ACKNOWLEDGEMENT A journey is easier when we travel together. Interdependence is certainly more important than independence. It will always be my pleasures to thank those who have helped me in making this project a lifetime experience for me.
I would like to express my heartiest gratitude to Bank of India, for giving me an opportunity to work with its Main Branch situated at Civil Lines, Allahabad, in the Department of Loans and Advances, my Institute and important persons associated with this project as without their guidance and hard work I would have never ever have got a chance to have real life experience of working with a Public Sector Bank of such a great repute and learn practically about the Credit Appraisal Process. I would also like to extend my gratitude to Mr.
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Krishna Kumar Nigam (Chief Manager, Allahabad Branch) for giving me an opportunity to join him to know and learn various aspects of the Loans and Advances in the organization. It is my privilege to thank Mr. B. C. Sharma (Industry Guide & Chief Mentor) whose guidance has made me learn and understand the finer and complicated aspects of banking, in general and of Credit Appraisal Process, in particular. The help and guidance which he has extended to me has made me feel as being an integral part of the organization. My heartiest gratitude extend to my faculty Mr.
Moin Uddin who has helped me in every aspect of my work. The greatest credit goes to the blessings bestowed upon me by Almighty God without whose yearning; I could not have even moved a step forward and to my parents who are always a constant source of inspiration in all my endeavors. Nazia Safi. PREFACE Summer training is an integral part of our academic curriculum. During the training a student gets an opportunity to set the practical aspects of theory. Theory makes the concept clear. I feel great pleasure in submitting this piece of work as my summer training project, taken from Bank of India, Allahabad.
I hope that this work will provide fruitful result in the eyes of the reader. It is hence expected that creating of this shall benefit the reader in all aspects. The project deals with nearly all the aspects of Banking Industry and the essence of Know Your Customer Norms. I have tried my best to cover nearly all the aspects related to Credit Apparaisal of Bank of India. The working title of the project is “CREDIT APPRAISAL PROCESSS”. It is done in a very cordial manner. This research is an attempt to present a report on account of little practical knowledge.
In my opinion, the readers will be satisfied with the project in all ways. I guarantee the original work and authenticity of this. TABLE OF CONTENTS S. NO. PARTICULARSPAGE NO. 1CERTIFICATES1 2ACKNOWLEDGEMENT3 3PREFACE4 4TABLE OF CONTENTS5 5EXECUTIVE SUMMARY8 6BANK11 7ORGANISATIONAL PROFILE BANK OF INDIA13 8HIGHLIGHTS FOR THE YEAR ENDED MARCH 31, 200917 9BORD OF DIRECTORS19 10CLIENTS OF BANK OF INDIA FROM PUBLIC SECTOR20 11 a) b) c)DEPOSIT SCHEMES OF BANK OF INDIA Savings Bank Scheme Current Deposit Schemes Term Deposit Schemes21 21 22 23 12 a) b) c) d)LOAN SCHEMES OF BANK OF INDIA Retail Loans Agricultural Loans
Discounting Future Cash Flows Small And Medium Enterprises24 24 33 37 38 13SWOT ANALYSIS OF BANK OF INDIA39 14 a) b) c)CREDIT APPRAISAL Defining Credit Appraisal Stages Of Credit Appraisal Process Of Credit Appraisal41 42 47 49 15CREDIT POLICY53 16CREDIT THRUST57 17CREDIT DELIVERY59 18COLLATERAL AND MARGIN NORMS61 19STATUTORY RESTRICTION63 20SELECTIVE CREDIT CONTROL65 21FAIR LENDING PRACTICES CODE66 22CIBIL68 23RISK PERCEPTION IN LARGE CREDITS69 24 a)CREDIT RISK ANALYSIS Credit Rating73 75 25 a) b) c) d) e)RESEARCH METHODOLOGY Project Title Study Objective Research Design Data Collection Pretest 79 79 9 80 83 86 26 a)QUESTIONNAIRE Analysis Of Survey88 89 27CRITICAL ANALYSIS107 28INTERVIEW109 29RESULTS AND FINDINGS110 30RECOMMENDATIONS AND SUGGESTIONS112 31BENEFITS OF THE CREDIT STRUCTURE114 32LIMITATIONS IN STUDYING CREDIT APPRAISAL114 33CONCLUSION115 34 a) b)ANNEXURES Questionnaire Interview119 119 121 35BIBLIOGRAPHY122 EXECUTIVE SUMMARY The Credit Apparaisal is a holistic exercise which starts from the time a prospective borrower walks into the branch and culminates in credit delivery and monitoring with the objective of ensuring and maintaining the quality of lending and managing credit risk.
The process of Credit Appraisal is multidimensional and includes- Management Appraisal, Technical Appraisal, Commercial Appraisal, Financial Appraisal and Economic Appraisal. Management Appraisal has received lot of attention these days as it is one of the long term factors affecting the business of the concern. Technical Appraisal emphasizes on the technical feasibility of the venture and also finds out the possible economic life period of the present technology. Commercial Appraisal focuses on the commercial viability of the project . It tries to find matters regarding demand in market, the acceptance of product in market.
It also focuses on the presence of other substitutes of the product in the market. It also focuses on the multiple scope of the product. Financial Appraisal is done to find out whether the promoter is having the capacity to raise finance – both own equity and debt? What are the sources of margin? Will the business generate sufficient funds to service the debt and other stakeholders? Is the capital structure optimal? Economic Appraisal examines level of cost/ benefit and IRR (Internal Rate of Return). The scope of credit structure is incomplete without examination of credit proposal.
Credit proposal has to be examined from the point of 6 C’s viz. Character, Capacity, Capital, Condition, Collateral and Cashflow. The Credit Policy of Bank of India has undergone changes to cope with the environmental changes, tap the available opportunities, achieve their commercial objective, fulfill social obligations and adhere to mandatory directed lending norms. The credit policy consists of both fund based credit exposure and non fund based credit exposure. The credit policy is studied under – Coverage, Clientele, Marketing. The bank has over the years designed and adopted the Best Practices Code.
This in effect represents the bank’s philosophy towards effective Corporate Governance. Bank of India has specialised type of lending known as Segmented Lending in which bank has set within it specialised branches for focused lending to various segments. This includes-Commercial and Personal Finance Housing Finance Housing and Personal Finance SME Branches Overseas Branches Corporate and Banking Branches This segmented approach is expected to provide both market and customer focus for ensuring better business development, better development of expertise and better customer satisfaction.
Bank has also set exposure norms which corresponds to the quantum of finance been credited. These exposure norms are as per the RBI norms and also the bank’s specific norms. Bank also observes Selective Credit Control with respect to essential commodities like wheat, rice which would directly or indirectly defeat purpose of the directive. This policy is exclusively for essential commodities so that their prices remain same throughout the country. One of the important monitoring aspects in the credit portfolio is the periodic review of advance accounts.
The vital decision to deploy the Bank’s resources should necessarily be based upon the thorough assessment and evaluation of the needs of the borrower. For this, a proper periodical review of any account is inevitable. Bank has introduced Fair Lending Practices Code which helps the bank to provide professional, efficient, courteous, diligent and speedy services in matter of lending. The Fair Practices Code codifies the procedures to ensure clarity, transparency, timeliness and responsiveness in Bank’s relationship with the borrower customers at all stages like marketing, processing, sanctioning, monitoring and administration.
