P7834 - Iob

PROJECT ON
CREDIT EVALUATION PROCESS
AT
INDIAN OVERSEAS BANK
Submitted in partial fulfillment of the requirements
for the award of the degree
MASTER OF BUSINESS ADMINISTRATION

Submitted by
D.SREEKUMAR
Reg.No:3511210277
Under the guidance of
Dr. A.R. KRISHNAN

FACULTY OF MANAGEMENT

SRM SCHOOL OF MANAGEMENT
SRM UNIVERSITY
KATTANKULATHUR, KANCHEEPURAM DISTRICT,
TAMIL NADU – 603 203.
MAY 2014

BONAFIDE CERTIFICATE
This is to certify that the project undergone in INDIAN OVERSEAS BANK,

Venkatnarayana Road Branch, Chennai, by SREEKUMAR.D (Register No: 3511210277) in
partial fulfillment of the requirement for the award of degree Master of Business
Administration (MBA) in SRM University is a bonafide report of the work done by him
under my supervision & guidance. This is also to certify that this report has not been
submitted to any other institute / university for the award of any other degree.
Signature of the Guide Signature of the DEAN
Signature of Internal Examiner Signature External Examiner

DECLARATION
I, SREEKUMAR.D (Register No: 3511210277), bonafide student in School of

Management and Business Studies, SRM University, Kattankulathur do hereby declare that
the project report done at “INDIAN OVERSEAS BANK” is submitted with the partial
fulfilment of the requirement for the award of degree Master of Business Administration
(MBA) in SRM University is the original work done by me under the guidance of
respected Director and Faculty Members of school of management and business studies,
SRM University, Kattankulathur. The findings and observations in this report are based on
the information collected by me during the study period.
This is also to declare that this report has not been submitted to any other institute /
university for the award of any other degree.
CHENNAI
Date: SREEKUMAR.D

ACKNOWLEDGEMENT
I would like to acknowledge the help and support of the people without whom this
project would not have materialized. First and foremost, I am thankful to the Senior Manager
of INDIAN OVERSEAS BANK, Venkatnarayana Road Branch, Chennai
Mr. G. Venkatraman for giving me an opportunity to undertake the project in this esteemed
organization.
I express my deep sense of gratitude towards my faculty guide Prof. Dr.A.R.Krishnan

whose regular guidance and feedbacks not only helped me in understanding my shortcoming
but also enable me to overcome them. It was his continuous encouragement that became a
driving force behind this project.
Finally, I thank all the employees INDIAN OVERSEAS BANK, Venkatnarayana

Road Branch, Chennai from bottom of my heart for their cooperation and support without
which this project could not have been completed.

CONTENTS
CHAPTER PARTICULARS PAGE
NO
1 INTRODUCTION 1
1.1 INDUSTRY PROFILE 3
1.2 ORGANISATION PROFILE 12
1.3 ORGANISATION STRUCTURE 14
2 REVIEW OF LITERATURE 19
3 PROBLEM STATEMENT 21
3.1 NEED FOR THE STUDY 22
3.2 OBJECTIVES OF THE STUDY 23
3.3 LIMITATIONS OF THE STUDY 24
4 METHODOLOGY 25
5 ANALYSIS
5.1 TOOLS OF ANALYSIS 30
5.2 SCOPE AND SIGNIFICANCE OF STUDY 39
5.3 DATA ANALYSIS AND INTERPRETATION 40
6 RESULTS AND DISCUSSION
6.1 FINDINGS 69
6.2 SIGNIFICANCE OF OBSERVATION 71
7 SUMMARY AND CONCLUSION 72
BIBLIOGRAPHY 77
APPENDIX 78
CHAPTER 1
INTRODUCTION
This project is done to understand, analyze and review the “CREDIT EVALUATION
PROCESS” at “INDIAN OVERSEAS BANK”. The project is basically done to analyze the
appraisal process carried out in the bank and the criteria’s set by the bank for obtaining loan. As
part of the project, a proposal has been selected and studied fully whether it satisfies all the
criteria’s of the bank and suggested whether the proposal can be selected or not by the bank. It
has been done by using appropriate” FINANCIAL TOOLS”.
CREDIT EVALUATION
¾ Credit evaluation is the assessment of the viability of proposed long term investments in
terms of shareholder wealth and the formal analysis of all project costs and benefits
which is used to justify the project proposal. Effective project appraisal offers significant
benefits to a firm.
¾ A good appraisal (evaluation) justifies spending money on a project. Credit evaluation or

project planning must be viewed as a process of decision making over time, starting with
project identification, and proceeding through various stages of various feasibility studies
(for example, engineering, financial etc), then the investment phase, and finally project
evaluation. This is the so-called concept of the project cycle.
¾ Getting the design and operation of appraisal systems right is important. The proper
consideration of each of the key components of project appraisal is essential. These are,
• Need, targeting and objectives

• Options
• Inputs
• Outputs and outcomes
1

Key issues in appraising projects include the following.
• Need, targeting and objectives
The starting point for appraisal: applicants should provide a detailed description of the project,
identifying the local need it aims to meet. Appraisal helps show if the project is the right
response, and highlight what the project is supposed to do and for whom.
• Options
Options analysis is concerned with establishing whether there are different ways of achieving
objectives. This is a particularly complex part of project appraisal, and one where guidance
varies. It is vital though to review different ways of meeting local need and key objectives.
• Inputs
It’s important to ensure that all the necessary people and resources are in place to deliver the
project. This may mean thinking about funding from various sources and other inputs, such as
volunteer help or premises. Appraisal should include the examination of appropriately detailed
budgets.
• Outputs and outcomes
Detailed consideration must be given in appraisal to what a project does and achieves: its outputs
and more importantly its longer-term outcomes. Benefits to neighborhoods and their residents
are reflected in the improved quality of life outcomes (jobs, better housing, safety, health and so
on), and appraisals consider if these are realistic.
2

1.1 INDUSTRY PROFILE
Indian Banking Sector: Brief Introduction
India’s banking sector is currently valued at Rs 81 trillion (US$ 1.31 trillion). It has the potential
to become the fifth largest banking industry in the world by 2020 and the third largest by 2025,
according to an industry report. The face of Indian banking has changed over the years. Banks
are now reaching out to the masses with technology to facilitate greater ease of communication,
and transactions are carried out through the Internet and mobile devices.
With the Parliament passing the Banking Laws (Amendment) Bill in 2012, the landscape of the
sector will likely change. The bill allows the Reserve Bank of India (RBI) to make final
guidelines on issuing new bank licenses. This could lead to a greater number of banks in the
country; the style of operation could also evolve with the integration of modern technology into
the industry.
Online Banking
IDBI Bank Ltd has started an online Public Provident Fund (PPF) subscription facility for its
customers. The bank had already received approval from the government to operationalise PPF
transactions through the Internet. The facility would help accomplish the government’s initiative
of electronic transactions in banking services, and also provide a strong platform to mobilize
funds through the Small Saving Schemes. PPF account holders of the bank will have the benefit
of accessing their PPF account online, view account details, print statements, and make
subscription to PPF by way of online transfer of funds.
Simple steps such as memorizing personal identification number (PIN), bringing down credit
limits on cards, using virtual cards for internet transactions and deactivating transactional
services linked to a mobile number can limit bank frauds, according to experts. Changing the
password regularly can also save an account from fraud attacks.
Online money transfers and money credited directly to an account are the second preferred mode
of inward remittances in India, rising to 22 per cent in fiscal 2013 from 14 per cent in 2009,
according to an RBI report. "While electronic wires/SWIFT continue to be the dominant mode of
transferring remittances by overseas Indians, in the recent period, there has been a significant
increase in the share of remittances transmitted through direct transfer to bank accounts and
through online mode," the report stated.
3

ABOUT BANKING INDUSTRY BY IOB CHAIRMAN
It gives me immense pleasure to present your Bank's Annual Report and financial statements for
the year 2012-13. I would like to share with you the highlights and performance indicators of the
Bank during the year. Bank has to operate in an environment of slower growth caused by slump
in general economic conditions throughout the year. The economic growth during FY 2012
ended 31.03.2013 decelerated to 5% from 6.2% in the FY 2011 ended 31.03.2012. Agriculture
and Services Sector are performing well while there is slow growth in the manufacturing sector.
However, steps taken by the Government to put the economy back on growth track are expected
to improve business and consumer confidence during the coming year.
MAJOR PLAYERS IN BANKING INDUSTRY
S.No Name of the Organization
1. State Bank of India
2. HDFC Bank
3. Axis Bank
4. Bank of India
5. Punjab National Bank
6. Bank of Baroda
7. ICICI Bank Limited
8. Union Bank of India
9. Citibank
10. Canara Bank
Key Statistics
The revenue of Indian banks increased four-fold from US$ 11.8 billion to US$ 46.9 billion in the
period 2001–2010. In that phase, the profit after tax rose about nine-fold from US$ 1.4 billion to
US$ 12 billion.
Banking Index with the Sensex (Bankex) that tracks the performance of primary banking sector
stocks grew at a compounded annual growth rate (CAGR) of nearly 20 per cent over the period
2003–2012.
Total number of onsite and offsite ATMs of Indian Banks reached 100042 in July 2012.
4

Growth of Industry
The Indian economy’s liberalization in the early 1990s has resulted in the conception of various
private sector banks. This has sparked a boom in the country’s banking sector in the past two
decades4. The revenue of Indian banks grew four-fold from US$ 11.8 billion to US$ 46.9 billion,
whereas the profit after tax rose nearly nine-fold from US$ 1.4 billion to US$ 12 billion over
2001-105. This growth was driven primarily by two factors. First, the influx of Foreign Direct
Investment (FDI) of up to 74 per cent with certain restrictions4. Second, the conservative
policies of the Reserve Bank of India (RBI), which have shielded Indian banks from recession
and global economic turmoil. compares the country’s Banking Index (Bankex) with the Sensex.
The Bankex is an index tracking the performance of important banking sector stocks, and has
grown at a compounded annual growth rate (CAGR) of approximately 20 per cent over 2003-
126.The Figure below shows that the Bankex and the Sensex have had similar growth trends
over the past decade.
5

