GENESIS OF THE PROJECT

The project is on Credit Appraisal Process of TJSB Bank. Credit Appraisal is an

important activity carried out by the Special Credit Cell department of the bank which
determines whether to accept or reject the proposal for finance. t means an
investi!ation or assessment done by the bank before providin! any "oans and Advances
or Project finance and also checks the commercial# financial and technical viability of
the project proposed# its fundin! patterns and further check the primary and collateral
security cover available of recovery of such funds.
t is the process of appraisin! the credit worthiness of a "oan applicant. $actors like
a!e# income# number of dependents# nature of employment# continuity of employment#
repayment capacity# previous "oans# credit cards# etc. are taken into account while
appraisin! the credit worthiness of a person.
Proper assessment of credit risk is important as it helps in establishin! credit limits. n
assessin! credit risks the % Cs of credit are crucial & relevant to all borrowers' lendin!#
which must be kept in mind# at all times.
Character: The willin!ness of the customer to honor his obli!ations. t reflects
inte!rity# a moral attribute that is considered very important by credit mana!ers.
Capacity: The ability of the customers to meet credit obli!ations from the operatin!
cash flows.
Capital: The financial reserves of the customers. f the customer has problems in
meetin! credit obli!ations from operatin! cash flow# the focus shifts to its capital.
Collateral: The security offered by the customer in the form of pled!ed assets.
Conditions: The !eneral economic conditions that affect the customers.
To !et information on the five Cs a $irm may rely on the $inancial Statements# Bank
(eferences# )*perience of the firm and Prices and yields on Securities.
+
Numerical Credit Scoring: n traditional credit analysis# customers are assi!ned to
various risky classes on the basis of the five Cs of credit. Credit Analysts may#
however# want to use a more systematic numerical credit scorin! system. Such a system
may involve the followin! steps,
+. dentify factors relevant for credit evaluation.
-. Assi!n wei!hts to these factors that reflect their relative importance.
.. (ate the customer on various factors# usin! suitable ratin! scale.
/. $or each factor# multiply the factor ratin! with the factor wei!ht to !et the factor score.
%. Add all the factor scores to !et the overall customer ratin! inde*.
0. Based on the ratin! inde*# classify the customer.
OVERVIEW OF LONS
"oans can be of two types fund base & non1fund base,
? Fund !a"e include":
? 2orkin! Capital
? Term "oan
? Non#$und !a"e include":
? "etter of Credit
?
Bank 3uarantee
-
!C%GRO&N' OF THE !N%ING SECTOR
'EFINITION OF !N%
The word bank has ori!inated from )n!lish word Banco# Bancus or Ban4ue. ts
meanin! is bench or table. n )urope in the middle a!e# the money transactions were
undertaken sittin! on a bench.
" (er Indian !an)ing ct# 5A service to accept deposits from people with the
intention to invest or lend with the condition of returnin! it immediately whenever
demanded at any predetermined time. An institute this service is Bank6
Bankin! is a service helpful to the business# its function is to borrow money from
people and further lend the same. 2hile analy7in! definition of bank as per ndian
Bankin! Act# below mentioned matters are clarified,
8+9 Bank accepts monetary deposits from people.
8-9 The intention behind acceptin! these deposits is to invest or lend the respective fund.
8.9 The function of acceptin! deposit or lendin! money is made under the condition that on
demand or as predetermined otherwise the same amount has to be refunded
immediately.
8/9 The institution doin! this type of business is called bank.
The bankin! sector is dominated by Scheduled Commercial Banks 8SBCs9. As at end
:arch -;;-# there were -<0 Commercial banks operatin! in ndia. This included -=
Public Sector Banks 8PSBs9# .+ Private# /- $orei!n and +<0 (e!ional (ural Banks.
Also# there were 0= scheduled co1operative banks consistin! of %+ scheduled urban
cooperative banks and +0 scheduled state co1operative banks.
State Bank of ndia is still the lar!est bank in ndia with the market share of -;> CC
and its two subsidiaries mer!ed with CC Bank# leadin! creatin! the second lar!est
bank in ndia. ?i!her provisionin! norms# ti!hter asset classification norms# dispensin!
with the concept of @past due for reco!nition of APAs# lowerin! of ceilin! on e*posure
to a sin!le borrower and !roup e*posure etc.# are amon! the measures in order to
improve the bankin! sector.
.
A minimum stipulated Capital Ade4uacy (atio 8CA(9 was introduced to stren!then the
ability of banks to absorb losses and the ratio has subse4uently been raised from B> to
<>.
(etail Bankin! is the new mantra in the bankin! sector. The home "oans alone account
for nearly two1third of the total retail portfolio of the bank. Accordin! to one estimate# the
retail se!ment is e*pected to !row at .;1/;> in the comin! years.
Aet bankin!# phone bankin!# mobile bankin!# AT:s and bill payments are the new bu77
words that banks are usin! to lure customers.
2ith a view to provide an institutional mechanism for sharin! of information on
borrowers ' potential borrowers by banks and $inancial nstitutions# the Credit
nformation Bureau 8ndia9 "td. 8CB"9 was set up in Au!ust -;;;. The Bureau
provides a framework for collectin!# processin! and sharin! credit information on
borrowers of credit institutions. SB and ?C$C are the promoters of the CB".
The (B is now plannin! to transfer of its stakes in the SB# A?B and Aational bank for
A!ricultural and (ural Cevelopment to the private players. Also# the 3overnment has
sou!ht to lower its holdin! in PSBs to a minimum of ..> of total capital by allowin!
them to raise capital from the market. Banks are free to ac4uire shares# convertible
debentures of corporate and units of e4uity oriented mutual funds# subject to a ceilin! of
%> of the total outstandin! advances 8includin! commercial paper9 as on
:arch .+ of the previous year.
/
CLSSIFICTION OF !N%S:
The ndian bankin! industry# which is !overned by the Bankin! (e!ulation Act of ndia
+</< can be broadly classified into two major cate!ories# non1scheduled banks and
scheduled banks. Scheduled banks comprise commercial banks and the co1 operative
banks. n Terms of ownership# commercial banks can be further !rouped into
