A

Chepter.1 INTRODUCTION

Introduction To Banking

History of Banking in India

Banking System in India

Co-operative Banks

Structure of Co-operative Banks

Co-operative Flag

INTRODUCTION

Bank and banking are the most important and major factors in today's world economy. Each and every transaction is routed through banking. Not a single business is possible without banking activity. The bank and the business are related. Today we cannot imagine the business world without banking institution. Banking is an important as blood in the human body. Due to the development of banking, advances are increased and business activities developing so it is rightly said, "The development of banking is not only root but also the result of the development of the business world.

The activities and facilities provided by the bank such as collection of deposits from small investors, lending finance and leasing, cash credit, letter of credit, routine transaction is very important for economic growth on whole.

Every economic activity is done through bank in this new era. So every economy whether it is developed, under developing or under developed need strong banking system from the economic point of view. The major task of bank and other financial institution is to act as intermediaries channeling, saving to investment. Through them, the investment requirements of savers are reconciled with the credit need of investors and consumers.

HISTORY OF BANKING IN INDIA

Banking in India has its origin as early as the Vedic period. It is believed that the transition from money lending to banking must have occurred even before Manu, the great Hindu Jurist, who has devoted a section of his work to deposits and advances and laid down rules relating to rates of interest. During the Mogul period, the indigenous bankers played a very important role in lending money and financing foreign trade and commerce. During the days of the East India Company, it was the turn of the agency houses to carry on the banking business. The General Bank of India was the first Joint Stock Bank to be established in the year 1786. The others, which followed, were the Bank of Hindustan and the Bengal Bank. The Bank of Hindustan is reported to have continued till 1906 while the other two failed in the meantime. In the first half of the 19th century the East India Company established three banks; the Bank of Bengal in 1809, the Bank of Bombay in 1840 and the Bank of Madras in 1843. These three banks also known as Presidency Banks were independent units and functioned well. These three banks were amalgamated in 1920 and a new bank, the Imperial Bank of India was established on 27th January 1921. With the passing of the State Bank of India Act in 1955 the undertaking of the Imperial Bank of India was taken over by the newly constituted State Bank of India. The Reserve Bank which is the Central Bank was created in 1935 by passing Reserve Bank of India Act 1934. In the wake of the Swadeshi Movement, a number of banks with Indian management were established in the country namely, Punjab National Bank Ltd, Bank of India Ltd, Canara Bank Ltd, Indian Bank Ltd, the Bank of Baroda Ltd, the Central Bank of India Ltd. On July 19, 1969, 14 major banks of the country were nationalized and in 15th April 1980 six more commercial private sector banks were also taken over by the government.

In India banking sector is quite diverse. There is Reserve Bank of India at the control of banking regulation. The Indian banking system can be classified into three broad categories viz.

Commercial Bank

Development Banks and

Co-operative BanksBANKING SYSTEM IN INDIA

RBI

CO-OPERATIVE BANKS

The Co-operative banks have a history of almost 100 years. The Co-operative banks are an important constituent of the Indian Financial System, judging by the role assigned to them, the expectations they are supposed to fulfill, there number, and the umber of offices they operate. The co-operative movement originated in the West, but the importance that such banks have assumed in India is rarely paralleled anywhere else in the world. Their role in rural financing continues to be important even today, and their business in the urban areas also has increased phenomenally in recent years mainly due to the sharp increase in the number of primary co-operative banks.

While the co-operative banks in rural areas mainly finance agricultural based activities including farming, cattle, milk, hatchery, personal finance etc. along with some small scale industries and self-employment driven activities, the co-operative banks in urban areas mainly finance various categories of people for self-employment, industries, small scale units, home finance, consumer finance, personal finance, etc.

Some of the co-operative banks are quite forward looking and have developed sufficient core competencies to challenge state and private sector banks.

The total deposits & landings of Co-operative Banks are much more than old Private Sector Banks & also the New Private Sector Banks. This exponential growth of Co-operative Banks is attributed mainly to their much better local reach, personal interaction with customers, and their ability to catch the nerve of the local clientele.

Though registered under the Co-operative Societies Act of the Respective States (where formed originally) the banking related activities of the co-operative banks are also regulated by the Reserve Bank of India. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.

STRUCTURE OF CO-OPERATIVE BANKS

The co-operative banking structure on India may be divided into three component parts, viz.

Central Co-operative Banks

State Co-operative Banks

Primary Co-operative Credit Societies.

Central Urban Co-Operative Banks

These are the federations of primary in a district and are of two types those having a membership of societies as well as individuals. The funds of the bank consist of share capital, deposits and overdrafts from state co-operative bank and joint stocks. These bank finance member societies within the limits of the borrowing capacity of societies, they also conduct all the business of joint stock bank.

State Co-Operative Banks

The state co-operative bank is a federation of central co-operative bank and acts as a watchdog of the co-operative banking structure in the state. Its funds are obtained from the share capital, deposits, loans and overdrafts from the Reserve Bank of India. The State Co-operative Bank lends money to Central Co-operative Banks and Primary Societies and not directly to farmers.

Primary Co-Operative Credit Societies

The primary co-operative credit societies are an association of borrowers and no borrowers residing in a particular locality. The funds of the society are derived from the share capital and deposits of members and loans from Central Co-operative Banks. The borrowing power of the member as well as of the society is fixed. The loans are given to members for the purchase of cattle, fodder, fertilizers, pesticides, implements, etc.

So, co-operative banking system is three tired pyramidal structure, Primary Credit Societies at the base level, Central Co-operative banks at the district level and State Cooperative banks at the apex level i.e. state level urban co-operative banks come under the non-agricultural credit discipline at the grass root level of the tree tired pyramidal federal structure of the co-operative banking systems.

So, while commercial banks mostly provide short-term finance and development banks provide long-term finance to industries trades and commerce. Co-operative banks on the other hand usually help to the credit needs of lower and middle class borrowers in urban, semi urban and rural areas.

Urban Co-Operative Banks

Urban co-operative bank has been defined as primary co-operative bank in the banking regulation Act, 1949 (as applicable to co-operative societies), in terms of section 5(ccv) of the said Act. A primary co-operative bank means a co-operative society other than a primary agricultural credit society. The primary objective or principal business of which is the transaction of banking business. The paid-up share capital and reserve of which are not less than rupees lakh, and the bye-laws of which do not permit admission of any other cooperative society, as its member expecting such co-operative bank as will contribute to its share capital with the help of funds provided by the State Urban Co-operative Banks cater primarily to the needs of upper and middle strata of society in urban and semi urban areas. Most of the Urban Co-operative Banks are small in size and unitary in character. The deposits of UCBs are equivalent to 9% of commercial banks deposits. Few states such as Maharashtra, Gujarat, Karnataka, Andhra Pradesh and Tamilnadu account for over 80% of urban co-operative banks presence and 75% of their total deposits. Predominant concentration of Urban Co-operative Banks in these 5 states is mainly on account of emergence of strong co-operative leadership.

UCBs. Normally confine their area of operation to localized geographical regions. But over a period of time, their areas have crossed the frontiers of districts and in some cases the states of their registration. The client profile of UCBs predominantly comprises priority sector segments viz. Small business establishments, SSIs, retail traders, professional, self employed persons and SRTOs, etc. who would not normally find it easy to have access to large commercial banks. There are weak banks in the total population of UCBs. But most of the banks may be rated as satisfactory to very good. Many of them are highly computerized. Since UCBs are primarily co-operative societies they are subjected to dual control management aspects of these banks, e.g. registration administration and liquidation are controlled by the registrar of the concerned State Government under the respective Co-operative Societies Act and banking aspects of these bank e.g. regulation and supervision of their banking functions are governed by the Reserve Bank by the virtue of power conferred on it by the bank of Urban Co-operative Bank Regulation Act, 1949.

CO-OPERATIVE FLAG:

The international co-operative alliance has in 1925 adopted the beautiful seven-colored pattern of the rainbow horizontal strips as its international flag, the flag of co-operation, progress and peace. The flag has seven colors. They are violet, indigo, blue, green, yellow, orange and red.

Rainbow is regarded as an auspicious omen,

Farmers see the rainbow and start plugging their fields,

They read in it the message about rains to come,

It is thus a symbol of hope a harbinger peace.

Men see co-operation in its multi-colored patterned, each color blending with the other to make one harmonious. Whole an ultimately all-pervading harmony unity in diversity.

The seven hues of the rainbow when blended together reunite to present pure unstained white effulgence. Thus it stands for purity truth and righteousness.

It symbolizes the aims and an ideal of the co-operative movement like the rainbow co-operation brings hope to the depressed achieve harmony among diverse interest and offers the promise of an ultimate and universe peace.

