EXECUTIVE SUMMARY

While there are many conventional approaches to gauge the longevity of corporate sector revival, I have chosen the Corporation Bank route due to its inherent freshness, simplicity and strengths. Another important piece in taking up this sector for my project is the performance of the core sector. Technology and innovation have always been the cornerstones of IILs quest for excellence and these state-of-the-art plants facilitate the companys mission to attain and sustain market leadership, through technological and product superiority. As a part of our MBA curriculum, we have to undergo summer project. I have done my summer project at Corporation Bank, Mudhol. The main objective of summer project was to get exposed to the working of an organization, to relate historical concepts learnt in the class room to the organizational functioning, and to learn real life application of management. In this project, I have mentioned a mentioned a brief introduction to, necessity and importance of Financial institutions follow certain well-defined systems and practices to appraise credit proposals. These systems and practices are strictly followed by Corporation Bank, so that the funds are sanctioned to those entrepreneurs who have the ability to repay and money sanctioned is not misused. The system and practices regarding appraisal of credit proposals begins with a thorough verification of application given by applicant and ends with sanction of loan. In this process, the Corporation collects verifies necessary inputs, i.e., financial statements of the applicant, security taken for project and other related documents, and establishes the viability of the projects viz financial viability, market viability and technical feasibility. After these procedures are completed, if the project sanction committee/sanctioning authority accept the feasibility of the project, the loan will be sanctioned. The calculations are carried out through computer softwares available for the purpose of appraising project. The present report describes and analyses the credit appraisal system as observed at Corporation Bank, Mudhol.

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INTRODUCTION Topic of the Study A Study on Credit Appraisal System at Corporation Bank

Need for the Study

Credit Appraisal System is very much important to know about the background of entrepreneurs, as it has a bearing on the success of the project. If the entrepreneur is an experienced person, having good track record, then chances of success are more. Background appraisal should throw light on entrepreneurs experience in the proposed activity. If he has previous experience and good record, the task is relatively easier, but in case of new entrepreneurs where there is no past record to go by, the task of appraisal becomes more difficult. While looking for information about background, following are included: o Name, age, qualification and experience along with net worth of the promoters have to be collected. o If the directors or partners have a stake in other firms, than details of such firms should collected. o Bankers opinion about the credit worthiness and letter of assurance from the bank regarding availability of working capital. o Income tax clearance certificate, with total outstanding liability and the nature and extent of provision made to meet the income tax liability. o It should be ascertained that the entrepreneur is not involved in any economic offence.

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In case of existing concerns, detailed analysis of the financial position and actual operational result of the concern should be examined along with the promoters profile. Normally the entrepreneurs hesitate to disclose their net worth sincerely. Then the appraising officer has to develop the art of collecting information by subtle questions.

Introduction to the topic

Appraisal means critical evaluation of the project for calculating its worth. The dictionary meaning of appraisal is to estimate the worth or value of something. Basically credit appraisal is about finding out whether the project is technically feasible and financially viable. Commercial banks follow certain approaches of credit appraisal, apart from that of other financial institutions. From this it is evident that there is no standardization in approach towards credit appraisal. While broadly the same sets of facts are taken into consideration, the weight age given to individual factor varies from case to case and institution to institution. The consideration for a credit appraisal are type of organization, activity of the firm, size of the firm, nature of the products market potential etc. Apart from profitability, it is equally necessary to determine the economic significance. Projects which offer extensive employment opportunities reduce regional imbalance, earn foreign exchange etc. are preferred. Credit appraisal is one of the major functions for lending banks because the bank depends upon the interest earned by lending the money. Some banks follow by the liberal procedures in credit appraisal and some will follow the strict one.

PURPOSE OF THE STUDY The purpose is to study Credit Appraisal System of the bank.

The study has done on the basis of the followings: a) Applications Accepted (Amount wise) Bapuji Academy of Management and Research, Davanagere. 3

b) Applications Appraised and Sanctioned (Sector-wise) c) Applications Appraised and Sanctioned (Weaker sections) d) Applications Appraised and Sanctioned (Amount wise) e) Applications Appraised and Sanctioned (Scheme wise) f) Analysis of Actual Vs Budgeted Performance

Benefits from the Study:

1. To understand credit monitoring arrangement data, this is very important part in the credit appraisal done by the banks.
2. To know and analyze the credit appraisal techniques used in the banks. 3. To identify the major parameters which affect the validity of the credit appraisal

techniques.

