LOAN APPRAISAL PROCESS OF PNB

8/19/2019 LOAN APPRAISAL PROCESS OF PNB

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A STUDY ON LOAN APPRAISAL PROCESS AT PUNJAB

NATIONAL BANK

A Summer Training Project ReportSubmitted in partial fulfillment of the requirement for the

Award of Degree of Master of Business Administration

2014 – 2016

SUBMITTED BY IN THE GUIDANCE OF

ABHISHEK SINGH DR V.K. KHURANA

072140!"14

DEPARTMENT OF MANAGEMENT

MAHARAJA AGRASEN INSTITUTE OF TECHNOLOGY

#A$$%&%'()* (+ G.G.S.I.P. U,%-)/%(

S)(+ – 223 R+%,%3 D)&% 511006A, ISO "001200 C)(%$%)* I,/(%(()

AICTE NBA A)*%()* I,/(%(()

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STUDENT UNDERTAKING

This is to certif that ! AB"!S"#$ S!%&" had completed the Project

titled 'ST(D) *% +*A% APPRA!SA+ PR*,#SS AT P(%-AB

%AT!*%A+ BA%$. in P(%-AB %AT!*%A+ BA%$ under the guidance

of Dr/0/$ $"(RA%A in the partial fulfillment of the requirement for the

award of degree of MBA from Maharaja Agrasen !nstitute of Technolog

Affiliated to &/&/S/!/P/ (ni2ersit34 %ew Delhi/ This is an original piece of

wor5 and ! had neither copied nor submitted it earlier elsewhere/

S(*),( N'8) ',* S%9,'()

C+/)

D'()* 5

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C)(%$%'() $+8 G%*)

This is to certif that the project titled 'A ST(D) *% +*A% APPRA!SA+

PR*,#SS AT P(%-AB %AT!*%A+ BA%$. is an academic wor5 done b

'AB"!S"#$ S!%&". submitted in the partial fulfillment of the

requirement for the award of the Degree of MBA from Maharaja Agrasen

!nstitute of Technolog Affiliated to &/&/S/!/P/ (ni2ersit34 %ew Delhiunder m guidance and direction/ To the best of m 5nowledge and belief

the data and information presented b him7her in the project has not been

submitted earlier/

N'8) ',* /%9,'() +$ F'&( G%*)

D)/%9,'(%+,

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ACKNO:LEDGEMENT

! would li5e to than5 all those who helped me through the project of

familiari9ation ! would li5e to e:press m sincere appreciation to m guide

Dr/0/$/$"(RA%A for his enlightenment of m 5nowledge of feed bac5

and the Ban5ing industr4 2aluable ad2ice and 5ind support throughout the

process of dissertation completion

Most importantl4 ! would li5e to than5 m parents and sister who were

alwas there to moti2ate me/ ! would li5e to than5 all the focus group

members for gi2ing their 2aluable time and thoughts to m project/

! would li5e to than5 all the customers and emploees of Ban5ing for

sharing their 2aluable thoughts which helped me shape this project

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E;ECUTIVE SUMMARY

Ban5ing means transacting business with a ban5 depositing or withdrawing

funds or requesting a loan etc/ or engaging in the business of ban5ing

maintaining sa2ings and chec5ing accounts and issuing loans and credit etc/

The ban5s pro2ide the necessar financial assistance to the go2ernment in

the process of attaining its socio and economic objecti2es/ %owadas the

ban5s ha2e ta5en the primar responsibilit in the implementation of 2arious

schemes and program sponsored b the go2ernment/ A ban5 ma be defined

as a credit institution/ !t is an institution which studied deals in and

guarantees credit/


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INDE;

S

N

CONTENTS PAGE

NO.

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CHAPTER 1

INTRODUCTION

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1. INDIAN BANKING INDUSTRY

A ban5 is a financial institution that pro2ides ban5ing and other financial

ser2ices to their customers/ A ban5 is generall understood as an institution

which pro2ides fundamental ban5ing ser2ices such as accepting deposits and

pro2iding loans/ There are also nonban5ing institutions that pro2ide certain

ban5ing ser2ices without meeting the legal definition of a ban5/ Ban5s are a

subset of the financial ser2ices industr/ A ban5ing sstem also referred as a

sstem pro2ided b the ban5 which offers cash management ser2ices for

customers4 reporting the transactions of their accounts and portfolios4

throughout the da/ The ban5ing sstem in !ndia should not onl be hassle

free but it should be able to meet the new challenges posed b the

technolog and an other e:ternal and internal factors/ @or the past three

decades4 !ndias ban5ing sstem has se2eral outstanding achie2ements to its

credit/ The Ban5s are the main participants of the financial sstem in !ndia/

The Ban5ing sector offers se2eral facilities and opportunities to their

customers/ All the ban5s safeguards the mone and 2aluables and pro2ide

loans4 credit4 and pament ser2ices4 such as chec5ing accounts4 mone

orders4 and cashiers cheques/ The ban5s also offer in2estment and insurance

products/


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N))* +$ () B',>/

Before the establishment of ban5s4 the financial acti2ities were handled b

mone lenders and indi2iduals/ At that time the interest rates were 2er high/

Again there were no securit of public sa2ings and no uniformit regarding

loans/ So as to o2ercome such problems the organi9ed ban5ing sector was

established4 which was full regulated b the go2ernment/ The organi9ed

ban5ing sector wor5s within the financial sstem to pro2ide loans4 accept

deposits and pro2ide other ser2ices to their customers/

H%/(+ +$ I,*%', B',>%,9 S/()8

The first ban5 in !ndia4 called The &eneral Ban5 of !ndia was established in

the ear 1?>/ The #ast !ndia ,ompan established The Ban5 of

Bengal7,alcutta 1C34 Ban5 of Bomba 1;C3 and Ban5 of Madras

1;83/ The ne:t ban5 was Ban5 of "industan which was established in

1?C/ These three indi2idual units Ban5 of ,alcutta4 Ban5 of Bomba4 and

Ban5 of Madras3 were called as Presidenc Ban5s/ Allahabad Ban5 which

was established in 1>= was for the first time completel run b !ndians/

Punjab %ational Ban5 +td/ was set up in 1; with head quarters at +ahore/

Between 1C> and 1184 Ban5 of !ndia4 ,entral Ban5 of !ndia4 Ban5 of

Baroda4 ,anara Ban54 !ndian Ban54 and Ban5 of Msore were set up/ !n

1614 all presidenc ban5s were amalgamated to 66 from the !mperial Ban5

of !ndia which was run b #uropean Shareholders/ After that the Reser2e

Ban5 of !ndia was established in April 18=/

At the time of first phase the growth of ban5ing sector was 2er slow/

Between 118 and 1; there were appro:imatel 11CC small ban5s in


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!ndia/ To streamline the functioning and acti2ities of commercial ban5s4 the

&o2ernment of !ndia came up with the Ban5ing ,ompanies Act4 1; which

was later changed to Ban5ing Regulation Act 1; as per amending Act of

1>= Act %o/68 of 1>=3/ Reser2e Ban5 of !ndia was 2ested with e:tensi2e

powers for the super2ision of ban5ing in !ndia as a ,entral Ban5ing

Authorit/ After independence4 &o2ernment has ta5en most important steps

in regard of !ndian Ban5ing Sector reforms/ !n 1==4 the !mperial Ban5 of

!ndia was nationali9ed and was gi2en the name EState Ban5 of !ndiaE4 to act

as the principal agent of RB! and to handle ban5ing transactions all o2er the

countr/ !t was established under State Ban5 of !ndia Act4 1==/ Se2en ban5s

forming subsidiar of State Ban5 of !ndia was nationali9ed in 1>C/ *n 1th

-ul4 1>4 major process of nationali9ation was carried out/ At the same

time 1; major !ndian commercial ban5s of the countr were nationali9ed/ !n

1C4 another si: ban5s were nationali9ed4 and thus raising the number of

nationali9ed ban5s to 6C/ Se2en more ban5s were nationali9ed with deposits

o2er 6CC ,rores/ Till the ear 1C appro:imatel CF of the ban5ing

segment in !ndia was under go2ernments ownership/ *n the suggestions of

%arsimhan ,ommittee4 the Ban5ing Regulation Act was amended in 18

and thus the gates for the new pri2ate sector ban5s were opened/

2. PUNJAB NATION BANK

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INTRODUCTION

P%B was founded in the ear 1; at +ahore presentl in Pa5istan3 as an

offGshoot of the Swadeshi Mo2ement/ Among the inspired founders were

Sardar Daal Singh Majithia4 +ala "ar$ishen +al4 +ala +alchand4 Shri $ali

Prosanna Ro4 Shri #/,/ -essawala4 Shri Prabhu Daal4 Ba5shi -aishi Ram/


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ears ago4 the ban5 has grown in stature to become one of the leading