Co-operative by their own efforts inspired by a sense of fraternity, equity and love of the past and creates a new economic system, a system in which capital plays the role of servant instead of master, the object of production is organized self-help instead of profit and human dignity is given the pride of place for achieving a more equitable and efficient economy better social adjustment and a more balanced system of democracy.

Chepter.2 COMPANY PROFILE

Introduction to SNSB ltd.

Birth of SNSB ltd.

Promoters of SNSB ltd.

Progress of SNSB ltd.

General Information Of SNSB ltd.

SWOT of SNSB ltd.

Activities and Services of SNSB ltd.

Sources of Fund

Fund Used.

Organization Structure.

Organization Chart.

COMPANY PROFILEWith advent of the 20th century, Cooperative movement started gathering momentum in our country. In those days, there were only a few banks having solely profit conscious foreign management, absolutely unmindful of their social obligations. Further, there was also widespread economic exploitation of the common man in general and socially as also economically weaker sections of the society in particular by moneylenders in the form of lending money to them in the name of catering to the social and economic needs at exorbitant rate of interest as also with stringent conditions which altogether ultimately subjected them to crushing indebtedness. In such socio-economic scenario, Co-operative banks were looked upon to playa vital role in strengthening the co-operative movement.

The Sarvoday Nagrik Co-Operative Bank ltd. is leading bank in the sabarkanth district, which works with the objective of social welfare, leadership & development. Today it is very important it has improved the standard of living of the people as the 22 % of the total population of the sabarkatha people & there were no other activities who can improve the people's living styles, in order to complete this dream the S.N.S.B LTD was established in 1978

Birth of the S.N.S.B ltd.

On 1 July 1972, one co-operative shroff named SARVODAY NAHRIK CO-OPRATIVE MANDLI LTED was established. It got warm welcome from the citizens so that the entrepreneur deiced to expand the co-operative activities, to do so the transfer of the shroff was done in the bank In general meeting of the mandli was held for passing the resolution and take the permission for conversion in to the Sarvidat Nagrik Co-Operative bank ltd from the registrar and on first July 1978, the bank regd. No.11564 was registered, and that was the day of birth of the S.N.S.B Ltd. And now it has passed 27 successful years. At the initial stage, the bank has started his office in rented building but after some years it purchased a new building. In very short time modern safe deposit vault was also opened. At the same day with many lockers of different sizes, with the expansion, the number of lockers has been increased. By this way bank had get love & faith from the shareholders and members & after that bank has achieved many things.

Promoters

Shri Ahemad Hussain Harsolia was the founder of S.N.S.B LTD. He had given his valuable time from 1972 to 1994. He was the first chairman & had taken extreme care in the initial stage & from 1995 Shri Sayeed Badshah had given good service to the bank so that the bank has make this much growth in short span.

Progress of the S.N.S.B Ltd.

An accepted reality is that S.N.S.B shows maximum economic progress from last 27 years. We can see that in year 1998 the share capital of the bank was 59.04 lakh, which has increased to 107.10 in 2005.In the same way reserve fund has also been increased from 89.60 in 1998 to 191.81 in 2005

On the other hand, deposits are increased from 1340.96 in 1998 to 2379.63 in 2005. At initial stage the shareholders were 6501 in 1998 to 7714 in 2005.

From the above we can say that the S.N.S.B has preferable position in society .it has not aimed at economic development but also social, educational, religious development. From last 27 year bank has achieved good reputation & tried helping & providing good services to customers, members & shareholders.

(Year: 1997-2006)

(Rs in lakhs)

YearShare CapitalShare HoldersDepositsLoanReservesProfitRate of DividendAudit Class

199755.0465111060.90926.9473.2154.6315%A

199859.0465011340.961005.4789.6061.6315%A

199966.0273151609.951045.01108.2553.4315%A

200071.0473371951.121086.63124.1953.2115%A

200176.3073982224.531155.04138.1155.4815%A

200282.7974782416.211236.52151.9750.1715%A

2003103.8675512593.201650.43164.5354.0615%A

2004105.5976382475.091527.96178.0433.2312%A

2005108.1077142379.631484.60191.8134.6012%A

2006110.5777982163.181510.61206.4122.6212%A

GENERAL INFORMATION

Name:

The Sarvoday Nagrik Co-Operative Bank Ltd.

Polo ground.

Himmatnagar-383001

Objective:

To provide the loan to the people & members at reasonable rates.

To take deposit at maximum affordable rates

To promote social welfare in the society

To provide employment

To expand co-operative activities & getting good position in the market

To develop trading, & social & educational activities

To earn reasonable profit

To provide benefits to the members

To provide financial help in agriculture

Corporate Philosophy:

S.N.S.B has responded to the changing economic scenario in a positive manner that has led to renew profitability of operations. The corporate philosophy of the corporation is as under:

1. Always ahead-Born to the changing economic scenario in a positive manner that has led to renewed profitability of the operation.

2. Aggressive and focused approach to marketing of products and services.

3. Open, clean and transparent approach to recover idle and non-performing assets.

4. Generation of improved returns through large volume, Diversified business and judicious resource base.

Board of Directors:

As the article of association of the S.N.S.B states that three directors retired & election of subsequent are elected by shareholders as general & those directors who are retired by rotation being eligible for re election.

Abdul Latif Gulam Hussain Vadaliwala.

(Chairman)

Abdul Aziz Dostmohammmed Zankhwala.

(M.Director)

Nisar Ahmed Abdul Rasul Sabugar.

(Director)

Zakir hussian Abdurrazzak Sabugar.

(Director)

Makbul Hussain Abdul Kadar Doi.

(Director)

Gulam Mohiuddin Miyamohammed Akuli.

(Director)

Zahur Ahmed Valimohmed Mutavalli.

(Director)

Mohmmed Yunus Ahemadji Bhai Mahesaniya. (Director)

Salimsha Sarfarajsha Deewan.

(Director)

Form the BOD list, we can say that in board of director one is chairman, one is M.D & remaining are Directors. As par the provision of article of association of the organization every years three directors retired form the board by rotation & being eligible to offer them selves for the re-election.

Auditors and bankers:

Auditors:

Mr.Arvind P Doshi,

Charted Accountant,

Recognized Auditor,

Panel no.5- Sabarkantha.

Bankers:

Sabarkantha district Co-operative Bank, Himmatnagar.

The Gujarat State Co-operative Bank, Ahmedabad.

HDFC Bank Ltd, Himmatnagar.

Kotak Mahindra Bank Ltd, Himmatnagar.

UTI Bank Ltd, Himmatnagar.

ICICI Bank Ltd, Ahmedabad.

State bank of India, Himmatnagar.

Bank of Baroda, Himmatnagar.

Virtues/ principles:

Voluntary and open membership.

Democratic member control.

Members economic participation.

Autonomy and independence.

Education, training and information.

Concern for community.

Ideal as a co-operative.

SWOT OF SNSBStrength:

Premier District Financial bank.

Good Project appraisal team.

Ranked as first number for imparting better services in Sabarkantha District.

Location Advantage, Himmatnagar being main center of Sabarkantha District.

Large Client base.

Weaknesses:

Quality of assets.

Lack of Centralization.

Lack of Professionalism in Employees.

Lack of ATM

Opportunities:

Growing small Sector Industries.

Diversification in fee base activities.

Industrial Development in Sabarkantha.

Gujarat is leading state in attracting investment.

Threats:

Increasing competition with local banks and staff.

Increasing risk and cost of capital.

Liquidity problem.

Fluctuating interest rate risk.

Inflation risk.

ACTIVITIES AND SERVICES OF SNSB:

Sarvoday Nagrik Co-operative bank's activities and services are divided in to three parts, they are:

To take deposits.

To provide loans and advances.

Safe deposit vault.

Deposits (Days/months)Int. RateLending (in Rupees)Int. Rate

Up to 45 days.4%1 to 50,00011%

46 to 180 days5%50,001 to 2,00,00012%

181 days to 13 months6%2,00,001 to 5,00,00012.5%

13 months to 36 months7%5,00,001 to 50,00,00013%

36 months to 48 months7.5%

48 months to 60 months8%

MAIN FUND INFLOW (SOURCES OF FUNDS) Owned deposit

Deposits

Borrowings

Others

Owned deposit

The owned funds consisting of paid capital of the bank, reserve fund, and other reserves.

Deposits

It is sum of current deposits, fixed deposits, saving deposits, special saving deposits, NRI deposits, inoperative deposits, etc. It is the main Cash Inflow for any institution.

Borrowings

The borrowed funds consisting of borrowings from other banks (as per some writer deposits of various types is also part of borrowed funds), debentures offered to public, etc.