With the kind of transformation that is taking place in the banking industry and in the country, it is imperative for us to be conscious of our earnings and asset quality. Further, as profit is reward for risk bearing capacity, the spread available in case of high quality assets are thin. With the ushering in an era of liberalisation in the economy, new opportunities are available and for a Bank of our size it is important that we realise our market share through better understanding of these developments Different loan schemes are available to meet different needs of customers .
These schemes can be categorized under 1)Retail loans: Includes Personal Loans, Housing Loans, Education Loans, Gold Loan Scheme, and many more. 2)Agricultural loans: Includes Agriclinics and Agribusiness. 3)Schemes for SME 4)Schemes for Other Priority Sectors BANK A Bank is an institution whose debt (bank deposit) is widely accepted in settlement of other people’s debt to each other. Bank is a business organization, which accepts accepts money in the form of deposits for the purpose of lending and investment. Bank repays it on demand or otherwise withdrawal by cheques, etc. bank deals with money i. e. lending and borrowing of money.
Through above process bank generates profit. Bank advances money to individual as may be required and to which individuals entrust money when not required by them for use. Commercial Banking A commercial bank is a type of financial intermediary and a type of bank. It raises funds by collecting deposits from businesses and consumers via checkable deposits, savings, deposits, and time deposits. It makes loans to businesses and consumers. It also buys corporate bonds and government bonds. Its primary liabilities are deposits and primary assets are loans and bonds. It is a business organization, which deals in money, i. e. borrowing and lending of money. In this borrowing, and lending of money it makes profit. The lending rate of interest is higher than it pays to its depositors; it is because of this difference in lending and borrowing rates of interest that it is able to make profits. Functions of Commercial Banks 1)Acceptance of deposits •Fixed Deposit Account •Current Account •Savings Bank Account •Recurring Deposits 2)Advising of Loans: The various types of loan and advances are as follows •Making Ordinary Loans •Cash Credit •Overdraft •Discounting of Bills of Exchange 3)Investment of Funds 4)Purchase and Sale of Foreign Exchange )Creation of Credit 6)Fulfillment of Socioeconomic Objective NATIONALIZED BANKS OF INDIA ARE: 1)State Bank of India 2)Bank of India 3)Punjab National Bank 4)Bank of Baroda 5)UCO Bank 6)Allahabad Bank 7)Central Bank of India 8)Syndicate Bank PRIVATE SECTOR BANKS OF INDIA ARE: 1)Axis Bank 2)ICICI Bank 3)HDFC Bank 4)ING Vyasa Bank 5)HSBC Bank 6)IndusInd Bank ORGANISATION PROFILE BANK OF INDIA (RELATIONSHIPS BEYOND BANKING) Bank of India was established on 7th September, 1906 by a group of eminent businessmen from Mumbai. The Bank was private ownership and control till July 1969 when it was nationalized along with 13 other Banks. Beginning with one office in Mumbai with a paid up capital of Rs. 50 Lacs and 50 employees, the Bank has a made a rapid growth over the years and blossomed into a mighty institution with a strong national presence and sizable international operations. At present Net worth of the Bank surpasses Rs. 11100 crores. In business volume, the Bank occupies a premier position among the nationalized Banks. ?The Bank has been the first among the nationalized banks to establish a fully computerized branch and ATM facility at Mahalaxmi Branch Mumbai way back in 1989. ?The Bank is a Founder Member of SWIFT in India. The Bank came out with its maiden public issue in 1997. Total number of shareholders presently is more than 2. 25 Lacs. ?While firmly adhering to a policy and prudence and caution the Bank has been in the forefront of introducing various innovative services and systems. Business has been conducted with the successful blend of traditional values and ethics and the most modern infrastructure. ?The Bank has sizable presence abroad, with a network of 29 branches spread in 15 countries. ?Bank has a joint venture insurance company- Star Union Dai Ichi Life Insurance Company Ltd. Bank of India has been selected as The Top Indian Company under the ‘Banks’ sector for the Dun And Bradstreet- Ralta Corporate Awards 2008. ?Bank has won India’s Best PSU Bank by NDTV Business Leadership Awards 2008. ?Bank of India won The Top Public Sector Bank under Best Bank category and Overall Best Bankin the Dun And Bradstreet Banking Awards 2009 BUSINESS DESCRIPTION The Company’s principal activity is to provide Banking Services. It operates in accepting deposits, providing loans, financing and other related services in treasury to consumers and industries.
As on March 31, 2009 the Company operated through 3021 branches functioning on central Banking System platform spanning over 700 geographical locations. Bank owns 500 ATMs and around 35000 ATMs are being made available to customers through shared ATm networks. COMPETITOR ANALYSIS This analysis compares bank of India with its closely related competitors. TIE-UPS With Star Union Dai Ichi Life Insurance Co. Ltd. for sale of their life insurance products. With Tata Motors and Hyundai Motors Ltd. for Auto Loans. With ICICI Prudential Life Insurance Co. Ltd. for Educational Loans. With DLF for Housing Loans. KEY OFFICIALS Mr.
Alok Mishra– Chairman and Managing Director Mr. B. A. Prabhakar – Executive Director Mr. M. Narendra – Executive Director VISION To become the “Bank of Choice” for corporate, medium business and up market retail customers and development banking for small business, mass market and rural markets. MISSION To provide superior , proactive banking service to niche markets globally, while providing cost – effective , responsive service to others in our role as a development bank, and in so doing meet the requirements of our stakeholders. QUALITY POLICY Bank of India is committed to become the Bank of Choice by providing SUPERIOR
PRO – ACTIVE INNOVATIVE STATE OF THE ART Banking services with an attitude of Care and Concern for the Customers and Patrons. HIGHLIGHTS FOR THE YEAR ENDED MARCH 31, 2009 ?Business Mix reaches Rs. 334440 crores – robust rise of 26. 30 %. ?Net Profit shoots up by 49. 68% from Rs. 2009 crores to Rs. 3007Crores. ?Operating Profit up by 47. 45% (Rs. 5457Crore) supported by growth in net interest income as well as other income. ?Core Operating Profit (net of Treasury) up by 41. 26% (Rs. 4711Crores) from Rs. 3335 Crores in Mar’08. ?Net Interest Income rises by 30. 3% to Rs. 5499Cr from Rs. 4229 Cr, despite challenging conditions. ?Net NPA ratio drops to 0. 44% from 0. 52% as on March 2008. ?Return on Assets jumped from 1. 25% to 1. 49 %. ?Total Income for the Quarter rose to Rs. 5278 Crores from Rs. 4155 Crores, showing a growth of 27. 03%. ?CASA amounted to Rs. 48637 crores constituting 31% of Total Deposits. ?Earnings per share for 12 months go up sharply from Rs. 40. 83 to Rs. 57. 26. ?Book value per share rises from Rs. 164. 05 to Rs. 211. 89. ?Deposits grew by 26. 46% on YoY basis to Rs. 1, 89,708 crores. ?Advances rose by 26. 08% to reach Rs. 1, 44,732 crores. Total no of branches are 3021. ?Agricultural Debt Waiver & Debt Relief Scheme, 2008 fully implemented. ?Net worth of the Bank surpasses Rs. 11100 crores. BOARD OF DIRECTORS Mr. Alok Mishra – Chairman and Managing Director, Bank of India Mr. B. A. Prabhakar – Executive Director, Bank of India Mr. M. Narendra – Executive Director, Bank of India Dr. Shanta Chavda – Social Worker Mr. Amit kr. Motayed – General Secretary, Federation of Bank of IndiaOfficers Association Mr. M. N. Gopinath – Ex Senior General Manager, ICICI Bank Limited Mr. Prakash P Mallya – Ex Chairman and Managing Director, Vijaya Bank Mr. P. M.
