PROJECT TOPIC: CREDIT APPRAISAL

A PROJECT REPORT ON

CREDIT APPRIASAL
FOR

SHRIRAM TRANSPORT FINANCE CO.LTD JALGAON

SUBMITTED TO

UNIVERSITY OF PUNE
IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF MASTER OF BUSINESS ADMINISTRATION (MBA) SUBMITTED BY

YOGESH S.PATIL
UNDER THE GUIDANCE OF

SUCHI GAUTAM
DEPARTMENT OF MANAGEMENT STUDIES

SANDIP FOUNDATION'S SANDIP INSTITUTE OF TECHNOLOGY & RESEARCH CENTRE, NASHIK- 422213. 2012-13

DECLARATION OF THE STUDENT

I, the undersigned, hereby declare that this dissertation entitled CREDITE APPRAISAL SYSTEM IN SHRIRAM TRANSPORT FINANCE CO. LTD. IN JALGAON REGION is a genuine and bonafide work prepared by me and submitted to the PUNE UNIVERSITY through SITRC College of Nasik, for the partial fulfillment of The Masters Degree in Business Administration. The present work is of original nature and the conclusions drawn therein are based on the data collected by myself. To the best of my knowledge, the matter presented in this dissertation has Not been submitted for the aware d of any Degree, Diploma or Membership Either to this or any other Institute / University.

Place: NASHIK. Date:

YOGESH S. PATIL (Student)

Acknowledgement
Journey is easier when we travel together. Interdependence is certainly more important than independence. It will always be my pleasures to thank those who have helped me in making this project a life time experience for me. I would like to express my heartiest gratitude to SHRIRAM TRANSPORT FINANCE CO.LTD. for giving me an opportunity to work with its regional Branch situated at Jalgapon, my Institute and important persons associated with this project as without their guidance and hard work I would have never ever have got a chance to have real life experience of working with a Non Banking Financial Institute of such a great repute and learn practically about the Credit Appraisal Process. I would also like to extend my gratitude to Mr. Sandip Jarad (Branch Manager, Jalgaon Branch) for giving me an opportunity to join him to know and learn various aspects of the Loans and Advances in the organization. It is my privilege to thank Mr. Sonar sir ( field officer) whose guidance has made me learn and understand the finer and complicated aspects of NBFC, in general and of Credit Appraisal Process, in particular. The help and guidance which he has extended to me has made me feel as being an integral part of the organization. My heartiest gratitude extends to my Guide mis.Suchi Gautam who has helped me in every aspect of my work. I would like to express my profound sense of gratitude to the Principal Dr. Gandhe sir. The greatest credit goes to the blessings bestowed upon me by Almighty God without whose yearning; I could not have even moved a step forward and to my parents who are always a constant source of inspiration in all my endeavors.

PREFACE

Summer training is an integral part of our academic curriculum. During the training a student gets an opportunity to set the practical aspects of theory. Theory makes the concept clear. I feel great pleasure in submitting this piece of work as my summer training project, taken from Shriram Transport Finance Co. Ltd. Jalgaon. I hope that this work will provide fruitful result in the eyes of the reader. It is hence expected that creating of this shall benefit the reader in all aspects. The project deals with nearly all the aspects of NBFCs and the essence of Know Your Customer Norms. I have tried my best to cover nearly all the aspects related to Credit Appraisal of Shriram Transport Finance Co. Ltd. The working title of the project is CREDIT APPRAISAL. It is done in a very cordial manner. This research is an attempt to present a report on account of little practical knowledge. In my opinion, the readers will be satisfied with the project in all ways. I guarantee the original work and authenticity of this.

TABLE OF CONTENTS

Chapter no.

Particular

Page no.