Others

Increase in current liabilities, reduction in debtors, fund from operations like net income, depreciation, and reserves, less payment to creditors, reduction in advances, reduction in inventories, reduction in cash, sold marketable securities, etc.

MAIN FUND OUTFLOW (FUNDS USED) CRR (Cash Reserve Ratio) with Reserve Bank of India

SLR (Statutory Liquidity Ratio) in Reserve Bank of India approved securities

Loan able Fund

Others

Cash Reserve Ratio (CRR)

The statue governing the CRR under Section 42(1) of the RBI Act, 1934 requires every bank included in the second schedule, to maintain an average daily balance with the RBL the amount of which shall not be less than 3 percent of the total of the demand and time liabilities in India, as shown in return, provided that the Reserve Bank may, by notification in the Gazette of India, increase the said percentage to such higher percentage as may be specified in the notification. The increase in percentage shall however, not be more than 20 percent of the total of the demand and time liabilities.

Thus, according to section 42, all Scheduled Commercial Banks! Scheduled Cooperative Banks! Regional Rural Banks! Non-Scheduled Banks need to maintain the CRR at the rate of 3 percent to the NDTL. Apart from this, it also lays down the minimum and the maximum levels of CRR as 3 percent and 20 percent respectively of the NDTL. The regulator fixes the rate within this range after considering the various macro-economic conditions and the money supply in the market. The present CRR as prescribed by RBI Stands at 5 percent.

Hence the cash reserve to be maintained by the bank will be the higher of the

Following alternatives:

3 percent of NDTL;

Prevailing percentage as announced by RBI of the resolvable liabilities.

While NDTL is the base for calculating the legal reserve requirements, there are a few adjustments that are to be made. All those liabilities that are exempted from the maintenance of the CRR will have to be deducted from the NDTL to arrive at the resolvable liabilities.

After making these adjustments to the NDTL and arriving at the resolvable liabilities, the cash reserves are computed as a percentage to it. The relevant level of cash reserves will be the higher of the two alternatives mentioned earlier.

The cash reserve requirements so computed will a maintenance period of a fortnight. During this fortnight, the bank should ensure that the value of such assets that constitute the cash reserves, should meet the statutory levels. For a better understanding of the computation and maintenance of CRR, it is essential to get an insight on the relevant exemptions, the assets constituting the cash reserves and the concepts of reporting Friday and maintenance period.

Statutory Liquidity Ratio (SLR)

According to it, a scheduled bank and every other banking company, shall in addition to the cash reserves maintain under Section 18 of the Banking Regulation Act, reserves in (a) cash or (b) gold valued at a price not exceeding the current market price, valuation with reference to cost price, market price, book value or face value, as may be specified by the Reserve Bank of India from time to time or (d) in the form of net balances in current accounts maintained in India by b3nks with the nationalized banks.

Thus according to Section 24, all banks will have to maintain statutory liquidity reserves in the form of cash! Gold approved securities. The percentage of SLR as given by RBI will range between 25-40 percent of the NDTL.

There are three basic objectives of setting up the SLR which are as follows:

Control the money supply for the credit purpose

Augment banks investments in government securities

Ensure solvency of banks.

While SLR also targets the money supply as in the case of CRR, its effectiveness is however, restricted due to the fact that the statutory liquidity reserves are mostly in the form of securities. While on the other hand, cash reserves are in highly liquid form i.e., cash and bank balances. Hence, any change in this ratio, affects the money supply quickly and to a larger extent.

Since the statutory liquidity reserves include investments in approved government securities, it provides a captive market for these instruments. Also, investment in such securities will also provide yields to the statutory reserves, which are higher than the returns on the CRR. In addition to this, due to the inclusion of assets having good marketability and higher liquidity, the statutory liquid reserves also enhance the solvency of the bank. With these three objectives, the central bank has announced the statutory liquidity requirement which is to be the highest of the following:

a) 25 percent of the NDTL;

b) 25 percent (prevailing percentage as announced by the RBI) of the Resolvable liabilities.

Loanable Fund

Loanable funds means amount of money, which is applicable for lending. Three main factors own fund, deposits, and borrowings decide it. Advances can never be more than loanable fund.

Loanable fund is a total of:

75% of own funds

70% of deposits

100% of borrowings

Others

Purchase of fixed assets, purchase of marketable securities, addition to advances, addition to inventories, payment to creditors, payment of dividend, etc.

ORGANIZATION STRUCTURE

The S.N.S.B is following functional organization structure In S.N.S.B various division are available for smooth functioning of smooth functioning of the various activities. These divisions are there are their major functions are as given below:

Banking & Account Division:

It is related with the accounting function the main activity of this department is to passing checks, drafts & to receive cash in the form of deposits. And they also maintain book of account for that purpose. They are maintaining day-to-day balance of all accounts is to be carried by the banking & account division. The other function of this division is as below:

Open various type of account

To maintain day-to-day balance of all account

To discount the checks, bills, Drafts, Etc.

Establishment Division:

The main Function of this division is to maintain & administer the whole organization. This Division serves for administering the whole organization & its branches & its affairs. Administration division also related with to maintain daily liquidity of each receives. The other & main function of this division as under:

To Pay Salary of all personnel

To maintain the cash reserve Ratio

To maintain daily liquidity, position of cash receive & liquidity assets.

To Communicate & maintain relation with other bank.

To determine net balance in current account.

Loan Division:

This division is serves for procedures to take loans. This division also provides the guidance & condition for loan and its requisites. The other functions are as under:

Submission of loan application to board of director.

Initial procedure of loan application.

Appraisal of proposed project.

Issue of the letter of sanction.

Acceptance of the terms & conditions by the borrowing unit.

Execution of loan arrangement.

Disbursements of loans.

Creation of security.

Monitoring.

Share & Inspection Division:

The work area of the division in administration of share capital & dividend distribution. The Functions are as below:

To maintain the share accounts for shareholders.

To give dividends as declared in Annual general meeting.

To distribute the dividend among shareholders.

Recovery Division:Recovery of the loans is significant function of the all banks. The division concerns & also severs for recovery of the loans given. This is the main function of the bank.

The Procedure for opening vault is so very easy because one can open its own vault by applying various types to manager on agreement of 20Rs. Stamp. Vault division provides various types of lockers for the security of gold money & eviler ornaments. The main function of vault division is as under:

To receiver rent of lockers.

To maintain very carefully all books of lockers A/c

To keep second key of all lockers in safe place and to provide key of locker to person who miss this key.

Other facilities for member & Customers of bank:

The Sarvoday Nagrik Co-operative bank provides the facilities for member & customers of bank are we under:

People's money in bank is safe by 100000 insurance policies.

All data are kept in computer because of computerization customer get quick service.

In opposite of fixed deposit the bank gives overdraft also.

The facility of safe deposit vault.

They provide locker facility.

ORGANIZATION CHARTOrganization is group of people working to gather Co-operatively under authority towards achieving goals and objective that benefits the participants and the organization. An organization to establish an effective behavioral relationship among selected employed and group may work to gather effectively.

Organization stricture is the executive structure of an enterprise a basic framework with in which the executive decision making behavior occurs. Organization char of S.N.S.B is following:

Chepter.3 CREDIT MANAGEMENT

Research Methodology Introduction to Credit Mgmt Non Performing Assets Data Analysis Findings

Limitations

Recommendation & suggestion

ConclusionRESEARCH METHODOLOGY

OBJECTIVES OF THE STUDY To study the theoretical framework of Credit management at Sarvoday Nagrik Sahkari Bank.

To study the practical aspects of the credit management, specially focusing on Loan (term loan), Cash credit and overdrafts, Purchase /discounting of bills, Bank guarantee etc.

To know the parameters used by bank for giving loan etc

To study the theoretical aspects of different types of loan.

To get a feel of NPA

To know customers preferences about the loan and banks policies for giving loan and getting suggestions form the customers about the loan management.

Research Problem

The main research problem was to get an insight into the Credit Management functions like of Loan (term loan), Cash credit and overdrafts, Purchase /discounting of bills, Bank guarantee of The SNSB Ltd. Bank and carrying out the detailed analysis of the customers preferences for the same.

Research Instrument Data CoUection Tools

For the purpose of analysis various documents and personal talks were used to collect data about the loan management activity of the Bank. Apart from this a questionnaire was prepared to know the customers preferences about the loan management and to know their suggestions about the same.

Research Design

The research design specifies the method and procedures for conducting a particular study. The type of research design applied here is exploratory.

Sources of Data Collections

The sources of data collection used in this project are a combination of both primary data and secondary data collection. But most of the data were collected from the primary source.

