Professional Documents
Culture Documents
Table of Content Acknowledgement: Chapter No. Description Page No
Table of Content Acknowledgement: Chapter No. Description Page No
TABLE OF CONTENT
85 - 86 transcend academia and provide a quest for our times. I would like to
5. Recommendations
thank my committee members of the credit department, Mr. Ramesh
6. Conclusion 87 Shripad and Mrs. Anamika Deshkar and other members, whose
DECLARATION
I thank the Union Bank of India, for permission to include
copyrighted photographs and details for study as part of my thesis/
dissertation whenever necessary and also involving me in the
I hereby declare that the project entitled “ Study of various loan
wonderful study.
operation techniques rendered by the bank in the Priority Sector
This acknowledgment cannot be completed without mentioning
and to review and assess these technique through appraisal.”
my heartfelt gratitude to our Professor Mr. Ramnarayan being my
submitted by me in partial fulfillment towards the requirement of the
faculty guide, whose vital encouragement and support was there in
award of Post Graduate Program in Management, New Delhi (full
every step of my training. He gave me confidence to complete my
project and made me understand every step of the project. He guided time), is my original work and the project has not been previously
me constantly during all the phases of the project and corrected me used for the award of any degree, associate-ship, fellowship or any
whenever I was wrong in the project work. He has made the other similar titles.
completion of the project possible; I do not have words to express my
gratitude to him. Nitesh Sarkar
Lastly, I would like to thank my parents, friends and colleague,
who were there with me throughout the project building my
confidence. Signature of the Student:
Place: Nagpur.
Sincerely,
Date: 5 June, 2010
Nitesh Sarkar
PREFACE
UBI, Nagpur
5th June, 2010 Nitesh Sarkar
CHAPTER- 1
INTRODUCTION
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ABOUT UNION BANK OF INDIA:
forms the vital ingredient in value-based services to effectively
reduce the gap between expectations and deliverables.
! Union Bank of India was originally incorporated on November 11,
1919 in Mumbai as the “The Union Bank of India Limited” under ! The key to the success of any organization view with its people.
the Companies Act, 1913. No wonder, Union Bank's unique family of about 26,000 qualified/
skilled employees is and ever will be dedicated and delighted to serve
! The Bank was brought into existence by the Ordinance issued on
the discerning customer with professionalism & wholeheartedness.
10th July 1969, by the Central Government. The dawn of twentieth
century witnesses the birth of a banking enterprise par excellence- ! Union Bank is a Public Sector Unit with 55.43% Share Capital held
UNION BANK OF INDIA- that was flagged off by none other than the by the Government of India. The Bank came out with its Initial Public
Father of the Nation, Mahatma Gandhi. Offer (IPO) in August 20, 2002 and Follow on Public Offer in February
2006. Presently 44.57 % of Share Capital is presently held by
! Since that the golden moment, Union Bank of India has this far
Institutions, Individuals and Others.
unflinchingly traveled the arduous road to successful banking........ a
journey that spans 90 years. We at Union Bank of India, reiterate the ! Over the years, the Bank has earned the reputation of being a
objective of our inception to the profound thoughts of the great techno-savvy and is a front runner among public sector banks in
Mahatma... "We should have the ability to carry on a big bank, to modern-day banking trends. It is one of the pioneer public sector
manage efficiently crores of rupees in the course of our national banks, which launched Core Banking Solution in 2002. Under this
activities. Though we have not many banks amongst us, it does not solution umbrella, all Branches of the Bank have been 1135
follow that we are not capable of efficiently managing crores and tens of networked ATMs, with online Tele-banking facility made available to
crores of rupees." all its Core Banking Customers - individual as well as corporate. In
addition to this, the versatile Internet Banking provides extensive
! Union Bank of India is firmly committed to consolidating and
information pertaining to accounts and facets of banking. Regular
maintaining its identity as a leading, innovative commercial Bank,
banking services apart, the customer can also avail of a variety of
with a proactive approach to the changing needs of the society. This
other value-added services like Cash Management Service,
has resulted in a wide gamut of products and services, made
Insurance, Mutual Funds and DEMAT.
available to its valuable clientele in catering to the smallest of their
needs. Today, with its efficient, value-added services, sustained ! In the year 2007, UBI opened representative offices in Abu Dhabi,
growth, consistent profitability and development of new technologies, United Arab Emirates, and Shanghai, Peoples Republic of China. In
Union Bank has ensured complete customer delight, living up to its 2008, UBI opened a branch in Hong Kong, its first branch outside
image of, “GOOD PEOPLE TO BANK WITH”. Anticipative banking India. In Dec 2009, UBI opened a representative office in Sydney.
the ability to gauge the customer's needs well ahead of real-time
(1) (2)
BOARD OF DIRECTORS
NEW INITIATIVES:
Rural Development and Self Employment Training Institute
(RUDSETI)
Formation of Farmers' Clubs
Introduction of Village Knowledge Centers
100% Banking Habit Villages
Bhumiheen Green Card
Joint Liability Groups
SHRI K. SIVARAMAN SHRI N. SHANKAR Union General Credit Card
(Government of India Workmen Director
nominee on the "No Frills" Account
(Director representing
recommendation of RBI) Workmen Employees) "Union Mitr”
(3) (4)
AWARDS AND REWARDS:
UCO Bank United Bank of India The Bank was awarded the Gold Trophy and a certificate in the
Elite Class for Excellence in Marketing & Brand Communication by
Association of Business Communicators of India (ABCI) in March
2010. The award was given away by the Hon'ble Governor of
Maharashtra, Shri K. Sankaranarayan.
Vijaya Bank Repco bank
HDFC Bank ING Vysya Bank The Bank was awarded the prestigious "Skoch Challenger
Award"2009 for excellence in capacity building through innovative
concept of "Village Knowledge Centre"as part of financial inclusion
initiatives. The award was given away by Dr. C Rangarajan,
Economic advisor to the Prime Minister.
Yes Bank IDBI bank
Federal Bank Kotak Mahindra Bank The Union Bank of India won the Asian Banker Technology
Implementation Awards 2008 for their HR systems.
(9) (10)
NASSCOM Awarded Union Bank of ! Core Deposits grew from Rs. 85739 Cr. to Rs. 124103 Cr. an
India “The Best IT User Award 2006” under impressive growth of 44.75%
Banking and Financial Services Industry
category for its software project for Clearing
! Gross Advances have increased from Rs. 75878 Cr. To Rs. 98265
House Operations at Pune. Cr. an increase of 29.50%
Union Bank of India has been awarded ! Net Interest Income has increased from Rs. 2853 Cr. to Rs. 3813
the Golden Peacock National Training Cr. An increase of 33.65%
Award for 1998. The award, which has been
instituted by the Institute of Directors FY- 2008
(IOD), Delhi, has been given for the category
'training provider' ! Net Profits crossed Rs 1000 crs to reach Rs 1387 crs for FY 08, an
Union Bank of India has won Rajbhasha Shield Competition for impressive growth of 64.14%
the year 2006-07. The award was introduced Reserve Bank of India ! Bank's Core deposits grew by 28.59% YoY to Rs 85739 crs
for promotion of national language Hindi in public sector banks and
other financial institutes run by government of India. ! Net NPA % declined substantially to 0.17% from 0.96%
! Cost to Income ratio of the Bank further reduced to38.17%,
FINANCIAL RESULTS: among the lowest in the Industry
FY- 2010 !Non-Interest income of the Bank surged by 58.22%to Rs 1087 crs
in FY 2008. SME advances grew by 38.59% YoY to Rs 12242 crs.
! Total Business increased from Rs. 236968 Cr. to Rs. 291289 Cr.
an increase of 22.92%
FINANCIAL HIGHLIGHTS:
!Total Deposits registered impressive growth of 22.59 % and
progressed from Rs. 138703 Cr . To Rs. 170040 cr. Business Growth
!CASA Deposits have increased substantially from Rs. 41711 Cr. to ! Domestic Business mix of the Bank has registered growth of
Rs. 53957 Cr. growth of 29.36 % 22.33% (y-o-y) to Rs.287942 Crore as on 31st March'10 from Rs
235376 crore as on 31st March'09.
!Gross Advances have increased from Rs. 98265 Cr. To Rs.
121249 Cr. an increase of 23.39% !Global Business mix of the Bank registered growth of 22.92% YoY
to Rs 291289 Crore as of 31st March'10
FY- 2009
Key Financials
! Total Business increased from Rs. 179737 Cr. to Rs236968 Cr. an
increase of 31.84 % ! The Bank recorded a quarterly Operating profit of Rs.1148 crs for
Q410 as against Rs. 912 Crs for Q409 registering increase of
! Total Deposits increased by an impressive from Rs. 103859 crore
25.88%.
to Rs. 138703 crore increase of 33.55%.
(11) (12)
OUR PRODUCTS & SERVICES:
! Net Profit increased from Rs. 466 crore to Rs 594 crore registering
(1) Government Business
a growth of 27.47% QoQ.
(i) 8% Saving (Taxable) Bonds 2003
! Net Interest Margin (NIM) for quarter ended 31st March'10 is at (ii) Public Provident Fund
3.39% as against 2.69% in the corresponding period of the previous
(iii) Direct Tax Collection
year.
(iv) Central Excise & Service Tax
! Capital Adequacy as per Basel II stood at 12.51% as of 31st
(v) Senior Citizen Saving Scheme
March'10 as against 13.27% in the previous year.
! Net Worth of the Bank posted a rise to Rs. 8758 crs as on 31st (2) Social Banking & Financial Inclusion
March'10 from Rs. 6964 crs as of March 09 due to plough back of
(i) Agriculture - Greening Farm lands
profits.
(ii) SME
! Return on Average Assets (RoAA) was at 1.25% as on 31st (iii) Other schemes - Fulfilling social responsibility
March'10 as against 1.27%. On a quarterly basis, Return on Average
(iv) Other Sectors- Education, Housing
Assets has improved to 1.34% for quarter ended 31st March'10 as or Trade, grow with us for sure
against 1.25% in the corresponding period of the previous year. (iv) New initiatives - For rural growth and
development
(3) Village Knowledge Center (VKC)
Asset Quality Village Knowledge Centres serve as
! The Net NPAs of the Bank marginally increased from 0.34% as on information dissemination centre providing
instant access to farmers to latest
31st March'09 to 0.81% as on 31st March'10. Gross NPAs has also
information/ knowledge available in the field
increased to 2.20% from 1.96% in the previous year.
of agriculture, starting from crop production to
! Gross NPA level increased to Rs.2671 crore as on 31st March'10 marketing. Every VKC is manned by a “VKC
from Rs. 1923 crore as on 31st March'09. Net NPAs increased in In-charge” who looks after the operations of
absolute terms from Rs. 326 crore as on 31st March'09 to Rs. 965 the VKC.
crore as on 31st March'10.
(4) PM minority Welfare Scheme
! NPA provision coverage was at 74.02% as on 31st March'10 as Government of India has recently launched the 'Prime
against 87.48% in the previous year. Minister's New 15 Point Programme for the Welfare of Minorities'
to ensure that the beneficiaries from Minority Communities get a
fair share of Bank credit under various Government sponsored
schemes as well as other Priority Sector Lending.
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(15) (16)
CORPORATE MISSION:
THE VISION STATEMENT ! A logical extension of the Vision Statement is the Mission of the
Bank, which is to gain market recognition in the chosen areas.
! To facilitate a process of
The Vision Statement restructuring of branches to support a
greater efficiency in the retail banking
field.
To become the banks of first choice ! To sustain the mission objective
in our chosen areas through harnessing technology driven banking and delivery
channels.