Introduction about Industry:

In many countries, Development Financial Institutions (DFIs) have been major conduits for channeling funds to particular firms, industries and sectors during their process of development. In India, DFIs have been a more important source of long term funds (mainly debt) for industry than commercial banks or other sources of debt. Studies suggest that firms that had prior access to DFIs for funds spur investment. These studies suggest that DFI lending is not governed by considerations of lobbying, precedence or even to sponsor particular types of projects that might be socially desirable but not privately profitable. Rather, the primary role of DFIs has been to reduce financial constraints faced by firms. It is also noted that the drastic contraction of long term bank lending to industry in India I the early nineties had adverse consequences for firms hat were particularly bank-dependent. Together, it is observed that, in contrast to firms in well developed capital markets, in emerging markets, firm with growth potential are likely to rely significantly on debt financing, especially debt that is channeled through financial intermediaries.

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Corporation Bank was established in the year 1906, Corporation Bank is an organization based on the traditional Indian values of service to the community. Corp Bank is regarded as one of the well-run banks in the comity of Public Sector Banks in the country. The Bank has a unique history of 99 years of successful Banking and has stood the test of time by growing steadily, offering vast, varied and versatile services with a personal touch. Today, its good customer service, pre-eminent track record in House Keeping, adherence to Prudential Accounting norms, consistent profitability and adoption of modern technology for betterment of customer service have earned the Bank a place of pride in the Banking Community Strength and Weakness of Corporation Bank: Strengths : Right strategy for the right products. Superior customer service vs. competitors. Great Brand Image. Products have required accreditation. High degree of customer satisfaction. Good place to work Lower response time with efficient and effective service. Dedicated workforce aiming at making a long-term career in the field.

Weakness: Customer service staff needs training. Processes and systems, etc Management cover insufficient

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INDUSTRY PROFILE
INTRODUCTION In many countries, Development Financial Institutions (DFIs) have been major conduits for channeling funds to particular firms, industries and sectors during their process of development. In India, DFIs have been a more important source of long term funds (mainly debt) for industry than commercial banks or other sources of debt. Studies suggest that firms that had prior access to DFIs for funds spurs investment. These studies suggest that DFI lending is not governed by considerations of lobbying, precedence or even to sponsor particular types of projects that might be socially desirable but not privately profitable. Rather, the primary role of DFIs has been to reduce financial constraints faced by firms. It is also noted that the drastic contraction of long term bank lending to industry in India I the early nineties had adverse consequences for firms hat were particularly bank-dependent. Together, it is observed that, in contrast to firms in well developed capital markets, in emerging markets, firm with growth potential are likely to rely significantly on debt financing, especially debt that is channeled through financial intermediaries. OVERVIEW OF DEVELOPMENT BANKING IN INDIA

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The concept f development banking rose only after Second World War, Successive of the Great Depression in 1930s. The demand for reconstruction funds for the affected nations compelled in setting up a worldwide institution for reconstructions. As a result the IBRD was set up in 1945 as a worldwide institution for development and reconstruction. This concept has been widened all over the world an resulted in setting up of large number of banks around the world which coordinating the developmental activities of different nations with different objectives among the world. The course of development of financial institutions and markets during the postIndependence period was largely guided by the process of planned development pursued in India with emphasis on mobilization of savings and channelizing investment to meet Plan priorities. At the time of Independence in 1947, India had a fairly well-developed banking system. The adoption of bank dominated financial development strategy was aimed at meeting the sectoral credit needs, particularly f agriculture and industry. Towards this end, the Reserve Bank concentrated on regulating and developing mechanisms for institution building. The commercial banking network was expanded to cater to the requirements of general banking and for meeting the short-term working capital requirements of industry and agriculture. Specialized development financial institutions (DFIs) such as the IDBI, NABARD, NHB and SIDBI, etc., with majority ownership of the Reserve Bank were set up to meet the long-term financing requirements of industry and agriculture. To facilitate the growth of these institutions was also put in place by the Reserve Bank. The first development bank in India i.e., IFCI was incorporated immediately after independence in 1948 under the Industrial Finance Corporation Act as a statutory corporation to pioneer institutional credit to medium and large-scale, industries There after at regular intervals the government started new and different development financial institutions to attain the different objectives and help to five-year plans. The financial institutions in India were set up under the strong control of both central and state Governments, and the Government utilized these institutions for the achievements n Bapuji Academy of Management and Research, Davanagere. 7

planning and development of the nation as a whole. Next Para all- India financial institutions can be classified under four heads according to their economic importance as below 1. All India Development Banks 2. Specialized Financial Institutions 3. Investment Institutions 4. State-level Institutions 5. Other Institution