Sirajuddin – Ex Joint Secretory, Government of India, Ministry of Finance Mr. Tarun Bajaj – Director, General Insurance Corporation of India CLIENTS OF BANK OF INDIA FROM PUBLIC SECTOR Maruti Udyog Ltd. AT HP IBM Life Insurance Corporation of India NABARD NPCL Bharat Petroleum Corporation Ltd. Airport Authority of India Oil India Limited DEPOSIT SCHEMES OF BANK OF INDIA ?SAVINGS BANK SCHEME STAR SURAKSHA SAVING BANK ACCOUNT Minimum Deposit: Rs. 500 Interest Rate: 3. 5% p. a. SAVING BANK ORDINARY ACCOUNT Minimum Deposit: Rs. 500 Interest Rate: 3. 5% p. a. BASIC SAVING ACCOUNT Minimum Deposit: Rs. 50 Interest Rate: 3. 5% p. . BANK OF INDIA SAVING PLUS SCHEME Minimum Deposit: Rs. 25,000 Interest Rate: 3. 5% p. a. BANK OF INDIA SUPER SAVING PLUS SCHEME Minimum Deposit: Rs. 2, 00,000 Interest Rate: As applicable to Rs. 15 lacs and above. STAR DIAMOND SAVING SCHEME Minimum Deposit: Rs. 1, 00,000 Air accident travel insurance: Rs. 5, 00,000 free ?CURRENT DEPOSIT SCHEME STAR BENEFIT CURRENT DEPOSIT ACCOUNT Minimum Deposit: Rs. 5000 CURRENT DEPOSIT PLUS SCHEME Minimum Deposit: Rs. 2, 00, 000 BANK OF INDIA SUPER CURRENT PLUS ACCOUNT Minimum Deposit: Rs. 35, 00,000 + Rs. 15, 00,000 TDR for 1 year STAR GOLD CURRENT ACCOUNT Minimum Balance: Rs. 50,000
STAR DIAMOND CURRENT ACCOUNT Minimum Balance: Rs. 2, 00,000 STAR DIAMOND PLUS CURRENT ACCOUNT Minimum Balance: Rs. 5, 00,000 ?TERM DEPOSIT SCHEMES DOUBLE BENEFIT DEPOSIT Minimum Balance: Rs. 10,000 Interest Rate: 6. 5% p. a. FIXED DEPOSIT Minimum Balance: Rs. 1, 00,000 Interest Rate: 6. 5% p. a. SHORT DEPOSIT Minimum Balance: Rs. 1, 00,000 Interest Rate: 6. 5% p. a. QUATERLY DEPOSIT Minimum Balance: Rs. 10,000 Interest Rate: 5% p. a. MONTHLY DEPOSIT Minimum Balance: Rs. 10,000 Interest Rate: 5% p. a. LOAN SCHEMES OF BANK OF INDIA ?RETAIL LOANS STAR MAHILA GOLD LOAN SCHEME Purpose: For the purchase of Gold ornaments preferably hallmarked.
Target Group: Resident Indian women Rating Exercise: Applicant should get minimum 20 marks in the Bank rating scheme. Type of Advance: Demand/Term Loan. Quantum of Advance: Working/Non Working- 10 times of monthly net emoluments. Professional- 50% of Gross Annual Income. Interest: 1. 25% below BPLR. Repayment: Maximum 60 EMIs. STAR MITRA PERSONAL LOAN (A special loan scheme for physically challenged) Objective: To help physically challenged Persons to function independently. Purpose: To purchase durable and sophisticated aids/appliances that promotes their social and physical rehabilitation.
Eligibility: All Physically Challenged Individuals both salaried and self employed. Type of Advance: Demand/Term Loan- Secured. Amount: Maximum Rs. 1 Lac. Repayment: 12 to 60 months. Rate of Interest: 8. 00% p. a. Other Terms and Conditions: Doctor’s certificate to be obtained regarding the extent of the handicap and need for the equipment. STAR PENSIONER LOAN SCHEME Target Customers: Regular pensioners, Family pensioners and Retired employees. Type of Advance: Demand Loan/Term Loan/Overdraft. Quantum of Advance: Regular Pensioner Unsecured/Clean-10 times of monthly pension (maximum loan amount of Rs. Lac) Family Pensioner- 10 times of monthly pension (maximum loan amount of Rs. 50,000). Rate of Interest: Fully Secured Advances- 0. 50% below BPLR, Min 11. 50% p. a. Clean/Unsecured Advances- @ BPLR, Min 12. 00% p. a. Repayment: Fully Secured Advances- Max 60 EMIs Clean/Unsecured Advances- Max 36 EMIs. Star Home Loans Provides loans to purchase a Plot for construction of a House, to purchase/construct house/flat, as well as for renovation/ repair/alteration/addition to house/flat, furnishing of house. Maximum loan amount is Rs. 300 lacs and repayment ranges upto 20 years, with reasonable margin and nominal processing charges. No commitment /administrative charges. • Interest is calculated on daily balance basis which is of great advantage to customer as it results in lower interest amount. STAR HOLIDAY LOAN SCHEME Eligibility: Salaried employees/Professionals/Self employed/People engaged in business/Individuals with high net worth/Agriculturists/Pensioners/Staff members. Type of Advance: Demand Loan. Quantum of Advance: Max Rs. 2 Lacs (clean) Max Rs. Lacs (in case liquid collateral security is offered atleast equal to 50% of the amount sanctioned) Rs. 10 Lacs (in case liquid collateral security is offered atleast equal to 100% of the amount sanctioned). Purpose: To meet expences for going to pilgrimage/tours/excursions etc. undertaken/to be undertaken by self/spouse/children/parents/family members/close relatives. Rate of Interest: a) Fully Secured Advances-1% below BPLR, at present 11. 00% p. a. b) Partly Secured Advances- 0. 50% below BPLR, at present 11. 50% p. a. c) Clean/Unsecured Advances- 0. 25% over BPLR, at present 12. 5% p. a. STAR MORTGAGE LOAN SCHEME This scheme provides loan/overdraft facility against mortgage of property at low rate of interest. The scheme is for people engaged in trade, commerce and business and also professionals and self employed, Prop. Firms, Partnership Firms, companies, NRIs, individuals with high net worth including salaried people, Agriculturists and staff members. Purpose: a) To meet the credit needs of trade, commercial activity, other general business. b) To meet marriage, medical, educational expenses of family members. c) To undertake repair, renovation, extension of the residence/commercial property. ) Purchase of consumer durables. e) To purchase/construct house/flat, purchase of plot. f) To purchase 2/4 wheelers. Target Customers: People engaged in trade, commerce and business, professionals, self employed, Prop. Firms, partnership firms, companies, NRIs, individuals having high net worth. Type of Advance: Demand/Term Loan/Overdraft. Quantum of Advance: (Rs. In Lacs) Min Max Agriculturists 0. 50 2. 00 Individuals/Prop. Firms 1. 00 50. 0 Rate of Interest: Upto Rs. 50 Lacs, 0. 25% over BPLR-12. 25% p. a. Above Rs. 50 Lacs, 0. 50% over BPLR-12. 50% p. a. Repayment: Within a period of 8 years by way of EMIs STAR AUTOFIN Eligibility: Salaried employees, Professionals, Self employed individuals with high worth, People engaged in trade/commerce/business, Directors of companies, Senior citizen, Pensioners, Farmers, Agriculturists, Staff members, Retired officials of Bank. Purpose: Purchase of 2/4 wheeler vehicles, for purchase of used/second hand 2/4 wheeler vehicles. Type of Advance: Demand Loan/Term Loan (for second hand vehicles only Demand Loan).