EXECUTIVE SUMMARY
I had a valuable experience doing my summer internship at Shriram Transport Finance co. ltd jalgaon. The duration for my internship was 60 days, starting from 15th may 2013 to 15th July 2013 in Jalgaon branch and, I was working on the CREDIT APPRISAL. My Project Guide was Mr. Sandip Jarad for Jalgaon branch, respectively of his department. This was my First exposure to the corporate world and had an experience of working in a non banking. I was directly working under loan/advances. I was working on the credit appraisal, which I feel is the basic requirement of any bank. While working I observed the significance of the loan/advances in a STFC, its working. I also got to observe various functions of the STFC department. The project, which was given to me in this period of my summer internship, project was to know the credit appraisal. For that, I have to talk to manager and try to understand concept of credit in the STFC. Thus during this internship-period working on project and simultaneously observing has proved to be a great experience in all as I have got to see and understand various situations of the employees. I would like to conclude by saying that it is been a great learning for me through this internship. I understand some realities of the STFC, as I was part of the everyday activities of the organization. I also learned the fact that no department can work on its own each department have to depend on other in one-way or the other.

Objective of Shriram Finance:

Shriram finance aims at providing finance to commercial vehicles. The main objective of STFC is to meet the financial need of the customers, assisting them within different schemes. The project study has to have an objective so as to make it concrete and clear. When the objective is defined and understood one can get a direction to carry out a project report. A clear objective will help to deliver precise and accurate results. The objective will also help to predict the time frame involved the scope of the project and identify the relevance of it in current situations. 1) To have general awareness about the history of Indian Business from ancient times to the present era, including the eths of the Indian Business. 2) Study the development of Indian history for the British period to Independence and thereafter. 3) To study the emergence of modern Indian Business, house and possible role of India as a major economic power in Asia. 4) Besides the above academic aim, it helps to develop the habit of self-study and enhance the team building capacity.

Objective of Study
To study in deep varies terms, conditions and terminologies used in commercial vehicle finance. To know the application of knowledge, legal background of financial procedure while buying four-wheeler. To study the credit appraisal system of commercial vehicle finance. To study the documentation required for credit appraisal. To identify & suggest the scope for improvement in Credit Appraisal System. To know various norms of automobile finance as well as STFC financial strategies in financial market. To have comparative study of loan and HPA (Hire Purchase Agreement). To become well acquainted & familiarized with the basics of four wheelers financing & the mechanics of the market. To clear the ideas regarding the extent of loan to be sanctioned as it depends upon various parameters which are taken into consideration while evaluating the finance proposal.

Chapter II Introduction to the Organization Introduction to the Industry Non-Banking Financial Company
Non-Banking Finance Companies (NBFCs) are an integral part of the countrys financial system, catering to a large market of niche customers, and have emerged as one of the major purveyors of retail and SME credit in India. is a heterogeneous group of institutions (other than commercial and co-operative banks) performing financial intermediation in a variety of ways, such as accepting deposits, making loans and advances, providing leasing/hire purchase services, among others.

A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property. A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company (Residuary nonbanking company).

Growth of Indian NBFCs vs. banks

Late 1990s saw a number of non banking finance companies (NBFCs) convert into banks. As per the Reserve Bank of India (RBI), the number of NBFCs in India reduced from 1,429 in March 1998 to 273 in March 2012. Consolidation in the sector and better regulatory framework for NBFCs has helped the entities become more focused. Capital adequacy and NPA norms have ensured that the NBFCs do not repeat past mistakes. The result is for everyone to see. Barring 2009, the NBFCs have outdone banks in terms of loan growth in 4 out of last 5 years. Given their better penetration and project loan approval skills, we will not be surprised if the NBFCs continue to fare better than their banking peers in growth terms.

The numbers on the Indian economy have not been encouraging in recent times. That this year was going to be bad was something everyone was prepared for. But exactly how bad is something no one knew. Even after downgrading the growth estimates several times, the GDP growth was still pegged to be around 6%. Even though this was bad but still it was similar to the growth that we saw in FY12. But now the government has revised the estimate even lower. It now estimates that India's GDP growth in FY13 would be just 5%. Though this is better than the growth rates expected in the developed world, it is still the lowest growth figure in 9 years. Only in FY03 was the growth lower at 4%. Since then India has managed to grow at over 5% every year till now.