The high CAGR exhibited by India’s Bankex demonstrates the industry’s resilience to recession
and economic instability. This resilience primarily stems from two factors. First, the highly
regulated Indian banking sector restricts exposure to high risk assets and excessive leveraging.
Second, Indian economy’s overall growth rate has been much higher than other economies
worldwide7. However, the recent crisis in the eurozone is likely to affect the Indian economy
and in particular the country’s banking sector. The RBI’s Financial Stability Report
Estimates the claim of European Banks on India at approximately 8.6 per cent of the country’s
GDP, while some analysts estimate the figure to have reached 15 per cent of the GDP7. Further,
the recent implementation of the Basel III guidelines may also force European banks to
deleverage significantly7. Data from the International Monetary Fund (IMF) suggests that these
banks will deleverage up to US$ 2.6 trillion by the end of 2013 especially from the sale of
securities and non-core assets. This will see the credit supply to businesses shrinking by 1.7 per
cent8, thereby driving Indian companies to borrow from the Indian banks at a higher cost in
times of inflation and in a period of depreciation in the value of rupee7. The non performing
assets (NPAs) of banks were pegged at 2.9 per cent in the fourth quarter of 2011, and are
expected to rise to 3.5 per cent by 20129. All these factors might hamper the performance of the
6

Indian banking sector. However, amongst positive initiatives taken by the government, the RBI
mandated banks to maintain 70 per cent of the provision coverage ratio of their bad loans as
on September 2010, thereby mitigating the effect of NPAs to a certain extent10.The NPAs of
public, private and foreign banks in India are exhibited.
Growth of Banking Industry during Recent Decades

The central banks of Japan and India have agreed to a proposal that expands the maximum
amount of the Bilateral Swap Arrangement (BSA) between the two countries to US $50 billion.
The agreement is for a three-year period (2012–15); the previous size of the BSA was US $15
million. The new agreement will enable the two countries to swap their local currencies against
the US dollar for an amount up to US$50 billion.
7

Public sector banks will soon offer customers insurance products from different companies as
against products from one company. The finance ministry has asked public sector banks to
become insurance brokers instead of corporate agents. This move was one of the steps stated by
finance minister Mr P Chidambaram in early 2013, as a way to increase insurance penetration.
Citi has promoted Mr Anand Selvakesari as the head of consumer banking for the Association of
Southeast Asian Nations (ASEAN) region. Mr Selvakesari will continue his present role as Citi’s
consumer banking business head in India – a post he has occupied since July 2013 – as well as
look after the consumer banking operations in Indonesia, Malaysia, Philippines, Singapore,
Thailand and Vietnam.
Indian Overseas Bank (IOB) has received approval from the RBI to open a second branch in
Bangkok, according to the bank’s chairman and managing director Mr M Narendra. The bank
will likely open the second branch before March 31, 2014. Also, the bank is looking to expand
its presence. "Our focus is on opening more rural branches and taking banking to villages. We
have covered 3,000 villages under the financial inclusion scheme,” said Mr Narendra.
In an effort to expand its revenue streams, Bank of India (BOI) plans to enter the merchant
banking space through BOI Shareholding Ltd. BOI is looking to buy Bombay Stock Exchange’s
(BSE) entire shareholding in their joint venture BOI Shareholding Ltd (BOISL). Another reason
for BOI’s inclination to foray into merchant banking is to offer a greater range of financial
services to its customers.
8

Government Initiatives
The Cabinet Committee on Economic Affairs (CCEA) has given the go-ahead to a proposal to
increase foreign holding in Axis Bank to 62 per cent from the current 49 per cent. The move
could lead to overseas investment of nearly Rs 7,250 crore (US$ 1.17 billion) into the country.
The approval is subject to foreign institutional investors’ (FII) holding being capped at 49 per
cent.
To counter the liquidity pressure faced by micro and small enterprises, the RBI will provide
refinance aggregating up to Rs 5,000 crore (US$ 813.16 million) to the Small Industries
Development Bank of India (SIDBI). SIDBI can use the funds for direct and onward lending to
banks. Also, in an effort to encourage more lending to medium enterprises, the RBI will include
incremental credit given to these units by scheduled commercial banks (which do not include
regional rural banks) under the domain of priority sector lending.
HDFC Bank Ltd has started its rural financial literacy initiative in the village of Palakkad in
Kerala, with the support of the RBI. The private bank will conduct financial literacy camps in 39
rural and semi-urban branches across the South Indian state. These camps will allow adults and
school children from 234 Panchayat wards in 26 villages to gain theoretical knowledge on
financial products and services. This initiative endorses the RBI's recent circular which
recommends that banks, through their branch networks, should put in more efforts in rural areas
to spread financial literacy.
Road Ahead
India is one of the top 10 economies in the world, where the banking sector has tremendous
potential to grow. The last decade saw customers embracing ATM, internet and mobile banking.
The number of ATMs has doubled over the past few years, with more than 100,000 in the
country at present (70 per cent in urban areas). They are estimated to further double by 2016,
with over 50 per cent expected to be set up in small towns. Also, the scope for mobile and
internet banking is big. At the start of 2013, only 2 per cent of banking payments went through
the electronic system in the country. Today, mobility and customer convenience are viewed as
the primary factors of growth and banks are continuously exploring new technology, with terms
such as mobile solutions and cloud computing being used with greater regularity.
9

PUBLIC SECTOR BANKS IN INDIA
Public sector bank
The term public sector banks are used commonly in India. This refers to banks that have their
shares listed in the stock exchanges NSE and BSE and also the government of India holds
majority stake in these banks. They can also be termed as government owned banks.
Ex: State bank of India
List of public sector bank

The following are the list of Public Sector Banks in India
• Allahabad Bank
• Andhra Bank
• Bank of Baroda
• Bank of India
• Bank of Maharastra
• Canara Bank
• Central Bank of India
• Corporation Bank
• Dena Bank
• IDBI Bank
• Indian Bank
• Indian Overseas Bank
• Oriental Bank of Commerce
• Punjab & Sind Bank
• Punjab National Bank
• Syndicate Bank
• UCO Bank
• Union Bank of India
• United Bank of India
• Vijaya Bank
10

List of State Bank of India and its subsidiary, a Public Sector Banks
• State Bank of India
9 State Bank of Bikaner & Jaipur
9 State Bank of Hyderabad
9 State Bank of Indore
9 State Bank of Mysore
9 State Bank of Saurastra
9 State Bank of Travancore
Among the Public Sector Banks in India, United Bank of India is one of the 14 major banks
which were nationalised on July 19, 1969. Its predecessor, in the Public Sector Banks, the United
Bank of India Ltd., was formed in 1950 with the amalgamation of four banks viz. Comilla
Banking Corporation Ltd. (1914), Bengal Central Bank Ltd. (1918), Comilla Union Bank Ltd.
(1922) and Hooghly Bank Ltd. (1932).
11

1.2 ORGANISATION PROFILE
Indian Overseas Bank (IOB) was founded on February 10th 1937, by Shri.M.Ct.M.
Chidambaram Chettyar, a pioneer in many fields - Banking, Insurance and Industry with the twin
objectives of specializing in foreign exchange business and overseas banking. IOB had the
unique distinction of commencing business on 10th February 1937 (on the inaugural day itself)
in three branches simultaneously - at Karaikudi and Chennai in India and Rangoon in Burma
(presently Myanmar) followed by a branch in Penang. At the dawn of Independence IOB had
38 branches in India and 7 branches abroad. Deposits stood at Rs.6.64 Crs and Advances at
Rs.3.23 Crs at that time.
¾ Pre-nationalization era (1947- 69)
During the period, IOB expanded its domestic activities and enlarged its international
banking operations. As early as in 1957, the Bank established a training centre which has
now grown into a Staff College at Chennai with 9 training centers all over the
country. IOB was the first Bank to venture into consumer credit. It introduced the popular
Personal Loan scheme during this period. In 1964, the Bank made a beginning in
computerization in the areas of inter-branch reconciliation and provident fund
accounts. In 1968, IOB established a full-fledged department to cater exclusively to the
needs of the Agriculture sector.
CONSTITUTION:
The Constitution of the Board of the Bank is governed by "The Nationalized Banks
(Management and Miscellaneous Provisions) Scheme, 1970, formulated by the Central
Government, after consultation with the Reserve Bank of India, in exercise of the powers
conferred by section 9 of "The Banking Companies (Acquisition and Transfer of Undertakings)
Act 1970".
COMPOSITION:
The Composition of the Board of Directors of a Bank is governed by "The Nationalised Banks
(Management and Miscellaneous Provisions)Scheme 1970" read with "The Banking Companies
(Acquisition and Transfer of Undertakings) and Financial Institutions Laws (Amendment) Act
12

2006" and amendment to thevide Extraordinary Gazette Notification dated 19.02.2007 of the
Central Government.
CONTRIBUTION:
In terms of The Banking Companies (Acquisition and Transfer of Undertakings Act 1970, the
General Superintendence, Direction and Management of the affairs and business of the Bank
vests in the Board of Directors which is entitled to exercise all such powers and do all such acts
and things as the Bank is authorized to exercise and do.
13

1.3 ORGANIZATIONAL STRUCTURE OF INDIAN OVERSEAS BANK
14

BOARD OF DIRECTORS OF IOB
Name Position
Shri. M.Narendra Chairman and Managing Director
Shri A.D.M.Chavali Executive Director
Shri. Atul Agarwal Executive Director
Dr. Alok Pande Government Nominee Director
Shri.Nirmal Chand RBI Nominee Director
Shri Niranjan Kumar Agarwal Part-Time Non-Official Director
Shri.Ajit Vasant Sardesai Share holder Director
Shri.S.Sadagopan Share holder Director
Shri.Chinnaiah Part Time Non Official director
Smt. S Sujatha Part-Time Non-Official Director
Shri A.B.D. Badushas Part –time Non-official Director
Shri. R. Sampath Kumar Workmen Employee Director
¾ At the time of Nationalization (1969)

IOB was one of the 14 major banks that was nationalized in 1969.On the eve of
Nationalization in 1969, IOB had 195 branches in India with aggregate deposits of Rs.
67.70 Crs. and Advances of Rs. 44.90 Crs.
¾ Post - nationalization era (1969-1992)