Quantum of Advance: Maximum limits of finance- a)Individuals (Resident in India) For Indian made vehicles- Rs. 25 Lacs For Imported vehicles- Rs. 75 Lacs b)For companies and corporate entities- Rs. 100 Lacs c)Non Resident Indians- Rs. 25 Lacs. Rate of Interest: For loans upto 100 Lacs (new vehicles) – 2. 25% below BPLR, Min 9. 75% p. a. (second hand vehicles) -1. 25% below BPLR, Min 10. 75% p. a. Repayment: a) For Individuals- For new vehicles 4 wheelers- imported vehicles- Max. 7 Years 4 wheelers- Indian vehicles- Max. 6 Years 2 wheelers- Max. 5 Years b) For Corporate/Firms – Max. Years c) For second hand vehicles- Max. 3 Years Security: Hypothecation of the vehicle to be purchased out of Bank finance. STAR PERSONAL LOANS Star Personal Loan scheme provides loan to meet the personal requirements of customers and their family. Eligibility: Salaried employees, Professionals, Individuals with high net worth, Regular pensioners or family pensioners, Staff members, Retired employees of the Bank. Type of Advance: Demand/Term Loan/Overdraft. Purpose: Clean/Unsecured Loans- Marriage expenses, Medical expenses, Education Secured Loans- Repayment of existing housing loans, Purchase of consumer durables.
Maximum Loan: Clean/Unsecured Loans- Rs. 2 Lacs Secured Loans- Rs. 10 Lacs Rate of Interest: Clean/Unsecured Loans- 0. 25% above BPLR, 12. 25% p. a. Secured Loans- 0. 50% below BPLR, Min. 11. 50% p. a. Repayment: Clean/Unsecured Loans- 36 EMIs Secured Loans- Max. 60 EMIs. Security: Equitable/Legal Mortgage of commercial or residential properties. STAR EDUCATION LOAN Objective of the Scheme: This is a scheme to finance metitorious students who, because of lack of financial support, are not able to pursue higher studies. Loans under the scheme should be looked upon as an investment in the nation’s human resources.
This scheme is one of the scheme under priority sector lending. This scheme can be studied under different heads: a)Scheme for studies in India b)Scheme for studies in Abroad Scheme for studies in India: School education, Graduation courses, Post graduation courses, Professional courses, Courses conducted by IIM, IIT, XLRI, NIFT, etc. Scheme for Studies Abroad: Graduation, Post Graduation, Courses conducted by CIMA-London, CPA in USA etc. Student’s Eligibility: Should be an Indian National Secured admission to professional/technical courses through entrance test/selection process
Secured admission to foreign University/Institution Should have good academic record. Quantum of Finance: Need based finance subject to repaying capacity of the parents/students with margin and following ceiling: i) Studies in India – Max. Rs. 10. 00 Lacs ii) Studies abroad – Max. Rs. 20. 00 Lacs Security: Upto Rs. 4. 00 Lacs- No security viz. The loan to be considered on clean basis Above Rs. 4. 00 Lacs- Collateral security of suitable value of guarantee of parents/guardian s/third party along with the assignment of future income of the student.
Repayment: in 5 to 7 years to be commenced course period+ 1 year or 6 months after getting job whichever is earlier. STAR IPO Product: Investing in Capital Market. Eligibility: Individuals having PAN number and Demat Account with Bank of India. Purpose: To subscribe to Initial Public Offering (IPO). Type of Facility: Demand Loan. Period of Loan: Max. 60 days. Rate of Interest: 1. 00% below BPLR, Min. 11. 00% p. a. Quantum of Loan: Max. Rs. 10. 00 Lacs per borrower. STAR CHANNEL CREDIT Facility: a. Drawee Bill Finance for Suppliers b.
Drawee Bill Finance or Overdraft facility for Dealers. Eligibility criteria: Sponsoring Corporate can be a Manufacturing Unit, or a Wholesale Dealer/Distributor of goods rated ‘AA’ and above. Documentation: Simplified application forms and rationalized documentation. Maximum exposure: A capital of Rs. 25 lacs is prescribed in respect of each Supplier and each Dealer for financing under liberalized norms. Above these limits, Bank’s normal lending norms/procedures to be made applicable. Tenor of the facility: Maximum 90 days. Processing charges: No processing charges for the suppliers % of limit from each Dealer payable up front at the time of sanctionof limit. Payment Mechanism: Payment as per agreed upon terms (inclusive of charges) would be made by fastest means of remittance – through Bank’s MBB/CBS Network or RTGS system. ?Agricultural loans AGRICLINICS AND AGRIBUSINESS Agriclinics: Agriclinics are envisaged to provide expert services and advice to farmers on cropping practices, technology dissemination, crop protection from pests and diseases, market trends and prices of various crops in the market and also clinical services for animal health etc. hich would enhance productivity of crops/animals. Agribusiness Centres: Agribusiness centres are envisaged to provide input supply, farm equipments on hire and other farm services. Eligibility: The scheme is open to Agriculture Graduates/Graduates in subjects allied to agriculture like horticulture, animal husbandry, forestry, dairy, veterinary, poultry farming pisciculture and other allied activities. Selection of Borrowers: Selection of borrowers and location of the projects could be done by banks in consultation with the Agricultural Universities.
Project Activities: An illustrative list of ventures. •Soil and water quality cum inputs testing laboratories (with Atomic Absorption Spectrophotometers) •Pest surveillance, diagnostic and control services •Maintenance, repairs and custom hiring of agricultural implements and machinery including micro irrigation systems (sprinkler and drip) • Setting up of Vermiculture units, production of bio-fertilisers, bio-pesticides, bio-control agents. Setting up of Apiaries (bee-keeping) and honey & bee products’ processing units • Hatcheries and production of fish finger-lings for aquaculture • Provision of livestock health cover, setting up veterinary dispensaries & services including frozen semen banks and liquid nitrogen supply • Setting up of Information Technology Kiosks in rural areas for access to various agriculture related portals Project Cost and Coverage: Agricultural graduates may take up the project either individually or on joint/group projects. The outer ceiling for the cost of project by individual would be Rs. 0 lakhs and for the project by group would be Rs. 50 lakhs. Rate of Interest: As per RBI Norms. Security: Upto Rs. 5 Lacs- Hypothecation of stocks created out of Bank finance. Above Rs. 5 Lacs- Hypothecation of stocks created out of Bank finance. Repayment: The period of loan will vary between 5 to 10 years depending upon the activity. The repayment period may include a grace period of a maximum 2 years. AKSHYA URJA SHOPS Scheme For Financing of Akshya Urja Shops: Akshay Urja Shops are retail outlets which would sell and service all Renewable Energy Devices and Systems including Solar Energy Products.