The activities carried out by NBFCs in India can be grouped as follows:

NBFC

Fund Based Activities

Fee based Activities

Management

Consulting

Syndication Loans

Contribution of NBFCs in the economy of India

1. 2. 3. 4. 5. 6. 7. 8. Development of sectors like Transport & Infrastructure Substantial employment generation Help & increase wealth creation Broad base economic development Irreplaceable supplement to bank credit in rural segments Major thrust on semi-urban, rural areas & first time buyers / users To finance economically weaker sections Huge contribution to the State exchequer

Commercial Vehicle Industry Overview:

The total commercial vehicle (CV) segment accounts for about only 5 percent of total automobile sales in India. The Indian Commercial Vehicle (CV) Industry is the lifeline of the economy. Approximately 66 percent of the goods and 87 percent of the passenger traffic in the country moves via road. The trends have clearly indicated that the CV demand is closely correlated with GDP growth rate (more strongly with the Index of Industrial Production, IIP) of the country and therefore,

it is believed that a growth or slowdown in CV demand is a harbinger of an upturn or down turn in the economy respectively. The CVs can be classified on the basis of their Gross Vehicular Weight (GVW) as Light Commercial Vehicles (LCV) or Medium & Heavy Commercial Vehicles (M&HCV), with M&HCVs accounting for approximately 58 percent of the total domestic CV sales. The CV industry has evolved tremendously over the years. From the days of traditional all purpose 9 tonner trucks, the industry has moved towards more usage specific vehicles. The developing road infrastructure is giving a push to a modern Hub & Spoke model of distribution of goods, which in turn is changing the kind of vehicles being deployed for goods transportation. The Industry is now witnessing a clear segmentation in demand, with vehicles more than 16.2 tones (M&HCVs & Multi Axle vehicles) being used for transportation on the highways and less than 3.5 tones being used for intra-city or last mile transport. Similarly in case of passenger vehicles there is an increasing demand for luxury buses from the private players unlike earlier when the demand used to be largely driven by the State Transport Undertakings. The CV industry draws its demand from the economy and hence is prone to cyclicality. However, due to Greater versatility of usage, the LCV demand is less cyclical than the M&HCV demand. The growth in volume sales of Commercial vehicle in India has been strong, averaging 11 percent in real terms in the five years ended 2009-10. This compares with 13 percent in the five years ended 2004-05and -3 percent in the five years ended 1999-2000. We expect Indias demand for commercial vehicles to remain strong. Indias stock of commercial vehicles is currently low at six vehicles per thousand people versus 11 for China and 48 for other Asian peers. The gap is expected to narrow down in the coming years in wake of GDP growth and increase in infrastructure spending.

Role of NBFCS in Commercial Vehicle Financing

The NBFC sector has been playing an important role in development of the Road Transport sector. The Banks have not been in a position to deploy more than 3 to 4 per cent of their funds to this sector. Therefore, disbursals to SRTOs (small road transport operators) have not been significant enough to support the Road Transport operators. Bank funding as a percentage of total funding in the commercial vehicle market has therefore not exceeded 25 to 30 per cent in the past. Recoveries have also not matched expectations. Funding SRTOs requires specialised customer evaluation skills and infrastructure that is different from the requirements of typical bank borrowers. The operators are unable to provide necessary documentation and securities required for processing of the disbursal. The purpose of special schemes for SRTOs has been defeated by this inability to conduct business in this segment. Further, recovery management in this also requires special skills and infrastructure. The NBFC sector has grown to fill this void. It has developed necessary focus and the infrastructure to operate successfully in this sector. The high share of funding to this sector reflects this fact. The NBFC sector therefore is in an excellent position to develop this role in the Industry.

Existence of recovery management systems and infrastructure to ensure high collection efficiency. operators due to exclusive focus on this segment. operators. customer service. They are in a position to offer vehicle service packages in addition to funding. This is done jointly with manufactures and dealers.

induct new participants into commercial vehicle operating business by effective utilization of existing database infrastructure.

