Report 205 B 20 VCB205 D 20

THE VARACHHA CO-OPRATIVE BANK LTD. SURAT.
A
STUDY
ON
Credit risk analyses of business entity
OF
(Varachha co-operative bank limited, Surat)
In partial fulfillment of the requirements for the award of the
degree of
BACHELOR OF BUSINESS
ADMINISTRATION
SUBMITTED BY:
MAHENDRA MALANI
ENROL. NO.117920592035
(M.B.A.SEM-2)
Under the guidance of

PROF.DEVANG KALE
Submitted to:
PARUL INSRITUTE OF MANAGEMENT AND RESEARCH
VADODARA
1
PARUL INSTITUTE OF MANAGEMENT AND RESEARCH - VADODARA
BANK CRTIFICATE:
2
Preface:
Banks are regarded as the blood of the nation’s economy without them one
cannot imagine economy moving. Therefore banks should be operated very
efficiently, cooperative banks although a small part of whole banking system in
India but they are very important not only from economical point of view but
also from social point of view as it is more concerned about common people’s
welfare and development.
Advance is heart and recovery is oxygen for the bank and for the bank to
survive it is necessary to give advances and recover the amount at the
appropriate time. Through credit management I have tried to cover the various
aspects like credit appraisal. NPA management, recovery management, etc. E.g.
credit management covers all the areas right from the beginning like inquiry till
the loan has been paid up.
Though credit risk analyses of business entity, a very last topic, I have tried to
incorporate to the best of my capacity from all possible aspects in this project.
I do better try that institution will appreciate this project.
3
ACKNOWLEGMENT:
I believe an ocean is filled by drops and each and every drop should count,
similarly I should count favor of all my helpers here but this not possible. So
forgive me for the same.
First of all I would like to thank to all the member of board of directors and
especially to Mr. Kanjibhai Bhalala who has given me the advice and
permission for training.
I am thankful to manager Mr.Sureshbhai kakadiya who has also given me

permission for the summer training.
I want to express my sincere obligation to all the staff member of Varachha

cooperative bank; I worked so long in a homely pleasant atmosphere.
I am thankful to Mr. Murty sir (principal of our collage) and Mr. Devang
kale for their guidance and for the arrangement of summer placement.
Last but not least my family and my friends, who is always behind me in my
work for support any time.
4
INDEX:
TOPIC PAGE NO.
BANK CERTIFICATE 2
ACKNOWLEGMENT 3
INTRODUCTION OF BANK INDUSTRIES: 7
OVERVIEW OF BANKING INDUSTRIES 8
INTRODUCTION OF VARACHHA COOPRATIVE BANK 13
HISTORY OF VCB 14
THE VCB PROVIDE BANKING SEVICE 16
VARIOUS TYPES OF DEPOSIT IN VCB 19
VARIOU TYPES OF LOANS 23
OBJECTIVE OF VCB 24
PROJECT ON CREDIT RISK MANAGEMENT 26
TYPES OF CREDIT RISK 28
CREDIT POLICY 36
RESEARCH METHODOLOGY 36
RESEARCH OBJECTIVE 37
RESEARCH DESIGN 37
DATA COLLECTION 37
BENEFIT OF STUDY 37
LIMITATION OF STUDY 37
VARIOUS LOAN AND CREDITS 37
INTEREST OF VARIOUS LOAN 37
ALL TYPES OF CREDIT 38
DATA ANALSIS AND OBJERVATION 52
LOAN SANCTIONAL IN VCB 55
CREDIT APPRAISAL 57
APPRAISAL FORMAT 59
FIANANCIAL MASUREMENT OF LOANEE 62
MACHINERY LOAN APPRAISAL FORMAT 63
OBSERVTION AND FINDINGD AND SUGGESTION 70
CREDIT MONITORING, FOLLOW UP AND REVIEW 72
5
CREDIT MONITORING SYSTEM IN VCB 73

FOLLOW UP ACTION FOR CREDIT
MONITORING IN VCB 73
OBSERVATION FINDING AND SUGGESTION 74
NON- PERFORMING ASSEST 76
MEANING OF NPA 77
IDENTIFICATION OF NPA 77
PROVISION OF NPA IN VCB 78
RECOVERY MANAGEMENT 79
PROCESS OF RECOVERY 80
LOAN RECOVERY MANAGEMENT IN VCB 82
FINDING AND OBSERVATION 82
CONCLUSION 83
BIBLIOGRAPHY 84
6
INTRODUCTION:
Current time bank is crucial part of business and it is furnished services to
connecting businessmen for urging dealing. Banking has played a very
important role in the economic development of all the nations of the world. In
fact, banking is the lifeblood of modern commerce is. So depend upon banking
that any cessation of banking activity. Even for a day or two. This completely
paralyzes the economic life of a nation.
OVERVIEW OF BANKING INDUSTRY:

The word bank has been derived from the Latin word bancus or from
banque. Which mean a bench in English? The early bankers transacted their
business at benches in a market place. When banker failed his bench was broken
up by the people. According to some authorities derived from the German word
bank was meaning a joint stock fund Italianated into banco when the German
were masters of a great part of Italy, In India, the Hilton young commission
recommended that word bank or banker should be interpreted as meaning every
person, firm or company accepting deposits of money subject to withdrawal by
cheque, draft or order.
The Indian Banking Companies Act. 1949 define a ―Banking company as

a company which transacts the business of banking in any State of India.”
In the economic development of a nation banks occupy an important

place. Banking institutions from an important part of the money market
comprises both organized as well as unorganized sectors. The unorganized
7
sector includes moneylenders and indigenous bankers and largely caters to the
needs of persons living in villages and small town. It is estimated that about one
third of the total credit requirements of the country are met by the unorganized
sector. Financial Institution in the organized sector have grown significantly in
the last institutions in the organized sector of the Indian Money Market
commercial bank and co-operative banks have been in existence for a petty long
time.
Besides the co-operative banks are Commercial banks and regional Rural
Banks. A variety of specialized financial institutions have been setup in the
country to cater to the specific needs of trade, commerce, agriculture, industry
and other activities.
In the field of agriculture’s finance and allied activities. Co-operative
credit societies and central co-operative have been in operation since long. After
nationalization in a 1969. Commercial banks also have expanded their activities
to rural areas and provide finance for agriculture and allied activities.
Thus quantitatively as well as qualitatively there banking instructions
have increased their services tremendously in recent years.
STRUCTURE OF CO- OPERATIVE BANK:
Primary Co-operative Bank
Central Co-operative Bank
State Co-operative Bank
8
 CO-OPERATIVE BANKS:
Farmers in India are scattered all over the country and need short-term
small borrowing for agricultural purpose. This need is not fulfilled by
commercial banks, which are unsuited for financing agriculture accepted as
security by commercial banks. Therefore special types of banks are necessary
for the financing of agriculture. Co-operative banks are best suitable for this
purpose. The objective of co-operative banks is to offer banking facilities to
persons of limited means requiring credit for productive purpose in the use of
the land and labor at their disposal. The co-operative banking structure in India
may be divided into their component part.
1. Primary Co-operative Banks “or” Credit Society (PCS)
The primary co-operative credit society is an association of borrows and

non-borrows residing in a particular locality. The funds of the society are
derived from the share capital and deposits of members and loans from central
co-operative banks. The borrowing power of the members as well as of the
society is fixed. The loans are given to members for the purpose of cattle, folder
fertilizer, pesticides, implements, etc.
2. Central Co-operative Banks (CCB):-
There are the federations of primary credit societies in a district and are
of two types- those having a membership of primary societies only and those
having a membership of societies as well as individuals. The funds of the bank
consist of share capital, deposits and overdrafts from state co-operative banks
and joint stocks. These banks finance member societies within the limits of the
9
borrowing capacity of societies. They also conduct all the business of a join-
stock bank.
3. State Co- Operative Banks (SCB):-
The state co-operative bank is a federation of central co-operative banks

and acts as a watchdog of the co-operative banking structure in the state. Its
funds are obtained from share capital from the Reserve Bank of India. The state
co-operative banks lend money to central co-operative banks and primary
societies and not directly to farmers. The principle one being the institution of
provincial co-operative banks to serve as apex banks in the hierarchy of co-
operative pyramid.
Role of Co-operative Banks in India and its structure:
Co-operative banking came into vogue in India in 1904 when the first Co-
operative Credit Society Act was passed. The main function of a co-operative
Credit Society was to provide cheap credit to the members who are small people
with small means and small needs and finance. Another object was to inculcate
the saving habit among the agriculturists and make them take advantage of co-
operation from fellow members of the society. We could bring green revolution
in agriculture sector only due to co-operative activities.
There is a state co-operative bank in each state co-operative as an apex
institution, advancing short term and medium term agriculture credit is three tier
one: a state co-operative bank (SCB) at an apex level in each state, the at the
district level and the primary and society (PCS) in the village, and urban banks
(UB) and other non-agricultural credit societies (NACS) in cities and towns.
The structure of co-operative banks.
10
As I discussed the co-operative societies came into existence when the

co-operative societies act, 1904 was enacted. These societies, however could
not mobilize enough resources as compared to the loans demanded by its
members. This led to the enactment a new act in 1912. The various sections of
this act are as follow:
1) To keep watch over the activities of the primary co-operative societies
and to assist them the required monetary help and they guidance district
central co-operative banks are established.
2) Establishing of non-leading societies along with the loan-giving (lending)
societies.
3) The difference between the village societies and urban societies is
removed and the type of societies maintain are only of two types.
(i) Societies having limited responsibility.
(ii) Societies having unlimited responsibilities.
In 1919, the Nontague Chemsford Act made co-operative societies and banks
co-operative society acts have been passed by all the state government.
From April 11966 the co-operative banks came under the preview of
banking lagh a paid up capital of Rs. 1 lakh or more have come under the
control of Reserve Bank of India. From above discussion, we see that the
co-operative banks in India have shown very good progress since their
establishment but in spite of showing very much progress there still exists
a number of defects in such co-operative societies and banks. This has led
qualitative improvement to suffer.
11
HISTORY:
The Varachha Co-operative Bank submitted the application for beginning
of the bank and also registered to the Surat District Registration Department on
27th January, 1995 with registered no SA2914 and the registered office of the
bank is at Affil Tower, Lambe Hanuman Road, Surat-395006. Within the period
of five-month obtaining license from Reserve Bank of India, on 1 st July, 1995
with license number as UBD Guj1153 P after finishing has started it’s working
on dated 16th August 1995. By gliting of lamp with inauguration of the bank
was done by the Swami Sachidanand.
Board of Director:
Shree P.B.Dhakesha (FOUNDER CHAIRMEN)
Shree Kanjibhai bhalala (CHAIRMEN)
Shree Prabhudas T. Patel (VICE CHAIRMEN)
Shree Lavjibhai M Nakrani (DIRECTOR)
Shree Kanjibhai R. Vadariya (DIRECTOR)
Shree Vallabhbhai P. Savani (DIRECTOR)
Shree Jivarajbhai K. Patel (DIRECTOR)
Shree Babubhai V. Mangukiya (DIRECTOR)
Shree G.R.Aashodariya (DIRECTOR)
Shree Vimalaben R. Vaghani (DIRECTOR)
Shree Smrutiben L. Dobariya (DIRECTOR)
12
A.D.Bhalani GENERAL MANAGER

V.B.Dhanani ASST.GENERAL
MANAGER
S.D.Kakadiya ASST.GENERAL
MANAGER
P.D.Kelavala ASST.GENERAL
MANAGER
D.S.Bhuva BRANCH MANAGER
T.P.Vora CREDIT MANAGER
S.M.Chhaniyora EDP MANAGER
13
CHAIRMEN
P.B. Dhakecha
VICE CHAIRMEN
Bhupendrabhai K. Ribadiya
MANAGING DIRECTOR
Bhavanbhai B. Navapara
BOARD OF DIRECTOR
GENERAL MANAGER
A.D.Bhalani
Branch Manager Katargam

Ring Road Branch Girishbhai Punagam
Branch Mukeshbhai
patel Branch B.J.
Malviya Sachin Branch
A.D Bhalani Sovatiya S.L. Bhut
Kamrej Branch Kaniyalal Dobriya Kadodara Branch Ahmedabad Branch Arvindbhai patel
Kapodra
D.B. Sorathiya
Branch
B.C. Sorthiya
14
DEVELOPMENT:-
The development of The Varachha Co- Operative Bank was continuously

increasing after two and half year from establishing of Head Office. We can
know more above bank from given a table of Branch establishment. The
Varachha Co- Operative Bank was not need take loan from government sector
and other. For Developing and Vested it’s branch so progress table as under.
Branch Address Date
Pancham shoping moll, Near Jivan

Ahmedabad 1-4-2012
vadi, Nikol gam road, Ahmedabad.
R-16 square, jaldhara chok, valiya

23-6-2012
Ankleshvar road, Ankleshvar
Amazing development of bank. To achieve in year 2000-2001. Because

period of one year. The Varachha Co-operative bank was set up the three
Braches within the short time to it’s evident to rapid development of the
Varachha Co-operative Bank.
TH VARACHHA CO-OPERATIVE BANK

ESPECIALLY BANKING SERVICES:
1. Tele-Banking Cum Fax Services:
By using tele-baking services, customer can take information about

personal account ledger (PLA) and it’s transaction. And bye using fax services.
Customer can take statement of last fifteen day on fax services.
15
2. Vat Machine:
“Visual Account Teller Machine” i.e. called VAT Machine. Customer

can see his statement, balance sheet, and other information by just entering his
account number and PIN number and this facility is very popular in customers.
3. M.I.C.R. Cheque.
“Magnetic Ink Character Recognition” that is known as M.I.C.R. This

crucial technology is also adopted by The Varachha Co-Operative Bank for
rapidly work with a view to speeding up the Cheque clearing process both local
as well as intercity, under this system; the Cheque are processed at high. Speed
on machines. Bank issue Cheque, draft and other payment instrument in
M.I.C.R. Format using the special quality paper and printing specifications. On
M.I.C.R. instrument there is code line at the bottom containing information
printed in magnetic ink, which is required for mechanical processing. The code
line contains the following information.
 First six number indicate the Cheque number
 Next three number indicate city code
 Next three number indicate bank code
 Next three number indicate branch code
 After some space three is the number for transaction code
M. I. C. R. cheque should not be a folded pin, staples, etc. should only be
used on top left hand corner of the Cheque. Signature of the drawer, rubber
stamp, etc. should be affixed above the code line. Nothing should be written on
the code line. In place of the counterfoils M.I. C. R. chequebooks provide for
Record Slip. At the ends, which are used for recording the details of every
cheque, issued.
16
4. Teller Payment Service:
Cashier furnishes this service if amount is not exceeding of 20,000 in

Current Account and 10,000 in Saving Account so customer can draw directly
through this service.
5. Other services:
a) Senior citizen
For senior citizen Bank gives half percent more in Fixed Deposit to them
whose age is above 60 years
b) Full Day Banking Services:

Monday to Friday 10:00 a.m. to 6:00
p.m. Saturday 10:00 a.m. to 2:00
p.m.
c) Safe Deposit Vault services:
Just open in Branch
 Kapodara Branch
 Katargam Branch
 Kamrej Branch
d) N.R.I. (Non Resident in India)
N.R.I. individual can open his account in The Varachha Co-operative
Bank because The Varachha Co-operative Bank is granted through Reserve
Bank of India
17
VARIOUS TYPES OF DEPOSIT ACCOUNTS IN VARACHHA

BANK:-
 Bank Account:
The bank accepted deposits from the public and offers facilitates to the
public according to their requirements and economic status. Though bank
accepts deposits as a fund-raising device. Its primary aim is to serve the society
as financial institution and lend its might to strengthen the capital market.
Keeping all these in video a bank usually offers three types of accounts in which
it accepts deposits.
1) Fixed Time Deposit Account
2) Saving Deposit Account
3) Current Account
Details in Deposit Accounts:
1) Fixed Time Deposit Account:-
Fixed deposit accounts are made with the bank for a fixed period which is
specified at the time of making the deposit. This account attracts those
customers who have money to invest for a longer period but do not want to take
much of risk.
The interest rate varies from one period to another. A deposit of 15 days
attracts a smaller rate of interest and deposits for 5 or more years the highest
rate.
Fixed deposit accounts are usually opened by the following kinds people.
18
1) Middle Income People.

2) Religious Societies
3) Trustee
4) Educational Institutions
5) Others who want to invest but at no risk at all.
2) Saving Deposit Account:-
The banks with a view to developing the people’s habit of savings the
bank accept saving deposits. Normally people having fixed income belonging to
middle class, deposit their savings in their accounts and the banks provide them
facilities so that they may earn interest.
Saving account open with minimum amount is Rs.1000 and the interest
rate is 3.5%.
3) Current Account:-
Current accounts are also known as demand deposit accounts current

account is running an active account which may be operated upon any number
of times during a working day. There is no restriction on the number and the
amount of withdrawals from a current account. Current account deposit is
known as banker’s demand liability and in order to fulfill its liabilities he keeps
sufficient cash ready every moment.
 Function of Current Account
 Individual Account
 Proprietary Account
 Private account
 Hindu Undivided Family (HUF)
19
To encourage saving habits in general public and mobilize savings in the

country for her development plans. So the bank offering.
(i) Recurring Deposit Accounts:
The recurring deposit account has gained wide popularity these days.
Under this the depositor is required to deposit a fixed amount of money every
month for specific period of time. Each installment may vary from Rs.5 to
Rs.500 or more per month and the total period of account varies from 12
months to 10 years. After completion of the specified period, the customer gets
back all his deposits along with the cumulative interest occurred on them.
This type of accept is very popular amongst the salary people since it
provides them an opportunity to raise the enough funds. So that they can utilize
it in the purchase of some useful household good, the purchase of which
otherwise it impossible.
20
MANAGEMENT TOWARDS PROVISION FOR PROFIT

DISTRIBUTION
 Net Profit
Deducted Provision
Reserve Fund 25 %
Share Dividend 15 %
Dividend Equalization Fund 02 %
Education Fund -
Building Fund -
Total -
Distribution Profit = DP
Rest Profit = Net profit – (DP)
 Rest Profit
Deduction as per sub-
rule:
Accident annual fund 5%
Other activity fund 20 %
Donation fund 10 %
Rebate Interest Fund 20 %
Jubilee Festival Fund 10 %
Staff Benefit Fund 10 %
Member welfare Fund 20 %
Co-operative Propaganda 05 %
Fund
Total 100 %
21
BANKERS:-
Bankers Location
I.D.B.I BANK Surat
AXIES BANK Surat
STATE BANK OF INDIA – Chawlk Bazar – Surat
Nanpura
BANK OF BARODA Surat
TAMILNADU MERCENTILE BANK Surat
KOTAK MAHINDRA BANK Surat
YES BANK Surat
H.D.F.C. Bank Ltd. Surat
I.C.I.C.I. Bank Ltd. Surat
BANK PROVIDES VARIOUS TYPES OF LOANS:
1) Mortgage Loan
2) Consumer Loan
3) Vehicle Loan
4) Cash Credit Loan
5) Machinery Loan
6) Term Loan
7) Self-employee Loan
8) Loan on National Saving Certificate
9) TUF Loan (Textile Up gradation Fund )
10) Gold Loan
11) Housing Loan
22
OBJECTIVE OF THE VARACHHA CO-OPERATIVE BANK
 To encourage thrift and mutual Co-operating among its members.
 To create funds to be lend at moderate of interest to the members of the bank

in accordance with the processor specified in these byelaws
 To undertake the management of trust and for that to accept any office of
trustee, executors or office to perform duties of such a confidence nature
either independently or jointly with some other person as the board deems
fit.
 To undertake every kind of banking and sheriff business and also to

undertake giving bank guarantee and letter of credit on behalf of members.
 To do every kind of trust and agency business and particularly do the work
investment of funds, sale of properties and of recovery or acceptance of
money.
 To give possible help and necessary guidance to traders, artisans etc. who
are members of this bank in the conduct of their business.
23
PROGRESS OF THE VARACHHA BANK:
(Rows 2to 6 are in Crores)

No Contents 03/07 3/08 3/09 3/10 3/11 3/12
No. of
1. Share 10717 11569 12669 13566 17192 18837
Holders
Share
2. 4.31 4.63 5.24 5.91 7.29 7.90
Capital
Total
3. 162.9 168.3 171.6 224.2 273.9 289.7
Deposit
Total
4. 73.26 80.23 92.3 94.89 115.88 155.88
Loans
5. Net Profit 1.51 2.81 3.02 3.15 4.05 5.06
Working
6. 208.3 221.2 226.9 320.4 347.1 374.31
Capital
No. of
7. 95783 99907 105674 115528 121922 132277
Depositor
No. Of
8. Loan 6534 8999 9215 7739 6593 7972
accepter
9. Dividend 12% 12% 12% 12% 15% 15%
24
25
Basic information about topic:
Credit risk refers to the risk that a borrower will default on any type of debt by
failing to make payments which it is obligated to do. The risk is primarily that
of the lender and includes lost principal and interest, disruption to cash flows,
and increased collection costs. The loss may be complete or partial and can arise
in a number of circumstances. For example:
 A consumer may fail to make a payment due on a mortgage loan, credit

card, line of credit, or other loan
 A company is unable to repay amounts secured by a fixed or floating
charge over the assets of the company
 A business or consumer does not pay a trade invoice when due
 A business does not pay an employee's earned wages when due
 A business or government bond issuer does not make a payment on a
coupon or principal payment when due
 An insolvent insurance company does not pay a policy obligation
 An insolvent bank won't return funds to a depositor
 A government grants bankruptcy protection to an insolvent consumer or
business
To reduce the lender's credit risk, the lender may perform a credit check on the
prospective borrower, may require the borrower to take out appropriate
insurance, such as mortgage insurance or seek security or guarantees of third
parties, besides other possible strategies. In general, the higher the risk, the
higher will be the interest rate that the debtor will be asked to pay on the debt.
26
Types of credit risk
Credit risk can be classified in the following way:
 Credit default risk - The risk of loss arising from a debtor being unlikely
to pay its loan obligations in full or the debtor is more than 90 days past
due on any material credit obligation; default risk may impact all credit-
sensitive transactions, including loans, securities and derivatives.
 Concentration risk - The risk associated with any single exposure or
group of exposures with the potential to produce large enough losses to
threaten a bank's core operations. It may arise in the form of single name
concentration or industry concentration.
 Country risk - The risk of loss arising from sovereign state freezing
foreign currency payments (transfer/conversion risk) or when it defaults
on its obligations (sovereign risk).
27
Forms of credit/ advances:
1) Loan (term)
2) Cash credit and overdrafts
3) Purchase/ discounting of bills
4) Bank guarantee
Loan or term loan:
In case of a loan a specified amount is sanctioned by the banker to the customer,

who may either draw the amount in case immediately or may like the amount to
be credit to his current account. But legally it is presumed that he has withdrawn
the amount from the bank and deposited it in his current account. He is required
to pay interest on the full amount from the date of sanction. A loan may be
repayable in installments or in lump sum.
Cash credit:
A 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
customer is required to provide tangible assets as security to cover the amount
borrowed from the banker. The borrower is charged interest on the actual
amount utilized by borrower and for the period actually utilized only.
Overdrafts:
Overdraw" redirects here. For overdraw in computer graphics, for overdraw in

harmonica playing, see Overblowing. For the term in hydrology,
28
An overdraft occurs when money is withdrawn from a bank account and the
available balance goes below zero. In this situation the account is said to be
"overdrawn". If there is a prior agreement with the account provider for an
overdraft, and the amount overdrawn is within the authorized overdraft limit,
then interest is normally charged at the agreed rate. If the negative balance
exceeds the agreed terms, then additional fees may be charged and higher
interest rates may apply. Interest is charged on the exact amount overdrawn by
the customer and for the period of its actual utilization.
Bills discount:
In case of bills discounting, a bank credit the amount of the bill to the drawer’s
account before the realization of the bill and thus lends its funds to him after
deduction his charges. The bills purchased and bills discounted by a bank are,
therefore, shown in its balance sheet as part of loans and advances. in case of
bill maturing after a period of time maximum for 180 day in RNSB, the banker
retains the bill for that period and realizes the amount of bill from the drawer on
its due date. This practice is called discounting of the bill.
Bills purchase:
The banker credits customer’s account with the amount of the bill after
deduction his changes. As the demand bills are repayable on demand and there
is no maturity, the banker is entitled to demand their payment immediately on
presentation before of drawer. Their practice adopted in the case of demand bills
is known as purchase of bills.
Bank guarantee: It is a contract to perform the promise or discharge the

liability of third persons in case of his default. In case of guarantee, bank is
taking responsibility to pay the amount to seller if buyer will not pay amount in
time.
29
30
Literature review outlines:
Risk management in banks attracted several researchers worldwide with

different arguments, this section briefly review arguments as follows:
Ariffin (2009):
He investigated the risk management techniques of twenty eight banks through
examining the perception of senior banker toward risk. This study covers 14
countries using a questionnaire and the result reveled that, banks are typically
exposed to the same types of risk in conventional bank with different levels of
the risk.
Khan and Ahmed (2001):
They investigate risk management practices in 17 Islamic financial institutions
across 10 countries. Data has been collected using questionnaire and field level
interview. The result revealed that, the most significant factor in risk
management is rate of return risk as the general from murbaha contract cannot
be hedged through conventional banking tools like interest rate swap and other
derivatives tools which obstruct risk management in Islamic financial
institution.
Santomero (1996):
He argued that all financial institution facing three types of risk:
1) Risk that cans be eliminated or avoided by simple business practices.
2) Risk that can be transferred to other participants, and
3) Risk that must be actively managed at the firm level.
Oldfield and santomero (1997):
They suggest four steps for risk management system as follows:
1) Standard and reports,
2) Position limits or rules,
3) Investment guidelines or strategies, and
31
General eligibility criteria for credit in VCB:
 As per the rules of co-operative, anyone who wants to avail finance

has to become a member.
 As a shareholder of the bank, he/she have to make compulsory
deposit of Rs 25000 or the payment of deposit as per rules and
regulations of the bank and thereafter, he/she can submit the
application for loan. In all the practice with the bank, you are
known by bank through your compulsory deposited number.
 The application will have to be submitted in the prescribed form,
where all details and particular will have to be furnished as
demanded in the form. He/she has to submit further particulars as
may be asked by the bank.
 The loanee will be advanced loan against the security and he/she
has to submit 1 or 2 guarantors, who will be the recognized
member and accepted to the bank and who must be shareholders of
the bank in case of housing and machinery loan.
 The interest will be calculated on day to day basis.
 Taking in view the total amount of loans taken for different
purpose by the firm or individuals, the interest will be calculated at
the same rate on the entire advance.
 It will be necessary to make payment of share deposited or loan
deposit at the rate of 2.5% of the sanction in case of secured loan
and 5% of sanctioned loan or in case of unsecured loan. The
minimum share deposited accepted of Rs.25000 and additional
deposit over Rs.25000 will be accepted as loan deposit.
 The rate of interest on share deposit is 8.5% and that on loan
deposit is different rate.
32
 The company, who wants to take loan from bank, has to get its
name registration for the said loan purpose with the registrar of
companies and has to submit the documents of registration charge
to the bank.
 Sometime a property which given in mortgage by borrower is
already put before the bank in case of loan as a security at that time
equitable mortgage is already done by party so there is no need of
equitable mortgage again but th equitable extension is only needed.
 In case of immovable property or new purchase of machinery,
equipment, etc. insurance of same amount and in case of old
machinery, goods stock, etc. Twice of the price insurance is
needed. In case of education loan, the life insurance of student is
required.
 Margin money means gap between purchase value and bank
finance. Bank always does payment directly to the seller. So loanee
has to deposit the margin money in the bank.
Scrutiny of credit:
While scrutinizing an application from the bank takes into

consideration safety, liquidity, purpose profitability, security and
spread of advance.
Safety
Bank has to see that the prospective borrower is a reliable user of

the finance and bank’s money is safe in his hands.
33
Liquidity
Bank has to find out that the borrower is quite capable in repaying
the finance within reasonable period.
Purpose
The purpose for the finance should not be illegal. It should be

creative, service oriented. Development oriented and like bank
should check end use of funds.
Profitability
If the prefect or the purpose of the finance is not profitable in the

hands of the borrower than he will not be in a position of repaying
the amount to bank. It should be profitable enough to generate the
income to satisfy his needs and bank’s dues.
Security
The bank has to take into consideration the character, capacity and
capital of the prospective borrower. Bigger advances and cash
credit are to be secured with collateral security over and above
prime security.
Spread of advances
For having balanced economy the bank should choose to spread the
finance amongst various sectors of the society, so that the risk of
incoming bad advances is minimized. Concentration on one type of
advances may turn into bad advances if the scheme becomes
ineffective due to some natural calamities or government rules or
change in taste or demands of the society, by and large.
34
35
Compararision of loan data and risk schemes at Varachha:
1) RESEARCH PROBLEM:
Study on credit risk analyses and how to recover of loan and other risk amount of Varachha
cooperative bank ltd.
2) RESEARCH OBJECTIVE:
To study the performance of loan of Varachha bank ltd.
To study which are necessary document required for loan and which is the process of
loan. To find out which bank is functioning well in providing loans.
VARIABLE UNDER STUDY:

a) Interest rate
b) Document
c) Repayable
d) Rebate
3) RESEARCH DESIGN:
Here descriptive research design is opted. In descriptive research, the cross sectional research
design is selected because the sample taken out of the population is analyzed only once at a
particular time interval. The data of Varachha bank about the loans which has given to the
customers for 2 year will be analyzed.
4) POPULATION:
The population consists of the banks and their branches situated in Surat city.
5) SAMPLING:
Frame:
All cooperative bank and their branches situated in Surat city.
36
Technique:
To take sample, judgment method is used and compares the data of loan rate and rate and
non-performing assets of bank.
Samples:
The data of loan schemes of VCB for last two year has been used.
6) DATA COLLECTION:
Types of data:
All the data required to carry out the research will be obtained through secondary resources.
So this research is purely based on secondary data and there is no use of primary data.
Instruments used:
Annual reports
Internet
Newspapers
8) SCOPE OF FUTURE STUDY:

In this project, only comparison between Varachha bank is considered for the analyses.
Further study can also be done by considering other cooperative bank. As the analysis is
based on 2 years i.e. from 2010 to2011, it can also be done by longitudinal research for the
analysis.
9) BENEFITS OF STUDY:
Research has always some benefits in some sense to some body. This study has helped the
researcher as well as can benefits others too like investors, students.
Benefits to researcher:
 It may help in getting practical knowledge of banking system
 It may help to understand which bank is performing well in sanctioning of loan.
 It may help the researcher to learn how to conduct researcher and how prepare
a report.
37
 It also helps to learn how to apply the theoretical concept in practice. It prepares for
the future and gave a lot of exposure.
Benefits to others:
 It may help the customers in taking decisions while taking loans which bank is
better in giving loans and recover the amount of which bank is better.
 To student for reference in their study.
10) LIMITATION OF RESEARCH:

Every project has its own limitation. As every study has some benefits, limitations is not
exemption to the study:
 Findings and analysis is relevant only for the given period of time and its usefulness
change with time.
 The time period for the analyses is not sufficient for detailed analysis this may be
limitation for the study.
 Due to lack of experience on researcher’s side there is an element of error.
 Effects of various political, legal and other macro environment factors are ignored.
 The limitation of tools used in the project is also the limitation of report.
38
Interest rate on various advances:
Particulars Interest Interest rebate

Vehicle loan
Two wheeler 13% 1%
Four wheeler 13% 1%

Surety loan, home 12% 1%
appliances
Gold loan
Up to 1,00,000 11% _
1,00,000 to 5,00,000 12% 1%

Land and building 14% 1%
Staff surety loan 11%
loan against fixed More than 2% of
deposit F.D
cash credit 13% _
Self-employed loan 12% 1%
Machinery loan 14% 1%
Consumer loan 14% 1%
Term loan 14% 1%
Mortgage loan 15% 1%
39
Types of credit:
1) Surety loan
2) Machinery loan
3) Cash credit loan
4) Vehicle loan
5) Gold loan
6) Bankable loan
7) Over draft
8) Fixed deposit loan
9) Bills purchase loan
10) Bank guarantee
Different types of staff loans
1) Staff surety loan

2) Staff vehicle loan
3) Staff domestic appliances loan
4) Staff housing loan
40
Explanation of all types of credit:
Surety loan:
Purpose Personal use
Limit 500000
Rate of interest 14%
Period 50 months
Security Personal guarantee of two members
of the bank.
Documents Loan applies form, letter of
guarantee, DP notes and letter of
sanction.
Submit paper In case of service person pay sleep,
in case of business person last yearly
business report.
Other term:
When person will take loan that time put the 25% fixed deposit of loan amount.
If the death of the loanee under the surety loan occurs, in the said
circumstances, in remaining loan in his account will be credited from this
account under his loan account and an amount as assistance will be paid to the
heirs of the loanee immediately from this fund.
The confirmed government employee can be granted a loan on acceptance letter
taken from his employer to the effect that they will deduct the installment from
his salary every month regularly and remit the same of bank.
Machinery loan:
Purpose For purchasing new
machineries/furniture for business
41
purpose.
Limit As per requirement
Period In normal 50 months
Security 1) Existing old machineries
2) Equitable mortgage of land
and building
3) Guarantee of two members of
the bank as guarantors
Documents Loan application form, letter of
guarantee, DP notes, hypothecation
of machineries old/new, insurance
policy, letter of sanction.
Submit paper Last three year business report, shop
act license, SSI license, elec.
Connection proof, IT return.
If applicant is a partnership firm
Partnership deed copy, reg., of firm.
If applicant is a limited company
Resolution of getting loan,
memorandum of association, articles
of association. Letter of assurance
for registration in reg. of companies.
Other term:
The payment of this kind of loan is given to the seller directly by bank. In case
of mortgage of old security the insurance of the double amount of old security
and about new security, the insurance of the value of purchase price is
required
42
to the taken out from the insurance company recognized by bank and the said
insurance policy is required to be recognized to be assigned in favor of the bank.
Vehicle loan:
Purpose Purchase of new two wheeler or four
wheeler
Limit No limit
Margin 25% F.D. of amount
Period 36 month
Rate of interest 13% (rebate: 1%)
Security Hypothecation of the vehicle, two
guarantor’s as a collateral security
immovable property of loanee or
guarantor.
Documents Copy of registration of vehicle in
RTO in particular city, higher
purchase agreement in favor of bank,
loan application form, vehicle
dealer’s guarantee letter, letter of
sanction, insurance policy, equitable
mortgage or extension of property.
Submit paper In case of service person pay sleep,

in case of business person last yearly
business report, IT return, quotation
of vehicle
Other term:
43
It is necessary to take full comprehensive insurance for the vehicle, for which
the higher purchase agreement is done in favor of the bank. The above
insurance will have to be taken from the insurance company recognized by bank
and will have assign in favor of the bank.
Bank shall make direct payment to the dealer/seller.
Gold loan:
Limit 500000
Period 1 year but renew at every year.
Rate of interest Up to 100000----11%
100000 to 500000-------12%
Security Gold silver ornaments or items on re-
pledge
Documents Loan application form, DP note
Submit paper In case of service person pay sleep
and residency proof.
Other terms:
This kind of loan is given on the re-pledge of ornaments or items of silver. This
kind of loan is not available to the merchants of gold- silver for the purpose of
buying selling.
The purity of the ornaments or items of gold, which is given on re-pledge, be
minimum 24 carets.
In limit 10 grams for men 14000 and women 15000.
Bankable loan:
Purpose To assist the small scale industry
44
Limit 500000
Margin 25%
Period 40 months
Security As a collateral security house
property of loanee or guarantor or
fixed deposits or national saving
certificates as a mortgage 70% of
sectioned loan, guarantee of two
guarantors.
Documents Equitable mortgage of property, loan
application form, letter of guarantee,
DP note, letter of sanction, insurance
policy.
Submit paper Shop act license, SSI license, elec.
Connection proof, rent receipt,
project report.
Other term:
This loan is sectional on the recommendation of district industrial center after
security and taking in view the value of security given against loan and
particular of guarantor. Amount of subsidy given and sanctioned to the
application is credit in his loan account.
The payment except amount, which is sanctioned against working capital, of
this loan is made directly to the party who has given the quotation.
45
Over draft:
Purpose T fulfill the need of working capital
of business
Margin 25%
Period Up to 1 year and if required then
renew every year
Security Hypothecation of goods stock and
equitable mortgage of property
guarantee of two guarantors
Documents Overdraft application form, letter of
guarantee, equitable mortgage of
property, DP note, letter of
continuity, letter of sanction,
insurance policy
Submit paper Last 3 year business report, rent
receipt, IT return, shop act license
Cash credit:
purpose To meet the need of working capital
business unit
Limit 70% of stock of goods which are
maintained in stock statement
Margin 30%
Period 12 month
Security a) As a prime security
46
hypothecation of goods stock.

b) As a collateral security
machinery, furniture
equipment, fixed deposit,
national saving certificate,
equitable mortgage of
immovable property.
c) Guarantee of two guarantors.
Document Cash credit application form,
agreement letter, equitable mortgage
of property, letter of sanction, letter
of continuity, DP note,
hypothecation of goods, insurance
policy.
Other term:
Loanee has to submit the stock statement to the bank every month regularly.
Loanee has to submit the copy of income tax return or income tax assessment
order every year.
In the cash credit account facility, the turnover will to be done their of the
sectional facility within 6 month and the same will have to be done five time of
the sectioned facility within one year.
As per the norms of the reser bank of India, a borrower cannot operate two cash
credit account at time with two different banks.
47
Fixed deposit loan:

Purpose To grant loan/overdraft to an
individual or a firm against F.D.R.
LIMIT 75% of F.D.R
Margin 50% or less
Period Till due date of F.D.R
Rate of interest 2% more than F.D.R
Security Duly discharge F.D.R
Document DP note, duly discharge F.D.R, form
of application
Other term Lien should be noted in the FDR
account and on the back of the FDR
duly discharged
Bills purchase:
Purpose To assist the customer for their short
term need of working capital
Limit As per required by applicant
Period 90 day maximum
Charges As per expenses
Documents DP note. Letter of guarantee, letter of
continuity, agreement letter
48
Different types of staff loans:

Staff surety loan:
Limit 100000
Rate of interest 6%
Security Personal guarantee of two staff
members of the bank
Documents Application form, letter of sanction,
DP note, letter of guarantee
Staff vehicle loan:

Purpose To purchase a new two/four wheeler
for personal use
Rate of interest 6%
Security Hypothecation of vehicle to be
purchased
Documents DP note, letter of guarantee,
hypothecation of vehicle, insurance
policy
Staff housing loan:

purpose To construct/purchase residential
building
Limit  For officer and other upper
cadre: Rs.1200000
 For clerk: Rs.800000
 For peon and other: Rs.400000
49
Period 20 years
Rate of interest 6.75%
Security Equitable mortgage of property, two
staff members guarantee
Documents DP note, letter of guarantee, letter of
sanction, insurance policy, equitable
mortgage of property
BENEFITS OF THE STUDY:
 It provides the knowledge how these banks manage its credit risk
and keeps them within tolerance level as per the RBI norms.
 It helped to know what strategies these banks adopt to reduce its
risk when the bank feels that recovery is impossible.
 It gives the knowledge about the reasons for the rising credit risk in co-
operative sector bank.
50
Data analysis and observation and suggestions:

Though Varachha bank provides me good support and guidance for
effective project work, yet as a student of management and at a neutral position
I would like to suggest to Varachha bank for effective banking operation and
take off high growth.
Presence of loan policy:

In the VCB before eight year there was not proper policy for loan, but separate
circular for each loan. But at present VCB have its own loan policy and criteria
to sensor the loan. Coincidently, RBI also declared in near, each and every bank
should bank should have its own loan policy. This is the point, which is striking
us the foresightedness of the bank management and also loan manager of that
time.
Varachha bank should be more customers segmented by providing better

services immediately, so customer can save their time and satisfied by bank.
second thing is that bank should make reliable and necessary documents for
opening account, it should be not strict the amount of deposits in comparison of
other co-operative bank is high, so it should be low as suitable to customer
Bank not should but must start modern service for standing with competitor like
ATM, credit card, debit card internet banking etc.
Loan policy cover:

Delegation of lending power, method for assessment of working capital, rating
of borrowers, loan pricing
Delegation of lending power:
51
In the past time. VCB had given delegation of lending power to its selected
branch office but at present RBI hurdle against this, by effect of it, VCB cancel
all the delegation power of its branch office and burden of the head office given
in written in language of suggestion that what should be the decision? And head
office only complete fulfills the legal of formality to sanction the loan. However
it takes more time for sanctioning loan but by the practical approach bank can
solve this difficulty.
Loan pricing:
VCB always give more interest on deposit than other bank in Surat district to
attract the market, effects the loan pricing. So loan rate of VCB is higher.
Though VCB get customer because of its services, its speedy process, practical
approach and its reliability in market. But here one possible is also that the
payer of higher interest is sometime reason for future loss or burden on bank. So
try to get deposit at lower rate to reduce the loan pricing. It is also fact in this
critical situation of cooperative bank. It is very hard to get deposits from the
market but if bank management tries to create trust in public, here one more
benefit is that the depositor and the borrower is the shareholder of the bank or
say owner of the bank. So it is less hard than other types of bank to create trust.
Monitoring of unduly large exposure to an individual or a group:

To stop the unduly large exposure to an individual or a group in VCB loan staff
monitors and draw attention of higher authority.
Reporting format:
Reporting format for excess utilization of lending process by branch manager is
now not needed because as per the new guidelines of the RBI, branch of
cooperative bank has no power to sanction loan.
Credit rating of loans:

52
AAA:
CASH CREDIT ACCOUNT:
In the account, interest is paid regularly; it is paid to the end of every quarter
within 10 days.
Stock statement is received regularly.
Overdraft is paid regularly with its interest.
Every document is getting regularly for review and renew of account.
Term loan:
In the account interest and installments are paid regularly.
Notice is not given on account for any reason.
AA:
Cash credit account:
In the account which interest is paid regularly; it is paid at the end of the year
quarter maximum 30 days.
Stock statement is received regularly
Overdraft is paid regularly with its interest.
Term loans:
Maximum two installments are due but at the end of the year i.e. on 31st march,
there is no due installment:
Amount of loan sanction Interest concession
Up to 2500000 1%
2500001 to 5000000 1.5%
Above 5000000 2%
53
LOAN SANCTIONED BY VARACHHA CO-OPERATIVE BANK IN

YEAR 2010-11 & 2011-12:
(Rs. in Lacs)
Sr. Types of 2010-11 2011-12
No Loan Amount Percentage Amount Percentage
1 Term Loan 278.12 2.408799584 238.62 1.535272
2 Vehicle Loan 2813.5 24.36774641 4156.78 26.74457
3 CC/OD Loan 1940.5 16.8066863 2573.65 16.55877
Machinery
4 4520.3 4748.1
Loan 39.1503551 30.5491
5 FD Loan 104.65 0.906374502 90.87 0.584654
6 NSC Loan 5.32 0.046076563 4.03 0.025929
Govt.
7 Sponsored 0 0 10.06 0.064726
Scheme Loan
8 Gold Loan 1204.8 10.43478261 2394.70 15.40741
Self-
9 35.66 132.42
employed 0.30885155 0.851985
10 Staff Loan 143.42 1.242161788 160.21 1.030785
Housing
11 252.22 619.41
Loan 2.184479473 3.985261
Personal
12 242.60 410.74
Loan 2.101160575 2.642686
Mortgage
13 4.96 2.93
Loan 0.0429586 0.018852
54
Interpretation in graph:
5000
4500
4000
3500
3000
2500
2000
1500 2010/11
1000 2011/12
500
0
55
56
Appraisal format
Primary information:
Name of the unit:
Date of establishment of business:
Types of business:
Date of starting of dealing with bank:
Address and telephone no.: office Godown factory
Structure of unit:
Proprietorship firm/ partnership firm/ private limited/ public limited
Name of the proprietor/ partners/ directors with compulsory deposit number
Information related to guarantors:
57
Name of guarantors:
Compulsory deposit number:
Business name:
Annual income:
Land building property:
Information about prevalent loan:
Information about prevalent facility provided by VCB:
Types of facility:
Amount granted:
Due date:
Present balance:
Any other loan a/c in VCB:
About present cash credit
facility:
Credit turnover of last year:

58
Amount of cash credit:
59
Amount of cash credit with overdraft:
Previous year stock:
Present stock and date:
Measurement Ideal Performance

Credit balance 1:1
compare with sale
To pay off of regular

overdraft/ excess
Submission of stock regular

statement monthly
interest payoff
Equated monthly regular

installments on loan
Account overdue( yes --------

or no)
Similarly in stock 10 to 15% difference
60
Information of collateral security:
Immovable property:
Name of owner and designation of him:
Address of property:
Land in square yard:
Construction in square feet:
Estimated price of property:
Other liability on it, mention it.
Machinery/ furniture/ equipment etc.
Amount of property:
Security coverage:
Estimated value of collateral security:
Minus other liability on same property:
Plus other collateral security:
Total collateral security:

61
Amount of demand/ prevalent facility:
*security coverage: total collateral security/total facility)*100
*accepted measure 50%
Financial measurement of loanee:
Financial measurement More/less (compare with last

year)
Sales
Closing stock
Gross profit
Net profit
Borrowings from relatives
Net worth
(capital + reserve - proprietor /

partners directors debt)
Financial measurement More/ less (compare with ideal)
62
Current ratio: (current assets/

current liabilities)
Ideal 1.25/ 1 (minimum)
Debt equity ratio: (total debt/*total

equity)* borrowings from
relatives are included
Ideal 3/1 (maximum)
Format of balance sheet:
Capital and liability Property assets

Current liability: Current assets:
Bank loan CC/OD Stock
Outstanding expenses Debtors
Creditors of goods Stores

Other
Cash on hands
Bank balance
Prepaid expenses
63
Advances
Others
Total (a) Total (a)
Medium/long term liability Fixed assets:
Bank loan Land and building
Finance corp. loan Machineries
Other debts Furniture
Rnsb term loan Vehicle
Borrowing from relatives Other investments
Others
Total (b) Total (b)
Capital/ reserve Proprietor/ partner/ directors debt
Capital Others
Reserve Goodwill
64
Profit Patent
Other Loss of previous years
Total (c) Total (c)
General total (A+B+C) General total (A+B+C)
Assessment for cash credit:
I. Capital + borrowers from relatives * 3 ----------------

(As per the last year balance sheet)
II. Working capital (current assets- current liabilities) * 4 -----------

As per last year balance sheet)
III. 20% estimated sales -------------------
(Current year)
Minimum of above three ----------

Or
Demand/ prevalent facility ----------
Or
65
Maximum permissible finance -----------

(Minimum from above two)
Machinery loan appraisal format:
Information about the machinery to be purchased:
Supplier’s name:
Machinery’s name:
Quantity:
Price:
As per margin permissible loan if given:
Margin of permissible finance (working unit):
Margin on amount of demanded loan
Working capital as per last balance sheet:
Estimated reinvestment of the current year profit:
Current year’s estimated working capital (2+3)
Margin of working capital (25%cureent asset of last year)

66
Margin for permissible finance (4-5)
Estimated profit and DSCR (debt security coverage ratio)
1) New unit
PARTICULAR YEAR
1 2 3 4 5 6
1) Production
capacity
2) Utilization
capacity (%)
3) Production
4) Sales
5) Net profit
6) Depreciation
7) Interest on loan
8) Cash flow
(5+6+7)
9) Amount of EMI
of demanded
loan per annum
10) DSCR
(8/9)
11) Average
DSCR
2) Working capital:
67
 Profit of current year

 Depreciation of current year
 Cash profit of current year (1+2)
 Amount of EMI of demanded loan per annum
 DSCR (3/4)
Minimum acceptable measure for DSCR 1.5 to 2.

Sometimes in case of new unit, project report present unrealistic picture of
future. So bank should keep it in consideration at the time of calculation
of DSCR. Accepted measure for it is 60%.
Appraisal of immovable property:
Name of owner and designation of him:
Address of property:
Land in square yard:
Proposed construction in square feet:
Plan of construction passed by Municipal Corporation:
Estimated cost of property:
(Amount of land\d is calculated as per the address

68
+ amount of construction is calculated square feet*400)
Inspection report:
 Goods stock
 Type of business
 Reporting after checking of accounting books, vouchers, etc.
 Insurance of stock and mortgaged property is as norms, isn’t it?
 It is proper for sanction?
Department note:
Credit deservedness of loanee
 Name of facility
 Requested amount for credit
 Permissible finance as per appraisal
Other criteria:
 Borrowings from relatives are retained in business. Without permission
from bank relative cannot withdraw that amount
 Immovable property is needed to take as a collateral security.
 Late/retire partner’s capital is not withdrawn without permission from
bank
 Current ratio
 Debt equity ratio
 Security coverage
 DSCR
69
Observation and findings and suggestion:

Format for collection of minimum information about potential borrower:
It is must for any bank who wants to win market to collect the information
about his potential customer. VCB a bank which eager to increase own market
share also collect the information about future borrower.
Use of software for credit appraisal:

Bank has own computer department to manage and maintain the software for
bank but this now in initial stage. Majority time consume work is done by
the computer though appraisal of credit is done by manually.
Revision in appraisal format during last 7—8 year.

VCB prepared its policy before seven-eight year and decide proper criteria for
sanction the loan.
Different appraisal for different loan segment:

There is on common format for all loans are not possible because each loan
require particular information and calculation. Here in VCB I find different
appraisal format for different segment. That we see in above appraisal.
System of fixation of maximum time for loan sanction and sanction within
limit:
On paper, there is no maximum limit for sanction the loan but generally as per
the opinion of officer within ten days loan is sanctions. Sometimes because of
careless of the borrow or take time for provided needed documents is reason for
delay of sanction the loan.
70
Practice of rating of borrower and loan pricing:

VCB give rating to the borrower on the base of their last year dealing with bank.
For that VCB have software which give rating to the borrower. At the time of
appraisal, rating is not given.
Compliance of terms and conditions proprietor’s contribution, collateral

securities, etc.
Before preparing the loan report, it is keeping in view that all types of
requirement are fulfilled. Condition letter is given to customer if customer
fulfills all the conditions loan is sanctioned by bank.
Computation of customer profitability per borrower:

Generally I practice, not a single cooperative bank in Surat is calculating the
customer profitability per borrower. If it is calculated bank can know which
customers are more beneficial for them so bank can give attention to maintain
them and can increase profit.
Sanction of loan:
In the cooperative bank, sanctioning power are only in the hands of board of
directors so sometime loans are sanctioned on the bases of relation not on the
bases of the deservedness of customer. I also consider that the cooperative
banks are basically meant for the benefit for the benefit of its embers but within
the limit of reserve bank of India’s guidelines. Slight modification in these rules
for well-being of members is still allowed.+
71
72
Credit monitoring, follow up and review:
When we lend, it is essential for us that to keep watch on it till we recover

it. This called credit monitoring in term of banking.
Credit monitoring system in VCB:
In the VCB, there is system for credit monitoring specially account,

which is above 100000 rupee is describes below:
Find out the list of potential NPA account above 100000 rupees
Statement of potential NPA accounts are submitted to head office from
branches
Head office monitoring this every three months and prepare report on it
Report is submitted to board of directors.
Follow up action for credit monitoring in VCB:

+
Consolidation of data, which comes from the branches and every month,
update the data and generate this and use it for follow up
Head office directly sends the notice to account holders of such accounts
To stop the slippage of the potential NPA accounts, bank organize the
committee under authorization of Mr. V.B.dhanani (A.G.M) and Mr.vora
sir (loan manager) with the help every branch recovery officers, they try
to recover. General manager arranges the meeting for that and gives
guidelines to the committee member.
73
Observation findings and suggestions:
System of loan portfolio review and monitoring:

There is system of weekly review and monitoring of loan portfolio in the
VCB, very week a statement is prepare be acquainted with the present
credit deposit ratio, if this ratio is less than 70% for example 65%, it
represent that bank can finance up to 5% at present.
Compliance of prudential guidelines:

Exposure ceiling : (a) individual 20% of the total capital
fund
: (b) group 50% of the total capital
fund
Priority sector lending : priority 60% of the total
advance
: Weaker 15% of the total
advance
This is followed by the VCB.
Items of priority sector:
Advance to individuals for activities allied to agriculture.
Loans and advance to cottage/small scale industries and equipment

system for development of new and renewable sources of energy.
Advance to road and water transports operates for purchase of one

vehicle.
74
Private retail traders dealing in essential commodities (fair practice shop).
Small business enterprise.
Professional and self-employed persons.
Housing loans not maximum criteria
Consumption loan.
Items of weaker section:
Scheduled caste and scheduled tribe
Women and other
Timely renew and review by credit limit:
Every year VCB review cash credit accounts and every 3 year renew that
account. At the time of review bank only keep in view the turnover of
business, account inspection, field inspection, renew insurance, renew
shop act license, proof of rent, income tax return or assessment of income
tax, turnover with bank. But process of renew of accounts is totally
inspection of party. Bank considers last 3 year’s business progress of the
party and deal with bank also.
75
76
A Non-performing asset (NPA) is defined as a credit facility in respect of which

the interest and/or installment of principal has remained ‘past due’ for a
specified period of time.
Identification:
With a view to moving towards international best practices and to ensure greater
transparency, it has been decided to adopt the ‘90 days’ overdue’ norm for
identification of NPA, from the year ending March 31, 2004. Accordingly, with
effect from March 31, 2004, a non-performing asset (NPA) shall be a loan or an
advance where;
 Interest and/or installment of principal remain overdue for a period

of more than 90 days in respect of a term loan,
 The account remains ‘out of order’ for a period of more than 90 days,
in respect of an Overdraft/Cash Credit (OD/CC),
 The bill remains overdue for a period of more than 90 days in the case
of bills purchased and discounted,
 Interest and/or installment of principal remains overdue for two harvest
seasons but for a period not exceeding two half years in the case of an
advance granted for agricultural purposes, and
 Any amount to be received remains overdue for a period of more than
90 days in respect of other accounts.
Classification:
Banks are required to classify non-performing assets further into the following
three categories based on the period for which the asset has remained non-
performing and the reliability of the dues:
 1 Sub-standard Assets
 2 Doubtful Assets
77
 3 Loss Assets
Substandard asset is the asset in which bank have to maintain 10% of its
reserves.
PROVISION OF N.P.A. IN VARACHHA BANK AT 31-03-2012:
( AMT IN
LACKS)
LOAN WILL BE RECOVER
TOTAL AMOUNT MAY BE ACTUAL
A/CS PROVISION PROVISIN
A Total loan 7972 15588.17 122.01 936.05
1) Standard assets 7967 15532.48 66.39
2) Non-performing 5 55.62 55.62

assets
---sub standard - -
---doubtful= up to1 year
1 to 3 year
3 year or more
----loss assets 5 55.62 55.62
B PROVISION:
1) Standard assets 206.60
against
2) Bed & doubtful 360.20

debt reserve
3) Non-performing 369.25
assets against
TOTAL 7972 15588.10 122.01 936.05
78
79
Recovery:
Recovery management consist of the functions and activities the bank carries
out acquire back what the bank has advanced with principle amount as well as
interest on the same. So it is recovery of what the bank advanced to loanee for
carrying out their purpose objective of taking a loan.
Process of recovery:
If three installments are outstanding,
Notice through branch office
Personal visit and meeting
If no response
Notice through advocate
Through no effect
Claim through court if party ready of court settlement otherwise
After completion of formalities

Bank will get the order of securities from court to recover their
due.
80
LOAN RECOVERY MANAGEMENT:

GROSS NPA
YEAR TOTAL TOTAL A/CS AMOUNT PER. PROVISION NET
LONS LOAN % OF NPA NPA
A/CS AMT. %
2008 8999 8022.86 37 221.02 2.75 454.88 0
2009 9215 9203.17 31 212.93 2.31 498.54 0
2010 7739 9488.67 23 222.63 2.35 587 0
2011 6593 11587.98 5 55.84 .84 649.11 0
2012 7972 15588.10 5 55.62 .36 936.05 0
GRAPH DEFINES TO GROSS NPA:

1000
900
800
700
600
500
400
ACCOUNTS
300
AMOUNT PROVISION OF NPA
200
100
0
12345
81
Finding and observation:
Findings:
 Provide better a fast service to customer.

 Bank continues gets audit class A in every year.
 The bank has fully computerized system.
 The bank can attract more customers through their well services.
 A bank is progress in current time because its profit is increase in day
to day.
 The customer can know their balance and other transaction related
his account through visual account terminal machine.
 It has not more than 9 branches in Surat so far the varaccha cooperative
bank has to face the competition with other bank because bank
provides policies and other facilities.
The accounts, which are not getting benefit of one time settlement:
 Loans under government directed programmers.

 Loans due from government department undertakings.
 Case of willful default, fraud and malfeasance.
 Loan with tie up arrangement for recovery (e.g. loan avail by salary
earners)
 Loans avail of or guaranteed by directors or by close relatives of
director or by firms companies institution in which the directors are the
interest are the interest or by ex-directors of respective urban
cooperative banks.
 Loans guaranteed by government (including case where
82
government guarantee has been involved but not honored by the

government)
83
Conclusion:
 Credit risk an investor’s risk of loss arising from borrower who

does not make payment as promised. Such an event is called a
default. Another term for credit risk is default risk.
 Bank also transfer amount through NEFT and RTGS for I.D.B.I
and AXIS bank. This transfer is easy to and short time to
transfer amount to one account to another account.
 The Varaccha bank provides money on credit base to their

customer by various ways.
 In case of credit risk management of the bank get various

documents from the customers as legal proof of their
credit.
 Varaccha bank will open new branches in Surat and it is spread

in out of Surat like Ahmadabad and Ankleshevar and other city.
So we can say that this bank has growth in current time
 Varaccha bank gives more facility in customer in current time

and to give more and better facility in future.
 Though Varaccha bank provides me good support and guidance for

effective project work, yet as a student of management and at a
neutral position I would like to suggest to Varachha bank for
84
effective banking operation and take off high growth.
85
 There should be linking of performance and reward for motivate to

staff and workers. Top management should provide effective salary
to staff members for increase performance.
BIBLIOGRAPHY:
Annual report of bank
Shekhar K.C. banking theory and practices.

New Delhi: vikas publishing house pvt. Ltd., 1985
Magazines, newspaper and authors books (I.M Panday)
Internet:
www.google.com
www.varacchabank.com
www.rbi.org.in.com
86
87

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THE VARACHHA CO-OPRATIVE BANK LTD. SURAT.

Under the guidance of

I do better try that institution will appreciate this project.

I am thankful to manager Mr.Sureshbhai kakadiya who has also given me

I want to express my sincere obligation to all the staff member of Varachha

CREDIT MONITORING SYSTEM IN VCB 73

OVERVIEW OF BANKING INDUSTRY:

The Indian Banking Companies Act. 1949 define a ―Banking company as

In the economic development of a nation banks occupy an important

STRUCTURE OF CO- OPERATIVE BANK:

Primary Co-operative Bank

Central Co-operative Bank

State Co-operative Bank

1. Primary Co-operative Banks “or” Credit Society (PCS)

The primary co-operative credit society is an association of borrows and

2. Central Co-operative Banks (CCB):-

3. State Co- Operative Banks (SCB):-

The state co-operative bank is a federation of central co-operative banks

Role of Co-operative Banks in India and its structure:

As I discussed the co-operative societies came into existence when the

(i) Societies having limited responsibility.

(ii) Societies having unlimited responsibilities.

A.D.Bhalani GENERAL MANAGER

T.P.Vora CREDIT MANAGER

S.M.Chhaniyora EDP MANAGER

Branch Manager Katargam

The development of The Varachha Co- Operative Bank was continuously

Pancham shoping moll, Near Jivan

R-16 square, jaldhara chok, valiya

Amazing development of bank. To achieve in year 2000-2001. Because

TH VARACHHA CO-OPERATIVE BANK

1. Tele-Banking Cum Fax Services:

By using tele-baking services, customer can take information about

“Visual Account Teller Machine” i.e. called VAT Machine. Customer

“Magnetic Ink Character Recognition” that is known as M.I.C.R. This

4. Teller Payment Service:

Cashier furnishes this service if amount is not exceeding of 20,000 in

b) Full Day Banking Services:

VARIOUS TYPES OF DEPOSIT ACCOUNTS IN VARACHHA

Details in Deposit Accounts:

1) Fixed Time Deposit Account:-

1) Middle Income People.

2) Saving Deposit Account:-

Current accounts are also known as demand deposit accounts current

To encourage saving habits in general public and mobilize savings in the

MANAGEMENT TOWARDS PROVISION FOR PROFIT

BANK PROVIDES VARIOUS TYPES OF LOANS:

OBJECTIVE OF THE VARACHHA CO-OPERATIVE BANK

 To encourage thrift and mutual Co-operating among its members.

 To create funds to be lend at moderate of interest to the members of the bank

 To undertake every kind of banking and sheriff business and also to

PROGRESS OF THE VARACHHA BANK:

(Rows 2to 6 are in Crores)

Basic information about topic:

 A consumer may fail to make a payment due on a mortgage loan, credit

Types of credit risk

Credit risk can be classified in the following way:

Forms of credit/ advances:

Loan or term loan:

In case of a loan a specified amount is sanctioned by the banker to the customer,

Overdraw" redirects here. For overdraw in computer graphics, for overdraw in

Bank guarantee: It is a contract to perform the promise or discharge the

Literature review outlines:

security coverage: total collateral security/total facility)100