Eligibility: Private Entrepreneurs, Reputed NGOs and Manufacturer’s Associations are eligible for opening AUSs. Eligible Soft Loan: Maximum up to 85% of the cost of establishment of Akshay Urja Shop. Maximum Loan amount Up to Rs. 10. 00 Lakh as Demand/Term Loan Rate of Interest: 7% p. a. Repayment Period: 5 years (maximum). ARTISAN CREDIT CARD Purpose: To provide adequate and timely assistance to artisans to meet their credit requirements both investment needs as well as working capital. Eligibility: • All existing artisan borrowers of the bank enjoying credit limits up to Rs. lakhs • All artisans involved in production/ manufacturing process • Preference would be given to artisans registered with Development Commissioner • Thrust in financing on cluster of artisans and artisans who have joined to form SHG. Maximum Limit: Rs. 2 Lacs per borrower. Security: Hypothecation of Assets created out of Bank finance. KVIC (REGP) SCHEME Eligible Projects: The Scheme is applicable to all New Village Industry Projects set up in “rural” areas. Any extension or renovation of existing unit will not be eligible for this facility.
Any Village Industry including Coir Based projects (except those mentioned in the negative list) located in the rural area which produces any goods or renders any service with or without the use of power and in which the fixed capital investment per head* of a full time artisan or worker does not exceed Rs. 1,00,000/- in Plain Areas and Rs. 1,50,000/- in Hilly Areas. (* Capital Expenditure on Building/Workshed, Machinery & Furniture divided by Full Time Employment created by the project). Eligible Borrowers: Only Individuals, Institutions, Co-Operative Societies, Trusts and SHGs (in selected states) are eligible under the scheme.
Ceiling Limit on Project Cost: Rs. 25 Lacs per project. STAR LAGHU UDYOG SUVIDHA Purpose: To reward our loyal customers in meeting temporary liquidity constraints. Eligibility Criteria: 1. AAA and AA rated SSI borrowers having a sound track record 2. The unit should be enjoying limits in excess of Rs. 10 lacs. Amount: Maximum of Rs. 50 Lacs Interest Rate: 2% below the rate applicable for “AAA” and “AA” rated customers. BOI- LAGHU UDYAMI CREDIT CARD (LUCC) Purpose: To meet the credit requirements of Small Scale Industries and Tiny Sector.
Eligibility: All the exisisting customers under SSI sector who are having satisfactory dealings for the last 3 years and enjoying loan upto a limit of Rs. 2 Lacs. ?DISCOUNTING FUTURE CASH FLOWS Eligibility: High net worth corporate/non-corporate/landlords of repute with a minimum credit rating of ‘A’. Purpose: To discount future cash flows including lease rentals. General corporate purposes- like augmentation of long resources for working capital management/acquisition and/or refinance of fixed assets/prepayment of high cost loans/ availing loan against identifiable assets without joining consortium etc.
Maximum Loan: Expected cash flows within 3-5 years/lease rentals receivable from shopping /office complexes up to a period of 10 years. Rate of Interest: At BPLR. Repayment: 3 to 10 years. ?SMALL AND MEDIUM ENTERPRISES Small & Medium Enterprises sector constitute the growth engine of the economy with contribution to GDP estimated at 40%, contribution to exports estimated at 50% and employment opportunities to nearly 4 crore persons. The Bank’s SME Policy covered all credit-related exposures (both Fund-Based and Non-Fund Based) and the policy guidelines relating to Credit Risk Management, Credit Delivery, Credit Monitoring.
The following chart indicates the threshold investment levels for both Manufacturing sector (INVESTMENT IN PLANT & MACHINERY)* and Services sector (INVESTMENT IN EQUIPMENT)* for the above three categories of Manufacturing and Services Enterprises :- EnterpriseEngaged in Manufacturing / Preservation of Goods(incl. Processing Units)Engaged In Providing/ Rendering of Services Micro EnterpriseNot to Exceed Rs. 25 Lakhs. Not to Exceed Rs. 10 Lakhs. Small EnterpriseMore than Rs. 25 lakhs but does not exceed Rs. 5 Crores. More than Rs. 10 lakhs but does not exceed Rs. 2 Crores.
Medium EnterpriseMore than Rs. 5 Crore Rupees but does not exceed Rs. 10 Crore. More than Rs. 2 Crore Rupees but does not exceed Rs. 5 Crore. CREDIT RATING Based on changing scenario and the need to factor certain vital parameters like Market Risk,Industry Risk, Management Risk, etc. so that important elements of the rating process are given sufficient attention , a new rating model has been evolved. Even though the main purpose of the rating system is to decide on “risk”, credit rating is also used to ‘price the product’ in a scientific and transparent manner.
Hence, apart from analyzing the various risks, due weightage has been given to factors such as volume of business, share of ancillary business, length of relationship with the bank , threat of loss of business due to competition , overall image / reputation of the customer/group , etc. , to decide the pricing. Credit Ratings are carried out as under: Type of Account Aggregate fund based /non fund based limits over Rs. 2 lakhs, but less than Rs. crore. Aggregate fund based /non fund based limits of Rs. 1 Crore And above (except traders). CREDIT RISK – MEASUREMENT & MANAGEMENT In the global context, the concept of risk management in bank lending has become a routine affair though it is still to catch up in the Indian market. Of all the risks banks encounter in their intermediation processes, credit risk poses greater threat to their vulnerability & sustainability. Credit risk arises from the likelihood of borrowers’ inability to meet payment obligations.
Credit risk has got two distinct facets: •risk from the macro credit portfolio management perspective; and •risk inherent in the individual loan account. 1. Determinants of credit risk: The word ‘risk’, be it at Corporate level or at branch level, refers to the variability of expected return. The variability could be either due to non-fructification of expected cash flows or rejection of the product by the market. Here again, the failure to honour the commitments of repayment could arise from: •economic and business risk •industry risk; and •firm level risk. ?Economic & Business/Industry Risk:
Economic risks are more influenced by factors like Government policies – monetary and fiscal measures, investment climate, political happenings, incentives in the form of tax exemptions, changes in import tariffs, etc. Similarly, business/industry risk are also external in nature to the assisted unit. Factors like state of economy, natural calamities, business cycles, industrial recession, excess capacity creation in anticipation of increase in demand, newer and cheaper products replacing the existing one, technology getting obsolete/replaced by cheaper and more effective echniques, over-exposure to a particular industry/group, etc. , affect the functioning of the assisted unit, which in turn, inflicts financial damage to the bank These are more of macro level perceptions affecting the credit portfolio of bank as a whole. Firm-level Risk: The firm-level risk, which is unique to each loan proposal, can be segregated into: financial risk cost-based risk fiduciary risk (off balance sheet items) default risk Default, owing to either of these two, results in: oWrite off of the asset, if not recovered – direct loss oIf recovered late – loss of opportunity for reinvestment and fall in value of money.