(5) (6)
The Programs
Allahabad Bank Central Bank Of India
Currently the College is running training programs in the
following disciplines:
1.International Banking
4.General Banking
5.Marketing and
(7) (8)
Offering Government produces like New Pension scheme, PPF and
Senior Citizen Bonds.
HIGHLIGHTS INITIATIVES TAKEN
Online Donation.
BY THE
BANK FOR SUPERIOR EXPERIENCE SMS Alerts for transaction through credits cards.
High-tech Call Center at Mumbai with support of Hindi, English, and Introduction of New SB passbook with more features.
seven regional languages.
Auto indent of cheque Book.
Customized cheque book for all the customers through CBO’s.
Unique Ready kit for NRI Clients
Insurance of statement of accounts through CBO’s
Centralized A/c Opening for NRI customers.
Centralized ECS system.
Posting of Customer Relation Managers at overseas centers.
Introduction of Speed Clearing System
Lead Management System for quick response to customer’s
Centralized Pension Processing Center at Mumbai. request.
Internet Banking facility with links to IRCTC, Bill Pay, Taxes &
Incurrence Premium payment gateways. CONTACT US
RTGS & NEFT facility through internet banking. Head Office
Online Grievance Redressal System for speedy redressal of Union Bank of India
grievances. 239 Vidhan Bhavan Marg,
Central Office, Nariman Point, Mumbai -21.
Online Product application for education and Housing banking.
Online tax payment facility for various Central & State Govt. Taxes.
(17) (18)
LOAN APPRAISAL
Wholesale Traders including Supermarkets, Malls, Departmental
A Glance at Loan Appraisal: Stores, dealers in groceries, consumer durables, co-operative stores
A Loan appraisal is a request/application for loan/funds on credit Service traders like, restaurants, entertainment etc. maintaining
evaluated on its merits by a bank/funder/funding institution etc. required quantum of stock and/or book debts Scheme borrower
Among others aspects, the purpose of loan, genuineness of its need, should be in possession of registration / licences as applicable under
its quantum, borrowers repayment capacity, security etc are local law: - Shop Establishments Act. Sales Tax Registration, Drug
assessed on some parameters before loan is actually granted. Licences for Retail Trade, Ration & Civil supplies, Licence to deal in
petroleum products/LPG.For private sector borrowers, the following
An appraisal is the valuation of an object by someone well-qualified norms would be applied:
or authorized to make such an assessment. For example, a home
! Current Ratio should be < 1.17 : 1 (1.1 is acceptable)
may be appraised at having a fair market value of $250,000 or some
jewelry might be appraised by a jeweler as having a value of $500. ! Debt Equity Ratio (Total outside Liability / Total Net Worth) should
be > 4:1
A loan appraisal is a service performed, by an appraiser, that
develops an opinion of value based upon the highest and best use of ! DSCR (Profit Before Depreciation and Interest / Debt Service)
real property. should be > 1.5
The highest and best use is that use In addition, all the borrowers should have the institutional capacity to
which produces the highest possible implement the project and to operate and maintain the constructed
value for the property. facilities in a satisfactory manner.
An appraisal is a thought process Ineligible Borrowers: Borrowers for who becomes a NPA will
leading to an opinion of value. not be eligible for further loans.
This opinion or estimate is arrived at through a formal process that Lending Criteria: An inspection report is prepared of the borrower
typically uses the ‘'common approaches to value''. on his securities, credit report of the borrower is prepared, pre and
post sanction report is prepared, proposal for sanction/ renewal/
Loan Appraisal Process: extension/ modification report is prepared and placed before the
competent higher authorities, sanction advice is made and if the
Application: Borrowers would be required to submit a prescribed
borrower if found to positive limit can be provided by the bank.
application form along-with Detailed Project Report and the audited
financial statements for the previous three financial years. Security: Security will be the assets to be financed by loan and its
revenue. Mortgage of the primary assets is done and the collateral
Eligible Borrowers: Individuals in the age group of 18-60 years of
security of secondary assets are also mortgaged in addition to it. The
age owning residential/ commercial property (land/plot/ building) and
function of a property appraisal is to evaluate the current market
who are Income-Tax assesses, HUF, Urban Local Bodies
value and overall condition of a property. Should the property
(Corporations, Municipalities and Town Panchayats) and the
appraisal be less than the mortgage balance, it is likely that a loan
Statutory Boards. In the case of Union Trade All Retail Traders all
modification will not be approved.
(19) (20)
Loan Sanction: Based on the appraisal report, the proposed loan
will be sanctioned. The conditions of sanction would specify required
covenants, procurement conditions, while disbursement conditions The UBI working capital loans can help company in financing
would be linked to implementation schedules. inventories, managing internal cash flows, supporting supply chains,
funding production and marketing operations, providing cash support
Lending Terms: The rate of interest on loans shall be decided
to business expansion and carrying current assets.
based on the cost of funds and the further Loan policy of the bank.
UBI’s working finance products comprise a spectrum of funded and
Loan Agreement: On accepting the loan sanction conditions, loan
non-funded facilities ranging from cash credit to structured loans, to
agreement has to be executed.
meet the different demands from all segments of industry, trade and
Disbursement: Disbursement will be made based on the fulfillment the services sector. Funded facilities include cash credit, demand
of the disbursement conditions and progress of the project. UBI loan and bill discounting. Non- funded instruments comprise letters
would reserve its right to suspend / cancel the loans, if during course of credit (inland and overseas) as well as bank guarantees
of project implementation there are serious violations of the sanction / (performance and financial) to cover advance payments, bid bonds
disbursement conditions. etc. Lending continues to be a primary function in banking. In the
Monitoring: All borrowers would be required to submit quarterly liberalized Indian economy, clientele have a wide choice. External
progress reports (including quarterly funds requirements) indicating Commercial Borrowing and the domestic capital markets compete
physical and financial milestones targeted (Financial Statement & with banks. In another dimension, retail lending- both personal
Stock statement) and achieved (details are provided in the Credit advances and SME advances- competes with corporate lending for
Monitoring Policy) funds and for human resources. But lending by nature cannot be an
aggressive selling activity, disregarding the risks involved. Bank has
Post Evaluation: After the projects are completed, a post evaluation to be competitive without compromising on the basic integrity of
report stating the cost to completion, cost and time over run, benefits, lending. The quality of the Bank’s credit portfolio has a direct and
financial ratios, technical / social parameters achieved by the project deep impact on the Bank’s profitability
would be prepared in the format prescribed.
(21) (22)
Asset based short-term (usually for one to five years) loan payable
Apart from letting you fulfill the urgent requirement of cash, a cash
in a fixed number of equal installments over the term of the loan. Term
credit loan helps you establish long-term business relations with a
loans are generally provided as working capital for acquiring income
lender. This enables you to take advantage of various assistance
producing assets (machinery, equipment, inventory) that generate
programs offered by your lender.
the cash flows for repayment of the loan. It is also in general provided
as retail (car, home, education)
Letter of Credit:
A loan with a maturity date but no amortization (revision) in the case
review is done on a yearly basis. One pays the interest monthly, A standard, commercial letter of credit is a document issued mostly
quarterly, or annually, as required by the lender, but the principal is not by a financial institution, used primarily in trade finance, which usually
due until maturity. Term loans of short duration, usually less than one provides an irrevocable payment undertaking.
year, may be set up as single pay loans. In that case, principal and all
accrued interest are paid at maturity. The letter of credit can also be source of payment for a transaction,
meaning that redeeming the letter of credit will pay an exporter.
(23) (24)
Bank. XNIL holds an account at the UBI Bank. XNIL wants to buy Rs. ! If the Credit provides for acceptance by the Issuing Bank by
500,000 worth of merchandise from RIL, who agrees to sell the goods acceptance of Draft(s) drawn by the Beneficiary on the Issuing Bank
and give XNIL (60 days to pay for them), on the condition that they are and payment at maturity of such tenor draft.
provided with a 90-day letter of credit for the full amount. The steps to
get the letter of credit would be as follows:
! If the Credit provides for acceptance by another drawee bank
by acceptance and payment at maturity Draft(s)drawn by the
! RNIL goes to the UBI Bank and requests a Rs. 500,000 letter of Beneficiary on the Issuing Bank in the event the drawee bank
credit, with RIL as the beneficiary. stipulated in the Credit does not accept Draft(s) drawn on it, or by
payment of Draft(s) accepted but not paid by such drawee bank at
! The UBI Bank can issue a letter of credit either on approval of a maturity.
standard loan underwriting process or by XNIL funding it directly with
a deposit (FDR) of $Rs. 500,000 plus fees which are typically !If the Credit provides for negotiation by another bank by payment
between 1% and 8% of the face value of the letter of credit. without recourse to drawers and/or bona fide holders, Draft(s) drawn
by the Beneficiary and/or document(s) presented under the Credit,
! The UBI Bank sends a copy of the letter of credit to the ICICI Bank, (and so negotiated by the nominated bank)
which notifies RIL that payment is available and they can ship the
merchandise XNIL has ordered with the full assurance of payment to
them. Bank Guarantee
! On presentation of the stipulated documents in the letter of credit Letter of guarantee or popularly known as Bank Guarantee is a
and compliance with the terms and conditions of the letter of credit, form of indemnity letter issued by bank on behalf of its client, whereby
the UBI Bank transfers the $500,000 to the ICICI Bank, which then the bank promises to indemnify the beneficiary in the event of default
credits the account of RIL for that amount. of its client. The most commonly used Bgs in any form of trade
(Domestic or International) are either the financial letter of guarantee
Note: that banks deal only with documents required in the letter of
or Performance letter of guarantee.
credit and not the underlying transaction.
A bank guarantee, like a line
A letter of credit being an irrevocable undertaking of the issuing
of credit, guarantees a sum of
bank makes available the Proceeds, to the Beneficiary of the Credit
money to a beneficiary. Unlike a
provided, stipulated documents strictly complying with the provisions
line of credit, the sum is only paid
of the letter of credit, then:
if the opposing party does not
! If the Credit provides for sight payment by payment at sight fulfill the stipulated obligations
against compliant presentation under the contract. This can be
used to essentially insure a buyer
! If the Credit provides for deferred payment by payment on the or seller from loss or damage due
maturity date(s) determinable in accordance with the stipulations of to nonperformance by the other
the Credit; and of course undertaking to pay on due date and party in a contract.
confirming maturity date at the time of compliant presentation.
(25) (26)
An indemnity letter in which the bank commits itself to pay a Guarantee before releasing of the goods. Such a guarantee secures
certain sum if a third party fails to perform or if any other form of the claim of the customs against the buyer if in case the Bill of lading is
default occurs. One use is when a bank wants a carrier to release a not submitted with the allotted time frame.
shipment which it has financed but the original bills of lading are not
! Retention money Guarantee: After execution of the work, the
yet available for surrender to the carrier.
employer usually retains back certain percentage of the value of total
A bank guarantee might be used when a buyer obtains goods
work executed as security for quality of the work performed. This may
from a seller then runs into cash flow difficulties and can't pay the
vary from contract to contract but is usually in range of 5-10% of the
seller. The bank guarantee would pay an agreed-upon sum to the
contract value. The contractor can get this money released by way of
seller. Similarly, if the supplier was unable to provide the goods, the
providing a bank guarantee for equivalent amount to employer. This
bank would then pay the purchaser the agreed-upon sum.
guarantee is known as Retention money Guarantee.
