Académique Documents
Professionnel Documents
Culture Documents
UNIVERSITY OF MUMBAI
PROJECT ON
BACHELOR OF COMMERCE
SEMESTER V
(2017-2018)
SUBMITTED
SUBMITTED BY,
ROLL NO. - 10
UNDER GUIDANCE,
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TYBBI CREDIT APPRAISAL
MAHARSHIDAYANANDCOLLEGE
CERTIFICATE
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TYBBI CREDIT APPRAISAL
DECLARATION
Signature of student
Name of Student
Roll No. 10
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TYBBI CREDIT APPRAISAL
ACKNOWLEDGEMENT
The college, the faculty, the classmates & the atmosphere, in the
college were all the favorable contributory factors right from the
point when the topic was to be selected till the final copy was
prepared. It was a very enriching experience throughout the
contribution from the following individuals in the form in which it
appears today. We feel privileged to take this opportunity to put on
record my gratitude towards them.
PROF. KUNAL SONI made sure that the resource was made available
in time & also for immediate advice & guidance throughout making
this project. The principal of our college DR. T.P.GHULE has always
been inspiring & driving force. We are thankful to Mr. SANTOSH
SHINDE associated with administration part of Financial Markets &
Banking & Insurance section has been very helpful in making the
infrastructure available for data entry.
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TYBBI CREDIT APPRAISAL
EXECUTIVE SUMMARY
Whenever an individual or a company uses a credit that means they are borrowing money
that they promise to repay with in a pre-decided period. In order to assess the repaying
capability i.e. to evaluate their credit worthiness banks use various techniques that differ with
the different types of credit facilities provided by the bank. In the current scenario where it is
seen that big companies and financial institutions have been bankrupted just because of credit
default so Credit Appraisal has become an important aspect in the banking sector and is
gaining prime importance. In order to understand the credit appraisal system followed by the
banks this project has been conducted. The project has analyzed the credit appraisal
procedure with special reference to Punjab National Bank which includes knowing about the
different credit facilities provided by the banks to its customers, how a loan proposal is being
made, what are the formalities that is to be satisfied and most importantly knowing about the
various credit appraisal techniques which are different for each type of credit facility.
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CONTENTS
SR NO. CHAPTER PAGE NO.
1 1.1 Introduction 7
1.2 Reason for selecting topic
1.3 Objective of the project
1.4 Limitation of the study
1.5 Research methodology
2 2.1 Commercial banking and its objectives 10
2.2 Credit policy of commercial bank
2.3 The profile of organ of PNB
3 3.1 Credit philosophy 22
6 6.1 Conclusion 55
6.2 Bibliography
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CHAPTER - 1
INTRODUCTION
The last year financial crises have become the main cause for recession which was started in
2006 from US and was spread across the world. The world economy has been majorly
affected from the crisis. The securities in stock exchange have fallen down drastically which
has become the root cause of bankruptcy of many financial institutions and individuals. The
root cause of the economic and financial crisis is credit default of big companies and
individuals which has badly impacted the world economy. So in the present scenario
analyzing one’s credit worthiness has become very important for any financial institution
before providing any form of credit facility so that such situation doesn’t arise in near future
again.
Analysis of the credit worthiness of the borrowers is known as Credit Appraisal. In order to
understand the credit appraisal system followed by the banks this project has been conducted.
The project has analyzed the credit appraisal procedure with special reference to Punjab
National Bank which includes knowing about the different credit facilities provided by the
banks to its customers, how a loan proposal is being made, what are the formalities that is to
be satisfied and most importantly knowing about the various credit appraisal techniques
which are different for each type of credit facility.
Whenever an individual or a company uses a credit that means they are borrowing money
that they promise to repay with in a pre-decided period. In order to assess the repaying
capability i.e. to evaluate their credit worthiness banks use various techniques that differ with
the different types of credit facilities provided by the bank. In the current scenario where it is
seen that big companies and financial institutions have been bankrupted just because of credit
default so Credit Appraisal has become an important aspect in the banking sector and is
gaining prime importance.
It is the incident of credit defaults that has given rise to the financial crisis of 2008-09. But in
India the credit default is comparatively less that other countries such as US. One of the
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reasons leading to this may be good appraisal techniques used by banks and financial
institutions in India. Eventually the importance of this project is mainly to understand the
credit appraisal techniques used by the banks with special reference to Punjab National Bank.
The overall objective of this project is to understand the current credit appraisal system used
in banks. The Credit Appraisal system has been analyzed as per the different credit facilities
provided by the bank. The detailed explanation about the techniques and process has been
discussed in detail in the further chapters.
The project then proceeds with the review of literature i.e. review of some past work
regarding credit appraisal by various researchers. The project then moves towards research
methodology where it covers the information regarding the type of data collected and the
theoretical concepts used in the project are discussed in detail. Then the project proceeds with
the next chapter consisting of the analysis part which covers the analysis of various
techniques used by the banks for the purpose of credit appraisal. Then the project moves to its
next chapter i.e. findings where some results found out are interpreted and then moving on to
the last and the final chapter i.e. the suggestions and conclusions where some steps are
suggested to be implemented to increase the work efficiency and to reduce to work pressure
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RESEARCH METHODOLOGY
This project related to corporate banking. This project is done only by secondary data.
This data collects a systematic method regarding the control of cash in banks it comprises
definition, tables, meaning, reference etc.
Secondary data
The data is also collected by SBI sites like recent changes in corporate sector.
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CHAPTER-2
COMMERCIAL BANKS AND ITS OBJECTIVES
A commercial bank is a type of financial intermediary that provides checking accounts,
savings accounts, and money market accounts and that accepts time deposits. Some use the
term "commercial bank" to refer to a bank or a division of a bank primarily dealing with
deposits and loans from corporations or large businesses. This is what people normally call a
"bank". The term "commercial" was used to distinguish it from an investment bank.
Commercial banks are the oldest, biggest and fastest growing financial intermediaries in
India. They are also the most important depositories of public savings and the most important
disbursers of finance. Commercial banking in India is a unique banking system, the like of
which exists nowhere in the world. The truth of this statement becomes clear as one studies
the philosophy and approaches that have contributed to the evolution of banking policy,
programmees and operations in India.
The banking system in India works under constraints that go with social control and public
ownership. The public ownership of banks has been achieved in three stages: 1995, July 1969
and April, 1980. Not only the public sector banks but also the private sector and foreign
banks are required to meet the targets in respect of sectoral deployment of credit, regional
distribution of branches, and regional credit deposit ratios. The operations of banks have been
determined by lead bank scheme, Differential Rate of interest scheme, Credit authorization
scheme, inventory norms and lending systems prescribed by the authorities, the formulation
of credit plans, and service area approach.