nationali7ed banks# the State Bank of ndia and its !roup banks# re!ional rural banks
and private sector banks 8the old ' new domestic and forei!n9. These banks have over
0=#;;; branches spread across the country. The ndian bankin! industry is a mi* of the
public sector# private sector and forei!n banks. The private sector banks are a!ain spilt
into old banks and new banks.
!an)ing S*"tem in India
(eserve bank of ndia 8Controllin! Authority9
Cevelopment $inancial institutions Bank
$C CB CC AABA(C A?B (B )D: Bank SCB
Commercial (e!ional (ural "and Cevelopment Cooperative Banks
Banks Banks Banks
Public Sector Banks Private Sector Banks
SB 3roups Aationali7ed Banks ndian Banks $orei!n Bank
%
+out Co#o(erati,e !an)
A Co1operative bank is financial entities which belon!s to its members# who are at the
same time the owners and customers of their bank. Co1operative banks are often
created by persons belon!in! to the same local or professional community or sharin! a
common interest. Co1operative banks !enerally provide their members with wide ran!e of
financial and bankin! services. 8loans# deposits# bankin! accounts etc9.
Co1operative bank differ from stockholder banks by their or!ani7ation# their !oals# their
values and their !overnance. n most countries# they are supervised and controlled by
bankin! authorities and have to respect prudential bankin! re!ulations# which put them at
a level playin! field with stockholder banks. Cependin! on countries# this control and
supervision can be implemented directly by state entities or dele!ated to a co1operative
federation or central body. Co1operative bankin! is retail and commercial bankin!
or!ani7ed on a co1operative basis.
Co1operative bankin! institutions take deposits and lend money in most part of the world.
Co1operative bankin! institutions take deposits and lend money in most parts of the
world. t includes retail bankin!# as carried out by credit unions# mutual savin!s and loan
associations# buildin! societies and co1operatives# as well as commercial bankin! services
provided by mutual or!ani7ations to co1operative businesses.
The structure of commercial bankin! is of branch Ebankin! type # while the co1
operative bankin! structure is a . tier federal one .
1 A state Co1operative bank works at the ape* level 8 i.e. .works at state level 9
1 The central Co1operative bank works at the intermediate level. 8i.e.Cistrict Co1
operative banks ltd. works at district level 9
0
INTRO'&CTION OF TJS! !N%
Since +<=- TJSB is in co1operative field# the dynamism infused by the Board of
Cirectors# unflinchin! loyalties of clientele and devotion of staff has propelled the sound
foundation of The TJSB Sahakari Bank "td 8TJSB9 and has emer!ed as one of the leadin!
multi state scheduled co1operative Bank in the country
.
Presently TJSB is caterin! the needs of the society throu!h close network of 0.
branches and + )*tension counters spread all over the city of Thane# Aashik# Aavi1
:umbai# Pune# Auran!abad# Satara# Aa!pur# Folhapur# 3oa# "atur& Farnataka. All these
branches has shown remarkable pro!ress. TJSB focusin! on business strate!y solely# has
created a Gisionary 3rowth Plan for Stakeholders.
Tec-nolog* Initiati,e" :
TJSB was successful in implementin! the Core Bankin! Solution which has helped Bank
to mi!rate the branches from bein! the processin! centers to marketin! customer centric
outfits. t also improved Banks multiple deliver channels such as AT:# nternet# :obile
etc.
TJSB is the first co1operative sector to install Che4ue Cepositary System in all their 0.
branches# which are operational -/ * =.
TJSB has also placed (eal Time 3ross Settlement System 8(T3S9 to customers.
Automated Che4ue ssuance :achine was first introduced by TJSB which enable
customers to take Personali7ed Che4ue Book -/ * =.
=
!u"ine"" Proce"" Re#engineering:
2ith the help of Core Bankin! Solution TJSB has initiated Business Process (e1
en!ineerin! by establishin!,
H Speciali7ed Credit Cell
H Speciali7ed (etail Bankin! Cell
H Centrali7ed :onitorin! Cell
H Centrali7ed Back office Processin! Cell
H )1lobby
!anca""urance:
TJSB act as an a!ent for :a* Aew Iork "ife nsurance Company "td for life insurance
product and with The Jriental nsurance Company "td for !eneral nsurance.
!u"ine"" E.(an"ion Plan:
(eco!ni7in! opportunity# TJSB has done its e*pansion throu!h :er!er and Takeover of
the other Banks. t has recently ac4uired two Pune based Co1operative Banks namely The
Aavjeevan Aa!rik Sahakari Bank "td and The Sad!uru Jun!li :aharaj Sahakari Bank
"td.
Re/ard" and Recognition :
TJSB was awarded as T)C?AJ"J3I BAAF J$ T?) I)A( in the Co1operative
Bank Cate!ory for $inancial Iear -;;<.
TJSB has !ot +
st
pri7e for The Best Co1operative Bank in :aharashtra by 5:aharashtra
State Krban Banks $ederation "td6 for the $inancial year -;;/1-;;%.
TJSB has been awarded +
st
pri7e as 5Padmabhushan Gasandada Patil Ktkarsha Aa!ri
Sahakari Bank6 for the financial year -;;.1-;;/ from Fokan (e!ion for the second time
consecutively#
TJSB was reco!ni7ed amon!st top % co1operative banks in the country# durin!
centenary celebration of Co1operative movement by Falupur Commercial Co1operative
Bank
B
Organi"ation Structure #TJS!
BJA(C
C)J C3:
3:
3: 3:
8Credit# Audit# ?(9 8T9
C3:
$ore* Accounts PC(J
A3:
(ecovery Credit SCC Audit & Admin T
Gi!ilance
:ana!ers
Jfficers
<
O!JECTIVES N' SCOPE OF THE PROJECT
O+0ecti,e" and "co(e:
? To study the credit appraisal system in banks.
? To understand the commercial# financial & technical viability of the proposal proposed
and it s findin! pattern.
? To study the various funded and non1funded credit facilities offered by the bank
Scope of my project is to know the Credit Appraisal in Co1operative Bank. 2hat are the
parameters and risk factors are taken into consideration in Credit process. ?ow
Speciali7e Credit Cell 8SCC9 works.
+;
RESERCH 1ETHO'OLOG2
+. Cescriptive (esearch,
TJSB Bank sanctions the limits after proper appraisal of the !enuine workin! capital
re4uirements of the borrowers keepin! in mind their business cycle and short term
credit re4uirement. (elationship between Credit score and (atios helps us to know
whether bank has taken viable decision before !rantin! loans.
-. Samplin!,
As no Primary data was collected# the whole conclusion was made on the basis of
Secondary data. Ao Samplin! is done.
.. Cata Analysis,
Cata Analysis is done by usin! Correlation analysis. n Correlation it e*plains the
