TITLE OF THE PROJECT

Study of various loan operation techniques rendered by the

bank in the Priority Sector and to review and assess these
technique through appraisal

A report submitted towards the partial fulfilment of the

requirement of the two years full-time Post Graduate Program
in Management.

Submitted by: Nitesh Sarkar

Programe PGPM

Roll. No. C-25

(Session) 2009-011
 ACKNOWLEDGEMENT

I would like to express the deepest appreciation to my committee

chair person of our Branch, Mr. G. N. Jannawar (A.G.M) & Mr. P. T.
Fulmali (Chief Manager) , who introduced me to the project, and
whose enthusiasm for the “underlying structures” had lasting effect in
the operation of my project.

In addition, a thank you to Sarang A. Zanzad (Sr. Manager

Credit), who has the attitude and the substance of a genius. He
continually and convincingly conveyed a spirit of adventure in regard
to research and scholarship, and an excitement in regard to teaching.
Without his guidance and persistent help this dissertation would not
have been possible. He is responsible for involving me in achieving
the project. His overall global affairs supported by an “engagement”
in comparative literature and modern technology should always
transcend academia and provide a quest for our times. I would like to
thank my committee members of the credit department, Mr. Ramesh
Shripad and Mrs. Anamika Deshkar and other members, whose
work demonstrated to me that concern for the practical assessment
of the topic.

I also thankful to the members of the operational department in

charge Mr. Prakash Shamkawar and his team for providing me
proper guideline where ever necessary and who as mirror advisor
guided me virtually through their article of their respective
departments.
 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
wonderful study.

This acknowledgment cannot be completed without mentioning

my heartfelt gratitude to our Professor Mr. Ramnarayan being my
faculty guide, whose vital encouragement and support was there in
every step of my training. He gave me confidence to complete my
project and made me understand every step of the project. He guided
me constantly during all the phases of the project and corrected me
whenever I was wrong in the project work. He has made the
completion of the project possible; I do not have words to express my
gratitude to him.
Lastly, I would like to thank my parents, friends and colleague,
who were there with me throughout the project building my
confidence.

Sincerely,

Nitesh Sarkar
 DECLARATION

I hereby declare that the project entitled “ Study of various loan

operation techniques rendered by the bank in the Priority Sector
and to review and assess these technique through appraisal.”
submitted by me in partial fulfillment towards the requirement of the
award of Post Graduate Program in Management, New Delhi (full
time), is my original work and the project has not been previously
used for the award of any degree, associate-ship, fellowship or any
other similar titles.

Nitesh Sarkar

Signature of the Student:

Place: Nagpur.
Date: 5 June, 2010
 TABLE OF CONTENT

Chapter no. Description Page no.

1. Introduction 01 - 35
Company Profile
Title of the Project
Rationale of Study
2. Review of Literature 36 - 43
3. Research Methodology 44 - 48
4. Analysis & Observation 49 - 84

5. Recommendations 85 - 86
6. Conclusion 87
7. Abbreviations 88
8. Appendices 89 - 92
9. Annexure 93 - 95
10. Bibliography 96
 PREFACE

I have great satisfaction in introducing this nationwide evaluation

study of the functioning of the Financial Institution/ Bank, the Union
Bank of India. The Indian economy, after exhibiting strong growth
during the second quarter of 2008-09, has experienced moderation in
the wake of the global economic slowdown. Although agricultural
outlook remains satisfactory, industrial growth has decelerated
sharply and services sector is slowing. The economic slowdown,
during the second quarter vis-a-vis the first quarter of 2008-09, was
primarily driven by a moderation of consumption growth and
widening of trade deficit, offset partially by an acceleration in
investment demand. So the Reserve Bank swiftly initiated a series of
measures, which helped to assuage liquidity conditions, while
reassuring the market that the Indian banking system continued to be
safe and sound, well capitalized and well regulated. Keeping in view
the slowdown in industry and services and with the assumption of
normal agricultural production, it became necessary for the study of
the appraisal, that how the concerning FI’s can overcome this
situation. In many ways, it is one of those rare efforts which is marked
by a complete understanding the purpose and objectives among all
collaborating agencies.
The study, which has been conducted and completed within a
recorded time of two months, including an excellent example of
cooperative endeavors among a number of institutions and
organizations. It was ambitious to undertake such a evaluation study
as it encompasses various theoretical & practical implementation of
financialh terminologies.

UBI, Nagpur Nitesh Sarkar

5th June, 2010
 EXECUTIVE SUMMARY

The Project aims to bring the establishment of various steps and

mechanism by the Institution. It encompasses the initiative taken by
the institution in the field of banking. This would govern all credit and
credit related exposures, Fund based as well as Non-Fund based
and prescribe acceptance criteria for all forms of credit dispensation.

The study reveals that Financial Institutions/banks are emerging

as a recommended retail format, it suggests that where as apparels
are the most income generating area, where is the most foot fall is
generated at the option of exercising all the major options of providing
services of the needy. It also shows the relative importance towards
the overall growth of the economy.
 CHAPTER- 1

INTRODUCTION
ABOUT UNION BANK OF INDIA:

! Union Bank of India was originally incorporated on November 11,

1919 in Mumbai as the “The Union Bank of India Limited” under
the Companies Act, 1913.

! The Bank was brought into existence by the Ordinance issued on

10th July 1969, by the Central Government. The dawn of twentieth
century witnesses the birth of a banking enterprise par excellence-
UNION BANK OF INDIA- that was flagged off by none other than the
Father of the Nation, Mahatma Gandhi.

! Since that the golden moment, Union Bank of India has this far
unflinchingly traveled the arduous road to successful banking........ a
journey that spans 90 years. We at Union Bank of India, reiterate the
objective of our inception to the profound thoughts of the great
Mahatma... "We should have the ability to carry on a big bank, to
manage efficiently crores of rupees in the course of our national
activities. Though we have not many banks amongst us, it does not
follow that we are not capable of efficiently managing crores and tens of
crores of rupees."

! Union Bank of India is firmly committed to consolidating and

maintaining its identity as a leading, innovative commercial Bank,
with a proactive approach to the changing needs of the society. This
has resulted in a wide gamut of products and services, made
available to its valuable clientele in catering to the smallest of their
needs. Today, with its efficient, value-added services, sustained
growth, consistent profitability and development of new technologies,
Union Bank has ensured complete customer delight, living up to its
image of, “GOOD PEOPLE TO BANK WITH”. Anticipative banking
the ability to gauge the customer's needs well ahead of real-time

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forms the vital ingredient in value-based services to effectively
reduce the gap between expectations and deliverables.

! The key to the success of any organization view with its people.
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 discerning customer with professionalism & wholeheartedness.

! Union Bank is a Public Sector Unit with 55.43% Share Capital held
by the Government of India. The Bank came out with its Initial Public
Offer (IPO) in August 20, 2002 and Follow on Public Offer in February
2006. Presently 44.57 % of Share Capital is presently held by
Institutions, Individuals and Others.

! Over the years, the Bank has earned the reputation of being a
techno-savvy and is a front runner among public sector banks in
modern-day banking trends. It is one of the pioneer public sector
banks, which launched Core Banking Solution in 2002. Under this
solution umbrella, all Branches of the Bank have been 1135
networked ATMs, with online Tele-banking facility made available to
all its Core Banking Customers - individual as well as corporate. In
addition to this, the versatile Internet Banking provides extensive
information pertaining to accounts and facets of banking. Regular
banking services apart, the customer can also avail of a variety of
other value-added services like Cash Management Service,
Insurance, Mutual Funds and DEMAT.

! In the year 2007, UBI opened representative offices in Abu Dhabi,

United Arab Emirates, and Shanghai, Peoples Republic of China. In
2008, UBI opened a branch in Hong Kong, its first branch outside
India. In Dec 2009, UBI opened a representative office in Sydney.

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BOARD OF DIRECTORS

SHRI M.V.NAIR
Chairman & SHRI T Y PRABHU
Managing Director Executive Director

SHRI S. RAMAN SHRI K. V. EAPEN

Executive Director Government of India Nominee

SHRI K. SIVARAMAN SHRI N. SHANKAR

(Government of India Workmen Director
nominee on the (Director representing
recommendation of RBI) Workmen Employees)

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 SHRI ASHOK SINGH DR. GULFAM MUJIBI
Government Nominee Director Part-time non-offi cial Director
under General Category

PROF. M.S. SRIRAM SHRI K.S. SREENIVASAN

(Shareholder Director)

NEW INITIATIVES:
Rural Development and Self Employment Training Institute
(RUDSETI)
Formation of Farmers' Clubs
Introduction of Village Knowledge Centres
100% Banking Habit Villages
Bhumiheen Green Card
Joint Liability Groups
Union General Credit Card
"No Frills" Account
"Union Mitr”

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INDUSTRY PROFILE
THE VISION STATEMENT

The Vision Statement

To become the banks of first choice
in our chosen areas
by building beneficial
and lasting relationship
with customers through a process
of continuous improvement.

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 CORPORATE MISSION:
! A logical extension of the Vision Statement is the Mission of the
Bank, which is to gain market recognition in the chosen areas.

! To build a sizeable market share in each of the chosen areas of

business through effective strategies in terms of pricing, product

packaging and promoting the product

in the market.

! To facilitate a process of
restructuring of branches to support a
greater efficiency in the retail banking
field.

! To sustain the mission objective

through harnessing technology driven banking and delivery
channels.

! To promote confidence and commitment among the staff

members, to address the expectations of the customers efficiently
and handle technology banking with ease.

ORGANIZATIONAL STRUCTURE:

! List Of Regional Offices Bank has a lean three-tier structure. The

delegated powers have been enhanced. The decentralized power
structure has accelerated decision making process and thereby
Bank quickly responds to changing needs of the customers and has
also been able to adjust with the changing environment.

! There are total 2860 CBS branches including 65 extension

counters all over INDIA.

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! There are total 55 RO located in
different regions all over INDIA.

! There are total 17 FGMO offices

(Retail Mart) located in different
regions all over INDIA including 32
Union Loan Point.
! There are in all 2123 ATMs machines provided as service by the
Union Bank of India.

OUR TRAINING SYSTEM

Union bank has one of the best training systems in India. The
training experience here goes back to over four decades. Presently
the training structure consists of the Staff College at Bangalore, and
seven centers in various parts of the country. The training is
designed, delivered and assessed, based on systems suggested
and put in place by our overseas consultants M/s. Vinstar Limited
(AGL Group) of New Zealand.

The Programs
Currently the College is running training programs in the
following disciplines:

1.International Banking

2.Credit

3.Information Technology

4.General Banking

5.Marketing and

6.Management and human resource development.

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 OUR COMPETITORS:

State Bank of India & Associates Bank of India

Punjab National Bank Bank Of Baroda

Bank Of Maharashtra Indian Bank

Allahabad Bank Central Bank Of India

Oriental Bank Of Commerce Canara Bank

Dena Bank Syndicate Bank

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Indian Overseas Bank Punjab and Sind Bank

UCO Bank United Bank of India

Vijaya Bank Repco bank

Axis Bank ICICI Bank

HDFC Bank ING Vysya Bank

Yes Bank IDBI bank

Corporation Bank IndusInd Bank

Federal Bank Kotak Mahindra Bank

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 AWARDS AND REWARDS:

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
Maharastra, Shri K. Sankaranarayan.

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.

The Union Bank of India won the Asian Banker Technology

Implementation Awards 2008 for their HR systems.

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 NASSCOM Awarded Union Bank of
India “The Best IT User Award 2006” under
Banking and Financial Services Industry
category for its software project for Clearing
House Operations at Pune.
Union Bank of India has been awarded
the Golden Peacock National Training
Award for 1998. The award, which has been
instituted by the Institute of Directors
(IOD), Delhi, has been given for the category
'training provider'
Union Bank of India has won Rajbhasha Shield Competition for
the year 2006-07. The award was introduced Reserve Bank of India
for promotion of national language Hindi in public sector banks and
other financial institutes run by government of India.

FINANCIAL RESULTS:
FY- 2010
! Total Business increased from Rs. 236968 Cr. to Rs. 291289 Cr.
an increase of 22.92%

!Total Deposits registered impressive growth of 22.59 % and

progressed from Rs. 138703 Cr . To Rs. 170040 cr.

!CASA Deposits have increased substantially from Rs. 41711 Cr. to

Rs. 53957 Cr. growth of 29.36 %

!Gross Advances have increased from Rs. 98265 Cr. To Rs.

121249 Cr. an increase of 23.39%

FY- 2009
! Total Business increased from Rs. 179737 Cr. to Rs236968 Cr. an
increase of 31.84 %

! Total Deposits increased by an impressive from Rs. 103859 to Rs.

138703 crore increase of 33.55%.

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! Core Deposits grew from Rs. 85739 Cr. to Rs.124103 Cr. an
impressive growth of 44.75%

! Gross Advances have increased from Rs.75878 Cr.to Rs. 98265

Cr. an increase of 29.50%

! Net Interest Income has increased from Rs. 2853 Cr. to Rs. 3813
Cr. An increase of 33.65%

FY- 2008
! Net Profits crossed Rs 1000 crs to reach Rs 1387 crs for FY 08, an
impressive growth of 64.14%

! Bank's Core deposits grew by 28.59% YoY to Rs 85739 crs

! Net NPA % declined substantially to 0.17% from 0.96%
! Cost to Income ratio of the Bank further reduced to38.17%,
among the lowest in the Industry

!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.

FINANCIAL HIGHLIGHTS:
Business Growth
! Domestic Business mix of the Bank has registered growth of
22.33% (y-o-y) to Rs.287942 Crore as on 31st March'10 from Rs
235376 crore as on 31st March'09.

!Global Business mix of the Bank registered growth of 22.92% YoY

to Rs 291289 Crore as of 31st March'10

Key Financials
! The Bank recorded a quarterly Operating profit of Rs.1148 crs for
Q410 as against Rs. 912 Crs for Q409 registering increase of
25.88%.

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! Net Profit increased from Rs. 466 crore to Rs 594 crore registering
a growth of 27.47% QoQ.

! Net Interest Margin (NIM) for quarter ended 31st March'10 is at

3.39% as against 2.69% in the corresponding period of the previous
year.

! Capital Adequacy as per Basel II stood at 12.51% as of 31st

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
March'10 from Rs. 6964 crs as of March 09 due to plough back of
profits.

! Return on Average Assets (RoAA) was at 1.25% as on 31st

March'10 as against 1.27%. On a quarterly basis, Return on Average
Assets has improved to 1.34% for quarter ended 31st March'10 as
against 1.25% in the corresponding period of the previous year.

Asset Quality
! The Net NPAs of the Bank marginally increased from 0.34% as on
31st March'09 to 0.81% as on 31st March'10. Gross NPAs has also
increased to 2.20% from 1.96% in the previous year.

! Gross NPA level increased to Rs.2671 crore as on 31st March'10

from Rs.1923 crore as on 31st March'09. Net NPAs increased in
absolute terms from Rs.326 crore as on 31st March'09 to Rs. 965
crore as on 31st March'10.

! NPA provision coverage was at 74.02% as on 31st March'10 as

against 87.48% in the previous year.