Essentially, the bank guarantee acts as a safety measure for the
opposing party in the transaction. Bank Guarantees are issued through the financial institutions
mostly a Bank. Before issuing such an instrument the bank takes care
The Bank Guarantees can be of varied nature depending on their
of its own interest in the event of invocation of such an instrument.
usage, the most commonly used Bank Guarantees in domestic/
Further commission earned on issuance of bank guarantees forms
international trade are as mentioned below:
an important part of banking industry's revenue.
! Bid Bond Guarantee: Such a BG is basically used in projects The Bank Guarantee can be issued in three ways:
awarded through tenders. Such a bank guarantee is given for the
shortest of the tenure and is returned back if in case the work is not ! Backed by Cash Margin: This is the simplest way of getting a BG
allotted. The same can later be treated as Performance Guarantee if issued from a bank. In case of domestic BG, bank seeks a cash
in case the work is allotted. margin of 100% in form of Fixed Deposits and that in case of any
foreign BG the cash margin can range anywhere from 105% to 110%
! Advance Payment Guarantee: Such a BG if used wherein the depending from bank to bank. The additional margin kept in case of
employer / principal of the contract agrees to pay a portion of total
foreign BG is to take care of currency rates fluctuations.
contracted value in advance. In lieu of the advance the employer /
principal of the contract asks for a guarantee from the contractor to ! Through Credit Lines: As compared to the Cash margin this is
ensure that the commitment would be honored. Contractor then
most desired way of getting a BG issued though such a facility is not
approached the bank for issue of Bank Guarantee in favor of the
available to every client. In such a case a bank opens a credit line for
employer. Such a BG is equivalent to the amount of advance given.
BG in the name of client on the basis of credit appraisal and collateral
! Performance Guarantee: A guarantee given by the seller to the securities. Unlike the first option here client is required to pay lesser
buyer to honor any claims by the buyer on seller in case of default in cash margin for the BG. The cash margin can range from 10% to 25%
delivery or performance of the goods or work executed. depending from bank to bank and also on the credit rating of the client
seeking the facility. This enables the client to maintain the liquidity
! Shipping Guarantee: A shipping guarantee is used by the buyer
within his system as he is required to take out lesser cash out of the
to be given to the customs. In case where the goods reach the
business for a BG.
destination before the bill of lading the customs ask for such a
(27) (28)
! Backed by Counter Guarantee: This is just like that of BG (iii) Retail Trade shall include retail traders/private retail traders
issued backed by cash margin. Security here is the counter dealing in essential commodities (fair price shops), and consumer
guarantee of another financial institution in place of Fixed Deposits.
co-operative stores, as per the definition given in Section I appended.
Such a facility is subject to approval of credit of the bank issuing the
BG. (iv) Micro Credit: Provision of credit and other financial services
and products of very small amounts not exceeding Rs. 50,000 per
borrower, either directly or indirectly through a SHG/JLG mechanism
PRIORITY SECTOR: or to NBFC/MFI for on-lending up to Rs. 50,000 per borrower, will
constitute micro credit.
The broad categories of priority sector for RRBs are as under:
(v) Education loans: Education loans include loans and
(I) Agriculture (Direct and Indirect finance): Direct finance to advances granted to only individuals for educational purposes up to
agriculture shall include short, medium and long term loans given for Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad.
agriculture and allied activities (dairy, fishery, piggery, poultry,
Weaker Section
beekeeping, etc.) directly to individual farmers, Self-Help Groups
The weaker sections under priority sector shall include the following:
(SHGs) or Joint Liability Groups (JLGs) of individual farmers without
limit and to others (such as corporates, partnership firms and (a) Small and marginal farmers with land holding of 5 acres and
institutions) less, and landless laborers, tenant farmers and share croppers;
(ii) Small Enterprises (Direct and Indirect Finance): Direct (b) Artisans, village and cottage industries where individual credit
finance to small enterprises shall include all loans given to micro and limits do not exceed Rs. 50,000;
small (manufacturing) enterprises engaged in manufacture/ (c) Beneficiaries of Swarnjayanti Gram Swarozgar Yojana
production, processing or preservation of goods, and micro and small (SGSY);
(service) enterprises engaged in providing or rendering of services, (d) Scheduled Castes and Scheduled Tribes;
and whose investment in plant and machinery and equipment
(e) Beneficiaries of Differential Rate of Interest (DRI) scheme;
(original cost excluding land and building and such items as
(f) Beneficiaries under Swarna Jayanti Shahari Rozgar Yojana
mentioned therein) respectively. The micro and small (service)
(SJSRY);
enterprises shall include small road & water transport operators,
small business, professional & self-employed persons, and all other (g) Beneficiaries under the Scheme for Liberation and
service enterprises. Indirect finance to small enterprises shall include Rehabilitation of Scavengers (SLRS);
finance to any person providing inputs to or marketing the output of (h) Advances to Self Help Groups;
artisans, village and cottage industries, handlooms and to (i) Loans to distressed poor to prepay their debt to informal sector,
cooperatives of producers in this sector. against appropriate collateral or group security.
(j) Persons from minority communities as may be notified by
Government of India from time to time.
(29) (30)
TITLE OF THE PROJECT: ! I have chosen this project to promote confidence and
Study of various loan operation techniques rendered by the bank
commitment among the staff members to address the expectations of
in the Priority Sector and to review and assess these technique
the customers, efficiency and handle technology banking with ease.
through appraisal.
! This project deals with the credit department. The credit
Subject: Loan Appraisal
department frames/ reviews/ improves all policies, procedures and
Major Unit: Union Bank of India approval powers in relation to management of credit risk in the Bank
with the approval of Board of Directors and thereafter the same is
Sub- Unit: Gandhibagh Branch, Nagpur, (M.S)
operationalized.
Project Duration: 8 weeks
! The demand for credit from the banking sector has increased as
PROJECT SCOPE: other sources of funds to the commercial sector have shrunk.
Available information (as on January 23, 2009) suggests that the total
! This policy would govern all credit and credit related exposures, flow of resources to the commercial sector from all sources,
Fund based as well as Non-Fund based and prescribe acceptance estimated at about Rs. 4,85,000 crore during the fiscal year 2008-
criteria for all forms of credit dispensation. These would include Short 2009 as far, has been lower the about Rs. 4,99,000 crore in the
term Medium term and Long term based facilities, as also Letter of corresponding period of the previous year. While bank credit has
Credit, Guarantees, Acceptance, Derivatives, Forward Contracts, substituted for the shortfall in other sources of funds to some extent, a
Underwriting the Loans etc. The investment policy of the Bank has complete substitution has for not taken place.
been framed separately, which covers all aspects of the Bank’s ! Keeping in view the slowdown in industry and services and with
treasury and investment functions. the assumption of normal agricultural production, the projection of
! The Policy will encompass exposure to all types of customers overall GDP growth for 2008-09 is revised downwards to 7.0 % with a
such as individuals, proprietorship firms, partnership, association of downward bias.
persons, companies registered under the Indian Companies Act, ! Union Bank of India is now healthy, well capitalized, resilient and
undertakings owned by the Government and others. profitable. Credit markets have been functioning well and bank credit
has also expanded.
RATIONALE OF THE STUDY:
! In order to stimulate the demand conditions in the economy so as
! The importance of the study is to gain market recognition in the to put a restraint on spill-over effect of global slowdown on the Indian
chosen areas like Agriculture, MSME, Retail and Corporate Credit. economy, RBI/ Central Government has announced various stimulus
packages. So it has become very essential to study the appraising
! To build sizeable market share in each of the chosen areas of mechanism in bank to compete in the global market and the credit is
business through effective strategies in terms of pricing, product
the basic function of banking sector.
packaging and promoting the product in the market.
(31) (32)
OBJECTIVE OF THE STUDY: ! Bank's stand on granting credit facilities to companies whose
! The Policy seeks to enlarge client base of Corporate and Non- directors are in the defaulters list of RBI is covered in the Policy.
Corporate segments through aggressive credit marketing.
! The policy seeks to ensure profitable deployment of resources
! The Policy document addresses the genuine credit needs of the keeping in view the ALM requirements.
existing clients to ensure quicker and prompt credit decision.
! To make an assessment of the banking developments in the
! The policy establishes a commonality of approach regarding country and to analyze the credit utilization pattern by the borrowers.
credit basics, appraisal skills and strategies, while leaving enough
!To identify the problems and difficulties experienced by banks and
room for flexibility and innovation.
borrowers in the implementation of the scheme/ Policy.
! The policy aims to seize market opportunities by revamping our
products and delivery mechanism through product innovation and Objective of the Monitoring Policy
restructuring with a view to maximizing profits.
The primary aim of Monitoring exercise is to ensure the safety of
! The policy strives to ensure that the socio- economic obligations the amount lent and to ensure that the account is conducted in the
cast on the bank are fully met. manner normally expected and the account continues as a
performing asset.
!The Bank's general approach to Export Credit and Priority Sector
Advances are set out in the Policy.
! The policy seeks to ensure continuous growth of loan assets while LIMITATIONS OF THE STUDY
endeavoring that they remain secure, performing and standard.
Even though the study is extensive, innovative, unique and
! The policy endeavors to mitigate and reduce risk associated with pioneering in certain aspects, it suffers from the following limitations:
the lending by fine tuning the systems and controls.
! Some of the branches were reluctant to provide certain details,
! The policy recognizes and accords due priority to such as amount of priority sector advances, NPAs, etc. for want of
Computerization, Management Information Systems based on a specific permission from the head office, which was denied. So the
reliable database and development of faster communication as tools attempt to analyze branch level performance was discarded.
for better overall credit risk management. ! Majority of the beneficiaries were not having the habit of
maintaining proper records of their income, expenditure, savings,
! The policy sets out optimum exposure levels to different sectors in
etc. And hence the details supplied by them from their memories had
order to ensure growth of assets in an orderly manner.
to be relied upon for this study. It may result in either under or over
! The policy lays down norms for take-over of advances from other estimation.
banks / Fls.
(33) (34)
REVIEW OF LITERATURE
! In spite of the above limitations, the study provides dependable A literature review is a body of text that aims to review the critical
and useful information and as such the suggestions based on them points of current knowledge and or methodological approaches on a
provide certain guidelines for future planning and successful particular topic. Literature reviews are secondary sources, and as
implementation of the scheme. such, do not report any new or original experimental work.
(35) (36)
The following are the major highlights
A majority of the respondents, almost 69% of them, felt that the of the FICCI Survey:
Indian banking Industry was in a very good to excellent shape, with a
! A majority of the respondents, almost 69% of them, felt that the
further 25% feeling it was in good shape and only 6% of the
Indian banking Industry was in a very good to excellent shape, with a
respondents feeling that the performance of the industry was just
further 25% feeling it was in good shape and only 6.25% of the
average. In fact, an overwhelming majority (93.33%) of the
respondents feeling that the performance of the industry was just
respondents felt that the banking industry compared with the best of
average.
the sectors of the economy, including pharmaceuticals,
infrastructure, etc. ! This optimism is reflected in the fact that 53.33% of respondents
were confident in a growth rate of 15-20% for the banking industry in
Most of the respondents were positive with regard to the growth
2009-10 and a greater than 20% growth rate for 2014-15.
rate (Fig) attainable by the Indian banking industry for the year 2009-
10 and 2014-15, with 53.33% of the view that growth would be ! Some of the major strengths of the Indian banking industry, which
between 15-20% for the year 2009-10, greater than 20% for 2014-15. makes it resilient in the current economic climate as highlighted by
our survey were regulatory system (93.75%), economic growth
(75%), and relative insulation from external market (68.75%).