Primary Data Collection

The primary data collection method was used to collect first hand information through personal discussion with bank officers. Also the data for analysis purpose was collected from the books, accounts and records of the company and through a well-defined questionnaire which was designed by taking help of the expert from the Banks staff.

Secondary Data Collection.

The secondary data collection in the project is used to collect the theoretical aspects of Credit management. The basics of Credit Management and its theoretical aspects were taken from the books, material provided form the bank and Internet.

LIMITATIONS OF STUDY The scope Of Credit Management is very wide; hence it was not possible to cover all the relevant details regarding the topic within such a short span of time.

Some of the data, which could have been of great help for in depth analysis, was not provided as they being confidential.

CREDIT MANAGEMENTMEANING OF CREDIT

The word credit is actually derived from the Latin word Credere. Credere means to have trust or faith. Thus credit is directly related with trust. That is why State Ford stated that Credit is nothing more than that of trust. By this we can say that credit is a tool that is resulted by the complete mutual trust/faith.

Credit creation implies a situation when a bank may receive interest simply by permitting customer to overdraw their accounts or by purchasing securities and paying for them its own cheque or bank may pay amount to borrower or directly to seller of goods whom against borrower get amount.

CREDIT RISK

Credit risk refers to the risk of default on loans and advances granted by banks when timely repayment of principal and interest or both is threatened due to inability or unwillingness of the borrowers. This causes cash-flow problems and uncertainty. Its effect is measured by the cost of replacing cash flows if the other party defaults.

An example being if the bank has placed a CP with company X on the back of a deposit from depositor Y. When the company X is enables to honor the repayment of the CP, the bank suffers a set back as it has to make good the amount to the depositor Y in any event. Generally, credit risk can also lead to losses when debtors, even when not defaulting, are downgraded by credit rating agencies. Credit risk also includes sovereign risk. Credit risks also take on the form of pre-settlement and settlement risk.

CREDIT RISK MANAGEMENT

Credit risk management means the total process of lending start from inquiry from potential borrower to recover the lending amount from borrower. credit management in sense of banking sector is the set of activities like Except application, loan appraisal, Shakh posting, monitoring, recovery, NPA management, etc.

The following ways among others could be adopted by banks in managing the credit risk.

Fixing exposure limit for individual borrowers, group of borrowers, industry/ economic sector e.g. agriculture, transport, trade, specific regions so as to have a well diversified portfolio of loan assets.

Rigorous appraisal and analysis of individual loan proposals to weed out less Promising ventures.

Delegation of powers to various levels for sanction of proposals. Pricing loans and advances according to the risk perception of the projects arrived at on the basis of a credit scoring model to ensure returns commensurate with risk and to motivate borrowers to improve performance and earn higher rating and consequently pay lower interest rate.

Insisting on collateral security besides primary security at a margin.

Granting large loans and advances on consortium basis to distribute risk.

FORMS OF CREDIT/ADVANCES

1) Loan (term loan)

2) Cash credit and overdrafts

3) Purchase /discounting of bills

4) Bank guarantee

1) Loan/Term Loan

Loan is a method of lending under which bank gives credit to a borrower for a fixed period and for a specific purpose. Loan are promises for future payment, they have to be repaid in periods beyond a year and are therefore long-term liabilities.

In other words when a banker makes an advance in a lump-sum which can not be paid wholly or partly and which the customer has permission to withdraw subsequently, it is called a loan.

Many a time a borrower needs funds for fixed assets or non-respective type of activities and thus seeks money from the bank that is withdrawn in one lump sum. The loan amount is normally repaid in installments. Loan may be shot-term, medium-term or long-term.

Loans and advances are classified in to secured and unsecured.

Secured Loan or Advance: -Secured loan or advance means a Loan or Advance made on the security of assets. The market value of which is not at any time less than the amount of such loan or advance.

Unsecured Loan or Advance: -An unsecured loan or advances means a Loan or advance not so secured. A partly covered loan or advance is partly covered by the security of assets, the market value of such securities being less than the amount that has been lend or outstanding at any time. SNSB provides this type of loan up to the limit of 2, 00,000 Rs. to known parties.

Types of Loan: Generally bank grants loans for different period like shorts, medium and long and for different purpose. Broadly, the loans granted by banks are classified follows

Short-term Loans: Short-term loans are granted to meet the working capital needs of the borrowers. These loans are granted against the securities of tangible assets mainly the movable assets like goods and commodities, share debenture, etc.

Term Loans:

Medium and long-term loans are usually called term loans. These loans are granted for more than a year and are meant for purchase of capital assets for the establishment of new units and for expansion or diversification of an existing unit. Such loans constitute a part of the project finance which industrial enterprises are required to raise from different sources. These loans are usually secured by the tangible assets like land, building, plant and machinery, etc.

Composite Loans:

When a loan is granted both for buying capital assets and for working capital purpose, it is called a composite loan. Such loans are usually granted to small borrowers, such as artisans, farmers, small industries, etc.

Consumption Loans: Though normally banks provide loans for productive purpose only, but as an exception loans are also granted on a limited scale to meet the medical needs or the educational expenses or expenses relating to marriages and other social core monies etc. of the needy persons such loans are called consumption loans.

2) Cash Credit

Cash credit is the main method of lending in India and accounts for above 70% of total bank credit. Under the system, the banker specifies the limit, called the cash credit limit for each customer, up to which the customer is permitted to borrower against the security of tangible assets or guarantees. The customer withdraws from his cash credit account as and when requires the funds and deposits any amount of money, which he finds surplus with him on any day. The cash credit amount is thus an active and running account to which deposits and withdrawals may be affected frequently. The customer is required to provide tangible assets as security to cover the amount borrowed from the banker. The borrower is charged interest on the actual amount utilized by borrower and for the period actually utilized only.

3) Overdrafts

When a current amount holder is permitted by the banker to draw more than what stands to his credit, such an advance is called an overdraft. The banker may take some collateral security or may grant such advance on the personal security of the borrower. The customer is permitted to withdraw the amount as and when he needs it and to repay it by means of deposit in his account as and when it is feasible for him. Interest is charged on the exact amount overdrawn by the customer and for the period of its actual utilization

4) Bills Purchase

The Banker credits customers account with the amount of the bill after deduction his charges. As the demand bills are repayable on demand and there is no maturity, the banker is entitled to demand their payment immediately on presentation before of drawee. Their practice adopted in the case of demand bills is known as purchase of the bills.

Bills Discount

In case of bills discounting, a bank credits the amount of the bill to the drawers account before the realization of the bill and thus lends its funds to him after deduction his charges. The bills purchased and bills discounted by a bank are, therefore, shown in its balance sheet as part of loans and advances, this practice is called discounting of the bill.

Bank Guarantee

It is a contract to perform the promise or discharge the liability of a third person in case of his default. In case of guarantee, Bank is taking responsibility to pay the amount to seller if buyer will not pay amount in time.TIME WISE BIFURCATION OF ADVANCES

- Short-term Finance

: Up to12months (1 yr)

- Medium-term Finance: Up to 24 months (2 yr)

- Long-term Finance

: Up to 120 months (10 yr)

PROCESS OF CREDIT

Application inward

Shakh report

Advocate report

Loan report

Inspection report

Committee report

Fulfill conditions

Equitable mortgage and equitable extension

Make/sign document

Open account

Insurance posting

Record department - filing

Inward application

A customer seeking an advance is required to submit an appropriate application form. There are different types of application forms for different types of advances available. The information furnished in the application covers, inter alias, the following: name and address of the borrower and his establishment, the details of borrowers business, the nature and amount of security offered. The application form has to be supported by various ancillary statements like the financial statements and financial projections of the firm. A separate inquiry department is set under the loan department. Here, different types of application forms are available and collect process charge from borrower; application is accepted and entered into computer.

Shakh report

This is one of the strangest facilities of SNSB are with other co-operative banks This facility provides bank to total kundali of the borrower related to dealing with bank not only as a borrower but also as partner, as a director also as a guarantor and same detail of the guarantor also and also about all the types of loans, which are already paid up, which are overdue, which are running and also about past performance of particular.

Advocate report

Bank through its legal departments staff in two matters prepares advocate report mostly, which are given below:

In case of land and building loan

Before equitable of immovable property as a security

When the bank prepares advocate report, bank charges some amount from borrower.

Processing of application/loan report

The application is processed by the clerical staff and checked and passed by senior loan officer and monitoring by loan manager. The preliminary involves an examination of the following factors:

Ability, integrity, and experience of the borrower in the particular business

General prospects of the borrowers business

Purpose of advance

Requirement of the borrower and its reasonableness

Adequacy of the margin

Provision of security

Period of payment

And prepare the appraisal report for committee approval

Inspection report

Before presenting appraisal report against the committee, bank sends his field officer/inspection officer to on site inspection. The situation which created by borrower by providing information of his business to bank is it fact or not? After the inspection report, this application is ready for putting against the loan committee of the bank. Inspection varies according to the various loans. For e.g. In case of cash credit he personally visits the business site and verifies the original books of accounts with that of submitted books of accounts. He verifies the real stock with the stock mentioned if any difference is found it is clearly mentioned in the report.

In case of housing loan inspection officer visits the place and check whether the building is really in existence or not, whether the construction is as per the statical figure provided to him and plan is as per sanctioned by the municipal corporation.

Committee approval and terms and conditions

Once the application is duly processed, it is put for sanction to the appropriate authority. Here appropriate authority means loan committee, standing committee and board of directors. Loan manager is a sanctioning authority only in case of review of cash credit facility. Types of committee and its lending powers are given below:

If appropriate authority gives sanction, along with the sanction of advance the bank specifies the terms and conditions applicable to the advance. These usually cover the followings:

The amount of loan or maximum limit of the advances

The nature of the advances

The period for which advance is valid

The rate of interest applicable to the advance

The primary security to be charged

The insurance of the security

The detail of collateral security, if any, to be provided

The margin to be maintain

Other restrictions or obligations on the part of the borrower

Equitable Mortgage and Equitable Extension

When the loan is sanctioned with condition that to put the real document as a mortgage in security (prime/collateral), it is must that to make the equitable mortgage of the property. Some time a property which given in mortgage by borrower is already put before the bank in case of other loan as a security at that time equitable mortgage is already done by party so there is no need of equitable mortgage again but the equitable extension is only needed.

Equitable mortgage on non-judicial stamp paper

Amount of sanctioned loan loan of non-judicial stamp paper for equitable mortgage

Up to 15, 00,000

1/2% of sanctioned loan

Above 15, 00,000

1% of sanctioned loan OR Rs. 1, 00,000

(Whichever is less)

Make/sign document

This application is now in the document department, document department take signature of loanee and guarantors in specimen card and also on the sanction letter to seat beside and verify all the documents. Types of documents are discussed in each type of loan separately. This process is last for borrower, after this loan is sanctioned. No formality is remaining at the borrower side.

Open account

Now loan is sanctioned, all formalities are completed. So bank is giving your amount of loan either by credited in your account or pay the amount to the party, whose quotation is provided by borrower to bank. Bank opens your account with himself to get the actual transaction between bank and borrower.

Insurance posting

It is must for loanee to insure the property or equipment, which is hypothecated with the bank against loan as a security. This policy is assigned in favor of bank, which is also required. In case of immovable property or new purchase of machinery, equipment, etc. insurance of same amount and in case of old machinery, goods stock, etc. twice of the price insurance is needed. In case of education loan, the life insurance of student is required. Shakh department is posting it in borrowers account.

Record department filing

Now total process is over and whole documents are need filing for bank record. Record department does this work. Record department files the documents and stores it to proper place.

GENERAL ELIGIBILITY CRITERIA FOR CREDIT IN SNSB

As per the rules of co-operatives, any one who wants to avail finance has to become a member of the bank.

As a shareholder of the bank, he/she have to make compulsory deposit or the payment of deposit as per rules and regulations of the bank and thereafter, he/she can submit the application for loan. In all the practice with the bank, you are known by bank through your compulsory deposit number.

The application will have to be submitted in the prescribed form, wherein all details and particulars will have to be furnished as demanded in the form. He/she has to submit further particulars as may be asked by the bank.

The loanee will be advanced loan against the security and he/she has to submit minimum 2 guarantors, who will be the recognized member and accepted to the bank.

The interest will be calculated on month-to-month basis.

Taking in view the total amount of loans taken for different purpose by the firm or individual, the interest will be calculated at the same rate on all the advances.

It will be necessary to make payment of share deposit or loan deposit at the rate of 2.5% of the sanction in case of secured loan and 5% of sanctioned loan or in case of unsecured loan. The maximum share deposit accepted of Rs.50000 and additional deposit over Rs.50000 will be accepted as loan deposit.

The rate of interest on share deposit is 12%.

The company, who wants to take loan from bank, has to get its name registered for the said loan purpose with the registrar of companies and has to submit the document of registration charge to the bank.

In case of mortgage of immovable property steps are given below:

Title clear report

Equitable mortgage on non-judicial stamp paper

Some time a property which given in mortgage by borrower is already put before the bank in case of other loan as a security at that time equitable mortgage is already done by party so there is no need of equitable mortgage again but the equitable extension is only needed.

In case of immovable property or new purchase of machinery, equipment, etc. insurance of same amount and in case of old machinery, goods stock, etc. twice of the price insurance is needed. In case of education loan, the life insurance of student is required.

Margin money means gap between purchase value and bank finance. Bank always does payment directly to the seller. So loanee has to deposit the margin money in the bank.

SCRUTINY OF CREDIT

While scrutinizing an application from the bank takes into consideration-safety, liquidity, purpose profitability, security, and spread of advances.

Safety

Bank has to see that the prospective borrower is a reliable user of the finance and banks money is safe in his hands.

Liquidity

Bank has to find out that the borrower is quite capable in repaying the finance within reasonable period.

Purpose

The purpose for the finance should not be illegal. It should be creative, service oriented, development oriented, and like. Banks should check end use of funds.

Profitability

If the project or the purpose of the finance is not profitable in the hands of the borrower than he will not be in a position of repaying the amount to bank. It should be profitable enough to generate the income to satisfy his needs and banks dues.

Security

The bank has to take into consideration the character, capacity, and capital of the prospective borrower. Bigger advances and cash credit is to be secured with collateral security over and above prime security.

Spread of advancesFor having balanced economy the bank should choose to spread the finance amongst various sectors of the society, so that the risk of incoming bad advances is minimized. Concentration on one type of advances may turn into bad advances if the scheme becomes ineffective due to some natural calamities or government rules or change in taste or demands of the society, by and large.

TYPES OF CREDIT

Surety Loan

Vehicle Loan

Security Loan

Gold Loan

Land And Building Loan/Industrial Building Loan

Educational Loan

F.D. Loan

Cash Credit

Overdraft

Bills Purchase

Bank Guarantee

Staff Loans

Staff Surety Loan

Staff Housing Loan

Staff Vehicle Loan

EXPLANATION OF ALL TYPER OF CREDIT

Surety / clean Loan

Purpose : Personal use

Limit

: Rs. 50,000

Rate of int. :11%

Period

: 60 months

Repayable : Equate Monthly installments with interest.

Security : Personal Guarantee of two members of the bank

Documents : Loan Appliances form, Letter of guarantee, Promissory note, letter of Sanction.

Submit Paper: In case of service person pay sleep, in case of businessperson last yearly business report.

Other terms:

5% of the loan amount will be deducted as a share deposit as a rule of the bank.

Under the above scheme, if the death of the loanee under surety loan occurs, in the said circumstances, in remaining loan in his account will be credited from this account to the guarantors or lonee's varasdars loan account.

Security Loan (Against Machinery/Furniture & Fixtures/Equipments)

Purpose: For purchasing New/Old machinery/furniture for business purpose

Limit

: Up to 50 lac.

Margin: 30%

Rate of interest:

particularsInterest rate

Up to 50,000

50,001 to 2,00,000

2,00,000 to 5,00,000

5,00,000 to 50,00,00011%

12%

12.5%

13%

Security Loan (Against Good Stock)Purpose : Provide loan against good stock

Limit

: 1 lac to 50 lac.

Margin : 25%

Rate of interest :

particularsInterest rate

Up to 50,000

50,001 to 2,00,000

2,00,000 to 5,00,000

5,00,000 to 50,00,00011%

12%

12.5%

13%

Period : 1 year (renewed every year)

Repayable: one needs to show monthly stock turnover, every month within 1 to 10 dates.

Security: The Hypothecation of goods purchased as a prime security, As a Collateral security

Equitable mortgage of land and building

Guarantee of two members of the bank as guarantors.

Documents : Loan Appliances form, Letter of guarantee, DP note, Hypothecation of

goods, insurance policy, letter of sanction, equitable mortgage of land and

building

Submit Paper: Last three-year business report, Shop Act License, SSI license, Elec.

Connection proof, IT Return, Rent receipt

If applicant is a Partnership Firm

Partnership deed copy, Reg., of firms,

If applicant is a limited company

Resolution for getting loan, Memorandum of association, Articles of association, letter of assurance for registration in Reg. of Companies

Other terms:

The payment of this kind of loan is given to the loanee by Bank.

Insurance is twice of the value of goods price, is required to the taken out from the insurance company recognized by bank and the said insurance policy is required to be recognized in favor of the bank.