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 OUR PRODUCTS & SERVICES:
(1) Government Business
(i) 8% Saving (Taxable) Bonds 2003
(ii) Public Provident Fund
(iii) Direct Tax Collection
(iv) Central Excise & Service Tax
(v) Senior Citizen Saving Scheme

(2) Social Banking & Financial Inclusion

(i) Agriculture - Greening Farm lands
(ii) SME
(iii) Other schemes - Fulfilling social responsibility
(iv) Other Sectors- Education, Housing
or Trade, grow with us for sure
(iv) New initiatives - For rural growth and
development
(3) Village Knowledge Center (VKC)
Village Knowledge Centres serve as
information dissemination centre providing
instant access to farmers to latest
information/ knowledge available in the field
of agriculture, starting from crop production to
marketing. Every VKC is manned by a “VKC
In-charge” who looks after the operations of
the VKC.

(4) PM minority Welfare Scheme

Government of India has recently launched the 'Prime
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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 An important objective of the programme
is to ensure that the appropriate percentage of
the Priority Sector Lending is targeted for the
Minority Communities and the benefits of the
various Government sponsored schemes for
the under privileged reach the disadvantaged
sections of the Minority Communities.

(5) Insurance
(i) Life Insurance
(ii) Non- Life Insurance
(iii) Union Health Care - Group Medi-claim Floater Policy

(6) Mutual Fund

Mutual funds are funds that pool the
money of several investors to invest in equity
or debt markets. Mutual Funds could be
Equity funds, Debt funds or balanced funds.

(7) Union Gold

(8) e-banking password

(9) Money Transfer

(i) National Electronic Funds Transfer (NEFT)
(ii) Real Time Gross Settlement (RTGS)
(iii) Electronic Clearing Service (ECS)

(10) Other Services

(i) Quick Outstation Cheque for Collection
(ii) Multi-city Cheque Book
(iii) Speed Clearing

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 (11) Our Products
Credit Card International Debit Card
Ashiana Suraksha Union e-Remit
Union Life Guard Online Tax Payment
Union Bullet DGFT Online
Union DEMAT Call Centre
Kisan ATM Railway e-tickets kiosk

WHAT MAKES UBI DIFFERENT:

! First major bank to complete 100% Core Baking Solution
! Offer all five channels for Banking Transactions i.e. Branch ,ATM,
Internet , Phone and Mobile Banking.

! Continuous Profit making Bank.

! Introduction of "Nav Nirman "transformation process” which could
enable the Bank to grow higher than banking Industry with greater
efficiency

PAN India Presence Well Diversified Portfolio

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 HIGHLIGHTS INITIATIVES TAKEN
BY THE
BANK FOR SUPERIOR EXPERIENCE

100% CBS at more than 2752 branches.

Implementation of CBS in both RRBs at Rewa & Kashi.

More than 2200 ATMs at various location.

First Bank to introduce Mobile Banking.

High-tech Call Centre at Mumbai with support of Hindi, English, and

seven regional languages.

Customized cheque book for all the customers through CBO’s.

Insurance of statement of accounts through CBO’s

Centralized ECS system.

Introduction of Speed Clearing System

Centralized Pension Processing Center at Mumbai.

Internet Bankding facility with links to IRCTC, Bill Pay, Taxes &
Incurrence Premium payment gateways.

RTGS & NEFT facility through internet banking.

Online Grievance Redressal System for speedy redressal of

grievances.

Online Product application for education and Housing banking.

Self- creation of E-banking password.

ASBA (application supported by blocked amount) for retail investors

through internet banking and our branches.

Online trading facility with Sharekhan, IDBI, Emkay & Religare.

Online tax payment facility for various Central & State Govt. Taxes.

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Offering Government produces like New Pension scheme, PPF and
Senior Citizen Bonds.

Online Donation.

SMS Alerts for transaction through credits cards.

More than 200 village Knoledge Centers.

RUSETI (Rural Development and Self Employment Training

Institute)

Privilege Customer’s Lounge.

Lobby Banking.

Introduction of New SB passbook with more features.

Auto indent of cheque Book.

Unique Ready kit for NRI Clients

Centralized A/c Opening for NRI customers.

Posting of Customer Relation Managers at overseas centers.

Lead Management System for quick response to customer’s request.

CONTACT US
Head Office
Union Bank of India
239 Vidhan Bhavan Marg,
Central Office, Nariman Point, Mumbai -21.

Fax: +91 22 22043654

Email: internetbanking@unionbankofindia.com
Website: http://unionbankofindia.co.in/
Toll free number: 1800 2222 44
For NRI customers: +91 22 25719600

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INTRODUCTION TO
THE TOPIC
 LOAN APPRAISAL
A Glance at Loan Appraisal:
A Loan appraisal is a request/application for loan/funds on credit
evaluated on its merits by a bank/funder/funding institution etc.
Among others aspects, the purpose of loan, genuineness of its need,
its quantum, borrowers repayment capacity, security etc are
assessed on some parameters before loan is actually granted.

An appraisal is the valuation of an object by someone well-qualified

or authorized to make such an assessment. For example, a home
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.

A loan appraisal is a service performed, by an appraiser, that

develops an opinion of value based upon the highest and best use of
real property.
The highest and best use is that use
which produces the highest possible
value for the property.

An appraisal is a thought process

leading to an opinion of value.
This opinion or estimate is arrived at through a formal process that
typically uses the ‘'common approaches to value''.

Loan Appraisal Process:

Application: Borrowers would be required to submit a prescribed
application form along-with Detailed Project Report and the audited
financial statements for the previous three financial years.

Eligible Borrowers: Individuals in the age group of 18-60 years of

age owning residential/ commercial property (land/plot/ building) and
who are Income-Tax assesses, HUF, Urban Local Bodies
(Corporations, Municipalities and Town Panchayats) and the
Statutory Boards. In the case of Union Trade All Retail Traders all

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Wholesale Traders including Supermarkets, Malls, Departmental
Stores, dealers in groceries, consumer durables, co-operative stores
Service traders like, restaurants, entertainment etc. maintaining
required quantum of stock and/or book debts Scheme borrower
should be in possession of registration / licences as applicable under
local law: - Shop Establishments Act. Sales Tax Registration, Drug
Licences for Retail Trade, Ration & Civil supplies, Licence to deal in
petroleum products/LPG.For private sector borrowers, the following
norms would be applied:
! Current Ratio should be < 1.17 : 1 (1.1 is acceptable)
! Debt Equity Ratio (Total outside Liability / Total Net Worth) should
be > 4:1
! DSCR (Profit Before Depreciation and Interest / Debt Service)
should be > 1.5
In addition, all the borrowers should have the institutional capacity to
implement the project and to operate and maintain the constructed
facilities in a satisfactory manner.
Ineligible Borrowers: Borrowers for who becomes a NPA will
not be eligible for further loans.

Lending Criteria: An inspection report is prepared of the borrower

on his securities, credit report of the borrower is prepared, pre and
post sanction report is prepared, proposal for sanction/ renewal/
extension/ modification report is prepared and placed before the
competent higher authorities, sanction advice is made and if the
borrower if found to positive limit can be provided by the bank.

Security: Security will be the assets to be financed by loan and its

revenue. Mortgage of the primary assets is done and the collateral
security of secondary assets are also mortgaged in addition to it. The
function of a property appraisal is to evaluate the current market
value and overall condition of a property. Should the property
appraisal be less than the mortgage balance, it is likely that a loan
modification will not be approved.

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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
would be linked to implementation schedules.

Lending Terms: The rate of interest on loans shall be decided

based on the cost of funds and the further Loan policy of the bank.

Loan Agreement: On accepting the loan sanction conditions, loan

agreement has to be executed.

Disbursement: Disbursement will be made based on the fulfillment

of the disbursement conditions and progress of the project. UBI
would reserve its right to suspend / cancel the loans, if during course
of project implementation there are serious violations of the sanction /
disbursement conditions.

Monitoring: All borrowers would be required to submit quarterly

progress reports (including quarterly funds requirements) indicating
physical and financial milestones targeted (Financial Statement &
Stock statement) and achieved (details are provided in the Credit
Monitoring Policy)

Post Evaluation: After the projects are completed, a post evaluation

report stating the cost to completion, cost and time over run, benefits,
financial ratios, technical / social parameters achieved by the project
would be prepared in the format prescribed.

A loan modification is an option provided to borrowers undergoing a

temporary financial hardship that allows them to avoid foreclosure
and get caught up on payments. Different types of loan modifications
require different steps, and many require a property appraisal.

Working Capital Finance:

Union Bank of India offers working capital finance to meet the
entire range of short-term fund requirements that arise within a
corporate’s day-to-day operational cycle.

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 The UBI working capital loans can help company in financing
inventories, managing internal cash flows, supporting supply chains,
funding production and marketing operations, providing cash support
to business expansion and carrying current assets.

UBI’s working finance products comprise a spectrum of funded and

non-funded facilities ranging from cash credit to structured loans, to
meet the different demands from all segments of industry, trade and
the services sector. Funded facilities include cash credit, demand
loan and bill discounting. Non- funded instruments comprise letters
of credit (inland and overseas) as well as bank guarantees
(performance and financial) to cover advance payments, bid bonds
etc. Lending continues to be a primary function in banking. In the
liberalized Indian economy, clientele have a wide choice. External
Commercial Borrowing and the domestic capital markets compete
with banks. In another dimension, retail lending- both personal
advances and SME advances- competes with corporate lending for
funds and for human resources. But lending by nature cannot be an
aggressive selling activity, disregarding the risks involved. Bank has
to be competitive without compromising on the basic integrity of
lending. The quality of the Bank’s credit portfolio has a direct and
deep impact on the Bank’s profitability

Term Loan:
A term loan is a generally termed as the retail loan sector in bank. A
bank loan to a company, with a fixed maturity and often featuring
amortization (gradual elimination of a liability) of principal. If this loan
is in the form of a line of credit, the funds are drawn down shortly after
the agreement is signed. Otherwise, the borrower usually uses the
funds from the loan soon after they become available. Bank term
loans are very a common kind of lending. A loan which is repaid
through regular periodic payments.

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 Asset based short-term (usually for one to five years) loan payable
in a fixed number of equal installments over the term of the loan. Term
loans are generally provided as working capital for acquiring income
producing assets (machinery, equipment, inventory) that generate the
cash flows for repayment of the loan. It is also in general provided as
retail (car, home, education)

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,
quarterly, or annually, as required by the lender, ut the principal is not
due until maturity. Term loans of short duration, usually less than one
year, may be set up as single pay loans. In that case, principal and all
accrued interest are paid at maturity.

Cash Credit Loan:

A cash credit loan is a type of short term loan meant for businesses.
It encompasses all the advantages offered under a standard line of
credit. The term period of a cash credit loan is up to one year.
Businessmen can opt for this loan to fulfill the financial requirements
of a particular project or to boost growth. A cash credit loan can open a
liberal credit avenue for businessmen if they are successful in
receiving it and pay it off timely.

Cash credit is a type of financing that works in a manner similar to a

line of credit. The difference is that a cash account is established with
the lending institution and the borrower can access it as a normal
account. Moreover, you receive the entire amount of the loan at once,
which may not be the case in a conventional loan. Whether the
borrower uses the cash credit actively or not, there is no impact on the
repayment schedule.

Any bank or finance lending institution offering cash credit loans

requires the borrower to provide some form of security for the loan.
The collateral rights are transferred to the lender, who can access it till
the full payment of the loan. The borrower can continue to draw from
the bank up to the predetermined limit.

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 Apart from letting you fulfill the urgent requirement of cash, a cash
credit loan helps you establish long-term business relations with a
lender. This enables you to take advantage of various assistance
programs offered by your lender.

Letter of Credit:
A standard, commercial letter of credit is a document issued mostly
by a financial institution, used primarily in trade finance, which usually
provides an irrevocable payment undertaking.

The letter of credit can also be source of payment for a transaction,

meaning that redeeming the letter of credit will pay an exporter.

Letters of credit are used primarily in international trade

transactions and for domestic trade of significant value, for deals
between a supplier in one country and a customer in another or within
the country.

The parties to a letter of credit are usually a beneficiary who is to

receive the money, the issuing bank of whom the applicant is a client,
and the advising bank of whom the beneficiary is a client. Almost all
letters of credit are irrevocable, i.e., cannot be amended or cancelled
without prior agreement of the beneficiary, the issuing bank and the
confirming bank, if any.

In executing a transaction, letters of credit incorporate functions

common to cheques. Typically, the documents a beneficiary has to
present in order to receive payment include a commercial invoice, bill
of lading, and documents proving the shipment was insured against
loss or damage in transit. However, the list and form of documents is
open to imagination and negotiation and might contain requirements
to present documents issued by a neutral third party evidencing the
quality of the goods shipped, or their place of origin.

Let us see, how a LC works. A business of XNIL (trade) from time to

time imports goods from a business called RIL (say), with the ICICI

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Bank. XNIL holds an account at the UBI Bank. XNIL wants to buy Rs.
500,000 worth of merchandise from RIL, who agrees to sell the goods
and give XNIL (60 days to pay for them), on the condition that they are
provided with a 90-day letter of credit for the full amount. The steps to
get the letter of credit would be as follows:

! RNIL goes to the UBI Bank and requests a Rs. 500,000 letter of
credit, with RIL as the beneficiary.

! The UBI Bank can issue a letter of credit either on approval of a

standard loan underwriting process or by XNIL funding it directly with
a deposit (FDR) of $Rs. 500,000 plus fees which are typically
between 1% and 8% of the face value of the letter of credit.

! The UBI Bank sends a copy of the letter of credit to the ICICI 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.

! On presentation of the stipulated documents in the letter of credit

and compliance with the terms and conditions of the letter of credit,
the UBI Bank transfers the $500,000 to the ICICI Bank, which then
credits the account of RIL for that amount.

Note: that banks deal only with documents required in the letter of
credit and not the underlying transaction.

A letter of credit being an irrevocable undertaking of the issuing

bank makes available the Proceeds, to the Beneficiary of the Credit
provided, stipulated documents strictly complying with the provisions
of the letter of credit, then:

! If the Credit provides for sight payment by payment at sight

against compliant presentation

! If the Credit provides for deferred payment by payment on the

maturity date(s) determinable in accordance with the stipulations of
the Credit; and of course undertaking to pay on due date and
confirming maturity date at the time of compliant presentation.

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! If the Credit provides for acceptance by the Issuing Bank by
acceptance of Draft(s) drawn by the Beneficiary on the Issuing Bank
and payment at maturity of such tenor draft.

! If the Credit provides for acceptance by another drawee bank

by acceptance and payment at maturity Draft(s)drawn by the
Beneficiary on the Issuing Bank in the event the drawee bank
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
maturity.

!If the Credit provides for negotiation by another bank by payment

without recourse to drawers and/or bona fide holders, Draft(s) drawn
by the Beneficiary and/or document(s) presented under the Credit,
(and so negotiated by the nominated bank)

Bank Guarantee
Letter of guarantee or popularly known as Bank Guarantee is a
form of indemnity letter issued by bank on behalf of its client, whereby
the bank promises to indemnify the beneficiary in the event of default
of its client. The most commonly used Bgs in any form of trade
(Domestic or International) are either the financial letter of guarantee
or Performance letter of guarantee.
A bank guarantee, like a line
of credit, guarantees a sum of
money to a beneficiary. Unlike a
line of credit, the sum is only paid
if the opposing party does not
fulfill the stipulated obligations
under the contract. This can be
used to essentially insure a buyer
or seller from loss or damage due
to nonperformance by the other
party in a contract.