Major DFIs:
1. National Bank for Agriculture and Rural Development(NABARD) NABARD, an apex development bank, was set up on the recommendations of CRAFICARD Committee on July 12, 1982 under NABARD Act 1981 with a capital of Rs.100 crore contributed by Central Govt. and RBI, with its main office in Mumbai, by merging the Agriculture Credit Depth and Rural Planning and Development Corporation (ARDC).NABARD is managed by a Board of Directors consisting of Chairman, Managing Director and other directors. A NABARD raises funds through National Rural Credit - Long term operations, National Rural Credit- Establishment fund, through bonds and debentures guaranteed by Central Government, Borrowing from RBI, Central Govt. or any other organization approved by Central Government and funds from external sources. Its credit functions include providing credit to agriculture, small and village and cottage industries through banks by way of refinance facilities to commercial banks, RRBs, Coop Banks, Land Development Banks and other Financial Institutions like KVIC. Its developmental functions are co-ordination of various institutions, acting as agent of Govt. and RBI, providing training and research facilities. The regulatory functions include inspection of RRBs and Cooperative Banks, receipt of returns and making of recommendations for opening new branches.

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2. Export Import Bank Of India It is the apex institution for coordinating the working of institutions I India engaged in financing export and import of goods and services. With an initial authorized capital of Rs.200 crore (increased to Rs.500 and then to Rs.200 crore) Exit Bank was established on Jan 01, 1982( and started functioning w.e.f. March 01, 1982) under Export Import Bank of India Act 1982, which took over the export finance activities of IDBI. It raise funds by way of bonds and debentures, borrowing from RBI or other institutions, raising foreign deposits.

a. It undertakes following king of functions: - Direct finance to exporter of goods. - Direct finance to software exports and consultancy services. - Finance for overseas joint ventures and turnkey construction project. -Finance for import and export of machinery and equipment on lease basis - Finance for deferred payment facility -Issue of guarantees-multi-currency financing facility to project exporters. -Export bills re-discounting -Refinance to commercial banks in India -Guaranteeing the obligations. 3. Small Industries Development Bank of India(SIDBI) SIDBI was established under SIDBI Act 1988 and commenced its operations w.e.f April 02, 1990 with its headquarters in Lucknow and branches all over the country, as a subsidiary of IDBI. It took over the IDBI business relating to small scale industries including National Equity Scheme and Small Industries Development Fund. The objective of establishment of SIDBI, in particular, is to strengthen and tiny industries. a. Its functions include: Bapuji Academy of Management and Research, Davanagere. 9

4. Administration of SIDF and NEF for development and equity support to small and tiny industry. o Providing working capital through single window scheme. o Providing refinance support to banks/development finance institutions. o Undertaking direct financing of SSI units. o Coordination of functions of various institutions engaged in finance to SSI and tiny unit 5. National Housing Bank (NHB) NHB, the apex bank for housing, was established on July 09, 1988 under NHB Act 1987, as a wholly-owned subsidiary of RBI with head quarters in New Delhi. The bank was set up with the main purpose of setting up of an institution to operate as a principal agency to promote housing finance institutions and to provide financial and other support to these institutions. NHB can raise sources by issue of bonds and debentures, borrowing from RBI under short term loans and long term operations, borrowing from Central government and other approved institutions. 6. Industrial Investment bank of India (formerly IRBI) IRBI was initially set up as Industrial Reconstruction Corporation ltd in 1971 and was renamed Industrial Reconstruction bank of India w.e.f March 20, 1985 under IRBI Act 1984 to take over the functions of IRC in 1997 the bank was converted into joint stock company by naming it Industrial Investment bank of India. Its earlier functions were to provide finance foe industrial rehabilitation and revival of sick industrial units by way of rationalization, expansion, diversification and modernization and also to coordinate the work of other institutions of this purpose. 7. Industrial Finance Corporation of India Ltd (IFCI)

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FCI was established under IFCI Act 1948 in July 1948 as Indias first development bank. The main objectives, for which IFCI was established, are to make medium and long term credit available to the industrial undertakings and assist them in creation of industrial facilities. o Its functions include : o Direct financial support (by way of rupee term loans as well as foreign currency loans) to industrial units for under taking new projects, expansions, modernization, diversification etc., o Subscription and under writing of public issues of shares and debentures. o Guaranteeing of foreign currency loans and also deferred payment guarantees. o Merchant banking, leasing and equipment finance. o Development institute intends to set up Enterprise Development centers. In 1994, IFCI was converted into a joint stock company and came out with a public issue of shares. It is managed by Board of Directors. It floated institutions such as TFCI, ICRA etc.