SHRIRAM TRANSPORT FINANCE COMPANY LIMITED

Introduction

Incorporated in 1979, Shriram Transport Finance Company Limited (STFCL) is the largest Indian asset financing NBFC with a primary focus on financing pre-owned commercial vehicles. The Company has been registered as a deposit-taking NBFC with the RBI. It is a part of the Shriram group of companies which has a strong presence in financial services in India, including commercial vehicle financing, consumer finance, life and general insurance, stock broking, chit funds and distribution of financial products such as life and general insurance products and mutual fund products. STFCL is among the leading financing institutions in the organized sector for the commercial vehicle industry in India for First Time Users and Small Road Transport Orders. It also provides financing for passenger commercial vehicles, multi-utility vehicles, three wheelers and tractors. It has also forayed into the business of providing equipment finance. The Company has a widespread network of 502 branches across India. Its total Asset Under Managementhas grown at a CAGR of 19.74% from 19,607 Crs in March 2008 to Rs. 40,306 Cr as on 31st March 2012. Its Capital Adequacy Ratio stands at 22.26%, which is far more than the RBI requirement of 15.00%. As on 31st March, 2012, its Gross NPAs and Net NPAs stands at 3.14% and 0.45%, respectively.

Vision
STFC was set up with the objective of offering the common man a host of products and services that would be helpful to him on his path to prosperity. Over the decades, the company has achieved significant success in reaching this objective, and has created a tremendous sense of loyalty amongst its customers. Operational efficiency, integrity and a strong focus on catering to the needs of the common man by offering him high quality and cost-effective products & services are the values driving STFC. These core values are deep-rooted within the organisation and have been strongly adhered to over the decades.

STFC prides itself on a perfect understanding of the customer. Each product or service is tailor-made to perfectly suit customer needs. It is this guiding philosophy of putting people first that has brought the company closer to the grassroots, and made it the preferred choice for all the truck financing requirements amongst customers.

COMPANYS COMPETITORS
TATA FINANCE CHOLAMANDALAM CITY FINANCE MAHINDRA FINANCE ICICI FINANCE ASHOK LEYLAND FINANCE SUNDARAM FINANCE

Financial performance:
CRAR (Capital Adequacy Ratio) Net NPV % Profit before tax(in crores) Profit after tax(in crores) Dividend declared in % No. of resional offices No.of Branches No.of Employees Clientele Base (Appr.in lacs) AUM(Asset under manaagement) in crores 20.58% 0.77% 2016.19 1360.62 70 24 539 16178 9.5 49676.01

Regional split of branches

Regional split of branches

east 10% southwest central 18% 11% southeast 28% west 17% north 16%

Overview
We are a part of the "SHRIRAM" conglomerate which has significant presence in financial services viz., commercial vehicle financing business, consumer finance, life and general insurance, stock broking, chit funds and distribution of financial products such as life and general insurance products and units of mutual funds. Apart from these financial services, the group is also present in non-financial services business such as property development, engineering projects and information technology. Our Company was incorporated in the year 1979 and is registered as a Deposit taking NBFC with Reserve Bank of India under section 45IA of the Reserve Bank of India Act ,1934. STFC decided to finance the much neglected Small Truck Owner. Shriram understood the power of 'Aspiration' much before marketing based on 'Aspiration' became fashionable. Shriram started lending to the Small Truck Owner to buy new trucks. But we found a mismatch between the Aspiration and Ability. The Truck Operator was honest but the Equity at his command was not sufficient to support the credit levels required to buy a new truck. We did not have the heart to send the Truck Operator back empty handed; we decided to fund Pre-owned Trucks. This was the most momentous decision that we made. What followed was Sheer magic.

From Driver to Owner, even if only of a Pre-owned Truck and from Pre-owned Truck to the New Truck, we have been with him in his journey of Prosperity as he has been our partner in our road to success and leadership. For us at Shriram, credit-worthiness of the Small Truck Owner has always been an article of faith. This faith has guided our journey from our pioneering days in financing Small Truck Owners to the present day leadership. Today we are not only the leader in Truck Finance; we are also India's largest Asset Based Non-Banking Finance Company. The inability of the economists to capture data relating to the economic activity of the informal sector has resulted in its neglect at the policy-making levels in the government. The distribution of Truck Ownership being scattered among a large number of individuals has resulted in this very important group being missed by the institutional radar.