ban5ing institutions in !ndia/ P%B is the second largest PS( ban5 in !ndia

with a dominant presence in north !ndia/ $eeping in tune with changing

times and to pro2ide its customers more efficient and speed ser2ice4 the

Ban5 has ta5en major initiati2e in the field of computeri9ation/ All the

Branches of the Ban5 ha2e been computeri9ed/ The Ban5 has also launched

aggressi2el the concept of EAn Time4 An e:tension counters

among %ationali9ed Ban5s/ All their branches offer ,ore7 ,entrali9ed

Ban5ing Solution ,BS3 along with a 2ariet of financial products catering

to different mar5et segments/ The has international presence in countries4

with a branch at $abul4 6 branches in "ong $ong4 representati2e offices at

Almat4 Dubai4 Shanghai and *slo4 a wholl owned subsidiar in ($ with

= branches34 and a joint 2enture with #2erest Ban5 +td4 %epal/ Punjab

%ational Ban5 was incorporated in the ear 1= at +ahore4 undi2ided !ndia/

The Ban5 has the distinction of being the first !ndian ban5 to ha2e been

started solel with !ndian capital/ !n the ear 1;C4 the Ban5 absorbed

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Bhagwan Dass Ban54 a scheduled ban5 located in Delhi circle/ !n the ear

1=14 the acquired the 8 branches of Bharat Ban5 and in the ear 1>14

the acquired (ni2ersal Ban5 of !ndia/ Punjab %ational Ban5 was

nationali9ed in -ul 1> along with 18 other ban5s/ !n the ear 1>4 the

acquired "industan ,ommercial4 which added "industanJs 1;6 branches to

the Ban5Js networ5/ !n the ear 184 the acquired %ew Ban5 of !ndia

which the &*!/ During the ear 1>4 the de2eloped a pac5aged for

corporate customers for fast remittance of funds from different upGcountr

branches/ !n the ear4 the set up a representati2e office in Almat4

$a9a5hstan/ !n the ear 6CCC4 the Ban5 has introduced a scheme for

pro2iding finance against mortgage of immo2able propert/ !n September

6CCC4 the commenced their gold business in the form of &old !mport

Scheme/ !n %o2ember 6CCC4 the launched an !nternational ,oGbranded

,redit ,ard of Punjab %ational Ban5 and "ong5ong K Shanghai Ban5ing

,orporation "P%B,3 in %ew Delhi/ !n March 6CC64 the Ban5 came out

with their first !nitial public offer !P*3 for =48C4>C4?CC equit shares of Rs

1C each which resulted in the reduction of the go2ernmentJs shareholding in

the Ban5/ During the ear 6CC64 the started their branch in M/&/ Road4

Bangalore named as MidG,orporate Branch M,D3 to pro2ide their

corporate clients with a credit limit of Rs 8/= crore and abo2e/ The made

joint 2enture with !nfoss for the implementation of a ,entrali9ed Ban5ing

Solution for them/ Also4 the made a tie up with ,isco Sstems for

networ5ing 84?C branches as part of their Rs 1=C crore plan/ !n the ear

6CC84 the Ban5 too5 o2er $o9hi5odeGbased %edungadi Ban5 +td %B+3/

The Ban5 entered into an alliance with %ew !ndia Assurance for selling their

general insurance products/ Also4 the opened a representati2e office in

+ondon/ During the ear4 P%B ,apital Ser2ice +td was amalgamated with

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the Ban5/ !n -une 6CC84 the Ban5 entered into a Mo( with Principal

@inancial Ser2ices !nc (SA3 and 0ijaa Ban5 for joint 2enture partnership

in +ife !nsurance4 Pensions and Asset Managements M@3 business/ Also4

the formed a strategic alliance with !nfrastructure +easing and @inancial

Ser2ices +td !+K@S3 for setting up a pri2ate equit fund for in2esting in

Domestic companies/ !n the ear 6CC;4 the Ban5 acquired the assets of

"industan Transmission Product +td/ The signed a corporate agenc

agreement with #:port ,redit &uarantee ,orporation of !ndia +td #,&,3

for mar5eting #,&,Js e:port credit insurance products through the networ5

of the ban5Js branches/ Also4 a Mo( was signed with !ntel for the

deploment of 2arious !TGrelated solutions/ During the ear4 the Ban5 signed

a Mo( with !,!,! Ban5 for ATM networ5 sharing/ The awarded a project

to Tata ,onsultanc Ser2ices T,S3 for implement human capital

management and paroll solution/ The established a branch office in $abul4

Afghanistan/ Also4 the opened a representati2e office in Shanghai/ The

ban5 established an alliance with #2erest Ban5 in %epal that permits

migrants to transfer funds easil between !ndia and #2erest Ban5Js 16

branches in %epal/ !n the ear 6CC=4 the Ban5 un2eiled ATM at #dappal/

Also4 the opened a representati2e office in Dubai/ !n the ear 6CC>4 the

Ban5 made a tie up with Master,ard !nternational to launch a signatureG

based debit card/ Also4 the made a tie up with !ndian Airlines for online

boo5ing of air tic5ets/ The opened a new branch in (ttara5hand/ !n *ctober

6CC?4 the Ban5 entered into Mo( with !ndia !nfrastructure @inance

,ompan with an aim to e:tend their cooperation and support to !!@, in

areas of creating a deal flow of infrastructure projects/ !n -anuar 6CC4 the

Ban5 commenced commercial ban5ing operations in "ong $ong/ During the

ear 6CCGC4 the Ban5 opened 1> branches4 out of which C are new

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branches and ? branches was added through up gradation of #:tension

,ounters/ The made collaboration with +!, for selling insurance policies

And also made a toe up with *riental !nsurance for selling nonGlife policies

on a referral basis/ !n -une 6CC4 the entered into a Mo( with !+@S ,luster

De2elopment !nitiati2e +td for pro2iding finance for 2arious industrial

infrastructure projects in the countr/ !n September 6CC4 the signed a Mo(

with SM, &lobal Securities +td and %et worth Stoc5 Bro5ing +td for

pro2iding online trading facilit to ,ompanJs customers/ The offered a

unique J8 in 1 accountJ comprising of Sa2ing4 Demat and Trading account/ !n

@ebruar 6CC4 the commerciall launched their credit cards with 6 tpes

of consumer credit cards4 namel &old and ,lassic/ Also4 the entered into

an agreement with *riental !nsurance ,ompan to mar5et insurance

products4 a practice also 5nown as ban assurance/ !n March 6CC4 the Ban5

entered into an understanding with Tata Motors for financing entire range of

passenger cars/ Also4 the e:ecuted an agreement with The +ife !nsurance

,orporation of !ndia for banc assurance4 life insurance under the pro2isions

of !RDAJs Referral Arrangement/ During the ear 6CCG1C4 the Ban5 opened

=6; domestic branches4 out of which 8;? are at new locations while 1??

branches was added through up gradation of e:isting #:tension ,ounters/

The deploed 1;CC ATMs ta5ing the the total count of ATMs to more than

8=CC %os/ The opened two o2erseas branches 1 in "ong $ong

and another at D!@, Dubai and started a -0 ban5ing subsidiar JDR($ P%B

Ban5 +tdJ in Bhutan/ Also4 the opened a representati2e office in *slo4

%orwa/ During the ear4 the Ban5 sold >/=F of their sta5e in (T! Assets

Management ,o +td and (T! Trustee P2t +td4 thus bringing down their

sta5e in both these companies to 1/=F/ The launched ,orporate ,redit

,ard with !ndi2idual liabilit/ Also the launched Merchant Acquiring

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Business through installation of Point of Sale PoS3 Terminals at Merchant