(37) (38)
Technology systems of Indian banks have been rated more ! Due to long-term maturity, the trend for prime lending rates seems
advanced than Brazil and Russia but below par with China, Japan, to be changing now. However, there are other factors which have led
Hong Kong, Singapore, UK and USA. to the stickiness of lending rates such as wariness of corporate credit
! Respondents perceived ever rising customer expectations and risk (33.33%), competition from government small savings schemes
risk management as the greatest challenge for the industry in the (26.67%).
current climate.
! With regards to loan disbursement, while industry shows
! 93.75% of our respondents saw expansion of operations as preference for a joint appraisal system, banks are happy with the
important in the future, with branch expansion and strategic alliances current system and in fact 71.43% of our respondents felt that there
the most important organic and inorganic means for global expansion was no need for standardized credit appraisal across the industry.
respectively.
! Over 92% of the participants agree with recent stress test results
! An overwhelming 80% of respondents admitted that the primary that Indian banks have the capacity to absorb twice the amount of
strength of NBFCs over banks lies in their ability to provide reach to their current NPA levels.
the last mile and were also were unanimous in the need to strengthen
! Almost 80% of the banks see personal loans as having the
NBFCs further.
greatest potential for default, followed by corporate loans and credit
! Further, 81.25% also felt that there was further scope for new cards.
entrants in the market, as there continue to remain opportunities in
un-banked areas. However, 57.14% felt that NBFCs may be allowed ! 87.5% of the respondents consider credit information bureaus
to be established as banking institutions but only if adequate vital for the measurement of asset quality. Nevertheless, at the same
capitalization levels, a tiered license that enables new entrants to time, over 60% of respondents felt the need for regulation capping
enter into specific areas of the business only after satisfactorily FDI at 49% and voting rights to 10% in Credit Information bureaus
achieving set milestones for the prior stages, cap on promoter's 93% of participants still find rural markets to be to be a profitable
holdings and other regulatory limitations are ensured. avenue, with 53% of respondents finding it lucrative in spite of it being
a difficult market.
! 73.33% of our respondents are cent per cent compliant with core
banking solution requirements, with the remainder, comprising ! More than 81.25%of all respondents have a strategy in place to
mostly of our public sector respondents, lagging behind in tap rural markets, with the remainder as yet undecided on their plan
implementation in rural areas. of action.
! Public Sector Banks, Private Sector Banks as well as Foreign ! All banks in our survey weigh Cost effective credit delivery
Banks view difficulty in hiring highly qualified youngsters as the major mechanisms (100%) as most important to the promotion of financial
threat to their HR practices ahead of high staff cost overheads, inclusion, followed by factors such as identifying needs and
poaching of skilled quality staff and high attrition rates. developing relevant financial products (75%), demographic
(39) (40)
constituting the priority sector, targets and sub-targets, etc. and the
knowledge and strong local relations (62.5%) and ensuring
comments/suggestions received thereon from banks, financial
productive use and adequate returns on credit employed (43.75%).
institutions, public and the Indian Banks’ Association (IBA), it has
! Almost 62% of the respondents see consolidation as an been decided to include only those sectors as part of the priority
inevitable process for their banks in the future, while the remainder sector, that impact large sections of the population, the weaker
does not consider it an essential factor for their future progress. sections and the sectors which are employment-intensive such as
77.78% of public sector respondents were of the opinion that foreign agriculture, and tiny and small enterprises.
banks should not be allowed to play a greater role in the consolidation
B. Yerram Raju (1998) emphasized the importance of giving due
process.
credit to the farm sector. He says that creating new institutions will not
LENDING TO PRIORITY SECTOR be a panacea for the problems faced by the farmers. Commercial and
co-operative banks should create an environment where the farmers
- (C. S. Murthy)
Chief General Manager-in-Charge (RBI) can develop confidence. Credit must also be made available in time
At a meeting of the National Credit Council held in July 1968, it and at the lowest possible cost.
was emphasized that commercial banks should increase their U. Y. Sarda (1998) requested the banks to take advantage of
involvement in the financing of priority sectors, viz., agriculture and legislation enacted by the State Government for speedy recovery of
small scale industries. The description of the priority sectors was later bank overdue in respect of advances given under government-
formalized in 1972 on the basis of the report submitted by the sponsored programmes. The matters relating to recovery of
Informal Study Group on Statistics relating to advances to the Priority
advances should be discussed in the State Level Bankers' Meeting
Sectors constituted by the Reserve Bank in May 1971. On the basis
and necessary help for recovery should be obtained from the State
of this report, the Reserve Bank prescribed for commercial banks a
Government authorities.
modified return for reporting priority sector advances and certain
guidelines were issued in this connection indicating the scope of the Department of Banking Supervision, RBI (1999) studied the
items to be included under the various categories of priority sector. impact of priority sector advances on NPAs and found that the
Although initially there was no specific target fixed in respect of proportion of NPAs in priority sector to total NPAs were 48.27 per cent
priority sector lending, in November 1974 the commercial banks as on 31st March1996 which has gradually declined to 46.40 per cent
were advised to raise the share of these sectors in their aggregate as on 31st March 1998. The proportion though lesser than the NPAs
advances to the level of 33 1/3 per cent by March 1979. in non-priority sectors, reveals that the incidence of NPAs in priority
On the basis of the recommendations made in September 2005 sector is much higher in view of the fact that the priority sector
by the Internal Working Group (Chairman: Shri C. S. Murthy), set up advances constitute only 30 to 32 per cent of the gross bank credit
in Reserve Bank to examine, review and recommend changes, if any, during the period. However, the gradual increase in the proportion of
in the existing policy on priority sector lending including the segments NPAs in non-priority sectors could indicate that NPAs
(41) (42)
RESEARCH METHODOLOGY
are increasingly occurring on borrower accounts of industrial sector Exploratory Research Design:
during the recent years. Exploratory research is a type of research conducted because a
P. R. Kulkarni (1999) pointed out that SSI sector deserves liberal problem has not been clearly defined. Exploratory research helps
institutional credit due to its unique contribution in terms of creation of determine the best research design, data collection method and
selection of subjects. Given its fundamental nature, exploratory
employment, foreign exchange earnings, reduction in regional
research often concludes that a perceived problem does not actually
disparities etc. But in reality such supply of institutional credit is too
exist.
meager and often delayed. Hence the banks have to overcome these
Exploratory research often relies on secondary research such as
difficulties and make bank lending organizationally effective. This will
reviewing available literature and/or data, or qualitative approaches
strengthen the bank borrower relationship and SSI units will prosper.
such as informal discussions with consumers, employees,
Suresh Mehta (2000) noticed that though the banks are flush management or competitors, and more formal approaches through
with surplus funds, they do not find it profitable and safe in lending to in-depth interviews, focus groups, protective methods, case studies
the SSI sector because they are already saddled with high NPAs in or pilot studies. The Internet allows for research methods that are
this sector. To reduce the NPAs level, banks have to strengthen their more interactive in nature.
appraisal system and credit monitoring mechanism; and SSI units The results of exploratory research are not usually useful
have to develop capabilities to manage borrowed funds more for decision-making by themselves, but they can provide
prudently and more transparently in business operations. These significant insight into a given situation.
arrangements will help both the banks and entrepreneurs to remain
happy and prosperous. Research Objective:
Yashwant Sinha (2001), the union Finance Minister, while Exploratory research contributes to the continued vitality of every
addressing the chief executives of commercial sector banks, advised discipline. The aim of Exploratory research is to identify new
tasks- tasks that cannot be solved or more improvement by
that banks should proceed against large and wilful defaulters. He
existing methods. Once a new task has been found, exploratory
also asked the banks to increase their lending to their to their
research seeks to develop a precise definition of task and to
agricultural and rural sector so as to reach the stipulated target of 18
understand the factor that make the task different from previously
percent of total lending going to these sectors.
solved tasks.
Until recently, most of the policies made by the bank was
primarily exploratory. However, during past decade, some of the field-
particularly in the loan policy, recovery policy, Business continuity
plan, credit monitoring policy, have matured to the point that careful,
(43) (44)
quantitative experiments are now possible and proved theoretical (y-o-y) to Rs. 287942 Crore as on 31st March'10 from Rs. 235376
results have been obtained, that is enclosed in the financial indicators crore as on 31st March'09. Global Business mix of the Bank
of the bank. Although these policies and trends are extremely healthy registered growth of 22.92%. These development was due to the
and long overdue, there is always a risk involved in the process and exposure of the reviewed policy.
thus closely review and follow-up on continuous basis of the standard
Multistage sampling framework was used in the survey design. At
to avoid slippage. Rescheduling/ Restructuring/ Rehabilitation of
the first stage, the Nagpur Division to which the researcher belongs
accounts as per RBI guidelines will be resorted to wherever
was selected. For the purpose of the study, the Nagpur, which
warranted, on merits. The goal these policies is to emphasize the
consists of 6 districts, is divided into six district. From each Distirct
importance of exploratory research and the objective has been
and Municipality, 24 beneficiaries and six bank managers were
defined by the secondary data.
selected. Thus overall the sample size consists of 30 members.
The research begins with a phase of exploration, usually driven Stratified random sampling techniques were applied in selecting
by specific problem in specific domains. For example, the early the respondents. The beneficiaries include 4 from the agricultural
Domestic Business mix of the Bank has registered growth of 22.33% sector, 5 from the SSI sector, 8 from the government-sponsored
schemes and 7 from the other tertiary sectors. The bank managers
consist of 2 from the State bank group, 2 from the nationalized
(including UBI) banks and 2 from the other scheduled commercial
Nagpur division, Maharashtra
banks.
नागपूर िवभाग
Date Collection Technique
The data collection was done through the Survey by interview, as
a whole the appraisal process is a survey by interview.
The technique is the structured interviewing technique, Those
conducted when it is known at the outset what information is needed.
The interviewer has a list of predetermined questions to be
asked of the respondents.
The objective is to bring some preliminary issues to the surface
Area: 51,336 km² (19,821 mi²) so that the researcher can determine what variables need further in-
Population (2001 census): 10,665,939 depth investigation.
Districts: Bhandara, Chandrapur, Gadchiroli, Gondia, The survey is done by the various technique, one of the
Nagpur, Wardha monitoring tool called MAP, the accounts which are irregular showing
Literacy: 75.90% early warning signal will usually require a action plan (mentioned in
Area under irrigation: 4,820 km² the Credit monitoring Policy)
(45) (46)
Data Collection
Primary data was collected through discussions and personal
Primary data was collected through field survey. For interview with the beneficiaries and the bank managers using
this purpose, two sets of structured interview schedules were separate questionnaires. Two sets of interview schedules were
prepared, one for the beneficiaries and the other for bank officials, prepared for this. It had taken 4 weeks.
which would give the procedures and formalities, methods and
difficulties in implementing the PSL scheme and its
utilization and impact. Besides, relevant information has been
Sampling Technique
collected through discussions with Lead Bank Managers, DRDA It is based on Stratified random sampling techniques were
Project Officers, Block Development Officers, DIC Officers and applied in selecting the respondents. Stratified Random Sampling is
Agricultural Officers.
a method of sampling, which involves the division of a population into
smaller groups, known as strata. In stratified random sampling, the
strata are formed based on their members sharing a specific attribute
or characteristic. A random sample from each stratum is taken, in a
number proportional to the stratum's size when compared to the
population. These subsets of the strata are then pooled to form a
random sample.
The main advantage with stratified sampling is how it captures
key population characteristics in the sample. Similar to a weighted
average, this method of sampling produces characteristics in the
sample that are proportional to the overall population. Stratified
sampling works well for populations with a variety of attributes, but is
otherwise ineffective, as subgroups cannot be formed.