Commercial Banks in India have a special role in India. The privileged role of the banks is
the result of their unique features. The liabilities of Bank are money and therefore they are
important part of the payment mechanism of any country. For a financial system to mobilize
and allocate savings of the country successfully and productively and to facilitate day-to-day
transactions there must be a class of financial institutions that the public views are as safe and
convenient outlets for its savings. The structure and working of the banking system are
integral to a country’s financial stability and economic growth. It has been rightly claimed
that the diversification and development of Indian Economy are in no small measure due to
the active role banks have played financing economic activities of different sectors.
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The operating paradigms of the banking industry in general and credit dispensation in
particular have gone through a major upheaval.
Types of credit-
Bank in India provide mainly short term credit for financing working capital needs although,
as will be seen subsequently, their term loans have increased over the years. The various
types of advances provide by them are: (a) Term Loans, (b) cash credit, (c) overdrafts, (d)
demand Loans , (e) purchase and discounting of commercial bills, and, (f) installment or hire
purchase credit.
Volume of Credit-
Commercial banks are a major source of finance to industry and commerce. Outstanding
bank credit has gone on increasing from Rs 727 crore in 1951 to Rs 19,124 crore in 1978, to
Rs 69,713 crore in 1986, Rs 1,01,453 crore in 1989-90 , Rs 2,82,702 crore in 1997 and to Rs
6,09,053 crore in 2002. Banks have introduced many innovative schemes for the
disbursement of credit. Among such schemes are village adoption, agriculture development
branches and equity fund for small units. Recently, most of the banks have introduced
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attractive education loan schemes for pursuing studies at home or abroad. They have
introduced attractive educational loan schemes for pursuing studies at home or abroad. They
have moved in the direction of bridging certain defects or gaps in their policies, such as
giving too much credit to large scale industrial units and commerce and giving too little credit
to agriculture, small industries and so on.
Bank lending was done for a long time by assessing the working capital needs based on the
concept of MPBF (maximum permissible bank finance). This practice has been withdrawn
with the effect from April 15th 1997 in the sense that the date, banks have been left free to
choose their own method ( from the method such as turnover , cash budget, present MPBF ,
or any other theory) of assessing working Capital requirement of the borrowers.
The cash credit system has been the bane, yet it has exhibited a remarkable strength of
survival all these years. In spite of many efforts which were direct in nature, only a slow
progress has been made to reduce its importance and increase bill financing. Therefore a
concrete and direct policy step was taken on April 21, 1995 which made it mandatory for
banks, consortia, syndicates to restrict cash credit components to the prescribed limit , the
balance being given in the form of a short term loan, which would be a demand loan for a
maximum period of one year, or in case of seasonal industries , for six months. The interest
rates on the cash credit and loan components are to be fixed in accordance with the prime
lending rates fixed by the banks. This “loan system” was first made applicable to the
borrowers with an MPBF of Rs 20 crore and above; and in their case , the ratio of cash credit
(loan) to MPBF was progressively reduced(increased) from 75 (25) per cent in April 1995 , to
60 (40) percent in September 1995, 40 (60) per cent in April 1996 , and 20 (80) percent in
April 1997. With the withdrawal of instructions about the MPBF in April 1997 , the
prescribed cash credit and loan components came to be related to the working capital limit
arrived in banks as per the method of their choice.
With effect from September 3, 1997, the RBI has permitted banks to raise their existing
exposure limit to a business group from 50% to 60%; the additional 10% limit being
exclusively meant for investment in infrastructure projects.
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The term lending by banks also has subject to the limits fixed by RBI. In 1993, this limit was
raised from Rs 10 crore to Rs 50 crore in case of a loan for a single project by a single bank,
and from Rs 150 crore to Rs 200 crore for a single project by all the banks. The latter limit
was subsequently raised to Rs 500 crore in the case of general projects and Rs 1000 crore for
power projects. From September3, 1997 these caps on term lending by banks were removed
subject to their compliance with the prudential exposure norms.
The banks can invest in and underwrite shares and debentures of corporate bodies. At present,
they can invest five percent of their incremental deposits in equities of companies including
other banks. Their investment in shares/ Bonds of DFHI, Securities trading Corporation of
India (STCI), all Indian financial institutions and bonds (debentures) and preference shares of
the companies are excluded from this ceiling of five per cent with affect from April 1997 .
From the same date banks could extend loans within this ceiling to the corporate against
shares held by them. They could also offer overdraft facilities to stock brokers registered with
help of SEBI against shares and debentures held by them for nine months without change of
ownership.
A study group headed by Shri Prakash Tandon, the then Chairman of Punjab National Bank,
was constituted by the RBI in July 1974 with eminent personalities drawn from leading
banks, financial institutions and a wide cross-section of the industry with a view to study the
entire gamut of Bank's finance for working capital and suggest ways for optimum utilization
of Bank credit. This was the first elaborate attempt by the central bank to organize the Bank
credit. Most banks in India even today continue to look at the needs of the corporate in the
light of methodology recommended by the Group. The report of this group is widely known
as Tandon Committee report.
The weaknesses in the Cash Credit system have persisted with the non-implementation of one
of the crucial recommendations of the Committee. In the background of credit expansion seen
in 1977-79 and its ill effects on the economy, RBI appointed a working group to study and
suggest-
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ii) Alternate type of credit facilities to ensure better credit discipline and co relation between
credit and production. The Group was headed by Sh. K.B. Chore of RBI and was named
Chore Committee.
Another group headed by Sh. P.R. Nayak (Nayak Committee) was entrusted the job of
looking into the difficulties faced by Small Scale Industries due to the sophisticated nature of
Tandon & Chore Committee recommendations. His report is applicable to units with credit
requirements of less than Rs.50 lacs.
The face of Indian banking has changed radically in the last decade. A perusal of the Basic
Statistical Returns submitted by banks to the Reserve Bank of India shows that between 1996
and 2005, personal loans have been the fastest growing asset, increasing from 9.3 per cent of
the total bank credit in 1996 to 22.2 per cent in 2005. Of course, this is partly due to the huge
rise in housing loans, which rose from 2.8 per cent of the bank credit to 11 per cent over the
period, but ‘other personal loans’ — comprising loans against fixed deposits, gold loans and
unsecured personal loans — also rose from 6.1 per cent to 10.7 per cent. Other categories
whose share increased were loans to professionals and loans to finance companies. In
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contrast, there has been a sharp decline in the share of lendings to industry. Credit to small
scale industries fell from 10.1 per cent of the total in 1996 to 4.1 per cent in 2005.