relationship between the (atin! and (atios. (atin! is the total score obtained by each
customer based on the various financial parameters. t covers financial risk# Business
(isk# :ana!ement (isk and ndustry risk. Cifferent (atios are taken in consideration
such as# Current (atio# Collateral Covera!e# Cash Accruals and TJ"1L)'TA2ML).
++
Literature re,ie/
"iterature review provides available research with respect to the selected topic of the
projector research findin!s by an author which has been done with respect to the
research to research topic. This chapter provides the overall view of the available
literature with respect to the topic of the project. The review of the related research
works are described as under,1
+. A researcher 1ac-i)o Ni""an)e3 Erne"t r*eete* in their book, Financial
Integration and Development e*plained about the loan administration and risk
reduction by formal lenders8i.e. banks9# Credit Analysis Standards# ncrease Project
e4uity re4uirements# "oan screenin! of banks and assessin! creditworthiness durin!
screenin!. Banks consider return on project as an important indicator for appraisin! the
projects
-. A research was conducted by 1r4 V414V4 Su+-a Rao# on 5Monitoring of Advances - A
New look. The research !ave two views on the commencement of monitorin! process1
8i9Aarrow view1 the monitorin! starts only after the advance is disbursed# 8ii9Broad
view1 at the time of conductin! credit investi!ation of the borrower continue in all other
sta!es of credit cycle.
.. 1ritun0a* %umar Pande* conducted a study on Financial erformance Appraisal of
!I"C#. The Jbjectives of the study was to check the profitability and efficiency of the
firm in the near future# to !ive brief summery about the ratios which affect the
or!ani7ation s financial structure and to point out the relationship between ratios and
reasons behind it.
/. Eleanor C-arle" in his paper 5Appraising the $ole of the Appraiser# talked about the
centrali7ed function of the appraiser to !rant the loan and virtually every loan applicant
will have to rely on an appraisal to set a value on the property a!ainst which the loan is
to be made.
+-
TJS! !N% 5 CRE'IT RTING OF S1E6"
+out S1E"
n ndia# small and medium enterprise 8S:)9 is a !eneric term used to describe small
scale industrial 8SS9 units and medium1scale industrial units. Any industrial unit with a
total investment in its fi*ed assets or leased assets or hire1purchase asset up to (s+;
million is considered as a SS unit and investment up to (s. +;; million is considered as
a medium unit. n addition# an SS unit should neither be a subsidiary of any other
industrial unit nor can it be owned or controlled by any other industrial unit.
The S:) sector produces a wide ran!e of industrial products such as food products#
bevera!e# tobacco and tobacco products# cotton te*tiles# wool# silk# synthetic products#
jute# hemp & jute products# wood & wood products# furniture and fi*tures# paper & paper
products# printin! publishin! and allied industries# machinery# machines# apparatus#
appliances and electrical machinery. S:) sector also has a lar!e number of service
industries.
TJS! !an) Ser,ice" to S1E"
TJSB Bank has special focus for e*tendin! credit facilities to Small and :edium Si7e
)nterprises. Bank has customi7ed solutions for Small Business )nterprises# Small Scale
ndustries and :edium Scale ndustries. Credit $acilities are offered in the nature of
Term "oans for establishment of new industries# ac4uisition of machineries# technolo!y
up1!radation# or e*ecution of ad1hoc orders or for e*pansion# moderni7ation or
diversification pro!rams. $inance offered will be in the form of $und base as well as non
fund base facilities as per the re4uirements of the Business. 2orkin! Capital Term "oan
re4uests are considered for viable small and medium si7e enterprises re4uirin!
infusion of fresh funds by way of one time core workin! capital assistance.
+.
Product":
? )stablishment N moderni7ation Nup1!radation of $i*ed Assets, Bank provide property
loans to S:) for purchase of factory premises &moderni7ation of e*istin! factory
buildin!. They also offer hypothecation loans to S:) s for purchase ' import of
machinery
? Settin! up Jffice# (enovation of the premises: Bank offer property loans to S:) to set1
up the business office & branch office for the e*pansion of business plans. They also
offer term loans to renovate e*istin! office premises.
? Purchase of commercial vehicles, Bank offer hypothecation loan to the transport
operators to purchase new commercial vehicles such as Buses# Trucks# Tempo# etc.
? 2orkin! Capital "imits, Bank offer credit facility in the form of Cash Credit limit#
2orkin! capital term loan to the S:) s a!ainst the hypothecation of stock & Book
Cebts. t helps to meet workin! capital re4uirement and Short term financial need.
? Project $inance: Bank offer project finance loans to technically 4ualified# trained and
e*perienced )ntrepreneurs to e*ecute the presti!ious orders in hand.
? )*port $inance:
? Pre#"-i(ment Credit
Pre1shipment Credit facility is offered to an e*porter by way of packin! credit to enable
him to purchase'import of raw materials# processin! and packin! of the !oods meant for
e*port order.
? Po"t 5"-i(ment credit
Post1shipment Credit facility is offered to an e*porter to finance e*port bills receivables
after the date of shipment of !oods till the date of realisation of e*port proceeds on
submission of documents.
+/
? Fund !a"e:
? Wor)ing ca(ital
$unds re4uired for day to1day workin! will be to finance production & sales. $or
production# funds are needed for purchase of raw materials' stores' fuel# for
employment of labour# for power char!es etc. financin! the sales by way of sundry
debtors' receivables.
Capital or funds re4uired for an industry can therefore be bifurcated as fi*ed capital &
workin! capital. 2orkin! capital in this conte*t is the e*cess of current assets over current
liabilities. The e*cess of current assets over current liabilities is treated as net# for storin!
finishin! !oods till they are sold out & for workin! capital or li4uid surplus
& represents that portion of the workin! capital# which has been provided from the lon!1
Term source.
? Term Loan
A Term "oan is !ranted for a fi*ed Term of . years to = years intended normally for
financin! fi*ed assets ac4uired with a repayment schedule normally not e*ceedin! B
years.
