CREDIT APPRAISAL PROCESS

RESEARCH METHODOLOGY:
Research is a common parlance which refers to search for knowledge. It is a procedure of logical
and systematic application of the fundamentals of science to the general and overall questions of a study
and scientific technique, which provide precise tools, specific procedures, and technical rather
philosophical meaning for getting and ordering the data prior to their logical analysis and manipulating
different type of research designs is available depending upon the nature of research project, availability of
manpower and circumstances.
Research methodology is a way to systematically solve research problem in it.We study the various
steps that are generally adopted by researcher in studying his research problem along with the logic behind
them. It is necessary for a researcher to know not only the research methods/techniques but also the
methodology. It may be noted, in the context of planning & development, that the significance of research
lies in its quality and not in quantity. Researchers should know how to apply particular research techniques,
but they also need to know which of these methods or techniques, are relevant and which are not, and what
would they mean and indicate and why.
This topic, CREDIT APPRAISAL PROCESS OF MAHINDRA FINANCE demanded an
elaborate study of the presently followed credit appraisal process of Mahindra Finance, make suggestions
regarding betterment of the whole system if any, and finally base all the above on solid research work.

4.1. STATEMENT OF THE PROBLEM:

Credit Appraisal Process
During my research at Mahindra finance, I noticed that Mahindra finance always follows a specific
procedure for approving loans, irrespective of their variant. I also observed the whole procedure very
carefully and realized that it could be decomposed into 8 basic steps. They are:1) Interest shown by potential customers
2) Briefing by Mahindra Finance
3) Filling up of form
4) Submission of documents required
5) Verification of documents
6) Recording deviations
7) Deviation Approval
8) Loan Approval

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Now, I am going to briefly describe each of the above 8 steps involved in the Credit Appraisal
Process of Mahindra Finance.
1) Interest Shown by Potential Customers
Whenever a person desires to buy a vehicle he/she approaches a dealer. After selecting the Vehicle,
the on road price is being evaluated. If the person opts for financial assistance and Mahindra finance in
particular, he/she becomes a potential customer to Mahindra finance .The dealer makes arrangements for a
meet of between the customers and Mahindra Finance.
2) Briefing by Mahindra Finance
When the customer agrees to take loan from Mahindra Finance, the MMFSL agent briefly talks
about the terms & conditions of Mahindra Finance for availing the loan.
3) Filling up of form
After all the discussions have been completed and the person has agreed to take loan from
Mahindra Finance, he is given a loan application form to fill up.
4) Submission of documents required
For submission of the form, what are the documents required, the agent tells to the person, applying
for the loan. There are 5 types of documents required to submit the form for loan:

Co-hirer documents: Identity Proof, Residence Proof, Photo with Front attested, Income Proof,
Bank Statement Mention Last 6 Months, PDC- Post Dated Cheques, Signature Verification and
CIBIL Score and LTV (Loan to Value).

CIBIL (Credit Information Bureau of India Limited): CIBIL is Indias first Credit Information
Company (CIC) founded in August 2000. CIBIL collects and maintains records of an individual s
payments pertaining to loans and credit cards. These records are submitted to CIBIL by banks and
credit institutions, on a monthly basis.

CIBIL Score: The CIBIL Score is a 3 digit numeric summary of ones credit history which indicates
the financial & credit health. The Score is derived from credit history as detailed in the Credit
Information Report [CIR] and ranges from 300 to 900 points. Credit score tells the lender how
likely you are to pay back loan or credit card dues based on past repayment behavior.

Guarantor Document

Co-hirer Document

Office Documents: Agreement Duly Sign, Offer Letter, IRR Sheet (Internal rate of return sheet),
MLS (Multiple Listing Services) Form, Vehicle Scheme, Field Investigation Report, Route Map,
Proposal Form, Sanction Letter, Post Tele-verification.

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Dealer Documents: Invoice, Sales Certificate, Delivery Challan, Chassis Print, Duplicate Key,
Dealer Recommendation sheet, Balance Of Payment Case, IHM Receipt(Both dealer & Mahindra
Finance), Insurance Policy, Welcome Letter, Tax Challan, RC Copy and Certificate.

5) Verification of documents
After submission of all the documents, the agent verifies all the documents for address, Identity
proof, electricity bills, annual income etc.
6) Recording deviations
If the applicant fails to fulfill any of the requirements, it is recorded as deviation from the usual
requirement. All such deviations are recorded duly, without any fail.
7) Deviation approval
If MMFSL believes that one or some of the deviations are acceptable under the circumstances and a
deviation approval letter is being given by the Mahindra Finance.
8) Loan Approval
After all the process has been completed and MMFSL finds that the person applying for the Loan is
actually eligible for it, the Loan is sanctioned.
Applications for Loan & their processing
Customers, who have evinced interest in availing the loan from MMFSL should fill up the loan
application form, complete in all aspects and should submit the same to the Companys nearest branch.
The application so received will be acknowledged by the Company immediately on submission and
will be processed for sanction of the loan. The Company will consider all the documents submitted and the
information provided, verify the creditworthiness of the customer and evaluate the proposal at its sole
discretion and will grant loan by issuing a sanction letter within 10 days from the date of receipt of the loan
application and if no communication is received by the customer, the loan application is deemed to have
been rejected and the Company will not send any communication for rejected cases. Sanction letter in the
vernacular language is to be issued to all borrowers whose loan have been sanctioned after due diligence.