8. Industrial Credit and Investment Corporation of India ICICI was set up during 1955 as a private company with a view to provide support to industry in India by way of rupee and foreign currency loans, particularly the private international investment and World Bank funds to assist the industry in the country in private sector. a. It functions include: -Assistance to industrial undertaking for a new projects, expansion, modernization, diversification etc. In the shape of rupee loans or foreign currency loans. - Subscription and underwriting of capital issues. - Guaranteeing the payment for credits. - Merchant banking, equipment leasing and project counseling. Bapuji Academy of Management and Research, Davanagere. 11

b. It floated a number of institutions successfully which include credit rating agency CRISIL, ICICI Banking Corporation, SCICI (since merged with it) a Mutual Fund etc. c. In September 1998 it changed its name to ICICI Ltd. d. Of late, it has started providing working capital support to industrial undertakings. 9. Industrial Development Bank Of India(IDBI) IDBI is the apex institution in the area of long term industrial finance. It was established under the IDBI Act 1964 as a wholly owned subsidiary of RBI and started functioning on July 01, 1964. Under Public Financial Institutions Laws (Amendment) Act 1976, it was delinked from RBI. IDBI is engaged in direct financing of the industrial activities as well as I re-finance and rediscounting of bills against finance made available by commercial banks under their various schemes. The objectives of this institution are to create a principal institution for long term finance, to coordinate the institutions working in this field for planned development of industrial sector, to provide technical and administrative support to the industries and to conduct research and development activities for the benefit of industrial sector. It raises funds by way of market borrowing by way of bonds and deposits, borrowing from Govt. and RBI, borrowing abroad in foreign currency and lines of credit. o Its functions include: -Direct loans (rupee as well as foreign currency) to industrial undertakings as defined in the Act to finance their new project, expansion, modernization etc. -Soft loans for various purposes including modernization and under equipment finance scheme. -Underwriting and direct subscription to shares/debentures of the industrial companies. -2006 is as a part of the inorganic growth strategy. -Short term working capital loans to the corporate for meeting heir working capital requirements.

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COMPANY PROPILE
Background & inception of the company Corporation Bank was established in the year 1906, Corporation Bank is an organization based on the traditional Indian values of service to the community. Corp Bank is regarded as one of the well-run banks in the comity of Public Sector Banks in the country. The Bank has a unique history of 99 years of successful Banking and has stood the test of time by growing steadily, offering vast, varied and versatile services with a personal touch. Today, its good customer service, pre-eminent track record in House Keeping, adherence to Prudential Accounting norms, consistent profitability and adoption of modern technology for betterment of customer service have earned the Bank a place of pride in the Banking Community. Bapuji Academy of Management and Research, Davanagere. 13

The Bank has been richly endowed with a relatively young, dynamic and efficient manpower, which is the key factor of the Bank's success. Excellence in performance and uniqueness in customer service form the central core of the Bank's organizational culture. The growing confidence of its clientele is well reflected in the Bank's performance in all critical areas of its operations all through the years. The Bank is a Public Sector Unit with 57.17% of Share Capital held by the Government of India. The Bank came out with its Initial Public Offer (IPO) in October 1997 and the Public and Financial Institutions presently hold 37.87% of Share Capital. The Bank's Net Worth stood at Rs.3, 054.92 crore as on 31.03.2005. Corporation Bank is the first Public Sector Bank to publish the results under US GAAP. The Bank has been publishing the results under the US GAAP since 1998-99. The net profit of the Bank and its subsidiaries under US GAAP for the year 2004-05 stood at Rs. 435.89 crore against consolidated net profit of Rs. 350.69 crore registered under Indian GAAP method.

Vision, Mission & quality policy: Vision

To emerge as the most preferred Bank with global standards in financials, efficiency, technology, products and services

Mission
o To become a provider of World - Class Financial Services o To meet Customer expectations through Innovation and Technological Initiatives o To emerge as a Role Model with distinct culture identity, ethical values and Good Corporate Governance o To enhance Shareholder's Wealth by sustained, profitable and financially sound growth with prudent risk management systems Bapuji Academy of Management and Research, Davanagere. 14

o To fulfill national and social obligations as a responsible Corporate citizen o To create an environment, intellectually satisfying and professionally rewarding to the employees

Quality policy
Customer satisfaction through professional management and team work.