A Term "oan is a "oan !ranted for the purpose of capital assets# such as purchase of land#
construction of# buildin!s# purchase of machinery# moderni7ation# renovation or
rationali7ation of plant# & repayable from out of the future earnin! of the enterprise# in
installments# as per a prearran!ed schedule.
? Non#$und !a"e:
!an) Guarantee Limit" 7 Letter o$ Credit limit:
Bank offer to issue various types of !uarantees such as performance# financial# bid bond#
tenders# customs etc & we have tie1up with Aationalised Banks also to issue B3. They
also issue inland letter of credit facility to our customers to purchase raw material#
machinery etc. They also have tie1up with Aationalised Banks to issue forei!n letter of
credit to import machinery# raw material etc.
+%
)li!ibility,
H ndividuals'Partnership $irms'Companies.
H )*perience '4ualification in the proposal line of activity.
.
"oan Amount,
H Cash credit limit# Property loan & ?ypothecation loan will be assessed accordin! to
the project re4uirement.
(ate of interest,
H Bank s P"( is +..%; > p.a. & Bank offer attractive rate of interest to S:) s
based on their credit ratin!s.
Security,
H ?ypothecation of Asset financed
H :ort!a!e of immovable property
H Personal 3uarantee of Cirector ' Partner.
Period,
H Period for cash credit account will be of +- months and limits bein! renewed yearly.
H Period for Terms loans will be .0 months to B/ months.
H :oratorium period will be 0 months.
H Period for project finance variable from project to project and reviewed on yearly
basis.
+=
TJS! !an) Commercial Loan Proce""ing:
The commercial loans provide an attractive source of income in terms of interest# lenders
e*ercise a lot of care and study in evaluatin! borrowers to ensure that funds lent out are
alon! with the earnin!s.
TJSB Bank provides separate loan for different cate!ories of borrowers. The loan
application form contains information relatin! to Back!round of borrower# personal and
professional details# purpose of loan# nature of facility# period of repayment# nature of
security offered# and financial status of borrower.
T*(e" o$ !orro/er"
Categor*
T*(e o$ !orro/er
P1+ ndividuals for activities allied to a!riculture.
P1- Small Scale ndustrial units and
e4uipment'systems for
Cevelopment of new and renewable sources of
ener!y.
P1. (oad and water transport operators.
P1/ (etail Traders
P1% Small Business )nterprises
P10 Professional and Self1)mployed persons.
P1= State sponsored or!anisations for Scheduled
Castes'Scheduled Tribes
P1B )ducational "oans
P1< ?ousin! "oans
P1+; Consumption "oans
P1++ Software
P1+- $ood & A!ro Processin! Sector
P1+. nvestment by banks in venture capital
+B
CRE'IT PPRISL PROCESS
(eceipt of Applications from Applicant
Communicate with client documents re4uired for the said proposal
$ollow1up Sheet
Pre1sanction visit by bank officers
Check for (B defaulters list# CB" data# )C3C# Caution list etc
Title clearance reports of the properties to be obtained from )mpanelled
Galuation reports of the properties to be obtained from )mpanelled
Preparation of financial data
Proposal preparation
Assessment of proposal
Sanction'approval of proposal by appropriate sanctionin! authority
Cocumentation# a!reement# mort!a!es# pre1disbursement re4uirements
Cisbursement of loans
Post sanction activities
+<
Re8uired 'ocument" $or Proce"" o$ Loan"
+. Audited ' Provisional P& " A'c# Balance Sheet for Current Iear i.e. upto.+.;..-;+-.
-. T (eturn Copy of the $irm for A.I -;+-1-;+. or latest filed.
.. (eason for increase or decrease 8as applicable9 in sales ' net worth ' profits in
comparison with earlier year s fi!ures.
/. :onth wise Sales & Purchase for Current year April -;+-.
%. "atest Cebtors ' Creditors ' Stock statements. 8'e+tor" "tatement "-ould +e age#/i"e9
0. Projected sales turnover of the $irm for# -;+-1-;+..
=. .T (eturns copy alon! with individual Balance sheet of all partners ' Cirectors '
Proprietors for A.I -;+-1-;+. 8$.I -;++1-;+.9 or else latest filed.
B. Appro*imate amount of Bad Cebts as on last month.
<. Kndertakin! for Ao chan!e in constitution.
+;. Current status of payments of statutory dues 8).!. P$')*cise'Sales Ta* etc9 Salary'"C
deductions etc.
++. Copy of Sales Ta* annual returns for $.I -;++1-;+- and copy of latest return filed in
-;+-1-;+.# if applicable.
+-. Statement of payment of statutory dues as on .+.;..-;+- duly certified by CA.
+.. Cully filled CC (enewal form si!ned by Borrowers ' 3uarantors.
+/. Board (esolution for (enewal Credit limits. 8ncase of PGT "td and "td Company9.
+%. 3uarantors Td (eturn Copies alon! with Balance sheet# Profit & loss A'c for $.I.
-;++1-;+-.
+0. Dero* copy of re!istration certificate under shop and establishment Act# +</B.
-;
Credit Rating o$ TJS! !an)
Credit (atin! is done before sanctionin! any finance to customer. Knder this method
marks are assi!ned to each of the parameters.
The followin! are the parameters have been considered for determinin! the ratin! of
borrowers in the S:) cate!ory,
? $inancial (isk
? Business (isk
? ndustry (isk
? :ana!ement (isk
2ithin each of these broad areas# various parameters have been used for obtainin! an
overall ratin! of the borrower. The total marks a borrower can be awarded on bein!
analy7ed usin! these parameters shall be +;;.
2ei!hted :arks in > 9
:arks Jbtained By Borrower
Total :arks assi!ned to various Parameters
As per Banks !uideline# concession in (ate of nterest is provided which is subject to
credit ratin! of the borrower.
The Credit Rating Scale to be used to rate the applicant is as follows,
1ar)" o$ t-e
((licant
Rating o$
t-e
((licant
=% & Above AM
Between 0; to=% A
Between %; to
0;
B
Between .% to
%;
C
Between ; to .% C
-+
:; PRI1R2 RE<&IRE1ENTS :
A business loan re4uires detailed documents statin! entire business profile that states
the !eneral back!round of the business and its operations. Borrower is re4uired to
primarily submit personal financial statements listin! all the assets and liabilities#
income ta* details alon! with audited profit & loss account and balance sheet of
previous - to . years alon! with current year. Bank may also demand borrower to
submit estimated future projections and statements# e*pansion plans and details of
!uarantors.
Securit*
Another fundamental re4uirement for loan application is details of Prime and collateral
security offered by the borrower. Collateral Security for loan may include assets such as