In 1973, IOB had to wind up its five Malaysian branches as the Banking law in Malaysia
prohibited operation of foreign Government owned banks. This led to creation of United
Asian Bank Berhad in which IOB had 16.67% of the paid up capital. In the same year
Bharat Overseas Bank Ltd was created in India with 30% equity participation from IOB
to take over IOB’s branch at Bangkok in Thailand.
In 1977, IOB opened its branch in Seoul and the Bank opened a Foreign Currency
Banking Unit in the free trade zone in Colombo in 1979.
The Bank has sponsored 3 Regional Rural Banks viz. Puri Gramya Bank, Pandyan
Grama Bank, Dhenkanal Gramya Bank.
15

¾ Post-Reform Period–Unprecedented developments(1992&after)
IOB entered Web site during the month of February 1997.
IOB got autonomous status during 1997-98. IOB had the distinction of
being the first Bank in Banking Industry to obtain ISO 9001 Certification for its
Computer Policy and Planning Department from Det Norske Veritas (DNV), Netherlands
in September 1999. This Certification covers Design, Development, Implementation and
Maintenance of software developed in-house, procurement and supply of hardware and
execution of turnkey projects. IOB started STAR services in December 1999 for speedy
realisation of outstation cheques. Now the Banks has 14 STARS centres and one
Controlling Centre for providing this service.
During 1999, IOB started tapping the potential of internet by enabling ABB card holders
in Delhi to pay their telephone bills by just logging on to MTNL web site and by
authorising the Bank to debit towards the telephone bills. A Voluntary Retirement
Scheme was introduced in the Bank on the lines of IBA package with Boards approval.
The scheme was offered to Officers/Employees from December 15, 2000.
The Bank made a successful debut in raising capital from the public during the financial
year 2000-01, despite a subdued capital market. The issue opened on September 25, 2000
for raising Rs.111.20 crore and was oversubscribed by 1.87 times. The issue closed on
September 29, 2000 - on the earliest closing day. The allotment was made in October
2000. Consequent to the public issue, the share of the Government in the Bank's capital
came down to 75%. The shares of the Bank have been listed on the Madras Stock
Exchange (Regional), Stock Exchange at Mumbai and the National Stock Exchange of
India Ltd. IOB bagged the NABARD's award for credit linking the highest number of
Self Help Groups for 2000-2001 among the Banks in Tamil Nadu.
IDRBT (Institute for Development and Research in Banking Technology) conferred the
Best Award under Banking Technology to IOB. The award was given for the innovative
use of banking applications on INFINET (Indian Financial Network) for the year 2001.
Mobile banking under SMS technology implemented in Ahmedabad and Baroda. Pilot
16

run of Phase I of the Internet Banking commenced covering 34 branches in 5
Metropolitan centers. IOB was one among the first to join Reserve Bank of India’s
negotiated dealing system for security dialing online.
The Bank has finalized an e-commerce strategy and has developed the necessary internet
banking modules in-house. For the first time a Total Branch Automation package
developed in-house has been customized in one of the Overseas Branches of
the Bank. Most software developed in-house. IOBNET connects Central
Office with all Regional Office. The Bank has paid a maiden dividend of 10% p.a for
2000-01, followed by 12% during 2001-02.
17

SERVICES OFFERED BY INDIAN OVERSEAS BANK
• Current Account:
• Savings Accounts:
• Fixed Deposit:
• Recurring Deposit:
• Loans:
The different type of loans as specified below:
Pushpaka Vehicle Finance Scheme:
Loan to buy a new or used car (not more than 5 years old)or new twowheeler.
Subha gruha scheme:
Loan to buy, build or renovate the house.
Vidhya Jyothi scheme:
Loan for Graduation/Post graduation/Diploma/Computer education in any recognized
State/Central Government/University.
Clean Loan to Salaried individual:
It is for any purpose including any social / financial commitment.
18

CHAPTER 2
LITERATURE REVIEW
• Banking Strategy, Credit evaluation and Lending Strategies1 “Analyses lending

strategies, credit evaluation, risk analysis and lending decisions keeping in mind the
broad framework of corporate banking strategy, and helps us understand better the vast
and significant changes in the financial market. Numerous examples from the world
business have been provided to facilitate better understanding”.
• Bank Lending and Credit evaluation2 This is aimed at imparting knowledge on the
Banking system on India which covers understanding balance sheet dynamics and
financial management of banks and institutions which in turn helps in understanding the
balancing acts of liquidity and profitability and risk management. Additionally, the
objective is to understand the Credit evaluation system in the banking industry.
• Lending Strategy, Credit evaluation and Lending Decision by Hrisjikes
Bhattacharya3 The liberalization of the financial sector demands a new technology to
cope with the rising pressures on the profitability of banks and financial sector
institutions. Analyzing lending strategies, credit evaluation, risk analysis and lending
decisions, while keeping in mind the broad framework of corporate banking strategy, this
book emphasizes that lending is no longer an activity restricted to the assets side of the
balance sheet. An invaluable tool for practicing managers and students of business and
financial management, this book demands no prior specialized knowledge of the subject,
taking readers from the rudiments of credit evaluation to advanced levels of decision
making. Numerous examples from the world of business have been provided to facilitate
a better understanding of the vast and significant changes in the financial market.
_________________________________________________________________________________
1. Banking Strategy, Credit evaluation and Lending Strategies by Author(s) : Hrishikesh Bhattacharya, published in 1998,
Focused on procedure of obtaining loan from the Bank
2. Bank Lending and Credit evaluation (1998), “The imparting knowledge of Banking and Lending strategies of Bank to appraise
credit”, IILM Institute for Higher education.
3. Lending Strategy, Credit evaluation and Lending Decision, 2011 by Author(s): Hrishikesh Bhattacharya. Lending decisions
and study of different Loan decision
19

• Credit evaluation, Risk analysis and decision making 4 An attempt to
bridge the gap between theory and practice in the area of credit dispensation
by commercial banks and financial institutions. In prolongation thereof the
gradual transition of appraisal techniques with funds flow, cash flow
analysis, Analysis of Financial Statements ,Profit and Loss and Balance Sheet Items
,Window dressing techniques unveiled, Forecasting and Cash Budget applications
illustrated ,Decision making in Credit, Assessment of Credit, Operational, Market and
country risks.
• Banking Theory and Practice by KC Shekhar and Lekshmy Shekhar5 Loans and
Advances with Methods of granting Advances by analyzing the Cash credit; Overdrafts;
Bills Discounting and Purchasing; Issue of Letter of Credit; Loans.
• Procedure of Credit evaluation System of Co-operative Bank6 The prime area of the
study was to understood the scope for establishing the thrift among their members
dwelling in urban centers and to provide credit to the needy members and thus to save
them from the clutches of unscrupulous moneylenders and also the reduction in
NPA(Non-Performing Assets) level of Urban Co-operative bank.
4. Credit evaluation, Risk analysis and decision making by Author(s):D.D Mukherjee, published in 1998, Focused on
analysis of Financial statements to appraise the Loan
5. Bank Theory and Practice, by Author(s):KC Shekhar and Lekshmy Shekar published in 2013, A study on Loan and advances
and granting of loans in Banking system.
6. Procedure of Credit evaluation System of Co-operative Bank from Scribd.com.
20

CHAPTER 3
PROBLEM STATEMENT
To study the credit evaluation of Indian Overseas Bank on verifying whether all the criteria’s of
the bank has been satisfied by the company for obtaining the loan from bank and identifying the
constraints if any through various Financial Tools in order to overcome inefficiencies in credit
evaluation and overcoming it.
21

3.1 NEED FOR STUDY
¾ An important need of credit evaluation is obtaining an understanding of the anticipated
expenditure and benefits of a project, usually expressed in terms of its inputs (costs) and
outputs (results).
¾ Detailed appraisal is generally necessary before decisions can be taken and offers made.
¾ It will enable any obviously poor or ineligible ones to be eliminated, avoid duplication
and give an early overall view of the success of the measure.
22

3.2 OBJECTIVE OF THE STUDY
¾ To study entire loan system In Indian Overseas Bank.
¾ To study the procedure of obtaining loan from Indian Overseas Bank.
¾ To know on what criteria the bank Appraise the loan to the business.
¾ To Study about the effectiveness of the Financial tools used by the bank to appraise the
loan to the business
23

3.3 LIMITATION OF THE STUDY
¾ The Secondary data collected from various sources used in the study is not fully
complete.
¾ The figures shown in the project are just expected figures.
¾ The result of project appraisal is tentative.
¾ All financial tools which are applied in this appraisal have their own limitations.
24

CHAPTER 4
METHODOLOGY
Research Design Type

The Research method used is descriptive method. Descriptive research is used to obtain
information concerning the current status of the phenomena to describe "what exists" with
respect to variables or conditions in a situation. The methods involved range from the survey
which describes the status quo, the correlation study which investigates the relationship between
variables, to developmental studies which seek to determine changes over time.
Source & Collection of data
Primary data are the data that are collected for the first time and are original in nature. The
primary data are collected mainly based upon personnel discussion with executives in Indian
Overseas Bank.
Secondary data on the other hand are those that have already been collected and analyzed by
someone else. Secondary data are collected from published accounts and annual reports of Indian
Overseas Bank. The main source of data of the study was the annual reports of Indian Overseas
Bank, internet sources, books & articles.
PROCEDURE FOR TAKING LOAN FROM BANKS:-

The procedure associated with a term loan involves the following principle steps.
Process of loan
1. Submission of application
2. Primary assessment
3. Branch head recommendation
4. Final assessment of various level of bank
5. Lending committee
6. Documentation of loan application
7. Disbursement of loan
8. Creation of security
25

• Submission of application
The main & the first step is the submission of the duty filled form or the loan application it is the
choice customer that which types of application he wants to give depending upon the needs.
• Primary assessment
When the application is received, an officer of the recipient institution reviews it to
ascertain whether it is complete for processing. If it is incomplete the borrower is asked
to provide the required additional information.
When the application is considered complete, the recipient institution prepares of flash
report, which is essentially a summarization of the loan application, to be evaluated at
the Senior Executive Meeting (SEM). Once the SEM, on the basis of its evaluation of
the flash report, decides that the project justifies a detail appraisal, it nominates lead
financial institutions.
The factors taken in to account for designating lead institution are: location of the
project, prior experience of institution in handling similar projects, representation of
institutions in the state and promoter group, and existing work load of the institutions.
• Branch head recommendation
The appraisal is moving one step ahead that is to analysis the applicants eligibility as per the
norms provided by the considering his gross income after detecting his liabilities, his actual
repayment capacity is checked as per norms.
• Final assessment of various level of bank
After referring the application form and appraisal branch head put his recommended action
whether to accept the application or not & send it the corporate office.
• Lending committee
At the corporate office the final assessment is to be done & decision is taken to reject the
application is forwarded to the particular branch from where the application has been received.
Before it also lending committee decide whether to give loan or not.
Example
• Loan for more than 10 lac Rs all BOD need to agree for that particular Loan.
26