As the Loan policy seek to enlarge the client base of Corporate
Pilot Study and Finalization of and Non-Corporate segment through aggressive credit marketing.
Interview Schedules The mission is to gain market recognition in the chosen areas like
A pilot study was conducted for finalizing the questionnaires for Agriculture, MSME, Retail, and Corporate Credit (Priority Sector)
the interview schedules. 24 beneficiaries and six bank managers
were interviewed using the original interview schedules. On the basis
of the pilot study, necessary corrections and changes were effected
to these questionnaires and the final interview schedules were
prepared and used for the field survey. Copies of these
questionnaires are given in Annexure I and II.
(47) (48)
Preamble - Loan Policy:
ANALYSIS & INTERPRETATION In the wake of ongoing trends towards globalization and
liberalization, the market environment in the country has undergone a
major change.
(49) (50)
(51) (52)
! Granting of additional need based credit facilities.
(iv) Exports:
! Launching a web-based information channel "SME Helpline
In view of the importance of the Exports for our Economy and also
Desk" on its website.
to give a fillip to exports, the Reserve Bank of India / Govt. of India
! Conducting cluster surveys and issuance of instructions as a have been supportive to export promotion. Therefore, exports
corrective measure. finance continues to be a chosen area for lending. RBI has put a
! Reduction in the margin requirement. ceiling of 2.5% below BPLR for Rupee Export credit up to 270 days
! Scheme for purchase of generator sets. for Pre-shipment Credit and up to 180 days for Post-shipment credit.
Bank has fixed the interest rates on export finance in rupee terms in
! Reduction in the interest rates for MSEs.
line with RBI guidelines and will be revised as per directives of RBI
! Implementation of "SME Plus" scheme with certain modifications. from time to time.
! Gold loans [specially for southern states] To meet any type of personal requirements/
Union Top-up expenditure in respect of House repairs to the house,
! Farm Mechanization Programme Loan scheme furnishing etc. Loan amount would be 50% of the
! Advance against Warehouse and cold storage receipts amount repaid in Housing loan account for last 24 mth.
Union Miles For purchase of 2/4 Wheelers for personal/
! Advance to dealers of other inputs like fertilizers, pesticides,
professional use by individuals.
insecticides, etc. Union Health To provide financial assistance to medical
! Long-term Loans for farm investment like Minor Irrigation, Land professionals purchase/ construction/ acquisition/
Development, Construction of Rural Godowns, Cold Storage, setting up of land/ plot/ building/ flats/ hospitals/ clinics
and purchase of equipment.
Horticulture, etc.
Union To provide financial assistance for pursuing higher/
! Contract/ Corporate/ Hi Tech Agriculture Financing Education professional studies in India and abroad.
To provide financial assistance, maximum up to Rs. 50
! Financing High Value projects under MoU with NABARD Union
Mortgage Lacs Mortgage [depending upon area], for personal
! Financing to Agri-Clinics & Agri- Business needs, against EM of own property.
! Union White Card To provide a source of additional income for Senior
Union Reverse
Mortgage Citizens of Mortgage India who own on self acquired
! Union Mortgage Scheme for farmers. and self occupied house property in India.
! Allied Agriculture Activities like Dairy, Poultry, etc. Union Shares/ To provide finance against specified shares / IPOs
IPO
!Credit Flow to Women Entrepreneurs.
(53) (54)
(55) (56)
Credit Risk
Risk Rating
As stated earlier, the Risk Management Department wilt be placing a
separate "Credit Risk Management Policy" outlining the entire gamut RATING RISK NOMENCLATURE
of risks perceived and their mitigation. CR1 Lowest Risk
CR2 Minimal Risk
Appraisal Standards CR3 Moderate Risk
CR4 Satisfactory Risk
The basic standards for WC facilities both FB and NFB and Term
CR5 Acceptable Risk
credit facilities have stood the test of time and are well understood.
CR6 Watch List
Bank has in place a well defined framework for approving credit limits CR7 Risk Prone
of different segments. Requests for credit facilities from the CR8 High Risk
prospective borrowers shall be on the prescribed format and the full CR9 Substandard
fledged proposal should be prepared for submission to the CR10 Doubtful
appropriate sanctioning authority for approval. Such proposals CR11 Loss
should analyze various risks i.e. Business Risks, Financial Risks,
Management Risks, etc. and elucidate the process by which such
risks will be managed on an on going basis. Financial statements:
Presentation of credit proposals shall be done in the prescribed The Bank shall analyze the financial statements of the
appraisal Formats devised for the purpose of advances upto Rs.1 constituent/ income/ wealth tax returns/ assessment orders of the
Crore shall be presented in the standard Appraisal Form. Advances constituent / guarantors. These statement/ documents shall throw
above Rs.1 Crore shall be presented in the existing format known as tight on growth in sales, profitability, cash accruals, tangible net worth
Executive summary, which has been revised to make it more position, investment in associates, non current assets, term liabilities,
comprehensive. repayment commitment under term loans in relation to
For MSE, a new simplified common loan application form cash accruals, short term leverage etc . The auditor's notes to the
applicable to all banks are circulated among branches. The same account shall reveal the accounting practices followed by the
should be used for loan proposals for MSE. business entity, details of contingent liabilities including guarantee
obligation, claims relating to income tax/ sales tax/ excise duty/
Further, at the time of review/ renewal, a mention has to be made
custom duty pending in the courts/ tribunals. The information
in the proposal as to how many times the account was reported in
gathered as above shalt enable the Bank to get an idea on the
EAS/ SMA and for what reasons. The sanctioning authority has to
business ethics adopted by the constituent and to take a decision
take into consideration this important aspect while exercising his
whether or not to have dealings with the constituent. Information on
authority for review/ renewal/ Enhancement.
the associates also may be ascertained.
(57) (58)
advances. While considering the flexibility in takeover norms, turnover. In other words, 25% of the estimated sales turnover value
endeavor be made that the following financial ratios are not shall be computed as working capital requirement, of which, at least
compromised below the levels as mentioned hereunder: 4/5th (20%) shall be provided by the Bank and the balance 1/5 th
a) Current Ratio under no circumstances to be compromised (5%) shall be by way of promoter's contribution towards margin
below 1.10 money. However, if the available NWC is more, the same shall be
b) TOL/ TNW Ratio not to be compromised above 3:1 and in case reckoned for assessing the extent of bank finance and lower limits
of Trade accounts above 4:1. are to be considered.
(59) (60)
and infrastructure projects, the repayments may however be
(ii) Flexible Bank Finance extended up to 240 months.
Flexible Bank Finance Method is an extension of permissible Although the various benchmark for Term Loans would continue,
Bank Finance Method with customer friendly approach in as much as the IRR approach is also being introduced for assessment of Term
the scope of Current Assets is made broad based and for evaluating
Loans of Rs 10 crs and above with repayment period of 5 years or
projected liquidity, acceptable level of Current Ratio is taken at 1.17:1
more. This assessment will be in addition to satisfying norms under
against benchmark level of 1.33:1. Flexible Bank Finance method is
various parameters. Generally, the cut-off rate under Indian
applicable for account with credit limits of Rs. 1 Crore and above for
conditions is taken as 15%. In other words, a project is generally
other advances & above Rs. 5 Crores for MSE advances.
accepted if its IRR is higher than 15%.
Under the FBF system, an uniform classification for CA and CL
shall be adopted on the terms given in CMA data format. Internal rate of return 6% and above from estimated
(post tax) cost of funds.
(iii) Cash Budget Method: other than infrastructure projects
Cash budget method can be applicable in case of specific Internal rate of return 5% and above from estimated
industries/ seasonal activities such as software development, (post tax) cost of Funds
construction industry, film industry, sugar, fertilizers, etc., and all are Infrastructure projects
working capital short term loans. In these cases the required finance
is arrived from the projected cash flow and not from projected assets
(3) Bill Discounting Policy
& liabilities. However, besides, these cash flow, other aspect like
borrower’s projected profitability, liquidity, gearing, fund flow are also Bank would open Lcs, issue guarantees/ acceptances and
to be analyzed. discount bills under LCs only in respect of genuine commercial and
trade transactions of borrower constituents who have been
(iv) Net owned fund method: sanctioned regular credit facilities by the Bank.
The need of NFBC’s shall be based on this method on a format
In cases where negotiation of bills drawn under LC is restricted to
prescribed by RBI. The Bank’s exposure shall be normally restricted
our bank and the beneficiary of the LC is not a constituent of our bank,
to such of the existing client with the proven track record, sound
we may negotiate such an LC, subject to the condition that the
financial and those complying from with RBI stipulated from norms/
proceeds will be remitted to the regular banker of the beneficiary.
usual lending norms prescribed by the bank from time to time.
However, the prohibition regarding negotiation of unrestricted LCs of
non-constituents will continue to be in force.
(2) Term Loan Assessment Bank would not open LCs and purchase / discount / negotiate
The maximum period for repayment of Term Loans other than bills bearing the "without recourse" clause.
Housing Loans shall be normally 84 months [including moratorium]. Bank would not ordinarily discount bills drawn by front finance
This may, however, be increased up to 180 months in respect of companies set up by large industrial groups on other group
projects having longer gestation period. In respect of Housing Loans companies.
(61) (62)
MANAGEMENT OF CREDIT
Quarterly basis (viz. March, June, Sept. & Dec) and branches shall
PORTFOLIO CREDIT MONITORING POLICY
submit monitoring reports on all EAS / SMA accounts above Rs. 50
20010-11
lacs on monthly basis to the respective monitoring authority.
! Submission of Monitoring Reports under monitoring jurisdiction of CO shall be sent to FGMO/ RO & the
accounts coming under the jurisdiction of FGMO shall be sent to RO.
! Timely Review of Accounts
! Submission of copies of monitoring reports to FGMO / RO Monitoring Objects
! Credit delivery (Disbursement of credit facilities) to take place
(i) Monitoring during disbursement after complying with all the stipulated terms and conditions.
All debits, during the first months and or up to the full utilization of ! All the laid down procedures of the Bank are to be complied with
the limits, shall be specifically authorized by the Branch Head and in assets in the standard category to remain standard.
his absence by the second official in command. It is his duty to ensure
! Within standard category, accounts are to be upgraded from
proper end use of funds.
SMA, EAS - II, EAS- I to pure standard category i.e. in other words to
(ii) Submission of Monitoring Reports ensure that accounts are stress- free.
Branches shall submit monitoring reports on all Standard ! Accounts do not slip to NPA category.
Accounts above Rs. 50 lacs (except EAS / SMA accounts) on
(63) (64)
Monitoring Tools Stages of Monitoring
1 Stock Statements The monitoring exercise will start on sanction of a credit limit to a
borrower. This involves three different stages as under:
2 Book Debts Statements
3 Monthly Cash Budget
(1) Pre - Disbursement
4 Q-4/M-6 Inspection Reports,
5 Stock Inspection Reports of outside agencies Status report, NOC from banks or financial institutions in case of
take-over accounts, Personal visit to such institutions for a detailed
6 Factory Visit Reports.
dialogue, Pre-disbursement/post-sanction inspection of the unit, the
7 Technical Officer's Reports. communication / acceptance of terms of sanction, execution of
8 Concurrent Audit Reports. security documents including signing of Letter of Guarantee by the
9 QPRs. guarantor/s, obtaining of legal opinion, creation of charge/ mortgage /
collateral security, inspection of the unit, induction of promoter's
10 MSOD,
margin, vetting of documents, completion of credit process audit and
11 Audited / Provisional Financial Statements. strict compliance of all Terms and Conditions of sanction form part of
12 Adverse / Search enquiries from other Banks regarding the pre-disbursement monitoring.
Account Promoters or Guarantors
13 Account Operations scrutiny - (poor Turnover, vis-a-vis (2) During Disbursement
sales realization, over dues, frequent returns of Cheques / A credit risk is assumed when an exposure is taken on a
Bills, issuing cheques unconnected to main business, borrower. That risk is subject to the contents of the proposal and the
constant excess drawing etc.) terms and conditions of sanction. Sanction of limits by itself cannot be
a commitment on the part of the bank to disburse and it is subject to
14 Sales Tax Return / Challan, Excise Duty Challans to co-
fulfillment of various commitments on the part of the borrower as set
relate with Turnover/ Production Report / Account Operatio /
out in the proposal. The actual availment of limit shall be measured in
Balance Sheet / Quarterly Progress Report etc.
terms of actual performance comparable with the projected level of
15 Annual accounts filed with Registrar of Companies - activity originally submitted by the borrower, while credit limits were
verification through search at office of Registrar of considered. The operations are to be watched every day by the
Companies by empaneled CompanybSecretaries / Branch so that end-use of the funds is ensured.