▪ A major share of the economic growth has been led by the expansion of the service
sector
▪ Capital intensity and investment intensity required for growth in the current economic
context may not be as high as it used to be in the past.
▪ In manufacturing sector more efficient utilization of existing capacities contributed to
the sectoral growth rather rather than any large addition of fresh capacities. The
consequential increase in the demand for credit was also subdued.
▪ Greater and cheaper avenues for credit resulted in a bigger share of disintermediation
being resorted to by large borrowers.
The other trend has been the substantial drop in the share of rural credit, while the share of
metropolitan centers has increased. While bankers say that up gradation of rural centers into
semi-urban could be one reason (the share of semi-urban centers has gone up), it is also true
that the reforms have been urban-centric and have tended to benefit the metros more. The
number of rural bank offices fell from 32,981 in March 1996 to 31,967 by March 2005.
The states have been the main beneficiaries of bank credit are the northern region as it has
increased its share from 18.7 per cent of the total credit in 1996 to 22.2 per cent in 2005. As
it was seen that Delhi’s share went up from 9.5 per cent to 12.1 per cent over the period. This
is not due to food credit, the account of which is maintained in Delhi. Clearly, the national
capital has gained a lot from liberalization.
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Credit
Appraisal
Sanctions
From the above chart we can see that Credit Appraisal is the core and the basic function of a
bank before providing loan to any person/company, etc. It is the most important aspect of the
lending procedure and therefore it is discussed in detail as below.
Credit Appraisal
Meaning - The process by which a lender appraises the creditworthiness of the prospective
borrower is known as Credit Appraisal. This normally involves appraising the borrower’s
payment history and establishing the quality and sustainability of his income. The lender
satisfies himself of the good intentions of the borrower, usually through an interview.
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Punjab National Bank (PNB) is an Indian multinational banking and financial services
company. It is a state-owned corporation based in New Delhi, India. The bank was founded
in 1894. As of 31 March 2017 the bank has over 80 million customers, 6,937 branches, and
10681 ATMs across 764 cities.[4]
PNB has a banking subsidiary in the UK (PNB International Bank, with seven branches in the
UK), as well as branches in Hong Kong, Kowloon, Dubai, and Kabul. It has representative
offices in Almaty (Kazakhstan), Dubai (United Arab Emirates), Shanghai (China), Oslo
(Norway), and Sydney (Australia). In Bhutan it owns 51% of Druk PNB Bank, which has
five branches. In Nepal PNB owns 20% of Everest Bank Limited, which has 50 branches.
Lastly, PNB owns 84% of JSC (SB) PNB Bank in Kazakhstan, which has four branches.
History
Punjab National Bank was registered on 19 May 1894 under the Indian Companies Act, with
its office in Anarkali Bazaar, Lahore, in present-day Pakistan. The founding board was drawn
from different parts of India professing different faiths and of varying back-ground with, the
common objective of creating a truly national bank that would further the economic interest
of the country.[1] PNB's founders included several leaders of the Swadeshi movement such as
Dyal Singh Majithia and Lala Harkishen Lal, Lala Lalchand, Kali Prosanna Roy, E. C.
Jessawala, Prabhu Dayal, Bakshi Jaishi Ram, and Lala Dholan Dass.[5][6] Lala Lajpat Rai was
actively associated with the management of the Bank in its early years. The board first met on
23 May 1894.[1] The bank opened for business on 12 April 1895 in Lahore.
PNB has the distinction of being the first Indian bank to have been started solely with Indian
capital that has survived to the present. (The first entirely Indian bank, Oudh Commercial
Bank, was established in 1881 in Faizabad, but failed in 1958.)
PNB has had the privilege of maintaining accounts of national leaders such as Mahatma
Gandhi, Jawahar Lal Nehru, Lal Bahadur Shastri, Indira Gandhi, as well as the account of the
famous Jalianwala Bagh Committee.[1]
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Timeline
In 1900 PNB established its first branch outside Lahore in India. Branches in Karachi and
Peshawar followed. The next major event occurred in 1940 when PNB absorbed Bhagwan (or
Bhugwan) Dass Bank, which had its head office in Dehra Dun.
At the Partition of India and the commencement of Pakistani independence, PNB lost its
premises in Lahore, but continued to operate in Pakistan. Partition forced PNB to close 92
offices in West Pakistan, one-third of its total number of branches, and which held 40% of the
total deposits. PNB still maintained a few caretaker branches. On 31 March 1947, even
before Partition, PNB had decided to leave Lahore and transfer its registered office to India; it
received permission from the Lahore High Court on 20 June 1947, at which time it
established a new head office at Under Hill Road, Civil Lines in New Delhi. Lala Yodh Raj
was the Chairman of the Bank.
In 1951, PNB acquired the 39 branches of Bharat Bank (est. 1942). Bharat Bank became
Bharat Nidhi Ltd. In 1960, PNB again shifted its head office, this time from Calcutta to
Delhi. In 1961, PNB acquired Universal Bank of India, which Ramakrishna Jain had
established in 1938 in Dalmianagar, Bihar. PNB also amalgamated Indo Commercial Bank
(est. 1932 by S. N. N. Sankaralinga Iyer) in a rescue. In 1963, The Burmese revolutionary
government nationalized PNB's branch in Rangoon (Yangon). This became People's Bank
No. 7.[7] After the Indo-Pak war, in September 1965 the government of Pakistan seized all the
offices in Pakistan of Indian banks. PNB also had one or more branches in East Pakistan
(Bangladesh).
The Government of India (GOI) nationalized PNB and 13 other major commercial banks, on
19 July 1969. In 1976 or 1978, PNB opened a branch in London. some ten years later, in
1986, the Reserve Bank of India required PNB to transfer its London branch to State Bank of
India after the branch was involved in a fraud scandal. That same year, 1986, PNB acquired
Hindustan Commercial Bank (est. 1943) in a rescue. The acquisition added Hindustan's 142
branches to PNB's network. In 1993, PNB acquired New Bank of India, which the GOI had
nationalized in 1980. In 1998 PNB set up a representative office in Almaty, Kazakhstan.