The happening or otherwise of these risks depends on two aspects: •propensity of the borrower to pay; and •ability of the borrower to pay. Ability can be estimated at the unit level through financial appraisal techniques etc. , but willingness to pay is likely to remain as a subjective assessment. 2. Credit Risk Evaluation Economic and industry risks being more of a macro level perception influenced by events external to the assisted unit as well as the banks, needs to be managed at the corporate level by undertaking continuous research into various government policies, general economy of the country, industry profile, etc.
Based on such constant tab on the market happenings, corporate offices formulate credit policy guidelines and circulate the same to branches for compliance/to ensure that the risks are transferred/ minimized/ mitigated. ?At Corporate level: Credit risk at corporate level is bound to vary between 0 and 1. It means, if the entire loan portfolio is NPA, the risk is 1. On the contrary if there is no NPA, risk is 0. In reality these two are absurd. Based on these probabilistic characteristics and assuming that the existing levels of bad debts etc. re true representative of normal market behaviour, we can work out a possible risk factor index of a bank’s loan portfolio as under: Risk factor Index of Loan portfolio at a given time = Cumulative Int. Suspense (k) = cumulative provisions (t) + cumulative write off (t) Outstanding loans (t) + cumulative write off (t) Here as the denominator being the gross outstanding loans, the RFI will always be more than zero but less than 1. This index can aid management in keeping risk element at an acceptable level. ?Unit level risks are analyzed under the heads – •Management competence; •Commercial aspects; Technical aspects; •Financial strength Multivariate Sensitivity Analysis: Fluctuations in profit levels owing to changes in critical parameters Certainty Equivalent Method: By assigning several values to the expected cash flow from a project/return on an investment with explicit probability attached thereto and a mean value of the probability distribution arising from such alternative scenarios is calculated. Such mean would amount to a fair “expected return”. Adjusted Discount Rate Method: Pre-determined pay back ability. Profitability: Price of lent assets (P) Cost of Funds (C) Burden of servicing (B)
Profit = P – (C +B) To sum up, loan asset is created by picking up a reliable customer for an approved purpose where capital can be used to advantage with a scope for repayment within a reasonable period from trading receipts or known maturities due on given dates. Credit Rating: This is yet another technique of credit risk measurement and as a part of risk management, price the product vis-a-vis the inherent risk. Of late, this technique has almost become formalized among the banks in India though with a distorted focus on financial ratios and operational aspects of the assisted unit.
However, in the international markets, credit rating measures are usually structured in the following style to cover the whole gamut of assisted firms’ business arena. SCORING MODEL ASPECTRATING RANGEREMARKS Industry Risk10-0Prospects Managerial Competence30. 0BOD, Structure, CEO Commercial Aspects20-0Growth, Demand Technical Strength15-0Location, Technology Profitability10-0ROI, ROS Gearing5-0NW. Outside Liabilities Liquidity5-0CR, DT, CT Growth5-0Production & Sales Based on the score obtained, the units are classified into – ? Low Risk90-100 ?Moderate Risk 75- 90 ?Average Risk50- 75 High Risk30- 50 ?Very High Risk 0- 30 SWOT ANALYSIS OF BANK OF INDIA STRENGTHS: Different options are avaible to cover the large segment of market by catching the need of the ultimate customers. Bank of India has always tried to provide the best of the customer service and as a result the customers are pretty satisfied with the services provided by the Bank. The new staff which is being recently given imphasis would prove beneficial for the Bank. WEAKNESSES: Employee point of view- Employee donot have individual identity in the outside World. Officers need to have proof that they are employees of the Bank.
Customer point of view- Improvement is unrest, in such a cut throat competition Bank should be in a position to improve the services towards its customers. OPPORTUNITIES: The headline inflation has fallen sharply and recent trends suggest that it may move negative. The decline in inflation should support consumption demand and reduce input costs for corporates. Large number of sectors requires push in demand is infrastructure, IT, fertilizers, iron and steel and hence require huge investments. They will generate forward and backward linkages with other sectors and facilitate growth and further investment.
This would increase bank credit substantially. THREATS: Growth of quality assets, which are normally low yielding, would be tied up unless commensurate cost-effective CASA deposits are mobilised. Internal failure cost due to rapid migration of the employees to other Banks offering more exciting and eye catching salary packeges and benefits. The inexperienced young staff generally works with a rapid pace. This may affect the profit and the reputation of the Bank in the market. CREDIT APPRAISAL The process of credit appraisal would begin with the selection of the proponent.
It would involve appraising the background of the proponent/management, commercial, technical and financial appraisal. Appraisal of credit facilities would comprise two distinct segments: -Appraising the acceptability of the customer. -Assessment of the customer’s credit needs. Both the aspects need to be examined simultaneously at the time of the initial entry of a customer to the Bank as also subsequent periodic renewals. The appraisal would be different in respect of: a)personal loans for consumer durables, houses etc ; b)loans to tiny business enterprises ; c)loans to agriculturists ; and, )Credit facilities to firms, corporates and others for business/trade/ industry. DEFINING CREDIT APPRAISAL Credit appraisal is a holistic exercise which starts from the time a prospective borrower walks into the branch and culminates in credit delivery and monitoring with the objective of ensuring and maintaining the quality of lending and managing credit risk within acceptable limits. Details of it will be given under the title Credit Policy. DIMENSIONS OF CREDIT APPRAISAL: MANAGEMENT APPRAISAL A lot of attention has to be paid to this area, for this is one of the long term factors affecting the business of the concern.
Does the management have enough experience in the line? What is its track record? What are the antecedents? Introduced to us by whom? These are some of the questions that need to be answered before we can take up any kind of exposure. TECHNICAL APPRAISAL What is the status of technology used? Has a prototype been developed of the product? What could be the possible economic life period of the present technology? Is the venture technology feasible? Technical appraisal of the project needs to be carried out for industrial activity proposals beyond the cut-off limits prescribed from time to time.
Where technical appraisal is carried out by All India Financial Institutions, PSU Banks/other leading banks having expertise in the area and the same may be accepted for an appraisal purpose, after subjected to vetting by TAC/TAD. Exemptions from fresh techno-economic appraisal shall be available in the following categories: a)Where appraisal has been carried out by all India Financial Institutions and relevant portion of appraisal note made available for vetting of our TAD / TAC. b)Where appraisal has been carried out by leader of WC consortium and the branch / sanctioning authority observing no serious ifferences with such appraisal. c)In case of AAA /AA rated accounts with other banks, where our bank proposes to join the consortium and /or sanction limits under multiple banking arrangement for the existing activity of the company/firm d)In case of well conducted existing accounts with credit rating of AAA and AA where only additional working capital limits are sought and diversification of the project is not proposed e)In case of well conducted existing accounts with credit rating of AAA and AA term loan requirements upto Rs. 0 crores, provided expansion is in the same product line and without change in technology COMMERCIAL APPRAISAL The business has to be commercially viable for us to proceed further. Is there enough demand in the market? Is the product accepted in the market? How many substitute products are there? What about entry and exit barriers? Is there scope for further growth? The nature of the product, demand for the same, the existing and perceived competition in the segment, ability of the proponents to withstand the same, government policies governing the industry, etc. need to be taken into consideration.