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 An indemnity letter in which the bank commits itself to pay a
certain sum if a third party fails to perform or if any other form of
default occurs. One use is when a bank wants a carrier to release a
shipment which it has financed but the original bills of lading are not
yet available for surrender to the carrier.
A bank guarantee might be used when a buyer obtains goods
from a seller then runs into cash flow difficulties and can't pay the
seller. The bank guarantee would pay an agreed-upon sum to the
seller. Similarly, if the supplier was unable to provide the goods, the
bank would then pay the purchaser the agreed-upon sum.
Essentially, the bank guarantee acts as a safety measure for the
opposing party in the transaction.

The Bank Guarantees can be of varied nature depending on their

usage, the most commonly used Bank Guarantees in domestic/
international trade are as mentioned below:

! Bid Bond Guarantee: Such a BG is basically used in projects

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
allotted. The same can later be treated as Performance Guarantee if
in case the work is allotted.

! Advance Payment Guarantee: Such a BG if used wherein the

employer / principal of the contract agrees to pay a portion of total
contracted value in advance. In lieu of the advance the employer /
principal of the contract asks for a guarantee from the contractor to
ensure that the commitment would be honored. Contractor then
approached the bank for issue of Bank Guarantee in favor of the
employer. Such a BG is equivalent to the amount of advance given.

! Performance Guarantee: A guarantee given by the seller to the

buyer to honor any claims by the buyer on seller in case of default in
delivery or performance of the goods or work executed.

! Shipping Guarantee: A shipping guarantee is used by the buyer

to be given to the customs. In case where the goods reach the
destination before the bill of lading the customs ask for such a

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Guarantee before releasing of the goods. Such a guarantee secures
the claim of the customs against the buyer if in case the Bill of lading is
not submitted with the allotted time frame.

! Retention money Guarantee: After execution of the work, the

employer usually retains back certain percentage of the value of total
work executed as security for quality of the work performed. This may
vary from contract to contract but is usually in range of 5-10% of the
contract value. The contractor can get this money released by way of
providing a bank guarantee for equivalent amount to employer. This
guarantee is known as Retention money Guarantee.

Bank Guarantees are issued through the financial institutions

mostly a Bank. Before issuing such an instrument the bank takes care
of its own interest in the event of invocation of such an instrument.
Further commission earned on issuance of bank guarantees forms
an important part of banking industry's revenue.

The Bank Guarantee can be issued in three ways:

! Backed by Cash Margin: This is the simplest way of getting a BG

issued from a bank. In case of domestic BG, bank seeks a cash
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%
depending from bank to bank. The additional margin kept in case of
foreign BG is to take care of currency rates fluctuations.

! Through Credit Lines: As compared to the Cash margin this is

most desired way of getting a BG issued though such a facility is not
available to every client. In such a case a bank opens a credit line for
BG in the name of client on the basis of credit appraisal and collateral
securities. Unlike the first option here client is required to pay lesser
cash margin for the BG. The cash margin can range from 10% to 25%
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
within his system as he is required to take out lesser cash out of the
business for a BG.

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! Backed by Counter Guarantee: This is just like that of BG
issued backed by cash margin. Security here is the counter
guarantee of another financial institution in place of Fixed Deposits.
Such a facility is subject to approval of credit of the bank issuing the
BG.

PRIORITY SECTOR:
The broad categories of priority sector for RRBs are as under:
(I) Agriculture (Direct and Indirect finance): Direct finance to
agriculture shall include short, medium and long term loans given for
agriculture and allied activities (dairy, fishery, piggery, poultry,
beekeeping, etc.) directly to individual farmers, Self-Help Groups
(SHGs) or Joint Liability Groups (JLGs) of individual farmers without
limit and to others (such as corporates, partnership firms and
institutions)
(ii) Small Enterprises (Direct and Indirect Finance): Direct
finance to small enterprises shall include all loans given to micro and
small (manufacturing) enterprises engaged in manufacture/
production, processing or preservation of goods, and micro and small
(service) enterprises engaged in providing or rendering of services,
and whose investment in plant and machinery and equipment
(original cost excluding land and building and such items as
mentioned therein) respectively. The micro and small (service)
enterprises shall include small road & water transport operators,
small business, professional & self-employed persons, and all other
service enterprises. Indirect finance to small enterprises shall include
finance to any person providing inputs to or marketing the output of
artisans, village and cottage industries, handlooms and to
cooperatives of producers in this sector.

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 (iii) Retail Trade shall include retail traders/private retail traders
dealing in essential commodities (fair price shops), and consumer
co-operative stores, as per the definition given in Section I appended.
(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
or to NBFC/MFI for on-lending up to Rs. 50,000 per borrower, will
constitute micro credit.
(v) Education loans: Education loans include loans and
advances granted to only individuals for educational purposes up to
Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad.
Weaker Section
The weaker sections under priority sector shall include the following:
(a) Small and marginal farmers with land holding of 5 acres and
less, and landless laborers, tenant farmers and share croppers;
(b) Artisans, village and cottage industries where individual credit
limits do not exceed Rs. 50,000;
(c) Beneficiaries of Swarnjayanti Gram Swarozgar Yojana
(SGSY);
(d) Scheduled Castes and Scheduled Tribes;
(e) Beneficiaries of Differential Rate of Interest (DRI) scheme;
(f) Beneficiaries under Swarna Jayanti Shahari Rozgar Yojana
(SJSRY);
(g) Beneficiaries under the Scheme for Liberation and
Rehabilitation of Scavengers (SLRS);
(h) Advances to Self Help Groups;
(i) Loans to distressed poor to prepay their debt to informal sector,
against appropriate collateral or group security.
(j) Persons from minority communities as may be notified by
Government of India from time to time.

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 TITLE OF THE PROJECT:
Study of various loan operation techniques rendered by the bank
in the Priority Sector and to review and assess these technique
through appraisal.

Subject: Loan Appraisal

Major Unit: Union Bank of India

Sub- Unit: Gandhibagh Branch, Nagpur, (M.S)

Project Duration: 8 weeks

PROJECT SCOPE:
! This policy would govern all credit and credit related exposures,
Fund based as well as Non-Fund based and prescribe acceptance
criteria for all forms of credit dispensation. These would include Short
term Medium term and Long term based facilities, as also Letter of
Credit, Guarantees, Acceptance, Derivatives, Forward Contracts,
Underwriting the Loans etc. The investment policy of the Bank has
been framed separately, which covers all aspects of the Bank’s
treasury and investment functions.

! The Policy will encompass exposure to all types of customers

such as individuals, proprietorship firms, partnership, association of
persons, companies registered under the Indian Companies Act,
undertakings owned by the Government and others.

RATIONALE OF THE STUDY:

! The importance of the study is to gain market recognition in the
chosen areas like Agriculture, MSME, Retail and Corporate Credit.

! To build sizeable market share in each of the chosen areas of

business through effective strategies in terms of pricing, product
packaging and promoting the product in the market.

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! I have chosen this project to promote confidence and
commitment among the staff members to address the expectations of
the customers, efficiency and handle technology banking with ease.

! This project deals with the credit department. The credit

department frames/ reviews/ improves all policies, procedures and
approval powers in relation to management of credit risk in the Bank
with the approval of Board of Directors and thereafter the same is
operationalized.

! The demand for credit from the banking sector has increased as
other sources of funds to the commercial sector have shrunk.
Available information (as on January 23, 2009) suggests that the total
flow of resources to the commercial sector from all sources,
estimated at about Rs. 4,85,000 crore during the fiscal year 2008-
2009 as far, has been lower the about Rs. 4,99,000 crore in the
corresponding period of the previous year. While bank credit has
substituted for the shortfall in other sources of funds to some extent, a
complete substitution has for not taken place.

! Keeping in view the slowdown in industry and services and with

the assumption of normal agricultural production, the projection of
overall GDP growth for 2008-09 is revised downwards to 7.0 % with a
downward bias.

! Union Bank of India is now healthy, well capitalized, resilient and

profitable. Credit markets have been functioning well and bank credit
has also expanded.

! In order to stimulate the demand conditions in the economy so as

to put a restraint on spill-over effect of global slowdown on the Indian
economy, RBI/ Central Government has announced various stimulus
packages. So it has become very essential to study the appraising
mechanism in bank to compete in the global market and the credit is
the basic function of banking sector.

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 OBJECTIVE OF THE STUDY:
! The Policy seeks to enlarge client base of Corporate and Non-
Corporate segments through aggressive credit marketing.

! The Policy document addresses the genuine credit needs of the

existing clients to ensure quicker and prompt credit decision.

! The policy establishes a commonality of approach regarding

credit basics, appraisal skills and strategies, while leaving enough
room for flexibility and innovation.

! The policy aims to seize market opportunities by revamping our

products and delivery mechanism through product innovation and
restructuring with a view to maximizing profits.

! The policy strives to ensure that the socio- economic obligations

cast on the bank are fully met.

!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

endeavoring that they remain secure, performing and standard.

! The policy endeavors to mitigate and reduce risk associated with

the lending by fine tuning the systems and controls.

! The policy recognizes and accords due priority to

Computerization, Management Information Systems based on a
reliable database and development of faster communication as tools
for better overall credit risk management.

! The policy sets out optimum exposure levels to different sectors in

order to ensure growth of assets in an orderly manner.

! The policy lays down norms for take-over of advances from other
banks / Fls.

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! Bank's stand on granting credit facilities to companies whose
directors are in the defaulters list of RBI is covered in the Policy.

! The policy seeks to ensure profitable deployment of resources

keeping in view the ALM requirements.

! To make an assessment of the banking developments in the

country and to analyze the credit utilization pattern by the borrowers.

!To identify the problems and difficulties experienced by banks and

borrowers in the implementation of the scheme/ Policy.

Objective of the Monitoring Policy

The primary aim of Monitoring exercise is to ensure the safety of
the amount lent and to ensure that the account is conducted in the
manner normally expected and the account continues as a
performing asset.

LIMITATIONS OF THE STUDY

Even though the study is extensive, innovative, unique and
pioneering in certain aspects, it suffers from the following limitations:
! Some of the branches were reluctant to provide certain details,
such as amount of priority sector advances, NPAs, etc. for want of
specific permission from the head office, which was denied. So the
attempt to analyze branch level performance was discarded.
! Majority of the beneficiaries were not having the habit of
maintaining proper records of their income, expenditure, savings,
etc. And hence the details supplied by them from their memories had
to be relied upon for this study. It may result in either under or over
estimation.

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! In spite of the above limitations, the study provides dependable
and useful information and as such the suggestions based on them
provide certain guidelines for future planning and successful
implementation of the scheme.

PROBLEM IN BRIEF

In the matter of deployment of bank credit, based on the

recommendations of the different Committees set up to examine the
related issues, various schemes of lending and targets for advances
to priority sectors and for different subgroups, particularly to the
weaker sections have been introduced. This concept has also been
reviewed by the Government of India and Reserve Bank from time to
time and the banks have been directed to canalize their lending
accordingly. The assistance to these sections will be of no use unless
it is ensured that the recipient utilize the assistance for productive
purposes and generates sufficient income to repay the loans and to
improve their standard of living.

! The Loan policy of the Bank spells out the precautions at the time
of disbursement, but maintaining the due diligence, still some of the
clients slip towards NPA.

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 CHAPTER-2

REVIEW OF LITERATURE
 REVIEW OF LITERATURE
A literature review is a body of text that aims to review the critical
points of current knowledge and or methodological approaches on a
particular topic. Literature reviews are secondary sources, and as
such, do not report any new or original experimental work.

FICCI’S ANNUAL SURVEY ON BANKING

February 2010- The pace of development for the Indian banking
industry has been tremendous over the past decade. As the world
reels from the global financial meltdown, India’s banking sector has
been one of the very few to actually maintain resilience while
continuing to provide growth opportunities, a feat unlikely to be
matched by other developed markets around the world. FICCI
conducted a survey on the Indian Banking Industry to assess the
competitive advantage offered by the banking sector, as well as the
policies & structures required to further stimulate the pace of growth.

BANKING SECTOR FOR CONSOLIDATION

Faced with intensifying competition, the Indian banking sector is
all for consolidation of the financial sector now and is fully endorses
the need for creating branches of bank of the size of the Union Bank
of India, while bulk of the public sector banks lament lack of sufficient
autonomy to offer attractive incentive packages to their employees to
ensure commitment and raise productivity.

GENERAL BANKING SCENARIO

The predicament of the banks in the developed countries owing
to excessive leverage and lax regulatory system has time and again
been compared with somewhat unscathed Indian Banking Sector. An
attempt has been made to understand the general sentiment with
regards to the performance, the challenges and the opportunities
ahead for the Indian Banking Sector.

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 A majority of the respondents, almost 69% of them, felt that the
Indian banking Industry was in a very good to excellent shape, with a
further 25% feeling it was in good shape and only 6% of the
respondents feeling that the performance of the industry was just
average. Infact, an overwhelming majority (93.33%) of the
respondents felt that the banking industry compared with the best of
the sectors of the economy, including pharmaceuticals,
infrastructure, etc.

Most of the respondents were positive with regard to the growth

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
between 15-20% for the year 2009-10, greater than 20% for 2014-15.

On being asked what is the major strength of the Indian banking

industry, which makes it resilient in the current economic climate;
93.75% respondents feel the regulatory system to be the major
strength, 75% economic growth, 68.75% relative insulation from
external market, 56.25% credit quality, 25% technological
advancement and 43.75% our risk assessment systems.

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 The following are the major highlights
of the FICCI Survey:
! A majority of the respondents, almost 69% of them, felt that the
Indian banking Industry was in a very good to excellent shape, with a
further 25% feeling it was in good shape and only 6.25% of the
respondents feeling that the performance of theindustry was just
average.

! 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
2009-10 and a greater than 20% growth rate for 2014-15.

! Some of the major strengths of the Indian banking industry, which

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%).

! On being asked to rate India on certain essential banking

parameters (Regulatory Systems, Risk Assessment Systems,
Technological System and Credit Quality) in comparison with other
countries i.e. China, Japan, Brazil, Russia, Hong Kong, Singapore,
UK and USA the following results emerged:
Regulatory systems of Indian banks were rated better than
China, Brazil, Russia, UK; at par with Japan, Singapore and Hong
Kong where as all our respondents feel that we are above par or at
par with USA.
Respondents rated India’s Risk management systems more
advanced than China, Brazil and Russia; 75% of the respondents
feel that we are above or at par with Japan, 55.55 % with Hong Kong,
Singapore & UK and 62.5% with USA.
Credit quality of banks has been rated above par than China,
Brazil, Russia, UK and USA but at par with Hong Kong and Singapore
and 85.72% of the respondents feel that we are at least at par with
Japan.

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 Technology systems of Indian banks have been rated more
advanced than Brazil and Russia but below par with China, Japan,
Hong Kong, Singapore, UK and USA.

! Respondents perceived ever rising customer expectations and

risk management as the greatest challenge for the industry in the
current climate.

! 93.75% of our respondents saw expansion of operations as

important in the future, with branch expansion and strategic alliances
the most important organic and inorganic means for global expansion
respectively.

! An overwhelming 80% of respondents admitted that the primary

strength of NBFCs over banks lies in their ability to provide reach to
the last mile and were also were unanimous in the need to strengthen
NBFCs further.

! Further, 81.25% also felt that there was further scope for new
entrants in the market, as there continue to remain opportunities in
unbanked areas. However, 57.14% felt that NBFCs may be allowed
to be established as banking institutions but only if adequate
capitalization levels, a tiered license that enables new entrants to
enter into specific areas of the business only after satisfactorily
achieving set milestones for the prior stages, cap on promoter's
holdings and other regulatory limitations are ensured.