#stablishments and !nternet Pament &atewa b integrating through

Merchant ;F sta5e in -S, Dana Ban5

of $a9a5hstan/ !n -anuar 164 6C114 the Ban5Js joint 2enture !ndia factoring

and @inance Solutions P2t +td started its commercial operations from Delhi4

Mumbai K ,hennai/ The total number of branches at the end of March 6C11

rose to =1/ The branch networ5 comprises 6C;? Rural4 11=; Semi (rban4

1111 (rban and ?? Metropolitan branches/ During the re2iew period 61C

domestic branches were opened/ Micro @inance branches4 = SM#

branches4 11 !nternational Ban5ing Branches4 1? Asset Reco2er

Management Branches4 18 Mid ,orporate Branches4 11 +arge ,orporate

Branches4 ?8 Retail Asset Branches4 11 Agriculture @inance Branches4 8

highGtech agriculture branches4 1 ,apital Mar5et Ser2ices Branch and 1

!nternational Ser2ice Branch/ Besides4 ;1 Bac5 *ffices4 6 Special @oreign

#:change *ffices4 1? Special M!,R ,enters4 ;1 Ser2ice Regional ,learing

,entre3 centers4 ; @inancial !nclusion Ser2ice ,enters4 8 ,entrali9ed Draft

Paable ,enters4 1 ,entral ,learing Ser2ice ,entre and 1 Depositor Bac5

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*ffice are established to reduce deli2er time and impro2e response time/

The Ban5 recei2ed permission from RB! for setting up a representati2e

office in Sdne4 Australia/ Also4 the are in the process of entering into

,anada/ The compan is ha2ing an aim to increase the customer base to 1=C

million b the ear 6C18/

REVIE: OF LITERATURE

The ear 6C18G6C1; was a ear that witnessed perfect stormG2olatile oil

prices4 asset bubbles and o2er le2eraged ban5s4 in a much interconnected

worldGall leading to unarguabl the greatest global financial crisis witnessed

in the human historL The !ndian ban5ing industr has not seen a collapse

li5e that of +ehman Brothers or Merrill +nch4 or not full recession proof/

The ear 6C18G6C1; was a 2er difficult ear for the !ndian ban5s/ Man

large !ndian ban5s were facing the problem of achie2ing a satisfactor

financial performance/ Thus4 it becomes important to anal9e the

performance of leading ban5s of !ndia for the ear from 6C18G6C1;/This

stud tests the performance of a set of fi2e leading !ndian ban5s during the

ear 6C18G6C1;/the ban5s selected for the stud are the ban5s that got the

top fi2e ran5ing in the categor of balance sheet si9e of more than amounts

in the sur2e b a leading business maga9ine business toda during the ear

6C18G 6C1;/ The ear 6C18G6C1; was chosen for this stud because of the

fact that it is was a crucial ear for the financial sstems of the whole world/

This stud e2aluates the performance of the ban5s based on eight

parametersG %et !nterest !ncome4 ,ost to !ncome Ratio4 ,apital Adequac

Ratio4 %et %PAs4 Deposit &rowth4 Return on Assets4 Return on ,apital

#mploed and *perating Profit/ These parameters ha2e been identified as

the 5e performance indicators of ban5s b industr e:perts/ This stud

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helps us to understand the commonl used performance measures of ban5s/

!t helps to identif the ban5 that performs the best with regard to each

Performance parameter/ This stud also analses the strengths and

wea5nesses of each ban5 selected for the stud/ Re2iew of literature has 2ital

rele2ance with an research wor5 due to literature re2iew the possibilit of

repetition of stud can be eliminated and another dimension can be selected

for the stud/ The literature re2iew helps researcher to remo2e limitations of

e:isting wor5 or ma assist to e:tend pre2ailing stud/ Se2eral researches

ha2e been conducted to anal9e the different aspects of performance of

commercial ban5s in !ndia and abroad/ But there are 2er few research and

literature a2ailable on the subject related to financial reforms and its impact

on !ndian ban5s/ The a2ailable literature and research are di2ided into four

major parts according to the area of research i/e/4 literature related to

Re2iew of literature related to performance appraisal of ban5s

Re2iew of literature related to polic framewor5 and

recommendations for ban5s/

/ Re2iew of literature related to impact of reforms on !ndian ban5s

/ Re2iew of literature related to ser2ice qualit of !ndian ban5s The

abo2e mentioned literature ha2e been obtained from following four

major sources such

PRODUCTS

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P%B has a wide 2ariet of products and ser2ices that meet di2erse

requirements of its 2ast customer base/ !n the light of growing importance of

financial inclusion4 the ban5 has introduced P%B Mitra G a noGfrills sa2ings

ban5 account that can be opened either b an indi2idual4 or jointl/ A number

of deposit and loan schemes are a2ailable to customers such as housing

loans4 car finance4 customer finance4 personal and se2eral tpes of

educational loans/ !t has an international credit card4 issued in collaboration

with "ong $ong and Shanghai Ban5ing ,orporation/ "P%B, is the issuer

ban5 for the co branded credit card and it underta5es all frontGend and bac5G

end operations relating to the coGbranded credit card/ Punjab %ational Ban5

has formulated the &old ,ard Scheme for its e:porter clients based on the

scheme drawn up b Reser2e Ban5 of !ndia/ The scheme ensures eas

a2ailabilit of e:port credit on best terms to credit worth e:porters with a

good trac5 record/ The card offered b P%B is 5nown as P%B #:po &old

,ard/ The ban5 offers 16Ghour ban5ing ser2ices in ?? branches across !ndia/

S:OT ANALYSIS OF PUNJAB NATIONAL BANK

S(),9(/

• P%B has a wide networ5 of branches and ATMs allowing it to cater to

large no/ of customers

• +arge customer base

• The P%B brand is well established and 2er well recogni9ed

• P%B has adapted to technological changes in the ban5ing sector and

can le2erage it to cut costs as well as impro2e its ser2ices

• P%B has all the products under its belt4 which help it to e:tend the

relationship with e:isting customer/ P%B has umbrella of products to

offer their customers4 if once customer has relationship with the ban5

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:)'>,)//)/

• ,asual beha2ior of ban5 emploees towards customers

• 0er high le2els of gross %PA

• ,orruption and red tapism pre2alent right through the organi9ation

tpical of a PS( setup

• Slow decision ma5ing due to large hierarch

• P%B has a defensi2e approach in lending/ Because of this polic

companies prefer other ban5s and P%B in turn sometimes loose

potential customers/

• P%B is ha2ing little presence *utside !ndia4 because of which

companies prefer M%, Ban5s/ So if P%B tries to emerge outside

!ndia then it has a huge potential of customers/

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• Ad2ent of M%, ban5s +arge numbers of M%, ban5s are

mushrooming in the !ndian mar5et duet the friendl policies adopted

b the go2ernment/ This can increase the le2el of competition and

pro2e a potential threat for the mar5et share of P%B/• Dissatisfied ,ustomers Poor customer support7 ser2ice is creating a

lot of dissatisfaction among the customers4 this can pro2e to be a

serious problem as far as the mar5et reputation of the ban5 is

concerned and cane be a major threat in future business acquisition

• !ncreasing competition from other nationali9ed ban5s because of their

e2er impro2ing ser2ice standards

!. CREDIT APPRAISAL

,redit Appraisal means an in2estigation7assessment done b the ban5

prior before pro2iding an loans K ad2ances7project finance K also

chec5s the commercial4 financial K technical 2iabilit of the project

proposed/

Proper e2aluation of the customer is preferred this measures the financial

condition K abilit to repa bac5 the loan in future/

CREDIT APPRAISAL PROCESS

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Receipt of application from applicant