Chartered Accountants or by our own officers, wherever
need is felt, to ascertain / compare with the balance sheet
particulars as filed with Registrar of Companies. Working Capital Monitoring:
16 Adverse newspaper / market reports.
! Compliance to terms & conditions. Availability of Drawing Power.
! Stocks inspection / movement of stocks, rejection of stock.
(65) (66)
! Scrutiny of control returns like stock statements/ Book Debts ! Longer period of credit allowed on sales, Bills negotiated through
the bank outstanding after due dates, frequent return of Bills and late
statements / QPR / MSOD.
or non-realization of receivables.
! Unit inspection.
! Constant utilization of working capital limits to the brim.
! Audit by independent agency (stock, concurrent etc.).
! Unexplained delay or failure to submit periodical statements such
! Review of credit facilities. as stock / book debts statements, MSOD, CMA, QPR, balance
! Scrutiny of Audit Report & Financial Statements. sheets etc. /other papers needed for review of account.
! Submission of Monthly Monitoring Reports. ! Frequent requests for excess/ additional limit or for extension of
time for repayment of interest / installments.
! Quick and timely recovery of interest /installment /overdoes.
(67) (68)
! Adhoc/excess/Bill purchase overdue, LC devolvement / ! Stopping further discounting / purchase of bills / cheques.
Guarantee invocation.
! Allowing ad-hoc facility to tide over temporary financial problem.
! Lack of transparency in borrower's dealings with the Bank /
! Emergent detailed stock inspection through outside agency.
avoiding to meet bank officials.
! Asking for an additional collateral or guarantees.
! Constant failure or unwillingness to mention unpaid stock in stock
statements or age of book debts in book debt statement. ! Reducing the limits.
! Taking possession of securities.
Monitoring Action Plan (MAP)
! Disposal of certain saleable securities such as shares, encashing
Accounts in which irregularities surface (showing Early Warning
surrender value of LIC Policy, margin in the shape of FDRs etc.
Signals) will usually require an Action Plan in one or more of the
following ways: ! Asking debtors to pay directly to the Bank (where Book Debts are
hypothecated).
! Immediate discussion with the borrower or even guarantors.
! Recalling the advance / filing of suit
! Requiring the borrower to stop operations with other Banks.
! Requiring the borrower to stop his other business activities. Check List
! Hiking of margin requirements on primary securities. LOAN DEFAULT
FUND BASED NON - FUND BASED
! Increasing rate of interest on entire or excess portion of the
Interest/ Installment/ Bill Purchased Letter of Credit/ BG/ DPGL
outstanding. or Discounted/ Packing Credit/ Installments/ Other Non - Fund
Excess in WC Limit / Non - Based commitment viz. Derivatives,
! Requiring borrowers to bring in more funds to set right out of order adjustment of Ad-hoc Limit. Buyers'Credit, Forward Contracts,
position. Operations in the account dormant / Unhedged foreign exchange
Deficit in DP : exposure etc.
! Bringing down level of outstanding through cutbacks. Default more than Devolved / Invoked and
No No
Default / Default not adjusted
! Bringing back funds diverted to sister concerns. Default 30 days 45 days 60 days Upto 15 16 days 31 days
Up to 30 Upto 45 Upto 60 Upto 90 days Upto 30 Upto 90
! Sale of unwanted surplus assets (esp. fixed assets). days days days days days days
Standard EAS - I EAS - II SMA Standard EAS - I EAS - II SMA
! Quickening debtors' realization by offering discounts.
! Restriction on dividend declaration. Loan Default with Other Banks / Financial Institutions
Default more than
! Restriction on withdrawal by partners. No Default /
30 days Upto 45 45 days Upto 60 Default more
Default Up
! Creation of amortization fund to meet future liability. to30days days days than 60 days.
Standard EAS - I EAS - II SMA
(69) (70)
The law relating to the stamping of documents is governed by For simple Mortgage: -
Deed of simple Mortgage as per form SD-14 or
Indian Stamp Act., 1899 and the respective State Stamp Acts. Under
SD-15 as the case may be. The deed to be duly
Indian Constitution, the rate of stamp duty in respect of 10 documents
executed by the mortgagor, duly attested by
are included in the Central List. The items are Promissory Note, Bill two witnesses who should not be Bank's
of Exchange, Receipt, Cheque, Bill of Lading, Policy of insurance, officials and duly registered with the Registrar
Transfer of shares, Debentures, Proxies, Receipts. (“Cheque” is of Assurances. Income Tax Clearance
totally exempt from stamp duty). In respect of these items Certificate under Section 230-A of I.T. Act to be
accordingly the stamp duty rates are determined by Parliament and obtained and copy to be held on record.
Insurance of the property depending on the
the Central Government.
nature of property as stipulated.
(71) (72)
FACILITY SECURITY DOCUMENT
FACILITY SECURITY DOCUMENT - Appropriate D.P. Note
Housing EM/SM of - Housing Loan Agreement (SD-11)
- Demand Promissory Note.
Term Loan Plant and - TL Agreement (Against Hypothecation of Loan the house
“UNION /flat - Letter of Authority authorising for deduction of
Machinery salary
Movable Property) (SD-19) HOME”
Interim - Equitable Mortgage/Simple Mortgage of the
- Letter of undertaking not to alienate
Security in
hypothecated goods (AD-12) house/flat as stated under the head
the form of
- List of Machinery proposed to be LIC policy “Secured Loans- Mortgage”above
hypothecated along with the copies of /NSC
relative invoices after due verification with KVP/
the originals. Mortgage of
- Certificate should be obtained from the other
property
borrower every half year that the machinery
is in good order and working condition - D.P. Note to be executed jointly by student
Education Assignment
- Machinery should be insured against fire, Loan and parent/guardian in case student is a
of policy or
riot, strike, burglary malicious damages etc. mortgage minor
and where necessary/requested by the depending - LIC policy duly assigned in favour of the Bank
Borrower against flood, cyclone etc also in on the and registered with LIC
the name of the Bank 'Account Borrower’ quantum - Letters of guarantee duly executed by
- Bank's name plate should be affixed on the of advance parent/guardian and third party
machinery to indicate the Bank's charge - Undertaking from parent/guardian that he is
thereon having independent/regular source of
- Rent receipts of the premises to be checked income Mortgage/Transfer Deed depending
to ascertain that rent is being regularly paid upon security of land or pledge of shares,
and that the premises is in fact rented by the NSC etc. as per procedure stated herein
borrower and proof in this regard to be held above
on record.
Cash Credit Stock, Stores - Appropriate D.P. Note
- Letter of free access from the land lord should (Hyp.) & other - Letter of continuity (AD-09 )
be obtained C.A. - Hypothecation (Goods) Agreement (SD-03)
Consumer Hyp - Appropriate D.P. Note. - Statement of Stock
finance/ of Vehicle - Letter of undertaking not to alienate the
- Consumer Goods Vehicle agreement (SD-
Vehicle purchased hypothecated goods (AD-12)
10) Form E duly signed by the borrower
Loan - Goods should be insured in the name of the
(“UNION - instructing the supplier to register Bank's lien
with Regional Transport Authority Bank-Account borrower against fire, strike,
MILES”)
riot, malicious damages, flood, cyclone,
- Additional copy of Registration certificate
burglary etc., where applicable/necessary.
from RTO evidencing registration of Bank's
lien on vehicles. - Letter of free access in case godown is
rented.
- Comprehensive insurance policy including
third party liability in the name of the Bank - Rent receipts of the godown to be checked to
A/c………(Borrower) ascertain that the rent is being paid regularly
and that the godown is in fact rented by the
borrower and proof to be held on record.
(73) (74)
EXAMPLE-1:
FACILITY SECURITY DOCUMENT
As per the Annual Report provided by one of the borrower
- Appropriate D.P. Note
Cash Credit Book Debts (Ralco Group) of the Union Bank of India, Gandhibagh, prepare
- Letter of Continuity (AD-09 )
(Hyp) Process note, Credit rating structure, Sanction advice for the
- Hypothecation of Book Debts Agreement
(SD-05 ) current provided financial statement
- Statement of Book Debts
- Declaration that the relative book debts are
Process Note: ***/*** Date: 03/05/2010
the property of the borrower and/or they
have such interest therein as to entitle them
to hypothecate the debts to the Bank. MEMORANDUM TO THE COMPETENT AUTHORITY
- P/A in Bank's favour to collect the amounts FOR APPROVAL OF
directly from the debtors to be registered in
the case of Government Departments. (i) Enhancement of fund based WC facility from Rs. 14.70 crore to Rs.
18.67 crore (Enhancement of Rs. 3.97 crore)
Cash Credit Combined- - Appropriate D.P. Note. (ii) Enhancement of inland/import LC(DP/DA 180 days) limits from Rs.
(Hyp) Against - Letter of Continuity (AD-09) 21.40 crore to Rs. 23.71 crore (Enhancement of Rs. 2.31 crore)
Stock & - Hypothecation Agreement of Goods & Debts with 10% margin.
Book Debts
(SD-06) (iii) Renewal of LG limits at existing level of Rs. 3.27 crore with 10%
- Statement of Stock margin.
- Statement of Book Debts (iv) Renewal of import LC (DA 180 days) limit of Rs. 50.00 crore with
- Letter of undertaking not to alienate the 100% margin or LOC from member bank
hypothecated goods (AD-12) (v) Review of TL at of Rs. 46.26*crore (*o/s as on 03/05/2010)
- All other terms/instructions given above for (vi) 0.50% concession in ROI on FB facilities i.e. CC limit and TL i.e.
C.C. (Hyp) against Stocks & against Book reduction in ROI from BPLR + 0.50% to BPLR.
Debts to be followed. (vii) Continuation of waiver of insurance on non-combustibel stock.
- Application for L/C , trust receipt etc. to be (viii) Increase in debtors covers period from 45 days to 60 days.
Letter of Goods (ix) Waiver of stipulation of LR from IBA approved transport
Credit imported/ obtained for individual transactions as
explained below: operators from inland LCS.
covered by
L/C (a) Import:
- Application for opening Documentary Credit Group Ralco Group Lead Bank SBI
(AD-04) Banking Consortium Banking Our Share F 9.80%
- Trust receipt (AD-06) Month of Review May 2010 Existing NF 23.04%
(b) Inland: Asset Classification Standard
- ILC application(AD-05) Existing CR CR-4 Proposed F 7.10%
- Trust Receipt (AD-06) Status of Account Regular NF 21.99%
- Appropriate D.P. Note
- Hypothecation (Goods) Agreement (SD-03) 1. (a) Name of the Account Ralco Industries Ltd.