Products & Service profile

Customers of the Corporation Bank enjoy a vast range of products and services, comprising: o Credit Card & Debit Card Services o Value Added Banking Services o Corporate Banking Services o Personal Banking Services o Internet Banking Services Customers looking for corporate and international business support can look for its personalized services like Gold Card Scheme for Exporters. The bank has introduced an effective range of products and services to meet the needs of the customers who run Micro and Small Enterprises (MSE). Forex, Cash Management, Project Finance, Corp Vapar, Corp Rental and Working Capital are just to name a few of them. For NRI customers, the Corporation Bank arranges for Speed Cash and Speed Remittance, Corp Quick Remit, loans, deposits and portfolio services. Forex Facilities for Residents, NRIs or PIOs are also available. In the field of personal banking services, any customer can seek services like Corp Pragathi Account, Current Account, Term Deposit, EMI / Deposit Maturity Calculator, Home Loan and Insurance, Savings Bank A/C and Loans. This bank assists in the sale of gold coins and bars. For the convenience of the customers, ATM Locator has also been introduced. Bapuji Academy of Management and Research, Davanagere. 15

Products and Services of Corporation Bank India Customers of the Corporation Bank enjoy a vast range of products and services, comprising:

Credit Card & Debit Card Services Value Added Banking Services Corporate Banking Services Personal Banking Services Internet Banking Services

Customers looking for corporate and international business support can look for its personalized services like Gold Card Scheme for Exporters. The bank has introduced an effective range of products and services to meet the needs of the customers who run Micro and Small Enterprises (MSE). Forex, Cash Management, Project Finance, Corp Vyapar, Corp Rental and Working Capital are just to name a few of them. For NRI customers, the Corporation Bank arranges for Speed Cash and Speed Remittance, Corp Quick Remit, loans, deposits and portfolio services. Forex Facilities for Residents, NRIs or PIOs are also available. In the field of personal banking services, any customer can seek services like Corp Pragathi Account, Current Account, Term Deposit, EMI / Deposit Maturity Calculator, Home Loan and Insurance, Savings Bank A/C and Loans. This bank assists in the sale of gold coins and bars. For the convenience of the customers, ATM Locator has also been introduced. Corporation Bank offers a wide range of banking products and services to its customers, including Personal Banking Services, Internet Banking Services, Value Added Banking Services, Corporate Banking Services and Credit Card & Debit Card Services. The bank allocates due attention towards its corporate and international business customers, bringing some customized services such as Gold Card Scheme for Exporters. Also, the bank has introduced some specialized services to cater to the specific needs of Micro and Small

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Enterprises (MSE) customers, enabling them leverage its potential to their maximum benefit.

Awards and Recognition of Corporation Bank India In its journey to cater successfully to the needs of valuable customers, Corporation Bank has bagged many awards and accolades. Some of them are as follows: National Award for Assistance to Exporters Gem & Jewellery Export Promotion Council Award (it won this award 5 times in a row from 1981 to 1985) Shiromani Award for Banking Best Bank Award for Excellence in Banking Technology Best Bank Award for Innovative Usage and Application on INFINET (Indian Financial Network) Best Bank Award for Delivery Channels Runner-up Awards in the categories of "Best Online and Multi-channel Banking Team" and "Outstanding achiever of the year-corporate". Corporation Bank has been recognized as one of the Best Public Sector Banks in India by Business Today on 26 February 2006. Prior to this, Forbes Global announced it one of the Best 200/100 companies in Asia/Pacific and Europe. Outlook Money called it Best Public Sector Bank in India and The Asian Banker said it to be the strongest bank in India and second strongest in Asia

ORGANISATIONAL STRUCTURE

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SWOT ANALYSIS
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STRENGTHS : Right strategy for the right products. Superior customer service vs. competitors. Great Brand Image. Products have required accreditation. High degree of customer satisfaction. Good place to work Lower response time with efficient and effective service. Dedicated workforce aiming at making a long-term career in the field.

WEAKNESS: Customer service staff need training. Processes and systems, etc Management cover insufficient

OPPORTUNITY:

Profit margins will be good. Could extend to overseas broadly. New specialist applications. Could seek better customer deals. Fast-track career development opportunities on an industry-wide basis. An applied research centre to create opportunities for developing techniques to provide added-value Services.

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THREATS: Legislation could impact. Great risk involved Very high competition prevailing in the industry. Vulnerable to reactive attack by major competitors Lack of infrastructure in rural areas could constrain investment. High volume/low cost market is intensely competitive.