Receipt of documents Balance sheet4 $), papers4 Different go2t/

registration no/4 M*A4 A*A4 and Properties documents3

PreGsanction 2isit b ban5 officers

,hec5 for RB! defaulters list4 willful defaulters list4 ,!B!+ data4

#,&, caution list4 etc/

Title clearance reports of the properties to be obtained from

empanelled ad2ocates

0aluation reports of the properties to be obtained from empanelled

2alue7engineers

Preparation of financial data

Proposal preparation

Assessment of proposal

Sanction7appro2al of proposal b appropriate sanctioning authorit

Documentations4 agreements4 mortgages

DiP%Bursement of loan

CREDIT APPRAISAL OF TERM LOANS BY FINANCIAL

INSTITUTIONS LIKE BANKS

,redit appraisal of a term loan denotes e2aluating the proposal of the loan to

find out repament capacit of the borrower/ The primar objecti2e is to

ensure safet of the mone of the ban5 and its customers/ The processin2ol2es appraisal of mar5et4 management4 technical4 and financial/

&etting a term loan from financial institution is not so eas/ The corporate

as5ing for the term loan has to go through se2eral tests/ The ban5 follows an

e:tensi2e process of credit appraisal before sanctioning an loan/ !t analses

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the loan proposal from all angles/ The primar objecti2e of credit appraisal

is to ensure that the mone is gi2en in right hands and the capital and

interest income of the ban5 is relati2el secured/


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loan/ The management needs to be strong in terms of their 5nowledge about

business4 commitment towards achie2ing the set goals etc/

TECHNICAL APPRAISAL

Technical appraisal is subject to the 5ind of business and industr of the

borrower/ !f its a manufacturing concern4 all those parameters li5e project

site4 a2ailabilit of raw material and labor4 capacit utili9ation4 2icinit to

selling mar5et4 transportation etc would be e:amined/ A project needs to be

technicall 2er sound to be able to sustain all business ccles/

FINANCIAL APPRAISAL

After all the other 5inds of appraisal4 e2erthing boils down to financial

appraisal/ This probabl is the most important part of credit appraisal of a

business loans/ The reason is that it e:presses e2erthing in terms of mone/

@inancial appraisal tries to assess the correctness or reasonabilit of the

estimates of costs and e:penses and also the projected re2enues/ These ma

include the estimation of selling price4 cost of machiner4 the o2erall cost of

project and the means of financing/

@inancial appraisal in2ol2es e:tensi2e financial modeling in e:cel/ Basicall4

it ta5es the financial statements of pre2ious periods and forecasts the future

financial position for at least till the loan matures/ @rom that4 the cash flows

of each ear are compared with the installment of loan because ultimatel

the cash flows are going to honor the paments of ban5/

@easibilit of the project is e2aluated in terms of debt ser2icing capacit of

the firm/ Debt ser2ice co2erage ratio is a 5e ratio which is calculated for

each future financial period and if that ratio is satisfing the norms accepted

b the ban54 the loan would get another green signal/

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!t is difficult to e:plain the process of appraisal in an article or e2en a set of

articles/ !t is a 2er e:tensi2e wor5 being done at financial institutions/ The

ha2e a separate team of professionals for conducting such project appraisals/

APPRAISALS AND APPRAISED VALUE

An 'appraisal. is a comprehensi2e report that determines the 2alue of our

propert based on a number of 2aluation factors4 ranging from gross li2ing

space4 to the 2iew and the ear a propert was built/

!f ou plan on purchasing a new home or refinancing our current loan4 ou

will most li5el need to order an appraisal/ Tpicall4 a ban5 or mortgage

bro5er will handle this for ou4 but ou will still ha2e to foot the bill unless

its built into our mortgage rate/

APPRAISAL COSTS

Appraisals tpicall cost anwhere from N6=C to N=CC/ The cost will 2ar

based on propert tpe4 location4 and square footage/ MultiGunit properties

and properties in rural areas will usuall cost more to be appraised than a

singleGfamil residence in a densel populated area/

The most common tpe of appraisal is the (niform Residential Appraisal

Report4 or (RAR/ !t consists of interior and e:terior photos4 comparison

sales comps34 and a complete cost brea5down of the propert/ This tpe of

appraisal is a blend of both a mar5et and cost approach/

HO: IS MY HOME APPRAISED?

The cost approach establishes 2alue b determining what the cost would be

to rebuild the structure from the ground up/ The 2alue approach determines

2alue using comparison sales in the immediate area that ha2e sold within a

recent period of time/

6>

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The comparison sales are bro5en down in the appraisal report as well4 and

compared to the subject propert/ #ach comparison sale is gi2en or deducted

2alue in a number of categories based on how it stac5s up against the subject

propert/ The net 2alue of the comparison sales are then a2eraged to come

up with a median appraised 2alue for the subject propert/

The 2alue of the subject propert is reall the most important factor when it

comes to securing financing/ Ban5s and mortgage lenders need to ensure

our propert is in good condition4 and trul worth what ou or our bro5er

sa its worth/ An possible 2aluation inconsistencies will li5el cause

in2estors to sh awa from purchasing the mortgage4 lea2ing the ban5 or

lender with a 2acant propert and a major loss if the propert declines in

2alue/ #2en Donald Trump could bu a shac5 and fail to obtain a

mortgage because the propert itself simpl isnt mar5etable/

THE APPRAISAL REVIE:

*nce an appraisal is ordered4 most ban5s and lenders will order a re2iew of

the appraisal/ The re2iew will be conducted b another appraiser or simpl

b the use of an A0M4 or Automated 0aluation Model/ This is where man

borrowers get into trouble/ !f the re2iew comes in low4 or if the propert is

deemed incomplete4 ha9ardous4 or unique in an wa4 a ban5 ma decline

the loan and den financing to the potential borrower/ #2en if the borrower

has outstanding credit and assets galore4 a fault4 unique4 or o2er2alued

propert can 5ill the deal/ Thats wh its alwas important to use a qualified

appraiser who assigns a realistic 2alue to our home so there arent an

surprises when its doGorGdie time/ !ts better to 5now the true 2alue of our

home upfront before ou sign an contingencies or purchase contracts/ And

6?

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remember that the qualit of our appraisal will determine the qualit of

our re2iew unless its automated3/

The re2iew appraiser will alwas find the 2alue based on whats gi2en to

them/ !f the recei2e a poor appraisal report4 the will li5el assign a poor

2alue/ !2e seen bro5ers submit multiple appraisals and recei2e completel

different 2alues based solel on the original appraisal itself/

,ome -anuar 6>th4 6C1=4 @annie Mae will let lenders use a proprietar tool

called ',ollateral (nderwriter4. which pro2ides an automated appraisal ris5

assessment complete with a ris5 score4 ris5 flags potential o2er2aluation34

and messages to the submitting lender that warrant further re2iew/

,( wor5s b le2eraging an e:tensi2e database of propert records4 mar5et

data4 and analtical models to anal9e appraisals for qualit control and ris5

management purposes/

!n the future4 lenders ma be granted wai2er of representations and

warranties on 2alue so the can lend more freel4 at least when it comes to

questionable propert 2alues/

:HAT IF THE APPRAISAL IS LO:ER THAN THE PURCHASE

PRICE?

*ne issue that happens prett frequentl is the appraised 2alue coming in

lower than the agreed upon purchase price/

@or e:ample4 if ou agree to bu a home for N6CC4CCC4 and appl for a loan

with 6CF down4 oud need a loan of N1>C4CCC and a N;C4CCC down

6


29/71

pament/ That equates to a loanGtoG2alue ratio of CF4 which is simpl

N1>C5 di2ided b N6CC5/

%ow imagine the lender comes bac5 and tells ou that the propert onl

appraised for N1C4CCC/ )our N1>C4CCC loan amount based on the N1C4CCC

2alue would push the +T0 to O;F/ And es4 lenders use the lower of the

sales price or the current appraised 2alue/ The dont care what oure

willing to pa for it/

This is a problem because our loan would now require pri2ate mortgage

insurance4 and thats if the lender can e2en offer ou a loan abo2e CF +T0/

The solution would be to either as5 for a re2iew of the appraisal4 renegotiate

the purchase price lower3 with the seller4 or put more mone down4

assuming ou ha2e e:tra cash on hand/ *f course4 ou might wonder if

oure o2erpaing for the propert if it doesnt come in 'at 2alue/.