OR Hypothecation Agreement of Goods & (b) Branch/ Zone Gandhibagh Branch, Nagpur, WZ
Debts
(c) Date of Incorporation 28/12/1975
- (SD-06)
2. Constitution Public Limited Company.
(75) (76)
Capital Structure (companies) As on 23rd March 2010 producing centrifugally cast iron pipes for drainage & is a leading supplier
Authorized Capital Rs. 240 Crore (Equity Share Capital) of Construction casting in Maharashtra, Gujarat, M.P & U.P. Apart from the
Paid up Capital Rs. 236.65 Crore above facilities, the company is having iron ore mines and coal mines in
Book Value Rs. 236.65 Crore the states of Chhattisgarh, Maharashtra, & Jharkhand.
Market Value Rs. 40.40
Financial Indicators: (Rs. In Crore)
Share Holder No. Of Shares Face Value Holding %
2007-08 2008-09 2009-10 2010-11
Promoters 55276801 @ Rs. 10.00 48.97% Year Ending (Audited) (Audited) (Estimated) (Projection)
Bank and Fi’s 7178544 Each 6.36% Paid Up Capital 112.88 236.65 236.65 236.65
Bodies Corporate 19431637 17.21% Reserves & Surplus 37.54 302.29 358.51 466.23
Public 30997066 27.46% Intangible Assets
100% Tangible Net Worth 150.42 538.94 595.16 702.88
Line of Activity Manufacturing of Pig Iron, Power, Sponge Iron, Billets, Long Term Liabilities 344.58 788.12 778.90 668.60
Rolled Products, Iron & Steel casting. Net Block 460.28 1191.25 1125.80 1059.56
(In lacs)
Total Investments 0.17 0.17 0.17 0.17
Fund Based Non Fund Based
Our Bank Non Current Assets 13.37 22.51 8.74 8.74
Existing Proposed Existing Proposed Existing Proposed
Net Working Capital 21.18 113.13 239.35 303.00
Working Capital 14.70 18.67 74.67 76.98 89.37 95.65
Current Assets 469.68 718.93 949.10 1103.56
Cash Credit 14.70 18.67 14.70 18.67
Current Liabilities 448.50 605.80 709.75 800.56
LC limit 21.40 23.71 21.40 23.71
Current Ratio 1.05 1.19 1.34 1.38
BG limit 3.27 3.27 3.27 3.27
50.00 50.00 50.00 50.00 TOL/ TNW 5.28 2.59 2.50 2.09
Import LC (180 days)
50.00 Debt Equity Ratio 2.29 1.46 1.31 0.95
Term Loan 50.00 46.26 46.26
Net Sales 1473.63 1611.04 1767.44 2107.90
Sub Total 64.70 64.93 74.67 76.98 139.37 141.91
Other Income 7.87 20.31
Other Bank
Net PBT 87.03 28.57 81.69 149.39
Working Capital 135.30 221.33 249.42 273.02 383.72 494.35
Net PAT 86.19 27.17 56.22 107.71
Term Loan 629.39 629.39 629.39 629.39
Depreciation 37.56 65.48 80.45 81.24
Sub Total 764.69 850.72 249.42 273.02 1014.11 1123.74
Cash Accruals 123.75 92.65 136.67 188.95
Total 829.39 915.65 324.09 350.00 1153.48 1265.65
Brief Background: Overall management of the Company is in the hands
of Ralco Family. It has its humble origin in a simple Grey Iron foundry Comments on the Financial Indicators:
established at Nagpur in 1976 & subsequently become one of the largest (1) Net Worth: Paid up Capital of the company is increased to Rs. 236.64
Casting manufacturer in India. Specifications & types ranging form man Crs as on 31/03/2009 as compared to Rs. 112.88 Crs as on 31/03/2008 on
Hote cover, Centrifugal Cast Pipes, Fittings, Automotive Castings, account of merger of 3 companies. Tangible Net Worth of the company is
Engineering casting & construction casting are manufacturing in foundry also rises from 150.42 Crs to Rs. 538.94 Crs as of 31/03/2009.
division. It then eventually progressed itself to set up an integrated steel (2) Long term Liabilities: LTL for the year ended on 31/03/2008 and
Plant for the manufacturing of Pig iron, Billets, & Rotted Steel products. 31/03/2009 are Rs. 344.58Crs and Rs. 788.90 Crs Estimated/ Projected
The foundry division is the single largest player in the private sector LTL for the year ended on 31/03/2010 and 31/03/2011 are Rs. 778.90 Crs
producing all types of casting & catering to different segments, automotive, and Rs. 668.60 Crs. respectively
(77) (78)
Expects to fetch better margins for their products. Hence, the company
(3) Net Block: Net block as on March 2008 was at Rs. 460.28 Crs
proposed to bring down sales of billets and increase sales of rolled
increased to Rs. 1191.25 Crs on account of merger of sister concerns. It
products. The growth is estimated to be very steep in the year 2010-11 as
consists of factory land, building including plant & machineries, capital the rolling mills would be in usage at optimum capacity utilization levels
work in progress, etc. and that too for full year.
(4) Net Working Capital: NWC increased from Rs. 21.18 Crs to Rs. Profit: The company has registered PAT of Rs. 27.17 Crs against
113.13 Crs as on 31/03/2009 due to increase in long term funds. estimates of Rs. 37.38 Crs in the FY 2008-09 achievement is 72.68%. The
Estimated/ Projected NWC for the year ended on 31/03/2010 and company achieved profits in spite of the downturn in economy. Sharp
31/03/2011 is Rs. 239.35 Crs. and Rs. 303.00 Crs respectively. decline in SP of steel coupled with higher contracted prices of Raw
(5) Current Assets: CA for year ended on 31/03/2008 and 31/03/2009 are material of LAM Coal and Coke, loss of production for about 2 months due
Rs. 469.68 Crs and Rs. 718.93 Cs respectively. Estimated/ Projected CA to capital repairs to blast furnace in May- July 2008, and adverse foreign
for the year ended on 31/03/2010 and 31/03/2011 are Rs. 949.10 Crs and exchange fluctuation due to steep fall of Rupee against US Dollar (Forex
Rs. 1103.56 Crs respectively. loss of Rs. 64.63 Crs) made a considerable dent to bottom lines and
thereby the profitability has decreased compared to profits of 2007-08 and
(6) Current Liabilities: CL for year ended on 31/03/2008 and 31/03/2009
also estimated of 2008-09. Company has estimated profit at Rs. 56.22 Crs
are Rs. 448.50 Crs and Rs. 605.80 Crs respectively. Estimated/ Projected
for the year ended on 31/03/2010 on the following grounds: Till December
CL for the year ended on 31/03/2010 and 31/03/2011 are Rs. 709.75 Crs
2009 of the FY 2009-10 company expects the deferred tax provision of
and 800.56 Crs. Respectively.
around Rs. 25 - 30 Crs of which company has already provided for
(7) Current Ratio: CR is 1.05 as on March, 2008 which is improved to 1.19 deferred tax of around Rs. 23.58 Crs. Thus the company has
as on March 2009. Estimated/ Projected CR for the year ended on 2010 conservatively estimated PAT of Rs. 56.22 Crs. Thus, it has achieved
and 2011 is 1.34 and 1.38 respectively. almost 97.24% of its estimated PAT and is confident of achieving the
(8) Debt Equity Ratio: DER is at 2.29 as on 31/03/2008 which is improved estimated for the year ended on 31/03/2010.
to 1.46 as on 31/03/2009 which is a satisfactory level. Estimated/ Considering all above financial of the company seems satisfactory;
Projected DER for the year ended 31/03/2010 and 31/03/2011 is 1.31 and financial of the company are improved substantially as compare to last
0.95 respectively. year 2008
(9) TOL/ TWN Ratio: as on 31/03/2008 is 5.28 which is improved to 2.29
as on 31/03/2009 and estimated to 2.50 as on 31/03/2010 which is at
Credit Rating:
acceptable level. Year Previous Year Current Year
(10) Sales: Net Sales of the company increased from Rs. 1473.63 Crs (FY Audited B/s 31/03/2008 Audited B/s 31/03/2009
2007-08) to Rs. 1611.04 Crs in FY 2008-09, with a growth of Rs. 9.32%, the Total score obtained 73/100 75/100
company has surpassed estimated net sales of Rs. 1491.16 Crs. for FY Grade CR-4 CR-4
2008-09 considered at the time of last renewal. The company has
estimated net sales of Rs. 1767.44 Crs in FY 2009-10, a growth of 9.70% Marks obtained
Parameters
over the previous year on the following grounds: Company has already Previous Year Current Year
achieved net sales of Rs. 1329.00 Crs up to December 2009. On Borrowers rating 53/76 53/70
completion of capital repairs in 2008-09, the capacity of the blast furnace Facility rating 04/06
and consequently the production of hot metal have improved considerably. Risk Mitigators 16/20 14/20
The company has also commissioned Bar Mill in September 2008 and wire Business aspects 04/04 04/04
rod mill in October 2009. With the commissioning of these, the company Total Marks 73/100 75/04
(79) (80)
Sanction Advice
(2) Borrower / Branch will obtain comprehensive insurance of all
properties/stock mortgaged/ hypothecated with bank with bank clause covering
BUSINESS: Manufacturing Steel CONFIDENTIAL all type of risk including flood and earthquakes for the above properties and
and casting ensure that banks charges on the mortgage properties are noted with concerned
Govt. /Revenue Authorities by obtaining fresh land extract by them.
(3) Advance will be allowed against stock of goods (excluding obsolete items
Means/ Borrower: Ralco Industries Ltd. Sectoral/category: of stock) plus book debts not older than 90 days less sundry creditors (Trade) by
Reported worth Standard keeping 25% margin against stock and book debts.
as on 31/03/09 Credit Rating: CR-4 (4) Borrower should submit the Stock/debtor/MSOD statement on monthly
basis and QPR on quarterly basis before 10th of the next month, default will
Estd. 1973 Constitution: Public BRANCH : Gandhibag, attract 2% Penalty on limit sanctioned till submission.
48.97% Limited Company Nagpur (5) Borrower should not transfer the banks funds to any other family /sister
Reg No. *** Date:25.08.09 Month of Review: MAY 2010 concern or to partners/directors/relatives/ friends during the currency of banks
advance. Undertaking to this effect should be obtained.
Nature of Limit Amount Margin Int/Com Security (6) Unsecured loans should be retained in the System till the currency of our
Existing advance.
Proposed
(7) Entire sales should be routed through our A/c.
[A] Non FB (8) Excess over limit /DP will not be permitted.
(9) Inter transfer of funds among the connected accounts will not be permitted
Import LC Hyp of goods produced except genuine trade transactions.
(DA 180 days) 50.00 50.00 100% Usual under DA LC & BD, FDR
(10) Processing charges, documentation and inspection charges etc will be
under Bank’s lien. recovered as per banks norms.
LG 3.27 3.27 10% Usual Counter Indemnity & FDR
under Bank’s lien.
Inland/ Import Hyp of goods produced
LC
(DP/DA 180
21.40 23.71 10% Usual under DA LC & BD, FDR
under Bank’s lien.
EXAMPLE-2:
days)
As per the Financial Report provided by one of the borrower
Sub total [A] 74.67 76.98
(Puja Garments) of the Union Bank of India, Gandhibagh,
[B] Fund Based
prepare Process note, as the firm needs a temporary overdraft
CC (hyp & BD) 14.70 18.67 25% BPLR Hyp of RM, WIP, FG,
Stores, Spares & BD of Rs. 7 lacs with a existing limit of Rs. 32.00 lacs.