In 2003 PNB took over Nedungadi Bank, the oldest private sector bank in Kerala. At the time
of the merger with PNB, Nedungadi Bank's shares had zero value, with the result that its
shareholders received no payment for their shares. PNB also opened a representative office in
London. In 2004, PNB established a branch in Kabul, Afghanistan, a representative office in
Shanghai, and another in Dubai. PNB also established an alliance with Everest Bank Limited
in Nepal that permits migrants to transfer funds easily between India and Everest Bank's 12
branches in Nepal. Currently, PNB owns 20% of Everest Bank. Two years later, PNB
established PNBIL – Punjab National Bank (International) – in the UK, with two offices, one
in London, and one in Southall. Since then it has opened more branches, this time in
Leicester, Birmingham, Ilford, Wembley, and Wolverhampton. PNB also opened a branch in
Hong Kong. In January 2009, PNB established a representative office in Oslo, Norway. PNB
hopes to upgrade this to a branch in due course. In January 2010, PNB established a
subsidiary in Bhutan. PNB owns 51% of Druk PNB Bank, which has branches in Thimpu,
Phuentsholing, and Wangdue. Local investors own the remaining shares. Then on 1 May,
PNB opened its branch in Dubai's financial center. PNB purchased a small minority stake in
Kazakhstan-based JSC Danabank established on 20 October 1992 in Pavlodar. Within the
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year PNB increased its ownership till 84% of what has become JSC (SB) PNB, with its share
currently decreased to 49%. The associate in Kazakhstan now called JSC Tengri Bank has
branches in Almaty, Astana, Karaganda, Pavlodar and Shymkent. September 2011: PNB
opened a representative office in Sydney, Australia. December 2012: PNB signed an
agreement with US based life Insurance company Metlife to acquire a 30% stake in MetLife's
Indian affiliate MetLife India Limited. The company would be renamed PNB MetLife India
Limited and PNB would sell MetLife's products in its branches. assets = ₹6,435 billion
(US$100 billion) (2015)
Financial performance
FY 2008- FY 2009- FY 2010- FY 2011- FY 2012-
Particulars 09 10 11 12 13
Total Assets (' INR crores) 246,919 296,633 378,325 458,192 478,877
Bharat Bank
1 1951 New Delhi, India —
Ltd.
Universal Bank
2 1961 Dalmianagar, Bihar, India —
of India
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Acquisition
Number Company Location Price Ref(s).
date
Bank
Hindustan
4 1986 Commercial India —
Bank
New Bank of
5 1993 New Delhi, India —
India
Nedungadi
6 2003 Kozhikode, Kerala, India —
Bank
Others 01.09%
Total 100.0%
Employees
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reported business of INR 11.65 crores per employee and net profit of INR 8.06 lakhs per
employee during the FY 2012-13. The company incurred INR 5,751 crores towards employee
benefit expenses during the same financial year.
Initiatives
The bank incurred INR 3.24 crores on CSR activities like medical camps, farmer trainings,
tree plantations, blood donation camps etc. during the FY 2012-13.
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CHAPTER - 3
CREDIT PHILOSOPHY
It is well recognized by the world that India is one of the fastest growing economies in the
world. Evidence from across the world suggests that a sound and evolved banking system is
required for sustained economic development. The last decade has seen many positive
developments in the Indian banking sector. Indian banks have compared favorably on growth,
asset quality and profitability with other regional banks over the last few years.
It should be noted that the banks generally consider only term loans repayable within 5 to 7
yrs. Term loans with maturity beyond 7 yrs are normally not experienced except
infrastructure loans.
Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal financial
statements as well as companies'.
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A high debt/equity ratio generally means that a company has been aggressive in financing its
growth with debt. This can result in volatile earnings as a result of the additional interest
expense. If a lot of debt is used to finance increased operations (high debt to equity), the
company could potentially generate more earnings than it would have without this outside
financing. If this were to increase earnings by a greater amount than the debt cost (interest),
then the shareholders benefit as more earnings are being spread among the same amount of
shareholders. However, the cost of this debt financing may outweigh the return that the
company generates on the debt through investment and business activities and become too
much for the company to handle. This can lead to bankruptcy, which would leave
shareholders with nothing.
The debt/equity ratio also depends on the industry in which the company operates. For
example for large projects (with project cost Rs. 100 crore and above) in Power, acceptable
level of DER is 2.33:1, in Iron and Steel Industry 2.25:1 , in Infrastructure and Capital
Intensive projects 2:1 and in Real Estate, level of DER is 1.75:1. The CH, GM, ED and CMD
have powers to further relax.
The ultimate purpose of project appraisal is to ascertain the viability of a project which has a
direct bearing on the repayment of the installments under the proposed term loan / deferred
payment guarantee. While the repayment program will depend upon the profitability of a
project, the quantum of annual installments has to be related to the size of the annual cash
flows. The repayment schedule should, therefore, be fixed after ascertaining the annual
servicing by the debt service coverage ratio.
The debt service coverage ratio is the core test ratio in project financing. This ratio indicates
the degree of viability of a project and influences in fixing the repayment period, and the
quantum of annual installments. For the purpose of this ratio , “debt” means maturing term
obligations viz. installments payable during a year under all the term loans/ deferred payment
guarantees and ‘service’ means cash accruals (service) available to cover the maturing
obligation (debt) during each year.
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The debt service coverage ratio indicates the ability of the firm to generate cash
accruals for repayment of installment and interest. For example, a DSCR of 3:1 indicates that
for each Re.1/-long term debt including interest to be paid the business generates cash accrual
of Rs.3/- to be utilized for repayment of debt. The difference between the accruals and debt is
known as margin of safety (Rs.2/- in this case).
The ratio of 1.5 to 2 is considered reasonable. Ratio lower than this should be
further looked into. A very high ratio may indicate the need for lower moratorium
period/repayment of loan in a shorter schedule. This ratio provides a measure of the ability
of an enterprise to service its debts i.e. `interest' and `principal repayment' besides indicating
the margin of safety. The ratio may vary from industry to industry but has to be viewed with
circumspection when it is less than 1.5.
A. The breakeven point is calculated to note the level of production at which the unit neither
earns profit nor incur loss. BEP is the level of operations (in terms of sales or production or
capacity utilization) at which total revenues are equal to total operating costs (fixed and
variable) or, in other words, the operating profit is equal zero. He firm starts earning
operating profits only after the break-even is reached. At BEP, “contribution” exactly equals
the “fixed costs.
B. The formula for calculating the break-even point for each year is as under:
C. Certain items of the cost that are to be incurred by the unit irrespective of the level of
production are called as fixed cost. The same includes depreciation, repairs and maintenance,
interest, certain portion of salaries, rent, insurance, selling expenses other than variable items
and administrative expenses
D. The variable cost changes with the levels of production. It includes cost of raw materials,
direct wages and other items, which are apportion able to unit of production.