The immovable property of either loanee of guarantor will have to be assigned as collateral security to the bank.

Land And Building / Industrial Building Loan

Purpose For purchase or construction or repairing of immovable property

Limit 1 lac to 50 lac.

Margin 30%

Rate of interest

particularsInterest rate

Up to 50,000

50,001 to 2,00,000

2,00,000 to 5,00,000

5,00,000 to 50,00,00011%

12%

12.5%

13%

Period

10 years.

Repayable Equate Monthly installment with interest.

Security Equitable mortgage of property, two guarantors guarantee

Documents Certified copy of sequential document of the property, loan application

form, letter of guarantee, equitable mortgage of property/indemnity Bond,

insurance policy, letter of sanction

Submit Paper

Last three-year business report, shop Act License, IT Return, (In case of new project, project report), approved plan and estimate.

If applicant is a partnership Firm

Partnership deed Copy, Reg. of firms

If applicant is a limited company

Resolution for getting loan, Memorandum of association, Articles of association, letter of assurance for registration in Reg. of Companies

Other terms

Loanee is required to pay the document inspection and advocate fee along with process charge as per the rate time-time decided by the bank.

The insurance for the value of building will have to be taken over and the insurance policy will have to be assigned to the bank.Vehicle Loan

Purpose Purchase of new/old two / three/ four wheeler.

Limit

As per demand (if the vehicle is new, than 90% of the quotation will be

passed and if the vehicle is old, the valuation value will be passed)

Margin 30% (in case of new vehicle purchase), 50% (in case of old)

Period

48 months

Rate of interest

particularsInterest rate

Up to 50,000

50,001 to 2,00,000

2,00,000 to 5,00,000

5,00,000 to 50,00,00011%

12%

12.5%

13%

Repayable Equate Monthly installment with interest

SecurityHypothecation of the vehicle, two guarantors guarantee as a collateral

security immovable property of loanee or guarantor

DocumentsCopy of registration of vehicle in RTO in particular city, Higher purchase

agreement in favor of bank, loan application form, Vehicle dealers

guarantee letter, DP note, letter of sanction, insurance policy, equitable

mortgage or extension of property

Submit Paper In case of service person pay sleep, in case of businessperson last yearly

business report, IT return, Quotation of vehicle

Other terms

It is necessary to take full comprehensive insurance for the vehicle, for which the higher purchase agreement is done in favor of the bank. The above insurance will have to be taken from the insurance company recognized by bank and will have assign in favor of the bank.

Bank shall make direct payment to the dealer/seller.

In case of second hand vehicle, necessary valuation reports from a recognized valuer to be submitted to the bank.

Gold Loan

Purpose Personal use

Limit

60% of pure gold.

Period

12 months

Rate of int. 11%

Repayable Equated monthly installments with interest.

Security Gold silver ornaments or items on Re-pledge

Documents Loan application form, DP note

Other terms

This kind of loan is given on the re-pledge of ornaments or items of gold-silver. This kind of loan is not available to the merchants of gold-silver for the purpose of buying selling.

This kind of loan can be given to the member of the bank, but this kind of loan can also be given to the non-member, taking Rs. 5 as admission fee and giving nominal membership for the loan only.

The purity of the ornaments or items of Gold, which is given on re-Pledge, should be minimum 21 Carets.

For the purpose of this kind of loan, bank shall appoint one or more goldsmiths, who will make valuation of the ornaments or items of gold-silver and the loanee has to accept his decision arrived at on the basis of the kind/weight etc. of gold-silver ornaments or items. Per 11.664 Gram (Per TOLA) Rs.3000 is Valued & 70 % Valued Amount is Sanctioned as Loan.

Over Draft on f.d

Purpose To fulfill the need of working capital of businessLimit

As per requirement

Margin 15%

Period

Up to 1 year

Rate of int. Int on FD + 2% extra

RepayableThe customer is permitted to withdraw the amount as and when he needs it

and to repay it by means of deposit in his account as and when it is feasible for him

Security customers F.D is taken as a security

DocumentsOverdraft application form, letter of guarantee, equitable mortgage of

property, DP note, letter of continuity, letter of sanction, insurance policy

Cash credit (good stock)

Purpose To meet the need of working capital business unit

Limit

1 lac to 50 lac.

Margin 25%

Period 12 month (to be reviewed every year)

Rate of interest

particularsInterest rate

Up to 50,000

50,001 to 2,00,000

2,00,000 to 5,00,000

5,00,000 to 50,00,00011%

12%

12.5%

13%

Repayable The customer is permitted to withdraw the amount as and when he need it and to repay it by means of deposit in his account as and when it is feasible for him

Security a) as a prime security hypothecation of goods stock

b) As a collateral security machinery, furniture equipment, fixed deposit, national saving certificate, equitable mortgage of immovable property

c) Guarantee of two guarantors (up to 5 lac of loan), 3 guarantors are

required in case of loan more than of 5 lac.

DocumentCash Credit Application Form, Agreement Letter, Equitable Mortgage of Property, Letter of Sanction, Letter Of Continuity, DP note, hypothecation of goods, Insurance Policy

Submit paper

Last three years Business Report, Shop Act License, SSI License, , IT return, rent receipt

If applicant is a partnership firmPartnership deed copy, Reg. of firms

If applicant is a limited company

Resolution for getting loan, memorandum of association, articles of the association, letter of assurance for registration in reg. of companies

Other terms

Loanee has to submit the stock statement to the bank every month regularly.

Loanee has to submit the balance sheet, profit and loss account every year.

Loanee has to submit the copy of income tax return or income tax assessment order every year.

In the cash credit account facility, the turn over will to be done four times of the sanctioned facility within one year.

The insurance for the value of sanctioned cash credit will have to be taken over and the insurance policy will have to be assigned to the bank.

In case of cash credit the facility can be availed maintaining the goods stock margin.

Sale of goods and amount of recovery cannot be set off, but the same should be credited in the bank and the amount of payment should be made by bank cheque all the business transaction should be made through bank.

As per the norms of the reserve bank of India, a borrower cannot operate two cash credit account at a time with two different banks.

Education Loan

Purpose This kind of loan is given to the brilliant students, who can not do further study because of paucity of finance, with a view to building their career. The bank is giving loan to cooperate and to give assistance to such students for education purpose

Limit 5, 00,000

Margin 30%

Rate of int. particularsInterest rate

Up to 50,000

50,001 to 2,00,000

2,00,000 to 5,00,000

5,00,000 to 50,00,00011%

12%

12.5%

13%

Repayable the applicant needs to pay only interest till his/her studies are running, but as soon as he/she completes the studies he/she requires to pay the loan installments within 6 months of the completion of the study.

Security Equitable mortgage of property, guarantee of two guarantors

DocumentLoan application form, Equitable Mortgage Of Property, Letter Of Sanction, Letter Of continuity, , Promissory note, Insurance Policy of student, which is assigned in favor of bank, letter of lien and set off, letter of guarantee, stamp application cum agreement form

Submit paper In case of service person pay sleep, in case of businessperson last yearly

business report, two photograph of student.

Other terms

Interest is required to be paid every month

The loan can be sanctioned keeping in view the loanees repaying capacity

Compulsory first class in every important examination

Loanee is that who has a property on his own name. Student has to join as a co-loanee.

The installment of loan will be stated after 6 months of the completion of study

Fixed deposit loan

Purpose To grant loan / overdraft to an individual or a firm against F.D.O.

Limit 85% of F.D

Margin 15 %.

Period 1 year.

Rate of int.2 % more than F.D.O.

Documents DP note, duly discharge F.D.O., form of application

Other termsLien should be noted in the FDO account and on the back of the F.D.O. duly discharged

Bills purchase

Purpose To assist the customer for their short-term need of working capital

Limit As required by applicant

Margin Generally 25 %

Rate of int.

particularsInterest rate

Up to 50,000

50,001 to 2,00,000

2,00,000 to 5,00,000

5,00,000 to 50,00,00011%

12%

12.5%

13%

Period 6 month to 1 year.

Documents DP note, letter of guarantee, letter of continuity, agreement letter

Bank guarantee:

Performance guaranteeThis type of guarantee does not involve financial obligation

It involves performance with regard to construction of building, installation of plant and machineries within a given time frame and with agreed specifications. Performance relating to supply of materials as per agreed terms and conditions. Guarantees may be given to secure advanced payment, in place of security deposit / earnest money deposit / tender money deposit etc.Performance of any other work contract. Performance of plant / machinery up to agreed level capacities

DIFFERENT TYPES OF STAFF LOANS

Staff surety loan

Purpose Personal use

Limit Rs. 10,000 maximum

Period 60 months

Rate of int.Prevailing saving a/cs interest rate (presently 4%)

Repayable Equated monthly installments with interest.