real estate# stocks or bonds# hard !oods such as machinery & e4uipment and various
other personal assets.
To ensure the safety of funds lent# the first and most important factor considered by a
bank is the capacity of borrowers to repay the amount of loan but bank can hardly
afford to take any risk in this re!ard. The bank therefore relies primarily on the nature of
security offered by the borrower. n case borrower fails to repay the amount banks
recover money by attachin! the assets. Bank can sell the assets offered as security and
realise the amount.
For "ecurit* (ur(o"e +an)" create c-arge on a""et" o$$ered +* +orro/er in
$ollo/ing /a*",
a4 H*(ot-ecation,
t is the most common and popular mode of char!e whose important features are as
under
? t is not defined under any law.
? )*tended idea of pled!e.
? t relates to !oods'commodities# movable machinery# vehicles# book1debts.
? Jwnership remains with the borrower.
? Possession is also with the borrower.
? Symbolic'constructive possession with creditor 8Bank9.
? t creates an e4uitable char!e.
? ?ypothecation A!reement !ives Banker a ri!ht to take possession of hypothecated
!oods# machines.
+4 Pledge:
Knder section +=- of ndian Contract Act pled!e means 5Bailment of 3oods as a
security for repayment of a debt or performance of a promise6.
A common e*ample of pled!e is !old ornaments# which are pled!ed with the bank
as a security a!ainst which 3old "oan is !iven.
mportant features of Pled!e are E
? Actual delivery of security is !iven to the Bank.
? Jwnership remains with bailers 8Borrower9.
? "iable to return after fulfillment of promise or repayment of loan amount.
? Cisposal possible only after default and !ivin! due notice to the Borrower.
c4 1ortgage:
Transfer of Property Act +BB- defines :ort!a!e as, 15Transfer of an interest in specific
immovable property for the purpose of securin! the payment of money advanced by
way of loan# on e*istin! or future debt or the performance of an en!a!ement which may
!ive rise to pecuniary liability6.
? :ort!a!or must be the owner or a person havin! interest in immovable property.
? :ort!a!or must have a contractual capacity.
? Property must be a specific immovable property.
? Purpose is to secure the loan repayment.
--
-9 PROCESSING PPLICTION ,
After receivin! all the re4uired documents from the borrower a loan officer will then
review the application and documentary attachments. "oan officer will then analyse and
review various credit reports# documentation as well as income details provided by the
borrower.
T-ere are t-ree (rinci(al" o$ +an) lending,
Sa$et*: As Bank lends funds entrusted to it by the depositors# the first and foremost
principal of lendin! is to ensure safety of the funds lent. Safety mean by capacity and
willin!ness of borrower to repay.
Li8uidit*: "i4uidity mean by !rantin! loan a!ainst security of assets which are easily
marketable without much loss.
Pro$ita+ilit*: The sound principle of lendin! is not to sacrifice safety or li4uidity for
the sake of hi!her profitability. Bank should not !rant advances to unsound parties even
if they are ready to pay hi!h interest.
Bank therefore has to consider creditworthiness of borrower# borrowers back!round#
soundness of his project or business activity. Banker has to ensure that the business of
the borrower is permissible for lendin! as per the !uidelines & policy of the bank. $or
assessin! credit worthiness of borrower# banker has to collect information throu!h
number of sources.
This is important sta!e in loan process as it involves preparation of Proce"" Note# and
analysis of loan application. mportant steps carried out by loan officer are as follows.
-.
? nal*"i" o$ $inancial "tatement":
Banks approach towards analysis of financial statement is to find and study the
solvency or repayin! capacity of the borrower. Bank is concerned with the estimation of
the risks if any# involved in lendin! to the borrower.
Processin! officer carefully analyses all the financial statements and records of the
borrower. $inancial Statement analysis assists the loan officer in assessin! the financial
and administrative efficiency of the borrower. Garious financial ratios are calculated
and trend analysis is carried out to check the consistency and !rowth of business.
Garious recommendations and observations are drawn based on the ratios.
(atios computed are as follows,
? Tan!ible Aet 2orth
? Cebt1)4uity (atio
? Knsecured "oans
? Asset Turnover (atio
? "i4uidity (atio
? Sales
? Profitability & CSC(
? Vi"it Re(ort
"oan processin! officer conduct visit to the commercial or factory site of the borrower
and also to its re!istered office for inspection. Jbjective behind visit is to verify the
operational setup and soundness of the borrower in respect of loan. After the visit
detailed visit report is prepared containin! observations of visit and recommendations.
-/
? Wor)ing Ca(ital ""e""ment:
2orkin! capital facilities are re4uired by industries .tradin! concerns and also units
en!a!ed in e*tendin! services. Aeed of workin! capital in majority of cases remain
more or less constant throu!hout the year.
1et-od" o$ ""e""ment o$ /or)ing ca(ital
a4 1a.imum Permi""i+le !an) Finance =1P!F; 1et-od:
? Audited financial statements of last two years have to be studied. The data in Profit &
"oss Statement & in the Balance Sheet in whatever format is first reconstructed in the
prescribed format.
? The total build1up of current assets & current liabilities is to be studied. The inventory#
Cebtors & Creditors which have been e*pressed in the monetary terms in balance sheet
should be converted into holdin! into months or days.
? Current assets & current liabilities are assessed based on projected sales.
? $indin! the 2orkin! Capital 3ap & decidin! the contribution of Borrower & Banks
contribution for brid!in! the 3ap
+4 Turno,er 1et-od:
Knder this method# workin! capital is assessed on the basis of -;> of the projected '
actual sales of the borrower.
c4 O(erating C*cle 1et-od:
Knder this method# workin! capital re4uirement is assessed on the basis of the avera!e
time intervenin! between the ac4uisition of material or services enterin! the process
and the final cash reali7ation.
-%
Calculation o$ 'ra/ing Po/er> Limit
Crawin! power is calculated based on the value of security provide i.e. Stock and debts
or property. Crawin! power is calculated after considerin! mar!in which is fi*ed to