The trade practices in respect of the product should be thoroughly understood. FINANCIAL APPRAISAL Does the promoter has the capacity to raise finance- both own equity and debt? What are the sources of margin? Will the business generate sufficient funds to service the debt and other stakeholders? Is the capital structure optimal? Thorough scrutiny of the financial aspects of the request needs to be carried out. Apart from ascertaining the need based character of the limits requested for, the financial health of the proponents, ability to absorb unanticipated financial costs need to be looked into.
Ascertaining the need based character of the limits would include scrutiny of the cost of the project, means of financing, financial projections etc. need to be within acceptable parameters for that industries/ activities. Where higher limits are considered, detailed analysis of the financial health would be made and the following ratios computed: i)Current ratio ii)Total outside liabilities/equity ratio iii)Profit before interest and taxes/interest ratio iv) Profit before tax/Net sales ratio v)Inventory + receivables/Sales ratio vi)DSCR if the borrower enjoys any term loan with any bank/FI even if no TL is being considered by our bank.
Assessment of working capital credit requirements hinges normally on the projected sales and other financial figures. All the above ratios would be compiled for the past two/three years including the latest audited balance sheet. As the ratios would vary from industry to industry, services, trade, etc. it is proposed not to stipulate any particular benchmark for the above ratios. Besides the above factors, Bank need to reckon the exist¬ence, if any, of negative factors that may adversely affect the con-tinued well being of a customer. ECONOMIC APPRAISAL
What is the breakeven level? Will the business post positive net present value through its economic life? What is the level of cost /benefit? What is the Internal Rate of Return (IRR)? Will the cost of funding and operations be well below the IRR? As a prudent Banker the following areas need to be particularly looked into: ? CHARACTER – Antecedents-introduced by whom- Is it a takeover account? In which case, what does the status report say? – Background Educational Professional Socio –economic, Political- Initiative and Drive. ?CAPACITY Experience in the activity – track record – planning, budgeting and review handling –production capacity – capacity utilization- professional capacity to handle men, material, money and minutes – capacities to handle contingencies and crises. ?CAPITAL -Extent of stake in business -Ability to raise finance – both owned equity and debt -Ability to inspire and sustain investor confidence -Ability to absorb losses – expected and unexpected -Structuring and budgeting capital. ?CONDITION -Condition of economy – growing, stagnant or depressed -Numbers of competitors -Substitutes in the market -Demand vs. Supply Government policies and regulations -Status of technology -Availability of manpower, material other resources -Pollution control and effluent treatment ?COLLATERAL -Risk perception and evaluation -Financial parameters •Debt/equity ratio •Asset Cover •Interest Cover •DSCR -Availability, suitability and chargeability of security –MAST principle ? CASH FLOW -Pattern of cash generation -Liquidity risk -Break-even analysis •DCF Technique •NPV •IRR •PV Index STAGES OF CREDIT APPRAISAL 1. Interview with the proponent and obtention of application on Bank’s prescribed format. 2. Adherence of KYC norms stipulated by Reserve Bank of India. . Obtention and verification of documents/financial statements according to type of credit facility/ies required as per Bank’s norms 4. Inspection: Pre sanction Inspection is done by Bank’s Officials viz. inspection of borrower’s residence, making inquiries from his area and collect market reports, inspection of proposed principal and collateral securities. In case of mortgage of property proposed, a search report is obtained from Bank’s approved advocate for last 30 years regarding non-encumbrance of the property, dues on the property, and genuineness of title, peaceful possession and marketability of property.
To ensure the market and distress sale value of the property, Valuation report of the property is also needed from Bank’s approved Architect. 5. Preparation of credit proposal: The credit proposal contains the complete information about the proponent’s background, appraisal of financial & managerial status, technical and economic viability of the activity and future prospects. Financial analysis is exercised to justify the required financial assistance/ to arrive maximum permissible finance as per Bank’s norms. This Financial analysis is done according to Bank’s/RBI norms for different kind of facility/ies.
In specified cases SWOT analysis (strength, weakness, opportunity and threats) is also done for the proponent’s and Bank’s financial safeguard. It is responsibility of the processing officer to mention all the facts relating to proponent, his/their financials, security proposed and all the terms and conditions. 6. Sanction of credit proposal: The sanctioning authority goes through the credit proposal and it is his responsibility to ascertain the facts of the proposal. If needed he himself make physical inspection and change/modify the terms and conditions and finally give sanction within stipulated time frame of the scheme. . A sanction letter is given to the proponent. The sanction letter contains the type and size of facility and margin stipulated with all terms and conditions including rate of interest and charges, Insurance of the proposed security and periodicity of inspections etc. which is duly acknowledged by the proponent/s. 8. If the proponent agrees the terms and conditions stipulated by the bank, he/authorized persons have to execute the security documents before the Bank’s authorized officer and finally the account is opened to disburse the facility. 9.
After disbursement post sanction inspections are carried out by the Bank’s official from time to time (as stipulated per terms of sanction) to ascertain the utilization of funds, for safeguard of the advance and Bank’s interest in the security. PROCESS OF CREDIT APPRAISAL General The process of credit appraisal would begin with the selection of the proponent. It would involve appraising the background of the proponent/management, commercial, technical and financial appraisal. Appraisal of credit facilities would comprise two distinct segments: -Appraising the acceptability of the customer. Assessment of the customer’s credit needs. Both the aspects need to be examined simultaneously at the time of the initial entry of a customer to the Bank as also subsequent periodic renewals. The appraisal would be different in respect of: apersonal loans for consumer durables, houses etc ; bloans to tiny business enterprises ; cloans to agriculturists ; and, dCredit facilities to firms, corporates and others for business/trade/ industry. Background of the proponent/management
The identification of the borrower needs to be done properly through scrutiny of his antecedents, experience, competence, integrity, initiative etc. This may be done by obtaining status reports from previous bankers or meaningful assessment of his dealings with bank. In case of corporates, the management structure, the background of the top management, needs to be scrutinised. Bank should be careful if the names of prospective borrowers/promoters appear in the list of defaulters published by RBI/ ECGC etc or in any other list of undesirable customers.
Wilful defaulters In case of borrowers/promoters who have been identified as wilful defaulters by banks and advised by RBI, there are certain penal provisions applicable. Credit facilities may not be denied to any constituent merely on the ground that their directors (Nominee of Professional) not connected with the day to day management are appearing on the defaulters list of RBI. However, discrete enquiries may be made about their existing status with the defaulting company. Additionally, it should be ensured that directors of he borrowing company should not have been disqualified due to provisions of Section 274(g) of Companies Act. Commercial appraisal The nature of the product, demand for the same, the existing and perceived competition in the segment, ability of the proponents to withstand the same, government policies governing the industry, etc. need to be taken into consideration. Technical appraisal Technical appraisal of the project needs to be carried out for industrial activity proposals beyond the cut-off limits prescribed from time to time.