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Summary of Annual Accounts Corporation Bank Balance Sheet as at 31st March 2009 (Rs. In Crs) Particulars As at 31.03.09
SOURCES OF FUNDS : Capital + Reserves Total + Equity Share Warrants Equity Application Money Deposits + Borrowings + Other Liabilities & Provisions + TOTAL LIABILITIES APPLICATION OF FUNDS : Cash & Balances with RBI+ Balances with Banks & money at Call+ Investments + Advances + Fixed Assets + Other Assets + Miscellaneous Expenditure not written off TOTAL ASSETS Contingent Liability+ Bills for collection 143.44 4,753.07 0.00 0.00 73,983.91 2,072.40 5,969.65 86,922.47 5,590.61 4,949.09 24,937.77 48,512.16 298.92 2,633.92 0.00 86,922.47 42,230.98 3,270.91

As at 31.03.08
143.44 4,085.07 0.00 0.00 55,424.42 2,137.61 4,825.52 66,616.06 7,103.53 999.62 17,325.09 39,185.57 271.75 1,730.50 0.00 66,616.06 27,432.46 3,731.84

As at 31.03.07
143.44 3,622.02 0.00 0.00 42,356.89 3,021.01 3,633.18 52,776.54 2,983.67 3,735.22 14,417.49 29,949.65 281.04 1,409.47 0.00 52,776.54 23,094.24 3,022.13

Table No 1

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Corporation Bank Profit & Loss Account for the Year Ended 31st March 2009 ( Rs. In Crs) Particulars As at As at As at

31.03.09 31.03.08 31.03.07

INCOME : Interest Earned + Other Income + Total II. Expenditure Interest expended + Payments to/Provisions for Employees Operating Expenses & Administrative Expenses + Depreciation + Other Expenses, Provisions & Contingencies+ Provision for Tax + Fringe Benefit tax+ Deferred Tax + Total III. Profit & Loss Reported Net Profit Extraordinary Items + Adjusted Net Profit Prior Year Adjustments + Profit brought forward IV. Appropriations Transfer to Statutory Reserve Transfer to Other Reserves + Trans. to Government /Proposed Dividend + Balance carried forward to Balance Sheet Equity Dividend % Earnings Per Share-Unit Curr Earnings Per Share(Adj)-Unit Curr 6,067.35 1,108.04 7,175.39 4,376.37 467.97 252.12 54.96 637.76 538.30 7.50 -52.37 6,282.61 892.78 -0.50 893.28 0.00 0.00 224.00 459.01 209.77 0.00 125.00 60.12 60.12 4,516.55 713.34 5,229.89 3,073.23 427.87 221.14 59.54 382.75 263.00 7.00 60.37 4,494.90 734.99 -0.23 735.22 0.00 0.00 200.00 358.78 176.21 0.00 105.00 49.46 49.46 3,360.47 635.53 3,996.00 2,052.37 378.31 189.87 59.38 499.48 237.07 0.00 43.38 3,459.86 536.14 0.02 536.12 0.00 0.00 170.00 216.80 149.34 0.00 90.00 35.97 35.97

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E. Research Methodology
Statement of the problem The main function of Corporation bank is granting long term loan to the industrial sector. The success of Corporation bank depends upon timely payment of interest and principal amount by the borrower. In this connection it is very much essential to evaluate credit worthiness of borrower before sanctioning loan. Credit appraisal gives an idea to the financial institutions about borrowers ability to pay interest and principal. This, in turn, affects crucial aspects of the financial institutions in their performance and financial position. In this background this study is undertaken to know the credit appraisal mechanism, methods and procedures followed by corporation bank and their effectiveness. Objectives of the study
1) To understand credit monitoring arrangement data, this is very important part in the credit

appraisal done by the banks.

2) To know and analyze the credit appraisal techniques used in the banks. 3) To identify the major parameters which affect the validity of the credit appraisal

techniques. Scope of the study The work was undertaken from 25th/Jan/2010 to 20th/march/2010. The study covers information given by the staff of the corporation bank, Branch of Mudhol, Annual report and the other publication of the corporation bank. The scope of the study is limited to the Corporation Bank, Mudhol branch only.

Bapuji Academy of Management and Research, Davanagere. 23

Methodology

Sources of data: Data are facts, figures another relevant methods, past and present, serving as bases for study an analysis. The data serves, as inferences can be drawn in the questions under study. Inferences based in the imagination or guesswork cannot provide correct answers to research study. The relevance, adequacy and reliability of data determine the quality of data of findings of the study. Primary Data: Primary data are the original sources from which the researcher directly collects data that have not been preciously collected. In the present study the primary data have been collected though direct interview with employees of the Corporation Bank. Secondary data: These are the sources containing data which have been collected and compiled for another purpose. The secondary sources consists of readily available compendia and already compiled statistical statements and reports whose data may be used by researchers for heir studies. Secondary data for the present research have been collected from following sources. 1. News papers 2. Brochure of the Corporation 3. Corporation website 4. Standard reference textbooks 5. Annual reports of the corporation Bapuji Academy of Management and Research, Davanagere. 24

6. Other websites

Limitations of the study The present study is an empirical work presented in an explorative manner.

Following are some important limitations, 1. Analysis is done based upon the opinion of the employees contacted.
2. Cases are drawn by from the branch and cannot be generalized to all branches of

corporation banks in Karnataka or any other SFC.

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ANALYSIS AND INTERPRETATION OF DATA(THEORETICAL) Credit Appraisal Introduction Appraisal means critical evaluation of the project for calculating its worth. The dictionary meaning of appraisal is to estimate the worth or value of something. Basically credit appraisal is about finding out whether the project is technically feasible and financially viable. Commercial banks follow certain approaches of credit appraisal, apart from that of other financial institutions. From this it is evident that there is no standardization in approach towards credit appraisal. While broadly the same sets of facts are taken into consideration, the weight age given to individual factor varies from case to case and institution to institution. The consideration for a credit appraisal are type of organization, activity of the firm, size of the firm, nature of the products market potential etc. Apart from profitability, it is equally necessary to determine the economic significance. Projects which offer extensive employment opportunities reduce regional imbalance, earn foreign exchange etc. are preferred. Credit appraisal is one of the major function for a lending banks because the bank depends upon the interest earned by lending the money. Some banks follow by the liberal procedures in credit appraisal and some will follow the strict one. MEANING OF APPRAISAL Project appraisal is about finding out whether the project is Technically Feasible and Financially Viable. Combined co-ordinate examination of a project familiarly known as project Appraisal. Appraisal of term loan depends largely on estimates and forecast of the future. Bapuji Academy of Management and Research, Davanagere. 26

SCOPE OF THE CREDIT APPRAISAL o Management competence appraisal o Technical appraisal o Economical appraisal o Financial appraisal o Legal appraisal CREDIT APPAISAL IN GENERAL The procedure followed by different institutions with regard to appraisal is also deferent. The process of appraisal can be provided into five parts. They are, 1. Management appraisal 2. Technical appraisal 3. Economical appraisal 4. Financial appraisal 5. Legal appraisal Before going for all the above five appraisal, it is very much important to know about the background of entrepreneurs, as it has a bearing on the success of the project. If the entrepreneur is an experienced person, having good track record, then chances of success are more. Background appraisal should throw light on entrepreneurs experience in the proposed activity. If he has previous experience and good record, the task is relatively easier, but in case of new entrepreneurs where there is no past record to go by, the task of appraisal becomes more difficult. Bapuji Academy of Management and Research, Davanagere. 27

While looking for information about background, following are included: o Name, age, qualification and experience along with net worth of the promoters have to be collected. o If the directors or partners have a stake in other firms, than details of such firms should collected. o Bankers opinion about the credit worthiness and letter of assurance from the bank regarding availability of working capital. o Income tax clearance certificate, with total outstanding liability and the nature and extent of provision made to meet the income tax liability. o It should be ascertained that the entrepreneur is not involved in any economic offence. In case of existing concerns, detailed analysis of the financial position and actual operational result of the concern should be examined along with the promoters profile. Normally the entrepreneurs hesitate to disclose their net worth sincerely. Then the appraising officer has to develop the art of collecting information by subtle questions. 1. MANAGEMENT COMPETENCE APPRAISAL The managerial competence is evaluated in terms of technical competence, administrative ability, integrity and resourcefulness. The role of competent management in the success of an enterprise needs to emphasis. Thus, the managerial and organizational set up must be capable of meeting the challenge that might be encountered during constructional r operational stages. The management shod possesses the capacity of running not only day-to-day activities but also the following: o The ability to anticipate in advance the likely impediments in smooth operation of the project; o The ability to evaluate the various courses of action available in the circumstances; o The ability to take appropriate remedial steps to avoid the likely losses. Bapuji Academy of Management and Research, Davanagere. 28

o Much would depend on the experience and vision of the management team and the freedom of action enjoyed by them. The organizational climate should be conducive to groom a second line of managers. Where a project has been sponsored by an existing organization, a study of managements past performance can throw useful insight on its inherent capabilities. Where the lender takes fancy for a particular management team, a stipulation could be made in the loan agreement preventing the borrower from causing any change there in without lenders prior approval. At the same time, care should be taken to broad-base the Board of Directors of the borrower by getting inducted professionals and experts from diverse fields. The right of the lending institution to nominate its representative on borrowers board is also reserved. 2. TECHNICAL APPRAISAL: Technical appraisal of project is essential to ensure that necessary physical facilities required for production will be available and best possible alternative is selected to produce them. It includes the study of manufacturing process, technical arrangements, size of the plant, product-mix, selection and procurement of plant and machinery, plant layout, etc., schedule of project implementation and location of the project with reference to availability of various inputs required for production. The technical appraisal includes the following: a) Location: Study of location includes selection of general location like city, town, village etc. and also a particular size within the general location. It may be decided keeping in view the relative importance of various requirements of production like proximity to raw material, proximity to market, availability of labor, utilities such as water, power, fuel etc., effluent disposal, transportation and communication facilities etc. b) Technical process/technologies: Bapuji Academy of Management and Research, Davanagere. 29