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It is a useful method for considering also the risk implications of alternative actions. From
one alternative a firm may expect higher profit and also a higher break-even point, while
another alternative may produce comparatively lower profit but at a lower break-even point.
The firm has to weigh the probability (riskiness) of reaching the break-even in the first case
before choosing that alternative. Generally, the preferred alternative would be where the
break-even will be reached earlier.
Caution:
➢ Relationship between revenue, variable costs and volume may not be linear.
➢ It is not always easy to have a clean separation of costs into fixed and variable
components.
➢ Fixed costs may be ‘stepped’ – not fixed over all volumes.
Complexity involved in using BEP analysis in multi-product businesses
Illustration:
Assumed:
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BEP (sales) : (Fixed cost / Contribution)* Rs. 41.25 lakh = Rs. 20.27 lakh
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CHAPTER – 4
VISION
"To be a Leading Global Bank with Pan India footprints and become a household
brand in the Indo-Gangetic Plains providing entire range of financial products and
services under one roof"
MISSION
“TO provide excellent professional services and improve its position as a leader in
financial and related services; build and maintain a team of motivated and committed
workforce with high work ethos; use latest technology aimed at the customer
satisfaction and act as effective catalyst for socio- economic development”
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Gross working capital means the total funds required for financing the total current assets.
Net Working capital means the difference the current assets and liabilities. In other words ,
net working capital denotes the portion of gross working capital contributed from long term
sources. As per practice of Indian banks net working capital should normally be 25% of total
current assets which will give a current ratio of 1.33 to the unit. When net working capital is
negative, it implies that the short term funds have been diverted / used for long term uses and
the unit is facing a liquidity crunch. Such situation may also arise due to losses. In such a
situation, the need of the hour is for raising long term sources. A unit needs working capital
because the production, sales and realizations are not simultaneous. The unit needs cash to
purchase the raw material and pay expenses as there may not be perfect matching between
cash inflows and outflows. The stock of raw material is kept to ensure the uninterrupted and
smooth production. It may also be required to cover the situations of shortages etc.
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4. Availability of raw materials: When the availability of raw material is assured and
comfortable, lower stock maintenance is required. When there is expectation of
shortage or expectation of rise in prices, more amounts is blocked in raw materials.
5. Location of the unit: When the unit is located near the source of raw material, lower
stock maintenance is required.
6. Type of customers: When there are regular customers, low stock of finished products
is needed. When the sales are to be made to walk- in customers, more level of stock of
finished products is required.
7. Seasonality Factor: When the raw material required is available in a particular season,
the stock for whole of year is to be purchased in the particular season. E.g. Sugarcane,
Cotton, Paddy etc. Similarly the woollen products and products required in a
particular season such as ACs, for keeping the production running, higher level of
finished stocks have to be kept.
Role of Banker:
The unit should have sufficient amount of working capital. A portion of it is to be financed
from long term sources called the liquid surplus or net working capital (NWC). The
remaining is normally financed by the bank in the form of working capital limits. Excess
maintenance of working capital may result in idle resources and high interest cost whereas
less amount of working capital may mean disruption in the working. So both the situations
are to be avoided. That is why the technique of calculation of right amount of working capital
assumes significance. For financing of working capital, a banker should be able to calculate
right amount of working capital needed by the unit being financed. It shall mean right amount
of financing which will result in higher profitability for the unit and safety of funds of the
bank.
Parameters for various stages in computation of working capital:
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The assessment of working capital requirement of business unit has been engaging the
attention of the Govt., RBI and a series of committees were set up to suggest appropriate
modalities of financing working capital as under.
The QMS discipline is to be enforced on all borrowers enjoying working capital limits of
Rs.1 crore and over from the banking system, irrespective of whether they are exporters or
otherwise
In case the limits have been sanctioned on the basis of Naik Committtee, QMS forms and
CMA data need not be submitted.
The forms for QMS and time period for submission are as under.
Form- 1 To be submitted within 6 weeks from the close of quarter to which it relates
Form-11 To be submitted within 2 months from the close of Half Year to which it
relates.
QMS form I gives us the quarterly data of production and sales and quarterly levels of
current assets and current liabilities.
QMS form II gives us half yearly profitability statement and fund flow statements.
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By comparing with the projections as given in CMA, we can see whether the performance is
going on as projected.
QIS I:
QIS I which was earlier discontinued has been reintroduced and is to be submitted in addition
to QMS I and QMS II.
- For all borrowed accounts availing fund based working capital credit limits of Rs.5
crore & above from our bank, Quarterly Information System (QIS) Form-I may be
obtained for fixing up of quarterly operative limits in addition to the QMS Forms.
The QIS Form-I is to be submitted in the week preceding the commencement of the
quarter to which it relates.
- Non adherence to the operative limits will attract penal interest.
COMMITMENT CHARGES
The unutilized part of the limit is found out by calculating the average utilization during the
quarter. While calculating the average utilization, overdrawn portion or excess portion is not
taken into consideration. If the average utilization is less than 85% than commitment charges
is levied on the entire unavailed position.
Commitment charge is not applicable in case of export unit and sick unit.
PENAL INTEREST
In order to instill a sense of credit discipline among the borrowers, RBI has permitted banks
to levy penal interest over and above the sanctioned rate of interest in case of non compliance
of various terms and conditions
The broad areas of non compliance where bank charges penal interest are:
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I. EDUCATION LOANS
Till some year’s back higher education and quality education was not affordable to some
illustrious students because of the financial constraints. There was no any alternative but to
jump in the job market prematurely. And this led to untimely end of budding talents and their
forceful transformation into to the mediocrity. Scholarships were there, but those were so less
in numbers that only luckier few could avail them. But now the scene has changed drastically.
The boom in the banking sector has led to release of large amount of funds for education
loans
Student loans in India (popularly known as Education loans) have become a popular
method of funding higher education in India with the cost of educational degrees going
higher. The spread of self-financing institutions(which has less to no funding from the
government) for higher education in fields of engineering, medical and management which
has higher fees than their government aided counterparts have encouraged the trend in India.
Most large public sector and private sector banks offer educational loans.
Under section 80(e) of the Indian Income tax act, a person can exempt the amount paid
against the interest of the education loan - either for self or for his/her spouse or children - for
eight years from the year (s)he starts to repay the loan or for the duration the loan is in effect,
whichever is lesser.
