for a housing loan is typically a first
mortgage of the property, normally by way of deposit of title deeds. Banks
also sometimes ask for other collateral security as may be necessary.
Collateral security assigned to bank could be Life Insurance policies, the
surrender value of which is set at a certain percentage to the loan amount,
guarantees from solvent guarantors, pledge of shares / securities and
investments like KVP/ NSC etc. that are acceptable to the banker. Banks
would also require the borrower to ensure that the title to the property is free
from any encumbrance. (i.e., there should not be any existing mortgage, loan
or litigation, which is likely to affect the title to the property adversely).
CERSAI REGISTRATION:
To prevent frauds in loan cases the Government has facilitated setting up of
the Central Registry of Securitization Asset Reconstruction and Security
Interest of India (CERSAI) under the Securitization and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
(SARFAESI Act, 2002). This Registry has become operational with effect
from March 31, 2011. The objective of setting up the Central Registry is to
provide a database of security interest over property rights to secure loans
and advances granted by banks and financial institutions. Availability of
someone wants to prepay the loan. Many of these fees are negotiable / can
be waived also.
Component
Principal
Interest
the Credit Information Bureau (India) Limited (CIBIL) which collects and
maintains records of an individuals payments pertaining to loans and credit
cards. These records are submitted to CIBIL by member banks and credit
institutions, on a monthly basis. The CIBIL Trans Union Score is a 3 digit
numeric summary of a persons credit history which indicates applicants
financial & credit health. The Score is derived from the credit history as
detailed in the Credit Information Report [CIR] and ranges from 300 to 900
points. Credit score tells the lender how likely the applicant is to pay back
loan or credit card dues based on past repayment behavior. The higher is the
score, the more is the chance of partys loan application getting approved!
Before approving a loan a financial institution always checks with CIBIL on
applicants repayment track record. 4. Housing Loan Policy of Indian
Overseas Bank IOB is offering home loans under different schemes for the
Indian residents and NRIs at attractive interest rates for both the employed
and self-employed persons instantly with very less documentation. Thus,
with the simple processing of a few steps, people can get the Home loan
from Indian Overseas Bank for purchasing a new house / flat or to renovate /
rebuild an existing home.
ELIGIBILITY GROUPS OF INDIVIDUALS
Members of Co-operative Societies.
Individuals not more than 55 years of age.
However individuals may be considered at the age of 60 provided
their legal heirs join along with them.
Loan must be liquidated before attaining 65 Years of age.
MARGIN
The minimum margin is 10% of the estimated cost (including the cost of the
land) for new as well as old houses/flats.
RATE OF INTEREST
Loan Amount
Up to Rs 30 lakhs
Above Rs.30 lacs & up to
Rs 75 lacs
Above Rs 75 lakhs
Base
i.e.10.50
REPAYMENT
Rate
Irrespective of Tenor
Women Borrowers
@ Base Rate i.e.10.25
@ Base Rate i.e.10.25
+0.25 @ Base Rate i.e.10.25
SECURITY
First mortgage on the property to be bought, constructed or renovated The
land should be in the applicant's name or jointly with spouse who should be
a co-borrower Should have a clear and marketable title over the property
Should have comprehensive insurance on the property for adequate value
Additional security in the form of NSC, LIC, Units of UTI will also be
accepted 4.9 Documents required
An application form Salary certificate as a proof of income (for employed
individuals)
Financial statements (for professionals, businessman) Agreement for sale of
house/flat Proof of membership (for co-operative societies etc.) Proof for
experience in the line of activity (for professionals, business people etc.)
Estimates for Construction / Valuation Report for Acquisition / Legal
opinion on the Property from Bank approved Engineer / Lawyer
have a checklist to ensure that all required information is, in fact, collected.
This would help institutions avoid processing and
screening applications that would be later rejected.
The next stage to credit screening is credit appraisal where the financial
institution assesses the customers ability to meet his
obligations. Banks should be equipped with well designed credit appraisal
criteria to ensure that facilities are granted only to
creditworthy customers who can make repayments from reasonably
determinable sources of cash flow on a timely basis.
This is a favored choice for companies that do not have enough credit
ranking, time or capacity, and track record to opt for traditional capital
sources. It is also a good way for companies to satisfy their short-term
requirements of cash. It has four major asset classes namely inventory, real
estate, accounts receivable, and equipment. Recently, addition of intangible
assets like customer lists and trademarks have been added to it.
They are also a good choice for those companies that do not have
outstanding credit. The companies can make use of intangible assets
to get the loan.
This lending system offers very good value when the lent assets are
good. When the company makes use of inventory as its guarantee or
security, the amount of the loan may go up to 80% of the value of the
inventory. In case the company lends intangible assets, 75% of them
can be credited.
CONCLUSIONS
Credit appraisal is done to check the commercial, financial & technical
viability of the project proposed its funding pattern & further checks the
primary or collateral security cover available for the recovery of such funds
PNB loan policy contains various norms for sanction of different types of
loans such as
These all norms does not apply to each & every case.
PNB norms for providing loans are flexible & it may differ from case to
case
The CRA models adopted by the bank take into account all possible factors
which go into appraising the risk associated with a loan
These have been categorized broadly into financial, business, industrial,
and management risks & are rated separately
The assessment of financial risk involves appraisal of the financial strength
of the borrower based on performance & financial indicators
After case study we found that in some cases, loan is sanctioned due to
strong financial parameters
From the case study analysis it was also found that in some cases, financial
performance of the firm was poor, even though loan was sanctioned due to
some other strong parameters such as the unit has got confirm order, the unit
was an existing profit making unit & letter of authority was received for
direct payment to the bank from ONGC which is public sector.
Different appraisal scheme has been introduced by the bank to cater
different industries such as:-
Banks main function is to lend funds/ provide finance but it appears that
norms are taken as guidelines not as a decision making
A bankers task is to identify/assess the risk factors/parameters &
manage/mitigate them on continuous basis.
REFERENCES
Uwe Wehrspohn (2005) Credit Risk Evaluation: Modeling - Analysis - Management,
Center for Risk & Evaluation , Vol. 33 , pp 345-356, June 14, 2005
Economic Research (NBER), Research Paper Series No.G01, G1, G12, G18,
G21.
Abhijit V. Banerjee (2002) Contracting Constraints, Credit Markets and
Economic
Development, MIT Dept. of Economics Working Paper No. 02-17 , April
25, 2002
Agarwala, R.G., Banking Finance A Leading Monthly of Banking &
Finance Published by Sashi Publications, Vol. XXII No.1 January,
2008,ISSN-0971-4498