certain e*tent e.!. $or the traders is .;> whereas to a manufacture it is fi*ed at /; >.
1argin:
:ar!in is provided by way of li4uid surplus i.e. from lon! term liabilities. Current
assets shall partly finance by capital and lon! term liabilities for any !oin! concern.
$inancial accommodation up to +;; > of the value of !oods will not be !ranted by
banks# banks fi* certain mar!in on the value of !oods which must be financed by
borrower and remainin! will be financed by bank. The percenta!e of mar!in fi*ed on
any security depends on its nature and type of borrower.
Thus Process note comprise of entire analysis of the loan application and borrower
includin! drawin! power of the borrower# his workin! capital re4uirements# security
details# valuation reports# details of !uarantors# financial statement analysis# visit report
and other terms and conditions of sanctionin! of loan. Jnce process note is completed it
is forwarded to sanctionin! authority for final review and assessment
?; PPLICTION REVIEW N' SNCTIONING OF LON
After the loan application is processed and all the findin!s are satisfactory# the loan
application is then submitted to sanctionin! authority. Sanctionin! authority then
assesses and eventually decides whether the loan will be approved.
? Sanctioning aut-orit* 7 'elegation o$ ut-orit*
To re!ulate the deployment of the credit as well as for speedy sanction and disposal of
the credit# the Board of Cirectors of the bank determines the lendin! and discretionary
powers of various authorities at different level.
As per the level of the official from :ana!er to C)J powers are assi!ned for sanctions.
-0
Authority includes per party )*posure# 3roup e*posure# $unded and Aon 1funded
limits# 2aiver in processin! fee# concessions in nterest rate etc. Board is the ape* level
of authority and all the proposals beyond the powers of C)J will be looked into by the
Cirectors. Board of Cirectors also formulates overall policy of the bank with re!ard to
credit.
? In"urance 'etail" of the assets and securities offered by the borrower a!ainst the loan
are also mandatory to ensure credit recovery. ?ence the details of amount of insurance
alon! with the insurin! company and their due dates are mentioned in process notes.
After the approval from the sanctionin! authority the processin! officer then forwards
the sanction letter to the borrower. Sanction letter includes amount of financin!# terms
& conditions of payment# details of Prime and collateral security# and other conditions
re!ardin! loan sanction.
@; Loan 'i"+ur"ement
Jnce borrower is a!reed on all the conditions mentioned in sanction letter# Borrower is
re4uired to si!n final set of loan documents. 2ith all the re4uirements met and all
closin! documents in order# loan officer !enerates Cisbursement Jrder 8CJ9 and loan is
finally disbursed.
? 'ocumentation
Banks !enerally lend for productive purpose. Cocumentation is done to create le!ally
valid and effective char!e over assets which bind the borrower and !uarantors
personally. Cocuments contains specifically and precisely the terms and conditions to
the contract between the borrower and bank. 2hich is e*amined by the court of law
incase of le!al recourse. t is therefore necessary that ri!ht type of documents properly
filled up# ade4uately stamped and e*ecuted are obtained on record.
-=
Pur(o"e and im(ortance o$ documentation
Cocuments are prepared and e*ecuted to record the fact that borrower has taken a loan
from the Bank and thereby evidence is created. The second purpose of documents is to
incorporate the terms and conditions on which the loan has been !iven. This is very
necessary to avoid confusion and ambi!uities in future. The third important purpose is to
create a char!e in favour of the Bank on the assets offered as a security.
By and lar!e the loans are repaid by the Borrowers as per a!reed terms and conditions.
But when the Borrower fails to repay or does not adhere to the a!reed terms and
conditions# the Bank has to take action. t may be by way of reali7in! the asset !iven as
security or enforce the a!reed terms and conditions or to take le!al action to recover the
bank dues. At that time the loan documents prepared and e*ecuted are re4uired to
produce. Cocuments# which are not properly e*ecuted# cannot be enforced a!ainst the
borrower and their purpose itself is defeated.
REGISTRTION OF CHRGES OF CO1PNIES WITH ROC
The char!e on the assets of the company created in favour of the Bank as security for
loan is re4uired to be re!istered with (e!istrar of Companies. $ailure to do so renders
such char!e void as a!ainst li4uidator or other re!istered creditors. Thus in order to
protect the interest of the Bank every char!e created in favour of the bank needs to be
re!istered.
The re!istration of char!e is a notice to the !eneral public of Banks char!e on the assets
of the company. Char!es such as hypothecation# mort!a!e re4uires re!istration. The
char!e is re4uired to be re!istered within a period of .; days from the date of creation.
The delay# however# can be condoned by the (e!istrar of Companies.
$or creation of char!e $orm Ao B to!ether with the ori!inal instrument creatin! a char!e
or certified copy is to be filed with the (e!istrar. (e4uisite fee prescribed is also to be
paid. (e!istrar after due verification of the char!e form and re!isterin! the char!e
on companys records with him issues a certificate of (e!istration of Char!e.
-B
2here a modification of char!e is to be done e.!. when limit is enhanced# additional
security is char!ed etc $orm Ao +. is also to be filed alon! with $orm Ao B. Procedure
for filin! modification of char!e is similar to filin! ori!inal char!e.
Po"t Sanction 1onitoring O$ d,ance"
The most important sta!e in the loan be!ins after the full disbursal of the loan. All the
care taken in appraisin! the project will be nullified due to faulty monitorin!. Thus a
!ood asset'loan account can turn bad for the bank if dan!er si!nals or ne!ative
indicators are not looked into or analysed properly.
2hen input cost !oes up small industries can come under strain. Cependin! on their
ability they may either pass on the cost to the customer or absorb the cost or they may
have to sacrifice the profits. n such case accounts will turn bad.
The bank should have a stron! monitorin! mechanism in place at various levels# which
will help capture the account before it moves into an APA. Bank should carefully