Education loan is becoming popular day by day because of the rising fee structure of higher
education. It came into existence in 1995 started first by SBI bank and after that many banks
started offering study loan.
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Studies Abroad
Graduation, PG and Courses offered by CIMA London , CPA in USA
Eligibility • Indian National
• Secured Admission
Secured pass marks in qualifying exam. Branches need not go into
technicalities of admission process (selection through management
quota etc.) and may consider loan based on admission advice. (
RBD Cir. No. 60/08 dt. 20.12.2008)
More than one In case of more than one loan in a family, the family as a unit is to be
loan in a family taken into account for considering the loan and security taken in
relation to total quantum of loan subject to margin and repaying
capacity of the parents.
Top up Loans Top up loans may be sanctioned to students for pursuing further
studies within overall eligibility limits with appropriate
reschedulement of existing loans and required permission by the CH
Age of student There is no restriction with regard to age of student for being eligible
for the loan.
Income No Income criteria are prescribed for the parents. However amount of
Criteria loan be decided by judging Income of the parents.
Amount of loan Rs. 10.00 lac in India and 20.00 lac for abroad. CH can exercise
higher powers.
Priority Sector Rs. 10.00 lac in India and Rs. 20.00 lac for abroad.
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Constitutes of Tuition fees, Hostel charges, Exam fees, Library/Lab charges, Books,
loan Equipment, Instruments, Uniform, Building fund, Refundable deposit,
Travel expenses & Computers. (Advances for Computers are allowed in
Computer/Management courses only.)
Fees re- Within 6 months. Circle Head can allow beyond a period of 6 months
imbursement also on merits.(RBD Cir. No. 12/10 Dt. 16/02/2010)
Documents Documents will be executed both by student and the parent/guardian.
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according to age and total insurance Tenor. The scheme is valid for one
year.
Relaxations for It has been decided to permit the following relaxations to the students
students of securing admission in IITs/IIMs/MDI Gurgaon/XLRI Jamshedpur and
IIT,IIM, MDI, ISB Hyderabad:
XLRI, ISB
➢ Exemption from making parent/guardian as co-borrower.
➢ Exemption from taking guarantee for loans up to 7.50 l
Other ➢ CR of the borrower is not required. Brief CR of the guarantor to be
provisions prepared.
➢ “No due Certificate” is not to be insisted upon. Application will be
rejected by next higher authority.
➢ 2nd time loan can be considered by the CH within limits.
➢ Capability Certificated may be issued for studies abroad.
➢ Education loan to the institutions previously under Sarvotam Shiksha
Scheme can be sanctioned by the branch (other than place of
residence of parents) convenient to the borrower depending upon
genuineness, accessibility and aspect of recovery.
➢ On-line applications are being accepted for grant of education loan.
Loan applications are to be disposed of within 15 days under
branch/hub sanction and 21 days under CH and above.
➢ CH has full powers to relax eligibility, margin and security norms.
➢ Parents, grandparents, spouse, parents-in-law can be co-obligants.
➢ Passport and Visa is required for study abroad.
Disposal of It has been decided to curtail the period of disposal of education loan
loan applications to maximum 1 week except cases of CH and above level
applications where the outer limit of disposal will be 2 weeks from the date of receipt
of complete application.
Today, vehicles can be financed using a number of options such as loans, lease, or hire
purchase agreement. Obtaining a vehicle loan is one of the more straightforward ways of
financing a two or four wheeler. In this manner, the vehicle purchased is actually possessed
by the bank or lending institution. This means the car or motorbike is hypothecated.
Therefore, though the consumer owns the vehicle, the bank or the lending institution is
actually using it as a security against the loan that the consumer has obtained.
Vehicle loan provided by Punjab National Bank are under two categories known as PNB
SARTHI and CAR Loan & details about its processing, eligibility, margin etc are discussed
below:-
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PNB SARATHI
CAR LOAN
Conveyance Loan (Public) for Car
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PNB-(Punjab National Bank) Home Loan offers the most consumer friendly
home loans and housing finance schemes at attractive rates. PNB Housing Loans, with an
aim to make purchase and construction of homes a comfortable task, provides fixed as well
as floating home loans at different rate of interest for different tenures. PNB Housing
Finance covers 80% of the cost of your home or renovation / repairing of your home loan up
to Rs. 10 Lacs for buying land and up to Rs. 2 Lacs for furnishing can be availed from PNB
Home Loan.
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The details of housing loan product of Punjab National Bank regarding its purpose,
eligibility criteria, assessment, processing, documentation, cut back, margin, pre-
sanction follow ups, etc. are as foll
1. HOUSING FINANCE (PUBLIC)
Eligibility Individual & Joint Owners
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Concessional Bank has decided to extend concessions to Defense personnel who are
Rate of Interest raising Housing Loans under bank’s regular Housing Loan scheme for
for Defense public as under:
Employees
➢ 25 bps relaxation in interest rates
➢ 50 bps relaxation in processing fee
These relaxations are to be made applicable in all new cases where
defense personnel avail housing loan either in single name or along
with spouse.
Upfront fee 0.90 % of loan amount + service tax & education cess (10.30%) on
loans above 300 crore.
Processing fees @ 0.50% of loan amount (max. 20000) +service tax
for loans up to 300 crore.
Documentation Rs.1350 + service tax
charges
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Priority Sector Repair & Renovation Rs.1.00 lac (Rural & Semi/Urban)
inclusion
Rs.2.00 lac (Urban)
Other features ➢ Loan can be sanctioned by the branch/hub near to the present
place of work/posting/residence of the borrower. However, if the
property is situated at other place, services of branch/hub located
at that center may be availed for verification of Security and
NEC/Valuation etc.
➢ Loan can be granted even if property is in the name of
wife/parents provided that the owner is made co-borrower.
➢ Loan can be granted for 2nd house in the same city.
➢ Loan can be granted for purchase of house for rental purpose.
➢ For takeover, permission of higher authority is not required
Important Loan cannot be granted
conditions
➢ For construction in Un-authorized colonies
➢ If property is to be used for commercial purpose
➢ Without approved Map
( In Compliance of Delhi High Court Orders)
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or in case the plot is sold, penal interest @2% over and above the
applicable rate be charged.
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This facility is outside the purview of “Hub and Spoke“ model in the
accounts of existing HL borrowers.