CURRENT SCENARIO

!mportant &uidelines and Schemes Regarding "ousing @inance "ousing

+oans under Priorit Sector +ending +oans• up to Rs/ 6= +a5h in

metropolitan centres with population abo2e 1C +a5h and Rs/ 1= +a5h in

other centres to indi2iduals for purchase7construction of a dwelling unit per

famil4 e:cluding loans granted b ban5s to their own emploees4 w/e/f/

C1/C;/6C11/ +oan To 0alue +T03 Ratio The +T0 ratio in respect of

housing loans should not e:ceed CF/ "owe2er4 for small 2alue housing

loans i/e/ housing loans up to Rs/ 6C la5h which get categori9ed as priorit

sector ad2ances34 the +T0 ratio should not e:ceed CF/ @actors for

determining eligibilit The main concern of the ban5 is to ma5e sure that

borrowers comfortabl repa the loan on time and ensure end use/ The

higher the monthl disposable income4 higher will be the amount customer

will be eligible for loan/ Tpicall a ban5 assumes that about =CG>C F of

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monthl disposable7surplus income is a2ailable for repament of loan/ The

amount of the loan also depends on applicants age4 tenure of the loan and

the interest rate/

INTEREST RATES

Ban5s generall offer either of the following loan options4 @loating Rate

"ome +oans and @i:ed Rate "ome +oans/ @or a @i:ed Rate +oan4 the rate

of interest is fi:ed either for the entire tenure of the loan or a certain part of

the tenure of the loan/ !n case of a pure fi:ed loan4 the #M! #quated

Monthl !nstallment3 due to the ban5 remains constant/ The floating interest

rate is made up of two parts the inde: and the spread/ The inde: is a

measure of interest rates generall based on sa4 go2ernment securities

prices34 and the spread is an e:tra amount that the ban5er adds to co2er

credit ris54 profit mar5Gup etc/ The prime lending rate or the base rate 1CG

1C/6=F presentl3 is used as a basis for calculating the floating rate and the

interest rate charged is the prime interest rate 7 base rate plus a certain

spread/ The #M! of a @loating Rate loan changes with changes in mar5et

interest rates/ !f mar5et rates increase4 repament increases/


31/71

or litigation4 which is li5el to affect the title to the propert ad2ersel3/

CERSAI REGISTRATION

To pre2ent frauds in loan cases the &o2ernment has facilitated setting up of

the ,entral Registr of Securiti9ation Asset Reconstruction and Securit

!nterest of !ndia ,#RSA!3 under the Securiti9ation and Reconstruction of

@inancial Assets and #nforcement of Securit !nterest Act4 6CC6

SAR@A#S! Act4 6CC63/ This Registr has become operational with effect

from March 814 6C11/ The objecti2e of setting up the ,entral Registr is to

pro2ide a database of securit interest o2er propert rights to secure loans

and ad2ances granted b ban5s and financial institutions/ A2ailabilit of

encumbrance status4 inter alia4 help in pre2enting frauds in2ol2ing cases

where loans are ta5en from different lenders against the same immo2able

propert b creating multiple mortgages b deposit of title deeds as well as

fraudulent sale of propert without disclosing the securit interest o2er such

propert/ The operation of ,#RSA! is currentl being managed b %ational

"ousing Ban5 partiall/

FEES A home loan often requires pament of 2arious fees4 such as loan

origination or processing charges4 administrati2e charges4 documentation4

late pament4 changing the loan tenure4 switching to different loan pac5age

during the loan tenure4 restructuring of loan4 changing from fi:ed to floating

interest rate loan and 2ice 2ersa4 legal fee4 technical inspection fee4 recurring

annual ser2ice fee4 document retrie2al charges and preGpament charges4 if

someone wants to prepa the loan/ Man of these fees are negotiable 7 can

be wai2ed also/

TA; BENEFIT ON THE LOAN

Resident !ndians are eligible for certain ta: benefits on both principal and

interest components of loan installments under the !ncome Ta: Act4 1>1/

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32/71

Section C, and Section 6;B grant income ta: rebates to people who ha2e

ta5en home loans/

Section ,omponent Benefits per annum w/e/f 1/C;/1;3C, Principal Rs/ 14=C4CCC 7G

6;B !nterest Rs/ 64CC4CCC 7

CREDIT HISTORY CHECKING

A ,redit "istor is basicall a record of an indi2idualJs or companJs past

borrowing4 repaments of loans and credit card bills including information

about late paments K ban5ruptc/ There is a central database a2ailable with

the ,redit !nformation Bureau !ndia3 +imited ,!B!+3 which collects and

maintains records of an indi2iduals paments pertaining to loans and credit

cards/ These records are submitted to ,!B!+ b member ban5s and credit

institutions4 on a monthl basis/ The ,!B!+ Trans (nion Score is a 8 digit

numeric summar of a persons credit histor which indicates applicants

financial K credit health/ The Score is deri2ed from the credit histor as

detailed in the ,redit !nformation Report ,!RQ and ranges from 8CC to CC

points/ ,redit score tells the lender how li5el the applicant is to pa bac5

loan or credit card dues based on past repament beha2ior/ The higher is the

score4 the more is the chance of parts loan application getting appro2ed

Before appro2ing a loan a financial institution alwas chec5s with ,!B!+ on

applicants repament trac5 record/ ;/ "ousing +oan Polic of !ndian

*2erseas Ban5 !*B is offering home loans under different schemes for the!ndian residents and %R!s at attracti2e interest rates for both the emploed

and selfGemploed persons instantl with 2er less documentation/ Thus4

with the simple processing of a few steps4 people can get the "ome loan

86


33/71

from !ndian *2erseas Ban5 for purchasing a new house 7 flat or to reno2ate 7

rebuild an e:isting home/

ELIGIBILITY GROUPS OF INDIVIDUALS

Members of ,oGoperati2e Societies/

!ndi2iduals not more than == ears of age/

"owe2er indi2iduals ma be considered at the age of >C pro2ided

their legal heirs join along with them/

+oan must be liquidated before attaining >= )ears of age/

@or salaried indi2idual

A permanent job with a minimum of 6 or 8 ears ser2ice/

@or selfGemploed professional

A minimum period of three ears of acti2it in the related field/

PURPOSE

To purchase 7 construct 7 repair 7 reno2ate flat or house/

@UANTUM OF LOAN

A ma:imum of CF of the cost of the house 7 flat e:cluding Registration and

Documentation charges/ The amount depends on applicants age and

repament capacit/

MARGIN

88


34/71

The minimum margin is 1CF of the estimated cost including the cost of the

land3 for new as well as old houses7flats/

RATE OF INTEREST

!nterest Rate F p/a/ !rrespecti2e of Tenor

+oan Amount *thers


35/71

An application form Salar certificate as a proof of income for emploed

indi2iduals3

@inancial statements for professionals4 businessman3 Agreement for sale of

house7flat Proof of membership for coGoperati2e societies etc/3 Proof for

e:perience in the line of acti2it for professionals4 business people etc/3

#stimates for ,onstruction 7 0aluation Report for Acquisition 7 +egal

opinion on the Propert from Ban5 appro2ed #ngineer 7 +awer

6. L+', R)-%) M)',%/8

+oan Re2iew Mechanism +RM3 is an effecti2e tool for constantl

e2aluating the qualit of loan boo5 and to bring about qualitati2e

impro2ements in credit administration/ Ban5s should4 therefore4 put in place

proper +oan Re2iew Mechanism for large 2alue accounts with

responsibilities assigned in 2arious areas such as4 e2aluating the

effecti2eness of loan administration4 maintaining the integrit of

credit grading process4 assessing the loan loss pro2ision4 portfolio qualit4

etc/ The purpose of +RM is to detect problem accounts

earl and to mitigate against probable losses either through loan

restructuring or the termination of poor qualit loans/

The main objecti2es of +RM could be

To identif loans promptl which de2elop credit wea5nesses and initiate

timel correcti2e actionH

To e2aluate portfolio qualit and isolate potential problem areasH

To pro2ide information for determining adequac of loan loss pro2isionH

To assess the adequac of and adherence to4 loan policies and procedures4

and to monitor compliance with rele2ant laws and regulationsH and

8=


36/71

To pro2ide top management with information on credit administration4

including credit sanction process4 ris5 e2aluation and postGsanction followG

up/

The loan appro2al process comprises of processing and e2aluating loan

applications4 documenting loan decisions and distributing loan funds/ !t is

important that management establish a loan appro2al process which includes

controls o2er lending authorit and accountabilit/

A properl functioning loan appro2al process requires the following

+oans follow a preGestablished loan processing flow4 which sets out the

proper mo2ement of loan applications within the credit unionH

Borrower information and credit analsis are properl documented

against established credit criteriaH

+oans decisions are made and appro2ed b appropriate staff4 with the

appropriate authori9ation and accountabilitH

+oan funds are disbursed4 after applicable securit is in place4 through

proper channels4 with proper safeguards against theft or fraud/

The process should co2er the entire credit ccle starting from the origination

of the credit in a financial institutions boo5s to the point the credit is

e:tinguished from the boo5s/ !t should pro2ide for sound practices in

,redit Processing7AppraisalH

,redit Appro2al7SanctionH

,redit DocumentationH

,redit AdministrationH

DisbursementH

Monitoring and ,ontrol *f !ndi2idual ,reditsH

Monitoring the *2erall ,redit Portfolio Stress Testing3

,redit ,lassificationH And

8>


37/71

Managing Problem ,redits 7Reco2er/

C)*%( P+)//%,9A


38/71

(nderstanding ris5 profile of the borrower

@orecast operating en2ironment of the borrower

!nspection of the borrowers business premises as well as the facilit that

is the subject of the proposed financing

#nsuring goodwill of applicant

ASSET5BASED LENDING ADVANTAGES VS. DISADVANTAGES

Small as well as large businesses ha2e been greatl influenced b the

recent financial crisis in the econom/ This has tightened the lending

structure for businesses/ (nsecured loans of man companies are not getting

passed these das due to changes in the lending sstem/

Man companies ha2e ta5en the option of VassetGbased lending to o2ercome

this problem/ !nterestingl4 this option of lending was considered the last

resort b man companies4 but it is now growing to be a preferred lending

form/ AssetGbased lending is generall done when it is not possible for the

compan to raise funds thorough normal lending routes/ %ormal lending is

done b selling bonds in the capital mar5et4 mortgage secured or normal

unsecured lending from the ban5/ AssetGbased lending is also preferred when

the companies need immediate capital for financing their projects b

purchasing in2entor as well as debt4 mergers4 and acquisitions/

This is a fa2ored choice for companies that do not ha2e enough creditran5ing4 time or capacit4 and trac5 record to opt for traditional capital