• Also some of the lending committee is formed by bank in which Directors are included
and they decide whether to give Loan or not. The branches have the power to take the
major decision on the sanctioning of the loan if it is less than Rs 1 lack.
• Documentation of loan application Once the Loan is Sanction Banks need to check all
the document of borrower as well as guarantor once again and only then and then they
can proceed ahead.
• Disbursement of loan
If loan is sanction than Bank open the account of borrower in their bank and issue the check.
Before the entire term loan is disbursed the borrowers must fully comply with all terms and
condition of the loan agreement.
• Creation of security
The term loans (both rupee and foreign currency) and the differed guarantee assistance
provided by the All-India financial institutions are secured through the first mortgage,
by way of deposit of title deeds of immovable properties and hypothecation of movable
properties.
As the creation of mortgage, particularly in the case of land, tends to be a time
consuming process, the institutions permit interim disbursement against alternate
security (institution the form of guarantees provided by the promoters).
The mortgage, however, has to be created within a year from the date of the first
disbursement.
Otherwise the borrower has to pay an additional charge of 1 percent interest
Feasibility of the Project
Project Should Be Feasible and This Is Done By Detail Appraisal Of The Project Into The
Following Different Environment.
(a) Market and Demand analysis
The first step in project analysis is to estimate the potential size of the market for the product
proposal and gets an idea about the market share that is likely to be capture. Market and demand
analysis is concerned with two broad issues:
• What is the likely aggregate demand for the product/service?
• What share of the market will the proposed project achieve?
27

The importance of market and demand analysis, it should be carried out in orderly and
systematic manners. The key steps in such analysis are,
• Situation analysis and specification of objectives
• Collection of secondary information
• Conduct of market survey
• Characterization of the market
• Demand forecasting
• Market planning
(b) Technical Analysis

Technical analysis of a project idea includes designing the various processes, installing
equipment, specifying material and prototype testing.
The project manager has to be careful in finalizing the technical aspects of the project as
the decision is irreversible and the investments involved may be high.
The project manager has to select the technology required in consultation with technical
experts and consultants.
Technical analysis is concerned primarily with:
• Material inputs and utilities
• Manufacturing process/technology
• Product mix
• Plant capacity
• Location and site
• Machineries and equipments
• Structures and civil works
• Project charts and layouts
• Work schedule
28

(c ) Financial Analysis
To judge a project from the financial angle, we need information about the following:
Cost of project
Means of financing
Estimates of sales and production
Cost of production
Working capital requirement and its financing
Estimates of working results
Projected profitability statements
Projected balance sheets
29

CHAPTER 5
ANALYSIS
5.1 TOOLS OF ANALYSIS
The following tools are used for analyzing the given Project proposal.
RATIO ANALYSIS
Current ratio
Current ratio is the ratio of current assets of a business to its current liabilities. It is the most
widely used test of liquidity of a business and measures the ability of a business to repay its debts
over the period of next 12 months.
Formula
Current ratio is calculated using the following formula:
Current Assets
Current Ratio =
Current Liabilities
Both the above figures can be obtained from the balance sheet of the business. Current assets are
the assets of a business expected to be converted to cash or used up in next 12 months or within
the normal operating cycle of the business. Current liabilities on the other hand are the
obligations of a business which need to be settled within next 12 months or within the normal
operating cycle.
Analysis
Current ratio matches current assets with current liabilities and tells us whether the current assets
are enough to settle current liabilities. Current ratio below 1 shows critical liquidity problems
because it means that total current liabilities exceed total current assets. General rule is that
30

higher the current ratio better it is but there is a limit to this. Abnormally high value of current
ratio may indicate existence of idle or underutilized resources in the company.
Example 1: On December 31, 2009 Company A had current assets of $100,000 and current
liabilities of $50,000. Calculate its current ratio.
Solution
Current ratio = $100,000 ÷ $50,000 = 2.00
Quick ratio
Quick ratio or Acid Test ratio is the ratio of the sum of cash and cash equivalents, marketable
securities and accounts receivable to the current liabilities of a business. It measures the ability of
a company to pay its debts by using its cash and near cash current assets (i.e. accounts receivable
and marketable securities).
Formula
Quick ratio is calculated using the following formula:
Cash + Marketable Securities + Receivables
Quick Ratio=
Current Liabilities
Marketable securities are those securities which can be coverted into cash quickly. Examples of
marketable securities are treasury bills, saving bills, shares of stock-exchange, etc. Receivables
refer to accounts receivable. Alternatively, quick ratio can also be calculated using the following
31

Formula
Current Assets − Inventory − Prepayments
Quick Ratio=
Current Liabilities
Analysis:
Quick ratio measures the liquidity of a business by matching its cash and near cash current assets
with its total liabilities. It helps us to determine whether a business would be able to pay off all
its debts by using its most liquid assets (i.e. cash, marketable securities and accounts receivable).
A quick ratio of 1.00 means that the most liquid assets of a business are equal to its total debts
and the business will just manage to repay all its debts by using its cash, marketable securities
and accounts receivable. A quick ratio of more than one indicates that the most liquid assets of a
business exceed its total debts. On the opposite side, a quick ratio of less than one indicates that a
business would not be able to repay all its debts by using its most liquid assets.
Thus we conclude that, generally, a higher quick ratio is preferable because it means greater
liquidity. However a quick ratio which is quite high, say 4.00, is not favorable to a business as
whole because this means that the business has idle current assets which could have been used to
create additional projects thus increasing profits. In other words, very high value of quick ratio
may indicate inefficiency.
32

Example 1: A company has following assets and liabilities at the year ended December 31,
2009:
Cash $34,390
Marketable Securities 12,000
Accounts Receivable 56,200
Prepaid Insurance 9,000
Total Current Assets 111,590
Total Current Liabilities 73,780
Calculate quick ratio (acid test ratio).

Solution
Quick ratio = ( 34,390 + 12,000 + 56,200 ) / 73,780 = 102,590 / 73,780 = 1.39
OR
Quick ratio = ( 111,590 − 9,000 ) / 73,780 = 102,590 / 73,780 = 1.39
Fixed Asset Turnover Ratio
Fixed assets turnover ratio is an activity ratio that measures how successfully a company is
utilizing its fixed assets in generating revenue. It calculates the dollars of revenue earned per one
dollar of investment in fixed assets.
A higher fixeds asset turnover ratio is generally better. However, there might be situations when
a high fixed asset turnover ratio might not necessarily mean efficient use of fixed assets as
explained in the example.
33

Formula
Net Revenue
Fixed Assets Turnover Ratio=
Average Fixed Assets
Net Revenue = Gross Revenue − sales returns
Opening Balance of Fixed Assets + Ending Balance of Fixed Assets
Average Fixed Assets =
Net profit ratio

Net profit margin (also called profit margin) is the most basic profitability ratio that
measures the percentage of net income of an entity to its net sales. It represents the proportion of
sales that is left over after all relevant expenses have been adjusted.
Net profit margin is used to compare profitability of competitors in the same industry. It can also
be used to determine the profitability potential of different industries. While companies in some
industries are able to generate high net profit margin, other industries offer very narrow margins.
It depends on the extent of competition, elasticity of demand, production differentiation, etc. of
the relevant product or market.
Return on equity and return on assets are other relevant ratios that measure the relationship of net
income with shareholders' equity and total assets respectively.
34

Formula
Net Income
Net Profit Margin =
Net Sales
Net Sales = Gross Sales − Sales Tax − Discounts − Sales Returns
Operating profit ratio
Operating margin ratio or return on sales ratio is the ratio of operating income of a business to its
revenue. It is profitability ratio showing operating income as a percentage of revenue.
Formula
Operating margin ratio is calculated by the following formula:
Operating Income
Operating Margin =
Revenue
Operating income is same as earnings before interest and tax (EBIT). Both operating income and
revenue figures can be obtained from the income statement of a business.
Analysis
Operating margin ratio of 9% means that a net profit of $0.09 is made on each dollar of sales.
Thus a higher value of operating margin ratio is favorable which indicates that more proportion
of revenue is converted to operating income. An increase in operating margin ratio overtime
means that the profitability is improving. It is also important to compare the gross margin ratio of
35

a business to the average gross profit margin of the industry. In general, a business which is more
efficient is controlling its overall costs will have higher operating margin ratio.
Return on Total Asset Ratio
Return on assets is the ratio of annual net income to average total assets of a business during a
financial year. It measures efficiency of the business in using its assets to generate net income. It
is a profitability ratio.
Formula
The formula to calculate return on assets is:
Annual Net Income
ROA =
Average Total Assets
Net income is the after tax income. It can be found on income statement. Average total assets are
calculated by dividing the sum of total assets at the beginning and at the end of the financial year
by 2. Total assets at the beginning and at the end of the year can be obtained from year ending
balance sheets of two consecutive financial years.
Analysis
Return on assets indicates the number of cents earned on each dollar of assets. Thus higher
values of return on assets show that business is more profitable. This ratio should be only used to
compare companies in the same industry. The reason for this is that companies in some
industries are most asset-insensitive i.e. they need expensive plant and equipment to generate
income compared to others. Their ROA will naturally be lower than the ROA of companies
which are low asset-insensitive. An increasing trend of ROA indicates that the profitability of the
company is improving. Conversely, a decreasing trend means that profitability is deteriorating.
36