monitor the end use of funds and see that the funds are used for the purpose intended
for. An advance !iven for workin! capital used for tradin! in stock market increases the
risk of default.
A monitorin! mechanism should look out for early warnin! si!ns in the followin!
areas.
? Knusual increase in debtor level.
? Substantial decline in sales levels.
? Status of borrowers with other banks.
? nformation of !roup companies.
? ?i!h projection of sales' Profits should be analysed.
.;
Correlation nal*"i"
Feepin! in mind# the above process of credit appraisal of TJSB# it would be interestin!
to understand how the financial ratios form a very important part of determinin! credit
scores of the borrowers. n order to establish the above relationship# simple correlation
analysis is done between the ratios and the scores. t also helps in knowin! whether
bank has taken viable decision before !rantin! loans.
Particular" Score"
Ca"-
Current TOL#<E > ccrual"> Collateral
Ratio" Ratio TNWA<E Net Sale" Co,erage
(efe* Air
"t
d
B< ;.<0 ..-+ 1 %;>
Fulkarni
Cranes "td
== ;.B/ /.B= <> -<>
:oksh
(aymond
+/B -.++ +.;0 .> /-=>
Jman
"aboratories
"td +-B ;.B +.+/ .> %+>
Suraj "ifters
Pvt "td
+.. -./% ..;. 1.> /<>
CORRELTION
Particular"
=Rating">Ratio";
Score Jbtained
Current Ratio B4CB?@D?DE
TOL# <E>TNWA<E #B4E@F:@C:
Ca"- ccrual">Net
Sale"
#B4CCFED?:
Collateral
Co,erage
B4D?FGCCBD
.+
Current Ratio
Current ratio shows the relation between Current Assets and Current "iabilities. n Correlation
the results shows that every enterprise whose ratin! shows better short term workin! capital#
which can be easily turned into finished !oods within a less debtors turnover days. f the ratin!s
are been ne!ative then it can be said that debtors may be respondin! late.
TOL#<E>TNWA<E
Luasi e4uity is a debt taken on by a company that has some traits of e4uity# such as havin!
fle*ible repayment options or bein! unsecured. n total outside liability includes both liability of
bank as well as outside. Ae!ative correlation shows that there is not much investment made as
Luasi )4uity.
Ca"- ccrual"
Cash Accrual is the profit earned by company includin! depreciation. As per the ratin!s#
accrual income is showin! ne!ative si!n which says repayable capacity is not much stron!er.
Collateral Co,erage
Collateral is Oan additional form of security which can be used to assure a lender that you have a
second source of loan repayment. n this# hi!her the security hi!her the ratin!s. Security is !iven
on behalf of the Term loan and not applicable in Jverdraft and Cash Credit. As Correlation
shows positive si!n# i.e Bank can able to sustain even the loan !oes unpaid.
.-
O&TCO1E OF THE ST&'2
? Credit appraisal is done to check the commercial# financial & technical viability of the
project proposed# its fundin! pattern & further checks the primary or collateral security
cover available for the recovery of such funds
? Credit is core activity of the banks and important source of their earnin!s which !oes to pay
interest to depositors# salaries to employees and dividend to shareholders
? Credit and risk !o hand in hand
? n the business world# risk arises out of,1
o Ceficiencies 'lapses on the part of the mana!ement
o Kncertainties in the business environment o
Kncertainties in the industrial environment o
2eakness in the financial position
? A banker s task is to identify' assess the risk factors' parameters and mana!e' miti!ate them
on continuous basis
? These risks have been cate!ori7ed broadly into financial# business# industrial and
mana!ement risks which are rated separately
? The assessment of financial risk involves appraisal of the financial stren!th of the borrower
based on performance & financial indicators
To determine the Credit worthiness of a particular customer the above factor mentioned
come into play. All the factors were studied in detail while carryin! out the project.
.-
LI1ITTION OF THE PROJECT
? As the credit appraisal is one of the crucial areas for any bank# some of the
technicalities are not revealed
? As some of the information is not revealed# whatever su!!estions !enerated# are based on
certain assumptions.
? Credit appraisal system includes various types of detail studies for different areas of
analysis# but due to time constraint# my analysis is restricted to few sectors.
..
LERNING FRO1 THE PROJECT
had a valuable e*perience doin! my summer internship at TJSB Bank in Thane. The
duration for my internship was - months# startin! from -
nd
:ay -;+- to -
nd
-;+- in Thane
:ain branch and# was workin! on the 5CRE'IT PPRISL6
:y Project 3uide was :r. Pravin Panduran! Pandit# Chief )*ecutive officer for Thane
SCC branch# respectively of his department.
This was my $irst e*posure to the corporate world and had an e*perience of workin! in
bankin!. was workin! on the credit appraisal# which feel is the basic re4uirement of any
bank. 2hile workin! observed the si!nificance of the Credit in a bank# its workin!.
The project# which was !iven to me in this period of my summer internship# project was to
know the credit appraisal. $or that# have to talk to mana!er and try to understand concept of
credit in the bank.
Thus durin! this internship1period workin! on project and simultaneously observin! has
proved to be a !reat e*perience in all as have !ot to see and understand various situations of
the employees. would like to conclude by sayin! that it is been a !reat learnin! for me
throu!h this internship. understand some realities of the bank# as was part of the everyday
activities of the or!ani7ation. also learned the fact that no department can work on its
own each department have to depend on other in one1way
or the other.
./
!I!LIOGRPH2>REFERENCE
!I!LIOGRPH2
Financial 1anagement3 T-eor* and Practice =Se,ent- Edition;
-Prasanna Chandra
Lin) ///4r+i4org4in
///4t-ane0anata4co4in
///4d"i r 4go,4in ///4"id+i4com
///4i0mra4u"
.%
Re$erence
!u"ine"" Standard"
Co#o(erati,e !an)" =Sea"onal rticle;3 1a* GB:G
.0
NNEH&RE PROCESS NOTE SPECI1EN
.
Branch, SCC' Cate, +-.;0.-;+-
NOTE TO !E PLCE' !EFORE
AA:) J$ APP"CAAT
,
8:embership Ao,9
4 PRESENT PROPOSL ,
!4 !RIEF !C%GRO&N' :
:4 CONSTIT&TION ,
G4 SSET CLSSIFICTION ,
.. ''RESS :
$ACTJ(I:
8Jwned'Rented'"eased9 , J$$C),
8Jwned'Rented'"eased9 ,
/. 'TE OF EST!LISH1ENT ,
%. !N%ING SINCE ,
0. CTEGOR2 ,
.B
=4 CTIVIT2:
.<
8a9 :ain Activity , 8b9
ndustry , 8c9 "ist
of major clients ,
B. AA:)8S9 J$ C()CTJ(S'PRTNERS'P(JP()TJ( & T?)( A)T 2J(T?
8Amount in (s"acs9
N1E
G
E
NN&