sources/ !t is also a good wa for companies to satisf their shortGterm

requirements of cash/ !t has four major asset classes namel in2entor4 real

8


39/71

estate4 accounts recei2able4 and equipment/ Recentl4 addition of intangible

assets li5e customer lists and trademar5s ha2e been added to it/

ADVANTAGES OF ASSET5BASED LENDING

*ne of the biggest ad2antages of this tpe of lending is that it pro2ides

mone to fast growing organi9ations/ This helps them to a great e:tent b

addressing the cash flow problem of the companies/

The are also a good choice for those companies that do not ha2e

outstanding credit/ The companies can ma5e use of intangible assets to get

the loan/

Another ad2antage of assetGbased lending sstem is that it is 2er fast/

Appling for a loan to the ban5 is a length and complicated process/ But

assetGbased lending sstem is much faster/ !t also offers a 2ariet of related

ser2ices li5e accounts recei2able processing4 in2oices4 and collection/ The

fle:ibilit and speed that this lending sstem pro2ides helps e2en the

companies with poor credit ratings/

This lending sstem offers 2er good 2alue when the lent assets are good/


40/71

"igh rate of interest on the assets is another disad2antage of this lending

sstem/

As opposed to the high rate of interest4 the limit of lending ma be lower in

this approach/

!t requires a lot of monitoring and auditing/

!t also has man appraisal costs/

Another disad2antage of assetGbased lending is that the upGfront legal costs

of this sstem are high/

;C


41/71

CHAPTER II

RESEARCH METHODOLOGY

RESEARCH METHODOLOGY

The present paper is a case stud which is restricted to branch of P%B in

Delhi/ The objecti2e of research paper is to stud the ,redit Ris5

Assessment Model of P%B and to chec5 the commercial4 financial K

technical 2iabilit of the project proposed K its funding pattern/ To obser2e

the mo2ements to reduce 2arious ris5 parameters which are broadl

;1


42/71

categori9ed into financial ris54 business ris54 industrial ris5 K management

ris5/ @or the purpose4 the secondar data is collected through the Boo5s K

maga9ines4 Database at P%B4


43/71

Adequate financial strength

CREDIT RISK

&o hand in hand/

The are li5e twin brothers/

The can be compared to two sides of the same coin/

All credit proposals ha2e some inherent ris5s4 e:cepting the almost

negligible 2olume of lending against liquid collaterals with adequate

margin

LENDING DESPITE RISKS

So4 ris5 should not deter a Ban5er from lending/

A ban5ers tas5 is to identif7 assess the ris5 factors7 parameters K

manage 7 mitigate them on a continuous basis/

But its alwas prudent to ha2e some idea about the degree of ris5

associated with an credit proposal/

The ban5er has to ta5e a calculated ris54 based on ris5Gabsorption7

ris5Ghedging capacit K ris5Gmitigation techniques of the Ban5/

CREDIT RISK ASSESSMENT #CRA – MINIMUM SCORES

HURDLE RATES

1/ The ,RA models adopted b the Ban5 ta5e into account all possible

factors which go into appraising the ris5s associated with a loan/ These ha2e

been categori9ed broadl into financial4 business4 industrial K management

;8


44/71

ris5s and are rated separatel/ To arri2e at the o2erall ris5 rating4 the factors

dul weighted are aggregated K calibrated to arri2e at a single point

indicator of ris5 associated with the credit decision/

2. FINANCIAL PARAMETERS

The assessment of financial ris5 in2ol2es appraisal of the financial strength

of the borrower based on performance K financial indicators/ The o2erall

financial ris5 is assessed in terms of static ratios4 future prospects K ris5

mitigation collateral securit 7 financial standing3/

!. INDUSTRY PARAMETERS The following characteristics of an

industr which pose 2aring degrees of ris5 are built into Ban5s ,RA

model

,ompetition

!ndustr outloo5

Regulator ris5

,ontemporar issues li5e


45/71

,redibilit abilit to meet profit PAT3 projections

Pament record

Strategic initiati2es

+ength of relationship with the Ban5

;/ RISK PARAMETERS as mentioned abo2e are indi2iduall scored to

arri2e at an aggregate score of 1CC subject to qualitati2e factors negati2e

parameters3/ The o2erall score thus obtained out of a ma:/ of 1CC3 is rated

on an point scale from P%B7P%BT+1 to P%B 7P%BT+

1.SALIENT FEATURES OF CRA MODELS

#A TYPE OF MODELS

;=


46/71

S/

%o

#:posure +e2el

@B U %@B +imits 3

%on Trading

Sector ,K! 4 SS! 4

A&+3

Trading Sector

Trade K Ser2ices3

1 *2er Rs/ =/CC crore Regular Model Regular Model2 Rs C/6= crore to Rs/ =/CC

crore

Simplified Model Simplified Model

#B TYPE OF RATINGS

S/ %o/ Model Tpe of Rating

1 Regular Model Borrower Rating

@acilit Rating

2 Simplified Model Borrower Rating

%ew Rating Scales Borrower Rating 1> Rating &rades

T)) %/ *%$$)),( '(%,9 9%-), (+ () *%$$)),( ',>/. F+ )'8


47/71

P%B 1 ;G1CC 0irtuall Wero ris5 0irtuall Absolute safet

6 P%B 6 CG8 +owest Ris5 "ighest safet

8 P%B 8 >G +ower Ris5 "igher safet

; P%B ; 1G= +ow Ris5 "igh safet

= P%B = ?>GC Moderate Ris5 with Adequate

,ushion

Adequate safet

> P%B > ?CG?= Moderate Ris5 Moderate Safet

? P%B ? >;G>

P%B =?G>8 A2erage ris5 Abo2e Safet Threshold

P%B =CG=>

1C P%B 1C ;=G; Acceptable Ris5 Ris5

Tolerance Threshold3

Safet Threshold

11 P%B 11 ;CG;; Borderline ris5 !nadequate safet

16 P%B 16 8=G8 "igh Ris5 +ow safet

18 P%B 18 8CG8; "igher ris5 +ower safet

1; P%B 1; 6=G6 Substantial ris5 +owest safet

1= P%B 1= 24 PreGDefault Ris5 e:tremel0ulnerable to default3

%il

16 P%B 1> 5555 Default &rade 555555555

Ban5 has introduced %ew Rating Scales for borrower for gi2ing loans/

Rating is gi2en on the basis of scores out of 1CC/ Ban5 gi2es loans to the

borrower as per their rating li5e P%B gi2es loans to the borrower up to

P%B rating as it has a2erage ris5 till P%B rating/ @rom P%B rating the

ris5 increases/ So ban5s do not gi2e loans after P%B rating/

;?


48/71

Aud/ Aud/ Annual Annual Annual Annual Projected

81st March 6CC 6C1C 6C11 6C16 6C18 2014 201=

%et Sales =C1/? =;>/>= ?18/6 />= />= />= />=

*perating

Profitafterinterest3

1;/>; 16/6 68;/6; 86>/> 8?;/86 ;C;/C ;6=/C>

PBT 1/6C 6/C 66/; 6/>6 16=/;? 1;8/=1 1=1/>

PBT7Sales F3 C/6; C/=8 8/1= 1C/81 18/> 1=/? 1>/1

PAT 1/6C 6/C 66/; 6/>6 16=/;? 1;8/=1 1=1/>

,ash Accruals 8/C= ;C/=1 16/6= 688/?; 66;/6= 616/>> 6CC/8>

PBD!T =;/;; =6/;1 1=C/C1 6>>/ 6;?/61 66>/6C 6C8/?6

Paid up ,apital 61/C; 66/=> 1/CC 118/; 11/1C 6=>/=? 8;C/C

T%< 61/C; 66/=> 118/; 11/1C 6=>/=? 8;C/C ;6?/C;

Adjusted T%< 61/C; 66/=> 118/; 11/1C 6=>/=? 8;C/C ;6?/C;

T*+7T%< 16/66 16/C =/C; 6/1= 1/C1 C/;? C/6?

T*+7Adjusted

T%<

16/66 16/C =/C; 6/1= 1/C1 C/;? C/6?

,urrent Ratio 1/=? 1/;6 6/66 6/=8 6/?1 8/C >/;?

,urrent Ratio

#:cl/T+

installments3

6/8; 1/? 6/66 ;/; =/>> =/8 >/;?

%/1; 8;/1 868/C 8>1/6 ;8/6=

;


49/71

MOVEMENT IN TN: Rs/ in lacs3

200" 2010 2011 2012 201! 2014 201=

*pening T%< 1?/>8 61/C; 66/=> 118/; 11/1C 6=>/=? 8;C/C

Add PAT 1/6C 6/C 66/; 6/>6 16=/;? 1;8/=1 1=1/>

Add/ !ncrease

in equit 7 premium

/;6 1C/1? >/;;

Add/7Subtractchange inintangibleassets

Adjust prior

;


50/71

ear e:penses

DeductDi2idendPament

7/61 11/== 6=/CC =C/CC >C/CC >=/CC

,losing T%< 21.04 22.=6 11!.4 11.10 2=6.=7 !40.0 427.04

CHAPTER III

DATA ANALYSIS

AND

=C


51/71

INTERPRETATION

DATA ANALYSIS AND INTERPRETATION

Data collected from published annual reports was tabulated and anal9ed

using appropriate ratio/ The ratio were calculated with the help of Microsoft

e:cel/ The comparati2e analses of performance of ban5s were done with

the help of tables4 bar charts and pie charts/ The period selected for stud is

the ear 6C18G6C1;4 as this ear was a 2er crucial ear for the financialsstems around the world due to the financial meltdown faced b the world/

!n this part4 a comparison has been made of the performance of the top fi2e

ban5s as per the Business Toda Sur2e3 during the ear 6C18G6C1; b

testing their performance with the help of 2arious ratios/ Business toda had

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gi2en the following ran5ing for ban5s4 with a balance sheet si9e of more

than amount during the ear 6C18G6C1;/

T'&) 1 T+< F%-) B',>/ +$ I,*%'

R',> B',>/

1 B',> +$ I,*%'

2 P,' N'(%+,'& B',>

! B',> +$ B'+*'

4 I,*%', B',>

= U,%+, B',> +$ I,*%'

These ban5s performances are anal9ed with the abo2e mentioned

parameters/ The ad2antages of these parameters are that man of them are

specificall designed for e2aluating ban5 performance/

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A detailed analsis of these performance parameters is done/


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INTERPRETATION

The table 6 indicates that the operating profit of Punjab national ban5

?1>C/1=3 is the highest profit among the top fi2e ban5s4 the ban5 of !ndia

1;/6>3 shows that the lowest profit among the fi2e ban5s

T'&) ! N)( I,())/( I,+8) R'(%+ +$ $%-) L)'*%,9 B',>/

Ban5 %et !nterest !ncomeBan5 of !ndia 6/11

Punjab %ational Ban5 8/1;

Ban5 of Baroda 1/

!ndian Ban5 6/;

(nion Ban5 of !ndia 6/8?

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S+) Annual Report of the Ban5s

INTERPRETATIONThe tableG8 indicates that the %et !nterest !ncome is highest for Punjab

national ban5 8/1;F3/The net interest income is 2er less for Ban5 of

Baroda 1/F34so it should ta5e urgent measures to impro2e its net interest

income4 so that it can impro2e its profitabilit

O/

Ban5 ,ost to !ncomeBan5 of !ndia C/;;

Punjab %ational Ban5 C/;=

Ban5 of Baroda C/;8

!ndian Ban5 C/;

(nion Ban5 of !ndia C/=1

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INTERPRETATION

The tableG; shows that the performance of ban5 of Baroda is the best

regarding cost to income ratio4 as it has the lowest ratio C/;83 among thefi2e ban5s4 union ban5 of !ndia has high cost to income ratio C/=13/ Thus

union ban5 of !ndia has to ta5e urgent measures to lower its costs4 so that it

can impro2e its profitabilit/

T'&) = C'


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Source Annual Report of the Ban5s

INTERPRETATION

The table G= indicates that the capital adequac ratio of !ndian ban5 18/1C3is the highest ratio among the top fi2e ban5s4 the ban5 of !ndia 1C/?>3

shows that the lowest ratio among the top fi2e ban5s/

CHAPTER IV

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FINDINGS

FINDINGS

:HAT IS A LOAN? 5 DEFINITION3 TYPES3 ADVANTAGES

DISADVANTAGES

DEFINITION

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!f ou ha2e ne2er recei2ed a loan to purchase something4 ou certainl are in

the minorit +oans can be a great thing4 but the can also get ou into

trouble/ *ne of the 5es to being financiall successful understands when

loans are a good solution for our situation/ +oans are ne2er a good idea if

ou canJt afford to pa them bac5 in the required time frame/ +etJs e:plore

what a loan is and find out some of the common was to borrow mone/

A loan is when ou recei2e mone from a friend4 ban5 or financial

institution in e:change for future repament of the principal4 plus interest/

The principal is the amount ou borrowed4 and the interest is the amount

charged for recei2ing the loan/ Since lenders are ta5ing a ris5 that ou ma

not repa the loan4 the ha2e to offset that ris5 b charging a fee G 5nown as

the interest/ +oans tpicall are secured or unsecured/ A secured loan

in2ol2es pledging an asset such as a car4 boat or house3 as collateral for the

loan/ !f the borrower defaults4 or doesnJt pa bac5 the loan4 the lender ta5es

possession of the asset/ An unsecured loan option is preferred4 but not as

common/ !f the borrower doesnJt pa bac5 the unsecured loan4 the lender

doesnJt ha2e the right to ta5e anthing in return/

TYPES OF LOANS

Personal +oans G )ou can get these loans at almost an ban5/ The good news

is that ou can usuall spend the mone howe2er ou li5e/ )ou might go on

2acation4 bu a jet s5i or get a new tele2ision/ Personal loans are often

unsecured and fairl eas to get if ou ha2e a2erage credit histor/ The

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downside is that the are usuall for small amounts4 tpicall not going o2er