(RBD Cir. No. 64 dt. 19.12.2009)
PNB Flexible This is an attractive variant of Housing Loan Scheme offered by the
Housing Loan PNB for its customers. Under this scheme, OD facility is made
Scheme available to the HL borrower. He can deposit his savings and
withdraw the same as per his requirement. The features of the scheme
are as under:
Overdraft 20%
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Two types of personal loans are being offered by PNB. Personal loan for pensioner is special
category of retail lending scheme being offered by Punjab National Bank to pensioner. The
main intension of this loan is to meet each and every personal needs including medical
expense of senior citizen. Details regarding the same are mentioned below.
Margin NIL
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Repayment TL – 60 EMIs
OD- Reducing DP spread over 60 M.
Defence Personnel – 36 M.
Amount of EMI should not be more than 50% of net monthly
income.
60 advance cheques (maximum) signed by the borrower along with
letter of deposit be obtained. Obtention of advance cheques is
applicable where check off facility is not available.
Guarantee Suitable 3rd party guarantee. RM/CM may waive
RBL Sheet PNB Score system will be applicable and the applicant will have to
score at least 50% marks to avail loan.
Upfront fee % of loan amount + service tax
NIL for defense personnel.
Docm. Charges Rs. 270/- up to Rs. 2.00 lac. Rs. 450/- Above Rs. 2.00 lac + ST
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PNB is the first Public Sector Bank to come out with a Reverse Mortgage concept based
product for senior citizen titled "PNB Baghban". The product addresses one of the very
important requirements of the society in the fast changing culture of Indian society. The
main objective of this scheme is to address the financial needs of senior citizens owning self
occupied property (house), for leading a decent life. The salient features of the product are
given hereunder:
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of loan individuals between 60-70 years and 10-15 years for age group of over
70 years or till death of last surviving spouse, whichever is earlier.
Insurance Against fire, Earthquake and other calamities at the cost of the
borrower
Security EM of IP in favor of the bank. Valuation of property to be got done
from approved valuer. Revaluation be also got done once in a span of
5 years.
Upfront fee Amount equal to half month’s loan subject to maximum of Rs.
15000/- + Service Tax @10.30%
Docm. Charges NIL
Repayment The loan becomes due for payment after 6 months from death of both
the spouses. In case the loan is not repaid by legal heirs within 6
months from the death, the bank is within its right to sell the property
for adjustment of the loan in case the consent of the legal heirs is not
received within 6 months from the death of last survivor.
Others ➢ Residual life of property should be at least 20 years.
➢ Purpose of loan should not be speculation or trading.
➢ It should be ensured that they will executed by the borrower is the
last will.
➢ Life certificate is to be obtained once in a year in November.
Age of Residual life of property should be at least 20 years. A certificate from
Property architect at the time of first valuation be obtained. Revaluation of
property will be done once in 5 years.
Ancestral Now it has been decided to accept ancestral property provided bank is
property as satisfied that there are no other legal heirs or original title deed is not
security available. For this, documentary evidence is required. Circle Head will
deal such proposals.
TERM LOANS A lump sum Term loan can be sanctioned up to Rs. 15.00 lac. The
UNDER PNB cases can be considered on selective basis by HO only for medical
BAGHBAN purpose to senior citizens for treatment of self, spouse and dependents.
SCHEME
Amendments Following two amendments have been carried out in IT Act, 1961.
in PNB 1. Reverse Mortgage does not tantamount to transfer; therefore there is
Baghban no Capital Gain Tax. Income tax is levied only at the time of
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Projects do not always run to plan. Costs and benefits estimated at an early stage of a
project may indicate a profitable project, but this profit could be eroded by an increase in
costs or a decrease in the value of the benefits (the revenue). Sensitivity Analysis involves
changing input variable estimates from an original set of estimates (called the base case)
and determine their impact on a project’s measured results, such as NPV (or IRR) from
investor’s viewpoint, or DSCR from banker’s point of view.
The Sensitivity Analysis helps in arriving at profitability of the project wherein critical or
sensitive elements are identified which are assigned different values and the values assigned
are both optimistic and pessimistic such as increasing or reducing the sale price/sale
volume, increasing or reducing the cost of inputs etc. and then the project viability is
ascertained.
The critical variables can then be thoroughly examined by generally selecting the
pessimistic options so as to make possible improvements in the project and make it
operational on viable lines even in the adverse circumstances.
In the absence of any defined factors and its values for carrying out the sensitivity analysis, a
common 5% sensitivity factor on sale price/cost price of major raw materials is to be
applied in appraisals of all the projects irrespective of the industry. However, 10% sensitivity
factor may be applied in highly volatile industries by assessing the expected volatility in sale
price/ cost price of major raw materials in future on case to case basis.
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CHAPTER - 5
CASE STUDY
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Lending being the core banking function, banks should not deter from financing merely
because of risks in credit. A banker’s task is to identify the risk parameters & to mitigate
them on a continuous basis. It is prudent to have some idea about the degree of risk
associated with any credit proposal and banker should take calculated risk, based on risk-
absorption & hedging capacity of the Bank. Credit risk assessment models adopted by the
Premier Bank take into account all possible factors which go into appraising the risks
associated with a loan. For assessment of risk, the rating structure evaluates four major risks
such as Industry Risk, Business Risk, Financial Risk and Management Quality / Risks. To
arrive at the overall risk rating, the parameters are duly weighted & calibrated to arrive at a
single point indicator of risk associated with the credit decision.
Industry Risk
The characteristics of an industry which pose varying degrees of risk are built into Bank’s
risk assessment model such as competition, industry outlook, regulatory risks, contemporary
issues. The assessment of this part is external to the borrower and is done through assessment
of Industry related macro- economic parameters like demand supply gap, capacity utilization
level, financial ratios like ROCE /OPM etc. applicable to the specific Industry and having
different risk weights.
Business Risk
The assessment of this factor is based on internal working of the borrower and relates to
parameters such as after sales service, distribution set up etc. The parameters, which are only
relevant to a particular industry, are selected for scoring having different risk weights.
Financial Risk
The assessment of financial risk includes appraisal of the financial strength of the borrower
based on performance & financial indicators. The overall financial risk is assessed in terms of
static ratios, future prospects & risk mitigation (collateral security / financial standing). The
assessment of this parameter is based on internal working of the borrower and relates to
parameters such as past (not in case of a green field / infrastructure company under
implementation stage) and projected financials. The CMA based data input sheet is uploaded
into the software and the same allows computation of financial rating automatically based on
the computation of financial ratios like Net Profit Margin, Current Ratio, DSCR, Interest
Coverage etc.
