CREDIT APPRAISAL

A PROJECT REPORT
ON

CREDIT APPRAISAL IN
BANKING SYSTEM

A Project submitted in partial fulfillment for the award of Degree

of
MASTER OF BUSINESS ADMINISTRATION

Submitted to: Submitted by:

Managing Director Parmjeet Singh
Sr. J.S Safri Roll No 511113351
RICDT Professional College MBA- IV SEM.
LC Code : 00899

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STUDENT DECLARATION

I hereby declare that the project report entitled

CREDIT APPRAISAL submitted for the degree of
MBA is my original work carried out by me under
the guidance of Sr. J.S Safri for the partial fulfillment
of the award of the degree of MASTER OF BUSINESS
ADMINISTRATION. The matter embodied in this
report has not submitted anywhere else for the
award of any other degree/diploma.

Place : Roapr Name : Parmjeet Singh

Date : Roll No : 511113351

Forwarded by : RICDT Professional College, Ropar (Pb)

Center Code : 00899

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RICDT Professional College

Ropar
(Study Centre of Sikkim Manipal University)

Certificate
This is to be certified that the Project work entitled
CREDIT APPRAISAL of MBA Revised has been
carried out by is approved and acceptable.

Project Guide : Centre Head :

Mr. Sanjeev Kumar Sr. J.S Safri

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Examiner’s Certificate
This is to certify that Parmjeet Singh has been
successfully completed the project entitled as
CREDIT APPRAISAL in partial fulfillment of the
requirement for the Award of

MBA
(of Sikkim Manipal University)
On
2011-2012 at
RICDT Professional College Ropar
(Study Centre of Sikkim Manipal University)

Signature Signature
(Internal Examiner) (External Examiner)

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Acknowledgement

Preparing a project was great experience for me

which was possible only with the help of people,
whom I really want to say thanks.
I would like to express my deepest sense of regards
and gratitude RICDT Professional College, (Affiliated
to Sikkim Manipal University) for their kind regards
and suggestions.
I wish to thanks Sr. J.S Safri Director of the college
and to all the teaching and non-teaching staff and
friends who help me directly or in-directly in the
successful completion of this project.

Parmjeet Singh
Roll No. 511113351

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Curriculum Vitae

Name : Parmjeet Singh

Father Name : S.Sukhwinder Singh
Course : MBA
Roll No. : 511113351
Semester : IV
Session : 2012
LC Code : 00899
Date of Submission :

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TABLE OF CONTENTS
Chapters

1. INTRODUCTION

 Reason for selecting the project

 Scheme of the project
 Research Methodology
 Limitation of the study

2. CREDIT POLICY OF COMMERCIAL BANK

 Commercial banks and its objectives

 Recent policy developments regarding bank credit
 Changing phase of bank credit
 Trends of bank credit in India
 Procedure for providing bank credit
 Credit Appraisal

3. THE PROFILE OF THE ORGANIZATION OF PNB

 Indian banking sector & its major challenges

 Punjab National Bank at a glance
 Mission and Vision
 Organizational structure of PNB

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4. CREDIT PHILOSOPHY & POLICY WITH REGARDS TO PNB

 Credit philosophy
 Credit policy
 Introduction to loans
 Classification of loans
 Building up of a proposal
 Requirements as per constitution of borrower
 Financial Appraisal

5. ANALYSIS AND INTERPRETATION OF DATA

 Credit Appraisal techniques

 Process of credit appraisal for providing cash credit
 Appraisal techniques for retail loans

6. CASE STUDY

7. CONCLUSION

 Conclusion

 BIBLIOGRAPHY

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CREDIT APPRAISAL

Credit appraisal means an investigation/assessment done by the bank prior

before providing any loans & advances/project finance & also checks the
commercial, financial & technical viability of the project proposed its funding
pattern & further checks the primary & collateral security cover available for
recovery of such funds.

The last year financial crises have become the main cause for recession which
was started in 2006 from US and was spread across the world. The world
economy has been majorly affected from the crisis. The securities in stock
exchange have fallen down drastically which has become the root cause of
bankruptcy of many financial institutions and individuals. The root cause of the
economic and financial crisis is credit default of big companies and individuals
which has badly impacted the world economy. So in the present scenario
analysing one‘s credit worthiness has become very important for any financial
institution before providing any form of credit facility so that such situation
doesn‘t arise in near future again.

Analysis of the credit worthiness of the borrowers is known as Credit Appraisal.

In order to understand the credit appraisal system followed by the banks this
project has been conducted. The project has analysed the credit appraisal
procedure with special reference to Punjab National Bank which includes
knowing about the different credit facilities provided by the banks to its
customers, how a loan proposal is being made, what are the formalities that is to
be satisfied and most importantly knowing about the various credit appraisal
techniques which are different for each type of credit facility.

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Before going further it is necessary to understand the need and basic framework
of the project. Therefore this chapter provides an introduction to the topic,
objective of the project, reasons for selecting the project and the basic structure
and framework how the project proceeds. In order to understand the importance
of the topic selected an introduction to the overview of the commercial bank ,
its functions, and present trends and growth in bank credit are required and it is
covered in this chapter.

Reasons for selecting the project

Whenever an individual or a company uses a credit that means they are

borrowing money that they promise to repay with in a pre-decided period. In
order to assess the repaying capability i.e. to evaluate their credit worthiness
banks use various techniques that differ with the different types of credit
facilities provided by the bank. In the current scenario where it is seen that big
companies and financial institutions have been bankrupted just because of credit
default so Credit Appraisal has become an important aspect in the banking
sector and is gaining prime importance.

It is the incident of credit defaults that has given rise to the financial crisis of
2008-09. But in India the credit default is comparatively less that other
countries such as US. One of the reasons leading to this may be good appraisal
techniques used by banks and financial institutions in India. Eventually the
importance of this project is mainly to understand the credit appraisal
techniques used by the banks with special reference to Punjab National Bank.

Scheme of the project

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It covers the objective and structure of the project which is discussed as

follows:-

Objective of the project

The overall objective of this project is to under stand the current credit appraisal
system used in banks. The Credit Appraisal system has been analysed as per the
different credit facilities provided by the bank. The detailed explanation about
the techniques and process has been discussed in detail in the further chapters.

Structure or Plan of the project

The project first of all makes a study about the commercial banks- its important
functions. Then it highlights on the concept of Bank Credit & its recent trends.
The project then proceeds towards the lending procedure of banks and here it
highlights about credit appraisal being the first step in building up of a loan
proposal. Then it discusses the bank credit policy with respect to Punjab
National bank where the project was undertaken.

The project then proceeds with the review of literature i.e. review of some past
work regarding credit appraisal by various researchers. The project then moves
towards research methodology where it covers the information regarding the
type of data collected and the theoretical concepts used in the project are
discussed in detail. Then the project proceeds with the next chapter consisting
of the analysis part which covers the analysis of various techniques used by the
banks for the purpose of credit appraisal. Then the project moves to its next
chapter i.e. findings where some results found out are interpreted and then
moving on to the last and the final chapter i.e. the suggestions and conclusions
where some steps are suggested to be implemented to increase the work
efficiency and to reduce to work pressure

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Commercial banks and its objectives

A commercial bank is a type of financial intermediary that provides checking

accounts, savings accounts, and money market accounts and that accepts time
deposits. Some use the term "commercial bank" to refer to a bank or a division
of a bank primarily dealing with deposits and loans from corporations or large
businesses. This is what people normally call a "bank". The term "commercial"
was used to distinguish it from an investment bank.

Commercial banks are the oldest, biggest and fastest growing financial
intermediaries in India. They are also the most important depositories of public
savings and the most important disbursers of finance. Commercial banking in
India is a unique banking system, the like of which exists nowhere in the world.
The truth of this statement becomes clear as one studies the philosophy and
approaches that have contributed to the evolution of banking policy,
programmes and operations in India.

The banking system in India works under constraints that go with social control
and public ownership. The public ownership of banks has been achieved in
three stages: 1995, july 1969 and April, 1980. Not only the public sector banks
but also the private sector and foreign banks are required to meet the targets in
respect of sectoral deployment of credit, regional distribution of branches, and
regional credit deposit ratios. The operations of banks have been determined by
lead bank scheme, Differential Rate of interest scheme, Credit authorization
scheme, inventory norms and lending systems prescribed by the authorities, the
formulation of credit plans, and service area approach.

Commercial Banks in India have a special role in India. The privileged role of
the banks is the result of their unique features. The liabilities of Bank are money
and therefore they are important part of the payment mechanism of any country.
For a financial system to mobilise and allocate savings of the country

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successfully and productively and to facilitate day-to-day transactions there

must be a class of financial institutions that the public views are as safe and
convenient outlets for its savings. The structure and working of the banking
system are integral to a country‘s financial stability and economic growth. It has
been rightly claimed that the diversification and development of Indian
Economy are in no small measure due to the active role banks have played
financing economic activities of different sectors.

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Major objectives of commercial banks

Balancing profitability with liquidity management

• As any other business concern, Banks also aim to make profit
• but besides that they also need to maintain liquidity beacuse of
the nature of their liabilities.

Management of Reserves
• Banks are expected to hold a part of their deposits in form of
ready cash which is known as CASH RESERVES.
• Central bank decides the reserve ratio known as the CRR.

Creation of Credit
• Banks are said to create deposits or credit or money or it can be
said that every loan given by bank creates a deposit.
• This has given rise to the important concept of money multiplier.

Bank Credit

The borrowing capacity provided to an individual by the banking system, in the

form of credit or a loan is known as a bank credit. The total bank credit the
individual has is the sum of the borrowing capacity each lender bank provides
to the individual.

The operating paradigms of the banking industry in general and credit

dispensation in particular have gone through a major upheaval.

 Lending rates have fallen sharply.

 Traditional growth and earning such as corporate credit has been either
slow or not profitable as before.
 Banks moving into retail finance, interest rate on the once attractive retail
loans also started coming down.
 Credit risks has went up and new types risks are surfaced

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Types of credit-

Bank in India provide mainly short term credit for financing working capital
needs although, as will be seen subsequently, their term loans have increased
over the years. The various types of advances provide by them are: (a) Term
Loans, (b) cash credit, (c) overdrafts, (d) demand Loans , (e) purchase and
discounting of commercial bills, and, (f) instalment or hire purchase credit.

Volume of Credit-

Commercial banks are a major source of finance to industry and commerce.

Outstanding bank credit has gone on increasing from Rs 727 crore in 1951 to Rs
19,124 crore in 1978, to Rs 69,713 crore in 1986, Rs 1,01,453 crore in 1989-90 ,
Rs 2,82,702 crore in 1997 and to Rs 6,09,053 crore in 2002. Banks have
introduced many innovative schemes for the disbursement of credit. Among
such schemes are village adoption, agriculture development branches and equity
fund for small units. Recently, most of the banks have introduced attractive
education loan schemes for pursuing studies at home or abroad. They have
introduced attractive educational loan schemes for pursuing studies at home or
abroad. They have moved in the direction of bridging certain defects or gaps in
their policies, such as giving too much credit to large scale industrial units and
commerce and giving too little credit to agriculture, small industries and so on.

The Public Sector Banks are still the leading lenders though growth has
declined compared to previous quarter. The credit growth rate has dipped
sharply in foreign and private banks compared to previous quarter. In all, the
credit growth has slipped in this quarter.

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Credit (YOY Growth)

March 28 2008 March 27

2009
Public Sector Banks 22.5 20.4

The rates have gone down compared to previous quarter when it was seen that
there was no changes in loan rates in private and foreign banks. But then
compared to rate cuts done by RBI, they still need to go lower.

Table 16: Reduction in Deposit and Lending Rates

(October 2008 – April 2009*)
(Basis points)
Lending Rates
Bank Group Deposit Rates (BPLR)
Public Sector Banks 125-250 125-225
Private Sector Banks 75-200 100-125
Five Major Foreign Banks 100-200 0-100
Change (from
BPLR Oct – 08 Mar – 09 Apr – 09
Oct to Apr)
Public Sector Banks 13.75-14.75 11.50-14.00 11.50-13.50 125-225
Private Sector Banks 13.75-17.75 12.75-16.75 12.50-16.75 100-125
Five Major Foreign
14.25-16.75 14.25-15.75 14.25-15.75 0-100
Banks

Sector-wise credit points credit has increased to agriculture, industry and real
estate whereas has declined to NBFCs and Housing. A bank group wise sectoral
allocation is also given which suggests private banks have increases exposure to
agriculture and real estate but has declined to industry. Public sector banks have
increased allocation to industry and real estate. There is a more detailed analysis
in the macroeconomic report released before the monetary policy.

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As on
As on February
February
Sector 15, 2008
27, 2009
% share Variations % share Variations
in total (per cent) in total (per cent)
Agriculture 9.2 16.4 13 21.5
Industry 45.2 25.9 52.5 25.8
Real Estate 3.1 26.7 8.5 61.4
Housing 7.3 12 4.7 7.5
NBFCs 5.7 48.6 6.6 41.7
Overall Credit 100 22 100 19.5

To sum up, the credit conditions seems to have worsened after January 2009.
The rates have declined but lending has not really picked up. However, the
question still remains – whether credit decline is because banks are not lending
(supply) or because people/corporates are not borrowing (lack of demand). It is
usually seen that all financial variables as lead indicators say if credit growth
(along with other fin indicators) is picking, actual growth will also rise.
However, it is actually seen the relation is far from clear. In fact, the financial
indicators hardly help predict any change in business cycle. Most rise in good
times and fall in bad times. Most financial indicators failed to predict this global
financial crisis and kept rising making everyone all the more complacent.

Recent policy developments Regarding Bank Credit

Bank lending was done for a long time by assessing the working capital needs
based on the concept of MPBF (maximum permissible bank finance). This
practice has been withdrawn with the effect from April 15 th 1997 in the sense
that the date, banks have been left free to choose their own method ( from the
method such as turnover , cash budget, present MPBF , or any other theory) of
assessing working Capital requirement of the borrowers.

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The cash credit system has been the bane, yet it has exhibited a remarkable
strength of survival all these years. In spite of many efforts which were direct in
nature, only a slow progress has been made to reduce its importance and
increase bill financing. Therefore a concrete and direct policy step was taken on
April 21, 1995 which made it mandatory for banks, consortia, syndicates to
restrict cash credit components to the prescribed limit , the balance being given
in the form of a short term loan, which would be a demand loan for a maximum
period of one year, or in case of seasonal industries , for six months. The
interest rates on the cash credit and loan components are to be fixed in
accordance with the prime lending rates fixed by the banks. This ―loan system‖
was first made applicable to the borrowers with an MPBF of Rs 20 crore and
above; and in their case , the ratio of cash credit (loan) to MPBF was
progressively reduced(increased) from 75 (25) per cent in April 1995 , to 60
(40) percent in September 1995, 40 (60) per cent in April 1996 , and 20 (80)
percent in April 1997. With the withdrawal of instructions about the MPBF in
April 1997 , the prescribed cash credit and loan components came to be related
to the working capital limit arrived in banks as per the method of their choice.

With effect from September 3, 1997, the RBI has permitted banks to raise their
existing exposure limit to a business group from 50% to 60%; the additional
10% limit being exclusively meant for investment in infrastructure projects.

The term lending by banks also has subject to the limits fixed by RBI. In 1993,
this limit was raised from Rs 10 crore to Rs 50 crore in case of a loan for a
single project by a single bank, and from Rs 150 crore to Rs 200 crore for a
single project by all the banks. The latter limit was subsequently raised to Rs
500 crore in the case of general projects and Rs 1000 crore for power projects.
From September3, 1997 these caps on term lending by banks were removed
subject to their compliance with the prudential exposure norms.
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The banks can invest in and underwrite shares and debentures of corporate
bodies. At present, they can invest five percent of their incremental deposits in
equities of companies including other banks. Their investment in shares/ Bonds
of DFHI, Securities trading Corporation of India (STCI), all Indian financial
institutions and bonds (debentures) and preference shares of the companies are
excluded from this ceiling of five per cent with affect from April 1997 . From
the same date banks could extend loans within this ceiling to the corporate
against shares held by them. They could also offer overdraft facilities to stock
brokers registered with help of SEBI against shares and debentures held by
them for nine months without change of ownership.

CHANGING PHASE OF BANK CREDIT-

A study group headed by Shri Prakash Tandon, the then Chairman of Punjab
National Bank, was constituted by the RBI in July 1974 with eminent
personalities drawn from leading banks, financial institutions and a wide cross-
section of the industry with a view to study the entire gamut of Bank's finance
for working capital and suggest ways for optimum utilization of Bank credit.
This was the first elaborate attempt by the central bank to organize the Bank
credit. Most banks in India even today continue to look at the needs of the
corporate in the light of methodology recommended by the Group. The report of
this group is widely known as Tandon Committee report.

The weaknesses in the Cash Credit system have persisted with the non-
implementation of one of the crucial recommendations of the Committee. In the
background of credit expansion seen in 1977-79 and its ill effects on the
economy, RBI appointed a working group to study and suggest-

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i) Modifications in the Cash Credit system to make it amenable to better

management of funds by the Bankers and

ii) Alternate type of credit facilities to ensure better credit discipline and co
relation between credit and production. The Group was headed by Sh. K.B.
Chore of RBI and was named Chore Committee.

Another group headed by Sh. P.R. Nayak (Nayak Committee) was entrusted
the job of looking into the difficulties faced by Small Scale Industries due to the
sophisticated nature of Tandon & Chore Committee recommendations. His
report is applicable to units with credit requirements of less than Rs.50 lacs.

The recommendations made by Tandon Committee and reinforced by Chore

Committee were implemented in all Banks and Bank Credit became much
more organized. However, the recommendations were perceived as too strict by
the industry and there has been a continuous clamor from the Industry for
movement from mandatory control to a voluntary market related restraint. With
recent liberalization of economy and reforms in the financial sector, RBI has
given the freedom to the Banks to work out their own norms for inventory and
the earlier norms are now to be taken as guidelines and not a mandate. In fact,
beginning with the slack season credit policy of 1997-98, RBI has also given
full freedom to all the Banks to devise their own method of assessing the short
term credit requirements of their clients and grant lines of credit accordingly.
Most banks, however, continue to be guided by the principles enunciated in
Tandon Committee report.

Trends of Bank Credit in India

The face of Indian banking has changed radically in the last decade. A perusal
of the Basic Statistical Returns submitted by banks to the Reserve Bank of India
shows that between 1996 and 2005, personal loans have been the fastest
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growing asset, increasing from 9.3 per cent of the total bank credit in 1996 to
22.2 per cent in 2005. Of course, this is partly due to the huge rise in housing
loans, which rose from 2.8 per cent of the bank credit to 11 per cent over the
period, but ‗other personal loans‘ — comprising loans against fixed deposits,
gold loans and unsecured personal loans — also rose from 6.1 per cent to 10.7
per cent. Other categories whose share increased were loans to professionals
and loans to finance companies. In contrast, there has been a sharp decline in
the share of lendings to industry. Credit to small scale industries fell from 10.1
per cent of the total in 1996 to 4.1 per cent in 2005.

Reasons for declining trend of bank credit

 A major share of the economic growth has been led by the expansion of
the service sector
 Capital intensity and investment intensity required for growth in the
current economic context may not be as high as it used to be in the past.
 In manufacturing sector more efficient utilization of existing capacities
contributed to the sectoral growth rather rather than any large addition of
fresh capacities. The consequential increase in the demand for credit was
also subdued.
 Greater and cheaper avenues for credit resulted in a bigger share of
disintermediation being resorted to by large borrowers.

The other trend has been the substantial drop in the share of rural credit, while
the share of metropolitan centres has increased. While bankers say that up
gradation of rural centres into semi-urban could be one reason (the share of
semi-urban centres has gone up), it is also true that the reforms have been

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urban-centric and have tended to benefit the metros more. The number of rural
bank offices fell from 32,981 in March 1996 to 31,967 by March 2005.

The states have been the main beneficiaries of bank credit are the northern
region as it has increased its share from 18.7 per cent of the total credit in 1996
to 22.2 per cent in 2005. As it was seen that Delhi‘s share went up from 9.5 per
cent to 12.1 per cent over the period. This is not due to food credit, the account
of which is maintained in Delhi. Clearly, the national capital has gained a lot
from liberalisation.

Trends for the year 2008-09

The aggregate deposits of scheduled commercial banks have expanded during

2008-09 at a somewhat slower rate (19.8%) than in 2007-08 (22.4%). Within
aggregate deposits demand deposits have shown an absolute fall (-Rs 4,179
crore) in contrast to the sizeable increase (Rs 94,579 crore or by 22%) in 2007-
08,. On the other hand, time deposits have shown an accelerated increase of
22.6% (or Rs 647,806 crore) as against 21.8% (Rs 512,844 crore) in the
previous year.
In the investment portfolio of banks, the expansion during 2008- 09 at Rs
194,031crore has been much lower than the expansion of Rs 340,250 crore as
increase in net bank credit to government under monetary data for the same
period. This has happened because the latter has a sizeable amount of RBI credit
to government following the increased open market operations. Finally, there
has occurred considerable slowdown in bank credit expansion. Because of
relatively higher procurement of foodgrains, food credit has expanded by Rs
1,812 crore during 2008-09 as against an absolute fall of Rs 2,121 crore in
2007-08. Non-food credit growth at Rs 406,287 (17.5%) has been slower than
in the previous year at Rs 432,846 (23.0%).

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Procedure for providing Bank Credit-

Banks offers different types of credit facilities to the eligible borrowers. For
this, there are several procedures, controls and guidelines laid out. Credit
Appraisal, Sanctions, Monitoring and Asset Recovery Management comprise
the entire gamut of activities in the lending process of a bank which are clearly
shown as below:

Credit
Appraisal

Sanctions

Monitoring & Asset

recovery
Management

Source- Self constructed

From the above chart we can see that Credit Appraisal is the core and the basic
function of a bank before providing loan to any person/company, etc. It is the
most important aspect of the lending procedure and therefore it is discussed in
detail as below.