Sub total [B] 14.70 18.67
[C] Term Loan
Term Loan 50.00 46.26 Nil BPLR First Pari Passu Charge Date: 21/05/2010
on FA of the company
Sub total [C] 50.00 46.26 Proposal for offering ToD
Total [A+B+C] 139.37 141.91 Company M/s Puja Garments
Banking Sole
Month of Review May
Special Terms and conditions: Credit Rating CR-3 (Existing)
CR-5 (Assigned)
(1) Sanctioned facilities should be utilized for the purpose considered by the
bank and not to divert the funds to the capital market/ Real Estate. An Address: ***
undertaking to this effect should obtain from the borrower. Consent clause to be Date of Incorporation 25/07/1994
obtained from the borrower/ Guarantors
(81) (82)
(83) (84)
industrial clusters; This would enable institutional funding to be
channeled through homogenous recognized clusters.
RECOMMENDATIONS AND SUGGESTIONS
! There is a critical need to devote substantial resources to
Example-1
improving the skills and capabilities of banks' lending officers,
In view of all above, long banking relations and available
especially with regard to the analysis of the financial statements.
collateral cover, we may recommend for enhancement in existing
Understanding the nature of the borrower's business and the cash-
cash credit limit and LC limit as well as renewal of the proposed limit
flow required is paramount to preventing the creation of NPAs.
as well.
the potential to over these situation an to achieve the next years about the firm and its owner through a variety of contacts over time.
! Banks are now better equipped to handle the varied needs of the suitable risk models and close monitoring of accounts by the bank.
Priority sector due to better technology and risk management. The ! Increasingly using products such as derivatives to manage their
Government has asked banks to adopt a full-service approach to forex flows. Bank needs to offer sophisticated products to this
cater to the diverse needs of the sector. This, it recommends, may be simplified sector.
achieved by extending banking services to be a recognized clusters
by adopting the 4-C approach: Customer focus, cost control, cross-
! Borrowers need to innovate their delivery platforms by using
selling and containing risk. Internet banking, mobile banking and card-based platforms for
delivery of transaction-banking as well as credit products, and
! To enable the banks take more objective decisions, the enhance the service element because they look for convenience
Government plans to introduce a rating mechanism for designated and simplicity in their banking requirements and banks should
deliver these through an effective use of technology.
(85) (86)
CONCLUSION:
ABBREVIATIONS
The study at UNION BANK OF INDIA gave a vast learning
experience to me and has helped to enhance my knowledge. During
the study I learnt how the theoretical financial analysis aspects are AD: Auxiliary Document IRR: Internal Rate of Return.
BG/LG: Bank Guarantee/ Letter of LAM: Low Ash Metallurgical Coke.
used in practice during the working capital finance assessment and
Guarantee LAS: Lending Automation Solution.
other limits. I have realized during my project that a credit analyst BBB: Business Banking Branches LC: Letter of Credit
must own multi-disciplinary talents like financial, technical as well as BPLR: Bench Prime Lending Rate LCV: Large Corporate Vehicle
legal concepts. (11.75%) MSME: Micro, Small & Medium
CBS: Core Banking solution/system Enterprises
The credit appraisal for working capital finance and the other limit
CGS: Credit Guarantee Scheme MSOD: Monthly Statement of
availed by the system has been devised in a systematic way. There Operational Department
CGTMSE: Credit Guarantee Fund
are clear guidelines on how the credit analyst or lending officer has to Trust for Micro if Small Enterprises . M/s: Messers
analyze a loan proposal. It includes phase-wise analysis which CMA: Credit Monitoring Analysis Data NAV: Net Asset Value.
consists of 5 phases: CPC: Central Processing Centers NBFCs: Non Banking Financial
CR: Current Ratio Companies
1. Financial statement analysis NEFT: National Electronic Fund
CRR: Credit Risk Rating
2. Capital and its assessment techniques DBC: Debit Balance Conformation Transfer
DER: Debt Equity Ratio NPA: Non performing assets
3. Credit risk assessment
DIC: Division of International NSC: National Saving Certificate
4. Documentation Criminology PAN: Personal Area Network
DP: Drawing Power/ Demand PSL: Priority Sector Lending
5. Loan administration
Promissary Note QPR: Quarterly Progress Reprot
Union Bank of India’s adoptions of the Flexible Bank Finance DRC: Deposit reinvestment certificate RRBs: Regional Rural Banks
method of assessment procedures are based on sound principles of DRDA: District Rural Development RTGS: Real Time Gross Settlement.
lending. This method of assessment has certain flexibility required to Agency SD: Standard Document
DSCR: Debt Service Coverage Ratios
avoid any rigid approach to fixing quantum of finance. It is superior SGA: Selling & General Administrative
EAS: Early Slert System. expenses
and more rational compared to the Turnover Method , Cash Budget ECB: External Commercial Borrowing SMA: Special mention account
Method of assessment .It also facilitates the Bank to carry on follow ECS: Electronic Clearing System SOD: Secured Overdraft
up procedures. The FBF method have been rationalized and FDR: Fixed deposit receipt
SSE: Small Scale Enterprises
simplified to facilitate complete flexibility in decision-making. FGMO: Field General Managers
TAT: Turn Around Time
Office.
To ensure asset quality , proper risk assessment right at the TNW: Total Net Worth
FICCI: Federation of Indian chambers
beginning, is extremely important. That is why Credit Risk of commerce & industry TOL: Total Outside Liability
Assessment system is an essential ingredient of the Credit Appraisal GDP: Gross Domestic Product. WBB: Wholesale Banking Branches
exercise. It considers important parameters like profitability, HUF: Hindu Undivided Family WDV: Written Down Value.
IPO: Initial Public Offering WEF: with effect from
repayment capacity, efficiency of the unit , historical/ industry
comparisons etc.
(87) (88)
APPENDICES
Collateral: This usually consists of tangible assets such as real estate,
Beneficiary: A "beneficiary" in the broadest sense is a natural person or
equipment, accounts receivable, or inventory. Generally, fixed assets are
other legal entity who receives money or other benefits from a benefactor,
used, sometimes intangible assets such as patents, company name, or
who receives the payment of the amount. A person who receives the benefits
future cash flow can be used as collateral. Often a borrower's guarantee,
from something although perhaps not the legal owner of the thing.
either corporate or personal, is required. Loans having collateral are called
Bills of exchange: An unconditional order issued by a person or business secured loans.
which directs the recipient to pay a fixed sum of money to a third party at a
Consortium Finance: The borrowers, particularly the big ones, are
future date. The future date may be either fixed or negotiable. A bill of
nowadays a very happy lot as the bankers run after them offering cheap
exchange must be in writing and signed and dated also called draft.
finance. This has given birth to the practice of multiple banking a situation
Borrower/Beneficiary: A person who has availed loan under the priority when one borrower is banking with many banks. This should have been
sector lending programme is called a borrower/beneficiary. governed under the concept of consortium financing. Under consortium
financing, several banks (or financial institutions) finance a single borrower
Capital: Money that one has invested, for example one uses capital to make
with common appraisal, common documentation, joint supervision and
a new product, like wise one uses capital when one buy a single share of a
follow-up exercises.
stock. Capital is money that is used to generate income or make an
investment, for example the money you use to buy share of a mutual fund is Debt Equity Ratio: It is defined as a measure of a company's financial
capital that you are investing in funds. leverage. Debt/equity ratio is equal to long-term debt divided by common
shareholders' equity. Typically the data from the prior fiscal year is used in the
Capital market: It refers to physical & electronic environment where capital
calculation. It is important to realize that if the ratio is greater than 1, the
is raised, either through public offering or private placement.
majority of assets are financed through debt. If it is smaller than 1, assets are
Current Ratio: An indication of a company's ability to meet short-term debt primarily financed through equity.
obligations; the higher the ratio, the more liquid the company is. Current ratio
is equal to current assets divided by current liabilities. If the current assets of Hypothecation: When a person pledges a mortgage as collateral for a loan,
a company are more than twice the current liabilities, then that company is it refers to the right that a banker has to liquidate goods if you fail to service a
generally considered to have good short-term financial strength. If current loan. The term also applies to securities in a margin account used as
liabilities exceed current assets, then the company may have problems collateral for money loaned from a brokerage. In banking, refers to the
meeting its short-term obligations. It indicates size of stake, stability and commitment of property to secure a loan.
degree of solvency. It indicate how high is the stake of the creditors, indicate Hypothecation of Stocks: Industrial organizations have to invest a large
what proportion of the company’s finance is represented by the tangible net sum of money to build stocks of raw material to up keep their manufacturing
worth, the lower the ratio the greater the solvency, the ratio is usually higher in line. This is act to create liquidity constraints in the Financial Balance Sheet of
case of SME’s. the customer. To manage such financial gaps/shortfall in their cash flow they
Current account: Non interest-bearing bank account which allows the usually resort to borrowing from Banks against Hypothecation of raw
account holder to write cheques against the funds in the account and also material/semi or finished goods held by them in their stocks. Banks in such
deposit cheques into the account. cases although do not have a physical custody of the goods, however have a
legal Charge/Lien established, thereon, providing a legal recourse to the
Commercial Banks: Commercial banks include all scheduled
Bank to take custody of the stocks, in the event the borrowers default to repay
commercial banks except regional rural banks, foreign banks and newly
the loan or fail to meet their obligations, as agreed.
formed private sector banks like HDFC bank, ICICI bank, etc.
(89) (90)
(91) (92)
ANNEXURE- I (8) Was there any pre and post sanction visit by
the bank officials?
A Survey on the Priority Sector Lending by UBI
(a) Yes ❑ (b) No ❑
in Nagpur Division
(2) Monthly income: (11) Whether the purpose or goal of the loan was achieved?
(a) Less than Rs.1,000 ❑ (b)Rs. 1,000-2,000 ❑ (a) Yes ❑ (b) No ❑
(c) Rs. 2,000-3,000 ❑ (d) Rs. 3,000-5,000 ❑ (12) Will you approach the bank again for the same
(e) Above Rs. 5, 000 ❑ type of loan?
(a) Yes ❑ (b) No ❑
(3) Why do you prefer bank loan?
(a) Low rate of interest ❑ (b) Easy repayment facility ❑
(c) No other sources of finance ❑ (d) Others ❑
ANNEXURE- II
(4) How do you know about this scheme? A Survey on the Priority Sector Lending by UBI
in Nagpur Division
(a) Newspaper ❑ (b) TV/Radio ❑
(c) Friends/ relatives/neighbours ❑ QUESTIONNAIRE
(BANK MANAGERS)
(d) Others ❑
(Please put a tick ( ) mark against the answers you choose)
(5) How did you approach the bank? (1) Actions taken by the bank for communicating
(a) Directly ❑ (b) Indirectly ❑ the PSL scheme.
(a) Wall posters/brochures ❑ (b) Circulars ❑
(6) Have you received the applied loan amount fully/partially?
(a) News papers/TV/Radio ❑ (b) others ❑
(a) Fully ❑ (b) Partially ❑
(7) Have you provided any margin money? (2) How do the beneficiaries approach the bank?
(a) Yes ❑ (b) No ❑ (a) Directly ❑ (b) Indirectly ❑
(93) (94)
(95) (96)
INDUSTRY PROFILE INTRODUCTION TO
THE TOPIC
CHAPTER-3
CHAPTER-4
RESEARCH &
ANALYSIS AND METHODOLOGY
INTERPRETATION
CHAPTER-5 CHAPTER-6
BIBLIOGRAPHY CHAPTER-2
REVIEW OF LITERATURE