Management Quality
The management of an enterprise / group is rated on the parameters related to the
management such as integrity (corporate governance), track record, managerial competence /
commitment, expertise, structure & systems, experience in the industry, credibility - ability to
meet sales projections, ability to meet profit (PAT) projections, Payment record, Strategic
initiatives, Length of relationship with the Bank and many more. Thus, internal being the
factors to assess this parameter the score would base on internal working of the Borrower’s
management and relates to parameters such as past repayment record, quality of information
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submitted, group support etc. Taking above broad parameters into account, the bank assesses
the risk under three dimensions such as obligor rating to determine investment grade and
worthiness of the customer based on the assessment of past and projected cash flows of the
borrower and it indicates probability of default (PD). It’s grading range from PB-1 to PB-10.
Facility rating evaluates the riskiness of facilities assessed on the basis of security coverage
for a given facility indicating the Loss Given Default (LGD) and its grades range from FR-1
to FR-8. The composite rating is the combination of PD and LGD indicating the expected
loss (EL) in case the facility defaulted which is worked out automatically by the software
based on the matrix of obligor & facility rating.
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2. Firm has requested Term Loan only for Plant & Machinery as other items of the project
would be self financed by the firm.
3. Overall margin on cost of project is 57.57% as against normally acceptable margin
between 25-30%.
The firm proposed to repay the term loan amount of INR 7 Mn in 80 monthly installments on
ballooning pattern commencing from June 2013 (after 4 months moratorium) and ending in
January 2020. The implementation schedule is given below:
2. Firm has commenced its operation from May 2012 and its product is largely being
consumed by the associate concern M/s Indian Batteries Private Limited besides firm has tied
up with good number of buyers of its product thus the firm has no problem for marketing its
products.
3. Firm has all necessary infrastructure including power connection, water, manpower to
meet the demand of the market.
4. proposed additional plant& machinery the capacity of the firm will further increase to 150
batteries per day.
5. Being the first year of its operation firm has estimated to achieve sales of INR10.65 Mn for
the period ending 31.03.2013. Firm has so far achieved sales of INR5.33 Mn till January
2013(as per sales VAT/Tax returns, & firm’s book of accounts) which is over 50% of the
total estimated sales. Firm has also mentioned that summer season commences from last
week of March thus demand of batteries will be high from current month and firm has
confirmed orders of batteries for February & March 2013 for INR2.57 Mn & INR 2.78 Mn
respectively from M/s Indian Batteries Private Ltd well in advance hence the firm will easily
surpass the estimated sales target.
6. Firm has installed capacity of manufacturing 1250 batteries per month i.e. 50 batteries per
day but to be on conservative side it has projected following capacity which is reasonable.
7. With the increase in capacity after proposed installation of additional machines firm has
estimated to increase capacity from 7 batteries per day to 14 batteries per day in first year of
its operations after installing the new machines i.e. year 2014 and hence projected to achieve
sales of INR21.21 Mn for the year ending 31.03.2014 based on the assumptions that average
sales price per battery is INR5050. Looking to the high demand of the product in the market,
reputed name of the associate concern in this field, rich experience of the proprietor the
estimated/projected sales is reasonable & thus acceptable.
8. Being the regulatory manufacturing MSE Unit, guarantee cover of INR 6.25 Mn is
available under CGTMSE Scheme besides bank’s charge on primary securities.
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Conclusion
Credit appraisal is done to assess the technical, economical and financial viability of the
project. Loan policy of Bank contains various norms for sanction of different types of loans
under SME segment and all these norms do not necessarily apply to each & every case. The
credit risk assessment 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. Rating of the account is being
worked out under three dimensions such as Obligor, Facility and Composite rating to
determine investment grade and also to charge rate of interest. The assessment of financial
risk includes appraisal of the financial strength of the customer based on performance &
financial indicators. Non financial parameters are also being considered in person appraisal
and credit scores of the credit information bureau / companies are also given due weight age
in appraisal of credit business. Credit risk arising from lending business in banks is therefore,
two sides of a coin and bankers should never deter from financing. Banks need to strengthen
their credit risk assessment mechanism and appraisal process for qualitative growth in credit
and also to mitigate risks effectively.
Suggestive Notes
Trainees should be given adequate time to thoroughly read the case with basic objectives –
1. To be aware of the flow of credit appraisal and various parameters associated with the
credit risk assessment.
2. To understand modalities how the credit risk assessment module (RAM) functions in the
Bank to determine investment grade of the proposal and also to ascertain pricing (ROI) in
account
3. To list various items of due diligence while appraising the borrower and proposal
4. To get acquaintance of methods of lending for working capital finance prevailing in the
Bank and based on the understanding of methods need based working capital limit to be
worked out for funding
5. To know various norms of term lending such as margin, verification of project cost
envisaged in the proposal, important factors to be kept in mind during pre-sanction visit of
the site.
6. To recommend ways for making the credit risk assessment & appraisal more effective at
operating units of the branches.
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CHAPTER-6
CONCLUSION
Credit appraisal is a process of appraising the credit worthiness of loan applicants. The fund
of depositors i.e. general public are mobilized by means of such advances / investments. Thus
it is extremely important for lender bank to assess the risk associated with credit, thereby
ensure the security for fund deposited by depositors. Therefore my analyses regarding credit
appraisal procedure of Punjab National Bank are as follows:-
✓ In case of retail lending bank strictly follow it’s circular and fulfils all requirement of
necessary documents required for different types of loan so that bank do not suffer
any types of loss.
✓ Bank is very much particular about CIBIL report of borrowers in case of each type of
lending.
✓ Bank lending process in case of retail loan is very much fast after compiling with all
the criteria of bank.
✓ In case of project financing bank follow lengthy norms to check the feasibility of the
project such as:-
I. Firstly personal appraisal of promoter is done by the bank to ensure that
promoters are experienced in the line of business and capable to
implement and run the project efficiently.
II. Secondly detail study about the technical aspect is done to find the
technical soundness of project such as proper scrutiny of financial report
is done, valuation of property by government approved valuer is done and
view regarding each and every area of project is done under technical
analysis.
III. A detail study relating financial viability of project is done by detail study
of cash flow, fund flow statements and by calculating import ratio which
is very much necessary for project appraisal such as DSCR, DER etc. the
main purpose of financial appraisal is insure that project will ensure
sufficient surplus to repay the instalment and interest.
IV. Risk analysis is done by bank to determine the risk associated with the
project. This is mainly done by sensitivity analysis and by PNB credit
rating or scoring. With sensitive analysis feasibility of project is
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This shows that Punjab National Bank has sound credit appraisal system.
BIBLIOGRAPHY
v. NEWSPAPER
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