Credit Appraisal

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Meaning - The process by which a lender appraises the creditworthiness of the

prospective borrower is known as Credit Appraisal. This normally involves
appraising the borrower‘s payment history and establishing the quality and
sustainability of his income. The lender satisfies himself of the good intentions
of the borrower, usually through an interview.

 The credit requirement must be assessed by all Indian Financial

Institutions or specialised institution set up for this purpose.
 Wherever financing of infrastructure project is taken up under a
consortium / syndication arrangement – bank‘s exposure shall not exceed
25%
 Bank may also take up financing infrastructure project independently /
exclusively in respect of borrowers /promoters of repute with excellent
past record in project implementation.
 In such cases due diligence on the inability of the projects are well
defined and assessed. State government guarantee may not be taken as a
substitute for satisfactory credit appraisal.

The important thing to remember is not to be overwhelmed by marketing or

profit centre reasons to book a loan but to take a balanced view when booking a
loan, taking into account the risk reward aspects. Generally everyone becomes
optimistic during the upswing of the business cycle, but tend to forget to see
how the borrower will be during the downturn, which is a short-sighted
approach. Furthermore greater emphasis is given on financials, which are
usually outdated; this is further exacerbated by the fact that a descriptive
approach is usually taken, rather than an analytical approach, to the credit. Thus
a forward looking approach should also be adopted, since the loan will be repaid
primarily from future cash flows, not historic performance; however both can be
used as good repayment indicators.

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Indian Banking Sector & Its Major Challenges

It is well recognised by the world that India is one of the fastest growing
economies in the world. Evidence from across the world suggests that a sound
and evolved banking system is required for sustained economic development.
The last decade has seen many positive developments in the Indian banking
sector. The policy makers, which comprise the Reserve Bank of India (RBI),
Ministry of Finance and related government and financial sector regulatory
entities, have made several notable efforts to improve regulation in the sector.
The sector now compares favourably with banking sectors in the region on
metrics like growth, profitability and non-performing assets (NPAs). A few
banks have established an outstanding track record of innovation, growth and
value creation. This is reflected in their market valuation. However, improved
regulations, innovation, growth and value creation in the sector remain limited
to a small part of it. The cost of banking intermediation in India is higher and
bank penetration is far lower than in other markets. India‘s banking industry
must strengthen itself significantly if it has to support the modern and vibrant
economy which India aspires to be. While the onus for this change lies mainly
with bank managements, an enabling policy and regulatory framework will also
be critical to their success.
The failure to respond to changing market realities has stunted the
development of the financial sector in many developing countries. A weak
banking structure has been unable to fuel continued growth, which has harmed
the long-term health of their economies. In this ―white paper‖, we emphasise the
need to act both decisively and quickly to build an enabling, rather than a
limiting, banking sector in India.
Indian banks have compared favourably on growth, asset quality and
profitability with other regional banks over the last few years. The banking
index has grown at a compounded annual rate of over 51 per cent since April

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2001 as compared to a 27 per cent growth in the market index for the same
period. Policy makers have made some notable changes in policy and regulation
to help strengthen the sector. These changes include strengthening prudential
norms, enhancing the payments system and integrating regulations between
commercial and co-operative banks. However, the cost of intermediation
remains high and bank penetration is limited to only a few customer segments
and geographies. While bank lending has been a significant driver of GDP
growth and employment, periodic instances of the ―failure‖ of some weak banks
have often threatened the stability of the system. Structural weaknesses such as
a fragmented industry structure, restrictions on capital availability and
deployment, lack of institutional support infrastructure, restrictive labour laws,
weak corporate governance and ineffective regulations beyond Scheduled
Commercial Banks (SCBs), unless addressed, could seriously weaken the health
of the sector. Further, the inability of bank managements (with some notable
exceptions) to improve capital allocation, increase the productivity of their
service platforms and improve the performance ethic in their organisations
could seriously affect future performance. India has a better banking system in
place Vis a Vis other developing countries, but there are several issues that need
to be ironed out. Major challenges of Indian banking sector are mentioned
below.
Interest rate risk
Interest rate risk can be defined as exposure of bank's net interest income to
adverse movements in interest rates. A bank's balance sheet consists mainly of
rupee assets and liabilities. Any movement in domestic interest rate is the main
source of interest rate risk.

Over the last few years the treasury departments of banks have been responsible
for a substantial part of profits made by banks. Between July 1997 and Oct
2003, as interest rates fell, the yield on 10-year government bonds (a barometer

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for domestic interest rates) fell, from 13 per cent to 4.9 per cent. With yields
falling the banks made huge profits on their bond portfolios. Now as yields go
up (with the rise in inflation, bond yields go up and bond prices fall as the debt
market starts factoring a possible interest rate hike), the banks will have to set
aside funds to mark to market their investment. This will make it difficult to
show huge profits from treasury operations. This concern becomes much
stronger because a substantial percentage of bank deposits remain invested in
government bonds. Banking in the recent years had been reduced to a trading
operation in government securities. Recent months have shown a rise in the
bond yields has led to the profit from treasury operations falling. The latest
quarterly reports of banks clearly show several banks making losses on their
treasury operations. If the rise in yields continues the banks might end up
posting huge losses on their trading books. Given these facts, banks will have to
look at alternative sources of investment.

Interest rates and non-performing assets

The best indicator of the health of the banking industry in a country is its level
of NPAs. Given this fact, Indian banks seem to be better placed than they were
in the past. A few banks have even managed to reduce their net NPAs to less
than one percent (before the merger of Global Trust Bank into Oriental Bank of
Commerce OBC was a zero NPA bank). But as the bond yields start to rise the
chances are the net NPAs will also start to go up. This will happen because the
banks have been making huge provisions against the money they made on their
bond portfolios in a scenario where bond yields were falling.

Reduced NPAs generally gives the impression that banks have strengthened
their credit appraisal processes over the years. This does not seem to be the
case. With increasing bond yields, treasury income will come down and if the
banks wish to make large provisions, the money will have to come from their
interest income, and this in turn, shall bring down the profitability of banks.

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Competition in retail banking

The entry of new generation private sector banks has changed the entire
scenario. Earlier the household savings went into banks and the banks then lent
out money to corporate. Now they need to sell banking. The retail segment,
which was earlier ignored, is now the most important of the lot, with the banks
jumping over one another to give out loans. The consumer has never been so
lucky with so many banks offering so many products to choose from. With
supply far exceeding demand it has been a race to the bottom, with the banks
undercutting one another. A lot of foreign banks have already burnt their fingers
in the retail game and have now decided to get out of a few retail segments
completely.The nimble footed new generation private sector banks have taken a
lead on this front and the public sector banks are trying to play catch up. The
PSBs have been losing business to the private sector banks in this segment.
PSBs need to figure out the means to generate profitable business from this
segment in the days to come.

The urge to merge

In the recent past there has been a lot of talk about Indian Banks lacking in scale
and size. The State Bank of India is the only bank from India to make it to the
list of Top 100 banks, globally. Most of the PSBs are either looking to pick up a
smaller bank or waiting to be picked up by a larger bank. The central
government also seems to be game about the issue and is seen to be encouraging
PSBs to merge or acquire other banks. Global evidence seems to suggest that
even though there is great enthusiasm when companies merge or get acquired,
majority of the mergers/acquisitions do not really work. So in the zeal to merge
with or acquire another bank the PSBs should not let their common sense take a
back seat. Before a merger is carried out cultural issues should be looked into. A
bank based primarily out of North India might want to acquire a bank based
primarily out of South India to increase its geographical presence but their

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cultures might be very different. So the integration process might become very
difficult. Technological compatibility is another issue that needs to be looked
into in details before any merger or acquisition is carried out.

Impact of BASEL-II norms

Banking is a commodity business. The margins on the products that banks offer
to its customers are extremely thin vis a vis other businesses. As a result, for
banks to earn an adequate return of equity and compete for capital along with
other industries, they need to be highly leveraged. The primary function of the
bank's capital is to absorb any losses a bank suffers (which can be written off
against bank's capital).Norms set in the Swiss town of Basel determine the
ground rules for the way banks around the world account for loans they give
out. These rules were formulated by the Bank for International Settlements in
1988. Essentially, these rules tell the banks how much capital the banks should
have to cover up for the risk that their loans might go bad. The rules set in 1988
led the banks to differentiate among the customers it lent out money to.
Different weightage was given to various forms of assets, with zero percentage
weightings being given to cash, deposits with the central bank/govt. etc, and
100 per cent weighting to claims on private sector, fixed assets, real estate etc.
The summation of these assets gave us the risk-weighted assets. Against these
risk weighted assets the banks had to maintain a (Tier I + Tier II) capital of 9
per cent i.e. every Rs100 of risk assets had to be backed by Rs 9 of Tier I + Tier
II capital. To put it simply the banks had to maintain a capital adequacy ratio of
9 percent. The problem with these rules is that they do not distinguish within a
category i.e. all lending to private sector is assigned a 100 per cent risk
weighting, be it a company with the best credit rating or company which is in
the doldrums and has a very low credit rating. This is not an efficient use of
capital. The company with the best credit rating is more likely to repay the loan
vis a vis the company with a low credit rating. So the bank should be setting

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aside a far lesser amount of capital against the risk of a company with the best
credit rating defaulting vis a vis the company with a low credit rating. With the
BASEL-II norms the bank can decide on the amount of capital to set aside
depending on the credit rating of the company. Credit risk is not the only type of
risk that banks face. These days the operational risks that banks face are huge.
The various risks that come under operational risk are competition risk,
technology risk, casualty risk, crime risk etc. The original BASEL rules did not
take into account the operational risks. As per the BASEL-II norms, banks will
have to set aside 15 per cent of net income to protect themselves against
operational risks.

Over the last few years, the falling interest rates, gave banks very little incentive
to lend to projects, as the return did not compensate them for the risk involved.
This led to the banks getting into the retail segment big time. It also led to a lot
of banks playing it safe and putting in most of the deposits they collected into
government bonds. Now with the bond party over and the bond yields starting
to go up, the banks will have to concentrate on their core function of lending.
The banking sector in India needs to tackle these challenges successfully to
keep growing and strengthen the Indian financial system.

Furthermore, the interference of the central government with

the functioning of PSBs should stop. A fresh autonomy package for public
sector banks is in offing. The package seeks to provide a high degree of
freedom to PSBs on operational matters. This seems to be the right way to go
for PSBs. The growth of the banking sector will be one of the most important
inputs that shall go into making sure that India progresses and becomes a global
economic super power.

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Punjab National Bank at a Glance

Punjab National Bank (PNB) was established in 1895 in anarkali bazaar at

Lahore, undivided India, Punjab National Bank (PNB) has the distinction of
being the first Indian bank to have been started solely with Indian capital. The
bank was nationalised in July 1969 along with 13 other banks. From its modest
beginning, the bank has grown in size and stature to become a front-line
banking institution in India at present. Today, the Bank is the second
largest government-owned commercial bank in India with about 5000 branches
across 764 cities. It serves over 37 million customers. The bank has been ranked
248th biggest bank in the world by the Bankers Almanac, London. The bank's
total assets for financial year 2007 were about US$60 billion. It has Strong
correspondent banking relationships with more than 217 international banks of
the world. More than 50 renowned international banks maintain their Rupee
Accounts with PNB. PNB has a banking subsidiary in the UK, as well as
branches in Hong Kong, Dubai and Kabul, and representative offices in
Almaty, Dubai, Oslo, and Shanghai. PNB's founders included several leaders of
the Swadeshi movement such as Dyal Singh Majithia and Lala HarKishen Lal
Lala Lalchand, Shri Kali Prosanna Roy, Shri E.C. Jessawala, Shri Prabhu
Dayal, Bakshi Jaishi Ram, and Lala Dholan Dass. Lala Lajpat Rai was
actively associated with the management of the Bank in its early years.

HISTORY

 1895: PNB commenced its operations in Lahore.

 1904: PNB established branches in Karachi and Peshawar.
 1940: PNB absorbed Bhagwan Dass Bank, a scheduled bank located
in Delhi circle.
 1947: Partition of India and Pakistan at Independence. PNB lost its
premises in Lahore, but continued to operate in Pakistan.

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 1951: PNB acquired the 39 branches of Bharat Bank (est. 1942); Bharat
Bank became Bharat Nidhi Ltd.
 1961: PNB acquired Universal Bank of India.
 1963: The Government of Burma nationalized PNB's branch
in Rangoon (Yangon).
 1965: After the Indo-Pak war the government of Pakistan seized all the
offices in Pakistan of Indian banks, including PNB's head office, which
may have moved to Karachi. PNB also had one or more branches in East
Pakistan Bangladesh.
 1960s: PNB amalgamated Indo Commercial Bank (est. 1933) in a rescue.
 1969: The Government of India (GOI) nationalized PNB and 13 other
major commercial banks, on July 19, 1969.
 1976 or 1978: PNB opened a branch in London.
 1986 The Reserve Bank of India required PNB to transfer its London
branch to State Bank of India after the branch was involved in a fraud
scandal.
 1988: PNB acquired Hindustan Commercial Bank (est. 1943) in a rescue.
The acquisition added Hindustan's 142 branches to PNB's network.
 1993: PNB acquired New Bank of India, which the GOI had nationalized
in 1980.
 1998: PNB set up a representative office in Almaty, Kazakhstan.
 2003: PNB took over Nedungadi Bank, the oldest private sector bank
in Kerala. At the time of the merger with PNB, Nedungadi Bank's shares
had zero value, with the result that its shareholders received no payment
for their shares.
 PNB also opened a representative office in London
 2004: PNB established a branch in Kabul, Afghanistan.
PNB also opened a representative office in Shanghai.

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PNB established an alliance with Everest Bank in Nepal that permits

migrants to transfer funds easily between India and Everest Bank's 12
branches in Nepal.
 2005: PNB opened a representative office in Dubai.
 2007: PNB established PNBIL - Punjab National Bank (International) - in
the UK, with two offices, one in London, and one in South Hall. Since
then it has opened a third branch in Leicester, and is planning a fourth in
Birmingham.
 2008: PNB opened a branch in Hong Kong.
 2009: PNB opened a representative office in Oslo, Norway, and a second
branch in Hong Kong, this in Kowloon.
 2010: PNB received permission to upgrade its representative office in
the Dubai International Financial Centre to a branch.

Bank with over 56 million satisfied customers and 5002 offices,

PNB continue to retain its leadership position among nationalised banks. The
bank enjoys strong fundamental, large franchise value and good brand image.
Besides being ranked as one of India's top service brands, PNB has remained
fully committed to its guiding principles of sound and prudent banking. Apart
from offering banking products, the bank has also entered the credit card &
debit card business; bullion business; life and non-life insurance business; Gold
coins & asset management business, etc.

PNB has achieved significant growth in business which at the end of

March 2010 amounted to Rs 435931 crore. Today, with assets of more than Rs
2,96,633 crore, PNB is ranked as the 3rd largest bank in the country (after SBI
and ICICI Bank) and has the 2nd largest network of branches (5002 offices
including 5 overseas branches ).During the FY 2009-10, with 40.85% share of
CASA deposits, the bank achieved a net profit of Rs 3905 crore. Bank has a

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strong capital base with capital adequacy ratio of 14.16% as on Mar‘10 as per
Basel II with Tier I and Tier II capital ratio at 9.15% and 5.01% respectively. As
on March‘10, the Bank has the Gross and Net NPA ratio of 1.71% and 0.53%
respectively. During the FY 2009-10, its‘ ratio of Priority Sector Credit to
Adjusted Net Bank Credit at 40.5% & Agriculture Credit to Adjusted Net Bank
Credit at 19.7% was also higher than the stipulated requirement of 40% &
18%. The Bank has maintained its stake holder‘s interest by posting an
improved NIM of 3.57% in Mar‘10 (3.52% Mar‘09) and a Return on Assets of
1.44% (1.39% Mar‘09). The Earning per Share improved to Rs 123.98 (Rs
98.03 Mar‘09) while the Book value per share improved to Rs 514.77 (Rs
416.74 Mar‘09)

Punjab National Bank continues to maintain its frontline position in the Indian
banking industry. In particular, the bank has retained its NUMBER ONE
position among the nationalized banks in terms of number of branches, Deposit,
Advances, total Business, Assets, Operating and Net profit in the year 2009-10.
The impressive operational and financial performance has been brought about
by Bank‘s focus on customer based business with thrust on CASA deposits,
Retail, SME & Agri Advances and with more inclusive approach to banking;
better asset liability management; improved margin management, thrust on
recovery and increased efficiency in core operations of the Bank. The
performance highlights of the bank in terms of business and profit are shown
below: Rs in Crore

Parameters Mar'08 Mar'09 Mar'10 CAGR (%)

Operating Profit 4006 5744 7326 22.29
Net Profit 2049 3091 3905 23.98
Deposit 166457 209760 249330 14.42
Advance 119502 154703 186601 16.01
Total Business 285959 364463 435931 15.09

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PNB has always looked at technology as a key facilitator to provide better

customer service and ensured that its ‗IT strategy‘ follows the ‗Business
strategy‘ so as to arrive at ―Best Fit‖. The bank has made rapid strides in this
direction. All branches of the Bank are under Core Banking Solution (CBS)
since Dec‘08, thus covering 100% of its business and providing ‗Anytime
Anywhere‘ banking facility to all customers including customers of more than
3000 rural & semi urban branches. The bank has also been offering Internet
banking services to the customers of CBS branches like booking of tickets,
payment of bills of utilities, purchase of airline tickets etc. Towards developing
a cost effective alternative channels of delivery, the bank with more than 3500
ATMs has the largest ATM network amongst Nationalized Banks.

With the help of advanced technology, the Bank has been a

frontrunner in the industry so far as the initiatives for Financial Inclusion is
concerned. With its policy of inclusive growth in the Indo-Genetics belt, the
Bank‘s mission is ―Banking for Unbanked‖. The Bank has launched a drive for
biometric smart card based technology enabled Financial Inclusion with the
help of Business Correspondents/Business Facilitators (BC/BF) so as to reach
out to the last mile customer. The Bank has started several innovative initiatives
for marginal groups like rickshaw pullers, vegetable vendors, dairy farmers,
construction workers, etc. Under Branchless Banking model, the Bank is
implementing 40 projects in 16 States. The Bank launched an ambitious ‗Project
Namaskar‘ under which 1 lakh touch points will be established in unbanked
villages by 2013 to extend the Bank‘s outreach. Under this, 30 Kiosks have
been opened covering 119 Villages reaching 1.32 Lakh beneficiaries.
Backed by strong domestic performance, the bank is planning to realize its
global aspirations. Bank continues its selective foray in international markets
with presence in 9 countries, with branches at Kabul and Dubai, Hong Kong &

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representative offices at Almaty, Dubai, Shanghai and Oslo, a wholly owned

subsidiary in UK, a joint venture with Everest Bank Ltd. Nepal and a JV
banking subsidiary ―DRUK PNB Bank Ltd.‖ in Bhutan. Bank is pursuing up
gradation of its representative offices in China & Norway and is in the process
of setting up a representative office in Sydney, Australia and taking controlling
stake in JSC Dana Bank in Kazakhstan.

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Mission and Vision

VISION

"To be a Leading Global Bank with Pan India footprints and become a

household brand in the Indo-Gangetic Plains providing entire range of

financial products and services under one roof"

MISSION

"Banking for the unbanked"

“TO provide excellent professional services and improve its position as a

leader in financial and related services; build and maintain a team of
motivated and committed workforce with high work ethos; use latest
technology aimed at the customer satisfaction and act as effective catalyst
for socio- economic development”

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Products and Services

 Corporate banking
 Personal banking
 Industrial finance
 Agriculture finance
 Financing of trade
 International banking
 Home loan
 Auto loan
 ATM/Debit card
 Deposit interest rate
 Credit interest rate
 Other services: lockers facility, internet banking, EFT & Clearing services etc

Award & Achievements

Best IT Team of the year
Award
for Change Management for the year
SKOTCH Challenger Award
2005-06
Best IT User in Banking &
by NASSCOM in partnership with
Financial Services Industry -
Economic Times
2004
for Excellence in Corporate Governance -
Golden Peacock Award
2005 by Institute of Directors
FICCI's Rural Development for Excellence in Rural Development –
Award 2005
Skotch Challenger Award for for becoming a pioneer in Public Banks -
Exemplary use of Technology 2005
Golden Peacock National by Institute of Directors

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Training - 2004 & 2005

National Award for Excellence Ranked 2nd for 4 consecutive years -
in SSI Lending 2002, 2003, 2004 & 2005
Banking Technology Awards
2004
Jointly Adjudged by IBA, Finacle & TFCI
Runner up in 'Best IT Team of
the Year Award 2005'
Money Outlook Award - 2004
Runner up in 'Best Bank
(public Sector) of the year
Award' -2005
for excellence in export perforamnce for 3
consecutive years 2001, 2002 & 2003
Niryat Bandhu Gold Trophy
by Federation of Indian Exporters
Organization (FIEO)
21st Amongst Top 500 by the leading Financial Daily The
Companies Economic Times, June 2005
9th amongst India's Top 50 A.C Nielson Survey, The Economic
Most Trusted Service Brands Times Dec 2004
3rd Rank amongst Banking
Sector in India The Bankers' Almanac, January 2006
323rd Rank in the World
368 amongst Top 1000 Global
The Banker, London July 2005
Banks
Winner for becoming a pioneer in public
Skoch Challenger Award for
banks by Skoch consultancy services pvt
Exemplary Use of Technology
ltd, Gurgaon 2005
FICCI's Rural Development Award for excellence in rural
Award development 2005
Amity Business School, Noida has
conferred the Award to PNB, after an in-
depth research to analyse the strengths and
Amity Global Corporate core competencies of the Global 500
Excellence Award companies and banks which have already
made an indelible most admired
impression on the Indian economy. 2008
& 2007 & 2005
Banking Technology Awards IBA, Finacle & TFCI jointly adjudged

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PNB as runner up in "Best IT Team of the

year Award" 2005
Best IT Implementation 2007
PC Quest Users‘ Choice Award
& 2005
Symantec Visionary Award Information Security Impact 2005
Money Outlok adjudged PNB as runner
Money Outlook Award up in "Best Bank (Public Sector) of the
year Award" 2005
IBA, Finacle & TFCI runner up Award for
Banking Technology Awards Outstanding Achiever of the Year
(Individual). 2005
Golden Peacock Innovative
2010 (for BCP implementation)
Product/Service Award
Golden Peacock Award for
Winner in the ‗Large Joint Entry‘.2009 &
Excellence in Corporate
2007 & 2005
Governance
Skoch Challenger Award for For upliftment of Weaker sections of
Change Management society 2006
IDRBT Banking Technology
Best IT Team of the Year Award 2006
Awards
National Award For Excellence First Prize by By Ministry of Small Scale
in lending to Tiny sector Industries.2006
Skoch Challenger Award for
capacity building for FTC Skoch Consultancy Services Pvt Ltd 2007
initiative
Computer Associates
Excellence in EMS Roll Out. 2007
Excellence Award
For Best IT Implementation by IDG
CIO 100 Award
Media Pvt. Ltd.2007, 2008 & 2009
National Award for Excellence
in Lending to Micro For Lending to Micro enterprises 2007
Enterprises
Award for the use of Institute for Development and Research in
Technology for Financial Banking Technology (IDRBT),
Inclusion. Hyderabad. 2008
Dun & Bradstreet Award for
―Priority Sector Lending Dun & Bradstreet 2009
including Financial Inclusion‖.

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Khadi & Village Industry Commission,

National Award for Excellence Ministry of Micro, Small & Medium
in Lending for Institutional Enterprises, Govt. of India
Finance in Propagating KVI (Interest Subsidy Eligibility Certificate
Programmes in NORTH ZONE Scheme)
2009
Khadi & Village IndustryCommission,
National Award for Excellence Ministry of Micro, Small & Medium
in Lending for Institutional Enterprises, Govt. of India
Finance in Propagating KVI
(Interest Subsidy Eligibility Certificate
Programmes in
Scheme)
CENTRAL ZONE
2009
Khadi & Village IndustryCommission,
National Award for Excellence
in Lending for Institutional Ministry of Micro, Small & Medium
Finance in Propagating KVI Enterprises, Govt. of India
Programmes in (Interest Subsidy Eligibility Certificate
NATIONAL LEVEL
Scheme) 2009
Khadi & Village IndustryCommission,
National Award for Excellence
in Lending for Institutional Ministry of Micro, Small & Medium
Finance for Propagating KVI Enterprises, Govt. of India
Programmes in (Prime Minister Employment Generation
NORTH ZONE
Programme) 2009
Khadi & Village IndustryCommission,
National Award for Excellence
Ministry of Micro, Small & Medium
in Lending for Institutional
Finance for Propagating KVI Enterprises, Govt. of India
Programmes in (Prime Minister Employment Generation
CENTRAL ZONE
Programme) 2009
India Pride Award by dainik
Bhaskar and Daily News Excellence in PSU 2009
analysis
Indira Gandhi Rajbhasha
Promoting Hindi 2009
Shield
Emerson Uptime Champion
2009
Awards
―Best InfoSphere Warehouse 2009 (for implementation of Enterprise
Solution‖ Award by IBM Wide Data Warehouse)

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Organizational structure of Punjab National Bank

Head Office
7, Bhikhaji Cama Place, New Delhi-110066

Circle Office

Branches

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Hierarchy

Chairman

Executive Director

General Manager (GM)

Deputy GM

Assistant GM

Chief Manager

Senior Manager

Manager

Officers

Subordinate clerks

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Board of Directors

 Sh.K.R. Kamath:- He has been appointed as a chairman and managing

director of Punjab National Bank by Govt. Of India.

 Sh. M.V.Tanksale:- Executive Director

 Sh. Nagesh Pydah:- Executive Director

 Smt. Ravneet Kaur:- Govt. of India Nominee Director

 Shri L.M.Fonseca:- Reserve Bank of India Nominee Director

 Shri Mushtaq A Antulay:- Part-time non-official Director

 Shri Gautam P. Khandelwal:- Part-time non-official Director

 Shri Vinod Kumar Mishra:- Part-time non-official Director

 Shri Tribhuwan Nath Chaturvedi :- Share Holder Director

 Shri G R Sundaravadivel:- Share Holder Director

 Shri Devinder Kumar Singla: Share Holder Director

 Sh. M P Singh:- Workmen Employees Director

 Sh. Pradeep Kumar:- Officer Director

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Review of Literature
Literature review provides available research with respect to the selected topic
of the project or the research findings by an author which has been done with
respect to the research topic. This chapter provides the overall view of the
available literature with respect to the topic of the project. The review of the
related research works are described as under:-

1. A research work on the topic ― On the appraisal on consumer credit

banking products with the asset quality frame: A multiple criteria
application.‖ done by Panagiotis Xidonas, Alexandros Flamos, Sortirios
Koussouris, Dimitrious Askouins & Ioannis Psarras from National Technical
University of Athens in 2007 says that Asset quality refers to the likelihood that
the bank's earning assets will continue to perform and requires both a qualitative
and quantitative assessment. Decision problems like the "internal appraisal of
banking products", are problems with strong multiple-criteria character and it
seems that the methodological framework of Multiple Criteria Decision Making
could provide a reliable solution. In this paper, the Asset Quality banking
indicators are the, so called, "criteria", the value of these indicators are the, so
called, "scores" in each criterion and the P.R.O.METH.E.E. [Preference
Ranking Organization Method of Enrichment Evaluations, Brans & Vincke
(1985)] Multiple Criteria method is applied, towards modelling banking
products appraisal problems. A Multiple Criteria process, strictly
mathematically defined, integrates the behaviour of each indicator-criterion and
utilizes each score in order to rank the so called "alternatives", i.e. categories of
banking products.

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2. The research Paper on “Evaluation of decision support systems for credit

management decisions‖ by S. Kanungo, S.Sharma, P.K. Jain from Department
of studies, IIT Delhi have
conducted a study to evaluate the efficiency of decision support system (DSS)
for credit management. This study formed a larger initiative to access the
effectiveness of the I.T based credit management process at SBI. Such a study
was necessitated since credit appraisal has become an integral sub-function of
the Indian banks in view of growing incidence of non-performing assets. The
DSS they have assessed was a credit appraisal system developed by Quuattro
pro at SBI. This system helps in analysis of balance sheets, Calculation of
financial ratios, cash flow analysis, future projections, sensitivity analysis and
risk evaluation as per SBI norms. They have also used a strong Quassi
experimental design called Solomon‘s four group design for the assessment. In
the experiment the managers of SBI who attended the training programme were
the subjects the experiment consisted of the measurements that were taken as
pre and post tests. An experimental intervention was applied between the pre-
tests and the pro-tests. The intervention or stimulus consisted of DSS training
and use. There were four groups in the experiment. The stimulus remained
constant as the they took care to ensure that the course content as well as the
instructors remained the same during the course of the experiment. Two were
experimental groups and two were control groups. All four groups underwent
training in credit management between the pre and the post tests. Results from
research shows that while the DSS is effective, improvement needs to be done
in the methodology to assess such improvements. Moreover such assessment
frameworks while being adequate from a DSS-centric viewpoint do not respond
to the assessment of DSS in an organizational setting . In the concluding section
they have discussed how this evaluative framework can be strengthened to
initiate an activity that will allow the long term and possibly the only
meaningful evaluation framework for such a system.
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3. The research paper on the topic “Towards an appraisal of the FMHA farm
credit program: A case study of the efficiency of borrower by S. Mehdian,
Wm. McD. Herr, Phil Eberle, and Richard Grabowski” have studied that the a
production frontier methodology is used to measure the overall efficiency of a
sample of farmers home administration(FMHA) compared to non participants.
The study did not find evidence that the efficiency FMHA farms improved
between a time period Results indicated that overall efficiency of FMHA
borrowers is associated with selected financial characteristics of the farms. A
review of the literature shows that agricultural finance specialists have not been
successful in evaluating whether FMHA pro- grams improve the efficiency and
income of probability of success. Liberal loan policies
Eligible borrowers. Inadequate evaluation of the FMHA program occurs partly
because of because the difficulty of adequately deter-mining the impacts of
changes in the econ- borrowers in a more normal period of the loan. This study
addressed these difficulties by utilizing a nonparametric production frontier
technique to measure overall efficiency and a matched pair statistical procedure
to measure how efficiency of farms receiving FMHA credit changed relative to
a Non-FMHA farmers.

4. The book named ―Financial Analysis for Bank Lending in Liberalised

Economy” by Sampat.P.Singh and Dr.S.Singh have discussed the subject
financial analysis for bank lending has assumed considerable importance,
particularly since early 1990's when, like most of the countries, India opted for
the policy of liberalisation and globalisation after 1991.
The present volume is meant to be a standard reference as well as text book on
the varied facets of financial analysis with reference to credit management by
Banks and Financial Institutions. The book consists of three parts. Part I
discusses the concepts and tools of Financial Analysis; Part II explains various
concepts of working capital in its historical context; while Part III demonstrates

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the application of these tools in the changing context of liberalised economy by

focusing on new concepts like 'Credit Worthiness', Risk-Analysis, Credit
Rating, Products-Differentiation, Pricing-Differentiation, Asset-Liability
Management, etc. The book contains- Bank Lending and Industrial Finance in
India ,Basic Economics for Bankers and Business Managers ,Introduction to
Fundamentals Accounting Principles ,Profit and Loss Account (Operating
Statement) ,Analysis of Profit and Loss Account (Operating Statement)
,Structure and Analysis of Balance Sheet ,Ratios as Tools of Financial
Statements Analysis ,Accounting Flows : Income, Cash and Funds ,Break-even
Analysis and Margin of Safety ,Appraisal of Capital Projects ,New Conceptual
Framework for Analysis, Liberalised Era and New Focus of Bank Lending
,Managing Working Capital by Strategic Choice , Financing Working Capital :
Conceptual and Historical Exposition,Creditworthiness and Credit Rating : At
Centre stage Nucleus of Credit Appraisal , Working Capital Management-I :
MPBF System of Appraisal and Bifurcation of Fund-Based Limit in Two
Components Working Capital Management-II : Alternative Methods of
Appraisal ,Working Capital Management-III : Follow-up and Supervision ,
Appraisal of a New Project Involving Term Loan , Management of Problem
Accounts , Management of Non-Performing Assets (NPAs), Rehabilitation of
Sick Industrial Units, Working Capital Management : Concepts and Techniques
, 1st Committee on Financial Sector Reform and the 2nd Committee on
Banking System Reform (Known as Narasimham Committee Report, 1998).

5. The research paper on the topic ―Competitive analysis in banking: Appraisal

of the methodologies‖ by Nicola Cetorelli has discussed about the U.S. banking
industry has experienced significant structural changes as the result of an

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intense process of consolidation. From 1975 to 1997, the number of commercial

banks decreased by about 35 percent, from 14,318 to 9,215. Since the early
1980s, there have been an average of more than
400 mergers per year (see Avery et al., 1997, and Simmons and Stavins, 1998).
The relaxation of intrastate branching restrictions, effective to differing degrees
in all states by 1992, and the passage in 1994 of the Riegle.Neal Interstate
Banking and Branching Efficiency Act, which allows bank holding companies
to acquire banks in any state and, since June 1, 1997, to open interstate
branches, is certainly accelerating the process of consolidation. These
significant changes raise important policy concerns. On the one hand, one could
argue that banks are merging to fully exploit potential economies of scale and/or
scope. The possible improvements in efficiency may translate into welfare gains
for the economy, to the extent that customers pay lower prices for banks.
services or are able to obtain higher quality services or services that could not
have been offered before.1 On the other hand, from the point of view of public
policy it is equally important to focus on the
effect of this restructuring process on the competitive conditions of the banking
industry. Do banks gain market power from merging? If so, they will be able to
charge higher than competitive prices for their products, thus inflicting welfare
costs that could more than offset any presumed benefit associated with mergers.
In this article, analysis of competition in the banking industry is done
highlighting a very fundamental issue: How market power is measured and how
do regulators rely on accurate and effective procedures to evaluate the
competitive effects of a merger.

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Credit Philosophy & Policy with regards to Punjab National

Bank

An ideal advance is the one given to a reliable customer for an approval purpose
with adequate experience, safe in knowledge that the money will be used to
advantage and repayment will be made within a reasonable period from trade
receipts or known maturities due on or about given dates.

Credit philosophy – ―To achieve credit expansion required for sustaining

the profitability of the bank and emphasis on quality assets, profitable

relationships and prudent growth.‖

CREDIT POLICY

Bank follows following broad policy imperatives:-

 Reduction in dependence upon short term corporate loans, especially

unsecured exposures.
 Aiming to achieve more sanctions at levels closer to the customer.
 Changing the mix of the portfolio in favour of better diffused and higher
yielding credit.
 Building competencies in credit management through training &
promotion of self directed learning.

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Objectives of credit policy

1. A balanced growth of credit portfolio, which does not compromise safety.

2. Adoption of a forward looking and market responsive approach for
moving into profitable new areas on lending which emerge, within the pre
determined exposure ceilings.
3. Sound risk management practices to identify measure, monitor and
control risks.
4. Maximize interest yields from credit portfolio through a judicious
management of varying spreads of loan assets based upon their size,
credit rating and tenure.
5. Leverage on strong relationships with existing long-standing clients to
source a bulk of new business by addressing their requirements
comprehensively.
6. Ensure due compliance of various regulatory norms including CAR,
income recognition and asset classification
7. Accomplish balanced development of credit to various sectors and
geographical regions.
8. Achieve growth of credit to priority sectors / subsectors and continue to
surpass the targets stipulated by reserve bank of India.
9. Using of pricing as a tool of competitive advantage ensuring however that
earnings are protected.
10.Develop and maintain enhanced competencies in credit management at
all levels through a combination of training initiatives, promotion of self
directed learning and dissemination of best practices.

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Objectives in Credit

To maintain healthy balance between-

 Credit volumes
 Earnings
 Asset quality

within the framework of regulatory prescriptions, corporate goals and bank‘s

social responsibilities.

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Introduction to loans
Loans are advances for fixed amounts repayable on demand or in instalment.
They are normally made in lump sums and interest is paid on the entire amount.
The borrower cannot draw funds beyond the amount sanctioned.

A key function of the Bank is deploying funds for income-

yielding assets. A major part of Bank‘s assets are the loans and advances
portfolio and investments in approved securities. Loans & Advances refer to
long-term and short-term credit facilities to various types of borrowers and non-
fund facilities like Bank Guarantees, Letters of Credit, Letters of Solvency etc.
Bill facilities represent structured commitments which are negotiable claims
having a market by way of negotiable instruments. Thus, Banks extend credit
facilities by way of fund-based long-term and short-term loans and advances as
also by way of non-fund facilities.

Classification of Loans

Loans/Advances
Loans/Advances

Fund Based Non-Fund Based

Fund Based
Retail Loan
Bank Guarantee

Cash Credit Post shipment Finance

Export Finance
Letter of Credit

Bill Discounting
Pre-shipment Finance
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Bank provides credit in various forms. These are broadly classified into two
categories- Fund based and Non –Fund Based. Fund based refers to the type
of credit where cash is directly involved i.e. where bank provides money to the
seeker in anticipation of getting it back. Where as in a Non-fund Based, Bank
doesn‘t pay cash directly but gives assurance or takes guarantee on behalf of its
customer to pay if they fail to do so. In case on Fund Based there are different
categories of loans which are discussed as follows:-

I. RETAIL LOANS-

Retail banking in India is not a new phenomenon. It has always been prevalent
in India in various forms. For the last few years it has become synonymous with
mainstream banking for many banks.

The typical products offered in the Indian retail banking segment are:-

 Housing loans
 Consumer loans for purchase of durables
 Auto loans
 Educational loans
 Credit Cost.
 Personal loans

Retail loan is the practice of loaning money to individuals rather than

institutions. Retail lending is done by banks, credit unions, and savings and loan
associations. These institutions make loans for automobile purchases, home
purchases, medical care, home repair, vacations, and other consumer uses.
Retail lending has taken a prominent role in the lending activities of banks, as
the availability of credit and the number of products offered for retail lending

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have grown. The amounts loaned through retail lending are usually smaller than
those loaned to businesses. Retail lending may take the form of instalment
loans, which must be paid off little by little over the course of years, or non-
instalment loans, which are paid off in one lump sum.

These loans are marketed under attractive brand names to differentiate the
products offered by different banks. As the Report on Trend and Progress of
India, 2007-08 has shown that the loan values of these retail lending typically
range between Rs.20, 000 to Rs.100 lakh. The loans are generally for duration
of five to seven years with housing loans granted for a longer duration of 15
years. Credit card is another rapidly growing sub-segment of this product group.
In recent past retail lending has turned out to be a key profit driver for banks
with retail portfolio. The overall impairment of the retail loan portfolio worked
out much less then the Gross NPA ratio for the entire loan portfolio. Within the
retail segment, the housing loans had the least gross asset impairment. In fact,
retailing make ample business sense in the banking sector.

Basic reasons that have contributed to the retail growth in India are-

 First, economic prosperity and the consequent increase in purchasing

power has given a fillip to a consumer boom. Note that during the 10
years after 1992, India's economy grew at an average rate of 6.8 percent
and continues to grow at the almost the same rate – not many countries in
the world match this performance.
 Second, changing consumer demographics indicate vast potential for
growth in consumption both qualitatively and quantitatively. India is one
of the countries having highest proportion (70%) of the population below
35 years of age (young population). The BRIC report of the Goldman-
Sachs, which predicted a bright future for Brazil, Russia, India and China,

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mentioned Indian demographic advantage as an important positive factor

for India.
 Third, technological factors played a major role. Convenience banking in
the form of debit cards, internet and phone-banking, anywhere and
anytime banking has attracted many new customers into the banking
field. Technological innovations relating to increasing use of credit / debit
cards, ATMs, direct debits and phone banking has contributed to the
growth of retail banking in India.
 Fourth, the Treasury income of the banks, which had strengthened the
bottom lines of banks for the past few years, has been on the decline
during the last two years. In such a scenario, retail business provides a
good vehicle of profit maximisation. Considering the fact that retail‘s
share in impaired assets is far lower than the overall bank loans and
advances, retail loans have put comparatively less provisioning burden on
banks apart from diversifying their income streams.
 Fifth, decline in interest rates have also contributed to the growth of retail
credit by generating the demand for such credit.

According to K V Kamath, the changing demographic profile and a downward

trend of the interest rates will propel retail credit in India."There is a huge retail
credit opportunity that is surfacing. Banks have low penetration in this segment
currently. But it is the one area that is providing the momentum in the banking
business now,‖ India has among the lowest penetration of retail loans in Asia.
Though the sector has been growing at around 15 per cent, there is still a huge
opportunity to tap into.

Middle and -high-income homes in India has increased to 2.57 crore (25.7
million). Interest rates on retail loans have been dropping rapidly too. For

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instance residential mortgages slumped by 7 per cent over the last four
years."The entry of a number of banks in India in the last few years has helped
provide increased coverage and a number of new products in the market," says
Kamath.

II. WORKING CAPITAL / CASH CREDIT

Cash credit is a short-term cash loan to a company. A bank provides this type of
funding, but only after the required security is given to secure the loan. Once a
security for repayment has been given, the business that receives the loan can
continuously draw from the bank up to a certain specified amount. The bank
provides certain amount to the company for its day to day working keeping
certain margin in hand.

III. TERM LOANS

A bank loan to a company, with a fixed maturity and often featuring

amortization 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.

Term loans are the basic vanilla commercial loan. They typically carry fixed
interest rates, and monthly or quarterly repayment schedules and include a set
maturity date. Bankers tend to classify term loans into two categories:

 Intermediate-term loans: Usually running less than three years, these loans
are generally repaid in monthly instalments (sometimes with balloon
payments) from a business's cash flow. According to the American Bankers
Association, repayment is often tied directly to the useful life of the asset
being financed.

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 Long-term loans: These loans are commonly set for more than three years.
Most are between three and 10 years, and some run for as long as 20 years.
Long-term loans are collateralized by a business's assets and typically require
quarterly or monthly payments derived from profits or cash flow. These loans
usually carry wording that limits the amount of additional financial
commitments the business may take on (including other debts but also
dividends or principals' salaries), and they sometimes require that a certain
amount of profit be set-aside to repay the loan.

Appropriate For: Established small businesses that can leverage sound

financial statements and substantial down payments to minimize monthly
payments and total loan costs. Repayment is typically linked in some way to the
item financed. Term loans require collateral and a relatively rigorous approval
process but can help reduce risk by minimizing costs. Before deciding to
finance equipment, borrowers should be sure they can they make full use of
ownership-related benefits, such as depreciation, and should compare the cost
with that leasing.

Supply: Abundant but highly differentiated. The degree of financial strength

required to receive loan approval can vary tremendously from bank to bank,
depending on the level of risk the bank is willing to take on.

IV. BILL DISCOUNTING

While discounting a bill, the Bank buys the bill (i.e. Bill of Exchange or
Promissory Note) before it is due and credits the value of the bill after a
discount charge to the customer's account. The transaction is practically an
advance against the security of the bill and the discount represents the interest
on the advance from the date of purchase of the bill until it is due for payment.

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Bills of exchange- A bill of exchange or "draft" is a written order by the drawer

to the drawee to pay money to the payee. A common type of bill of exchange is
the cheque (check in American English), defined as a bill of exchange drawn on
a banker and payable on demand. Bills of exchange are used primarily in
international trade, and are written orders by one person to his bank to pay the
bearer a specific sum on a specific date. Prior to the advent of paper currency,
bills of exchange were a common means of exchange. They are not used as
often today.

A bill of exchange is an unconditional order in writing addressed by one person

to another, signed by the person giving it, requiring the person to whom it is
addressed to pay on demand or at fixed or determinable future time a sum
certain in money to order or to bearer. It is essentially an order made by one
person to another to pay money to a third person.

A bill of exchange requires in its inception three parties--the drawer, the

drawee, and the payee.

The person who draws the bill is called the drawer. He gives the order to pay
money to third party. The party upon whom the bill is drawn id called the
drawee. He is the person to whom the bill is addressed and who is ordered to
pay. He becomes an acceptor when he indicates his willingness to pay the bill.
The party in whose favor the bill is drawn or is payable is called the payee.

Promissory Note- A promissory note is a written promise by the maker to pay

money to the payee. Bank note is frequently transferred as a promissory note, a
promissory note made by a bank and payable to bearer on demand. A maker of
a promissory note promises to unconditionally pay the payee (beneficiary) a
specific amount on a specified date.

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A promissory note is an unconditional promise to pay a specific amount to

bearer or to the order of a named person, on demand or on a specified date.

A negotiable promissory note is unconditional promise in writing made by one

person to another, signed by the maker, engaging to pay on demand, or at fixed
or determinable future time, sum certain in money to order or to bearer

V. EXPORT FINANCE-

This type of a credit facility is provided to exporters who export their goods to
different places. It is divided into two parts- pre-shipment finance and post-
shipment finance.

 Pre Shipment Finance is issued by a financial institution when the seller

want the payment of the goods before shipment.
 Post Shipment Finance is a kind of loan provided by a financial
institution to an exporter or seller against a shipment that has already
been made. This type of export finance is granted from the date of
extending the credit after shipment of the goods to the realization date of
the exporter proceeds. Exporters don‘t wait for the importer to deposit the
funds.

Non Fund Based loans generate income for the bank without committing the
funds of the bank. Bank generates substantial income under this head. There are
two types of credit under this category which are discussed as follows:-

I. BANK GUARANTEE-

A contract of guarantee is defined as ‗a contract to perform the promise or

discharge the liability of the third person in case of the default‘. The parties to
the contract of guarantees are:

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a) Applicant: The principal debtor – person at whose request the guarantee

is executed
b) Beneficiary: Person to whom the guarantee is given & who can enforce it
in case of default.
c) Guarantee: The person who undertakes to discharge the obligations of the
applicant in case of his default.
Thus, guarantee is a collateral contract, consequential to a main contract
between the applicant & the beneficiary.

Purpose of Bank Guarantees

Bank Guarantees are used to for both both preventive & remedial purposes. The
guarantees executed by banks comprises both performance guarantees &
financial guarantees. The guarantees are structured according to the terms of
agreement, viz., security, maturity & purpose.

Branches may issue guarantees generally for the following purposes:

a) In lieu of security deposit/earnest money deposit for participating in

tenders;
b) Mobilization advance or advance money before commencement of the
project by the contractor & for money to be received in various stages
like plant layout, design/drawings in project finance;
c) In respect of raw materials supplies or for advances by the buyers;
d) In respect of due performance of specific contracts by the borrowers &
for obtaining full payment of the bills;
e) Performance guarantee for warranty period on completion of contract
which would enable the suppliers to realize the proceeds without waiting
for warranty period to be over;
f) To allow units to draw funds from time to time from the concerned
indenters against part execution of contracts, etc.

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g) Bid bonds on behalf of exporters

h) Export performance guarantees on behalf of exporters favouring the
Customs Department under EPCG scheme.

Guidelines on conduct of Bank Guarantee business

Branches, as a general rule, should limit themselves to the provision of financial

guarantees & exercise due caution with regards to performance guarantee
business. The subtle difference between the two types of guarantees is that
under a financial guarantee, a bank guarantee‘s a customer financial worth,
creditworthiness & his capacity to take up financial risks. In a performance
guarantee, the bank‘s guarantee obligations relate to the performance related
obligations of the applicant (customer).

While issuing financial guarantees, it should be ensured that customers should

be in a position to reimburse the Bank in case the Bank is required to make the
payment under the guarantee. In case of performance guarantee, branches
should exercise due caution & have sufficient experience with the customer to
satisfy themselves that the customer has the necessary experience, capacity,
expertise, & means to perform the obligations under the contract & any default
is not likely to occur.

Branches should not issue guarantees for a period more than 18 months without
prior reference to the controlling authority. Extant instructions stipulate an
Administrative Clearance for issue of BGs for a period in excess of 18 months.
However, in cases where requests are received for extension of the period of
BGs as long as the fresh period of extension is within 18 months. No bank
guarantee should normally have a maturity of more than 10 years. Bank
guarantee beyond maturity of 10 years may be considered against 100% cash
margin with prior approval of the controlling authority.

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More than ordinary care is required to be executed while issuing guarantees on

behalf of customers who enjoy credit facilities with other banks. Unsecured
guarantees, where furnished by exception, should be for a short period & for
relatively small amounts. All deferred payment guarantee should ordinarily be
secured.

Appraisal of Bank Guarantee Limit

Proposals for guarantees shall be appraised with the same diligence as in the
case of fund-base limits. Branches may obtain adequate cover by way of margin
& security so as to prevent default on payments when guarantees are invoked.
Whenever an application for the issue of bank guarantee is received, branches
should examine & satisfy themselves about the following aspects:

a) The need of the bank guarantee & whether it is related to the applicant‘s
normal trade/business.
b) Whether the requirement is one time or on the regular basis
c) The nature of bank guarantee i.e., financial or performance
d) Applicant‘s financial strength/ capacity to meet the liability/ obligation
under the bank guarantee in case of invocation.
e) Past record of the applicant in respect of bank guarantees issued earlier;
e.g., instances of invocation of bank guarantees, the reasons thereof, the
customer‘s response to the invocation, etc.
f) Present o/s on account of bank guarantees already issued
g) Margin
h) Collateral security offered

Format of Bank Guarantees

Bank guarantees should normally be issued on the format standardized by

Indian Banks Association (IBA). When it is required to be issued on a format

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different from the IBA format, as may be demanded by some of the beneficiary
Government departments, it should be ensured that the bank guarantee is

a) for a definite period,

b) for a definite objective enforceable on the happening of a definite event,
c) for a specific amount
d) in respect of bona fide trade/ commercial transactions,
e) contains the Bank‘s standard limitation clause
f) not stipulating any onerous clause, &
g) not containing any clause for automatic renewal of the bank guarantee on
its expiry

II. LETTER OF CREDIT-

Letter of Credit L/c also known as Documentary Credit is a widely used term to
make payment secure in domestic and international trade. The document is
issued by a financial organization at the buyer request. Buyer also provide the
necessary instructions in preparing the document.

The International Chamber of Commerce (ICC) in the Uniform Custom and

Practice for Documentary Credit (UCPDC) defines L/C as:

"An arrangement, however named or described, whereby a bank (the Issuing

bank) acting at the request and on the instructions of a customer (the Applicant)
or on its own behalf :

Is to make a payment to or to the order third party ( the beneficiary ) or is to

accept bills of exchange (drafts) drawn by the beneficiary.

Authorised another bank to effect such payments or to accept and pay such bills
of exchange (draft).

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Authorised another bank to negotiate against stipulated documents provided that

the terms are complied with.

A key principle underlying letter of credit (L/C) is that banks deal only in
documents and not in goods. The decision to pay under a letter of credit will be
based entirely on whether the documents presented to the bank appear on their
face to be in accordance with the terms and conditions of the letter of credit.

Parties to Letters of Credit

Applicant (Opener): Applicant which is also referred to as account party is

normally a buyer or customer of the goods, who has to make payment to
beneficiary. LC is initiated and issued at his request and on the basis of his
instructions.

Issuing Bank (Opening Bank) : The issuing bank is the one which create a letter of credit and
takes the responsibility to make the payments on receipt of the documents from the beneficiary or
through their banker. The payments has to be made to the beneficiary within seven working days from
the date of receipt of documents at their end, provided the documents are in accordance with the terms
and conditions of the letter of credit. If the documents are discrepant one, the rejection thereof to be
communicated within seven working days from the date of of receipt of documents at their end.

Beneficiary : Beneficiary is normally stands for a seller of the goods, who has
to receive payment from the applicant. A credit is issued in his favour to enable
him or his agent to obtain payment on surrender of stipulated document and
comply with the term and conditions of the L/c.
If L/c is a transferable one and he transfers the credit to another party, then he is
referred to as the first or original beneficiary.

Advising Bank : An Advising Bank provides advice to the beneficiary and takes
the responsibility for sending the documents to the issuing bank and is normally
located in the country of the beneficiary.

Confirming Bank : Confirming bank adds its guarantee to the credit opened by
another bank, thereby undertaking the responsibility of payment/negotiation
acceptance under the credit, in additional to that of the issuing bank. Confirming
bank play an important role where the exporter is not satisfied with the
undertaking of only the issuing bank.

Negotiating Bank: The Negotiating Bank is the bank who negotiates the
documents submitted to them by the beneficiary under the credit either advised

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through them or restricted to them for negotiation. On negotiation of the

documents they will claim the reimbursement under the credit and makes the
payment to the beneficiary provided the documents submitted are in accordance
with the terms and conditions of the letters of credit.

Reimbursing Bank : Reimbursing Bank is the bank authorized to honor the

reimbursement claim in settlement of negotiation/acceptance/payment lodged
with it by the negotiating bank. It is normally the bank with which issuing bank
has an account from which payment has to be made.

Second Beneficiary : Second Beneficiary is the person who represent the first
or original Beneficiary of credit in his absence. In this case, the credits
belonging to the original beneficiary is transferable. The rights of the transferee
are subject to terms of transfer.

Types of Letter of Credit

1. Revocable Letter of Credit L/C

A revocable letter of credit may be revoked or modified for any reason, at any
time by the issuing bank without notification. It is rarely used in international
trade and not considered satisfactory for the exporters but has an advantage over
that of the importers and the issuing bank.

There is no provision for confirming revocable credits as per terms of UCPDC,

Hence they cannot be confirmed. It should be indicated in LC that the credit is
revocable. if there is no such indication the credit will be deemed as irrevocable.

2. Irrevocable Letter of Credit L/C

In this case it is not possible to revoked or amended a credit without the

agreement of the issuing bank, the confirming bank, and the beneficiary. Form
an exporters point of view it is believed to be more beneficial. An irrevocable
letter of credit from the issuing bank insures the beneficiary that if the required
documents are presented and the terms and conditions are complied with,
payment will be made.

3. Confirmed Letter of Credit L/C

Confirmed Letter of Credit is a special type of L/C in which another bank apart
from the issuing bank has added its guarantee. Although, the cost of confirming

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by two banks makes it costlier, this type of L/C is more beneficial for the
beneficiary as it doubles the guarantee.

4. Sight Credit and Usance Credit L/C

Sight credit states that the payments would be made by the issuing bank at sight,
on demand or on presentation. In case of usance credit, draft are drawn on the
issuing bank or the correspondent bank at specified usance period. The credit
will indicate whether the usance draft are to be drawn on the issuing bank or in
the case of confirmed credit on the confirming bank.

5. Back to Back Letter of Credit L/c

Back to Back Letter of Credit is also termed as Countervailing Credit. A credit

is known as backtoback credit when a L/c is opened with security of another
L/c.

A backtoback credit which can also be referred as credit and countercredit is

actually a method of financing both sides of a transaction in which a middleman
buys goods from one customer and sells them to another.

The parties to a BacktoBack Letter of Credit are:

1. The buyer and his bank as the issuer of the original Letter of Credit.
2. The seller/manufacturer and his bank,
3. The manufacturer's subcontractor and his bank.

The practical use of this Credit is seen when L/c is opened by the ultimate buyer
in favour of a particular beneficiary, who may not be the actual supplier/
manufacturer offering the main credit with near identical terms in favour as
security and will be able to obtain reimbursement by presenting the documents
received under back to back credit under the main L/c.

The need for such credits arise mainly when :

The ultimate buyer not ready for a transferable credit

The Beneficiary do not want to disclose the source of supply to the openers.

The manufacturer demands on payment against documents for goods but the
beneficiary of credit is short of the funds

6. Transferable Letter of Credit L/c

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A transferable documentary credit is a type of credit under which the first

beneficiary which is usually a middleman may request the nominated bank to
transfer credit in whole or in part to the second beneficiary.

The L/c does state clearly mentions the margins of the first beneficiary and
unless it is specified the L/c cannot be treated as transferable. It can only be
used when the company is selling the product of a third party and the proper
care has to be taken about the exit policy for the money transactions that take
place.

This type of L/c is used in the companies that act as a middle man during the
transaction but don‘t have large limit. In the transferable L/c there is a right to
substitute the invoice and the whole value can be transferred to a second
beneficiary.

The first beneficiary or middleman has rights to change the following terms and
conditions of the letter of credit:

Reduce the amount of the credit.

Reduce unit price if it is stated

Make shorter the expiry date of the letter of credit.

Make shorter the last date for presentation of documents.

Make shorter the period for shipment of goods.

Increase the amount of the cover or percentage for which insurance cover must
be effected.

Substitute the name of the applicant (the middleman) for that of the first
beneficiary (the buyer).

Standby Letter of Credit L/c

Initially used by the banks in the United States, the standby letter of credit is
very much similar in nature to a bank guarantee. The main objective of issuing
such a credit is to secure bank loans. Standby credits are usually issued by the
applicant‘s bank in the applicant‘s country and advised to the beneficiary by a
bank in the beneficiary‘s country.

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Unlike a traditional letter of credit where the beneficiary obtains payment

against documents evidencing performance, the standby letter of credit allow a
beneficiary to obtains payment from a bank even when the applicant for the
credit has failed to perform as per bond.

A standby letter of credit is subject to "Uniform Customs and Practice for

Documentary Credit" (UCP), International Chamber of Commerce Publication
No 500, 1993 Revision, or "International Standby Practices" (ISP), International
Chamber of Commerce Publication No 590, 1998.

Import Operations Under L/c

The Import Letter of Credit guarantees an exporter payment for goods or

services, provided the terms of the letter of credit have been met.

A bank issue an import letter of credit on the behalf of an importer or buyer

under the following Circumstances

When a importer is importing goods within its own country.

When a trader is buying good from his own country and sell it to the another
country for the purpose of merchandizing trade.

When an Indian exporter who is executing a contract outside his own country
requires importing goods from a third country to the country where he is
executing the contract.

The first category of the most common in the day to day banking

Fees And Reimbursements

The different charges/fees payable under import L/c is briefly as follows

1. The issuing bank charges the applicant fees for opening the letter of credit.
The fee charged depends on the credit of the applicant, and primarily comprises
of :

(a) Opening Charges This would comprise commitment charges and usance
charged to be charged upfront for the period of the L/c.

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The fee charged by the L/c opening bank during the commitment period is
referred to as commitment fees. Commitment period is the period from the
opening of the letter of credit until the last date of negotiation of documents
under the L/c or the expiry of the L/c, whichever is later.

Usance is the credit period agreed between the buyer and the seller under the
letter of credit. This may vary from 7 days usance (sight) to 90/180 days. The
fee charged by bank for the usance period is referred to as usance charges

(b)Retirement Charges

1. This would be payable at the time of retirement of LCs. LC opening bank

scrutinizes the bills under the LCs according to UCPDC guidelines , and levies
charges based on value of goods.

2. The advising bank charges an advising fee to the beneficiary unless stated
otherwise The fees could vary depending on the country of the beneficiary. The
advising bank charges may be eventually borne by the issuing bank or
reimbursed from the applicant

3. The applicant is bounded and liable to indemnify banks against all

obligations and responsibilities imposed by foreign laws and usage.

4. The confirming bank's fee depends on the credit of the issuing bank and
would be borne by the beneficiary or the issuing bank (applicant eventually)
depending on the terms of contract.

5. The reimbursing bank charges are to the account of the issuing bank.

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Building Up of a Proposal
1.GATHERING CREDIT INFORMATION:-

An appraisal of a proposal begins with the gathering of adequate background

knowledge about borrower‘s character and credit worthiness. In the concept of
appraisal, much reliance is placed on the credentials of the borrower. Therefore,
there is a necessity for evaluation of the borrower in regard to his standing in
the business, means and respectability. The result of the elaborate scrutiny
concerning all these aspects is required to be put into a precise credit report
which helps in taking decision on a credit proposal. Each individual case has to
be examined in the light of its own circumstances and judgment exercised on
issues enumerated above and a final decision has to be arrived at on the basis of
scrutiny of all the issues.

Information by definition is that data which is relevant and meaningful for

making decisions. An information system is an aid to the decision making,
carrying out and altering decisions. All information required by the banker in
the pre-sanction period should become part of a system. It should flow into the
information system from various sources, such as the borrower, bank‘s own
record, environment etc. A significant basis of banker-borrower relationship is
governed by the information which flows between the two parties. After
ascertaining the credit needs of the borrower, the banker looks towards
information about his borrower‘s credit worthiness. He seeks out the credit
information etc. from his co-bankers, other borrowers and market information.

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2. VARIOUS SOURCES OF CREDIT INFORMATION 

Information regarding character, honesty, and financial position has to be

discreetly gathered from following sources:

a. The borrower: the bank should develop as much credit information as

possible during the initial interview with the borrower/partners of firm/
directors of company/ proposed guarantor /co-obligator and principal
officials of firms/company, nature of its business, past and expected
profitability, the degree of competition that the firm/company faces and
whether or not it has had or anticipated any difficulty etc.

Information regarding its principal officers should be collected during such

interview.

b. Borrower’s financial statements: for lending decisions, financial

information is a significant part of the total information system. It is
derived basically from borrowers:
 Trading and profit and loss statement
 Balance sheet
 Cash and fund flow statements

c. Banks own records: If he is an existing borrower, bank‘s own records are

a rich source of additional information. Operations in the borrower‘s
account and other dealings at the bank level in regard to collections,
discounting/retirement of bills etc. often useful clues to borrower‘s
operating and financial transactions. A review of the previous year‘s
operations in the account and assessments of borrowers‘ financial
statements relating to that period will provide a rich source of information
about the borrower.
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d. Opinions: Bank should compile opinions on their borrowers. They

should contain full and reliable records of the character, estimated means
and business activities of all firms and individuals who are under any form
of liability to the bank, whether as direct borrowers or as co-obligators.
Full particulars of parties immovable properties where they are situated,
whether they are free from encumbrance and in the case of land, acreage
should be recorded together with fair estimates of their value. As far as
possible written statements of their properties should be taken in
evaluating properties owned by parties jointly with others and as a rule
such properties should be disregarded in arriving at the net means.

e. From other banks: in respect of fresh proposals, enquiries with local

banks should be made before entertaining the proposal to avoid multiple
financing without our full knowledge. In case of new customer having
dealings with other banks, confidential opinion of his banker has to be
obtained.

f. Income tax assessment order- Income tax assessment orders agricultural

income tax assessment orders give an insight into the borrower‘s account
and the extent to which it is profitable. Comments thereon by the income
tax office shall indicate the shortcomings (lacunae) in the business. In the
case of estate owners agricultural tax assessment orders to be obtained to
arrive at parties credit worthiness.

g. Sales tax assessment orders: Sales tax assessment orders will reveal the
turnover in business and when read with trading/ manufacturing and profit
& loss account, it may be possible to have a fair assessment of tendencies

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in trade i.e., whether over-trading or carefully trading within recourses at

command or trading entirely on the borrowed funds.

h. Wealth tax assessment orders: wealth tax assessment order will indicate
the net worth of individuals and reveals the liquid source available to bring
the required margin money for the venture.

i. Market sources: Constant touch with the market will help to have first
hand information about the gains or losses in particular business
transactions of the borrowers.

j. Property statements: The property statement of borrower will give an

idea of his worth, liabilities and his income from real estate‘s (immovable
properties).

k. Municipal property registers: reference to municipal property registers

will give an idea of building owned within the municipality, Rental Values
and house tax payable. It may be noted that the said registers are open for
reference to all persons.

l. Other external sources: other external sources, if any, like stock

exchange directory, business periodicals/magazines/journals etc.

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REQUIREMENTS AS PER CONSTITUTION OF BOROWER:

Following Requirements as per constitution of borrower should be collected for

proposals emanating from-

1. Partnership:
 Copy of partnership deed
 Copy of certificate of registration of firm (if registered)

2. Company :
 Memorandum and articles of association
 Certificate of incorporation
 Certificate of commencement of business
 Search report indicating subsisting charges on the assets of the
company.
 Board resolution for borrowings, creation on the assets of the
company and execution of the documents.

3. Cooperative societies
 Bylaws
 Permission from registrar for the borrowings, creation of charge on
the assets of the society and execution of documents.

4. Trusts
 Trust deed
 Resolution for the borrowings and execution of documents.

5. Industrial units :

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 Project report with cash flow, fund flow statements etc.

 Industrial licenses/SSI registration certificate.
 License from local authority, compliance of legal requirements or
conditions as applicable and clearance from regulatory bodies.

FINANCIAL APPRAISAL

On receipt of a loan application the banker begins the process of financial

appraisal. The first thing done is to analyze the financial statements. Therefore,
an understanding of these financial statements is important for the appraiser.
Once balance sheet is taken for analysis the following items are checked up:

1. Fixed assets: To find out any revaluation of fixed assets done by the
company to improve their net worth.
 The schedules of the fixed assets should be checked up.
 Study notes on accounts and comments of auditors should be
checked.
 Schedule for reserve should be studied
 Any change in the accounting procedure of depreciation should be
checked

2. Current assets: to find out whether the assets stated are really liquid or
not.
 The schedules under current liabilities and current assets to
ascertain any obsolete or slow moving raw material or finished
good and old debtors or receivables should be checked
 The auditor‘s report should be read and understood properly.
 The claims lodged against receivables must be studied

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 The receivables due from sister/associate concerns must be studied.

3. Other Current Assets: Their reasonableness and their need to maintain

them for the business.
 Various components of other current assets and if the same is more
than 5% -10%, ascertain the nature and need for maintaining such
amount ; any assets which is not used in the into day business
activity shall be removed and proper treatment is to be made
accordingly.
 Bank guarantee or letter of credit margin shall be shown as non-
current assets.

4. Contingent liabilities: To find out any unrecognized liabilities or losses

if any.
 The CDD/DBD other bills discounted liability, if any ,is reported in
the auditor‘s report , then increase the bank borrowing to the extent
liability was not taken in the balance sheet and also increases the
debits/receivables to that extent.

5. Term liabilities: To find out whether the liabilities are long term or short
term, and its needs and regularity
 This shall be decreasing year after year; if it has increased, then the
reason for the same is to be looked into (may be irregular or new
term loan availed for expansion etc.)
 The term liabilities with repayment of the same and the amount
payable during the year shall be deducted from the term liabilities
as current liabilities for finding out liquidity position of the
company should be checked.

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6. Stocks:
 The stock statements and QIS forms to find the authenticity of the
figures reported under stock/receivables.
 Change in the valuation of the stock/finished goods, if any, is to be
verified to find out its effect on the profitability of the company.

7. Intangible assets :
 Any abnormal increase in this figure shall be studied to find out the
reasons for the same; this may be due to take over by others also.

8. Accounting Norms:
 Any change in the accounting norms from the past shall be studied
to find out the reasons for the same; its effect on the net profit, net
worth of the company is to be ascertained.

BALANCE SHEET ANALYSIS

1. Comments on the performance of the unit vis-à-vis last year sales-

 Increased in last year sales are always good; if the net profit also
has increased correspondingly the performance can be noted as
satisfactory.
 If the sales has come down or the net profit has also come down
then the reason has to be ascertained. If the unit earned at least cash
profit then the position may be considered as satisfactory.

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 If the NP to N/sales is positive, that is sufficient for accepting as

satisfactory; but as per the credit rating chart maximum marks are
assigned if the borrower achieves 8% as percentage of net profit/net
sales.
 Return on investment or Return on equity may also be used to find
out the return on capital invested.

2. Long term Strength of a company is calculated based on the level of

the net worth of the company /promoters stake/loans from close relatives-

 If the net worth has increased due to infusion of fresh capital or

plough back of profit, it can be termed as satisfactory; even
increase of loan from friends & relatives is a good sign.
 If the net worth is decreasing, reason may due to net loss or
diversion; true reason needs to be ascertained.
 If the D/E ratio is less than 2:1 the same is good; further if the
TOL/TNW is less than 5:1 then the unit‘s solvency is noted to be
satisfactory. The ratio indicates that borrower has not borrowed
much and the outside debts within a reasonable limit.

3. Liquidity position of the party-Current ratio

 If the current ratio is increasing and nearer to 1.5 and above then
we can note the position is satisfactory.
 Expected Current ratio is 1.22:1 and above; if the ratio is less than
1.22:1 then the promoter‘s margin (Net working capital) towards
Working Capital may not be sufficient to cover the working capital
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limit; care shall be taken to ensure that sufficient Net working

capital for the working capital enjoyed is available.
 When the Current ratio is poor and the Net working capital is not
sufficient to cover the existing limit, no further term loan shall be
sanctioned and the party is to be advised not to take up any fresh
investment in fixed assets.

4. Quality of current assets :

 The current assets holding period must be less than 3 months for
traders and the 5 months for the industries depending upon the type
of industry ;holding level more than the above needs proper
justification.
 It should be ensured that the current assets turnover is at least more
than four times in a year.

5. Contingent liability:
 The effect of this liability on the net worth of the company; if
it‘s effect is less than 5-10 % of the net worth of the company ,the
same may be noted; but if it threatens the existence of the company
then the position needs serious analysis.

6. Diversion from the business needs to be viewed carefully.

 Reduction in Net working capital position( below the required
level) when the unit has earned cash profit and clearing of term
loan installments when the unit is making cash loss needs to be
viewed seriously.
 Reduction in the net worth of the firm (when they have shown net
profit needs further probing.

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MOVEMENT OF CREDIT PROPOSALS

With reference to Punjab National Bank the movements of credit proposals are
studied carefully and the detailed process is discussed as follows:
The movement of credit proposals follows a pre-defined path which has been
structured in keeping with the risk management principle that the credit granting
process should involve multiple credit approvers who should subject the
proposals to credit approvals at various stages accordingly.

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Credit Appraisal Techniques

Credit appraisal techniques act as tool for the credit portfolio managers to take
right decisions. It is the first and the prime most function performed by the
Credit Appraisal Cell before providing any sort loans or advances. The
appraisal technique for each type of loan is separate from each other. Each type
of loan whether secured or unsecured has to be analyzed in a different way. The
different techniques of credit analysis or credit appraisal are discussed as under:

Process of Credit appraisal for Term Loans

Term loans- Loans which are repayable in not less than 36 months are referred
to as term loans. In the interest of sound risk management practices, banks
monitor the percentage of Term loans in their credit portfolio with a view to
keeping the term loan component within a pre-determined percentage.
Requirements to be obtained with the proposal:

a) Copies of project report

b) Where loan is on participation basis, a copy of the appraisal note of the lead
institution / bank should be obtained.

c) Scrutiny of proposals

 The scope of the project:

 Background of promoters
 Government consents
 The technical appraisal
 Cost of the project

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 Sources of finance
 The schedule of implementation
 The financial projections and profitability
 Cash flow statements
 Calculation of debt service coverage ratio (DSCR)
 Breakeven analysis
d) Disbursement

e) Follow up (post sanction)

Assessment :

For assessment purposes the forms prescribed are used and debt equity ratio,
average DSCR, BEP, pay back period, etc. are taken into consideration. The
following minimum financial parameters are required to be satisfied for a Term
loan proposal to merit consideration:

Not more than 2.33:1(1.7:1 may be

Debt Equity accepted in the case of real estate sector
Ratio and generally for different type of
industry different level of DER is
acceptable.)

Not less than 1.5to 2 (ratio lower than this

Average DSCR is to be looked into)

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Ratios for appraising term loans:

 Debt equity ratio: long term debt

Tangible net worth

 Average DSCR : Net profit + Depreciation + interest on TL

Term loan installment + interest on TL

 Breakeven point : Fixed cost_______

Sales-Variable cost (contribution)

It should be noted that the banks generally consider only term loans
repayable within 5 to 7 yrs. Term loans with maturity beyond 7 yrs are
normally not experienced except infrastructure loans.

Debt Equity Ratio:

A measure of a company's financial leverage calculated by dividing its total

liabilities by stockholders' equity. It indicates what proportion of equity and
debt the company is using to finance its assets.

Also known as the Personal Debt/Equity Ratio, this ratio can be applied to
personal financial statements as well as companies'.

A high debt/equity ratio generally means that a company has been

aggressive in financing its growth with debt. This can result in volatile
earnings as a result of the additional interest expense. If a lot of debt
is used to finance increased operations (high debt to equity), the

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company could potentially generate more earnings than it would have

without this outside financing. If this were to increase earnings by a
greater amount than the debt cost (interest), then the shareholders
benefit as more earnings are being spread among the same amount of
shareholders. However, the cost of this debt financing may outweigh
the return that the company generates on the debt through investment
and business activities and become too much for the company to
handle. This can lead to bankruptcy, which would leave shareholders
with nothing.

The debt/equity ratio also depends on the industry in which the

company operates. For example for large projects (with project cost
Rs. 100 crore and above) in Power, acceptable level of DER is 2.33:1,
in Iron and Steel Industry 2.25:1 , in Infrastructure and Capital
Intensive projects 2:1 and in Real Estate, level of DER is 1.75:1. The
CH, GM, ED and CMD have powers to further relax.

Debt Service Coverag Ratio (DSCR):

The ultimate purpose of project appraisal is to ascertain the viability of a project

which has a direct bearing on the repayment of the instalments under the
proposed term loan / deferred payment guarantee. While the repayment program
will depend upon the profitability of a project, the quantum of annual
instalments has to be related to the size of the annual cash flows. The repayment
schedule should, therefore, be fixed after ascertaining the annual servicing by
the debt service coverage ratio.

The debt service coverage ratio is the core test ratio in project financing. This
ratio indicates the degree of viability of a project and influences in fixing the

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repayment period, and the quantum of annual instalments. For the purpose of
this ratio , ―debt‖ means maturing term obligations viz. instalments payable
during a year under all the term loans/ deferred payment guarantees and
‗service‘ means cash accruals (service) available to cover the maturing
obligation (debt) during each year.

The debt service coverage ratio indicates the ability of the firm to
generate cash accruals for repayment of installment and interest. For example, a
DSCR of 3:1 indicates that for each Re.1/-long term debt including interest to
be paid the business generates cash accrual of Rs.3/- to be utilized for
repayment of debt. The difference between the accruals and debt is known as
margin of safety (Rs.2/- in this case).
The ratio of 1.5 to 2 is considered reasonable. Ratio lower than
this should be further looked into. A very high ratio may indicate the need for
lower moratorium period/repayment of loan in a shorter schedule. This ratio
provides a measure of the ability of an enterprise to service its debts i.e.
`interest' and `principal repayment' besides indicating the margin of safety. The
ratio may vary from industry to industry but has to be viewed with
circumspection when it is less than 1.5.

BREAK EVEN POINT OR COST VOLUME PROFIT (CVP) ANALYSIS:

A. The breakeven point is calculated to note the level of production at which the
unit neither earns profit nor incur loss. BEP is the level of operations (in terms
of sales or production or capacity utilization) at which total revenues are equal
to total operating costs (fixed and variable) or, in other words, the operating
profit is equal zero. He firm starts earning operating profits only after the break-
even is reached. At BEP, ―contribution‖ exactly equals the ―fixed costs.

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B. The formula for calculating the break-even point for each year is as under:

Total fixed cost/Contribution

C. Certain items of the cost that are to be incurred by the unit irrespective of the
level of production are called as fixed cost. The same includes depreciation,
repairs and maintenance, interest, certain portion of salaries, rent, insurance,
selling expenses other than variable items and administrative expenses

D. The variable cost changes with the levels of production. It includes cost of
raw materials, direct wages and other items, which are apportion able to unit of
production.

E. The breakeven point is generally expressed in terms of percentage of

capacity utilization

Break even analysis is generally expressed in terms of percentage of capacity

utilisation.

The CVP analysis provides answers to such questions

as: level of operations needed to avoid loss, level of sales required to achieve
targeted profit, effect of product mix on profits, impact of expansion, most and
least profitable products etc. Break-even analysis is the most widely used form
of the CVP analysis.
Break-even analysis is one of the most useful
techniques of profit planning and controlling. The break-even analysis can help
in making vital decisions relating to fixation of selling price make or buy
decision, maximizing production of the item giving higher contribution etc.
Further, the break-even analysis can help in understanding the impact of
important cost factors, such as, power, raw material, labor, etc. and optimizing
product-mix to improve project profitability.

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It is a useful method for considering also the risk implications of alternative

actions. From one alternative a firm may expect higher profit and also a higher
break-even point, while another alternative may produce comparatively lower
profit but at a lower break-even point. The firm has to weigh the probability
(riskiness) of reaching the break-even in the first case before choosing that
alternative. Generally, the preferred alternative would be where the break-even
will be reached earlier.

Caution:
 Relationship between revenue, variable costs and volume may not be
linear.
 It is not always easy to have a clean separation of costs into fixed and
variable components.
 Fixed costs may be ‗stepped‘ – not fixed over all volumes.
Complexity involved in using BEP analysis in multi-product businesses

Illustration:
Assumed:

Normal year 75 lakh units (93.75% of

production installed capacity)
Fixed Costs Rs. 13.71 lakh
Variable Costs Rs. 13.35 lakh
Sales realization Rs. 41.25 lakh
Contribution Rs. 27.90 lakh

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BEP (production) : (Fixed cost / Contribution)* 75 lakh = 36.85 lakh

units

BEP (capacity utilization): (Fixed cost / Contribution)* 93.75 = 46.07%

BEP (sales) : (Fixed cost / Contribution)* Rs. 41.25 lakh = Rs.

20.27 lakh

SENSITIVITY ANALYSIS

Projects do not always run to plan. Costs and benefits estimated at an early
stage of a project may indicate a profitable project, but this profit could be
eroded by an increase in costs or a decrease in the value of the benefits (the
revenue). Sensitivity Analysis involves changing input variable estimates
from an original set of estimates (called the base case) and determine their
impact on a project‘s measured results, such as NPV (or IRR) from investor‘s
viewpoint, or DSCR from banker‘s point of view.

The Sensitivity Analysis helps in arriving at profitability of the project wherein

critical or sensitive elements are identified which are assigned different values
and the values assigned are both optimistic and pessimistic such as increasing
or reducing the sale price/sale volume, increasing or reducing the cost of inputs
etc. and then the project viability is ascertained.

The critical variables can then be thoroughly examined by generally selecting

the pessimistic options so as to make possible improvements in the project and
make it operational on viable lines even in the adverse circumstances.

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In the absence of any defined factors and its values for carrying out the
sensitivity analysis, a common 5% sensitivity factor on sale price/cost price of
major raw materials is to be applied in appraisals of all the projects
irrespective of the industry. However, 10% sensitivity factor may be applied in
highly volatile industries by assessing the expected volatility in sale price/ cost
price of major raw materials in future on case to case basis.

Process of Credit Appraisal for providing Cash Credit / Working

Capital Limits

Working capital for any unit means the total amount of circulating funds
required for meeting day to day requirements of the unit. For proper working a
manufacturing unit needs a specific level of current assets such as raw material,
stock in process, finished goods, receivables and other current assets such as
cash in hand/ bank and advances etc. So the working capital means the funds
invested in current assets. The trading units need the working capital for storing
the goods and allowing credit to its customers.

Gross Working Capital and Net Working capital

Gross working capital means the total funds required for financing the total
current assets. Net Working capital means the difference the current assets and
liabilities. In other words , net working capital denotes the portion of gross
working capital contributed from long term sources. As per practice of Indian
banks net working capital should normally be 25% of total current assets which
will give a current ratio of 1.33 to the unit. When net working capital is
negative, it implies that the short term funds have been diverted / used for long
term uses and the unit is facing a liquidity crunch. Such situation may also arise
due to losses. In such a situation, the need of the hour is for raising long term
sources. A unit needs working capital because the production, sales and
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realizations are not simultaneous. The unit needs cash to purchase the raw
material and pay expenses as there may not be perfect matching between cash
inflows and outflows. The stock of raw material is kept to ensure the
uninterrupted and smooth production. It may also be required to cover the
situations of shortages etc.

Factors affecting the requirement of working capital:

1. Nature of activity: Manufacturing units need more working capital as
compared to trading and service units.
2. The length of operating cycle: More the length of operating cycle, more
the requirement of working capital. lengthy the process of manufacture,
more the need of working capital due to increase of length of working
capital cycle
3. Market trend: The market trend of allowing credit to customers also
varies from industry to industry and city to city. More the credit allowed
to customers, more the need of working capital.
4. Availability of raw materials: When the availability of raw material is
assured and comfortable, lower stock maintenance is required. When
there is expectation of shortage or expectation of rise in prices, more
amounts is blocked in raw materials.
5. Location of the unit: When the unit is located near the source of raw
material, lower stock maintenance is required.
6. Type of customers: When there are regular customers, low stock of
finished products is needed. When the sales are to be made to walk- in
customers, more level of stock of finished products is required.
7. Seasonality Factor: When the raw material required is available in a
particular season, the stock for whole of year is to be purchased in the
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particular season. E.g. Sugarcane, Cotton, Paddy etc. Similarly the

woollen products and products required in a particular season such as
ACs, for keeping the production running, higher level of finished stocks
have to be kept.
Role of Banker:

The unit should have sufficient amount of working capital. A portion of it is to

be financed from long term sources called the liquid surplus or net working
capital (NWC). The remaining is normally financed by the bank in the form of
working capital limits. Excess maintenance of working capital may result in idle
resources and high interest cost whereas less amount of working capital may
mean disruption in the working. So both the situations are to be avoided. That is
why the technique of calculation of right amount of working capital assumes
significance. For financing of working capital, a banker should be able to
calculate right amount of working capital needed by the unit being financed. It
shall mean right amount of financing which will result in higher profitability for
the unit and safety of funds of the bank.
Parameters for various stages in computation of working capital:

Stage Time Value

i Raw Material Holding period value of RM consumed
during the period

ii SIP Time taken in RM + Mfg.Exp. during the

converting the period (Cost of
RM into FG production)

iii FG Holding period of R.M + Mfg. Exp. +Adm

FG before being overheads for the

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sold period (Cost of sales)

iv Receivables Credit allowed RM+ Mfg. Exp. + Adm.

to buyer Exp.+ Profit for the
period
(sales)

The assessment of working capital requirement of business unit has been

engaging the attention of the Govt., RBI and a series of committees were set up
to suggest appropriate modalities of financing working capital as under.

TANDON COMMITTEE RECOMMENDATIONS

Realising the absence of a proper control system in the flow of bank credit for
working capital, RBI constituted a working group ―Tandon Committee‘ in July
1974 under the chairmanship of Shri P.L. Tandon. The main task of the group
was:

1. To suggest guidelines to commercial banks to follow up and supervise credit

from the view of ensuring proper end use of the funds and keeping a watch
on the safety of the advances.
2. To suggest as to what constitutes the working capital requirements of
industry and to suggest the sources for financing the minimum working
capital requirements.
3. To suggest the maximum level of bank finance and the method to compute
the same.

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4. To make recommendations as to whether the existing pattern of financing

working capital requirements by cash credit or overdraft etc. requires to be
modified. If so, to suggest suitable modifications.

The group submitted its final report during December 1975. The
recommendations of this Committee are summarised below:

(i) Norms for Inventory and Receivables

With a view to curbing speculative and hoarding tendencies, the Committee
fixed norms (in terms of the weeks/month consumption) in respect inventory
and receivables which industrial units may hold. The norms were fixed for 15
major industries and indicate the maximum permissible limits for inventory
holding. Deviations from norms not allowed for meeting unforeseen situations.

(ii) Approach to Lending.

The three methods of lending as suggested by the committee are:
 First Method: 75% of Working Capital Gap
(Total Current Assets – Other Current liabilities)
 Second Method: 75% Total Current Assets – Other Current liabilities
 Third Method: 75% [(Total Current Assets – Core
Current Assets) – Other Current liabilities)
Third method of lending was not accepted by RBI and hence rejected.

(iii) Style of Credit.

Tandon Committee suggested that instead of making available entire limit by
way of cash credit it may be bifurcated into demand loan and cash credit
component (modified by Chore Committee).

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(iv) Quarterly Follow-up and Supervision

Tandon Committee suggested quarterly forms under the information system
made applicable to borrowers with working capital credit of Rs. 1 crore and
over from the banking system. These forms aim at ensuring proper end-use of
credit.

CHORE COMMITTEE RECOMMENDATIONS

In April 1979, a working group under the chairmanship of Sh K.B.Chore was

constituted to review the system of cash credit. The committee submitted the
report in Dec 1980. The lending discipline, as enunciated by Tandon
Committee, has been streamlined by certain recommendations made by Chore
Committee. The gist of these recommendations is as follows:

(a) Annual Review

All working capital credit limits of Rs. 50 lacs and above from the banking
system should be reviewed at least once a year. These reviews are intended to
ensure that the limits are need-based and continue to be viable propositions.

(b) Information System

The scope of the quarterly information system originally envisaged by the study
group to frame guidelines for follow-up of bank credit has been enlarged
bringing into its ambit all borrowers having credit limits of Rs. 50 lacs and over
from the banking system.

Presently this limit of Rs. 50 lac has been raised to Rs. 1 Crore.

(c) Withdrawal of bifurcation of cash credit

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The recommendation of the Tandon Study Group to bifurcate cash credit

accounts into demand loan and cash credit components has been withdrawn.

(d) Separate limit for peak level and non-peak level

A recommendation that will induce a greater degree of credit planning pertains
to the separate 'Peak-level' and `non-peak level' credit limits, wherever
considered feasible. The period during which these limits will be utilised will
now be indicated in the bank's advice conveying sanction of credit. This
recommendation is based on the pronounced seasonal trends in agriculture-
based industries, (such as tea. coffee, sugar, jute, vegetable oils, etc.), and in the
case of some consumer industries such as those manufacturing fans,
refrigerators etc. One of the major determinants of borrower's peak-level and
non-peak level credit limits will be their availment during the corresponding
period in the past. Borrower in whose cases there are no pronounced seasonal
trends, may be sanctioned only one limit as peak-level and non-peak level
concepts will not be relevant in such cases.

(e) Determination of Quarterly Operative limits

Before the commencement of each quarter, the borrowers will now be required
to indicate limits sanctioned for their requirements of funds during the ensuing
quarter. This will be termed as the operative limit for the relevant quarter. The
operative limit indicated by the borrower would virtually set the level of
drawing in that quarter subject to tolerances of 10% either way. Hence forth,
excess-utilisation or under- utilisation of the operative limit, beyond the
tolerance level referred to above would be considered as an irregularity in the
account. This will be treated as an indication of defective credit planning by the
borrower.

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Dialogue with the borrower will be initiated to set right the position in regard to
defective credit planning and to ensure that such instances are avoided in future.

(f) Penalty for delayed or non submission of returns

Non-submission of returns, within the prescribed time limit, will henceforth
entail penal of 2% per annum on the total outstanding for the period of default
in the submission of returns. Simultaneously, a notice would be issued to the
borrower stating that if the default persists it would be open to the bank to
freeze the account without further notice to the borrower. lf the default persists
despite imposition of penal interest and the bank is satisfied that deterrent action
is warranted, the operations in the account may be frozen on the basis of the
notice issued to the borrower.

(g) Adhoc or temporary limits

The working group has conceded that in exceptional cases, ad-hoc or temporary
limits could be sanctioned to borrowers through demand loan or non-operatable
cash credit accounts. On those limits, banks are required to charge additional
1% interest per annum over the normal rate. However, in certain cases like
natural calamities it would be the discretion of the bank to charge interest of 1%
per annum.

(h) Switching over to Second Method of lending

A major recommendation of the working group relates to switching over the
borrowers from the first to the second method of lending. Recognising that in
some cases this may not be possible immediately, Reserve Bank has stipulated
that in such cases, the excess borrowings are to be segregated and treated as
WCTL (Working Capital Term Loan), which should be made repayable in half-
yearly instalments within a definite period but not exceeding five years in any
case.
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(i) Encouragement of Bills system

To encourage bills systems of financing purchase of raw material inventory,
the Working Group has recommended that banks should extend at least 50%
of the cash credit limit against raw materials to manufacturing units, whether
in the public or private sector, by way of drawee bills only.

Present Status:
The concept of MPBF was the cornerstone of financing which had emerged as a
result of recommendation of Tandon and Chore. However RBI has now
abolished the guidelines for MPBF and advised the banks to draw the guidelines
for credit dispensation. Our bank is still following MPBF system. However the
relaxations on case to cases are being allowed.

NAYAK COMMITTEE RECOMMENDATIONS

To give a comprehensive and straight line method for the assessment of

working capital requirement of the borrowers, RBI constituted a working
group under the chairmanship of Sh P.R.Nayak. The study group gave its
recommendations in March 1993. In April, 1993, RBI implemented the
recommendations of Nayak Committee for assessing the credit requirements of
village industries, tiny industries and other SSI units . Initially the
recommendations were for SSI units only but now other units have also been
covered. Presently units covered under these guidelines are those having
aggregate fund-based working capital credit limits less than Rs.200 lacs for
other than SSI and Rs. 500 lacs for SSI from the banking system.

It has been advised not to apply the norms for inventory and receivables as also
the Methods of Lending. Instead such units be provided working capital limits
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computed on the basis of a minimum of 20% of their Projected Annual Turn-

Over (PATO) for new as well as existing units. Their working capital
requirement be assessed at a minimum of 25% of their Projected Annual Turn-
Over (PATO) assessed on realistic basis for new as well as existing units. Out
of this, at least 4/5th(20% of their PATO) be provided by the bank and the
borrower should contribute 1/5th of this estimated working capital requirement
(5% of PATO) as margin money of working capital.

- In case the margin with the party is more than 5% , PBF may be adjusted
accordingly.

- The 20% limit is the minimum. As a temporary relief measure for SME
Units, RBI has allowed banks to finance upto 25% under stimulus
package. The same shall be reviewed after 30.6.09. However if the
working capital cycle is longer than 3 months, higher limit may be fixed.
If the working capital cycle is less than 3 months, the limit may be fixed
@ 20 % of turnover but actual withdrawal should be allowed only on the
basis of actual D.P. However lower limit can be sanctioned if requested in
writing by the borrower.

LENDING DISCIPLINE - QUARTERLY MONITORING SYSTEM

(QMS)
Consequent to operational freedom granted by RBI in regard to submission of
statements under QIS/Monthly Cash Budget System prescribed under CMA,
Bank reviewed the same and submission of QIS was replaced with Quarterly
Monitoring System (QMS)

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The QMS discipline is to be enforced on all borrowers enjoying working capital

limits of Rs.1 crore and over from the banking system, irrespective of whether
they are exporters or otherwise
In case the limits have been sanctioned on the basis of Naik Committtee, QMS
forms and CMA data need not be submitted.

The forms for QMS and time period for submission are as under.
Form- 1 To be submitted within 6 weeks from the close of quarter to which
it relates
Form-11 To be submitted within 2 months from the close of Half Year to
which it relates.

QMS form I gives us the quarterly data of production and sales and quarterly
levels of current assets and current liabilities.

QMS form II gives us half yearly profitability statement and fund flow
statements.
By comparing with the projections as given in CMA, we can see whether the
performance is going on as projected.

QIS I:
QIS I which was earlier discontinued has been reintroduced and is to be
submitted in addition to QMS I and QMS II.
- For all borrowed accounts availing fund based working capital credit
limits of Rs.5 crore & above from our bank, Quarterly Information
System (QIS) Form-I may be obtained for fixing up of quarterly operative
limits in addition to the QMS Forms. The QIS Form-I is to be submitted
in the week preceding the commencement of the quarter to which it
relates.
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- Non adherence to the operative limits will attract penal interest.

COMMITMENT CHARGES

To discourage the borrowers from non-availment of credit already provided to

them by banking institutions and to indirectly help the banks in their Asset
Management, RBI has permitted bank to charge penalty on unavailed portion of
sanctioned limit known as a commitment charge. It is applicable to the working
capital limits of Rs.5 crore or above and charged @ 1% per annum with a
tolerance limit of 15% based upon the limit sanctioned.

The unutilized part of the limit is found out by calculating the average
utilization during the quarter. While calculating the average utilization,
overdrawn portion or excess portion is not taken into consideration. If the average
utilization is less than 85% than commitment charges is levied on the entire
unavailed position.

Commitment charge is not applicable in case of export unit and sick unit.

PENAL INTEREST

In order to instil a sense of credit discipline among the borrowers, RBI has
permitted banks to levy penal intt. over and above the sanctioned rate of interest
in case of non compliance of various terms and conditions
The broad areas of non compliance where bank charges penal interest are:
 Default in repayment of loans
 Irregularity in cash credit account
 Non submission of stock statements and other financial data
 Default in adhering to borrowing covenants
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 Non payment of bills

 Excess borrowings arising out of excess current assets
 Non submission of information under Quarterly Monitoring
System

EXEMPTION FROM PENAL INTEREST

o All advances up to 25000/-
o Sick unit under rehabilitation
o Sick unit remained closed
o Advance against deposits/LIC policy/Govt. securities/Gold &
Jewellery where the drawings are within available value of
security
o Account transferred to Protested category

RATE OF PENAL INTEREST

 2% above the sanctioned rate where irregularity and default and non-
compliance of terms and conditions as given earlier.
 2% above the sanctioned rate where adhoc/temporary limit are sanctioned
to borrower.
 3% above the sanctioned rate in case of non compliance of terms and
conditions in adhoc/temporary limit

AMOUNT ON WHICH PENAL INTEREST TO BE CHARGED

 Amount of default in – instalment /excess drawals or borrowings or
amount of irregularities in account/overdue bill not debited to account.

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 Total amount of outstanding – for non-submission of stock statement

and other financial data/default adhering to borrowing covenants/non-
submission of information under QMS.

APPRAISAL TECHNIQUES FOR RETAIL LOANS

I. EDUCATION LOANS

Till some year‘s back higher education and quality education was not affordable
to some illustrious students because of the financial constraints. There was no
any alternative but to jump in the job market prematurely. And this led to
untimely end of budding talents and their forceful transformation into to the
mediocrity. Scholarships were there, but those were so less in numbers that only
luckier few could avail them. But now the scene has changed drastically. The
boom in the banking sector has led to release of large amount of funds for
education loans

Student loans in India (popularly known as Education loans) have become a

popular method of funding higher education in India with the cost of
educational degrees going higher. The spread of self-financing
institutions(which has less to no funding from the government) for higher
education in fields of engineering, medical and management which has higher
fees than their government aided counterparts have encouraged the trend in
India. Most large public sector and private sector banks offer educational loans.

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Under section 80(e) of the Indian Income tax act, a person can exempt the
amount paid against the interest of the education loan - either for self or for
his/her spouse or children - for eight years from the year (s)he starts to repay the
loan or for the duration the loan is in effect, whichever is lesser.

Education loan is becoming popular day by day because of the rising fee
structure of higher education. It came into existence in 1995 started first by SBI
bank and after that many banks started offering study loan.

The education loan provided by Punjab National bank is known as

Vidyalakshyapurti scheme. The details regarding its eligibility, processing,
documentation etc. are given as follows:-

Concept VIDYALAKSHYAPURTI Scheme is the main scheme

and its variant PNB Sarvotam Shiksha scheme stands
merged with the main scheme with effect from 20.12.2008
Courses Studies in India
eligible School level including. +2, Graduation, Post graduation,
Professional courses, Computer courses and Evening
courses, other courses leading to diploma /degree approved
by UGC, Govt, AICTE, AIBMS, ICMR etc. and Advance
diploma in Banking Tech. It includes professional &
commercial & pilot training courses in India and abroad.
For study in India. Institutes approved by DGCA are
included.

Studies Abroad
Graduation, PG and Courses offered by CIMA London ,

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CPA in USA
Eligibility  Indian National
 Secured Admission
Secured pass marks in qualifying exam. Branches need not
go into technicalities of admission process (selection
through management quota etc.) and may consider loan
based on admission advice. ( RBD Cir. No. 60/08 dt.
20.12.2008)

More than In case of more than one loan in a family, the family as a
one loan in a unit is to be taken into account for considering the loan and
family
security taken in relation to total quantum of loan subject to
margin and repaying capacity of the parents.
Top up Top up loans may be sanctioned to students for pursuing
Loans further studies within overall eligibility limits with
appropriate reschedulement of existing loans and required
permission by the CH
Age of There is no restriction with regard to age of student for
student being eligible for the loan.
Income No Income criteria are prescribed for the parents. However
Criteria amount of loan be decided by judging Income of the
parents.
Amount of Rs. 10.00 lac in India and 20.00 lac for abroad. CH can
loan exercise higher powers.
Priority Rs. 10.00 lac in India and Rs. 20.00 lac for abroad.
Sector

Capital Risk Weight as per BASEL-I 100%

Requirement Risk Weight as per BASEL- 75%

II

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Margin  NIL Up to Rs. 4.00 lac

 5% Above Rs. 4.00 lac in India
 15% Above Rs. 4.00 lac abroad
(Scholarship/assistance may be included in the margin)
Security NIL Up to Rs. 4.00 lac
3rd party guarantee for loans above 4.00 lac upto Rs. 7.5 lac
(Exemption from taking guarantee for loan up to 7.50 lakh
for students of IIT, IIM, XLRI etc.
EM of IP or other Coll. Security for loans above 7.50 lac
(should be interpreted as loan amount of Rs. 7.51 lac and
above in terms
Hypothecation of assets if created out of loan amount.
Co-obligation of students‘ parents as well as assignment of
future income of student in loan above Rs. 7.5 lac. For
married persons, co-obligator can be spouse or parents or
parents-in-law. Grand parents can also become co-obligants.
Security for  Lien on Terminal dues
staff  Extension of EM of IP
members
 Fresh Mortgage if there is no HL
 Co-obligation of employee
Penal Up to 25000/- ----NIL , Above 25000/- @ 2% on
Interest
OVERDUE AMOUNT
Upfront fee  NIL
 0.50% (Maximum 5000/-) for studies abroad which is
eligible for refund on availment of loan.
Documentati  Upto 4.00 lac - Rs. 270/- plus service tax
on Charges
 Above 4.00 lac Rs. 450/- plus service tax
Repayment 5 to 7 years with moratorium period equal to Course period

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+ 1 year or 6 months after getting job whichever is earlier.

BM is empowered to permit extension in moratorium period
up to 2 years as against present provision of max. 1 year in
deserving cases under reporting to circle head.
Calculation Simple interest is to be charged during moratorium period
of interest and kept in a separate account. The accrued interest during
repayment holiday will be added to Principal for fixing of
EMI.
Interest 1% interest concession is allowed if it is serviced during
concession holiday period. The concession will be given at start of
repayment and EMI will be fixed accordingly.
Rebate of 0.5% is allowed to students of IITs, IIMs etc.

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Constitutes Tuition fees, Hostel charges, Exam fees, Library/Lab charges,

of loan Books, Equipment, Instruments, Uniform, Building fund,
Refundable deposit, Travel expenses & Computers. (Advances
for Computers are allowed in Computer/Management courses
only.)
Fees re- Within 6 months. Circle Head can allow beyond a period of 6
imbursement months also on merits.(RBD Cir. No. 12/10 Dt. 16/02/2010)
Documents Documents will be executed both by student and the
parent/guardian.

1. Letter of admission and proof of last qualifying exam.

2. Loan application
3. Agreement on PNB 1116 if student is minor.
4. Agreement on PNB 1117 if student is major.
5. Letter of guarantee if loan is above Rs. 4.00 lac.
6. EM of IP if loan amount is above Rs. 7.5 lac
Post sanction Follow up with the college/university for getting progress
Follow up report at regular intervals.
Life In terms of guidelines contained in RBD-A cir no. 16/08 dt.
Insurance by 26.3.08, Insurance policy can be obtained to meet the
Kotak exigencies in case of death of student borrower between age
Mahindra group of 18-33 years. The coverage is between 20000-15 lac.
Single premium will be paid. It will vary according to age and
total insurance Tenor. The scheme is valid for one year.
Relaxations It has been decided to permit the following relaxations to the
for students students securing admission in IITs/IIMs/MDI Gurgaon/XLRI
of IIT,IIM, Jamshedpur and ISB Hyderabad:
MDI, XLRI,
 Exemption from making parent/guardian as co-borrower.

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ISB  Exemption from taking guarantee for loans up to 7.50 l

Other  CR of the borrower is not required. Brief CR of the

provisions guarantor to be prepared.
 ―No due Certificate‖ is not to be insisted upon. Application
will be rejected by next higher authority.
 2nd time loan can be considered by the CH within limits.
 Capability Certificated may be issued for studies abroad.
 Education loan to the institutions previously under
Sarvotam Shiksha Scheme can be sanctioned by the branch
(other than place of residence of parents) convenient to the
borrower depending upon genuineness, accessibility and
aspect of recovery.
 On-line applications are being accepted for grant of
education loan. Loan applications are to be disposed of
within 15 days under branch/hub sanction and 21 days
under CH and above.
 CH has full powers to relax eligibility, margin and security
norms.
 Parents, grandparents, spouse, parents-in-law can be co-
obligants.
 Passport and Visa is required for study abroad.
Disposal of It has been decided to curtail the period of disposal of
loan education loan applications to maximum 1 week except cases
applications of CH and above level where the outer limit of disposal will be
2 weeks from the date of receipt of complete application.

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II. VEHICLE LOANS

Today, vehicles can be financed using a number of options such as loans, lease,
or hire purchase agreement. Obtaining a vehicle loan is one of the more
straightforward ways of financing a two or four wheeler. In this manner, the
vehicle purchased is actually possessed by the bank or lending institution. This
means the car or motorbike is hypothecated. Therefore, though the consumer
owns the vehicle, the bank or the lending institution is actually using it as a
security against the loan that the consumer has obtained.

Vehicle loan provided by Punjab National Bank are under two categories know
as PNB SARTHI and CAR Loan & details about its processing, eligibility,
margin etc are discussed below:-

PNB SARATHI

Eligibility  Individuals with Income proof

 Students above 18 years with parents as co-borrowers
 Business concerns
 Individuals without income proof but residing at the
given address for the last at least 3 years.
 Individuals with good repayment track without default.
Purpose & Purchase of Scooter/Motor Cycle/Moped
Extent Maximum Rupees. 100000/-.
Margin  5% where salary is disbursed through branch or check-
off facility is available.
 25% for students where parents are co-borrowers.
 30% for business or where there is no income proof.
 10% for others.

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Income  10000/- pm. Is the minimum criteria.

criteria  Income of parents be considered in case of students.
 Income of spouse can be added.
Switch over On flat fee of 2%
to new
scheme
Guarantee  Generally it is not required. In cases where there is no
Income proof, Guarantee of some family member or 3 rd.
party
 In cases where income of spouse is to be added,
Guarantee of spouse can be taken.
Insurance Comprehensive Insurance with bank clause and policy to
remain with the bank.
Security  PNB 551 is required for the Ist time. In case account is
Inspection regular, PNB 551 is not required thereafter.
 In case the account is irregular, Qtrly. Inspection is must.
Upfront fee Rs 200/- + Service Tax For students – Nil

Documentati Rs. 270/- plus service tax

on Charges
Other  Driving License is required.
Requirement  Statement of account for the last 3 years is required.
s  Income Tax Proof
 Salary certificate
 Income of spouse can be considered if he/she is made
guarantor.

CAR LOAN

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Conveyance Loan (Public) for Car

Eligibility Individual & Business concerns, Professionals &

Agriculturists with 6M transaction records.
Purpose & Car, Van & Jeep, New or Old (not older than 3 years –
Extent Multi Utility CH powers)
Vehicles/Sports
Utility Vecles
Individuals  25 times of net monthly salary or
Rs. 25 lac whichever is lower for
one or more vehicles.
 CH may relax the criteria within
powers keeping in view the
repayment capacity.
 Income of spouse can be
considered provided he/she stands
as additional guarantor
Business Corporate No Ceiling. One or more vehicle can
and non-corporate be purchased. Earning and repaying
capacity will be considered.
Agriculturists --do--
Margin General 20% - Cost of Insurance and
one-time road tax can be
considered as margin.
Govt./PSU employees 15% (Repayment in 84
EMIs)

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If net income is more than 6 Margin can be reduced to

lac 15% by Sanctioning
Authority.
Old Vehicles 30%
CH may reduce up to 10% in deserving cases.
Repayment  Maximum 7 years without any Moratorium period
 Old Vehicles – 5 years
 Agriculturists – 14 H/years as per crop pattern
 CH and above empowered to relax repayment by 12M
 Maximum age for EMI 65 years relaxable up to 70 years.
 Carry home pay should not be more than 50% of gross
salary
 Advance cheques equal to no. of installments be
obtained.
Rate of The rate is on fixed option with reset clause of 1 year. Rate
Interest of interest is linked with tenure of loan. Presently 0.5%
extra interest is charged if repayment period is 3 years and
above.
Upfront fee 1% of loan subject to maximum 6000/- exclusive of service
tax.
Documentati Rs. 270/- (Tie up arrangement Rs.1270/- ) up to Rs. 2.00 lac
on charges + ST
Rs. 450/- (Tie up arrangement Rs.1700/- ) Above Rs. 2.00
lac + ST
Security  Hypothecation of the vehicle
 RC in joint name of borrower and bank
 Bill of the vehicle will also be in the joint name.
Guarantee Spouse if employed or Suitable 3rd party guarantee or

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Collateral Security in shape of IP/liquid security equal to

100% of loan amount.
CH and above can waive the guarantee/collateral security.
Insurance Comprehensive Insurance with bank clause and policy to
remain with the bank.
Security  PNB 551 is required for the 1st. time. In case account is
Inspection regular, PNB 551 is not required thereafter.
 In case the account is irregular, Qtrly. Inspection is must.
Other  15% depreciation on St. line method is to be applied in
Provisions case of Old Car
 Driving License is not at all required.
 Statement of account for the last 6 M. is required.
 Car loan finance to business concerns for personal use of
executives shall be outside the purview of corporate
banking and may be sanctioned by officials under vested
powers even in case where existing facilities have been
sanctioned by higher authorities in terms of RBD cir. No.
51 dt. 15/09/09.

III. 5.8.3 HOUSING LOANS

IV. Housing loans have emerged as an attractive avenue for credit
deployment for banks in the recent past. Industry level statistics reveal
that NPAs in this segment is relatively low. Housing loans are fully
secured as they are backed by mortgages of residential properties.
Small housing loans up to Rs 10 lakhs can be classified as priority
sector credit and hence help in achieving/ maintaining the mandated
priority sector lending targets. Risk weightage for housing loans is
only 50 % , enabling expansion of the credit portfolio with lesser

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capital requirement. The prevailing lower interest rates, which have

resulted in greater affordability and the tax concessions offered by the
government have made this one of the fastest growing financial
products. Further since the housing loan portfolio typically comprises a
large pool of small and medium sized loans, risk is distributed over a
large number of accounts, which is ideal from Risk Management point
of view. Hence growth of quality assets under Housing Finance is one
of the major areas of focus for the bank.

PNB-(Punjab National Bank) Home Loan offers the most

consumer friendly home loans and housing finance schemes at attractive rates.
PNB Housing Loans, with an aim to make purchase and construction of homes
a comfortable task, provides fixed as well as floating home loans at different
rate of interest for different tenures. PNB Housing Finance covers 80% of the
cost of your home or renovation / repairing of your home loan up to Rs. 10
Lacs for buying land and up to Rs. 2 Lacs for furnishing can be availed from
PNB Home Loan.
The details of housing loan product of Punjab National Bank
regarding its purpose, eligibility criteria, assessment, processing,
documentation, cut back, margin, pre-sanction follow ups, etc. are as foll
1. HOUSING FINANCE (PUBLIC)
Eligibility Individual & Joint Owners

Purpose & Purchase of Plot Rs.20 lac. However, RM &

Extent above may consider Loan
upto 50 lac.
Construction of House Need based

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Semi -built House/flat from Small/Medium branch Rs.

Pvt Builders 10 lac
Large branch Rs.
20 lac
ELB/VLBs Rs.
40 lac
CH (AGM) Rs.
100 lac
CH (DGM) Rs
100 lac
GM
Rs.150 lac
Repair & Renovation Rs. 20 lac
Cost of furnishing Max. 10% of the loan upto
maximum of Rs. 2.00 lac
Pari pasu Charge CH powers up to 20 lac to
Govt. Employees
Freehold &  The loan can be granted both for freehold and for
Lease hold leasehold property.
 In case of Leasehold, loan can be granted on the basis
of P/A from original allottee where
DDA/PUDA/HUDA permit conversion of leasehold
into freehold property.
 Otherwise advance is not permitted against plots
purchased on Power of Attorney basis.
Capital Loan limit up to 30 lac Risk Weight is 50%
Requirement Loan limit above 30 lac Risk Weight is 75%
LTV Ratio more than Risk Weight is 100%

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75%
Margin Land/Plot 40%
Construction/repair/addition 25%
Rate of Rate of Interest as per LA Circulars issued from time to
Interest time.
 0.50 % extra will be charged on H/L for 3rd House.
 The interest can be fixed or floating
 Option can be changed from fixed to floating and vice
versa with flat charges of 2% fee on Balance
outstanding
 Fixed Interest rate be reviewed/reset after a block of 5
years in respect of loans disbursed on or after
1.8.2006.

Concessional Bank has decided to extend concessions to Defense

Rate of personnel who are raising Housing Loans under bank‘s
Interest for regular Housing Loan scheme for public as under:
Defense
 25 bps relaxation in interest rates
Employees
 50 bps relaxation in processing fee
These relaxations are to be made applicable in all new
cases where defense personnel avail housing loan either in
single name or along with spouse.

(RBD Cir. No. 11/2010 dt. 16.2.2010)

Repayment  Maximum 25 years including Moratorium period of 18

months
 Installment can be fixed up to maximum age of 65
years. Hub Incharge of Scale-IV and above besides

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Circle Head can relax the age up to 70 years,

 Repayment of loan for
repair/renovation/addition/alteration restricted to 10
years including moratorium period of 6M.
 All deductions should not exceed 50% of Gross
monthly income. However where gross monthly salary
is above 50000/-, the deduction can be up to 60% and
if gross monthly salary is above 100000/-, the
deduction can be up to 70% with the permission of
CH. The income of earning spouse and children can be
taken into account.
 The Income of spouse and earning children can be
taken into account provided they are made co-
borrowers.
 Father/mother can also be made co-borrowers in cases
where property is in the single name of his/her son and
also clubbing of their income is permitted for
determining eligibility criteria.
 Minimum 24 advance cheques should be obtained. As
and when, 6 cheques remain, fresh lot be obtained. Out
of 24, 23 cheques should be of installments and 1
cheque should be of the amount equal to the balance
amount.
Graduated PNB offers benefit of graduated EMI. This means that the
EMI customer has the option of choosing EMI that can
increase or decrease during repayment period rather than
being given a fixed EMI over repayment tenor.

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Upfront fee 0.90 % of loan amount + service tax & education cess
(10.30%) on loans above 300 crore.
Processing fees @ 0.50% of loan amount (max. 20000)
+service tax for loans up to 300 crore.
Documentation Rs.1350 + service tax
charges

Security  Equitable/Registered Mortgage of Immovable Property

 Tripartite agreement be executed amongst Housing
Board/Dev Authority/Coop Society/Builder, the
borrower and the bank where mortgage cannot be created
immediately. In such cases, 3rd party guarantee is also to
be obtained.
 EM of other IP or pledge of NSC etc. up to 125% of loan
amount if property is being purchased from 1 st P/A
holder and where there is delay in execution of Tripartite
agreement or where the mortgage of property is not
possible being an ancestral property (without title deeds)
or Lal Dora Land.
 Verification of security is required once in 2 years. In
case of NPAs accounts, security is to be verified on Half
yearly basis.
Guarantee In general, no guarantee is to be asked for. But while
preparing RBL score sheet, if score is less than 50%,
then 3rd party guarantee can be obtained to raise score
of the applicant.

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Insurance In case of building at Re-construction cost.

Priority Repair & Renovation Rs.1.00 lac (Rural &

Sector Semi/Urban)
inclusion
Rs.2.00 lac (Urban)

Others Rs. 20.00 lac

Other  Loan can be sanctioned by the branch/hub near to the

features present place of work/posting/residence of the borrower.
However, if the property is situated at other place,
services of branch/hub located at that center may be
availed for verification of Security and NEC/Valuation
etc.
 Loan can be granted even if property is in the name of
wife/parents provided that the owner is made co-
borrower.
 Loan can be granted for 2nd house in the same city.
 Loan can be granted for purchase of house for rental
purpose.
 For take over, permission of higher authority is not
required
Important Loan cannot be granted
conditions
 For construction in Un-authorized colonies
 If property is to be used for commercial purpose
 Without approved Map
( In Compliance of Delhi High Court Orders)

 Pre-payment charges of 2% be recovered on account

being taken over by another bank. In case, the loan is

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pre-paid out of own sources or the loan is taken over

by another bank with in 30 days from date of circular
by which either the interest is raised or any important
term or condition is changed, there will be no pre-
payment charges.
 Flat pre-payment charges of 2% be recovered from
borrowers who pre-pay without construction on the
plot before 5 years.
 Powers of concessions in rate of interest/other
charges stand withdrawn vide RBD cir no. 52/07 dt.
13.11.07.
In case, the construction of house is not completed
within 3 years or in case the plot is sold, penal interest
@2% over and above the applicable rate be charged.

Expression It is a letter issued by the bank/branch wherein the lender

of Interest expresses intention to make advance to the intended
borrower on the basis of eligibility criteria subject to the
fulfillment of terms and conditions.
Grih Raksha It is Mortgage Reducing Term Assurance Policy issued in
Kavach Tie up arrangement with TATA-AIG. There is one-time
premium of 2.5% (approx) and that amount can also be
financed. The coverage of the scheme is 1-20 years. The
sum assured is between Rs.10000 to Rs. 1.00 crore. In case
of death of the borrower, receipt from insurance company
can be utilized towards adjustment of loan amount as per
amortization table. Prior permission of TATA-AIG is
required if amount is over Rs. 80.00 lac.
Iffco Tokyo The coverage for accidental death and permanent total

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general disability (due to accident) along with mandatory insurance

insurance co. ―Fire Policy – including earthquake‖ is offered in tie up
arrangement with Iffco Tokyo General Insurance Co. Ltd.
To all existing as well as new borrowers.
Earnest  To meet the requirement of earnest money to apply for
Money plot/flat/house from State Housing Boards and Urban
Deposit Development authorities.
Scheme  These authorities undertake to refund or issue allotment
letter to the bank subject to eligibility of the bank for
proposed loan and future requirement of Housing Loan.
 Extent of loan is 90% of EMD or max. Rs 2.00 lac in the
shape of Demand Loan
 ROI is BPLR – 1.75%
 Repayment through Refund order/Housing Loan/Bullet
Payment.
 Guarantee clause deleted
OD Facility OD facility can be allowed to existing Housing Loan
to existing borrowers there is no IR irregularity. Other features of the
H/L scheme are as under:
borrowers
 Minimum 50000/- and Maximum Rs. 5.00 lac.
 Additional limit and present o/s should not exceed
75% of current market price of the house so as to
maintain margin of 25%.
 Upfront fees is NIL and documentation charges are
Rs. 500/-.
 Take home salary should not be less than 40% of
gross salary.
 Loaning powers are SB-Nil, MB- Rs.4.00 lac, LB,

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ELB & VLB

 Rs. 5.00 lac.
 ROI is equal to BPLR
 After HL is repaid, OD can be continued/ renewed
provided the sanctioning authority is satisfied about
repaying capacity of the borrower and Value of
security.
 OD facility for personal use should not be
sanctioned to the borrowers, who have availed
loan for plot , construction on which is yet to be
completed in terms of RBD cir. no. 43 dt.21/08/09
On review, it has been decided to do away with the
condition of minimum 2 year of repayment track record of
the borrower for considering OD facility up to 5 lac.
However this is subject to compliance of all other terms and
conditions such as KYC norms, CIBIL database, takeover
guidelines, security norms, maintenance of margin etc.

This facility is outside the purview of ―Hub and Spoke―

model in the accounts of existing HL borrowers.
(RBD Cir. No. 64 dt. 19.12.2009)
PNB Flexible This is an attractive variant of Housing Loan Scheme
Housing offered by the PNB for its customers. Under this scheme,
Loan OD facility is made available to the HL borrower. He can
Scheme deposit his savings and withdraw the same as per his
requirement. The features of the scheme are as under:

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Eligibility  Age of the applicant must be less than 50.

 Existing HL borrowers can also apply
provided their loan account is regular and no
IR irregularity persists.
Purpose All purposes as per original scheme except
Purchase of Land / Plot.
Extent Term Loan 80%

Overdraft 20%

 After lapse of 3 years, enhancement in

OD will be allowed equal to reduction in
Term Loan and thereafter on yearly basis.
 After lapse of 5 years, 20% increase in
original limit is allowed in the shape of
TL/OD for personal needs.
 Market Value of Property should be
sufficient to cover the margin of 25%
 After attaining age of 55 years, OD
facility will be reduced on monthly basis
so that whole limit and T/L are adjusted
by the end of 65 years.
 Maximum OD limit should not exceed
50% of Total limit.
 HL can be sanctioned by the branch/hub
situated near the
workplace/posting/residence.
 Security verification can be done by
nearby branch.

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 Rate of Interest as given above in the

table in Housing Loan scheme (general)
For Overdraft portion, R/I is equal to BPLR

IV. 5.8.4 Personal Loan For Pensioner & Public

Two types of personal loans are being offered by PNB. Personal loan for
pensioner is special category of retail lending scheme being offered by Punjab
National Bank to pensioner. The main intension of this loan is to meet each and
every personal needs including medical expense of senior citizen. Details
regarding the same are mentioned below.

Eligibility Pensioners drawing pension from the branch, Family

Pensioners, DPDO Pensioners, Ex-employees
Purpose & Personal needs
Extent
Up to 75 years of age: 1.50 lac (Minimum Rs. 25000/-)

Above 75 years of age: 0.70 lac (Minimum Rs. 25000/-)

Limit Equivalent to 18 months net pension or Rs. 150000 (for

calculation borrowers up to 75 years‘ age) and 12 months net pension
or Rs 70000 (for borrowers above 75 years‘ age)
whichever is lower. For defense retirees, the loan
equivalent to 20 M net Pension can be granted. Take home
Pension should not be less than 50% of monthly pension

Nature DL or TL or OD on monthly reducing DP

Margin NIL

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Guarantee Personal guarantee of spouse eligible for family pension

or any other family member or 3rd party guarantee.

Upfront fee NIL

Documentation Rs. 270/- plus service tax

charges
Repayment 60 EMIs . 24 EMIs in case age is more than 75 years which
can be extended up to 48 months by the sanctioning
authority.
Miscellaneous  PPO be kept with the loan documents
 Affidavit from the pensioner that present disbursing
branch will not be changed without bank‘s consent.
 The loan can be availed more than once only after
adjustment of earlier loan

PERSONAL LOANS FOR PUBLIC

Eligibility Only PNB Account holders are eligible. Minimum 6
months‘ salary should be routed in the account or 6 months
satisfactory transaction record for non salary saving
accounts.

 Permanent Defence, CRPF, BSF & ITBP Personnel

(Not to be granted to those who are due to retirement
within next 24 M.
 Confirmed permanent employees of Central/state
Govt./PSUs/Reputed Co./Schools/Institutions who
fulfill any of the following 2 conditions:
 Route of salary through branch

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 Check-off facility
 Professionally qualified practicing doctors viz.
MBBS, BDS and above having customer
relationship with PNB at least for 6 months having
annual income of Rs. 4.00 lac and above. Doctors
should be tax payers for 3 years and ITRs be kept on
record.
Check off It means that the employer undertakes to deduct monthly
Facility installment from the salary and remit the same towards
adjustment of the loan till its liquidation and also confirms
attachment of terminal dues of the borrower/employee.
Purpose & Personal needs. Minimum Rs. 50000 & Maximum Rs. 4.00
Extent lac or 20 times net salary whichever is lower depending
upon the repaying capacity & Rs. 5.00 lac for those
salaried persons who have completed 3 years in the present
organization and drawing net monthly salary not less than
Rs. 30000/-.
Nature TL or OD
Sanction and All branches can generate leads for processing at Retail
Disbursement Hubs/CCPCs. However disbursement can be made only by
branches having recovery percentage of not less than
90% under Personal Loan segment as at end of previous
half year.
Minimum net Metro Rs. 15000/- p.m.
monthly Urban Rs. 12500/- p.m.
income SU & Rural areas Rs. 10000/- p.m.
Defence personnel and Teachers Rs. 7500/- p.m.
Margin NIL

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Repayment TL – 60 EMIs
OD- Reducing DP spread over 60 M.
Defence Personnel – 36 M.
Amount of EMI should not be more than 50% of net
monthly income.
60 advance cheques (maximum) signed by the borrower
along with letter of deposit be obtained. Obtention of
advance cheques is applicable where check off facility is
not available.
Guarantee Suitable 3rd party guarantee. RM/CM may waive
RBL Sheet PNB Score system will be applicable and the applicant will
have to score at least 50% marks to avail loan.
Upfront fee % of loan amount + service tax
NIL for defense personnel.
Docm. Charges Rs. 270/- up to Rs. 2.00 lac. Rs. 450/- Above Rs. 2.00 lac
+ ST
NIL for defense personnel.
Other  In case of Army personnel, a copy of authority letter
Requirements be sent to Controller of Defense Account (CDAO)
Pune so that salary is remitted till liquidation of loan
 Statement of account for at least 6 m. be obtained.
 Affidavit that no other loan from other bank is
availed be obtained.
 Copy of IT return for previous 3 years be obtained.
Form 16 be taken if loan is granted to employee.
 A Registered letter be sent to the employer
informing about details of loan raised by the
employee.

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RBD Cir. No.  It is clarified that the branches eligible for

27/09 dt. disbursement/maintaining the accounts shall obtain
26.5.2009 blanket permission from CH for disbursement in the
next 25 accounts submitting performance of the
branch under the portfolio.

The genuineness of salary certificates be independently got

verified from HR Deptt. Of the employer of applicant.Hubs
should ensure drawing of CIRs from CIBIL Data base for
considering request of Personal Loans.

V. 5.8.5 PNB Baghban scheme for senior citizen

PNB is the first Public Sector Bank to come out with a Reverse Mortgage
concept based product for senior citizen titled "PNB Baghban". The product
addresses one of the very important requirements of the society in the fast
changing culture of Indian society. The main objective of this scheme is to
address the financial needs of senior citizens owning self occupied property
(house), for leading a decent life. The salient features of the product are given
hereunder:

Eligibility Senior citizens owning Self-occupied property. If property

in single name, there must be will in favors of spouse and it
should be registered. In case of joint property, one of the
spouses must be of 60 years and above. The other spouse
should be at least 58 years old. If there is no spouse, loan

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will be made in favor of single.

Purpose &  To lead a decent life
Extent  Maximum qualifying amount can be Rs. 1.00 crore
which will depend upon realizable value of property
after maintaining margin of 20%. The monthly
payment will be made to the borrower on the basis of
reverse mortgage annuity table.
Margin 20% of realizable value of the property to arrive at the
qualifying amount
Income No
criteria

Rate of 10.5% with reset clause of 5 years.

Interest
Disbursement In the shape of monthly instalments (to be calculated on
of loan reverse annuity basis) during loan tenor of 15-20 years for
age group of individuals between 60-70 years and 10-15
years for age group of over 70 years or till death of last
surviving spouse, whichever is earlier.

For example, if Qualifying amount is Rs. 1.00 lac,

On 10 year tenor of loan, monthly installment will be Rs.

475/-, On 15 year tenor, monthly instalment will be Rs.
230/- and on 20 year tenor, monthly instalment will be Rs.
125/-

The series of monthly instalments would continue after

death of first spouse during life time of surviving spouse.

Tenor of loan Age group of 60-70 years 15-20 years

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Age group above 70 years 10 –15 years

Insurance Against fire, Earthquake and other calamities at the cost of

the borrower
Security EM of IP in favor of the bank. Valuation of property to be
got done from approved valuer. Revaluation be also got
done once in a span of 5 years.
Upfront fee Amount equal to half month‘s loan subject to maximum of
Rs. 15000/- + Service Tax @10.30%
Docm. NIL
Charges

Repayment The loan becomes due for payment after 6 months from
death of both the spouses. In case the loan is not repaid by
legal heirs within 6 months from the death, the bank is
within its right to sell the property for adjustment of the loan
in case the consent of the legal heirs is not received within 6
months from the death of last survivor.
Others  Residual life of property should be at least 20 years.
 Purpose of loan should not be speculation or trading.
 It should be ensured that the will executed by the
borrower is the last will.
 Life certificate is to be obtained once in a year in
November.
Age of Residual life of property should be at least 20 years. A
Property certificate from architect at the time of first valuation be
obtained. Revaluation of property will be done once in 5
years.
Ancestral Now it has been decided to accept ancestral property

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property as provided bank is satisfied that there are no other legal heirs
security or original title deed is not available. For this, documentary
evidence is required. Circle Head will deal such proposals.
TERM A lump sum Term loan can be sanctioned up to Rs. 15.00
LOANS lac. The cases can be considered on selective basis by HO
UNDER PNB only for medical purpose to senior citizens for treatment of
BAGHBAN self, spouse and dependents.
SCHEME
Amendments Following two amendments have been carried out in IT Act,
in PNB 1961. 1. Reverse Mortgage does not tantamount
Baghban to transfer; therefore there is no Capital Gain Tax. Income
Scheme tax is levied only at the time of alienation of Mortgaged
property by mortgagee for recovery of loan. 2. Stream of
payment received by Sr. Citizen would not be treated as
Income. Therefore, bank has to obtain the following at the
time of application of loan:

 Cost and year of acquisition of Capital asset.

 Cost and year of improvement.
 PAN No. of all legal heirs.
 Changes, if any made in the Registered Will.

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CASE STUDY-1
Details of case:
Company:- Akshat Polymers

Firm:- Partnership Firm (M/S Umiya Polymers)

* Shri Amrutbhai Laljibhai Desai

* Shri Gunvantbhai Ambaramdas Patel

* Shri Natvarlal Mohanlal Patel

* Shri Dharamsinhbhai Lallubhai Desai

* Shri Kanjibhai Maljibhai Desai

Industry:- Manufacturing

Activity:- Maufacturing of HDPP woven sacks

Segment:- SSI

Date of Incorporation:- 19.11.07

Banking arrangement:- Sole Banking

Regd. & Admin. Office:- RS No. 840,

Kadi Thol Road,
Tal-Kadi, Dist-Mehsana
The unit will have installed capacity of 2520 MT. The unit is expected to start
commercial production from first week of September, 2008. The capacity
utilization for the year 2008-09 has been projected at 70% of installed capacity

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in terms of the utilization of the machines. Accordingly the unit is projected to

achieve a sale of Rs.9.26 crores for the year 2008-09 in the first six months of
operations.

Further, the unit is projected to achieve capacity utilization of 80% during the
year 2009-10 (the first full year of operations) and accordingly the sale for the
year is projected at Rs.19.77 crores. The projections are considered acceptable
in view of the following factors:

i) The unit plans to initially market its product in Gujarat, Maharastra,

Rajasthan and sale to Central Govt. who purchases the HDPP woven
sacks for grains through open tenders. The unit has started negotiating
for booking of the orders for the proposed plant and results are
promising as advised.
ii) HDPP woven sacks are widely used as packaging material in Cement,
Fertiliser, storage of the AGL commodities. All these segments are
reported to have good demand for the HDPP/PE woven sacks in the
Indian market.
iii) As per ICRA report, grading and research services (2006) Flexible
packaging sector is expected to grow at the rate of 12.40%.
iv) The promoters have sufficient experience in the line of activity. The
promoters had already made negotiations of the some of the industries
as detailed under for selling the HDPP woven sacks:
 Indian Farmers Fertilizers Company Limited
 GUJCOMASOL
 Birla cement
 Sanghi Cement
 Ambuja cement
 Various grain & Food Export units of Gujarat, etc.

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v) The firm has also started marketing activity for their products by
making personnel contacts & writing introductory letters to potential
customers & as the promoters are in the same line of business activity
for the last 15 years they are having very good market contacts for the
sales of the Finished Goods.
vi) The orders worth Rs.2.50 crores is expected to be finalized by end of
August, 2008 and before commissioning of the plant as advised.
Proposal:
Sanction for;
i) FBWC limits of Rs.2.25 crores
ii) Fresh Term Loan of Rs.2.00 crores
Approval for:
i) CRA rating of SB- 6 (71 marks) based on projected financials as on 31.03.2010.
ii) Pricing for WC facilities @1.00% above SBAR as applicable for SB-5 minimum
@13.75and for TL 1.50% above SBAR minimum @14.25%

Performance & Financial Indicators: (Rs. in Crores)

Year 2009 2010 2011 2012 2013 2014

Installed cap Qty. 2520 2520 2520 2520 2520 2520
(MT/pa.)
Net Sales Qty.
(approx) (MT) 1029 2016 2091 2142 2217 2268
Net Sales (Value) 9.26 19.77 20.58 21.09 21.82 22.34

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(Export) 0.00 0.00 0.00 0.00 0.00 0.00

Operating profit 0.44 1.18 1.19 1.23 1.31 1.33
Profit before tax 0.43 1.17 1.18 1.22 1.30 1.32

PBT/Net sales (%) 4.64 5.92 5.73 5.78 5.96 5.91

Profit after tax 0.29 0.78 0.79 0.82 0.87 0.88

Cash accruals 0.66 1.10 1.09 1.15 1.24 1.32

PBDIT 1.20 2.04 1.96 1.97 2.02 2.05

Paid up capital 0.95 0.95 0.95 0.95 0.95 0.95

Tangible net worth 1.23 2.01 2.80 3.62 4.49 5.38

Adjusted TNW
1.73 2.51 3.30 4.12 4.99 5.88
TOL/TNW 4.11 2.50 1.67 1.19 0.88 0.66

TOL/Adjusted TNW
2.64 1.80 1.27 0.92 0.81 0.62
Current ratio 1.34 1.52 1.53 1.53 1.57 1.81

NWC 1.01 1.71 2.40 2.57 2.74 3.28

Balance Sheet: (Rs. In crores )

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Sources of funds 31.03.2009 31.03.2010

Share Capital 0.95 0.95
Reserves and Surplus 0.29 1.07
Secured Loans : short term CC 2.25 2.25
: long term TL 2.00 1.60
Unsecured Loans 0.50 0.50
Deferred Tax Liability
Total 5.99 6.37
Application of Funds
Fixed Assets (Gross Block) 2.67 2.67
Less Depreciation 0.37 0.69
Net Block 2.30 1.98
Capital Work in Progress
Investments
Inventories 1.73 2.13
Sundry debtors 1.85 2.40
Cash & bank balances 0.15 0.15
Loans & advances to suppliers of 0.14 0.12
Raw material / spares
Advance tax 0.10 0.23
( Less : Current liabilities ) 0.31 0.67
(Less : Provisions )
Net Current Assets 3.66 4.36
Misc. Expenditure
(To the extent not written off or adjusted
)
Non-Current Assets/ Deposits 0.03 0.03
Total 5.99 6.37

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Movement in TNW: -

Movement in TNW Projected

31.03.2009 31.03.2010 31.03.2011
Opening TNW 0.00 1.23 2.01
+ PAT 0.29 0.78 0.79
+ Inc. in Equity / Premium 0.95
+/- Change in Int. Assets -0.01
+/- Adj. of prior year exp.
- Dividend payment
Closing in TNW 1.23 2.01 2.80

Bank Income Analysis (Rs. in crores)

From Projection Projection

31.03.2009 31.03.2010
WC Int. 0.16 0.27
TL Int. 0.14 0.29
LC - -
BG - -
Bill - -
Others loan processing 0.03 0.01
Total 0.33 0.57

Deviations in Loan Policy:

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Parameters Indicative Min/Max Company's Company's level

level level as on as on 31.03.2010
as per loan policy 31.03.2009 @
Liquidity 1.33 1.34 1.52
TOL/TNW 3.00 4.11 2.50
TOL/Adj. TNW 2.64 1.80
Average gross DSCR (TL) 1.75 2.54 2.54
Debt / equity 2:1 2.01:1 1.03:1
Debt/Quasi equity 1.15:1 0.64:1
Any others - - -

Defaulters List:-

Whether names of promoters, directors, company, group concerns figure in :

RBI defaulters‘ list dated 30.09.2007 No
Wilful defaulters‘ list dated No
31.12.2007
ECGC caution list No
Warning signals / Major irregularities
in
Credit audit: Not applicable new unit
inspection report :
Other audit reports :
Adverse observations in Balance Not applicable new unit
sheet
Adverse observations in Auditors Nil.
report

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Any NPAs among associate concerns None

About unit and the promoters:

AKSHAT POLYMERS (AP) has been established as a partnership firm on 19th
November, 2007 at Kadi. The partnership was constituted for manufacturing
and selling of HDPP woven sacks to be manufactured from HDPP granules.