WORKING CAPITAL ANALYSIS.
Working Capital Assessment

Any enterprise whether industrial, trading or other acquires two types of assets to run its business
as has already been emphasised time and again. It requires fixed assets which are necessary for
carrying on the production/business such as land and buildings, plant and machinery, furniture
and fixtures etc. For a going concern these assets are of permanent nature and are not to be sold.
The other types of assets required for day to day working of a unit are known as current assets
which are floating in nature and keep changing during the course of business. It is these 'current
assets' which are generally referred to as 'working capital'. We are by now already aware of the
short-term nature of these assets which are classified as current assets. It may be noted here that
there may not be any fixed ratio between the fixed assets and floating assets for different projects
as their requirement would differ depending upon the nature of project. Big industrial projects
may require substantial investment in fixed assets and also large investment for working capital.
The trading units may not require heavy investment in fixed assets while they may be carrying
huge stocks in trade. The service units may hardly require any working capital and all investment
may be blocked in creation of fixed assets.
A set financing pattern is evolved to meet the requirement of a unit for acquisition of fixed assets
and current assets. Fixed assets are to be financed by owned funds and long-term liabilities raised
by a unit while current assets are partly financed by long-term liabilities and partly by current
liabilities and other short-term loans arranged by the unit from the bank. The balance sheet of a
unit under such dispensation may be represented as in next page.
The total current assets with the firm may be taken as gross working capital whereas the net
working capital with the unit may be calculated as under:
Net Working Capital = Current Assets - Current Liabilities

(NWC) (GWC) (including bank borrowings)
37

This net working capital is also sometimes referred to as 'liquid surplus' with the firm and has
been margin available for working capital requirements of the unit. Financing of working capital
has been the exclusive domain of commercial banks while they also grant term loans for creation
of fixed assets either on their own or in consortium with State level/All India financial
institutions. The financial institutions are also now considering sanction of working capital loans.
The current assets in the example given in the earlier paragraph are financed asunder:
Current Assets = Current liabilities + Working capital limits from banks + Margin from
long-term liabilities
38

5.2 SCOPE AND SIGNIFICANCE OF STUDY
Credit evaluation of a proposal helps the firm to,

• Be consistent and objective in choosing projects
• Make sure its programme benefits all sections of the community, including those from ethnic
groups who have been left out in the past.
• Provide documentation to meet financial and audit requirements and to explain decisions to
local people.
Appraisal is an important decision making tool
Appraisal involves the comprehensive analysis of a wide range of data, judgments and
assumptions, all of which need adequate evidence. This helps ensure that projects selected for
funding.
39

5.3 DATA ANALYSIS AND INTERPRETATION
Case Study
XY pvt ltd is engaged in the manufacture and marketing of multi – purpose Internal Combustion
(IC) engines, a range of its applications such as Pumpsets, Sprayers, Vibrators, etc.. and
Agricultural Implements. The company is also engaged in the manufacture and marketing of
power tiller. XY pvt ltd first devloped IC engines manufacturing plant and the first product was
an engine meant for needle vibrator in the construction industry.
Since the beginning, the company has been availing credit limits for both term funding and WC
purposes under multiple banking arrangement. The long term requirement of the bank was met
by the bank along with another reputed bank
The company has been enjoying credit facilities with the bank for the past ten years. Besides
IOB, the company has availed the facility from some of the other top financial institutions as
well.
Purpose of loan:
XY pvt ltd requires a term loan for the expansion and purchase of machinery as a part of
development of the company.
Nature of project
XY ltd is considering
Expansion of the unit by constructing a factory building.
Development of prototype higher capacity 12HP engine.
Installation of new machinery.
Cost of project and means of finance
The cost of project will be around Rs.4.80 lakhs which include cost of installation of new
machine and other expenses. The company also applied for loan to other banks to cover rest of
the amount. Loan sanctioned by IOB is 4.80
Data Analysis and Interpretation

XY pvt ltd has applied to obtain the loan from Indian Overseas Bank for the amount of Rs. 4.80
lakhs. All the procedures has been done and the documents are verified. In case of sanctioning
the loan amount the profitability of the company has to be verified through various financial
tools. This analysis will be done by using the financial statements of the company like balance
40

sheets, Income statement etc. If the profitability analysis of the company are verified
successfully according to the various analysis like market and demand analysis, financial
analysis etc., the loan will sanctioned according to the need of the company otherwise it will
reduced according to the demand. Hence it will be proved through various FINANCIAL
TOOLS.
Ratio Analysis
Ratio analysis is used to evaluate relationships among financial statement items. The ratios are
used to identify trends over time for one company or to compare two or more companies at one
point in time. Financial statement ratio analysis focuses on three key aspects of a business:
liquidity, profitability, and solvency.
Financial ratio analysis is a useful tool for users of financial statement. It has following
advantages:
Advantages
1. It simplifies the financial statements.

2. It helps in comparing companies of different size with each other.
3. It helps in trend analysis which involves comparing a single company over a period.
4. It highlights important information in simple form quickly. A user can judge a
company by just looking at few numbers instead of reading the whole financial
statements.
Disadvantages
Despite usefulness, financial ratio analysis has some disadvantages. Some key demerits of
financial ratio analysis are:
1. Different companies operate in different industries each having different

environmental conditions such as regulation, market structure, etc. Such factors are so
significant that a comparison of two companies from different industries might be
misleading.
41

2. Financial accounting information is affected by estimates and assumptions.
Accounting standards allow different accounting policies, which impairs
comparability and hence ratio analysis is less useful in such situations.
3. Ratio analysis explains relationships between past information while users are more
concerned about current and future information.
42

LIQUIDITY RATIOS
TABLE 5.1
TABLE SHOWING CURRENT RATIO
(Amount in Rs.)
Current Ratio
Year Current Assets Current Liabilities Ratio
2008 11,948.60 9,542.14 1.25
2009 16,311.88 13,928.17 1.17
2010 23,752.55 18,277.57 1.30
2011 26,346.51 21,632.13 1.22
2012 35,022.97 28,372.99 1.23
Analysis:
As a rule, the current ratio with 2:1 (or) more is considered as satisfactory position of the firm.
This ratio shows the ability of the firm and it related with Current Assets & Current Liabilities.
Generally Current Ratio of 2:1 is considered ideal for a concern i.e., current asset should be
twice of the current liabilities. This is the most widely used ratio
43

CHART 5.1
CHART SHOWING CURRENT RATIO
1.3
1.3
1.28
1.25
1.26
1.23
1.24 1.22
1.22
1.2
1.17
1.18
1.16
1.14
1.12
1.1
2008 2009 2010 2011 2012
Current Ratio
Interpretation:
From the above graph it can be observed that there is fluctuating trend during the study period.
In the year 2009, it decreased to 1.17 from 1.25. It increased to 1.3 in the year 2010 and it
decreased to 1.22 in the year 2011. In the year 2012 it increased to 1.23 again. The management
should take remedial measures to improve the present position
44

TABLE 5.2
TABLE SHOWING QUICK RATIO
(Amount in Rs.)
Quick Ratio
Year Quick Assets Current Liabilities Ratio
2008 8,258.59 8,362.01 0.99
2009 11,711.49 11,892.75 0.98
2010 11,924.19 15,211.04 0.78
2011 17,188.26 19,443.77 0.88
2012 24,809.73 26,139.56 0.95
Analysis:
This is the ratio of liquid assets to liquid liabilities. It shows a firms ability to meet
current liabilities with its most liquid assets. 1:1 ratio is ideal ratio for a concerns i.e., Quick
Assets should be equal to Current Liabilities. This is the most widely used ratio
Quick Assets = Current Assets – (Stock + Prepaid Expenses)
Quick Ratio= Quick Assets/Current Liabilities
45

CHART 5.2
CHART SHOWING QUICK RATIO
0.99 0.98
0.95
1 0.88
0.9
0.78
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2008 2009 2010 2011 2012
Quick Ratio
Interpretation:
In the year 2012 it increased to 0.95 from 0.88. The above graph it can be observed
that there is fluctuating trend during the study period. In the year 2009 it decreased to 0.98 from
0.99. It is decreased to 0.78 in the year 2010 and it urged management should take remedial
measures to improve the present position.
46

TABLE 5.3
TABLE SHOWING FIXED ASSETS TURNOVER RATIO
(Amount in Rs.)
Fixed Assets Turnover Ratio
Year Income from service Net Fixed Assets Ratio
2008 8,820 1,753 5.03
2009 15,321 2,946 5.2
2010 25,877 4,154 6.23
2011 33,544 5,508 6.09
2012 63,557 6,676 9.52
Analysis:
The proprietary ratio establishes the relationship between shareholders funds to

total assets. It determines the long-term solvency of the firm. This ratio indicates the extent to
which the assets of the company can be lost without affecting the interest of the company.
A variant of debt to equity ratio is the proprietary ratio which shows the
relationship between Shareholders Funds & Total Tangible assets. This ratio should be 1:3 i.e.,
one third of the assets minus Current Liabilities should be acquired by Shareholders Funds.
Fixed Asset Turnover Ratio = Income from Services / Net Fixed Assets
47

CHART 5.3
CHART SHOWING FIXED ASSETS TURNOVER RATIO
9.52
10
9
8
7 6.23 6.09
6 5.03 5.2
5
4
3
2
1
0
2008 2009 2010 2011 2012
Fixed Asset Turnover Ratio
Interpretation:
From the above graph it can be observed that there is fluctuating trend during the study period.
In the year 2009 it is fluctuating from 5.03 to 5.2 and it increased to 6.23 in the year 2010 and
decreased to 6.09 and in 2012 is increased to 9.52.
48

TABLE 5.4
TABLE SHOWING CURRENT ASSETS TO FIXED ASSETS RATIO
Current Assets To Fixed Assets Ratio
Year Current Assets Fixed Assets Ratio
2008 9499.46 1,753 5.42
2009 12450.78 2946 4.23
2010 16553.7 4154 3.99
2011 13683.96 5508 2.48
2012 15523.74 6676 2.33
Analysis:
This ratio will different from industry to industry and therefore. No standard can be laid down.
This ratio has a relation between Current Assets and Fixed Assets.
Current to Fixed Asset Ratio = Current Asset / Fixed Assets
49

CHART 5.4
CHART SHOWING CURRENT ASSETS TO FIXED ASSETS RATIO
6 5.42
5 4.23
3.99
4
3 2.48 2.33
0
2008 2009 2010 2011 2012
Current to Fixed Assets Ratio
Interpretation:
Current Assets are increased due to the increase in the Sundry Debtors and the next fixed assets
of the firm are decreased due to the charge of depreciation and there is no major increment in the
fixed assets. The increment in current assets and the decrease in fixed assets resulted on
increased in the ratio compared with the previous year.
50