N=4CCC4 and the interest rates are higher than secured loans/

,ash Ad2ances G !f ou are in a pinch and need mone quic5l4 cash

ad2ances from our credit card compan or other pa da loan institutions

are an option/ These loans are eas to get4 but can ha2e e:tremel high

interest rates/ The usuall are onl for small amounts tpicall N14CCC or

less/ These loans should reall onl be considered when there are no other

alternati2e was to get mone/

STUDENT LOANS –

These are great was to help finance a college education/ The most common

loans are Stafford loans and Per5ins loans/ The interest rates are 2er

reasonable4 and ou usuall donJt ha2e to pa the loans bac5 while ou are a

fullGtime college student/ The downside is that these loans can add up to well

o2er N1CC4CCC in the course of ;4 > or ears4 lea2ing new graduates with

huge debts as the embar5 on their new careers/

COLLEGE LOAN

Mortgage +oans G This is most li5el the biggest loan ou will e2er get !f

ou are loo5ing to purchase our first home or some form of real estate4 this

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is li5el the best option/ These loans are secured b the house or propert

ou are buing/ That means if ou donJt ma5e our paments in a timel

manner4 the ban5 or lender can ta5e our house or propert bac5 Mortgages

help people get into homes that would otherwise ta5e ears to sa2e for/ The

are often structured in 1CG4 1=G or 8CGear terms4 and the interest ou pa is

ta:Gdeductible and fairl low compared to other loans/

HOME LOAN

"omeG#quit +oans and +ines of ,redit G "omeowners can borrow against

equit the ha2e in their house with these tpes of loans/ The equit or loan

amount would be the difference between the appraised 2alue of our home

and the amount ou still owe on our mortgage/ These loans are good for

home additions4 home impro2ements or debt consolidation/ The interest rate

is often ta: deductible and also fairl low compared to other loans/

Small Business +oans G )our local ban5s usuall offer these loans to people

loo5ing to start a business/ The do require a little more wor5 than normal

and often require a business plan to show the 2alidit of what ou are doing/

These are often secured loans4 so ou will ha2e to pledge some personal

assets as collateral in case the business fails/

SHOULD YOU USE AN ONLINE MORTGAGE LENDER? THE

PROS AND CONS OF GETTING A MORTGAGE ONLINE

*nline lenders I less timeGconsuming and sometimes cheaper

&enerall spea5ing4 the home loan application process through online

lenders is a bit 'dumpedGdown. compared to going to a large financial

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!nstitution or meeting oneGonGone with a mortgage bro5er/ Thats one of the

main reasons the are so popularH who doesnt want to appl for a mortgage

while watching T0 and eating dinner at the same timeL


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a2oid this4 e:cept to 5eep our options open and pa close attention to e2er

step of the process/

Although online lenders tend to appro2e applicants with lower credit scores

that mortgage bro5ers will turn down4 the interest rates tend to be e:tremel

high for borrowers with poor credit/ -ust because ou can get appro2ed for a

mortgage doesnt mean ou can afford to bu a home/ !f ou ha2e a low

enough credit score that oull pa a higher mortgage interest rate4 its a

better idea to continue to rent as ou pa off debt4 build our sa2ings4 and

repair our credit rather than bu a home at an abo2eGmar5et rate/

Tread lightl with online forms

!f ou use an online mortgage lender4 be careful with the online forms as

well/ Since there is no one there to answer our questions e:cept mabe a

1GCC number with limited hours34 it can be eas to misunderstand the

questions on the loan application/ !f ou misinterpret the questions or clic5

'enter. and mo2e on to the ne:t page without reading the fine print4 it could

result in higher fees or a problem with our appro2al later down the line/

And if oure doing a home purchase4 ou need good communication from

our lender once oure in escrow/

!f ou ha2e an issue with the appraisal or the loan funding and the call center

is closed for the wee5end or holida4 it might 5ill the whole deal/ Therefore4

as5 plent of questions about the lenders a2ailabilit and response time/

After all4 what is the point of going to an online lender who offers lowerL

,losing costs than our mortgage bro5er would if the cause ou to fall out

of escrow and lose our earnest mone/

M+(9'9) +>)/ (/( ',* )&%'%&%(

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Mortgage bro5ers want to win our business and the 5now one of the best

was to do that is b offering superior customer ser2ice/ A good mortgage

bro5er4 just li5e a good real estate bro5er4 creates a relationship of trust and

reliabilit/ The will hold our hand through the process4 help pre2ent ou

from ma5ing major mista5es and answer all of our questions/

dri2en in man cases b personal relationships with local loan officers. sas

-ohn Robbins4 ,#* of Be:il American Mortgage4 in an article from

Bloomberg Business/ Man home buers find the faceGtoGface relationship

with their lender to be imperati2e in the alreadGstressful process of buing a

home/

Though interest rates and fees ma be lower with online lenders thin5 less

o2erhead34 it isnt alwas the case/ A mortgage bro5er can shop around to a

2ariet of different lenders4 loan programs and underling in2estors to find

the loan that best suits our needs/ The ma e2en end up sa2ing ou

mone/


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CHAPTER VI

CONCLUSIONS

CONCLUSIONS

,redit appraisal is done to chec5 the commercial4 financial K technical2iabilit of the project proposed its funding pattern K further chec5s the

primar or collateral securit co2er a2ailable for the reco2er of such funds

Y P%B loan polic contains 2arious norms for sanction of different tpes of

loans such as

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Y These all norms does not appl to each K e2er case/

Y P%B norms for pro2iding loans are fle:ible K it ma differ from case to

case

Y The ,RA models adopted b the ban5 ta5e into account all possible factors

which go into appraising the ris5 associated with a loan

Y These ha2e been categori9ed broadl into financial4 business4 industrial4

and management ris5s K are rated separatel

Y The assessment of financial ris5 in2ol2es appraisal of the financial strength

of the borrower based on performance K financial indicators

Y After case stud we found that in some cases4 loan is sanctioned due to

strong financial parameters

Y @rom the case stud analsis it was also found that in some cases4 financial

performance of the firm was poor4 e2en though loan was sanctioned due to

some other strong parameters such as the unit has got confirm order4 the unit

was an e:isting profit ma5ing unit K letter of authorit was recei2ed for

direct pament to the ban5 from *%&, which is public sector/

Y Different appraisal scheme has been introduced b the ban5 to cater

different industries such asG

Doctor plus scheme for doctors

Transport plus scheme for transport

School4 collages K educational institutions

Traders eas loan

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(ncertainties in the business en2ironment

(ncertainties in the industrial en2ironment


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Y ,hristian Roland6CC>3 'Ban5ing Sector +iberali9ation in !ndia. !ndian

!nstitute of ,apital Mar5ets th ,apital Mar5ets ,onference Paper4 -anuar

6=4 6CC>/

Y Arnoud


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Y Alan D/ Morrison 6CC13 'Ban5ing Sector +iberali9ation in !ndia . *:ford

@inancial

Research ,entre

Y 4 -une 1;4 6CC=

MA"ARA-A A&RAS#% !%ST!T(T# *@ T#,"%*+*&)

ATT#%DA%,# @*R S(MM#R TRA!%!%& PR*-#,T R#P*RT

%ame of the student

,lass

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Roll %o/

%ame of the Super2isor

S.N+. D'() T%8) P+9)//

R)


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1C

XMinimum out of 1C3 CF attendance compulsor/

,oordin

ator

Documents

LOAN APPRAISAL PROCESS OF PNB