! 73.33% of our respondents are cent per cent compliant with core
banking solution requirements, with the remainder, comprising
mostly of our public sector respondents, lagging behind in
implementation in rural areas.

! Public Sector Banks, Private Sector Banks as well as Foreign

Banks view difficulty in hiring highly qualified youngsters as the major
threat to their HR practices ahead of high staff cost overheads,
poaching of skilled quality staff and high attrition rates.

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! Due to long-term maturity, the trend for prime lending rates seems
to be changing now. However, there are other factors which have led
to the stickiness of lending rates such as wariness of corporate credit
risk (33.33%), competition from government small savings schemes
(26.67%).

! With regards to loan disbursement, while industry shows

preference for a joint appraisal system, banks are happy with the
current system and in fact 71.43% of our respondents felt that there
was no need for standardized credit appraisal across the industry.

! Over 92% of the participants agree with recent stress test results
that Indian banks have the capacity to absorb twice the amount of
their current NPA levels.

! Almost 80% of the banks see personal loans as having the

greatest potential for default, followed by corporate loans and credit
cards.

! 87.5% of the respondents consider credit information bureaus

vital for the measurement of asset quality. Nevertheless, at the same
time, over 60% of respondents felt the need for regulation capping
FDI at 49% and voting rights to 10% in Credit Information bureaus
93% of participants still find rural markets to be to be a profitable
avenue, with 53% of respondents finding it lucrative in spite of it being
a difficult market.

! More than 81.25%of all respondents have a strategy in place to

tap rural markets, with the remainder as yet undecided on their plan
of action.

! All banks in our survey weigh Cost effective credit delivery

mechanisms (100%) as most important to the promotion of financial
inclusion, followed by factors such as identifying needs and
developing relevant financial products (75%), demographic

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knowledge and strong local relations (62.5%) and ensuring
productive use and adequate returns on credit employed (43.75%).

! Almost 62% of the respondents see consolidation as an

inevitable process for their banks in the future, while the remainder
does not consider it an essential factor for their future progress.
77.78% of public sector respondents were of the opinion that foreign
banks should not be allowed to play a greater role in the consolidation
process.

LENDING TO PRIORITY SECTOR

- (C. S. Murthy)
Chief General Manager-in-Charge
At a meeting of the National Credit Council held in July 1968, it
was emphasized that commercial banks should increase their
involvement in the financing of priority sectors, viz., agriculture and
small scale industries. The description of the priority sectors was later
formalized in 1972 on the basis of the report submitted by the
Informal Study Group on Statistics relating to advances to the Priority
Sectors constituted by the Reserve Bank in May 1971. On the basis
of this report, the Reserve Bank prescribed for commercial banks a
modified return for reporting priority sector advances and certain
guidelines were issued in this connection indicating the scope of the
items to be included under the various categories of priority sector.
Although initially there was no specific target fixed in respect of
priority sector lending, in November 1974 the commercial banks
were advised to raise the share of these sectors in their aggregate
advances to the level of 33 1/3 per cent by March 1979.
On the basis of the recommendations made in September 2005
by the Internal Working Group (Chairman: Shri C. S. Murthy), set up
in Reserve Bank to examine, review and recommend changes, if any,
in the existing policy on priority sector lending including the segments

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constituting the priority sector, targets and sub-targets, etc. and the
comments/suggestions received thereon from banks, financial
institutions, public and the Indian Banks’ Association (IBA), it has
been decided to include only those sectors as part of the priority
sector, that impact large sections of the population, the weaker
sections and the sectors which are employment-intensive such as
agriculture, and tiny and small enterprises.

B. Yerram Raju (1998) emphasized the importance of giving due

credit to the farm sector. He says that creating new institutions will not
be a panacea for the problems faced by the farmers. Commercial and
co-operative banks should create an environment where the farmers
can develop confidence. Credit must also be made available in time
and at the lowest possible cost.

U. Y. Sarda (1998) requested the banks to take advantage of

legislation enacted by the State Government for speedy recovery of
bank overdue in respect of advances given under government-
sponsored programmes. The matters relating to recovery of
advances should be discussed in the State Level Bankers' Meeting
and necessary help for recovery should be obtained from the State
Government authorities.

Department of Banking Supervision, RBI (1999) studied the

impact of priority sector advances on NPAs and found that the
proportion of NPAs in priority sector to total NPAs were 48.27 per cent
as on 31st March1996 which has gradually declined to 46.40 per cent
as on 31st March 1998. The proportion though lesser than the NPAs
in non-priority sectors, reveals that the incidence of NPAs in priority
sector is much higher in view of the fact that the priority sector
advances constitute only 30 to 32 per cent of the gross bank credit
during the period. However, the gradual increase in the proportion of
NPAs in non-priority sectors could indicate that NPAs

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are increasingly occurring on borrower accounts of industrial sector
during the recent years.

P. R. Kulkarni (1999) pointed out that SSI sector deserves liberal

institutional credit due to its unique contribution in terms of creation of
employment, foreign exchange earnings, reduction in regional
disparities etc. But in reality such supply of institutional credit is too
meager and often delayed. Hence the banks have to overcome these
difficulties and make bank lending organizationally effective. This will
strengthen the bank borrower relationship and SSI units will prosper.

Suresh Mehta (2000) noticed that though the banks are flush
with surplus funds, they do not find it profitable and safe in lending to
the SSI sector because they are already saddled with high NPAs in
this sector. To reduce the NPAs level, banks have to strengthen their
appraisal system and credit monitoring mechanism; and SSI units
have to develop capabilities to manage borrowed funds more
prudently and more transparently in business operations. These
arrangements will help both the banks and entrepreneurs to remain
happy and prosperous.

Yashwant Sinha (2001), the union Finance Minister, while

addressing the chief executives of commercial sector banks, advised
that banks should proceed against large and wilful defaulters. He
also asked the banks to increase their lending to their to their
agricultural and rural sector so as to reach the stipulated target of 18
percent of total lending going to these sectors.

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 CHAPTER-3

RESEARCH &
METHODOLOGY
 RESEARCH METHODOLOGY
Exploratory Research Design:
Exploratory research is a type of research conducted because a
problem has not been clearly defined. Exploratory research helps
determine the best research design, data collection method and
selection of subjects. Given its fundamental nature, exploratory
research often concludes that a perceived problem does not actually
exist.
Exploratory research often relies on secondary research such as
reviewing available literature and/or data, or qualitative approaches
such as informal discussions with consumers, employees,
management or competitors, and more formal approaches through
in-depth interviews, focus groups, protective methods, case studies
or pilot studies. The Internet allows for research methods that are
more interactive in nature.
The results of exploratory research are not usually useful
for decision-making by themselves, but they can provide
significant insight into a given situation.

Research Objective:
Exploratory research contributes to the continued vitality of every
discipline. The aim of Exploratory research is to identify new
tasks- tasks that cannot be solved or more improvement by
existing methods. Once a new task has been found, exploratory
research seeks to develop a precise definition of task and to
understand the factor that make the task different from previously
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,

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quantitative experiments are now possible and proved theoretical
results have been obtained, that is enclosed in the financial indicators
of the bank. Although these policies and trends are extremely healthy
and long overdue, there is always a risk involved in the process and
thus closely review and follow-up on continuous basis of the standard
to avoid slippage. Rescheduling/ Restructuring/ Rehabilitation of
accounts as per RBI guidelines will be resorted to wherever
warranted, on merits. The goal these policies is to emphasize the
importance of exploratory research and the objective has been
defined by the secondary data.
The research begins with a phase of exploration, usually driven
by specific problem in specific domains. For example, the early
Domestic Business mix of the Bank has registered growth of 22.33%

Nagpur division, Maharashtra

नागपूर िवभाग

Area: 51,336 km² (19,821 mi²)

Population (2001 census): 10,665,939
Districts: Bhandara, Chandrapur, Gadchiroli, Gondia,
Nagpur, Wardha
Literacy: 75.90%
Area under irrigation: 4,820 km²

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(y-o-y) to Rs. 287942 Crore as on 31st March'10 from Rs. 235376
crore as on 31st March'09. Global Business mix of the Bank
registered growth of 22.92%. These development was due to the
exposure of the reviewed policy.
Multistage sampling framework was used in the survey design. At
the first stage, the Nagpur Division to which the researcher belongs
was selected. For the purpose of the study, the Nagpur, which
consists of 6 districts, is divided into six district. From each Distirct
and Municipality, 24 beneficiaries and six bank managers were
selected. Thus overall the sample size consists of 30 members.
Stratified random sampling techniques were applied in selecting
the respondents. The beneficiaries include 4 from the agricultural
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
banks.

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
so that the researcher can determine what variables need further in-
depth investigation.
The survey is done by the various technique, one of the
monitoring tool called MAP, the accounts which are irregular showing
early warning signal will usually require a action plan (mentioned in
the Credit monitoring Policy)

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 Data Collection
Primary data was collected through field survey. For
this purpose, two sets of structured interview schedules were
prepared, one for the beneficiaries and the other for bank officials,
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
collected through discussions with Lead Bank Managers, DRDA
Project Officers, Block Development Officers, DIC Officers and
Agricultural Officers.

Pilot Study and Finalization of

Interview Schedules
A pilot study was conducted for finalizing the questionnaires for
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.

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 Primary data was collected through discussions and personal
interview with the beneficiaries and the bank managers using
separate questionnaires. Two sets of interview schedules were
prepared for this. It had taken 4 weeks.

Sampling Technique
It is based on Stratified random sampling techniques were
applied in selecting the respondents. Stratified Random Sampling is
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
and Non-Corporate segment through aggressive credit marketing.
The mission is to gain market recognition in the chosen areas like
Agriculture, MSME, Retail, and Corporate Credit (Priority Sector)

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 CHAPTER-4

ANALYSIS AND
INTERPRETATION
 ANALYSIS & INTERPRETATION

MANAGEMENT OF CREDIT
PORTFOLIO LOAN POLICY 2009-10
The maiden Loan Policy of the Bank was framed in the year 2000 and
with the approval of the Board. Thereafter, the Loan Policy document
is reviewed every year in light of the changes in the statutory,
regulatory as well as market requirements.

Stance of the Indian Economy:

There has been a rapid and marked downturn in the global
economic outlook since the Reserve Bank's Mid-term Review in
October 2008. The knock-on effects of the global financial crisis,
economic slowdown, and falling commodity prices are affecting the
Indian economy in several ways.

On the positive side, the headline inflation has decelerated,

though consumer price inflation is yet to show moderation; and the
domestic financial markets are functioning in an orderly manner.
Although bank credit growth has been on the higher side.

Keeping in view the slowdown in industry and services and with

the assumption of normal agricultural production, the projection of
overall real GDP growth for 2008-09 is revised downwards to 7.0 per
cent with a downward bias.

Outlook:
India's banking system remains healthy, well-capitalised,
resilient and profitable. Credit markets have been functioning well
and bank credit has expanded. However, bank credit expansion has
not fully offset the shortfall in total flow of resources to the commercial
sector.

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 Preamble - Loan Policy:
In the wake of ongoing trends towards globalization and
liberalization, the market environment in the country has undergone a
major change.

Extending credit is a basic function of banking which involves

risks. It is likely that some of the credit decisions may result in loss.
The Bank should aim at Managing risk in such a way that a healthy
credit portfolio is built and returns are maximized.

In view of the guidance and directions given by Reserve Bank of

India on implementation of guidelines from 2008 for Banks having
international presence and from 2009 for other Banks, the Credit Risk
Management functions, hitherto forming part of the loan policy.

Bank’s Mission:
The mission is to gain market recognition in the chosen areas like
agriculture, MSME, Retail and Corporate Credit. Bank will also adopt
the following strategy to increase its market share: The bank will
achieve 5% to 6% extra growth over the average growth of the
Industry. For achieving this extra growth, the bank's Corporate Credit
Department has been divided into two vertical viz. LCV & MSME . A
few more WBB will be opened and some more branches will be
brought under BBB category. The TAT for the credit decision will be
reduced. The LC Branches will be directly dealing with Central Office
& MSME Credit focus branches will have CPC i.e “SARALS”

Large Corporate- Initiatives & strategies

Branches to maintain continuous contact with the top borrowers
of their branch to know their business activity / expansion plans. A
diary containing profile of the such borrowers should be maintained at
every branch which will include information not only about their
business but also give information about the facilities availed by them
from our bank or from other banks. Acquisition of new customers/
accounts will be an ongoing activity for business development.

Concerted efforts through aggressive marketing would be made

for fresh exposure for expansion of credit deployment in the following
areas subject to prudential exposure norms:

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(i) Priority sector with emphasis on agriculture (including micro
finance).
(ii) Export.
(iii) Retail Finance.
(iv) Micro & Small Enterprises
(v) Medium Enterprise.
(vi) Trade
(vii) Infrastructure finance.
(viii) Service sectors like Tourism, Health, Transportation.
(ix)Food Processing including Branded Foods.
(x) Biotech.
(xi) Fast Moving Consumer Goods (FMCGs)
(xii) Channel Financing
(xiii) Advance against warehouse receipts to Traders.
(xiv) Film production and media entertainment.
(xv) Oil and Gas exploration.
(xvi) Non conventional renewal energy.
(xvii) Carbon credit.

(i) Micro and Small Enterprises (MSEs)

Credit allocation to SSE will continue to be as follows :

Category Investment in Plant It % in Total SSE

Micro(Mfg) Enterprises
Micro (service)Enteprises
Micro(Mfg) Enterprises
Micro (service)Enteprises
Machinery Advances
Upto Rs.5.00 lacs
40%
Upto Rs.2.00 lacs
Above Rs 5.00 Lacs
Upto Rs 25.00 Lacs
20%
Above Rs2.00 Lacs
Upto Rs 10.00 Lacs

Small (Mfg) Enterprises Above Rs 25.00 Lacs

Upto Rs 500.00 Lacs
20%
Small (service)Enteprises Above Rs10.00 Lacs
Upto Rs 200.00 Lacs
Concerted efforts shall be made to further improve flow of credit to MSE.

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 (ii) MSME:

MSMEs have been playing a pivotal role in country's overall

economic growth and have achieved steady progress over the last
couple of years. Moreover, MSMEs account for around 95% of the
industrial units and contribute around 40% of country's industrial
output. They are the stepping stones for entrepreneurship
development, innovation and risk taking behavior. Our Bank has
taken various initiatives and adopted strategies to accelerate the
credit flow to the MSME segment. A separate department exclusively
for MSME finance has been established at Corporate Office headed
by General Manager. This department wilt oversee the growth of
MSME credit, incremental business/ revenue from special cluster
schemes, frame various MSME policies etc.

In order to widen the MSME client base, BBB have been advised to
extend credit to at least 15 new MSME accounts, urban & semi-urban
branches to 10 new MSME accounts and rural to 5 new MSME
accounts during the financial year. Out of total finance to MSEs,
60% should be allocated to Micro and remaining 40% to SE. The
MSME credit proposals should be disposed off within 7-14 days
depending upon Delegated Authority from Branch to Central Office.

! In line with RBI' directives, credit limit upto Rs 5 Lacs should be

collateral free. Credit limit up to Rs 25 Lacs can be without collateral
subject to the condition that they are covered under CGS of
CGTMSE.

! Branches/offices may consider credit limits to the MSEs up to Rs.

100.00 lacs without any collateral security and third party guarantee
subject to the condition that they are covered under CGS of
CGTMSE.