AWARDS
MUMBAI, October 17, 2012: Shriram Transport Finance Company Limited (STFC), the largest asset financing NBFC in the country, was chosen as the Best NBFC in Asset Backed Lending category at CNBC TV18 Best Bank and Financial Institution Awards 2012 held on October 17, 2012, at the ITC Grand Central, in Parel, Mumbai. Shriram Transport Finance Company is a part of the "SHRIRAM" conglomerate, which has significant presence in financial services, viz., commercial vehicle financing business, consumer finance, life and general insurance, stock broking, chit funds and distribution of financial products such as life and general insurance products and units of mutual funds. Apart from these financial services, the group is also present in non-financial services business such as property development, engineering projects and information technology.

Shriram Transport awarded "Best NBFC" in "Asset Backed Lending" category

Shriram Transport Finance Company Limited (STFC), the largest asset financing NBFC in the country, was chosen as the Best NBFC in Asset Backed Lending category at CNBC TV18 Best Bank and Financial Institution Awards 2012 held on October 17, 2012, at the ITC Grand Central, in Parel, Mumbai. Shriram Transport Finance Company is a part of the "SHRIRAM" conglomerate, which has significant presence in financial services, viz., commercial vehicle financing business, consumer finance, life and general insurance, stock broking, chit funds and distribution of financial products such as life and general insurance products and units of mutual funds. Apart from these financial services, the group is also present in nonfinancial services business such as property development, engineering projects and information technology. Upon receiving the award, Mr. Umesh Revankar, Managing Director, Shriram Transport Finance Company Ltd, said, We are extremely honoured to receive this prestigious award from CNBC TV18. This award signifies the persistent hard work that Shriram Transport Finance Ltd put up in financial inclusion of SRTO and owner driver segment of Indian Road Transport Industry for more than 3 decades. We at STFC are now even more determined to have better penetration and serve this credit starved segment to achieve greater heights in the future.

This distinction was accorded to STFC by a distinguished panel of jurors, including Mr. Jagdish Capoor, former Deputy Governor at the RBI and former chairman of HDFC Bank and of BSE, Mr. A.K. Purwar, Chairman of IndiaVenture Advisors Pvt. Ltd & former chairman of State Bank of India, Mr. H.N. Sinor, CEO, Association of Mutual Funds of India, former CEO, Indian Banks Assn and former MD of ICICI and Mr. M.V. Nair, former Chairman, Union Bank.

SWOT ANALYSIS
Strength:-

Company network in all over India. Company provide quick loan to the customer with minimum interest Minimum document. Quick loan procedure Loan plan according to customer
The largest asset financing NBFC in India Experienced and stable management team institutions and investors

Strong relationships with public, private as well as foreign banks,

Weakness:Company cannot provide loan to personal vehicle. Company cannot provide two wheeler loans.

Opportunity:Company can be entering to the personal vehicle loan business. Company can be entering to two wheeler loan business.

Strong demand for construction equipment Strong demand for passenger CVs Strong demand for pre-owned tractors

Threat: Sometimes company not identifies correctly to the customer not paid loan that time company faces loss.
Maintaining asset quality Regulatory changes in the Non-Banking Financial Company (NBFC) and transportation sectors

Organization Structure

Clearly Demarcated Responsibilities Field Offices: Direct contact points with customer s for vehicle inspection & primary valuation, sales-lead generation, and collection & repossession in the case of default.

Branch Officer: Deciding the credit worthiness of individuals and arranging the necessary documentation SBU Head: Final deciding authority for disbursement

WHAT IS CREDIT APPRISAL?

A loan proposal system is by far the heart procedure, which is security, is given. In this aspect basically the valid extract are taken from the report and the data enables any credit officer to take decision regarding finalization of loan proposal. Credit appraisal system is summary of extracted records. Regarding verification made towards the profile of the applicant. It is presentation of report in suitable format. While easily reflect the eligibility of loan procedure viz tenor eligibility E.M.I. (equated monthly installment) The credit appraisal is done for different purpose they are as follows 1) To know the market for business. 2).To knows the customers financial assistance & experience. 3) To know that whether he is taking the loan from other bank or non-banking financial institution and whether he is able to paying timely to pay installment to satisfy their loan amount taken by particular reasons Thus the appraisal of credit appraisal is very much important for the disbursement of loan and advances. Appraisal also helps to find out his integrity in this project for which customers takes loan his aims and intensions in the customers taking his loan and the purpose for which he is taking loan for which its overall capacity is checked. In short credit appraisal system is an important for the purpose of bank and NBFC (non-banking financial company) and it would not be able to collect the money which is lending to their customers. If that NBFC is not able to collect their installments then that factor is become NPA [non per forming asset] and the goodwill and reputation of the NBFC will be down. The officer, who will be giving sanction to that particular proposal. He must do the proper check & analysis of the

documents after studying all this aspects. He sanctions that particular proposal. CREDIT APPRAISAL - The process by which a lender appraises the creditworthiness of the prospective borrower. This normally involves appraising the borrowers payment history and establishing the quality and sustainability of his income. The lender satisfies himself of the good intentions of the borrower, usually through an interview.

IMPORTANCE OF CREDIT APPRAISAL SYSTEM

Financial institutions and banks are intermediate between lenders and borrowers. These financial intermediaries collect deposit and disburse it as loan and advance to the individual people, business, commercial, industrial entity. The loan and advance should be given to them who have the certain and predicted cash flow to repay the credit. If the manager fails to analyze the clients viability of repaying the loan, possibility of default may arise due to the fact. So the importance of APPRAISAL, in sanctioning the loan, is the key to identify the borrowers ability, expertise, efficiency, industrial analysis & business performance.

RECOVERY OF CREDIT: Appraisal is done to ensure the recovery of the credit along with the good supervision, monitoring and the relationship. In other words, the purpose of appraisal is to be sure that the proposed advance will be safe, liquid, and profitable and for acceptable purpose covered by adequate security.

SAFETY: The most important measure of appraising a loan proposal is safety. Safety means the assurance of repayment of distributed loans. Company is in business to make money but safety should never be sacrificed for profitability. To ensure the safety

of loan, the borrower should be chosen carefully. He should be a person of good character & capacity.

LIQUIDITY: The banker must ensure that the borrower is able to repay the loan on demand or within a short period. This depends upon the nature of assets owned by the borrower & pledged to the company. E.g. goods & commodities are easily marketable while fixed assets like land & buildings can be liquidated after a time interval. Thus, the company regards liquidity as important as safety of the funds & grants loans on the security of assets which are easily marketable without much loss.

PROFIT:Profit is the blood for any commercial institution. Before approval of any loan project, the company authority has to be sure that the proposed project will be a profitable venture.

DIVERSIFICATION OF RISK:During sanctioning any loan, company has to be attentive about diversification of risk. All money must not be disbursed amongst a small number of people. NATIONAL INTEREST & GROWTH: The company would lend if the purpose of the advances can contribute more to the overall economic development of the country.

Significance / Scope of the study:

The Credit Appraisal is a holistic exercise which starts from the time a prospective borrower walks into the branch and culminates in credit delivery and monitoring with the objective of ensuring and maintaining the quality of

lending and managing credit risk. The process of Credit Appraisal is multidimensional and includes Management Appraisal Technical Appraisal Commercial Appraisal Financial Appraisal Economic Appraisal

Management Appraisal has received lot of attention these days as it is one of the long term factors affecting the business of the concern. Technical Appraisal emphasizes on the technical feasibility of the venture and also finds out the possible economic life period of the present technology. Commercial Appraisal focuses on the commercial viability of the project .It tries to find matters regarding demand in market, the acceptance of product in market. It also focuses on the presence of other substitutes of the product in the market. It also focuses on the multiple scope of the product. Financial Appraisal is done to find out whether the promoter is having the capacity to raise finance both own equity and debt? What are the sources of margin? Will the business generate sufficient funds to service the debt and other stakeholders? I s the capital structure optimal? Economic Appraisal examines level of cost/ benefit and IRR (Internal Rate Of Return.) The scope of credit structure is incomplete without examination of credit proposal. Credit proposal has to be examined from the point of 5 Cs viz. Character Capacity Capital Condition Collateral

The Credit Policy of STFC has undergone changes to cope with the environmental changes, tap the available opportunities, achieve their commercial

objective, fulfill social obligations and adhere to mandatory directed lending norms. The credit policy is studied under Coverage, Clientele, Marketing. The STFC has over the years designed and adopted the Best Practices Code. This in effect represents the STFCs philosophy towards effective Corporate Governance. STFC has specialized type of lending known as Segmented Lending in which STFC has set within it specialized branches for focused lending to various segments. This segmented approach is expected to provide both market and customer focus for ensuring better business development, better development of expertise and better customer satisfaction. STFC has also set exposure norms which corresponds to the quantum of finance been credited. These exposure norms are as per the RBI norms and also the banks specific norms. One of the important monitoring aspects in the credit portfolio is the periodic review of advance accounts. The vital decision to deploy the STFC resources should necessarily be based upon the thorough assessment and evaluation of the needs of the borrower. For this, a proper periodical review of any account is inevitable. STFC has introduced Fair Lending Practices Code which helps the STFC to provide professional, efficient, courteous, diligent and speedy services in matter of lending. The Fair Practices Code codifies the procedures to ensure clarity, transparency, timeliness and responsiveness in STFC relationship with the borrower customers at all stages like marketing, processing, sanctioning, monitoring and administration. With the kind of transformation that is taking place in the banking industry and in the country, it is imperative for us to be conscious of our earnings and asset quality. Further, as profit is reward for risk bearing capacity, the spread available in case of high quality assets are thin. With the ushering in an era of liberalization in the economy, new opportunities are available and for a Financial Institute of our size it is important that we realize our market share through better understanding of these development.

Rationale of the study (Justification):

The purpose of this study is to provide a detailed summary of findings from the primary and secondary research in relations to various opinions from literatures, as

well as to evaluate to what extent the research objectives have been achieved. The research limitations, suggestions for further research, and the outcomes from learning experience are also included. The main purpose of conducting the primary and the secondary research lies in Achieving research objectives before discussing the findings, it is important to reaffirm the objectives of study. The objectives of the dissertation are outlined as follows:

To understand and analyses the system followed by the STFC. To understand credit monitoring arrangement data, this is very important part iny the credit appraisal done by the STFC.

Data collected in the primary research was essential and for research objectives. It was a good learning experience where in I got to know about the working of a department in an organization. But the main point of consideration for the Shriram Transport Finance co. ltd is to analyze the risk on the financial part more thoroughly.

Means of research
The research is based upon various types of information, which give knowledge concerning the problem. Now in order to carry on research successfully, information should be gathered from proper source. The more valid is the source of information, the more reliable will be the information received, which in turn, will lead to correct, and reliable conclusion. Kinds of Data: Primary Data:

Primary data are the actual information, which are received by the researcher for study from the actual field of research. These data are obtained by means of questionnaires and schedules. The primary data are the facts there are many more methods of collecting the primary data. Such data are known as primary because the researcher attains them from the field of research directly and for the first time. For this study I had asked queries to the seniors, also gathered information by direct interacting with customers.

Sources of Primary Data: The sources of such information are the individuals and the incidents around them generally; primary source information is gathered through direct observation and interview methods. 1) Direct observation: The primary source of information is direct observation. The method requires that the researcher should personally and directly observes the conditions of his field study. It is the most reliable method for gathering information. I observed many things and got the lots of information. 2) Interview: In an interview, the researcher meets people and discusses the problems with them. During the course of this discussion, he gathers facts. Schedule includes a predetermined form of questions but the interview has not any definite form or order of questions. I have used this method, and discussed many things with the branch manager. Secondary Data: Secondary data are the information, which is attained indirectly. The researcher does not attain them himself or directly. Such data are attained generally from published and unpublished material. It provides information of past which is not possible from any other source? To facilitate the study,

Sources of Secondary Data: 1) Records: Records occupy the most important place among public documents. Most of companies preserve so many types of a record of important information. I used much information from the records. 2) Published data: Published documents include data published by institutions from time to time. I used this data which company published for their customers. 3) Journals and Magazines: Journals and Magazines are important public documents including a variety of information, which can be usefully utilized in research. Most of this information is very much reliable. Letters to the editors published in various magazines and journals are an important source of information. 4) Other documents: Other document mainly include newspapers publish news, discussions on important issues, meetings and conferences. The reliability of this source is very high. Besides it, television public speeches are other important source of information 5) Internet: In todays world of information technology internet is the biggest source of the secondary data. I used internet for finding many data.