L
INCO
1 E
NETWO
R
T
H
<. AA:) J$ T?) G&RNTORS JT?)( T?AA C()CTJ(S ' PA(TA)(S '
P(JP()TJ( & T?)( A)T 2J(T? 8Amount in (s. "acs9
N1E G
E
NN&
L
INCO1
NETWORT
H
8Specific mention if Cirectors' Partners ' proprietor are not !uarantors in their individual
capacity9
!RIEF !O&T THE PRTNERS ,
!O&T THE PRO'&CTS,
!O&T THE PRO'&CTION PROCESS,
+;. PJSTJA J$ ACCJKAT,
+;.+ PJSTJA J$ T?) ACCJKAT J$ $(: ' CJ:PAAI
8As on ;-.;B.-;+9 8Amount in (s. "acs9
FCILIT
2
S
N
C4
LI
1
IT
O
>
S

!

O
V
E
R

'
&
INTERE
ST
RTE
SEC&
RIT2
Cash
Credit
ACG?IP
P("A
TJTA"
DETAILS OF COLLATERAL SECURITY VAL
UE
Prime
TOTAL SECURITY VALUE
+;.- PJSTJA J$ T?) ACCJKAT J$ ASSJCAT) $(: 'CJ:PAAI 8Aot
Applicable9
8As on 9
$acility "
i

m

i
t
J
'
S

B
a

l
J
v

e

r
C

u
(
.

J
.

.
Primary
Securi
ty
Type
Galue
$unded PAQ
Aon $unded
PBQ
Total IA!J
Security
details & its value
Cetail Cescription of security, Galue,
TJTA" J$ P(:A(I
M
CJ""AT)(A",
Galue,
Security Covera!e of the 3roup
N1E OF
>C
EHPOS&RE
TOTL
SEC&RITIE
S
K
TJTA"
GA"KATJA C)TA"S,
Aame of Galuer
Cate of Galuation
Galuation of land (s.
Galuation of Buildin! ' (esidential Property (s.
Galuation of :achinery (s.
Galuation of Gehicles ' Cranes (s.
Galuation of Cies ' Tools and other misc.
e4uipments
(s.
C)PJST ()"ATJAS?P 8Amount in
"acs9
Sr
n

o
PRTIC&L
R
S
TOTL
1O&
N T
OF
'EPOS
I
COLLTER

L SEC&RIT2
FREE
'EPOS
IT S
a.
TOTL
+-. CJACKCT J$ T?) ACCJKAT,
a9 3eneral Conduct ,
AQ TK(AJG)(
PRTIC&LRS Credit 'e+
it
Current Iear
TJTA"
+9 3eneral Conduct ,
-9 Comments on Turnover, Comments on turnover, 8Ciff. in turnover ' :ultiple Bankin!
arran!ements ' Submission of Bank a'c statements of the Banks etc9
BQ C(A2A3 PJ2)(
Crawin! Power 8As on .;.;0.-;++9
Particulars Cebtors
up
to <; days
Kpto+B;
da
ys
)ntire
Cebtors
Stock
Add, Cebtors
Sub total 8a9
"ess Creditors
Sub total 8b9
:ar!in R S T .; >
of 8b9
Crawin! Power 8b1c9
Avera!e Crawin! Power (s. 2hether
operations within CP , iv9 Cate of "ast
(enewal
+.. TJTA" )A(AA3S $(J: ACCJKAT,
Previous Iear Current Iear
i. nterest
ii. Commission
iii. Jther
TJTA"
VISIT 'ETILS:
+/.+ Gisit Cetails
Cate of
visit
+B.;B.-;+;
+/.- Jbservations durin! Gisit in Brief,
+%. ASK(AAC) C)TA"S
Security Cescription Amount 8in Cue Cate
lacs9
2hether e*istin! securities are ade4uately insured,
+0. Compliance of all Terms and Conditions of earlier sanction 8I)S'AJ9 8f
AJ E Terms which are pendin! and reasons# Ao reason for if I)S9
+=. AQ Aotin! of Char!e with (JC 8in case of "td.' Pvt. "td. Co.9 BQ
Aotin! of Char!e with (.T.J P$or Gehicles ' CranesQ
(eport only pendin! compliances with reasons and plans to comply the same.
+B. (eserve Bank of ndia' Statutory Auditors'Concurrent Auditors'nternal Auditors
observations# if any Steps taken by Branch for compliance of the same.
+<. B()$ $AAACA" ACCATJ(S,1
8(s. n "acs9
PRTIC&LRS GBBL#:B
=&'ITE
';
GB:B#::
=&'ITE
';
GB::#
:G
=PRO
Tangi+le Net Wort-
'e+t >E8uit* Ratio
Current Ratio
Net Wor)ing Ca(ital
Recei,a+le" Ratio
Creditor" Turno,er
Stoc) Turno,er
Net Sale"
K o$
increa"e>=decrea"e;
Net Pro$it
K to "ale"
Sale" $rom (ril :B to
June :B
CO11ENTS !SE' ON PROVISIONL FINNCILS OF GB::#GB:G :
:; Tangi+le Net Wort-:
G; 'e+t#E8uit* Ratio:
?; Current Ratio 7 Net Wor)ing Ca(ital:#
/9 Turno,er Ratio",1
%; Net Sale" and Pro$ita+ilit*:#
D; Future (ro0ection" > '4S4C4R4:#
'ELEGTION POWERS:
Parameter" !enc-mar) ctual
Committee II Committee I
Current (atio +.+=,+ +,+
TJ"'TA2 0,+ B,+
Cebt )4uity
(atio
.,+ /,+
CSC( +.=% +.%;
:ar!in -%> -;>
(epayment
Periods
= Iears +; Iears
Collateral
Security
%;> -%>
(J Aot below
+.>
Aot
below
+-.%;>
Processin!
waiver
-%> =%>
Con"idering de,iation in delegation o$ (o/er in ca"e o$ collateral "ecurit*3 t-e note i" (ut
u( +e$ore Committee I
C; Recommendation
E; TER1S N' CON'ITIONS:
Pre#di"+ur"ement:
Po"t#di"+ur"ement:
O FFICER C HIEF 1NGER SST4GEN4
1NGER =SCC; =SCC; =SCC;
'eci"ion o$ Credit Committee#II
dditional Term" 7 Condition" :
CHIR1N
CRE'IT CO11ITTEE#
II 'TE: