Gousia - A Study On Loans and Advances - Axis Bank
Gousia - A Study On Loans and Advances - Axis Bank
Gousia - A Study On Loans and Advances - Axis Bank
SYNOPSIS REPORT
ON
A STUDY ON LOANS AND ADVANCES EFFECTS
AT
AXIS BANK LIMITED
Submitted
By
MOHAMMED GOUSIA
H.T.NO: 1302-20-672-020
PROJECT SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF DEGREE
OF
SYNOPSIS
1 INTRODUCTION
5 RESEARCH METHODOLOGY
6 REVIEW OF LITERATURE
7 PROPOSED OUTCOMES
9 CHAPTERISATION
BIBLIOGRAPHY
INTRODUCTION
The term ‘loan’ refers to the amount borrowed by one person from another. The amount is in
the nature of loan and refers to the sum paid to the borrower. Thus, from the view point of
borrower, it is ‘borrowing’ and from the view point of bank, it is ‘lending’. Loan may be
regarded as 'credit’ granted where the money is disbursed and its recovery is made on a later
date. It is debit for a borrower. While granting loans, credit is given for a definite purpose and
for a predetermined period. Interest is charged on the loan at agreed rate and intervals of
payment. ‘Advance’ on the other hand, is a ‘credit facility’ granted by bank. Banks grant
advances largely for short-term purpose, such as purchase of goods traded in and meeting
other short-term trading liabilities. There is a sense of debt in loan, where as an advance is a
facility being availed of by the borrower. However, like loans, advances are also too repaid.
Thus a credit facility repayable in installments over a period is termed as loan while a credit
facility repayable within one year may be known as advances. Loans and advances granted
by commercial banks are highly beneficial to individuals, firms, companies and industrial
concerns. The growth and diversification of business activities are effected to a large extent
through bank financing. Loans and advances granted by banks help in meeting short-term and
long term financial needs of business enterprises.
One of the primary functions of the commercial bank is lending. Through lending
commercial banks meet their objective of making profits. The deposits collected from the
public cannot be kept idle. It has to be utilized in order to derive benefits out of it. The bank
collects deposits with the objective of lending and makes profit out of the interest received
and paid. Their main aim is to deal in money and provide for those who need it. The banker
performs the job of lending within the framework of statutes governing the banking business,
the government policy and guidelines issued by the authorities of the country (RBI in India).
Its likely that people have been practicing lending and borrowing for as long as there has
been a concept of ownership. The history of loans can be documented atleast several
thousand years back. Forms of lending were evident in ancient Greek and Roman times and
monetary loans were even mentioned in religious books. The modern loans started much later
than these ancient times. Therefore lending has its origin in much older times.
The core function of commercial banks is granting of credit. Although banks offer a wide
spectrum of financial services, lending has traditionally been their main function. Banks
profess experience, expertise and flexibility in lending which gives them a clear competitive
advantage over other financial institutions. Lending of funds to businessmen, traders and
industrial enterprises is one of the most important activity of a commercial bank.
The term “LOAN” refers to the amount borrowed by one person from another. The amount
is in the nature of loan and refers to the sum paid to the borrower. Thus, from the point of
view of the borrower it is ‘borrowing’ and for the bank it is ‘lending’. Loan may be regarded
as ‘credit’ granted where the money is disbursed and its recovery is made on a later date. It is
a debt for the borrower. While granting loans, credit is given for a definite purpose and for a
predetermined period. Interest is charged on the loan at an agreed rate and intervals of
payments.
‘ADVANCE’ is a ‘credit facility’ granted by the bank. Banks grant advances for short term
purposes, such as purchase of goods traded in and meeting other short term trading liabilities.
There is a sense of debt in loan whereas an advance is a facility being availed of by the
borrower. Like loans, advances are also repaid. In the present lesson these two terms are used
interchangeably.
We can discuss the role played by banks in the business world by way of loans and
advances as follows:-
a) Loans and advances can be arranged from banks in keeping with the flexibility in
business operations. Traders may borrow money for day to day financial needs availing of the
facility of cash credit, bank overdraft and discounting of bills. The amount raised as loan may
be repaid within a short period to suit the convenience of the borrower. Thus business may be
run efficiently with borrowed funds from banks for financing its working capital
requirements.
b) Loans and advances are utilized for making payment of current liabilities, wage and
salaries of employees, and also the tax liability of business.
c) Loans and advances from banks are found to be ‘economical’ for traders and
businessmen, because bank charge a reasonable rate of interest on such loans/advances. For
loans from money lenders, the rate of interest charged is very high. The interest charged by
commercial banks is regulated by the Reserve Bank of India.
d) Banks generally do not interfere with the use, management and control of the
borrowed
money. But it takes care to ensure that the money lent is used only for business purpose.
e) Bank loans and advances are found to be convenient as far as its repayment is
concerned.
This facilities planning for future and timely repayment of loans. Otherwise business
activities would have come to halt.
f) Loans and advances by banks generally carry element of secrecy with it. Banks are
duty bound to maintain secrecy of their transactions with the customers. This enhances
people’s faith in the banking system.
Lending of Money
The commercial bank lends money in four different ways:
(a) Direct Loans.
(b) Cash Credit.
(c) Overdraft. ad
(d) Discounting of bills.
Loans
Loan is the amount borrowed from bank. The nature of borrowing is that the money is
disbursed and recovery is made in installments. While lending money by way of loan, credit
is given for a definite purpose and for a pre-determined period. Depending upon the purpose
and period of loan, each bank has its own procedure for granting loan. However the bank is a
liberty to grant the loan requested or refuse it depending upon its own cash position and
lending policy.
NEED FOR THE STUDY
In the era of growing importance of financial status, there is an increased importance for
various financial institutions which provide such loans.
The main objective of the study of the loans and advances is to understand the lending
policies and the various schemes of financial assistance provided by the bank. The bank
works comparatively different from other financial institutions and banks as it works
according to the rules and regulations and the guidelines by the RBI.
In the post reforms period, banks are facing tough competition due to interest rate regime. In
today’s buyers market, banks are facing cutthroat competition. Hence they are introducing
new loan products to meet the requirements of the various segments of the society to know
the importance of the retail lending in banks.
In this background the topic of personal lending schemes of AXIS BANK LIMITEDs chosen
as the subject matter of this project. The findings of the project may be considered by AXIS
BANK LIMITED while formulating the policies for increasing the volume of personal
lending schemes.
As the country is witnessing globalization, privatization and liberalization wave with a strong
influence in culture and its implication, the need for loan have become inevitable at present
scenario, hence there is a need to study the progress and trends. Since more and more
competitors have entered the market with many features in their services.
The study is also required to analyze the views of the borrowers and to analyze the
satisfaction level of customers. It helps to know in detail the Loans and Advances provided
by the bank, right from its inception stage, growth and future prospects.
The data collection methods include both primary data and secondary data.
Primary Data:
Primary data is that data that has not been previously published, i.e. the data is derived
from a new or original study and collected at the source, e.g. in marketing, it is information
that is obtained directly from first-hand sources by means of surveys, observation or
experimentation. This is also called first-hand data.
SOURCES:
No primary data was collected while doing this project.
Secondary Data:
The secondary data, on the other hand, is basically primary data collected by someone
else. Researchers reuse and repurpose information as secondary data because it is easier and
less expensive to collect. However, it is seldom as useful and accurate as primary data. It can
be collected directly either from published or unpublished sources. It is collected for purposes
other than the completion of a research project and it is used to gain initial insight into the
research problem. It is the data that have been already collected by and readily available from
other sources.
SOURCES:
The data was collected from personal observation of records.
The pamphlets provided by the bank.
The brochures and annual records provided by the bank.
Various books relating to loans, advances and other related topics.
Official website of the company
Internet
REVIEW OF LITERATURE
It is mandatory to scan through the literature which has already gone through the
proposed study subject. Various research works on lending practices of AXIS BANK
LIMITED has been very helpful in the successful conduct of the study. However all such
studies concentrate on certain issues and suggest piece meal solution. Therefore, a
comprehensive study is elusive. The text and academics literature which helped the study in
details are:
Y A Hand Book of Banking by N. S. Toor
Ramman Finance management.
Finance management and policies by James
C Van Horne.
Management accounting principle and practices by R. K. Sharma.
Accounting for managers S. P Jain and K.L. Narang.
Research methodology by C.R. Kothari.
Business Research Methods by Appannaiah Reddy and Ramnath
ORGANISED MARKETS
In these markets there are standardized rules and regulations by Reserve Bank of India or
other regulatory bodies. The organized markets can be further classified into two. They
are:
1) Capital markets.
2) Money markets.
1. CAPITAL MARKET: It is a market for long term funds which have a long or
indefinite maturity. Capital market further divided into three mainly:
a) Industrial Security market:
It is a market for industry security namely equity shares or ordinary shares, preference
share, debentures or bonds. It is a market where industrial concern raises their capital or
debt by assuring appropriate instruments. It can be further subdivided into two. They are:
Primary market: It is a market for new issue or new financial claims.
Secondary market: It is a market for existing securities and those already issued
and quoted in stock exchange
INTRODUCTION TO LOANS
One of the primary functions of the commercial bank is lending. Through lending
commercial banks meet their objective of making profits. The deposits collected from the
public cannot be kept idle. It has to be utilized in order to derive benefits out of it. The
bank collects deposits with the objective of lending and makes profit out of the interest
received and paid. Their main aim is to deal in money and provide for those who need it.
The banker performs the job of lending within the framework of statues governing the
banking business, the government policy and guidelines issued by the authorities of the
country (RBI in India).The basic objective of nationalization of commercial banks was to
provide funds to the neglected sectors like agriculture, tiny industries and other weaker
sections of the society. Today nearly 40% of the total commercial bank advances are the
priority sectors. Greater part of the commercial bank funds are employed in the form of
loans and advances. Loans bring good money to the bank in the form of profit by
charging interest. Lending function of a commercial bank benefits the bank in the form of
profit and the one who takes loans enjoy the benefit of money required for their activities.
The wheels of industry cannot run without the bank advances. The bank needs to assess
the condition of industry or trade or any business enterprise while making advances
Commercial banks generally provide short term loans up to one year for meeting the
working capital requirements. But these days, term loans exceeding one year are also
provided by banks. The term loans may be either medium term or long term loans.
TERM FINANCING BY COMMERCIAL BANKS
Commercial banks normally provided short term financial assistance to industrial sector.
The assistance provided by them provided by them fulfilled the working capital
requirement of the industrial enterprises. A massive investment in industries during second
plan and after changed the priority of bank lending. The industrial required high funds for
long term financing. The financial institutions failed to meet the increasing demands of
the industries. Then the entry of commercial banks came into existence and filled the gap
between the demand and supply of long term requirements. The banks started giving
term loans to meet the long term needs of the industry. The refinance scheme of IDBI
encouraged more term lending by commercial banks. The commercial banks are assisting
industrial units by granting term loans, subscribing to shares and debentures of corporate
units and underwriting securities issued of these companies.
General lending policy
General Lending Policy in Relation to the business of the borrowers and the purposes for
which the advance is required. In handing a proposal relating to a particular nature of
facility, apart from the general guide lines that have given, the branches should refer to
the detailed instruction as contained in the respective instruction circulars so as to ensure
that all instructions relating to a particular type of advance are compiled with. The bank
sanctions various kinds of clean / unsecured credit facilities as well as secured credit
loans, details of which the security there for and the security documents to be obtained are
elaborately explained in the security documents to be obtained are elaborately explained in
the guide documentation. It is the nature of the business of the borrowers. In handling a
proposal relating to a particular nature of , apart from the general guideline that have been
given, the branches should refer to the detailed instructions as contained in the respective
instruction circulars so as to ensure that all instruction relating to a particular type of
advances are complied with.
1. Housing
Purchase of house/flat, construction of house/ flat, repairs/improvement/extension,
Repayment of loan availed from other agency/bank/NBFC. Indian citizen not below 21
years, singly or jointly with other co-owners. Maximum Rs.50 lacks depends on
repayment capacity subject to net, take home salary being35% of gross income.
Maximum Rs.10 lacks for repairs. However, maximum loan amount in Mumbai and New
Delhi may be considered up to Rs.50 lacks. Maximum amount of loan may be calculated 4
times the annual gross salary or 5 times the annual net salary of the applicant and
his/her spouse whichever is higher in the case of salaried people. The margin for purchase of
new house/flat/construction 18% of cost. And for repair 30% of cost.1.1 Security
Document
Equitable Mortgage or simple mortgage of house/flat.
If under construction, interim security in the form of LIC /shares/national savings
certificate/Kissan vikas pattra/ mortgage of other property.
One/two guarantors whenever possible.
Loan agreement.
Letter of authority to employer in case of salaried employee.
Letter of guarantee. Repayment of moratorium upto20 months. Maximum period
should not exceed 18years and 10 years for house repairs in equated monthly
installments. Free insurance benefits such as insurance of property against fire allied
perils including earth quake and personal accident (death) as per negotiated terms and
conditions to be offered. Other conditions finance can be extended for purchase of existing
flats/house of not older than 18years. House loan outside salaried sector can be granted
only to income tax assesses in urban areas.
2. Vehicle loans
Purchase of new two/four wheeler for personal/professional use. Purchase of old cars of less
3 years old. The eligibility is 20 years and above. Permanent employee of central
state/defense/police/force/autonomous bodies/public or joint sector under taking/ reputed
firms/Established. Educational Institutions. Professionals having regular income. Net take
home pay (after deduction of installment) isrs.2500 for 2 wheeler & branch and
irrevocable letter from employer to remit instilments to bank till liability is liquidated.
The borrower should be customer of the bank. Loan amount will be three times of net
income/net annual salary subject to maximum of rs.10 lacks 2of the cost of new vehicle.
50% for old cars certified by a reputed automated certification agency. The security
document should be Hypothecation of vehicle financed by the bank. Bank is lien to be
noted with the Transport Authorities. Guarantee of the spouse. In case unmarried third
party guarantee of sufficient means D.P note letter of guarantee hypothecation of vehicle.
SURVEY-1
Title: Increased Loan Demand Source: Federal Reserve Board
Federal Reserve Board, senior loan officer conducted a survey on increasing demand for
loans. The survey found that about 25% of banks reported increase demand for
commercial and industrial loans from large and middle market firms. About 10%
reported stronger loan demand from small business.
The credit quality of potential business borrowers also improved. More than half of
domestic banks said the credit quality of large and middle market loan applicant had
improved while 35% said the credit quality of potential small business borrowers had
improved.
Through the first seven months of fiscal year, 7(a) loan program was introduced and was
soon up by 53% when compared with the same period a year ago. In the fiscal year, more
than $13 billion 7(a) loans had been approved and it is also expected that program
could hit the authorized limit of $20.5 billion before the end of fiscal year. Therefore
as a result it was found that here was an increasing demand for loans.
SURVEY-2
Title: Investor’s strong support for fair value of loan Source: CFA Institute
CFA head of financial reporting policy at CFA institute conducted a survey to ascertain
investor-member views on the fair value measurement of loans.
The survey found that CFA institute members strongly desire higher quality, more
transparent and more relevant information about asset values contained in fair value
measures. The small number of banking analysts queried through other surveys pales in
comparison to the board based investor-member feedback before, during and after the
financial crisis.
Again in September, more than 70% or approximately 8000 out of 1100 respondents
stated that they want fair value as the primary measurement basis for financial Loans and
needs strong support for the fair value of loans.
Christos C. Frangos (2020), study on the factors affecting customers’ decisions for taking out
bank loan reveals that lending rate is the main factor, service quality and social factors like
marital status also affecting the decision for taking out the loan among Greek people. This
study mostly concentrated on the factors that influence the choice of their bank to take a loan
not considering some other possible factors that might affect the decision for getting loans.
In the view of Felicia OmowunniOlokoyo (2019), commercial banks loan advance, volume of
deposit, investment portfolio, interest rate, and cash reserve requirements ratio and their
liquidity ratio are the major factors that determine the commercial banks’ lending behavior in
Nigeria. The researcher used secondary data and analytical method of research to conclude
this study.
Shafinar Ismail (2018) studied on the determinants of personal loans borrowings with the
hypothesis on the factors like knowledge about personal loans (how to manage the finance of
earnings and borrowings), media awareness (instruments that help to publish the information
about financial management), Perception towards personal loans, family influence and
religious/ethical belief. The researcher found out that media awareness, religious/ethics belief
had the strong effects towards personal loans in Malaysia while South African researchers
found that application process, cost of the loans, no collateral and advertisement strategy
were influencing the trend in personal loans. The findings were arrived at using by a sample
of only one Mabank’s employees with a minimum.
INDUSTRY PROFILE
A bank is a financial institution that accepts deposits and channels those deposits into
lending activities. Banks primarily provide financial services to customers while enriching
investors. Government restrictions on financial activities by banks vary over time and
location. Banks are important players in financial markets and offer services such as
investment funds and loans. In some countries such as Germany, banks have historically
owned major stakes in industrial corporations while in other countries such as the United
States banks are prohibited from owning non-financial companies. In Japan, banks are
usually the nexus of a cross-share holding entity known as the keiretsu. In France,
bancassurance is prevalent, as most banks offer insurance services (and now real estate
services) to their clients.
Introduction
India’s banking sector is constantly growing. Since the turn of the century, there has been a
noticeable upsurge in transactions through ATMs, and also internet and mobile banking.
Following the passing of the Banking Laws (Amendment) Bill by the Indian Parliament in
2013, the landscape of the banking industry began to change. The bill allows the Reserve
Bank of India (RBI) to make final guidelines on issuing new licenses, which could lead to a
bigger number of banks in the country. Some banks have already received licences from the
government, and the RBI's new norms will provide incentives to banks to spot bad loans and
take requisite action to keep rogue borrowers in check.
Over the next decade, the banking sector is projected to create up to two million new jobs,
driven by the efforts of the RBI and the Government of India to integrate financial services
into rural areas. Also, the traditional way of operations will slowly give way to modern
technology.
Market size
Total banking assets in India touched US$ 1.8 trillion in FY14 and are anticipated to cross
US$ 28.5 trillion in FY25.
Bank deposits have grown at a compound annual growth rate (CAGR) of 21.2 per cent over
FY06–14. Total deposits in FY14 were US$ 1,274.3 billion.
Total banking sector credit is anticipated to grow at a CAGR of 18.1 per cent (in terms of
INR) to reach US$ 2.4 trillion by 2018.
In FY15, private sector lenders witnessed discernable growth in credit cards and personal
loan businesses. ICICI Bank witnessed 151.6 per cent growth in personal loan disbursement
in FY15, as per a report by Emkay Global Financial Services. Axis Bank's personal loan
business also rose 49.8 per cent and its credit card business expanded by 31.1 per cent.
Investments
Bengaluru-based software services exporter Mphasis Ltd has bagged a five-year contract
from Punjab National Bank (PNB) to set up the bank’s contact centres in Mangalore and
Noida (UP). Mphasis will provide support for all banking products and services, including
deposits operations, lending services, banking processes, internet banking, and account and
card-related services. The company will also offer services in multiple languages.
Microfinance companies have committed to setting up at least 30 million bank accounts
within a year through tie-ups with banks, as part of the Indian government’s financial
inclusion plan. The commitment was made at a meeting of representatives of 25 large
microfinance companies and banks and government representatives, which included financial
services secretary Mr GS Sandhu.
Export-Import Bank of India (Exim Bank) will increase its focus on supporting project
exports from India to South Asia, Africa and Latin America, as per Mr Yaduvendra Mathur,
Chairman and MD, Exim Bank. The bank has moved up the value chain by supporting
project exports so that India earns foreign exchange. In 2013–14, Exim Bank lent support to
85 project export contracts worth Rs 24,255 crore (US$ 3.96 billion) secured by 47
companies in 23 countries.
COMPANY PROFILE
AXIS BANK
Axis Bank India, the first bank to begin operations as new private banks in 1994 after the
Government of India allowed new private banks to be established. Axis Bank was jointly
promoted by the Administrator of the specified undertaking of the
Unit Trust of India (UTI-I)
Life Insurance Corporation of India (LIC)
General Insurance Corporation Ltd.
Also with associates viz. National Insurance Company Ltd., the New India Assurance
Company, The Oriental Insurance Corporation and United Insurance Company Ltd.
EVOLUTION:
UTI was established in 1964 by an Act of Parliament; neither did the Government of India
own it nor contributes any capital. The RBI was asked to contribute one-half of its initial
capital of Rs 5 crore, and given the mandate of running the UTI in the interest of the unit-
holders. The State Bank of India and the Life Insurance Corporation contributed 15 per cent
of the capital each, and the rest was contributed by scheduled commercial banks which were
not nationalized then. This kind of structure for a unit trust is not found anywhere else in the
world. Again, unlike other unit trusts and mutual funds, the UTI was not created to earn
profits.
In the course of nearly four decades of its existence, it (the UTI) has succeeded phenomenally
in achieving its objective and has the largest share anywhere in the world of the domestic
mutual fund industry. '' The emergence of a "foreign expert" during the setting up of the UTI
makes an interesting story. The announcement by the then Finance Minister that the
Government of India was contemplating the establishment of a unit trust caught the eye of
Mr. George Woods, the then President of the World Bank. Mr. Woods took a great deal of
interest in the Indian financial system, as he was one of the principal architects of the AXIS,
in which his bank, First Boston Corporation Bank, had a sizeable shareholding. Mr. Woods
offered, through Mr. B.K. Nehru, who was India's Executive Director on the World Bank, the
services of an expert. The Centre jumped at the offer, and asked the RBI to hold up the
finalization of the unit trust
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Proposals till the expert visited India. The only point Mr. Sullivan made was that the
provision to limit the ownership of units to individuals might result in unnecessarily
restricting the market for units. While making this point, he had in mind the practice in the
US, where small pension funds are an important class of customers for the unit trusts. The
Centre accepted the foreign expert's suggestion, and the necessary amendments were made in
the draft Bill. Thus, began corporate investment in the UTI, which received a boost from the
tax concession given by the government in the 1990-91 Budget. According to this
concession, the dividends received by a company from investments in other companies,
including the UTI, were completely exempt from corporate income tax, and provided the
dividends declared by the investing company were higher than the dividends received.
The result was a phenomenal increase in corporate investment which accounted for 57 per
cent of the total capital under US-64 scheme. Because of high liquidity the corporate sector
used the UTI to park its liquid funds. This added to the volatility of the UTI funds. The
corporate lobby which perhaps subtly opposed the establishment of the UTI in the public
sector made use of it for its own benefits later. The Government-RBI power game started
with the finalization of the UTI charter itself. The RBI draft of the UTI charter stipulated that
the Chairman will be nominated by it, and one more nominee would be on the Board of
Trustees. While finalizing the draft Bill, the Centre changed this stipulation. The Chairman
was to be nominated by the Government, albeit in Consultation with RBI. Although the
appointment was to be made in consultation with the Reserve Bank, the Government could
appoint a person of its choice as Chairman even if the Bank did not approve of him.
Later on in 2002 the UTI was renamed to Axis Bank.
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PROPOSED OUTCOMES
The bank is variety of loans and advances are unlimited but they are not
communicated well enough to customers. Hence, it is suggested to make additional
efforts to provide information to the customers about the range of loans and advances.
Attractive and competitive interest rates should be adopted since it is the main
factor considered for taking loans by the customers. Should be more highlighted with
promotional activities as there Bank should make are many competitors for Auto loan in
the market.
Provision for free accident insurance cover for the auto loan product to Since most
of the customers of Auto Loanattract the customers for loan. go for purchasing of new
vehicles during Festivals, are attracted towards the special offers in loan schemes,
special offers should be announced during Special occasion Like New Year, Festivals etc
as such.
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LIMITATIONS OF THE STUDY
The study was conducted with the available data and the analysis made on it.
Getting valid data was a problem due to the sensitivity of the data provided.
Some of the data vital to the study could not be accessed due to the confidentiality
policies of the bank.
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CHAPTERISATION
CHAPTER -1 - INTRODUCTION
This chapter includes the introduction of the topic, need, scope, objectives of the study,
This chapter includes the theoretical background and articles written by different
This chapter includes the comparative analysis of the financial statements of the five
years data and it also includes the interpretation based on the study.
This chapter includes the overall summary of the project and the conclusion based on
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BIBLIOGRAPHY
WEBSITES:
www.AXISbank.com
www.google.com
www.rbi.org.in
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