Security Personal guarantee of two staff members of the bank

Documents application form, letter of sanction, Promissory note, letter of guarantee

Staff vehicle loan

Purpose to purchase a new / old two wheeler for personal use

Limit up to 50 lac, 90% of the quotation

Rate of int.9 %

Repayable equated monthly installments with interest.

Security hypothecation of vehicle to be purchased

Documents Promisory note, letter of guarantee, hypothecation of vehicle, insurance policy

Staff domestic appliances loan

Purpose For purchasing consumer durables articles viz. freeze, washing machine,

flourmill, T.V., VCD, room conditioner, etc.

Limit up to 50 lac, 90% of the quotation

Rate of int.9 %

Repayableequated monthly installments with interest.

Security hypothecation of vehicle to be purchased

Documents Promissory note, letter of guarantee, hypothecation of vehicle, insurance policy of vehicle.

Staff housing loan

Purpose To construct / purchase residential building

Limit up to 50 lac.

Period up to retirement.

Rate of int.9%

Repayableequated monthly installments with interest.

Security equitable mortgage of property, two staff members guarantee

Documents DP note, letter of guarantee, letter of sanction, housing insurance policy, equitable mortgage of property, life insurance policy of the applicant, promissory note.

Interest free loan

PurposeanyLimit(Basic pay + D.A)* 4

Int.0%

Repayabledeductible from salary.

NON-PERFORMING ASSESTS (as per the RBI guidelines)

An assets including a leased assets, becomes non-performing when it ceases to generate income for the bank. A non-performing assets (NPA) was defined as a credit facility in respect of the interest and the installment of the principle has remained past due for a specified period of time. The specified period was reduced in a phased manner. Due to the improvements in the payment and settlement system, recovery climate, up gradation of the technology in the banking system, etc., past due concept has been dispensed with.

Effective from March 31, 2004, non-performing assets shall be a loan or an advance where:

Interest and/or installment of the principal remain over due for a period of more than 90 days in respect of a term loan;

The account remains out of order in respect of an overdraft / cash credit.

The bills remain over due for a period of more than 90 days in case of bill purchase and discounted.

Interest and/or installment of principal remains over due for two harvest season but for a period not exceeding two half years in case of an advance granted for agriculture purposes.

Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.

Income recognition

The policy of the income recognition has to be objective and based on the record of recovery. Internationally, income from non-performing assets is not recognized on actual basis; but it is booked as income, only when it is actually received. Therefore, banks do not charge and take in to account interest on any NPA. Reserve Bank has issued the following guidelines to the banks in regards to the income recognition.

Interest on the advances against the term deposits, NSCs, IVPs, KVPs and life insurance policies may be taken to income account on the due date, provided adequate margin is available in the accounts.

Fees and commission earned by the banks as a result of the re-negotiation or rescheduling of outstanding debts should be recognized on accrual basis over the period of the time covered by the re-negotiated or rescheduled extension of the credit.

If the government guaranteed advances become NPA, the interest on such advances should not be taken to income account unless the interest has been realized.

If any advance, including bills purchased and discounted, becomes NPA as at the close of any year, interest accrued and credited to income account in the corresponding previous year, should be reversed or provided for if the same is not realized. This applies to government guaranteed accounts as well.

In respect of NPAs fees, commission and similar income that have accrued should cease to accrue in the current period and should be reversed or provided for with respect to past periods, if uncollected.

ASSETS CLASSIFICATION

Banks are required to classify non-performing assets further in to the following categories based on the period for which the assets have remained non-performing and the realisability of the dues:

Standard assets

Non-performing assets

Sub-standard assets

Doubtful assets

Loss assets

Non-performing assets

NPAs are loans given by a bank or financial institute where the borrower defaults or delays payments of interest or repayment of principal. Asset here also includes a leased asset. A NPA was defined a credit facility in respect of which interest and/or installment of principal has remained past due for a specified period of time. The specified period in a phased manner is as under

Year ending If interest has remained unpaid, account become NPA

1993

1994

1995 onward

From 20044 quarters

3 quarters

2 quarters

1 quarters

Performing assets

Which accounts are not in non performing are performing assets. Which accounts are regular or cover due installments are less than six is called performing assets.

Standard assets

Standard Assets is one, which does not disclose any problems and which does not carry more than normal risk attached to the business. Such as asset should not be an NPA.

Sub-standard assets

In case of sub-standard assets, the current net worth of the borrower/guarantors or the current market value of the security charged is not enough to ensure recovery of the dues to the banks in full. In other words, such assets will have well defined credit weakness that jeopardize the liquidation of the debt and are characterized by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected.

An asset where the terms of the loan agreement regarding interest and principal have been re-negotiated or rescheduled after commencement of production, should be classified a sub standard and should remain in such category for at least 18 months of satisfactory performance under the re-negotiated or rescheduled terms. If interest and installment of loans have been paid regularly as per the terms of re-scheduled. In other words, the classification of an asset should not be upgraded merely as a result of rescheduling, unless there is satisfactory compliance of this condition.

Doubtful assets

An asset is required to be classified as doubtful, if it has remained in the sub-standard category for 12 months. As in the case of sub-standard assets, rescheduling does not entitle the bank to upgrade the quality of an advance automatically.

A loan classified as doubtful thus all the weakness inherent as that classified as sub-standard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and importable.

Loss assets

A loss asset is one where loss has been identified by the bank or internal or external auditors or by the co-operation department or by the Reserve Bank Of India inspection but the amount has not been written off, wholly or partly, in other words, such an asset is considered un-collectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.

WARNING SIGNALS OF NPA

Following are the warning signals of NPA:

Outstanding balance in account remains for a long period of time.

Failure to make timely payment of installment or interest on the term loan.

Complaints from suppliers of raw material, other lenders etc. about non payment of bills.

Non-submission or undue delay in submission or submission of wrong stock statement.

Downward trend in credit summation

Frequent return of cheques or bills.

Steep decline in production figure.

Downward trend in sales and profits.

Rising level of inventories, this may include large proportion of slow or non-moving item.

STRATERGIES FOR REDUCING NON PERFORMING ASSETS

Guidelines issued by RBI are not only in regards income recognition, assets classification and financial picture in the balance sheet, but also to take corrective steps for improving their loan portfolio. After implementing these guidelines the bank will have a good security against their NPA A/Cs.

Banks to reduce their NPA's can use the following techniques:

Rephasement of loan.

Compromise with borrowers.

Calling up the advances and filing of civil suit.

Recovery of advances made under Govt. sponsored programme.

Settlement of claims with Deposit Insurance Credit Guarantee Corporation.

Establishment of assets recovery branches.

PROVISION FOR NPA

Assets classification% Of provision to be made

Standard assets

Sub standard assets

(On the balance out standing MINUS amount guarantee by ECGC and amount covered by term deposit, NSV, IVP, KVP, SV and LIC policy)

Doubtful assets

1. On liability covered by ECGC

2. On secured liability minus amount covered by term deposit, NSC, IVP, KVP, SV and LIC policy

A. Doubtful up to 1 year

B. Doubtful for above 1 year but not 3 year

C. Doubtful above 3 years

3. On unsecured liability

Loss

(On the balance out standing minus amount guaranteed by ECGC) 0.40 %

10 %

Nil

20 %

30 %

50 %

100 %

DATA ANALYSISPersons in requirement of money.

Particular No. of Respondents

Yes48

No02

Total50

The above graph shows that out of total 50 respondents 48 respondents were in need of money for various purposes. There were only 2 respondents who were not requiring money for any purpose.

Purpose of money requirement.

ParticularNo. of RespondentTotal Respondent

For your or your Children's Education1250

For Medical Expenses0150

For Development of Business4050

For Purchasing or building a new house0850

For purchasing a vehicle0850

The above graph shows that, there were 12 out of 50 respondents, who were requiring money for the education purpose, there were only 1 respondent who was in need of money for medical expenses, the majority of the requirements were for business development, there were 40 respondents out of 50 for the same. There were 8 respondents from the 50 who were in need of money for purchasing a house. And 8 were there who were requiring money for purchasing a vehicle.

Optimum Source of Money Supply.

ParticularsNo. Of Respondents

Bank Loan48

Other Financial Institution00

Relatives02

The above graph shows that the 48 out of the 50 respondents preferring to have the require money from Bank, 2 out of 50 were preferring to take the needed money from relatives, there was no one to show the interest of taking the required money from other institution.

Factors to be considered, while keeping Bank as optimum Source..

ParticularRespondentsTotal Respondent

Interest Rate4650

Loan's time Duration1450

Loan's Installments1450

Amount of Loan0850

Security for the Loan0450

Documents required for the Loan0350

Margin of the Loan0250

Recovery Process of Loan0550

The above table shows that out of 50 respondents 46 have given wightage to interest rate while taking bank loan, 14 have shown their preference on loan installments, 14 have preferred loan duration, 08 have shown their preference to the loan amount sanctioned, 04 were giving their preference to security demanded, 03 were focusing on document required, 02 were preferring to the loan margin, 05 were preferring to recovery process.

Do SNSB Fulfills the need Of the Customers timely and Satisfactorily..?

ParticularNo. of Respondents

Yes42

No01

50-5007

Above chart shows that 42 out of the 50 respondents thinks that bank fulfills the borrowerers needs satisfactorly, 1 out of the 50 was negatively responding that his needs are not fulfiled satisfactoryly, 7 out of 50 were responding 50-50.

Satisfied with the Lending Process of the Bank

ParticularNo of Respondents

Yes48

No02

Above chart shows that 48 out of 50 respondents were satisfied with the lending process of the Bank, while 2 out of 50 were not satisfied with the lending

Important Factors for the bank to develop as an ideal Co-operative

ParticularNo of RespondentTotal

Respondent

Reasonable interest on loan4350

There should not be any hidden condition for the loan1950

Loans should be sanctioned as early as possible1950

There should be minimum security required for the loan0950

The full amount of the loan should be sanctioned1750

The above chart shows the suggestions of the respondents for the purpose of Developing the bank as an ideal co-operative, 43 out of 50 respondents has given Wight age to reasonable interest rate, 19 out of 50 have preferred not to have any hidden condition while taking the loan, and the same amount of people have preferred to have fast sanctioning of the loan, 17 out of 50 have preferred that full amount of loan should be passed, and 9 respondents out of 50 have preferred to have minimum security for the loan.

Name of the loans currently holds

Name of the LoanNo of Respondents

HPCC36

Clean Loan08

Vehicle Loan06

Vajpai Loan01`

Home Loan04

The above chart shows that loan currently held by the respondents, the highest preferred loan has been HPCC there were 36 respondents out of 50 who had HPCC loan currently, secondly there were 08 respondents who were having clean loan, there were 6 response for the vehicle loan, there were 4 for the home loans, and uniquely there was 1 respondent found with Bajpai loan which was made emendatory by the previous government to issue to the public

Think of taking Loan from SNSB

ParticularNo of Respondents

Yes41

No01

May be08

The above Chart shows the respondents Preference for the future course of action that would they prefer to have loan from the SNSB ltd, out of 50 respondents 41 have responded in positive manner only one have negative answer and 8 people were not sure that whether they will have loans from the bank in future or not

Total NPA picture for the year 2006

Sr.noClassification of assetsAmount of NPAProvision to be done as per RBI Guidelines.Banks provision

%Amount

1.Standard assets1365.590.40%5.46

2.Sub-standard assets

Secured36.4810%3.65

Unsecured 03.90100%3.90

3.Doubtful assets

Up to 1year

Secured32.4320%6.49

Unsecured01.51100%1.51

1 to 3 year

Secured20.0430%6.01

Unsecured01.98100%1.98

More than 3 years

Secured11.5650%5.78

Unsecured02.48100%2.48

4.Loss assets34.64100%34.64

Total1510.6171.90162.67

As per the RBI guidelines bank is required to do provision for 71.90 lakhs rupees, but instead the bank has done the provision of 162.67 lakhs which is more than the double of the actual requirements, which is a good indicator from the safety side.

Assets bifurcation for the year, 2006

CategoryRupees

(in lakh) %

Standard Assets1365.5990.4

Sub standard assets(secured)36.482.41

Sub standard assets(Unsecured)3.90.26

Doubtful assets-1yr (secured)32.432.15

Doubtful assets-1yr (Unsecured)1.510.1

Doubtful assets-2yr (secured)20.041.32

Doubtful assets-2yr (Unsecured)1.980.13

Doubtful assets-3yr (secured)11.560.76

Doubtful assets-3yr (Unsecured)2.480.16

loss assets34.642.29

Total1510.61100

The above chart shows the assets bifurcation; it is evident from the chart given that the 90.40% of the total assets is under category of standard assets, than 4.62% is in sub standard assets, 2.67% of the assets are in sub standard assets, and the remaining 2.31% is in Doubtful assets.

Provision required to be done by the Bank for NPA for the year 2006

Category Provision-Rs

(Mandatory)

Standard Assets05.46

Sub standard assets(secured)03.65

Sub standard assets(Unsecured)03.90

Doubtful assets-1yr (secured)06.49

Doubtful assets-1yr (Unsecured)01.51

Doubtful assets-2yr (secured)06.01

Doubtful assets-2yr (Unsecured)01.98

Doubtful assets-3yr (secured)05.78

Doubtful assets-3yr (Unsecured)02.48

loss assets34.64

Total71.90

Above chart shows that there has been 34.24 lakhs of Rs. of mandatory requirement to made by the bank under the head of Loss Assets, 24.25 lakhs to be kept a side as a provision, 7.55 lakh to be kept as provision under the head of Sub standard Assets, and 5.46 lakhs to be kept as a provision under the head of Standard Assets.

Total NPA from last Six years

YearNPA (in lakh Rs)

2005-061510.61

2004-051484.60

2003-041527.95

2002-031650.43

2001-021236.52

2000-011155.04

Above Chart shows the total NPA of the Bank over the years, the greates NPA ever has been in the year of 2002-03, which was of rs.1650.43 lakh, than it was 1527.95 lakh in the year2003-04, and than the current years NPA has been 1510.61 lakhs, then in the year 2004-05 it has been 1484.6 lkhs, than it was 1236.52 in the year 2001-02, and the least NPA in the last 6 years was found in the year 2000-01, which was 1155.04 lakhs.

Banks actual provision against R.B.I 's mandate.

YearRBIs Mandatory

ProvisionBanks Actual

Provision

2005-0671.90162.67

2004-0559.55149.17

2003-0454.47146.16

2002-0362.38103.32

2001-0277.7092.32

2000-0167.5086.56

The Above given Chart is the Comparison between the actual provision made by the bank and the actual mandatory to be made by the R.B.I, the bank has done almost double than the actual required Provision for NPA, the highest provision has been in the current year of 2005-06, which was more than the double, the actual mandatory for the year has been only 71.90 lakh and the bank has done the provision of 162.67 lakhs, subsequently this track record can be seen for give past years.

Total bifurcation of NPA-2006, Amount wise..

Sr. NoCategoryAccount

11 to 50,000150

250,001 to 1,00,00016

31,00,001 to 2,00,00024

42,00,01 to 5,00,00013

55,00,001 to 25,00,000 04

625,00,001 to 50,00,000-

750,00,001 to 1Carore-

Total207

The given chart shows the no of NPA A/c in the different limits, the highest figure has been in loan able limit up to 50,000, where there has been 150 accounts, as a non performing assets, than the second highest figure comes to 24 A/c in the lonable limit of 1 lac to 2lac Rs., thirdly there has been 16 A/c in the range of 50,000 Rs. to 1 lac, then there has been 13 A/c in the range of 2lac to 5 lac Rs., and there has been only 4 A/c in the limit of 5 lac to 25 lac RS. in the Current year.

FINDINGS Findings of the Survey

In the survey of 50 persons I come to know that majority of them were in need of money for one or another purpose, there were 48 persons out of total 50, who were requiring the money.

In eve of finding the money requirement I come to know that majority of the respondents were requiring the money for the Business development, there were 40 persons out of the sample of 50 for the same purpose, there were 12 people who were indeed of money for the education purpose, and there were 8 persons who were in requirement of money for the purpose of purchasing a house or a vehicle, there was only 1 person requiring money for the medical expenses.

For the requirements of money 48 out of 50 were thinking of the bans as an optimum source of money supply, while only 2 preferred to have their required money from relatives.

While thinking of a bank for a money supply, 46 out of 50 were thinking that the interest rate on the loans should be given the first preference, 14 were giving their preference to credit duration, 14 were preferring the amount of installments, 8 were preferring to loan amount, 4 were preferring to security demanded against the loan, 3 were preferring to the documents demanded, 2 were preferring the margin of the loan, and 5 were preferring the recovery process of the bank, there were many respondents with more than one choice, so interest rate is the highly rated preference.

In the question of satisfaction derived from the bank by obtaining the services of it, 42 out of the 50 respondents were satisfied, 1 was not satisfied and remaining 7 were not in a position to define either they are satisfied or not.

38 out of 50 respondents were satisfied from the lending norms and procedures of SNSB, and