Such appraisal may be carried out in-house by officers having the technical expertise for the same or by an outside agency as determined by the appropriate authority. Where technical appraisal is carried out by All India Financial Institutions. PSU Banks/other leading banks having expertise in the area and the same may be accepted for an appraisal purpose Exemptions from fresh techno-economic appraisal shall be available in the following categories : aWhere appraisal has been carried out by all India Financial Institutions and relevant portion of appraisal note made available for vetting of our TAD / TAC. Where appraisal has been carried out by leader of WC consortium (in respect of accounts where our Bank is to have only WC exposure) and the branch / sanctioning authority observing no serious differences with such appraisal. cIn case of AAA /AA rated accounts with other banks, where our bank proposes to join the consortium and /or sanction limits under multiple banking arrangement for the existing activity of the company/firm Sanctioning authorities may however stipulate, if so desired, techno economic appraisals for any specific reasons in the exempted categories also upon recording such reasons
Financial appraisal Thorough scrutiny of the financial aspects of the request needs to be carried out. Apart from ascertaining the need based character of the limits requested for, the financial health of the proponents, ability to absorb unanticipated financial costs need to be looked into. Ascertaining the need based character of the limits would include scrutiny of the cost of the project, means of financing, financial projections etc. Where higher limits are considered, detailed analysis of the financial health would be made and the following ratios computed: aCurrent ratio Total outside liabilities/equity ratio cProfit before interest and taxes/interest ratio dProfit before tax/Net sales ratio eInventory + receivables/Sales ratio fDSCR if the borrower enjoys any term loan with any bank/FI even if no TL is being considered by our bank. Appraisal of PSUs and Govt. Corporations PSUs and Government Corporations are sought after targets for credit off take because of their inherent strength like the skilled managerial and technical manpower pool in their fold, their strategic locations, their knowledge of their field of operation etc.
However, it is generally seen that the latest financials are not available since their Balance Sheets need the nod of the Parliament or legislative assembly and are usually delayed by more than a year. In such cases, provisional figures may be accepted in place of Audited Balance Sheet for a period up to two years. Information to be obtained from the borrowers Bank need to obtain all information necessary for a sound credit decision an indicative check list of documents to be obtained is given in the annexure II.
At times some of the information required may not be forthcoming immediately from some borrowers due to many factors. In such cases a view may be taken without the said information and comments noted in the proposal. CREDIT POLICY Lending is banking industry’s ‘dharma’. In reconfirmation Bank has adopted the policy Mission & Vision statements. Over the years credit priorities of Bank of India have undergone changes to cope with the environmental changes, tap the available opportunities, achieve their commercial objectives, fulfill social obligations and adhere to mandatory directed lending norms.
The policies adopted towards this end have stood the test of time and have been operating at both formal and informal levels. This has resulted in their following below-mentioned credit priorities concurrently i)Maintenance of asset quality; ii)Maintaining growth and reasonable risk adjusted returns on credit exposures; iii)Retaining/improving our market share; iv)Thrust on priority sector lending with focus on direct agriculture credit, retail advances SME segment and export credit.
With the ushering in an era of liberalization in the economy, new opportunities are available and for a Bank of this size it is important that it realizes its market share through better understanding of these developments. In view of the fast changing needs of customers, the Bank has to have an open ended policy so as to foray into hitherto unfocussed assets. Asset quality priority would dictate a credit culture which is value driven and would have a conservative risk strategy.
Market share philosophy will be more volume driven and would have a more aggressive credit risk strategy The Bank would be concerned with the purpose for which the credit exposure – both fund based and non-fund based is to be utilized. While sanctioning any credit exposure, it should be ensured that the purpose for which the exposure is taken is an approved one. The Bank has over the years, designed and adopted the Best Practices Code which is enshrined in the Manual of Instructions that are amended from time to time. This, in effect, represents the Bank’s Philosophy towards effective corporate governance.
COVERAGE This Policy would govern all credit and credit related exposures, Fund based as well as Non-Fund based. These would include short term, medium term and long term fund based facilities, as also Letters of Credit, Guarantees, Acceptances, etc. , exposures in the foreign exchange market and exposures in financial derivatives when these are introduced in the Indian market. It would also be applicable to the Bank’s investments in Commercial Paper. The main features of the Policy would also apply to financial lease facilities, factoring and forfeiting facilities that may be granted by the Bank
CLIENTELE Bank being one of the largest public sectors Banks is required to service a varied clientele having diverse requirements. This include lending to the poorest of the poor under DRI (differential rate of interest) lending, other priority sector lending, individuals, partnership firms, associates of persons, corporate, trusts, large business houses and groups, undertakings owned by Central/State Governments, etc. ?In respect of priority sector lending there are laid down parameters. In respect of the others it would be the endeavor with credit rating of ‘AA’ (LC3 to LC4) and above.
To ensure that the overall quality of the Bank’s credit exposure is good, it is desirable that a major portion of the portfolio is in respect of customers (having exposure of Rs. 1 crore and above) enjoying good health i. e. risk rating not below “A”. This may be reviewed annually. ?Emphasis on retail advances such as personal loans, education loans, housing loans, mortgage loans etc. is expected to result not only in better interest spread but is also expected to improve the overall quality of credit. ?Small & Medium Enterprises (SME) Sector constitutes the growth engine of the economy.
With the Services sector dominating the SME and MNCs outsourcing their various requirements to Indian service providers, there is tremendous scope for SME finance. Accordingly, Bank decided to give increased thrust for lending to SMEs. There is a separate policy for financing SMEs. MARKETING It is proposed that Bank should gradually move over to the system of marketing credit by an exclusive team trained for this purpose. It is proposed to cover the top 50/100 locations (cities, towns, etc. ) which account for about 80% of the Bank’s business.
Further, separate teams may be chosen for marketing corporate products and retail products. The function of marketing team will continue till obtention and provision of adequate data, providing indicative inputs on interest rates, charges, securities, submission of proposals, etc. Credit Delivery through Bank’s branches The Bank may adopt a segmented approach to deliver credit through specialized/specially identified branches, in order to develop a focused approach that will develop credit appraisal skills for speedy credit decisions and disposal of credit, as given below:
C & P Branches : These branches will dispense loan against fixed deposits and other paper securities and personal loans. Housing & Personal Finance Branches: Housing Finance and Consumer Loans. SME Branches: SME branches are required to cater to the credit requirements of SME segment in these centres while continuing extending other advances. Agri-Hi-Tech Branches: Hi-Tech Agriculture projects, large volume agriculture businesses. Main Branches in cities/towns: Trade finance, small and medium enterprises – working capital, term loan requirements.
Corporate Banking Branches: Large Corporate Branches may be established in various cities to cater to the specific credit requirements of Corporates. Mid Corporate branches may also be established for providing focus on this segment. These branches will cater to the needs of borrowers with total limits (Fund based + Non-Fund Based) of more than Rs. 25 crores CREDIT THRUST ?Priority Sector Lending •The Bank has traditionally been proactively involved in aggressively lending to the priority sector to fulfill the social obligations enjoined upon the nationalised sector. Presently the same being as follows : ?
The priority sector target of 40% of net Bank credit. ?Exposure to agriculture not less than 18% of net Bank credit and direct finance to agriculture should not be less than 13. 5% of Net Bank credit. ?Exposure to weaker section not less than 10% of net Bank credit. ?Export credit target of 12% of net Bank credit. ?DRI not less than 1% of the previous year’s total advances. ?Housing loan targe