4.2. NEED FOR THE STUDY:

An important need of credit appraisal is obtaining an understanding of the anticipated expenditure

and benefits of a project, usually expressed in terms of its inputs (costs) and outputs (results).

The expected timing of this must also be made clear.

Whilst detailed appraisal is generally necessary before decisions can be taken and offers made.

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It will enable any obviously poor or ineligible ones to be eliminated, avoid duplication and give an
early overall view of the success of the measure.

4.3. LITERATURE REVIEW:

Mritunjay Kumar Pandey conducted a study on Financial Performance Appraisal of TISCO, the
paper of which was published in Accounting World, September 2008, The ICFAI University Press.
The Objectives of the study was to check the profitability and efficiency of the firm in the near
future, to give brief summery about the ratios which affect the organizations financial structure and

to point out the relationship between ratios and reasons behind it.
Machiko Nissanke, Ernest Aryeetey in their book: Financial Integration and Development
explained about the loan administration and risk reduction by formal lenders (i.e. banks), Credit
Analysis Standards, Increase Project equity requirements, Loan screening of banks and assessing
creditworthiness during screening. Banks consider return on project as an important indicator for

appraising the projects.

Credit Appraisal, Risk Analysis and Decision Making by D.D.Mukherjee.
Banking Strategy, Credit Appraisal and Lending Strategies by Author(s) : Hrishikesh
Bhattacharya
Analyses lending strategies, credit appraisal, risk analysis and lending decisions keeping in
mind the broad framework of corporate banking strategy, and helps us understand better the vast
and significant changes in the financial market. Numerous examples from the world of business
have been provided to facilitate better understanding.

A research was conducted by Mr. V.M.V.Subba Rao, B.Com. , FCA, DISA (ICA), MICA on
Monitoring of Advances -- A New Look. The researcher gave two views on the commencement
of monitoring process-(i)Narrow view- the monitoring starts only after the advance is disbursed,
(ii)Broad view- at the time of conducting credit investigation of the borrower and continue in all

other stages of credit cycle.

Eleanor Charles in his paper, Appraising the Role of the Appraiser Published: September 3, 1995,
talked about the centralized function of the appraiser to grant the loan and virtually every loan
applicant will have to rely on an appraisal to set a value on the property against which the loan is to

be made.
RBI reports (2011-13) had maintained that though the Indian banks remained well capitalized,
concerns about the growing non-performing assets loomed large, particularly on the public sector
banks (RBI, 2013). RBI further observed that economic slow-down is not the sole reason for
deteriorating asset quality but also the inadequate appraisal and monitoring of credit proposals by
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banks.

Arnoud and Anjan (2007)17 study appear as the lead chapter in a readings book on corporate
finance, financial intermediation and market micro structure. The unifying theme in the book is
optimal design, and various chapters deal with the design of contracts, securities, institutions,

market mechanisms, and regulation from an information-theoretic perspective.

Christian (2006)15 focused on the changing intensity of three policies that are commonly associated
with financial repression, namely interest rate controls, statutory pre-emption and directed credit as
well as the effects these policies had. The main findings are that the degree of financial repression
has steadily increased between 1960 and 1980, and then declined somewhat before rising to a new
peak at the end of the 1980s.

4.4. OBJECTIVES:

To know the loans and advances are issued based on the requirements of the customers.

2. To ensure that the Level of risk is Acceptable and mitigated.

3. To know the level of NPA in MMFSL.

4.5. HYPOTHESIS:

H0: Loans and advances are not issued based on the requirements of the customers.
H1: Loans and advances are issued based on the requirements of the customers.

H0: Level of risk is not acceptable and not mitigated.

H1: Level of risk is acceptable and mitigated.

H0: Level of NPA is not decreased in Mahindra Finance.

H1: Level of NPA is decreased in Mahindra Finance.

4.6. RESEARCH METHODOLOGY:

I have chosen Descriptive Research for this project. The data also consists of secondary data in the
form of articles, journals, and data from websites of the company. 5 years data of Mahindra finance. By
this, I am going to analyse and interpret the results.

4.6.1. Collection of Data

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I decided to go for collecting Secondary Data in my project work.

Secondary data is previously collected 5 years Annual Reports of MMFSL from 2010 to 2015,
Balance Sheet, Profit and Loss account.

4.6.2. Tools used:

Microsoft Excel

4.7. SCOPE OF THE STUDY:

The topic selected is, The credit appraisal system with respect to Mahindra Finance.
This means, how the employees in Mahindra Finance appraise individuals and the corporate firms
lending process and how the whole process is carried forward like an integrated system, keeping certain
aspects like risk, legality into concern.
The scope lays in Mahindra Finance, its potential borrowers, which is tailor made at times to meet
the client need and help with all the services the Mahindra Finance can deliver in order to meet its goals
and objectives.

4.8. LIMITATIONS OF THE STUDY:

During the course of my project, everything did not go the way I planned and expected, for I faced
certain obstacles. Some of these obstacles are stated below,

Interaction with the employees is very limited because of the work schedule.
Regarding the data provided by the company is mostly secondary, i.e. it may have been audited by
the organization so it may not be 100% correct.

The accuracy of analysis depends on the data collected from the financial statements.

Finding and analysis of the report is prepared from the information available in the annual report
and book of account.

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