In view of the economic downturn and RBI/Govt. of India directives,

Bank has taken various measures for supporting MSEs. They are as
under:

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! Granting of additional need based credit facilities.
! Launching a web-based information channel "SME Helpline
Desk" on its website.
! Conducting cluster surveys and issuance of instructions as a
corrective measure.
! Reduction in the margin requirement.
! Scheme for purchase of generator sets.
! Reduction in the interest rates for MSEs.
! Implementation of "SME Plus" scheme with certain modifications.

(iii) Agriculture:
Within the Priority sector advances, agriculture shall also continue to
be the thrust area for improving performance under these sectors-
! Conventional crop loan
! Union Green Cards
! Advances to Self Help Groups (SHG)
! Gold loans [specially for southern states]
! Farm Mechanization Programme
! Advance against Warehouse and cold storage receipts
! Advance to dealers of other inputs like fertilizers, pesticides,
insecticides, etc.
! Long-term Loans for farm investment like Minor Irrigation, Land
Development, Construction of Rural Godowns, Cold Storage,
Horticulture, etc.
! Contract/ Corporate/ Hi Tech Agriculture Financing
! Financing High Value projects under MoU with NABARD
! Financing to Agri-Clinics & Agri- Business
! Union White Card
! Union Mortgage Scheme for farmers.
! Allied Agriculture Activities like Dairy, Poultry, etc.
!Credit Flow to Women Entrepreneurs.

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 (iv) Exports:
In view of the importance of the Exports for our Economy and also
to give a fillip to exports, the Reserve Bank of India / Govt. of India
have been supportive to export promotion. Therefore, exports
finance continues to be a chosen area for lending. RBI has put a
ceiling of 2.5% below BPLR for Rupee Export credit up to 270 days
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
line with RBI guidelines and will be revised as per directives of RBI
from time to time.

(v) Retail finance:

Union Home/ purchase / construction of flat / house, repairs /
Awas extension to existing house, repayment of loans
availed at higher rate for individuals.

As per RBI guidelines, direct finance to housing sector

up to Rs. 20 lacs, irrespective of location, is to
reckoned as part of priority sector lending.

To meet any type of personal requirements/

Union Top-up expenditure in respect of House repairs to the house,
Loan scheme furnishing etc. Loan amount would be 50% of the
amount repaid in Housing loan account for last 24 mth.
Union Miles For purchase of 2/4 Wheelers for personal/
professional use by individuals.
Union Health To provide financial assistance to medical
professionals purchase/ construction/ acquisition/
setting up of land/ plot/ building/ flats/ hospitals/ clinics
and purchase of equipment.
Union To provide financial assistance for pursuing higher/
Education professional studies in India and abroad.
To provide financial assistance, maximum up to Rs. 50
Union
Mortgage Lacs Mortgage [depending upon area], for personal
needs, against EM of own property.
To provide a source of additional income for Senior
Union Reverse
Mortgage Citizens of Mortgage India who own on self acquired
and self occupied house property in India.
Union Shares/ To provide finance against specified shares / IPOs
IPO

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 (vi) Infrastructure finance
Financing of infrastructure projects is characterized by large capital
costs, long gestation period and high leverage ratios. In order to
facilitate free flow of credit to infrastructure projects, RBI has
dispensed with the earlier stipulation regarding the ceiling on the
quantum of term loans which can be granted by banks for a single
infrastructure project (Rs.1000.00 crores for power projects and
Rs.500.00 crores for other projects). Banks can now sanction term
loans to infrastructure projects within the overall ceiling of the
prudential exposure norms. Further, subject to certain safeguards,
banks are also permitted to exceed the single borrower / group
exposure norm to the extent of 5% / 10% respectively provided the
additional exposure is for the purpose of financing infrastructure
projects.

(vii) Service sectors like tourism, health,

transportation
The Plan outlay on Health has been increased by 15% to Rs 16534
crones in the recent Budget for 2008-09. The outlay on National Rural
Health Mission has been increased to Rs 12050 crores. The outlay
on National Highway Development Programme has been increased
from Rs 10867 to Rs 12966 crores.

(viii) Food Processing

Considering the potential scope for financing in the said sector, since
this industry will form part of our priority sector portfolio, the same has
been retained as part of thrust area.

(ix) Biotech
Biotech is another emerging sunrise industry, which is attracting
fresh investments. In view of the scope and potential of the industry,
the same has been continued in the chosen area.

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 (x) Textiles
Under New The technology Up-gradation Fund Scheme (TUFS) i.e.,
w.e.f. 01.04.2007 to 31.03.2012, the Govt. has provided an additional
10% capital subsidy for the Garment segment and the technical
Textile segment along with 5(%) interest subsidy. Govt. is also
providing the 20(%) CLCS-TUFS for the power loom segment also
under TUFS through Textiles Commissioner Office.

(xi) FMCGs
In view of the expected demand and the change in habits of the
Indian consumers, which will drive the said sector, the said sectors
have been included under thrust area.

Restriction on Lending Activity

The bank shall not hold shares in any company whether as a
pledgee/ mortgagee or absolute owner, of an amount exceeding 30%
of the paid-up share capital of the company or 30% Bank's paid-up
share capital and reserves, whichever is less.
The Bank shall not hold shares whether as pledgee, mortgagee
or absolute owner, in any company in the management of which any
Managing Director or Manager of the Bank in any manner concerned
or interested.
LC and Purchase / Discount /Negotiation of bills under LCs shall
be considered only in respect of genuine commercial trade
transactions of the borrower constituents, who have been sanctioned
regular credit facilities by the Bank. However, in cases where
negotiation of bills drawn under LC is restricted to our bank and the
beneficiary of the LC is not a constituent of our bank, we may
negotiate such an LC, subject to the condition that the proceeds will
be remitted to the regular banker of the beneficiary.

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 Credit Risk
As stated earlier, the Risk Management Department wilt be placing a
separate "Credit Risk Management Policy" outlining the entire gamut
of risks perceived and their mitigation.

Appraisal Standards
The basic standards for WC facilities both FB and NFB and Term
credit facilities have stood the test of time and are well understood.
Bank has in place a well defined framework for approving credit limits
of different segments. Requests for credit facilities from the
prospective borrowers shall be on the prescribed format and the full
fledged proposal should be prepared for submission to the
appropriate sanctioning authority for approval. Such proposals
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.

Presentation of credit proposals shall be done in the prescribed

appraisal Formats devised for the purpose of advances upto Rs.1
Crore shall be presented in the standard Appraisal Form. Advances
above Rs.1 Crore shall be presented in the existing format known as
Executive summary, which has been revised to make it more
comprehensive.

For MSE, a new simplified common loan application form

applicable to all banks are circulated among branches. The same
should be used for loan proposals for MSE.

Further, at the time of review/ renewal, a mention has to be made

in the proposal as to how many times the account was reported in
EAS/ SMA and for what reasons. The sanctioning authority has to
take into consideration this important aspect while exercising his
authority for review/ renewal/ Enhancement.

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 Risk Rating
RATING RISK NOMENCLATURE
CR1 Lowest Risk
CR2 Minimal Risk
CR3 Moderate Risk
CR4 Satisfactory Risk
CR5 Acceptable Risk
CR6 Watch List
CR7 Risk Prone
CR8 High Risk
CR9 Substandard
CR10 Doubtful
CR11 Loss

Financial statements:

The Bank shall analyze the financial statements of the

constituent/ income/ wealth tax returns/ assessment orders of the
constituent / guarantors. These statement/ documents shall throw
tight on growth in sales, profitability, cash accruals, tangible net worth
position, investment in associates, non current assets, term liabilities,
repayment commitment under term loans in relation to
cash accruals, short term leverage etc . The auditor's notes to the
account shalt reveal the accounting practices followed by the
business entity, details of contingent liabilities including guarantee
obligation, claims relating to income tax/ sales tax/ excise duty/
custom duty pending in the courts/ tribunals. The
information gathered as above shalt enable the Bank to get an idea
on the business ethics adopted by the constituent and to take a
decision whether or not to have dealings with the constituent.
Information on the associates also may be ascertained.

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 Market Information:
Opinion about the applicant /associate shall be collected by
making marketenquiries with people in similar line of business /
buyers / suppliers/ competitors/ employees etc. Where the bank has
fully functional Credit Information Dept.,market opinion reports
should be called from the said department besides making
independent market enquiries.

Disbursement
All the terms and conditions of sanction, including documentation
completion of mortgage formalities, have to be complied with before
releasing credit facilities. Wherever due to pressing needs, the limits
are required to be released without complying with mortgage
formalities etc, approval in such cases should be obtained from the
next higher authority than the sanctioning authority.
All credit disbursements shalt be made in prescribed manner and
only after ensuring execution and scrutiny of all the required
documents and compliance of all the terms of sanction including
creation of Mortgage and registration of charges.

Take-over of advances code

In the optimizing financial environment, it has become important
for the Bank to aggressively market for good quality advances. One
of the strategies for increasing good quality assets in the bank's loan
portfolio, would be to take over advances from other banks / Fis.
The CR & DER (TOL/ TNW) of the unit should be above
benchmark as specified by the Bank for various categories of
advances. While considering the flexibility in takeover norms,
endeavor be made that the following financial ratios are not
compromised below the levels as mentioned hereunder:
a) Current Ratio under no circumstances to be compromised
below 1.10
b) TOL/ TNW Ratio not to be compromised above 3:1 and in case
of Trade accounts above 4:1.

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 METHODS OF ASSESSMENT
(1) Assessment of Working Capital requirement
The Assessment of the Working Capital of the borrower can be
done under anyone of the following four methods
(i) Turnover Method
(ii) Flexible Bank Finance Method
(iii) Cash Budget Method
(iv) Net owned Fund for NBFCs.

(i) Turnover Method

! Under this method, the working capital limit shall be computed at
20% of the projected sales turnover accepted by the Bank.

! In the case of MSE, borrowers seeking/ enjoying fund based WC

facilities up to Rs.500 Lacs, the limits shall be assessed on the basis
of turnover method

! The turnover method shall be applied for sanction of fund based

WC limits to the non MSE borrowers requiring working capital
facilities up to Rs.100 Lacs from the banking system.

! This system shall be made applicable to traders, merchants,

exporters who are not having a predetermined manufacturing/
trading cycle.

! Under the turnover method, branches/offices shall ensure

maintenance of a minimum margin on the projected annual sales
turnover. In other words, 25% of the estimated sales turnover value
shall be computed as working capital requirement, of which, at least
4/5th (20%) shall be provided by the Bank and the balance 1/5 th
(5%) shall be by way of promoter's contribution towards margin
money. However, if the available NWC is more, the same shall be
reckoned for assessing the extent of bank finance and lower limits
are to be considered.

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 (ii) Flexible Bank Finance
Flexible Bank Finance Method is an extension of permissible
Bank Finance Method with customer friendly approach in as much as
the scope of Current Assets is made broad based and for evaluating
projected liquidity, acceptable level of Current Ratio is taken at 1.17:1
against benchmark level of 1.33:1. Flexible Bank Finance method is
applicable for account with credit limits of Rs. 1 Crore ft above for
other advances & above Rs. 5 Crores for MSE advances.
Under the FBF system, an uniform classification for CA and CL
shall be adopted on the terms given in CMA data format.

(iii) Cash Budget Method:

Cash budget method can be applicable in case of specific
industries/ seasonal activities such as software development,
construction industry, film industry, sugar, fertilizers, etc., and all are
working capital short term loans. In these cases the required finance
is arrived from the projected cash flow and not from projected assets
& liabilities. However, besides, these cash flow, other aspect like
borrower’s projected profitability, liquidity, gearing, fund flow are also
to be analyzed.

(iv) Net owned fund method:

The need of NFBC’s shall be based on this method on a format
prescribed by RBI. The Bank’s exposure shall be normally restricted
to such of the existing client with the proven track record, sound
financial and those complying from with RBI stipulated from norms/
usual lending norms prescribed by the bank from time to time.

(2) Term Loan Assessment

The maximum period for repayment of Term Loans other than
Housing Loans shalt be normally 84 months [including moratorium].
This may, however, be increased up to 180 months in respect of
projects having longer gestation period. In respect of Housing Loans

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and infrastructure projects, the repayments may however be
extended up to 240 months.
Although the various benchmark for Term Loans would continue,
the IRR approach is also being introduced for assessment of Term
Loans of Rs 10 crs and above with repayment period of 5 years or
more. This assessment will be in addition to satisfying norms under
various parameters. Generally, the cut-off rate under Indian
conditions is taken as 15%. In other words, a project is generally
accepted if its IRR is higher than 15%.

Internal rate of return 6% and above from estimated

(post tax) cost of funds.
other than infrastructure projects
Internal rate of return 5% and above from estimated
(post tax) cost of Funds
Infrastructure projects

(3) Bill Discounting Policy

Bank would open Lcs, issue guarantees/ acceptances and
discount bills under LCs only in respect of genuine commercial and
trade transactions of borrower constituents who have been
sanctioned regular credit facilities by the Bank.
In cases where negotiation of bills drawn under LC is restricted to
our bank and the beneficiary of the LC is not a constituent of our bank,
we may negotiate such an LC, subject to the condition that the
proceeds will be remitted to the regular banker of the beneficiary.
However, the prohibition regarding negotiation of unrestricted LCs of
non-constituents will continue to be in force.
Bank would not open LCs and purchase / discount / negotiate
bills bearing the "without recourse" clause.
Bank would not ordinarily discount bills drawn by front finance
companies set up by large industrial groups on other group
companies.

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 MANAGEMENT OF CREDIT
PORTFOLIO CREDIT MONITORING POLICY
20010-11

Major Highlights

! Monitoring during disbursement - shall be authorized by Branch

Head or second man in command.

! Monitoring Reports shall be submitted on EAS/ SMA accounts

monthly & on all standard accounts quarterly as per the cut off limits.

! Renewal of accounts cannot be held up due to overdues in the

account and the account has to be reviewed in time

! Copies of monitoring reports shall be sent to RO / FGMO.

Monitoring Process
The policy covers all the facets of credit monitoring and is
implemented successfully at all levels.

! Monitoring during disbursement

! Submission of Monitoring Reports
! Timely Review of Accounts
! Submission of copies of monitoring reports to FGMO / RO

(i) Monitoring during disbursement

All debits, during the first months and or up to the full utilization of
the limits, shall be specifically authorized by the Branch Head and in
his absence by the second official in command. It is his duty to ensure
proper end use of funds.

(ii) Submission of Monitoring Reports

Branches shall submit monitoring reports on all Standard
Accounts above Rs. 50 lacs (except EAS / SMA accounts) on

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Quarterly basis (viz. March, June, Sept. & Dec) and branches shall
submit monitoring reports on all EAS / SMA accounts above Rs. 50
lacs on monthly basis to the respective monitoring authority.

(iii) Timely Review of Accounts

In case of genuine difficulties branches or administrative offices
may consider short review of such accounts. In any case it should be
ensured that no accounts remain pending for review at any level. The
practice of keeping renewal pending due to over dues in an account
is not a sound practice. Follow up and adjustment of over dues is an
on going exercise and should not remain a one time measure at shall
ensure proper conduct of the account at all times and shall not render
renewal pending on account of hover dues. Limits shall be reviewed
timely despite over dues and the Sanctioning Authority may take a
view with regard to renewal of limits or otherwise.

(iv) Submission of copies of monitoring

reports to FGMO/ RO
Copy of Monthly Monitoring report pertaining to accounts coming
under monitoring jurisdiction of CO shall be sent to FGMO/ RO & the
accounts coming under the jurisdiction of FGMO shall be sent to RO.

Monitoring Objects
! Credit delivery (Disbursement of credit facilities) to take place
after complying with all the stipulated terms and conditions.

! All the laid down procedures of the Bank are to be complied with
assets in the standard category to remain standard.

! Within standard category, accounts are to be upgraded from

SMA, EAS - II, EAS- I to pure standard category i.e. in other words to
ensure that accounts are stress- free.

! Accounts do not slip to NPA category.

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Monitoring Tools

1 Stock Statements
2 Book Debts Statements
3 Monthly Cash Budget
4 Q-4/M-6 Inspection Reports,
5 Stock Inspection Reports of outside agencies
6 Factory Visit Reports.
7 Technical Officer's Reports.
8 Concurrent Audit Reports.
9 QPRs.
10 MSOD,
11 Audited / Provisional Financial Statements.
12 Adverse / Search enquiries from other Banks regarding the
Account Promoters or Guarantors
13 Account Operations scrutiny - (poor Turnover, vis-a-vis
sales realization, over dues, frequent returns of Cheques /
Bills, issuing cheques unconnected to main business,
constant excess drawing etc.)
14 Sales Tax Return / Challan, Excise Duty Challans to co-
relate with Turnover/ Production Report / Account Operatio /
Balance Sheet / Quarterly Progress Report etc.
15 Annual accounts filed with Registrar of Companies -
verification through search at office of Registrar of
Companies by empaneled CompanybSecretaries /
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.
16 Adverse newspaper / market reports.

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 Stages of Monitoring
The monitoring exercise will start on sanction of a credit limit to a
borrower. This involves three different stages as under:

(1) Pre - Disbursement

Status report, NOC from banks or financial institutions in case of
take-over accounts, Personal visit to such institutions for a detailed
dialogue, Pre-disbursement/post-sanction inspection of the unit, the
communication / acceptance of terms of sanction, execution of
security documents including signing of Letter of Guarantee by the
guarantor/s, obtaining of legal opinion, creation of charge/ mortgage /
collateral security, inspection of the unit, induction of promoter's
margin, vetting of documents, completion of credit process audit and
strict compliance of all Terms and Conditions of sanction form part of
pre-disbursement monitoring.

(2) During Disbursement

A credit risk is assumed when an exposure is taken on a
borrower. That risk is subject to the contents of the proposal and the
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
fulfillment of various commitments on the part of the borrower as set
out in the proposal. The actual availment of limit shall be measured in
terms of actual performance comparable with the projected level of
activity originally submitted by the borrower, while credit limits were
considered. The operations are to be watched every day by the
Branch so that end-use of the funds is ensured.

Working Capital Monitoring:

! Compliance to terms & conditions. Availability of Drawing Power.
! Stocks inspection / movement of stocks, rejection of stock.

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! Sales in line with projections, realization of debtors /age of
debtors.

! Verification of books of accounts and other records such as

invoices, books of accounts, stores records / registers etc.

! Insuring stocks adequately.

! Detecting / avoiding unrelated debits to the account.
! Large cash withdrawals.

Term Loans Monitoring:

! Obtaining of Proforma Invoices / its evaluation.
! Direct disbursement from Term Loan together with promoter's
margin.

! Arrangement for financing cost overrun, if any.

! Impact of time overrun and cash generations consequent to such
overrun.

! Certificates from various independent agencies like Architect/

Contractor / C.A for progress in project implementation.

(3) Post Disbursement

! Keeping eye on account operations.
! Scrutiny of control returns like stock statements/ Book Debts
statements / QPR / MSOD.

! Unit inspection.
! Audit by independent agency (stock, concurrent etc.).
! Review of credit facilities.
! Scrutiny of Audit Report & Financial Statements.
! Submission of Monthly Monitoring Reports.
! Quick and timely recovery of interest /installment /overdoes.

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 Early Warning Signals
No advance account can turn bad overnight. The account emits
sufficient signals and it is for us to constantly observe and capture
such signals so that timely remedial action is initiated to avoid
slippage. A careful analysis of these warning signals will throw
sufficient light on the direction towards which the unit is going and the
same should be used to our advantage in safeguarding the interest of
the Bank.

Signals which can be noticed within

the Bank
! Non -compliance with the terms of sanction.
! Unplanned borrowing for margin contribution.
! Delay in payment of interest beyond 15 days.
! Installment overdue beyond 30 days.
! Return of cheques for financial reasons.
! Reduction in credit summations- not routing entire(or prorata)
transactions through the Bank, Opening of collection accounts with
another Bank without prior approval of appropriate authority.

! Longer outstanding in the bills purchased accounts.

! Longer period of credit allowed on sales, Bills negotiated through
the bank outstanding after due dates, frequent return of Bills and late
or non-realization of receivables.

! Constant utilization of working capital limits to the brim.

! Unexplained delay or failure to submit periodical statements such
as stock / book debts statements, MSOD, CMA, QPR, balance
sheets etc. /other papers needed for review of account.

! Frequent requests for excess/ additional limit or for extension of

time for repayment of interest / installments.

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! Adhoc/excess/Bill purchase overdue, LC devolvement /
Guarantee invocation.

! Lack of transparency in borrower's dealings with the Bank /

avoiding to meet bank officials.

! Constant failure or unwillingness to mention unpaid stock in stock

statements or age of book debts in book debt statement.

Monitoring Action Plan (MAP)

Accounts in which irregularities surface (showing Early Warning
Signals) will usually require an Action Plan in one or more of the
following ways:

! Immediate discussion with the borrower or even guarantors.

! Requiring the borrower to stop operations with other Banks.
! Requiring the borrower to stop his other business activities.
! Hiking of margin requirements on primary securities.
! Increasing rate of interest on entire or excess portion of the
outstanding.

! Requiring borrowers to bring in more funds to set right out of order

position.

! Bringing down level of outstanding through cutbacks.

! Bringing back funds diverted to sister concerns.
! Sale of unwanted surplus assets (esp. fixed assets).
! Quickening debtors' realization by offering discounts.
! Restriction on dividend declaration.
! Restriction on withdrawal by partners.
! Creation of amortization fund to meet future liability.

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! Stopping further discounting / purchase of bills / cheques.
! Allowing ad-hoc facility to tide over temporary financial problem.
! Emergent detailed stock inspection through outside agency.
! Asking for an additional collateral or guarantees.
! Reducing the limits.
! Taking possession of securities.
! Disposal of certain saleable securities such as shares, encashing
surrender value of LIC Policy, margin in the shape of FDRs etc.

! Asking debtors to pay directly to the Bank (where Book Debts are
hypothecated).

! Recalling the advance / filing of suit

Check List
LOAN DEFAULT
FUND BASED NON - FUND BASED
Interest/ Installment/ Bill Purchased Letter of Credit/ BG/ DPGL
or Discounted/ Packing Credit/ Installments/ Other Non - Fund
Excess in WC Limit / Non - Based commitment viz. Derivatives,
adjustment of Ad-hoc Limit. Buyers'Credit, Forward Contracts,
Operations in the account dormant / Unhedged foreign exchange
Deficit in DP : exposure etc.
No Default more than No Devolved / Invoked and
Default / Default not adjusted
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
days days days days days days
Standard EAS - I EAS - II SMA Standard EAS - I EAS - II SMA

Loan Default with Other Banks / Financial Institutions

Default more than
No Default /
45 days Upto 60
Default Up 30 days Upto 45 Default more
to30days days days than 60 days.
Standard EAS - I EAS - II SMA

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 DOCUMENTATION-GENERAL PRINCIPLES
The security documents play a crucial role in respect of Bank's
advances. The documents establish the legal link between the
parties to a contract. The documents constitute the primary evidence
of contract disclosing respectively the rights and liabilities of the Bank
and its Borrowers/guarantors. In view of this, due care has to be
taken while obtaining documents. Similarly the operational staff
dealing with documentation should have the basic knowledge on the
essential principles of documentation. If the documents are not
properly executed, there are bound to be difficulties at the
enforcement stage
The ultimate objective of documentation is to serve as the primary
evidence for the contract of lending money by the Bank.
Documentation will succeed in fulfilling the objective only when
following requirements are satisfied:

! The contract of debt along with the interest, cost etc. can be
proved in accordance with the law.

!Charges created on the assets of the Borrower/securities

available to the Bank and priority of charges is proved so that the
Bank would be able to realize the securities by sale or otherwise
through Court by way of interim proceedings or in execution of
decree/certificate.

STAMPING OF DOCUMENTS
The law relating to the stamping of documents is governed by
Indian Stamp Act., 1899 and the respective State Stamp Acts. Under
Indian Constitution, the rate of stamp duty in respect of 10 documents
are included in the Central List. The items are Promissory Note, Bill
of Exchange, Receipt, Cheque, Bill of Lading, Policy of insurance,
Transfer of shares, Debentures, Proxies, Receipts. (“Cheque” is
totally exempt from stamp duty). In respect of these items
accordingly the stamp duty rates are determined by Parliament and
the Central Government.

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 The following instruments may be stamped with adhesive
stamps:
(a) Receipts
(b) Bills of Exchange and promissory notes drawn or made out of
India
(c) Entry as an advocate, attorney or on the rolls of the High Court
(d) Notarial acts
(e) Transfer by endorsement of shares in any incorporated company
or other Body Corporate.

Secured Credit/loans
FACILITY SECURITY DOCUMENT
- Appropriate Promissory Note
Secured Landed - General Term Loan Agreement (SD-18)
Loans Property
(Mortgage) - Original Title Deeds of property
- Certificate of clear title & non encumbrance
from advocate
- Valuation Certificate
For Equitable Mortgage: -
Memorandum of deposit of title deeds (AD-
13/AD 14) duly stamped in places where it
attracts stamp duty, Notarized Declaration of
the Mortgagor, Income Tax Clearance
Certificate under Section 281(1)(ii) of I.T. Act or
in lieu of this, Affidavit of Mortgagor
For simple Mortgage: -
Deed of simple Mortgage as per form SD-14 or
SD-15 as the case may be. The deed to be duly
executed by the mortgagor, duly attested by
two witnesses who should not be Bank's
officials and duly registered with the Registrar
of Assurances. Income Tax Clearance
Certificate under Section 230-A of I.T. Act to be
obtained and copy to be held on record.
Insurance of the property depending on the
nature of property as stipulated.

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 FACILITY SECURITY DOCUMENT
- Demand Promissory Note.
Term Loan Plant and - TL Agreement (Against Hypothecation of
Machinery
Movable Property) (SD-19)
- Letter of undertaking not to alienate
hypothecated goods (AD-12)
- List of Machinery proposed to be
hypothecated along with the copies of
relative invoices after due verification with
the originals.
- Certificate should be obtained from the
borrower every half year that the machinery
is in good order and working condition
- Machinery should be insured against fire,
riot, strike, burglary malicious damages etc.
and where necessary/requested by the
Borrower against flood, cyclone etc also in
the name of the Bank 'Account Borrower’
- Bank's name plate should be affixed on the
machinery to indicate the Bank's charge
thereon
- Rent receipts of the premises to be checked
to ascertain that rent is being regularly paid
and that the premises is in fact rented by the
borrower and proof in this regard to be held
on record.
- Letter of free access from the land lord should
be obtained

Consumer Hyp - Appropriate D.P. Note.

finance/ of Vehicle - Consumer Goods Vehicle agreement (SD-
Vehicle purchased 10) Form E duly signed by the borrower
Loan
(“UNION - instructing the supplier to register Bank's lien
MILES”) with Regional Transport Authority
- Additional copy of Registration certificate
from RTO evidencing registration of Bank's
lien on vehicles.
- Comprehensive insurance policy including
third party liability in the name of the Bank
A/c………(Borrower)

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 FACILITY SECURITY DOCUMENT
- Appropriate D.P. Note
Housing EM/SM of - Housing Loan Agreement (SD-11)
Loan the house
“UNION /flat - Letter of Authority authorising for deduction of
HOME” salary
Interim - Equitable Mortgage/Simple Mortgage of the
Security in
house/flat as stated under the head
the form of
LIC policy “Secured Loans- Mortgage”above
/NSC
KVP/
Mortgage of
other
property
- D.P. Note to be executed jointly by student
Education Assignment
Loan and parent/guardian in case student is a
of policy or
mortgage minor
depending - LIC policy duly assigned in favour of the Bank
on the and registered with LIC
quantum - Letters of guarantee duly executed by
of advance parent/guardian and third party
- Undertaking from parent/guardian that he is
having independent/regular source of
income Mortgage/Transfer Deed depending
upon security of land or pledge of shares,
NSC etc. as per procedure stated herein
above
Cash Credit Stock, Stores - Appropriate D.P. Note
(Hyp.) & other - Letter of continuity (AD-09 )
C.A. - Hypothecation (Goods) Agreement (SD-03)
- Statement of Stock
- Letter of undertaking not to alienate the
hypothecated goods (AD-12)
- Goods should be insured in the name of the
Bank-Account borrower against fire, strike,
riot, malicious damages, flood, cyclone,
burglary etc., where applicable/necessary.
- Letter of free access in case godown is
rented.
- Rent receipts of the godown to be checked to
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.

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 FACILITY SECURITY DOCUMENT
- Appropriate D.P. Note
Cash Credit Book Debts
- Letter of Continuity (AD-09 )
(Hyp)
- Hypothecation of Book Debts Agreement
(SD-05 )
- Statement of Book Debts
- Declaration that the relative book debts are
the property of the borrower and/or they
have such interest therein as to entitle them
to hypothecate the debts to the Bank.
- P/A in Bank's favour to collect the amounts
directly from the debtors to be registered in
the case of Government Departments.

Cash Credit Combined- - Appropriate D.P. Note.

(Hyp) Against - Letter of Continuity (AD-09)
Stock & - Hypothecation Agreement of Goods & Debts
Book Debts
(SD-06)
- Statement of Stock
- Statement of Book Debts
- Letter of undertaking not to alienate the
hypothecated goods (AD-12)
- All other terms/instructions given above for
C.C. (Hyp) against Stocks & against Book
Debts to be followed.
- Application for L/C , trust receipt etc. to be
Letter of Goods
Credit imported/ obtained for individual transactions as
covered by explained below:
L/C (a) Import:
- Application for opening Documentary Credit
(AD-04)
- Trust receipt (AD-06)
(b) Inland:
- ILC application(AD-05)
- Trust Receipt (AD-06)
- Appropriate D.P. Note
- Hypothecation (Goods) Agreement (SD-03)
OR Hypothecation Agreement of Goods &
Debts
- (SD-06)

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 EXAMPLE-1:
As per the Annual Report provided by one of the borrower
(Ralco Group) of the Union Bank of India, Gandhibagh, prepare
Process note, Credit rating structure, Sanction advice for the
current provided financial statement

Process Note: ***/*** Date: 03/05/2010

MEMORANDUM TO THE COMPETENT AUTHORITY

FOR APPROVAL OF

(i) Enhancement of fund based WC facility from Rs. 14.70 crore to Rs.
18.67 crore (Enhancement of Rs. 3.97 crore)
(ii) Enhancement of inland/import LC(DP/DA 180 days) limits from Rs.
21.40 crore to Rs. 23.71 crore (Enhancement of Rs. 2.31 crore)
with 10% margin.
(iii) Renewal of LG limits at existing level of Rs. 3.27 crore with 10%
margin.
(iv) Renewal of import LC (DA 180 days) limit of Rs. 50.00 crore with
100% margin or LOC from member bank
(v) Review of TL at of Rs. 46.26*crore (*o/s as on 03/05/2010)
(vi) 0.50% concession in ROI on FB facilities i.e. CC limit and TL i.e.
reduction in ROI from BPLR + 0.50% to BPLR.
(vii) Continuation of waiver of insurance on non-combustibel stock.
(viii) Increase in debtors covers period from 45 days to 60 days.
(ix) Waiver of stipulation of LR from IBA approved transport
operators from inland LCS.

Group Ralco Group Lead Bank SBI

Banking Consortium Banking Our Share F 9.80%
Month of Review May 2010 Existing NF 23.04%
Asset Classification Standard
Existing CR CR-4 Proposed F 7.10%
Status of Account Regular NF 21.99%

1. (a) Name of the Account Ralco Industries Ltd.

(b) Branch/ Zone Gandhibagh Branch, Nagpur, WZ
(c) Date of Incorporation 28/12/1975
2. Constitution Public Limited Company.

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Capital Structure (companies) As on 23rd March 2010
Authorized Capital Rs. 240 Crore (Equity Share Capital)
Paid up Capital Rs. 236.65 Crore
Book Value Rs. 236.65 Crore
Market Value Rs. 40.40

Share Holder No. Of Shares Face Value Holding %

Promoters 55276801 @ Rs. 10.00 48.97%
Bank and Fi’s 7178544 Each 6.36%
Bodies Corporates 19431637 17.21%
Public 30997066 27.46%
100%

Line of Activity Manufacturing of Pig Iron, Power, Sponge Iron, Billets,

Rolled Products, Iron & Steel casting.
(In lacs)
Fund Based Non Fund Based Total
Our Bank
Existing Proposed Existing Proposed Existing Proposed
Working Capital 14.70 18.67 74.67 76.98 89.37 95.65
Cash Credit 14.70 18.67 14.70 18.67
LC limit 21.40 23.71 21.40 23.71
BG limit 3.27 3.27 3.27 3.27
Import LC (180 days) 50.00 50.00 50.00 50.00
Term Loan 50.00 46.26 50.00 46.26
Sub Total 64.70 64.93 74.67 76.98 139.37 141.91
Other Bank
Working Capital 135.30 221.33 249.42 273.02 383.72 494.35
Term Loan 629.39 629.39 629.39 629.39
Sub Total 764.69 850.72 249.42 273.02 1014.11 1123.74
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
established at Nagpur in 1976 & subsequently become one of the largest
Casting manufacturer in India. Specifications & types ranging form man
Hote cover, Centrifugal Cast Pipes, Fittings, Automotive Castings,
Engineering casting & construction casting are manufacturing in foundry
division. It then eventually progressed itself to set up an integrated steel
Plant for the manufacturing of Pig iron, Billets, & Rotted Steel products.
The foundry division is the single largest player in the private sector
producing all types of casting & catering to different segments, automotive,

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producing centrifugally cast iron pipes for drainage & is a leading supplier
of Construction casting in Maharashtra, Gujarat, M.P & U.P. Apart from the
above facilities, the company is having iron ore mines and coal mines in
the states of Chhattisgarh, Maharashtra, & Jharkhand.

Financial Indicators: (Rs. In Crore)

2007-08 2008-09 2009-10 2010-11
Year Ending (Audited) (Audited) (Estimated) (Projection)
Paid Up Capital 112.88 236.65 236.65 236.65
Reserves & Surplus 37.54 302.29 358.51 466.23
Intangible Assets
Tangible Net Worth 150.42 538.94 595.16 702.88
Long Term Liabilities 344.58 788.12 778.90 668.60
Net Block 460.28 1191.25 1125.80 1059.56
Investments 0.17 0.17 0.17 0.17
Non Current Assets 13.37 22.51 8.74 8.74
Net Working Capital 21.18 113.13 239.35 303.00
Current Assets 469.68 718.93 949.10 1103.56
Current Liabilities 448.50 605.80 709.75 800.56
Current Ratio 1.05 1.19 1.34 1.38
TOL/ TNW 5.28 2.59 2.50 2.09
Debt Equity Ratio 2.29 1.46 1.31 0.95
Net Sales 1473.63 1611.04 1767.44 2107.90
Other Income 7.87 20.31
Net PBT 87.03 28.57 81.69 149.39
Net PAT 86.19 27.17 56.22 107.71
Depreciation 37.56 65.48 80.45 81.24
Cash Accruals 123.75 92.65 136.67 188.95

Comments on the Financial Indicators:

(1) Net Worth: Paid up Capital of the company is increased to Rs. 236.64
Crs as on 31/03/2009 as compared to Rs. 112.88 Crs as on 31/03/2008 on
account of merger of 3 companies. Tangible Net Worth of the company is
also rises from 150.42 Crs to Rs. 538.94 Crs as of 31/03/2009.
(2) Long term Liabilities: LTL for the year ended on 31/03/2008 and
31/03/2009 are Rs. 344.58Crs and Rs. 788.90 Crs Estimated/ Projected
LTL for the year ended on 31/03/2010 and 31/03/2011 are Rs. 778.90 Crs
and Rs. 668.60 Crs. respectively

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(3) Net Block: Net block as on March 2008 was at Rs. 460.28 Crs
increased to Rs. 1191.25 Crs on account of merger of sister concerns. It
consists of factory land, building including plant & machineries, capital
work in progress, etc.
(4) Net Working Capital: NWC increased from Rs. 21.18 Crs to Rs.
113.13 Crs as on 31/03/2009 due to increase in long term funds.
Estimated/ Projected NWC for the year ended on 31/03/2010 and
31/03/2011 is Rs. 239.35 Crs. and Rs. 303.00 Crs respectively.
(5) Current Assets: CA for year ended on 31/03/2008 and 31/03/2009 are
Rs. 469.68 Crs and Rs. 718.93 Ces respectively. Estimated/ Projected CA
for the year ended on 31/03/2010 and 31/03/2011 are Rs. 949.10 Crs and
Rs. 1103.56 Crs respectively.
(6) Current Liabilities: CL for year ended on 31/03/2008 and 31/03/2009
are Rs. 448.50 Crs and Rs. 605.80 Crs respectively. Estimated/ Projected
CL for the year ended on 31/03/2010 and 31/03/2011 are Rs. 709.75 Crs
and 800.56 Crs. Respectively.
(7) Current Ratio: CR is 1.05 as on March, 2008 which is improved to 1.19
as on March 2009. Estimated/ Projected CR for the year ended on 2010
and 2011 is 1.34 and 1.38 respectively.
(8) Debt Equity Ratio: DER is at 2.29 as on 31/03/2008 which is improved
to 1.46 as on 31/03/2009 which is a satisfactory level. Estimated/
Projected DER for the year ended 31/03/2010 and 31/03/2011 is 1.31 and
0.95 respectively.
(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
acceptable level.
(10) Sales: Net Sales of the company increased from Rs. 1473.63 Crs (FY
2007-08) to Rs. 1611.04 Crs in FY 2008-09, with a growth of Rs. 9.32%, the
company has surpassed estimated net sales of Rs. 1491.16 Crs. for FY
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%
over the previous year on the following grounds: Company has already
achieved net sales of Rs. 1329.00 Crs upto December 2009. On
completion of capital repairs in 2008-09, the capacity of the blast furnace
and consequently the production of hot metal have improved considerably.
The company has also commissioned Bar Mill in September 2008 and wire
rod mill in October 2009. With the commissioning of these, the company

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Expects to fetch better margins for their products. Hence, the company
proposed to bring down sales of billets and increase sales of rolled
products. The growth is estimated to be very steep in the year 2010-11 as
the rolling mills would be in usage at optimum capacity utilization levels
and that too for full year.
Profit: The company has registered Pat of Rs. 27.17 Crs against
estimates of Rs. 37.38 Crs in the FY 2008-09 achievement is 72.68%. The
company achieved profits in spite of the downturn in economy. Sharp
decline in SP of steel coupled with higher contracted prices of Raw
material of LAM Coal and Coke, loss of production for about 2 months due
to capital repairs to blast furnace in May- July 2008, and adverse foreign
exchange fluctuation due to steep fall of Rupee against US Dollar (Forex
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
also estimated of 2008-09. Company has estimated profit at Rs. 56.22 Crs
for the year ended on 31/03/2010 on the following grounds: Till December
2009 of the FY 2009-10 company expects the deferred tax provision of
around Rs. 25 - 30 Crs of which company has already provided for
deferred tax of around Rs. 23.58 Crs. Thus the company has
conservatively estimated PAT of Rs. 56.22 Crs. Thus, it has achieved
almost 97.24% of its estimated PAT and is confident of achieving the
estimated for the year ended on 31/03/2010.
Considering all above financial of the company seems satisfactory;
financial of the company are improved substantially as compare to last
year 2008

Credit Rating:

Year Previous Year Current Year

Audited B/s 31/03/2008 Audited B/s 31/03/2009
Total score obtained 73/100 75/100
Grade CR-4 CR-4

Marks obtained
Parameters
Previous Year Current Year
Borrowers rating 53/76 53/70
Facility rating 04/06
Risk Mitigators 16/20 14/20
Business aspects 04/04 04/04
Total Marks 73/100 75/04

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 Sanction Advice

BUSINESS: Manufacturing Steel CONFIDENTIAL

and casting

Means/ Borrower: Ralco Industries Ltd. Sectoral/category:

Reported worth Standard
as on 31/03/09 Credit Rating: Cr-4

Estd. 1973 Constitution: Public BRANCH : Gandhibag,

48.97% Limited Company Nagpur
Reg No. *** Date:25.08.09 Month of Review: MAY 2010
Nature of Limit Amount Margin Int/Com Security
Existing Proposed
[A] Non FB
Import LC Hyp of goods produced
(DA 180 days) 50.00 50.00 100% Usual under DA LC & BD, FDR
under Bank’s lien.
LG 3.27 3.27 10% Usual Counter Indemnity & FDR
under Bank’s lien.
Inland/ Import Hyp of goods produced
LC 21.40 23.71 10% Usual under DA LC & BD, FDR
(DP/DA 180 under Bank’s lien.
days)
Sub total [A] 74.67 76.98
[B] Fund Based
CC (hyp & BD) 14.70 18.67 25% BPLR Hyp of RM, WIP, FG,
Stores, Spares & BD
Sub total [B] 14.70 18.67
[C] Term Loan
Term Loan 50.00 46.26 Nil BPLR First Pari Passu Charge
on FA of the company
Sub total [C] 50.00 46.26
Total [A+B+C] 139.37 141.91

Special Terms and conditions:

(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
undertaking to this effect should obtain from the borrower. Consent clause to be
obtained from the borrower/ Guarantors

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 (2) Borrower / Branch will obtain comprehensive insurance of all
properties/stock mortgaged/ hypothecated with bank with bank clause covering
all type of risk including flood and earthquakes for the above properties and
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 of stock) plus
book debts not older than 90 days less sundry creditors (Trade) by keeping 25%
margin against stock and book debts.
(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
attract 2% Penalty on limit sanctioned till submission.
(5) Borrower should not transfer the banks funds to any other family /sister
concern or to partners/directors/relatives/ friends during the currency of banks
advance. Undertaking to this effect should be obtained.
(6) Unsecured loans should be retained in the System till the currency of our
advance.
(7) Entire sales should be routed through our A/c.
(8) Excess over limit /DP will not be permitted.
(9) Inter transfer of funds among the connected accounts will not be permitted
except genuine trade transactions.
(10) Processing charges, documentation and inspection charges etc will be

EXAMPLE-2:
As per the Financial Report provided by one of the borrower
(Puja Garments) of the Union Bank of India, Gandhibagh,
prepare Process note, as the firm needs a temporary overdraft
of Rs. 7 lacs with a existing limit of Rs. 32.00 lacs.

Date: 21/05/2010
Proposal for offering ToD
Company M/s Puja Garments
Banking Sole
Month of Review May
Credit Rating CR-3 (Existing)
CR-5 (Assigned)
Address: ***
Date of Incorporation 25/07/1994

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Type of Limit Amount Interest Security
CC (H) Stock + BD Rs. 7.00 BPLR + - Hyp of Stock & BD
from our Bank lacs 0.25% not older than 90
ToD days.
i.e. - EM of Property
12.00% valued Rs. 23.45 lacs

Name of Directors:
(1) Ravi Raj
(2) Puja Raj
(3) Rahul Raj

Nature of Business: Stitching of seasonal clothes

Financial Indicators: (Rs. in lacs)

Year 2008-09 2009-10
Paid Up Capital 9.5 11.07
Tangible Net Worth 22.10 22.24
Net Sales 188.93 119.04
Purchases 150.20 125.24
Closing Stock 24.35 42.61
Profit Before Tax 3.87 1.56
Profit After Tax 3.87 1.56
Debt Equity Ratio 7.95 7.57
Net Working Capital 7.79 4.46
Working Capital Gap 27.37 27.54
Current Ratio 1.13 1.06

Comment of the Financial Indicators:

(1) Capital: The Capital is increased from Rs. 9.5 lacs in year
2009 to Rs. 11.07 lacs in the year 2010 due the increase in the
unsecured amount as well as the Reserves & Surplus.
(2) Tangible Net Worth: The TNW is slightly increased due to
the increase in the capital, which will help them to achieve the
projected sales.

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 (3) Net Sales: The Net turnover of the company is decreased by
Rs. 69.89 lacs as compared to previous year 2009, which shows a
decrease of around of 40%. The reason of the decease is the
growing competition and also the slow down in the market.
(4) Purchases: The Purchases is also decreased due to
decrease in demand of the product.
(5) Closing Stock: The c/s is increased due to the decrease in
sales, which is also a good sign of the Hyp of stock.
(6) Profit: The profit has also been decreased as compared the
previous year 2009 by around 60%, this is due to poor turnover.
(7) Debt Equity Ratio: The DER is not much affected from the
previous year which shows less sundry creditor in the year.
(8) Net Working Capital: The NWC is also been decreased due
to the increase in amount of c/s and decrease in purchases
(9) Current Ratio: The CR has been decreased as compared
to the previous year, which is under the acceptable mark.

Summary of Credit Rating:

Marks obtained
Parameters
Total Marks Obtained Marks
Borrowers rating 62 36
Facility rating 19 16
Risk Mitigators 05 04
Business aspects 05 05
Total Marks 91 61 (67.03%)

CR-5 (Rate of Interest)= BPLR + 0.75 = 12.25%

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 CHAPTER-5

RECOMMENDATIONS AND
SUGGESTIONS
 RECOMMENDATIONS AND SUGGESTIONS
Example-1
In view of all above, long banking relations and available
collateral cover, we may recommend for enhancement in existing
cash credit limit and LC limit as well as renewal of the proposed limit
as well.

Example-2
(1) Though the net Profit and sales has decreased, the firm have
the potential to over these situation an to achieve the next years
projected sales.

(2) EM of the property has a value of Rs. 23.45 lacs and the
insurance of Rs. 21.00 lacs is valid up to 21/12/2010

(3) The company has good relation with the bank and banking
with us since 16 years. The company also falls in standard category.

(4) The firm has received an order from Govt. Subsidiary

organization of Rs. 17.00 lacs, so the request of ToD of limit Rs. 7.00
lacs is assured by directors that they will repay the limit within 25
days.

Other Suggestion:
! Banks are now better equipped to handle the varied needs of the
Priority sector due to better technology and risk management. The
Government has asked banks to adopt a full-service approach to
cater to the diverse needs of the sector. This, it recommends, may be
achieved by extending banking services to be a recognized clusters
by adopting the 4-C approach: Customer focus, cost control, cross-
selling and containing risk.

! To enable the banks take more objective decisions, the

Government plans to introduce a rating mechanism for designated

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industrial clusters; This would enable institutional funding to be
channeled through homogenous recognized clusters.

! There is a critical need to devote substantial resources to

improving the skills and capabilities of banks' lending officers,
especially with regard to the analysis of the financial statements.
Understanding the nature of the borrower's business and the cash-
flow required is paramount to preventing the creation of NPAs.

! Another way of extending loans is the relationship-lending rule,

where the lending partly bases its decision on proprietary information
about the firm and its owner through a variety of contacts over time.
The information may be gathered from such stakeholders as
suppliers and customers, who may give specific information about
the owner of the firm or general information about the business
environment in which it operates.

! Insufficient data on the borrower, the lack of credible published

information about their financial health, the high vulnerability of small
players in a liberalizing market band the inadequacy of risk
management systems in banks are factors leading to higher NPAs
and lower profitability than potential in lending. This can be
overcome by collection of authentic data on the segment, educating
the enterprises on the need for reliable financial data, evolving
suitable risk models and close monitoring of accounts by the bank.

! Increasingly using products such as derivatives to manage their

forex flows. Bank needs to offer sophisticated products to this
simplified sector.

! Borrowers need to innovate their delivery platforms by using

Internet banking, mobile banking and card-based platforms for
delivery of transaction-banking as well as credit products, and
enhance the service element because they look for convenience
and simplicity in their banking requirements and banks should
deliver these through an effective use of technology.

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CHAPTER-6

CONCLUSION
 CONCLUSION:
The study at UNION BANK OF INDIA gave me 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
used in practice during the working capital finance assessment and
other limits. I have realized during my project that a credit analyst
must own multi-disciplinary talents like financial, technical as well as
legal concepts.
The credit appraisal for working capital finance and the other limit
availed by the system has been devised in a systematic way. There
are clear guidelines on how the credit analyst or lending officer has to
analyze a loan proposal. It includes phase-wise analysis which
consists of 5 phases:
1. Financial statement analysis
2. Capital and its assessment techniques
3. Credit risk assessment
4. Documentation
5. Loan administration

Union Bank of India’s adoptions of the Projected Balance Sheet

method of assessment procedures are based on sound principles of
lending. This method of assessment has certain flexibility required to
avoid any rigid approach to fixing quantum of finance. It is superior
and more rational compared to the Turnover Method , Cash Budget
Method of assessment .It also facilitates the Bank to carry on follow
up procedures. The PBS method have been rationalized and
simplified to facilitate complete flexibility in decision-making.
To ensure asset quality , proper risk assessment right at the
beginning , is extremely important. That is why Credit Risk
Assessment system is an essential ingredient of the Credit Appraisal
exercise. It considers important parameters like profitability,
repayment capacity, efficiency of the unit , historical/ industry
comparisons etc.

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 ABBREVIATIONS
AD: Auxiliary Document
BG/LG: Bank Guarantee/ Letter of
Guarantee
BBB: Business Banking Branches
BPLR: Bench Prime Lending Rate
(11.75%)
CBS: Core Banking solution/system
CGS: Credit Guarantee Scheme
CGTMSE: Credit Guarantee Fund
Trust for Micro if Small Enterprises .
CMA: Credit Monitoring Analysis Data
CPC: Central Processing Centers
CR: Current Ratio
CRR: Credit Risk Rating
DBC: Debit Balance Conformation
DER: Debt Equity Ratio
DIC: Division of International
Criminology
DP: Drawing Power/ Demand
Promissary Note
DRC: Deposit reinvestment certificate
DRDA: District Rural Development
Agency
DSCR: Debt Service Coverage Ratios
EAS: Early Slert System.
ECB: External Commercial Borrowing
ECS: Electronic Clearing System
FDR: Fixed deposit receipt
FGMO: Field General Managers
Office.
FICCI: Federation of Indian chambers
of commerce & industry
GDP: Gross Domestic Product.
HUF: Hindu Undivided Family
IPO: Initial Public Offering
IRR: Internal Rate of Return.
LAM: Low Ash Metallurgical Coke.
LAS: Lending Automation Solution.
LC: Letter of Credit
LCV: Large Corporate Vehicle
MSME: Micro, Small & Medium
Enterprises
MSOD: Monthly Statement of
Operational Department
M/s: Messers
NAV: Net Asset Value.
NBFCs: Non Banking Financial
Companies
NEFT: National Electronic Fund
Transfer
NPA: Non performing assets
NSC: National Saving Certificate
PAN: Personal Area Network
PSL: Priority Sector Lending
QPR: Quarterly Progress Reprot
RRBs: Regional Rural Banks
RTGS: Real Time Gross Settlement.
SD: Standard Document
SGA: Selling & General Administrative
expenses
SMA: Special mention account
SOD: Secured Overdraft
SSE: Small Scale Enterprises
TAT: Turn Around Time
TNW: Total Net Worth
TOL: Total Outside Liability
WBB: Wholesale Banking Branches
WDV: Written Down Value.
WEF: with effect from
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 APPENDICES
Beneficiary: A "beneficiary" in the broadest sense is a natural person or
other legal entity who receives money or other benefits from a benefactor,
who receives the payment of the amount. A person who receives the benefits
from something although perhaps not the legal owner of the thing.

Bills of exchange: An unconditional order issued by a person or business

which directs the recipient to pay a fixed sum of money to a third party at a
future date. The future date may be either fixed or negotiable. A bill of
exchange must be in writing and signed and dated also called draft.

Borrower/Beneficiary: A person who has availed loan under the priority

sector lending programme is called a borrower/beneficiary.

Capital: Money that one has invested, for example one uses capital to make
a new product, like wise one uses capital when one buy a single share of a
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
capital that you are investing in funds.
Capital market: It refers to physical & electronic environment where capital
is raised, either through public offering or private placement.
Current Ratio: An indication of a company's ability to meet short-term debt
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
a company are more than twice the current liabilities, then that company is
generally considered to have good short-term financial strength. If current
liabilities exceed current assets, then the company may have problems
meeting its short-term obligations. It indicates size of stake, stability and
degree of solvency. It indicate how high is the stake of the creditors, indicate
what proportion of the company’s finance is represented by the tangible net
worth, the lower the ratio the greater the solvency, the ratio is usually higher in
case of SME’s.
Current account: Non interest-bearing bank account which allows the
account holder to write cheques against the funds in the account and also
deposit cheques into the account.
Commercial Banks: Commercial banks include all scheduled
commercial banks except regional rural banks, foreign banks and newly
formed private sector banks like HDFC bank, ICICI bank, etc.

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Collateral: This usually consists of tangible assets such as real estate,
equipment, accounts receivable, or inventory. Generally, fixed assets are
used, sometimes intangible assets such as patents, company name, or
future cash flow can be used as collateral. Often a borrower's guarantee,
either corporate or personal, is required. Loans having collateral are called
secured loans.
Consortium Finance: The borrowers, particularly the big ones, are
nowadays a very happy lot as the bankers run after them offering cheap
finance. This has given birth to the practice of multiple banking a situation
when one borrower is banking with many banks. This should have been
governed under the concept of consortium financing. Under consortium
financing, several banks (or financial institutions) finance a single borrower
with common appraisal, common documentation, joint supervision and
follow-up exercises.
Debt Equity Ratio: It is defined as a measure of a company's financial
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
calculation. It is important to realize that if the ratio is greater than 1, the
majority of assets are financed through debt. If it is smaller than 1, assets are
primarily financed through equity.

Hypothecation: When a person pledges a mortgage as collateral for a loan,

it refers to the right that a banker has to liquidate goods if you fail to service a
loan. The term also applies to securities in a margin account used as
collateral for money loaned from a brokerage. In banking, refers to the
commitment of property to secure a loan.

Hypothecation of Stocks: Industrial organizations have to invest a large

sum of money to build stocks of raw material to up keep their manufacturing
line. This is act to create liquidity constraints in the Financial Balance Sheet of
the customer. To manage such financial gaps/shortfall in their cash flow they
usually resort to borrowing from Banks against Hypothecation of raw
material/semi or finished goods held by them in their stocks. Banks in such
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
Bank to take custody of the stocks, in the event the borrowers default to repay
the loan or fail to meet their obligations, as agreed.

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Line Of Credit: An arrangement in which a bank or vendor extends a
specified amount of unsecured credit to a specified borrower for a specified
time period also called credit line. An agreement between a bank and a
company or an individual to provide a certain amount in loans on demand
from the borrower.

Mortgage Loan: A mortgage loan is a loan secured by real property through

the use of a document which evidences the existence of the loan and the
encumbrance of that realty through the granting of a mortgage which secures
the loan. However, the word mortgage alone, in everyday usage, is most
often used to mean mortgage loan.

MSME: In accordance with the provision of MSMED Act, 2006 the MSME are
classified in two classes: (a) Manufacturing Enterprises- The enterprises
engaged in the manufacture or production of goods pertaining to any industry
specified in the first schedule to the industries (Development and regulation)
Act, 1951). The Manufacturing Enterprise are defined in terms of investment
in Plant & Machinery. (b) Service Enterprises- The enterprises engaged in
providing or rendering of services and are defined in terms of investment in
equipment.

Minority communities: In States, where one of the minority communities

notified is, in fact, in majority, will cover only other notified minorities. These
States/Union Territories are Jammu & Kashmir, Punjab, Sikkim, Mizoram,
Nagaland and Lakshadweep. indirectly through a SHG/JLG mechanism or to
NBFC/MFI for on-lending up to Rs. 50,000 per borrower, will constitute micro
credit.

Nationalized Banks: Nationalized banks consist of the 19 nationalized

banks functioning in the country.
Negotiable instrument: It is a specialized type of "contract" for the payment
of money that is unconditional and capable of transfer by negotiation. As
payment of money is promised later, the instrument itself can be used by the
holder in due course frequently as money. Common examples include
cheques, banknotes (paper money), and commercial paper.

Negotiation: It means the giving of value for Draft(s) and/or document(s) by

the bank authorized to negotiate, viz the nominated bank. Mere examination
of the documents and forwarding the same to the letter of credit issuing bank
for reimbursement, without giving of value / agreed to give, does not
constitute a negotiation.

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Operating profits/Net sales (%): It indicates operating efficiency. It should
be comparable with similar industries. Trend for the company over a period
should be encouraging.
Paid up capital: The total amount of share- holder’s capital that has been
paid in full by shareholders. Paid up capital is essentially the portion of
authorized stock that the company has issued & received payment for.
PBDIT/ interest (times): This is called ‘interest coverage’ ratio. In the current
context, the servicing capability of loan is very crucial. This ratio, which
indicates the number of times the gross earnings cover the interest payable is
an indicator of the measure of comfort that profitability provides. Higher ratio
indicates comfortable debt servicing capability from the cash accrual of the
company. A ratio of more than 3 is considered comfortable, where as a ratio of
2 and below is considered risky.

Reserves: Reserves mean amount set aside out of profit and other
surpluses to meet future uncertainties, for example, general reserves, capital
reserves, dividend equilisation reserves, investment fluctuation funds,
workmen compensation funds, reserves for redemption of debentures.
Surplus: A situation in which assets exceeds liabilities, income exceeds
expenditure, export exceeds import or profit exceeds loss. It is opposite of
deficit.
SARALs: These are the CPC, Sarals attached to RO, for meeting the
following objectives:
! To accelerate the credit flow to MSMEs through focused sales and
marketing.
! To enhance customer service through quick Turn Around Time.
! To reduce NPAs through efficient monitoring system.
! To lower cost and build expertise.

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 ANNEXURE- I
A Survey on the Priority Sector Lending by UBI
in Nagpur Division

QUESTIONNAIRE
(BENEFICIARIES)
(Please put a tick ( ) mark against the answers you choose)

(1) Category:
(a) Agriculture ❑ (b)SSI ❑ (c)GSS ❑ (d) Other tertiary sectors ❑

(2) Monthly income:

(a) Less than Rs.1,000 ❑ (b)Rs. 1,000-2,000 ❑
(c) Rs. 2,000-3,000 ❑ (d) Rs. 3,000-5,000 ❑
(e) Above Rs. 5, 000 ❑

(3) Why do you prefer bank loan?

(a) Low rate of interest ❑ (b) Easy repayment facility ❑
(c) No other sources of finance ❑ (d) Others ❑

(4) How do you know about this scheme?

(a) Newspaper ❑ (b) TV/Radio ❑
(c) Friends/ relatives/neighbours ❑
(d) Others ❑

(5) How did you approach the bank?

(a) Directly ❑ (b) Indirectly ❑

(6) Have you received the applied loan amount fully/partially?

(a) Fully ❑ (b) Partially ❑

(7) Have you provided any margin money?

(a) Yes ❑ (b) No ❑

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(8) Was there any pre and post sanction visit by
the bank officials?
(a) Yes ❑ (b) No ❑

(9) Whether the loan amount received was sufficient

for the purpose?
(a) Yes ❑ (b) No ❑

(10) Interest rate of this loan

(a) Low ❑ (b) High ❑

(11) Whether the purpose or goal of the loan was achieved?

(a) Yes ❑ (b) No ❑
(12) Will you approach the bank again for the same
type of loan?
(a) Yes ❑ (b) No ❑

ANNEXURE- II
A Survey on the Priority Sector Lending by UBI
in Nagpur Division

QUESTIONNAIRE
(BANK MANAGERS)
(Please put a tick ( ) mark against the answers you choose)

(1) Actions taken by the bank for communicating

the PSL scheme.
(a) Wall posters/brochures ❑ (b) Circulars ❑
(a) News papers/TV/Radio ❑ (b) others ❑

(2) How do the beneficiaries approach the bank?

(a) Directly ❑ (b) Indirectly ❑

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(3) Do you/your staff have undergone any
training in PSL programme?
(a) Yes ❑ (b) No ❑

(4) Do you compel the beneficiaries to insure the asset?

(a) Yes ❑ (b) No ❑
(5) Do you conduct any pre/ post sanction visits?
(a) Yes ❑ (b) No ❑
(6) How much time it will take for disposal of application?
(a) One week ❑ (b) Two weeks ❑
(c) Three week ❑ (d) Above ❑

(7) Reasons for delay in disbursement of loans

(a) Technical appraisal ❑ (b) Certificates of others ❑
(c) Shortage of staff ❑ (d) Improper documentation ❑
(8) Do you find any difficulty in achieving the target?
(a) Yes ❑ (b) No ❑

(9) Do you send advance notice before the instalment

is due?
(a) Yes ❑ (b) No ❑

(10) In which sector do you find more NPAs?

(a) Priority sector ❑ (b) Non priority sector ❑
(11) What are the goals achieved through PSL?
(a) Eradication of poverty ❑
(b) Upliftment of weaker sections ❑
(c) Reduction of unemployment ❑
(d) Self-sufficiency in food ❑
(e) Growth in industrial sectors ❑
(f) Socio- economic growth ❑
(g) Others ❑

(12) Is the repayment by the borrowers is standard?

(a) Yes ❑ (b) No ❑

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BIBLIOGRAPHY
 BIBLIOGRAPHY

! Financial Management - by M. Y. Khan

! http://unionbankofindia.co.in/
! http://www.rbi.org.in/
! Instruction Circular No. 8435
! Instruction Circular No. 8619
! Http://www.ficci.com/

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