The firm consists of total six partners. The brief background of the partners is as
follows :

Name Age Brief Background

M/s Umiya Polymers 46 Sri Prahaladbhai Hargovandas Patel is
the main partner in M/s Umiya
Polymers with 30 share. Sri
Prahaladbhai is SSC and have 10
years of experience as Production
Manager in Asia Woven Sacks Ltd.,
Kadi who are engaged in similar
activity. M/s Umiya Polymers are
engaged in plastic waste recycling at
Kadi.

Sri Amrutbhai Laljibhai Desai 43 Sri Desai is SSC and have 15 years of
experience as Production Manager in
reputed Gopala Polyplast Ltd., Santej.
He had good contacts in the market

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and will look after production

department & raw material purchases.
Shri Dharamsingbhai Lallubhai 35 Sri Dharamsinhbhai is a partner in the
Desai local unit M/s Ajay Ginning
Industries, Kadi
Shri Kanjibhai Malibhai Desai 44 Sri Kanjibhai is a farmer by profession
and sleeping partner.
Shri Gunvantbhai Ambaramdas Patel 42 Sri Gunvantbhai also is a partner in
M/s Ajay ginning Industires, Kadi and
has been inducted in the partnership as
a investment partner.
Shri Natvarlal Mohanlal Patel 48 Shri Natvarlal Patel is a B.Com. and
has 10 years of experience in
accounting. He is also partner in M/s
Shiv Shakti Steel, Kadi. He will be
looking after general administration
and accounts of the firm.
The overall quality of the management is considered satisfactory.

Commercial viability: (Rs. in crores)

Year ending 2008- 2009-10 2010-11 2011-12 2012-13 2013-14 Total

31st March 09
Net Sales 9.26 19.77 20.58 21.09 21.82 22.34
Net Profit 0.29 0.78 0.79 0.82 0.87 0.88
Cash Accruals 0.66 1.10 1.09 1.15 1.24 1.32 6.56
Interest on 0.16 0.27 0.22 0.16 0.11 0.05 0.97

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TLs
Sub Total 0.82 1.37 1.31 1.31 1.35 1.37 7.53
(A)
Total 0.00 0.40 0.40 0.40 0.40 0.40 2.00
repayment
Interest on TL 0.16 0.27 0.22 0.16 0.11 0.05 0.97
Sub Total (B) 0.16 0.67 0.62 0.56 0.51 0.45 2.97
DSCR 5.13 2.04 2.11 2.34 2.65 3.04
(Gross)
Net DSCR - 2.75 2.73 2.88 3.10 3.30
Average 2.54
Gross DSCR
Average Net 3.28
DSCR

Break-even and sensitivity analysis and whether acceptable: (Rs. in crores)

31-Mar- 31-Mar- 30-Mar- 31-Mar- 31-Mar-

Break even analysis 31/03/09 10 11 12 13 14
Capacity Utilization 70% 80% 83% 85% 88% 90%
Net Sales (A) 9.26 19.77 20.58 21.09 21.82 22.34
Variable costs
Raw material 8.74 17.13 17.77 18.20 18.84 19.27
Consumable spares 0.00 0.00 0.00 0.00 0.00 0.00
Power and Fuel 0.26 0.47 0.50 0.53 0.56 0.59
Other operating Exp. 0.09 0.13 0.15 0.16 0.17 0.18
Stock Changes 0.73 0.39 0.06 0.03 0.04 0.04
Total Variable 8.36 17.34 18.36 18.86 19.53 20.00

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Cost(B)
Fixed Costs
Direct Labour 0.08 0.13 0.14 0.15 0.16 0.17
Selling, Admin. &
General Expenses 0.06 0.10 0.11 0.12 0.13 0.14
Interest Expenses 0.40 0.55 0.48 0.42 0.35 0.29
Depreciation 0.37 0.32 0.30 0.33 0.37 0.44
Total Fixed Cost ( C) 0.91 1.10 1.03 1.02 1.01 1.04
Contribution (D=A-B) 0.90 2.43 2.22 2.23 2.29 2.34
Contribution ratio
(E=D/A) 0.10 0.12 0.11 0.11 0.10 0.10
BE sales (F=C/E) 9.10 9.17 9.36 9.27 10.10 10.40
BE sales as % of Net
Sales 98.27 46.38 45.48 43.95 46.29 46.55
Interfirm Comparison: (To be given only where data from comparable
units is available.)

(Amt in Cr)

Name of Company FBL NFBL Year Sales PBT / TOL / CR

Sales TNW
%

Ahmedabad Packaging 3.30 1.20 2007 23.11 2.16 1.47 1.16

Industries Ltd.

Singhal Industries Pvt. 6.70 -- 2010 15.19 6.52 2.90

1.90
Ltd

Asia Woven Sacks Pvt. 7.44 1.00 2008 22.98 4.53 3.14
1.08

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Ltd.

Akshat Polymers 4.25 -- 2010 19.77 5.92 2.50

1.52

Raw material – The major raw material for this plant is HDPP in the form of
granules. This raw material is available locally by sales & distribution network
of the major suppliers as under:

 Reliance Industries Limited

 Nand Agencies
 Labdhi International
 Hadlia petrochemicals Ltd.
 Sharada Polymers
 IPCL

The raw materials are purchased from the suppliers against the advance
payment only and cash discounts are offered resulting in the increase n
profitability. Any variation in the cost of raw material is proposed to be passed
on to the finished products and will not affect the profitability.

Analysis:-

The firm is into manufacturing of HDPP woven sacks which are widely
used as packaging material in cement, fertilizer, etc.
As per ICRA report, grading and research services (2006) Flexible
packaging sector is expected to grow at the rate of 12.40%.

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The promoters have sufficient experience in the line of activity. The

promoters had already made negotiations of the some of the industries as
detailed under for selling the HDPP woven sacks:
 GUJCOMASOL
 Birla cement
 Sanghi cement
 Ambuja cement
 Various grain & Food Export Unit of Gujarat

The orders worth Rs.2.50 crores is expected to be finalized by end of

Agust, 2008 and before commissioning of the plant as advised.
The company‘s borrower rating is SB-6 based on projected financials as
on 31.03.2010 (the first full year of operations).
Projected financials are in line with the financials of the some of the unit
in similar line of activity and production level.
The promoters are having experience of more than 15 years in the line of
the activity.
The affairs of the firm are expected to be managed on professional lines
based on their past experience.
The conduct of accounts of associate with the existing bankers has been
satisfactory.
The short and medium term outlook for the industry is stable
Availability of collateral security reflected in collateral coverage of
50.566%.
Gross average DSCR of 2.54.
Average security margin of 48%.

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The company has adequate management skills and production/marketing

infrastructure in place to achieve the projected trajectory. There is steady
demand for the product.

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CASE STUDY- 2

Details of case study

Company:- Janak Transport Co.

Firm:- Partnership
* Shri Harisinghbhai Lavjibhai Chaudhari;

* Shri Jesangbhai Lavjibhai Chaudhari;

* Shri Vinodkumar Lavjibhai Chaudhari;

* Shri Pratapbhai Lavjibhai Chaudhari;&

* Shri Janakkumar Jesangbhai Chaudhari

Industry:- Transport Activity

Segment:- C& I

Date of Incorporation:- 03.09.82

Banking with SBI since:- 16 years as a current A/C holder

Banking arrangement:- Multiple Banking Arrangement

Regd. & Admin. Office:- Opp. Simandhar Flat,

Nr. Pashabhai Petrol Pump,
Highway, Mehsana.

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Janak Transport Co. is a partnership firm established in 1982 for carrying a

transport business.
As the company is in this business since incorporation & the unit has good
contracts with ONGC since last 26 years so it has a good repo with ONGC.
As the company has a good repo with ONGC, the ONGC outlook of the
business is considered positive.
The firm has approached for term loan of Rs. 295 lacs to finance the purchase of
Mahindra-Bolero. The total project cost is estimated to be Rs. 363.44 lacs.
Brief of Contract:

(1). Fixed hire charges/ taxi/ month: Rs. 29150

(with fixed 3000 Km run/ month & 12 hours duty/ day)

(2). Additional/ km charges beyond 3000 km. Rs. 3.57

(3). Duration of contract = 3 Years

Proposed Credit Requirement:

Fund Based = Rs. 295 lacs

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Performance Details

a) PERFORMANCE AND FINANCIAL INDICATORS:

(Rs. in lacs)

Aud. Aud. Esti. Proj. Proj. Proj. Proj.

31st March 2007 2008 2009 2010 2011 2012 2013

Net Sales 501.78 546.65 713.82 898.65 898.65 898.65 898.65

Operating Profit (after

interest) 149.64 182.92 234.24 326.69 374.32 404.08 425.06

PBT 1.20 2.90 22.48 92.62 125.47 143.51 151.96

PBT/Sales (%) 0.24 0.53 3.15 10.31 13.96 15.97 16.91

PAT 1.20 2.90 22.48 92.62 125.47 143.51 151.96

Cash Accruals 39.05 40.51 129.25 233.74 224.25 212.66 200.36

PBDIT 54.44 52.41 150.01 266.99 247.21 226.20 203.72

Paid up Capital 21.04 22.56 91.00 113.48 181.10 256.57 340.08

TNW 21.04 22.56 113.48 181.10 256.57 340.08 427.04

Adjusted TNW 21.04 22.56 113.48 181.10 256.57 340.08 427.04

TOL/TNW 12.22 12.80 5.04 2.15 1.01 0.47 0.27

TOL/Adjusted TNW 12.22 12.80 5.04 2.15 1.01 0.47 0.27

Current Ratio 1.57 1.42 2.22 2.53 2.71 3.80 6.47

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Current Ratio (Excl. 2.34 1.97 3.93 4.49 5.66 5.83 6.47
TL instalments)

NWC 100.20 103.87 386.14 349.18 323.80 361.29 438.25

b) Synopsis of Balance Sheet :

Sources of funds 31.03.2007 31.03.2008

Share Capital 21.04 22.56
Reserves and Surplus

Secured Loans : short term 2.57 14.66

: long term 102.87 100.10
Unsecured Loans 39.92 36.21
Deferred Tax Liability
Total 166.40 173.53
Application of Funds
Fixed Assets (Gross Block)
Less Depreciation
Net Block
Capital Work in Progress
Investments 52.48 39.3
Inventories (Movable Assets) 110.59 134.66
Sundry debtors 92.61 78.70
Cash & bank balances 11.93 48.15
Loans & advances to
subsidiaries and group companies
Loans & advances to others 10.58 10.49

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( Less : Current liabilities ) 109.22 136.74

(Less : Provisions ) 2.57 1.03
Net Current Assets 113.92 134.23
Misc. Expenditure
(To the extent not written off or
adjusted )
Total 166.40 173.53

c) Movement in TNW (Rs. in lacs)

2007 2008 2009 2010 2011 2012 2013

Opening TNW 17.63 21.04 22.56 113.48 181.10 256.57 340.08

Add PAT 1.20 2.90 22.48 92.62 125.47 143.51 151.96

Add. Increase in 8.42 10.17 68.44

equity / premium
Add./Subtract
change in intangible
assets
Adjust prior year
expenses
Deduct Dividend 6.21 11.55 25.00 50.00 60.00 65.00
Payment
/Withdrawals
Closing TNW 21.04 22.56 113.48 181.10 256.57 340.08 427.04

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Appraisal Memorandum for term loan:

Circle: Ahmedabad

Branch: Mehsana

Company: Janak Transport Company(JTC)

Term Loan :

a) Proposal: Term Loan of Rs.295.00 lacs under the Transport Plus

Scheme.

b) Project / Purpose: To purchase 59 new Mahindra Bolero under tie-up

arrangement with ONGC.

c) Appraised by: Inhouse examined by the Branch and found to be

economically viable

d) Cost of Project & Means of finance:

Cost Means
MAHINDRA Bolero DI- 328.6 Equity : 68.44
2WD 3
Insurance 15.34
RTO Tax 19.47
WC Margin Debt: 295.00
Total 363.4 Total 363.44
4

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e) Remarks on Cost of project & Means of finance (in brief):

Each vehicle shall cost Rs. 6.16 lacs as per details given below:

Basic Price: Rs. 5.57 lacs

RTO : Rs. 0.33 lacs

Insurance : Rs. 0.26 lacs

The cost mentioned above is as per the quotation submitted by Shrijee

Motors, Mehsana.

The firm is required to purchase 59 Mahindra Bolero for this purpose.

Total cost of vehicle including the insurance and R.T.O. is Rs.363.44
lacs.

The project is proposed to be financed by way of medium term loan

of Rs.295.00 lacs and firm shall raise capital of Rs. 68.44 lacs as a
margin.

Break-even and sensitivity analysis and whether acceptable:

Break even analysis 31/03/09 31/03/10 31/03/11 31/03/12 31/03/13

Net Sales (A) 713.82 898.65 898.65 898.65 898.65

Variable costs
Power and Fuel 223.76 253.68 253.68 253.68 253.68
Other operating Exp. 44.89 47.39 48.89 50.89 55.98
Total Variable Cost(B) 268.65 301.07 302.57 304.57 309.66
Fixed Costs
Direct Labour 72.40 85.52 87.52 90.72 94.07

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Selling, Admin. &

General Expenses 8.50 9.50 10.50 11.50 12.50

Interest Expenses 20.76 33.25 22.96 13.54 3.36

Depreciation 106.77 141.12 98.78 69.15 48.40

Total Fixed Cost ( C) 208.43 269.39 219.76 184.91 158.33

Contribution (D=A-B) 445.17 597.58 596.08 594.08 588.99

Contribution ratio
(E=D/A) 0.62 0.66 0.66 0.66 0.66
BE sales (F=C/E) 336.18 408.17 332.97 280.17 239.89
BE sales as % of Net
Sales 47.10 45.42 37.05 31.18 26.69
Fixed cost with out
depriciation G 101.66 128.27 120.98 115.76 109.93
Contribution (H=A-B) 445.17 597.58 596.08 594.08 588.99
Contribution ratio
(I=D/A) 0.62 0.66 0.66 0.66 0.66
175.39
Cash BE sales (J=G/I) 163.97 194.35 183.30 166.56
CASHBE sales as % of
Net Sales 22.97 21.63 20.40 19.52 18.53

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Commercial viability:

Year ending 31st 2009 2010 2011 2012 2013 Total

March
Capacity utilization % 100% 100% 100% 100% 100%
Sales 713.82 898.65 898.65 898.65 898.65
Net Profit 22.48 92.62 125.47 143.51 151.96 536.04
Depreciation 106.77 141.12 98.78 69.15 48.40 464.22
Cash Accruals 129.25 233.74 224.25 212.66 200.36 1000.26
Interest 20.76 33.25 22.96 13.54 3.36 93.87
TOTAL 150.01 266.99 247.21 226.20 203.72 1094.13
TL / DPG repayments 83.75 132.92 94.58 93.85 43.02 448.12
Interest 20.76 33.25 22.96 13.54 3.36 93.87
TOTAL 104.51 166.17 117.54 107.39 46.38 541.99
Gross DSCR 1.44 1.61 2.10 2.11 4.39
Net DSCR 1.54 1.76 2.37 2.27 4.66
Average Gross DSCR 2.02
Average Net DSCR 2.23

Deviations in Loan Policy/ Scheme:

Parameters Indicative Company's level as on

Min/Max level as 31/03/2008
per Scheme
Liquidity Min. 1.33 1.42

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TOL/TNW Max. 3.00 12.80*

Average gross DSCR (TL) Min. 2.00 2.002
Promoters contribution Min. 10 % 18.86%
(under tie-up)
profits in the last two Min. Rs.3.00 lacs Actual profit Rs. 1.20
with rising trend lacs for year 2006-07 and
Rs.2.90 lacs for year 2007-
08*
Others Nil Nil

Analysis:-
Janak Transport Company is an existing profit making unit

The main chunk behind giving loan is that Janak Transport Company is
doing contract with ONGC since incorporation

The promoters are having considerable experience as transport contractor

with ONGC

The unit has got confirm order/ tie-up with ONGC

A letter of authority from ONGC was received, that if Janak Transport

Company will not make the payment than ONGC will directly make the
payment to the bank

The promoters contribution to the project is 18.86% which is above the

margin requirement

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The current ratio is 1.42 that is satisfactory

Profits in the last two years:-

Min. Rs. 3 lacs with rising trend

Actual profit Rs. 1.20 lacs for year 2006-07 & Rs. 2.90 lacs for the 2007-
08
If the partners remuneration & interest is included, the profit for the year
ended 31.03.07 & 31.03.08 is Rs. 4.81 lacs & Rs. 6.21 lacs

TOL/TNW should be max. 3 which is 12.80 here, as the co. has done
multiple banking arrangement it has o/s loans with other banks also but
the co. is regularly making the payment of loans of principal amount
along with the interest so the loan is given.
Also the contract awarded is backed by guarantee from ONGC regarding
direct payment of monthly bills to SBI. Hence, surety of repayment is
assured.

The bank also checks commercial viability of the company & found that
the DSCR for term loan is 2.02 which is considered satisfactory

Despite that the bank has also done B.E. analysis & found that the B.E.
sales was 47.10% of net sales for this current year

The net sales & PAT of the company is increasing year after year so
overall profitability is good.
The overall projected performance & financial of the unit are considered
satisfactory.

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Conclusion
Credit appraisal is a process of appraising the credit worthiness of loan
applicants. The fund of depositors i.e. general public are mobilised by means of
such advances / investments. Thus it is extremely important for lender bank to
assess the risk associated with credit, thereby ensure the security for fund
deposited by depositors. Therefore my analyses regarding credit appraisal
procedure of Punjab National Bank are as follows:-

 In case of retail lending bank strictly follow it‘s circular and fulfils all
requirement of necessary documents required for different types of loan
so that bank do not suffer any types of loss.
 Bank is very much particular about CIBIL report of borrowers in case of
each type of lending.
 Bank lending process in case of retail loan is very much fast after
compiling with all the criteria of bank.
 In case of project financing bank follow lengthy norms to check the
feasibility of the project such as:-
I. Firstly personal appraisal of promoter is done by the bank to
ensure that promoters are experienced in the line of business
and capable to implement and run the project efficiently.
II. Secondly detail study about the technical aspect is done to find
the technical soundness of project such as proper scrutiny of
financial report is done, valuation of property by government

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approved valuer is done and view regarding each and every

area of project is done under technical analysis.
III. A detail study relating financial viability of project is done by
detail study of cash flow, fund flow statements and by
calculating import ratio which is very much necessary for
project appraisal such as DSCR, DER etc. the main purpose of
financial appraisal is insure that project will ensure sufficient
surplus to repay the instalment and interest.
IV. Risk analysis is done by bank to determine the risk associated
with the project. This is mainly done by sensitivity analysis and
by PNB credit rating or scoring. With sensitive analysis
feasibility of project is determined under worsened condition.
Credit rating or PNB scoring is done of various parameters
such as personal, management, financial etc , thereby
determine credit worthiness of customer.
V. It is on basis of credit risk level, a collateral security to be
given by borrower is determined.

This shows that Punjab National Bank has sound credit appraisal system.

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BIBLIOGRAPHY

i. PUNJAB NATIONAL BANK ANNUAL REPORT

ii. PNB JOURNALS
iii. BOOKS
 MANAGEMENT OF INDIAN FINANCIAL INSTITUTION,
SRIVASTAVA R.M & NIGAM DIVYA, 10TH EDITION,2010,
HIMALYA PUBLISHING HOUSE, GURGAON MUMBAI
 FINANCIA INSTITUTION AND MARKETS, BHOLE L.M, 5TH
EDITION,2009, TATA Mc GRAW- HILLS,7 WEST PATEL
NAGAR, NEW DELHI
iv. WEBSITE
 www.pnbindia.com
 www.rbi.gov.in
 www.google.com

v. NEWSPAPER

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