Project Presentation

TABLE OF CONTENTS
i) Title of the project
ii) Objective of the study
iii) Literature Review
iv) Methodology
v) Data Analysis
vi) Findings
vii) Conclusion
viii) Recommendations
 Title of the project

A Project Report on Credit Analysis

procedure applied by Bank of India
for Agricultural lending

By
 Objective of the study
Agriculture is a very huge and important sector of the Indian economy. It
plays major role in the Indian economy and overall development of the
country. Agriculture is the source of livelihood of more than 60-65 per cent
of the population in India and contributes less than 20% to GDP, including
share of exports. The research work is carried out mainly on BOI’s credit
analysis procedure for agricultural lending in Saurastra region. The rural
credit market appears to be confronted with a paradox. The informal sources
of finance, be they local money lenders, landlords, traders, etc., charge more
than 20% rate of interest, often keep land as collateral against loan and have
a very high recovery rate. On the other hand, rural financial institutions
(RFIs) charge almost half of this interest rate, do not take land as collateral
for most of the crop loans, and still face high defaults.
 Objective of the study
 Where and how rural financial institutions have gone wrong? From the
reports of several committees and Task forces on rural credit, it appears that
the RFIs, with the sole objective of eliminating informal finance through
moneylenders, have always been allowing leniency in their financial policies.
The result is that while informal finance still holds significance in the rural
areas, the RFIs, especially cooperatives are heading towards a state of financial
un-sustainability. An assessment of agriculture credit situation brings out the
fact that the credit delivery to the agriculture sector continues to be
inadequate. It appears that the banking system is still hesitant on various
grounds to purvey credit to small and marginal farmers. The situation calls for
concerted efforts to augment the flow of credit to agriculture, alongside
exploring new innovations in product design and methods of delivery,
through better use of technology and related processes.
 Literature Review
 Training and Development
 Approaches to Training and Development
Reactive
Proactive
Active Learning
 The 3 Models of Training
System Model
Instructional System Development Model
Transitional Model
INTRODUCTION
 Bank operations involve sanctioning of loans and advances to customers for
variety of purposes. These loans may be business loans for short or long term
commitments and consumer finance for purchase of durables, property and
vehicles. Other types of loans provided by banks are micro credit for small
borrowers and contingent obligations that are off balance sheet transactions.
The loan sanctioning process commences when the bank receives a loan
proposal from the customer.
 The loan requirement may be for equipment purchase or for working capital
finance requirements. If it is for equipment purchase the amount will be paid
directly to the supplier. If it is a working capital requirement, an operational
bank account in the name of the customer will be opened and permission will
be granted to draw the amount as and when required. The loan proposal will
be evaluated using an internal rating system or the credit rating offered by
external rating agencies. After the loan sanction the bank needs to follow up
and monitor the loan accounts.
INDUSTRY PROFILE
 Agriculture Sector in India
 Agriculture is the mainstay of the Indian economy because of its high
share in employment and livelihood creation. More than half of the
Indian population still relies on agriculture for employment and
livelihood. During the past five years, agriculture sector has witnessed
spectacular advances in the production and productivity of food
grains, oilseeds, commercial crops, fruits, vegetables, food grains,
poultry and dairy.
 Agriculture is the dominant sector of the Indian economy, growing at
an average rate of 3.4 per cent from FY 2004-05. “India is the second-
largest producer of food in the world and holds the potential of being
the biggest on global food and agriculture canvas,” according to a
Corporate Catalyst India (CCI) survey.
 The Indian agriculture sector is now moving towards another green
revolution. The transformations in the sector are being induced by
factors like newfound interest of the organized sector, new and
improved technologies, mechanized farming, rapid growth of contract
farming, easy credit facilities, etc.
 Government Initiatives
 The Government of India has launched several schemes to increase
public investment in agriculture sector, such as, the Rashtriya Krishi
Vikas Yojana (RKVY), National Food Security Mission (NFSM),
.
Development and Strengthening of Infrastructure Facilities for
Production and Distribution of Quality Seeds, National Horticulture
Mission (NHM), Integrated Scheme of Oilseeds, Pulses, Oil Palm and
Maize (ISOPOM), Gramin Bhandaran Yojana etc. Some of the major
initiatives taken by the Government of India are:
 The Government of India has allowed 100 per cent FDI in the
agriculture services under automatic route covering horticulture,
floriculture, development of seeds, animal husbandry, pisciculture,
aquaculture, cultivation of vegetables, mushroom and services related
to agro and allied sectors
 The Cabinet Committee on Economic Affairs' (CCEA) has recently
approved the commerce department's proposal to allow the export of
14 processed and value-added agricultural products even in the event
of restrictions on the export of basic farm produce
 COMPANY PROFILE