Limitations of the study

Difficulty in collection:

It is difficult to collect more important and confidential personal documents. They are rarely recorded and more seldom preserved. They are generally destroyed after a short time.

Reliability of data: It is very difficult to access correctly the reliability of data. There is almost no criterion to judge their validity since they are written from subjective view point.

Difficulty to reach definite conclusion: It is not easily possible to arrive at some conclusions about a problem on the basis of data collected. The data do not represent conditions objectively. Therefore, not much reliable information can be secured through the collected data.

Limitations of time, sample size money: There are limitations of time so we cant measure the trends which are very slow. Due to lack of money and sample size we cant have that much quality data.

Inadequacy of sufficient material: There is great dearth of journals and magazines in different areas in India to publish data concerning various aspects of problem. Even the data is collected; it is seldom published in time. Thus we cant use it for our purpose of research.

DATA ANALYSES

1) Parameter used for credit appraisal

Parameter Technical feasibility

DOCUMENTS Field Investigation, Market value of asset LTV (Loan to Value), IIR Past month bank statements, Asset and liabilities of the applicant

Economic viability Bankability

1) Technical feasibility:

Technical Feasibility Living standard

Locality

Telephonic Verification

Educational Qualification

Political Influence

References

What company is looking for Decent living standard with some tangibles like T.V. & fridge will provide assurance to bank regarding your residential status. Presence of some undesirable elements like local goons or controversial areas adversely affects your loan appraisal process. At least one response is need from person to establish the identity of the person from contact point of view. Not an essential barrier but essential to understand the complex terms & conditions of bank loan. An interesting reference point in the sense that they are one of major category of loan defaulters. To establish the residential identity of person from human contact point of view & cross check of their loans.

2) Economic Feasibility: Economic viability Installment to income ratio

-IIR for salaried cases would be capped at 60% of Net income in general -Pension Income cases IIR to be restricted to 40%a FIOR kept at 55% LTV amount to 80%

Fixed obligation to income ratio Loan to cost ratio

3) Bankability:

Parameter Bank Statements

Norms 6 months bank statements need to be furnished.

Business continuity proof Credit interview

Two year IT returns made compulsory. For the big loan amount credit interview is necessary.

Profile of customer

Security

Ownership title

Salaried professionals get an edge over business income people. Asset of value equal to or more than loan amount taken has to be put as pledge or collateral. To be on the name or blood relative of applicant.

Checkpoints To check the average amount client is maintaining in the account is sufficient to pay the installment amount or not. To enquire primary source of income. To check the general attitude of customer along with efforts are put in to understand their needs better. Secured source of income give them a edge. To safeguard bank interest against any future default.

To establish the ownership claim of the loan applicant

5 Cs of Credit:

Character

Capital

Credit Apprasial

Capacity

Collateral

Conditions

1) Character: It refers to the honesty and integrity of the person. Borrowers are not necessarily reliable or honest and the lender must look for evidence of good character, if it exists. Frequently, this can be ascertained during an interview. The lender must, however, be sure to make his own assessment and not rely on the decision of an existing lender, or similarly on a key individual in the company so called name lending. 2) Capacity: It refers to the actual ability of the borrower to enter into a contract with the lender. It relates to the technical, managerial and financial means. It also refers to how the

company monitors and manages its risks and the suitability of the assets in the company to generate sufficient levels of cash to repay the loan. 3) Capital: Capital refers to the investment or the stake that the borrower has in the firm. This is important to understand the capability of the individual. It is important for analysis as it determines how well the firm is capitalized and does the borrower has reasonable stake or he is willing to let it go down the tubes and walk away from the obligations. 4) Collateral: It analysis other potential sources of repayment of the obligations if these are supported by collateral security. Typically the amount of security required will depend on the type of business enterprise and the circumstances. 5) Conditions: It discusses the competitive environment of the firm and how well the firm fits in. It also considers any economic event that will affect the repayment ability of the firm and also the purpose for which the loan is required.