PROFITABILITY RATIOS
TABLE 5.5
TABLE SHOWING NET PROFIT RATIO
(Amount in Rs.)
Net Profit Ratio
Year Income from Services Net Profit After Tax Ratio
2008 15,813.00 1394.13 11.34
2009 22,027.00 2172.65 10.14
2010 30,026.62 3481.33 8.63
2011 32,092.83 4373.13 7.34
2012 38,128.57 3953.88 9.64
Analysis:
This ratio explains per rupee profit generating capacity of sales. If the cost of sales is lower, then
the net profit will be higher & then we divide it with the net sales, the result is the sales
efficiency
Net Profit Ratio = Income from Services / Net Profit After Tax
51

CHART 5.5
CHART SHOWING NET PROFIT RATIO
11.34
12
10.14
9.64
10 8.63
7.34
8
0
2008 2009 2010 2011 2012
Net Profit Ratio
Interpretation:
From the above graph it can be observed that there is fluctuating trend during the study
period. In the year 2009 it decrease to 10.14 from 11.34 and it decrease to 7.34 from 8.63 in the
year 2010 to 2011 and in 2012 increase to 9.64. So the management should take remedial
measures for improving to the present position.
52

TABLE 5.6
TABLE SHOWING OPERATING PROFIT
(Amount in Rs.)
Operating Profit Ratio
Year Income from Services Net Profit After Tax Ratio
2008 15,813.00 2,033.13 7.78
2009 22,027.00 3,239.23 6.80
2010 30,026.62 4,142.02 7.25
2011 32,092.83 5,083.58 6.31
2012 38,128.57 5,878.57 6.49
Analysis:
This ratio establishes the relationships between operating profit and sales. It indicates the
portion remaining out of every rupee worth of sales after all operating costs and expenses have
been met. The higher ratio is better.
Operating Profit Ratio = Income from Services / Net Profit after tax
53

CHART 5.6
CHART SHOWING OPERATING PROFIT
7.78
8 7.25
6.8
7 6.31 6.49
6
5
4
3
2
1
0
2008 2009 2010 2011 2012
Operating Profit Ratio
Interpretation:
From the above graph it can be observed that there it fluctuating trend during the study
period. In the year 2009, it decreased to 6.8 from 7.78 and it increased to 7.25 in the year 2010
and it increased 6.31 during the year 2011. It is gradually increases to 6.49 in the current year.
So the management has to increase this ratio to some more level.
54

TABLE 5.7
TABLE SHOWING RETURN ON TOTAL ASSETS RATIO
(Amount in Rs.)
Return on Total Assets Ratio
Year Total Assets Net Profit After Tax Ratio
2008 7,846.18 2,033.13 3.86
2009 13,139.07 3,239.23 4.06
2010 19,015.72 4,142.02 4.60
2011 25,112.47 5,083.58 4.94
2012 29,007.37 5,878.57 4.93
Analysis:
This ratio is calculated for measure the profit after tax against the amount invested in total assets
to ascertain whether assets are being utilized property or not. This ratio is related between Net
Profit after tax and Total Assets.
Return on Total Asset Ratio = Total Assets / Net Profit after Tax
55

CHART 5.7
CHART SHOWING RETURN ON TOTAL ASSETS RATIO
4.94 4.93
5 4.6
4.5 4.06
3.86
4
3.5
3
2.5
2
1.5
1
0.5
0
2008 2009 2010 2011 2012
Return on Total Assets Ratio
Interpretation:
From the above graph it can be observed that there is fluctuating trend during the study period. In
the year 2009 it increased to 4.06 from 3.86 and it increased to 4.6 in the year 2010. It gradually
reached 4.94 and 4.93 in the years 2011 and 2012. So the management has to increase this ratio
to some more level.
56

WORKING CAPITAL ANALYSIS
The objective of running any industry is earning profits. An industry will require funds to acquire
“fixed assets” like land and building, plant and machinery, equipments, vehicles etc… and also
to run the business i.e. its day to day operations. Working capital is defined, as the funds required
carrying the required levels of current assets to enable the unit to carry on its operations at the
expected levels uninterruptedly. Working capital is an excess of current assets over current
liabilities. In other words, the amount of current assets which is more than current liabilities is
known as Working Capital. If current liabilities are nil then, working capital will equal to current
assets. Working capital shows strength of business in short period of time. If a company have
some amount in the form of working capital, it means Company have liquid assets, with this
money company can face every crises position in market.
Current assets are those assets which can be converted into cash within One year or less than one
year. In current assets, we include cash, bank, debtors, bill receivables, prepaid expenses,
outstanding incomes. Current Liabilities are those liabilities which can be paid to respective
parties within one year or less than one year at their maturity. In current liabilities, we includes
creditors, outstanding bills, bank overdraft, bills payable and short term loans, outstanding
expenses, advance incomes.
Some time, if creditors demand their money from company, at this time company's high working
capital saves company from this situation. You know that selling of current assets are easy in
small period of time but Company cannot sell their fixed assets with in small period of time. So,
if Company has sufficient working capital, Company can easily pay off the creditors and create
his reputation in market. But if a company has zero working capital and then company cannot
pay creditors in emergency time and either company becomes bankrupt or takes loan at higher
rate of Interest. In both condition, it is very dangerous and always Company's Account Manager
tries to keep some amount of working capital for creating goodwill in market.
Positive working capital enables also to pay day to day expenses like wages, salaries, overheads
and other operating expenses. Because sufficient working capital can not only pay maturity
liabilities but also outstanding liabilities without any more delay.
One of advantages of positive working capital that company can do every risky work without
any tension of self security.
57

Concept of working capital includes meaning of working capital and its nature. Working capital
is the investment in current assets. Without this investment, we cannot operate our fixed assets
properly. For getting good profits from fixed assets, we need to buy some current assets or pay
some expenses or invest our money in current assets. For example, we keep some of cash which
is the one of major part of working capital. At any time, our machines may need repair. Repair is
revenue expense but without cash, we cannot repair our machines and without machines, our
production may delay. Like this, we need inventory or to invest in debtors and other short term
securities.
1. Gross Working Capital
In this concept of working capital, we study gross working capital. We do not deduct current
liabilities in this concept but we use current liabilities as source of fund. Suppose, if we buy
goods on credit, it means our save our cash and we can use this as working capital for paying
other expenses
2. Net Working Capital
Under this concept we use net working capital. For this, we first deduct all our current liabilities
from our current assets. Excess of current assets over current liabilities will be current assets. We
have to maintain minimum level of working capital in our business for operation of business
activities. This concept is also used for preparation of balance sheet. In the vertical form of
balance sheet, we show excess of current assets over current liabilities.
Working Capital Forecast

Working capital forecasts means to estimate the value of working capital in one year. Following
are main items which are estimated in working capital forecasts.
1. Future operating cost
We estimated our future operating cost, more future operating cost means more need of cash and
cash is the part of working capital. It means, we need more working capital in that situation. For
estimating this, w analyze past income statements of company
2. Forecast Revenue Growth
By sales and other revenue's trend analysis, we can forecast revenue growth. This will tell us,
how working capital will manage from revenue in future.
58

3. Changes of Working Capital
To analyze the past working capital changes is useful for working capital future forecast.
Working capital is difference between current assets and current liabilities. If we check two
years' working capital changes, we can estimate what changes in working capital in next year.
TABLE 5.8
TABLE SHOWING THE CHANGES IN WORKING CAPITAL
FY 2008-2009
Particular 2009 2008 Increase Decrease
Current Asset
Short term Investments 6,922.26 3,104.44 3,817.82
Stock 4,305.91 3,001.14 1,304.77
Debtors 7,365.01 5,504.64 1,860.37
Cash & bank balance 779.86 993.68 213.82
19,373.04 12,603.90
Current Liabilities
Current liabilities 11,892.75 8,362.01 3,530.74
Provisions 2,035.42 1,180.13 855.29
13,928.17 9,542.14
Net Working Capital 5,444.87 3,061.76
Decrease in WC 2,383.11 2,383.11
5,444.87 5,444.87 6,982.96 6,982.96
Sources: Annual Reports of XY Pvt ltd.
59

Interpretation:
The above table shows the working capital statement of XY Pvt ltd for the year 2008 and 2009.
Current assets of the company show an increasing trend from the year 2008-2009. Current
liabilities increased from 2008 – 2009. This results in a decrease in working capital
CHART 5.8
CHART SHOWING THE VARIATION IN CURRENT ASSETS FY 2008-2009
7,365.01
8,000 6,922.26
7,000
5,504.64
6,000
4,305.91
5,000
4,000 3,104.44 3,001.14
3,000
2,000 779.86 993.68

1,000
0
Short term Stock Debtors Cash & bank
Investments balance
2009 2008
60

TABLE 5.9
TABLE SHOWING THE CHANGES IN WORKING CAPITAL
FY 2009-2010
Current Asset
Stock 5,805.05 4,305.91 1,499.14
Debtors 10,055.52 7,365.01 2,690.51
Cash & bank balance 693.13 779.86 86.73
24,817.42 19,373.04
Current Liabilities
Provisions 3,066.53 2,035.42 1,031.11
18,277.57 13,928.17
Decrease in WC 1,094.98 1,094.98
6,539.85 6,539.85 5,531.11 4,436.13
61

Interpretation:
liabilities increased from 2009 – 2010. This results in a decrease in working capital
CHART 5.9
CHART SHOWING THE VARIATION IN CURRENT LIABILITIES FY 2008-2009
11,892.75
12,000
8,362.01
10,000
8,000
6,000
4,000 2,035.42
1,180.13
2,000
0
Current liabilities Provisions
2009 2008
62

TABLE 5.10
TABLE SHOWING THE CHANGES IN WORKING CAPITAL FY 2010-2011
Current Asset
Stock 1,415.37 5,805.05 4,389.68
Debtors 11,163.70 10,055.52 1,108.18
Cash & bank balance 1,104.89 693.13 411.8
27,389.31 24,817.42
Current Liabilities
Provisions 2,188.36 3,066.53 878.17
21,632.13 18,277.57
Increase in WC 782.67 782.67
6,539.85 6,539.85 7,839.74 8,622.41
63

Interpretation:
liabilities increased from 2010 – 2011. Even then the Working capital shows an increase, which
shows the company’s good sign of financial position.
CHART 5.10
12,000
10,055.52
10,000
8,263.72
7,365.01
8,000
6,922.26
5,805.05
6,000 4,305.91
4,000
2,000 693.13 779.86
0
Investments balance
2010 2009
64

TABLE 5.11
TABLE SHOWING THE CHANGES IN WORKING CAPITAL FY 2011-2012
Current Asset
Short term Investments 14,684.82 13,705.35
Stock 1,577.15 1,415.37 161.78
Debtors 12,427.61 11,163.70 -1,263.91
Cash & bank balance 1,518.98 1,104.89 414.1
30,208.56 27,389.31
Current Liabilities
Provisions 2,233.43 2,188.36 -45.07
28,372.99 21,632.13
Increase in WC 3,921.61 12.69
5,757.18 5,757.18 101.83 101.83
65

Interpretation:
liabilities increased from 2011 – 2012. Even then the Working capital shows an increase, which
shows the company’s good sign of financial position.
CHART 5.11
15,211.04
16,000
11,892.75
14,000
12,000
10,000
8,000
6,000 3,066.53
2,035.42
4,000
2,000
0
2010 2009
66

CHART 5.12
13,705.35
14,000
11,163.70
12,000 10,055.52
10,000 8,263.72
8,000
5,805.05
6,000
4,000
1,415.37 1,104.89
2,000 693.13
0
Investments balance
2011 2010
CHART 13
19,443.77
20,000
15,211.04
18,000
16,000
14,000
12,000
10,000
8,000
3,066.53
6,000 2,188.36
4,000
2,000
0
2011 2010
67

CHART 14
16,000
14,684.82
13,705.35
14,000 12,427.61
11,163.70
12,000
10,000
8,000
6,000
4,000 1,577.15 1,415.37 1,518.98

1,104.89
2,000
0
Investments balance
2012 2011
CHART 15
26,139.56
30,000
25,000 19,443.77
20,000
15,000
10,000
2,233.43 2,188.36
5,000
0
2012 2011

68

CHAPTER 6
RESULTS & DISCUSSIONS
6.1 FINDINGS
Ratio Analysis
¾ The Current Ratio is fluctuating and it is quite high compared to the previous years so it
shows good capabilities of the firm in meeting the current obligation.
¾ The Quick ratio is nearer to the original standard that is 1:1 and it is found to be
Satisfactory.
¾ The Net Profit ratio shows that the company has good control on the costs and its
profitability as it is increasing over years.
¾ The ratio is increasing thereby decreasing the efficiency of the company and not
favorable to the company.
¾ The profitability ratio shows good result except the GP ratio which is low and the same is
also expected to increase in the future.
¾ On the whole the liquidity ratios are satisfactory. They also compare favorably with
industry average.
Working Capital Management
Working Capital is done to assess the utilization of capital employed in the business. The
analysis shows the effective utilization of working capital by the company.
¾ Schedule of changes in working capital shows that the company is utilizing the working
capital efficiently in the business.
¾ The current ratio shows that the current assets are more than the Current liability which
will not affect the proportion of Current ratio.
¾ It enables the bank to sanction more working capital in the future by considering this
criterion.
Recommendation
¾ The analysis done in this project will give a good idea about the appraisal system which
is done by using various financial tools that has not been carried on by bank as a part of
appraisal process.
¾ Ratio Analysis is the tool which is used to appraise the financial status of the organization
by using Current asset, Current liabilities, Net profit etc. But these financial statements
69

show only financial status for only short period. So, effective tool can be used to find the
financial strength of an organization in order to avoid the mess of re-payment to the bank.
¾ Working capital Assessment finds only some marginal status of company’s financial
strength. In order to find the weakness of the company’s financial status tools like capital
budgeting, fund flow statement, cash flow statement etc., should use by the bank.
70

6.2 SIGNIFICANCE OF OBSERVATION
¾ The documents required for processing the loan and time should be reduced. The bank
should focus more on advertising to increase awareness among the public about the
services that it offers.
¾ The bank should completely eliminate the file system and go computerization at every
stage as this removes paper work and creates transparency in the system. The bank
should work on standardizing the processes and systems their follow.
¾ Care must be taken to ensure that the judgment in appraisal process does not depend on
one single person and a single factor. Need for improvised methods that are on par with
international standards. Revising the factors on which appraisal is done to face the ever
increasing violability
¾ Bank provide loan on the basis of only re-payment capacity of the borrower and hence it
is suggested to adopt some modern methods to appraise the loan to the business to check
the feasibility of the project for appraising such high amount of loan.
71

CHAPTER 7
SUMMARY & CONCLUSION
As per the analysis done the result that has been got is good enough to justify that this Proposal
has the entire required Criteria’s and Qualities required by the bank. And it is also expected to
give a very good return and value to the company. The financial tools used for assessing is more
appropriate to this project and the values are also favorable to the company to be considered by
the bank for sanctioning the loan. I like to conclude by saying that this Project Proposal should
be accepted as it is seems to be good and looks more feasible by satisfying the criteria of the
bank.
Direction for Future research
The examiner's evaluation of a bank's lending policies, credit administration, and the quality of
the loan portfolio is among the most important aspects of the examination process. To a great
extent, it is the quality of a bank's loan portfolio that determines the risk to depositors and to the
FDIC's insurance fund. Conclusions regarding the bank's condition and the quality of its
management are weighted heavily by the examiner's findings with regard to lending practices.
Emphasis on review and appraisal of the loan portfolio and its administration by bank
management during examinations recognizes, that loans comprise a major portion of most bank's
assets; and, that it is the asset category which ordinarily presents the greatest credit risk and
potential loss exposure to banks. Moreover, pressure for increased profitability, liquidity
considerations, and a vastly more complex society have produced great innovations in credit
instruments and approaches to lending. Loans have consequently become much more complex.
Examiners therefore find it necessary to devote a large portion of time and attention to loan
portfolio examination.
Loan Administration
Lending Policies
The examiner's evaluation of the loan portfolio involves much more than merely appraising
individual loans. Prudent management and administration of the overall loan account, including
establishment of sound lending and collection policies, are of vital importance if the bank is to be
continuously operated in an acceptable manner.
72

Lending policies should be clearly defined and set forth in such a manner as to provide effective
supervision by the directors and senior officers. The board of directors of every bank has the
legal responsibility to formulate lending policies and to supervise their implementation.
Therefore examiners should encourage establishment and maintenance of written, up to date
lending policies which have been approved by the board of directors. A lending policy should
not be a static document, but must be reviewed periodically and revised in light of changing
circumstances surrounding the borrowing needs of the bank's customers as well as changes that
may occur within the bank itself. To a large extent, the economy of the community served by the
bank dictates the composition of the loan portfolio. The widely divergent circumstances of
regional economies and the considerable variance in characteristics of individual loans preclude
establishment of standard or universal lending policies. There are, however, certain broad areas
of consideration and concern that should be addressed in the lending policies of all banks
regardless of size or location. These include the following, as minimums:
• General fields of lending in which the bank will engage and the kinds or types of
loans within each general field;
• Lending authority of each loan officer;
• Lending authority of a loan or executive committee, if any;
• Responsibility of the board of directors in reviewing, ratifying, or approving
loans;
• Guidelines under which unsecured loans will be granted;
• Guidelines for rates of interest and the terms of repayment for secured and
unsecured loans;
• Limitations on the amount advanced in relation to the value of the collateral and
the documentation required by the bank for each type of secured loan;
• Guidelines for obtaining and reviewing real estate appraisals as well as for
ordering reappraisals, when needed;
• Maintenance and review of complete and current credit files on each borrower;
• Appropriate and adequate collection procedures including, but not limited to,
actions to be taken against borrowers who fail to make timely payments;
• Limitations on the maximum volume of loans in relation to total assets;
73

• Limitations on the extension of credit through overdrafts;
• Description of the bank's normal trade area and circumstances under which the
bank may extend credit outside of such area;
• Guidelines, which at a minimum, address the goals for portfolio mix and risk
diversification and cover the bank's plans for monitoring and taking appropriate
corrective action, if deemed necessary, on any concentrations that may exist;
• Guidelines addressing the bank's loan review and grading system ("Watch list");
• Guidelines addressing the bank's review of the Allowance for Loan and Lease
Losses (ALLL); and
• Guidelines for adequate safeguards to minimize potential environmental liability.
The above are only as guidelines for areas that should be considered during the loan policy
evaluation. Examiners should also encourage management to develop specific guidelines for
each lending department or function. As with overall lending policies, it is not the FDIC's intent
to suggest universal or standard loan policies for specific types of credit. The establishment of
these policies is the responsibility of each bank's Board and management. Therefore, the
following discussion of basic principles applicable to various types of credit will not include or
allude to acceptable ratios, levels, comparisons or terms. These matters should, however, be
addressed in each bank's lending policy, and it will be the examiner's responsibility to determine
whether the policies are realistic and being followed.
Much of the rest of this section of the Manual discusses areas that should be considered in the
bank's lending policies. Guidelines for their consideration are discussed under the appropriate
areas.
Loan Review Systems

The term loan review system refers to the responsibilities assigned to various areas such as credit
underwriting, loan administration, problem loan workout, or other areas. Responsibilities may
include assigning initial credit grades, ensuring grade changes are made when needed, or
compiling information necessary to assess ALLL.
74

The complexity and scope of a loan review system will vary based upon an institution's size, type
of operations, and management practices. Systems may include components that are independent
of the lending function, or may place some reliance on loan officers. Although smaller
institutions are not expected to maintain separate loan review departments, it is essential that all
institutions have an effective loan review system. Regardless of its complexity, an effective loan
review system is generally designed to address the following objectives:
• To promptly identify loans with well-defined credit weaknesses so that timely

action can be taken to minimize credit loss;
• To provide essential information for determining the adequacy of the ALLL;
• To identify relevant trends affecting the collectibility of the loan portfolio and
isolate potential problem areas;
• To evaluate the activities of lending personnel;
• To assess the adequacy of, and adherence to, loan policies and procedures, and to
monitor compliance with relevant laws and regulations;
• To provide the board of directors and senior management with an objective
assessment of the overall portfolio quality; and
• To provide management with information related to credit quality that can be used
for financial and regulatory reporting purposes.
Credit Grading Systems

Accurate and timely credit grading is a primary component of an effective loan review system.
Credit grading involves an assessment of credit quality, the identification of problem loans, and
the assignment of risk ratings. An effective system provides information for use in establishing
valuation allowances for specific credits and for the determination of an overall ALLL level.
Credit grading systems often place primary reliance on loan officers for identifying emerging
credit problems. However, given the importance and subjective nature of credit grading, a loan
officer's judgement regarding the assignment of a particular credit grade should generally be
subject to review. Reviews may be performed by peers, superiors, loan committee(s), or other
internal or external credit review specialists. Credit grading reviews performed by individuals
75

independent of the lending function are preferred because they can often provide a more
objective assessment of credit quality. A loan review system should, at a minimum, include the
following:
• A formal credit grading system that can be reconciled with the framework
used by Federal regulatory agencies;
• An identification of loans or loan pools that warrant special attention;
• A mechanism for reporting identified loans, and any corrective action
taken, to senior management and the board of directors; and
• Documentation of an institution's credit loss experience for various
components of the loan and lease portfolio.
Loan Review System Elements

Management should maintain a written loan review policy that is reviewed and approved at least
annually by the board of directors. Policy guidelines should include a written description of the
overall credit grading process, and establish responsibilities for the various loan review
functions. The policy should generally address the following items:
• Qualifications of loan review personnel;

• Independence of loan review personnel;
• Frequency of reviews;
• Scope of reviews;
• Depth of reviews;
• Review of findings and follow-up; and
• Workpaper and report distribution.
76

BIBLIOGRAPHY
References
1) Banking Strategy, Credit evaluation and Lending Strategies by Author(s): Hrishikesh
Bhattacharya 1998
2) Banking Theory and Practice by Author(s) K.C Shekhar and Lekshmy Shekhar 2013.
3) Http://en.wikipedia.org/wiki/Project appraisal tech
4) Http://en.wikipedia.org/wiki/NPV/Ratio/WorkingCapital
5) http://www.banknetindia.com
6) www.indianimagesbank.com/
7) www.indianbanksguide.com
8) en.wikipedia.org/wiki/List_of_banks_in_India
9) Finance.indiamart.com/investment_in_india/banks.html
10) en.wikipedia.org/wiki/Banking_in_India –
11) www.mckinsey.com/.../india/mckinseyonindia/.../india_banking_2010.
77

APPENDIX-I
Profit loss account of XY pvt ltd
Mar ' 12 Mar ' 11 Mar ' 10 Mar ' 09 Mar ' 08
Income
Operating income 43,656.71 36,870.19 33,856.54 24,946.11 17,645.29
Expenses
Material consumed 11,812.83 10,016.52 9,211.27 7,510.29 5,199.22
Manufacturing expenses 20,241.57 17,247.39 16,115.56 10,998.08 7,759.20
Personnel expenses 2,884.53 2,379.14 1,998.02 1,535.44 1,258.21
Selling expenses 350.43 306.22 312.1 320.12 200.84
Adminstrative expenses 2,526.65 1,873.59 2,102.05 1,354.37 1,197.99
Expenses capitalized -37.87 -36.25 -24.48 -11.42 -3.3
Cost of sales 37,778.14 31,786.61 29,714.52 21,706.88 15,612.16
Operating profit 5,878.57 5,083.58 4,142.02 3,239.23 2,033.13
Other recurring income 1,199.05 974.59 748.8 477.1 458.56
Adjusted PBDIT 7,077.62 6,058.17 4,890.82 3,716.33 2,491.69
Financial expenses 1,199.23 995.37 770 501.83 331.46
Depreciation 575.81 383.65 284.83 195.94 160.13
Other write offs 23.41 30.95 21.16 15.66 -
Adjusted PBT 5,279.17 4,648.20 3,814.83 3,002.90 2,000.10
Tax charges 1,858.47 1,577.02 1,176.19 982.05 601.87
Adjusted PAT 3,420.70 3,071.18 2,638.64 2,020.85 1,398.23
Non recurring items 582.23 1,347.08 863.78 139.59 1.24
Other non cash adjustments -49.05 -45.13 -21.09 12.21 -5.34
78

Reporteed net profit 3,953.88 4,373.133 3,481.333 2,172.665 1,394.13
Earnigs before
approprriation 4,061.17 4,473.633 3,585.664 2,250.889 1,449.83
Equity dividend
d 882.84 752.755 614.997 495.332 368.225
Preferennce dividend
d 0 0 0 0 0
Dividennd tax 112.82 110.255 101.883 76.226 53.34
Retainedd earnings 3,065.51 3,610.633 2,868.884 1,679.331 1,028.224
B
Balance Sheet of XY pvvt ltd
Mar '12 Mar '11 Mar '10 Mar '09 Mar '08
Sourcess Of Funds
Total Shhare Capital 121.77 120.44 117.14 58.47 56.65
Equity Share
S Capitaal 121.77 120.44 117.14 58.47 56.65
Share Application
A Money
M 368.31 25.09 0 0 0
Preferennce Share Caapital 0 0 0 0 0
Reservees 21,334.05 18,142.82 12,317.96 9,470.71 5,683.85
Revaluaation Reserves 22.13 23.29 24.59 25.9 27.93
Networtth 21,846.26 18,311.64 12,459.69 9,555.08 5,768.43
Securedd Loans 1,063.04 955.73 1,102.38 308.53 245.4
Unsecurred Loans 6,098.07 5,845.10 5,453.65 3,275.46 1,832.35
Total Debt 7,161.11 6,800.83 6,556.03 3,583.99 2,077.75
Total Liiabilities 29,007.37 25,112.47 19,015.72 13,139.07 7,846.18
79

Mar '12 Mar '11 Mar '10 Mar '09 Mar '08
Applicaation Of Fun
nds
Gross Block
B 8,897.02 7,235.78 5,575.00 4,188.91 2,876.30
Less: Accum.
Depreciiation 2,220.82 1,727.68 1,421.39 1,242.47 1,122.83
Net Bloock 6,676.20 5,508.10 4,153.61 2,946.44 1,753.47
Capital Work in Pro

ogress 785 857.66 1,040.99 699 471.22
Investm
ments 14,684.82 13,705.35 8,263.72 6,922.26 3,104.44
Inventorries 1,577.15 1,415.37 5,805.05 4,305.91 3,001.14
Sundry Debtors 12,427.61 11,163.70 10,055.52 7,365.01 5,504.64
Cash annd Bank Balaance 1,518.98 1,104.89 693.13 779.86 993.68
Total Current
C Asseets 15,523.74 13,683.96 16,553.70 12,450.78 9,499.46
Loans and
a Advancees 19,499.23 12,662.55 7,198.85 3,861.10 2,449.14
Fixed Deposits
D 211.37 326.98 82.16 184.6 100.75
Total CA
A, Loans &
Advances 35,234.34 26,673.49 23,834.71 16,496.48 12,049.35
Defferedd Credit 0 0 0 0 0
Current Liabilities 26,139.56 19,443.77 15,211.04 11,892.75 8,362.01
Provisioons 2,233.43 2,188.36 3,066.53 2,035.42 1,180.13
Total CL
C & Provissions 28,372.99 21,632.13 18,277.57 13,928.17 9,542.14
Net Currrent Assets 6,861.35 5,041.36 5,557.14 2,568.31 2,507.21
Miscellaaneous Expeenses 0 0 0.26 3.06 9.84
Total Assets 29,007.37 25,112.47 19,015.72 13,139.07 7,846.18
80

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CREDIT EVALUATION PROCESS

INDIAN OVERSEAS BANK

Submitted in partial fulfillment of the requirements

for the award of the degree

MASTER OF BUSINESS ADMINISTRATION

Under the guidance of

Dr. A.R. KRISHNAN

This is to certify that the project undergone in INDIAN OVERSEAS BANK,

Signature of the Guide Signature of the DEAN

Signature of Internal Examiner Signature External Examiner

I, SREEKUMAR.D (Register No: 3511210277), bonafide student in School of

I express my deep sense of gratitude towards my faculty guide Prof. Dr.A.R.Krishnan

Finally, I thank all the employees INDIAN OVERSEAS BANK, Venkatnarayana

1.1 INDUSTRY PROFILE 3

1.2 ORGANISATION PROFILE 12

1.3 ORGANISATION STRUCTURE 14

3.1 NEED FOR THE STUDY 22

3.2 OBJECTIVES OF THE STUDY 23

3.3 LIMITATIONS OF THE STUDY 24

5.1 TOOLS OF ANALYSIS 30

5.2 SCOPE AND SIGNIFICANCE OF STUDY 39

5.3 DATA ANALYSIS AND INTERPRETATION 40

6 RESULTS AND DISCUSSION

6.2 SIGNIFICANCE OF OBSERVATION 71

7 SUMMARY AND CONCLUSION 72

¾ A good appraisal (evaluation) justifies spending money on a project. Credit evaluation or

• Need, targeting and objectives

Growth of Banking Industry during Recent Decades

List of public sector bank

¾ At the time of Nationalization (1969)

¾ Post - nationalization era (1969-1992)

• Banking Strategy, Credit evaluation and Lending Strategies1 “Analyses lending

Focused on procedure of obtaining loan from the Bank

6. Procedure of Credit evaluation System of Co-operative Bank from Scribd.com.

Research Design Type

PROCEDURE FOR TAKING LOAN FROM BANKS:-

(b) Technical Analysis

Current ratio is calculated using the following formula:

Quick ratio is calculated using the following formula:

Cash + Marketable Securities + Receivables

Current Assets − Inventory − Prepayments

Marketable Securities 12,000

Accounts Receivable 56,200

Prepaid Insurance 9,000

Total Current Assets 111,590

Total Current Liabilities 73,780

Calculate quick ratio (acid test ratio).

Fixed Asset Turnover Ratio

Fixed Assets Turnover Ratio=

Average Fixed Assets

Net Revenue = Gross Revenue − sales returns

Opening Balance of Fixed Assets + Ending Balance of Fixed Assets

Average Fixed Assets =

Net profit ratio

Net Profit Margin =

Net Sales = Gross Sales − Sales Tax − Discounts − Sales Returns

Operating profit ratio

Operating margin ratio is calculated by the following formula:

Return on Total Asset Ratio

The formula to calculate return on assets is:

Annual Net Income

Average Total Assets

Credit evaluation of a proposal helps the firm to,