.
 Bank of India was founded on 7th September, 1906 by a group of eminent
businessmen from Mumbai. The Bank was under private ownership and
control till July 1969 when it was nationalised along with 13 other banks.
 Beginning with one office in Mumbai, with a paid-up capital of Rs.50 lakh and
50 employees, the Bank has made a rapid growth over the years and
blossomed into a mighty institution with a strong national presence and
sizable international operations. In business volume, the Bank occupies a
premier position among the nationalised banks.
 The Bank has 4963 branches in India spread over all states/ union territories
including specialized branches. These branches are controlled through 54
Zonal Offices. There are 60 branches/ offices and 5 Subsidaries and 1 joint
venture abroad.
 The Bank came out with its maiden public issue in 1997 and follow on
Qualified Institutions Placement in February 2008.
.
.
 Non-Performing Assets (NPAs):
 NPAs constitute a source of deadweight loss to the commercial banks and thwart
downward movement in lending rates. In gross terms, the ratio of NPAs to total
advances in respect of public sector banks came down from 17.8 per cent in 2006-07 to
16.0 per cent in 2007-08. Nevertheless, the absolute magnitude of gross NPAs increased
.
by 4.8 per cent over 2006-07 and remained at a very high level of Rs. 45653 crore. The
ratio of net NPAs (gross NPAs minus items like interest due but not received, part
payment received and kept in suspense account and total provisions held) to net
advances also declined from 9.2 per cent in 2006-07 to 8.2 per cent in 2007-08. The year
2007-08 also witnessed a decline in the share of priority sector in the aggregate gross
NPAs of the public sector banks. In order to reduce NPAs, the Union Budget for 2008-
09 proposed strengthening of Debt Recovery Tribunals (DRTs) to cover all States.
Accordingly, action for setting up five more DRTs and four Debt Recovery Appellate
Tribunals (DRATs) has been initiated by the Government/RBI. The Union Budget also
proposed creation of Assets Reconstruction Companies (ARCs) to tackle the problem of
NPAs. A Task Force comprising representatives of Banking Division, RBI and
Nationalized Banks has been constituted to prepare an action plan for setting up of
ARCs. The Task Force has submitted its report.
 Basic Types of Credit
 There are four basic types of credit. By understanding how each works, you will be able

.
to get the most for your money and avoid paying unnecessary charges.
 1. Service credit is monthly payments for utilities such as telephone, gas, electricity, and
water.
 You often have to pay a deposit, and you may pay a late charge if your payment is not on
time.
 2. Loans let you borrow cash. Loans can be for small or large amounts and for a few days
or several years. Money can be repaid in one lump sum or in several regular payments
until the amount you borrowed and the finance charges are paid in full. Loans can be
secured or unsecured.
 3. Installment credit may be described as buying on time, financing through the store or
the easy payment plan. The borrower takes the goods home in exchange for a promise to
pay later. Cars, major appliances, and furniture are often purchased this way. You usually
sign a contract, make a down payment, and agree to pay the balance with a specified
number of equal payments called installments. The finance charges are included in the
payments. The item you purchase may be used as security for the loan.
 Asset – by – asset approach:-
 Traditionally, banks have taken an asset – by – asset approach to credit risk
management. While each bank’s method varies, in general this approach
involves periodically evaluating the credit quality of loans and other credit
.
exposures. Applying a accredit risk rating and aggregating the results of this
analysis to identify a portfolio’s expected losses. The foundation of thee asset-
by-asst approach is a sound loan review and internal credit risk rating system.
A loan review and credit risk rating system enables management to identify
changes in individual credits, or portfolio trends, in a timely manner. Based on
the results of its problem loan identification, loan review and credit risk rating
system management can make necessary modifications to portfolio strategies
or increase the supervision of credits in a timely manner. Banks and financial
institutions must determine the appropriate level of the allowances for loan
and losses (ALLL) on a quarterly basis. On large problem credits, they assess
ranges of expected losses based on their evaluation of a number of factors,
such as economic conditions and collateral. On smaller problem credits and
on ‘pass’ credits, banks commonly assess the default probability from
historical migration analysis.
 RESEARCH OBJECTIVES
 (A) To Study the perspective of agriculture banking in saurastra
region and mark share of Bank of India in it.
 (B) To study potential market for agricultural lending through
agriculture & cropping pattern in saurastra and customer’s need.
 (C) To Study How Bank of India is applying credit analysis procedure
for Agricultural Lending.
 (D) To identify problems regarding Credit Analysis procedure applied
by Bank of India for Agricultural lending.
 (E) To identify suitable corrective measures regarding Problem.
 (F) Future prospect of Agriculture finance

 RESEARCH METHODOLOGY
 (A) Definition of research
 Systematic investigative process employed to increase or revise current knowledge by discovering
new facts. It is divided into two general categories: (1) Basic research is inquiry aimed at increasing
scientific knowledge, and (2) Applied research is effort aimed at using basic research for solving
problems or developing new processes, products, or techniques.
 There are various methodologies for preparing a project research. some of them are given below;
 Names of research
 (1) Basic research
 (2) Applied research
 (3) Exploratory research
 (4) Conclusive research
 (5) Descriptive research
 (6) Casual research
 Research type that I have used for explanation is Basic research
 The main goal of basic research is to describe the data and characteristics about what is
being studied. The data shows the growth, trend and crop pattern of the agriculture lending in
saurashtra.
 Findings
Q1. From how many years you have been working in Bank of India?

50%
44%
45%
40%
35% 31%
30%
25%
19%
20%
15%
10% 6%
5%
0%
Less than 2 years 2 to less than 4 4 to less than 6 More than 6
years years years

31% respondents replied that they have been working in Bank of India from less than 2
years but 44% respondents replied that they have been working in Bank of India from 2
to less than 4 years.
 Findings
Q2. Are you involved in credit appraisal process at Bank of India?

Involved in credit risk management process

No
0%

Yes
100%

100% respondents replied yes that they are involved in the credit appraisal process at
Bank of India.
 Findings
Q3. In the following, which technique is mostly applied by your organization in case
of mitigating the risk?

35%
29%
30% 27%
28%

25%

20%
16%
15%

10%

5%

0%
Collateralization Guarantor Insurance Securitization

27% respondents replied that collateralization is mostly applied by their organization in

case of mitigating the risk but 28% respondents replied that guarantor is mostly applied
by their organization in case of mitigating the risk.
 Findings
Q4. In the following, which is the most import collateral instrument in your
organization?

35% 32%
30% 28%
26%
25%
20%
14%
15%
10%
5%
0%
Cash on deposit Lending bank Equities Mutual Funds
with bank

32% respondents replied that cash on deposit with bank is the most import collateral
instrument in their organization but 26% respondents replied that lending bank is the
most import collateral instrument in their organization.
 Findings
Q5. In the following, which type of guarantee mostly accepted by your organization?

40% 37%
35%
30%
24%
25% 22%
20% 17%
15%
10%
5%
0%
Guarantees from Guarantees from Guarantees from Guarantee from
government director/trustees inter-bank/inter- a third party
of the company branch

24% respondents replied that guarantees from director/trustees of the company mostly
accepted by their organization but 37% respondents replied that guarantees from inter-
bank/inter-branch of the company mostly accepted by their organization.
 Findings
Q6. In the following, which type of security mostly accepted by your organization?

30%
24%
25% 21%
20% 16%
15% 12%
9% 10%
10% 8%

5%
0%
ry re
s y it nd et
s s
le lic os a re
el tu
Po ep L ss h a
w en ce D A S
Je eb n h
D a as
s ur C
In
fe
Li

21% respondents replied that land mostly accepted by their organization as a security but
24% respondents replied that assets mostly accepted by their organization as a security.
 Finding
Q7. In the following, which credit reminder period used by your organization?

After 1-3 months

default payment
After 6-9 months 23%
default payment
36%

After 3-6 months

default payment
41%

41% respondents replied that after 3-6 months default payment used by their organization
but 36% respondents replied that after 6-9 months default payment used by their
organization.
 Finding
Q8. In the following, which action is mostly applied by your organization to
recuperate loan?

40%
34%
35%
30%
25% 23%

20% 17%
14%
15% 12%
10%
5%
0%
Public Claim with Use collateral Sue customer Ask
auction insurance as security by court customer pay
loan without
interest

23% respondents replied that claim with insurance action is mostly applied by their
organization to recuperate loan but 34% respondents replied that use collateral as security
is mostly applied by their organization to recuperate loan.
 Conclusion
 On credit assessment, the study concludes that the bank required a
letter from the employer as part of the credit assessment
documentations. It was however noted that information on
customers' existing borrowing in other financial institutions could not
be validated by credit assessment official. The loans advanced to the
customers took a week or so to process. Upon approval, commitment
fees are paid by all customers irrespective of whether the customer
had a loan with Bank of India or not.
 To sum up, it would not be out of way to mention here that Bank of
India has given special inputs on credit/loan assessment. In pursuance
of the instructions and guidelines issued by the Reserve Bank of India,
Bank of India is granting and expanding credit to all sectors.
 · The concerted efforts put in by the Management and Staff of Bank of
India has helped the Bank in achieving remarkable progress in almost
all the important parameters. The Bank is marching ahead in the
direction of achieving the Number-1 position in the Banking Industry.
 Recommendations
 Bank of India commits tremendous resources in credit creation, which constitute their major source
of revenue. From the findings the study makes the following recommendations:
 • Credit process. The loan scoring process was noted to be long and tedious. A loan could take up-to
one week. Most customers were unhappy with the turnaround time for the facility; hence look for
alternative sources of credit. The study recommends that Bank of India review its loan scoring
process with a view of shortening it.
 • Monitoring and Follow-up. It was noted from the study that Bank of India does not do frequent
checks and follow-ups on customers that had borrowed. The study recommends that the credit
department be properly resourced and facilitated to visit the customers regularly. Reminders in form
of text messages to customers' mobile phones and reminder letters are encouraged.
 .• Commitment fees. The costs associated with obtaining a loan, that are often incurred prior to
disbursement affects both projected cash flow and the borrowers' morale regarding settlement of the
facility. The study recommends that Bank of India desist from charging full amount of commitment
fee on loan amount every time a new facility is sanctioned to a previous borrower. Where a previous
limit is increased upon renewal, only the difference should be charged.
 • Interest Rates. From the study, customers complained of high interest rate charged by Bank of
India to the borrowing customers. To improve this, the study recommends that Bank of India review
its interest rates regularly to tally with the prevailing market conditions. Frequent benchmark of
interest rates will improve on loan performance. The bank should also encourage customers' with
security to use them in order to borrow at a lower interest rate.
 Recommendations
Customer recognition--develops a "most valued
customer" program and let your customers know that
they are valued by offering them a special discount or
service.
Loyalty purchasing--Amazon does this with their
book recommendations on their site which are
personalized based on the customer's buying habits.
Also recommendations are sent via e-mail as short e-
newsletters to registered customers. The textbooks
refer to this as cross marketing.