I the product can be manufactured by using alternative raw materials with alternative processes, naturally a comparative study should be done to choose the most suitable process. The selection of the process depends upon the quality of production, required quality of the product required, its end-use, and availability of particular raw material and cost of process. If the product is to be manufactured by a particular process for the first time in the country, necessary study should be done about the success of the process in other countries and it should be ensured that arrangement for using the proposed technology is satisfactory.

c) Design and engineering: While checking the design and engineering aspects of plant and building it should be seen that plant layout is satisfactory and provision has been made for storage of raw materials and finished products is sufficient for future expansion. Arrangements must have been made for standby equipment, critical spare parts, tools, internal handling and effluent treatment. Where trademarks or patents have been obtained, care should be taken to see that there is no infringement. d) Product-mix/ product range: Product-mix or product range may be decided according to market requirements. Plant should have flexibility to change product-mix according to changes in the market conditions; if such flexibility needs additional to investment, its impact on the viability of the project may be studied. If the project has to face tough competition in the market or the demand for the product changes according to fashion or extra amount required for the additional facilities is not heavy, it may be worthwhile to have such additional facilities or at least to keep provision to install such additional facilities, whenever required I future. e) Selection of plant and machinery:

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Selection of plant and machinery should be done according to manufacturing process and size of the unit. Different stages of manufacturing process should have proper balance of capacity. f) Procurement of plant and machinery can be done easily by dividing it into broad categories and itemizing the same to the extent possible. The respective value of various items of machinery can then be arrived at/cross checked. g) Plant layout: The efficiency of a manufacturing operation also depends on the layout of the plant and machinery. Plant layout may be done in such a way that minimum time is taken in handling equipment, raw material, consumables, goods in process and finished goods. Plant layout helps in specifying the construction of buildings required for the plant and preparing building plants. If the manufacturing process requires air conditioning/air cooling, humidity control, dust control etc. Necessary care may be taken while preparing building plants. It may be ensured during projects implementation that constructional of building and installation of machinery is done according to building plans and layout. 2. ECONOMIC APPRAISAL Security of capital and foreign exchange are the most serious constraints for the planers in developing countries. They serious constraints for the planners in development countries. They wish to utilize the limited stock of capital and foreign exchange according to the best possible use, simultaneously maximizing the growth of employment. Redistribution of income in favor of economically weaker sections and backward areas is also one of the important objectives. The IRR is derived from financial projections based on market prices. It does not ensure the achievement of these longer objectives. Market prices may be not necessarily allocating the national resources according to socially desirable objectives. IRR calculated o the basis of market prices may give preference for luxury items at the cost of necessaries because Bapuji Academy of Management and Research, Davanagere. 31

return on investment may be higher for producing luxury items many economists think it necessary to calculate economic rates of return from financial projects prepared on the basis of shadow prices which may reflects socially desirable use of each input and output. The inputs and outputs of a project are classified into following categories. a) Traded goods and services: o Goods actually exported or imported or o Substitutes of such goods or o Goods that would be traded if the country follows policies that would have resulted in optimum industrial development. b) Non-traded goods and services c) Unskilled labour If both IRR and economic rate of return are above cut off points it is considered a very good project and vice versa.

3. Financial Appraisal:
The purpose of financial appraisal is to find out the financial viability of the project. The financial institutions who fianc the projects are concerned with the successful operation of the unit. For is it should be confirmed that the project generates enough cash surplus to meet all the contractual obligations. Further, institutions will have certain ratios like debt-equity ratio, debt service coverage ratio etc. against which they examine the project. Financial appraisal includes profitability estimates; cash flow estimates the project balance sheets. They are inter-related and various assumptions of profitability estimates.

4) Legal appraisal

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Throughout the process of appraisal of the project, many legal documents have to be processed. Legal appraisal is very necessary in order to ensure that owners have a clear title, unencumbered ownership powers to borrow etc. Legal appraisal involves verification of encumbrance certificate, approved drawings showing location of the property, memorandum and article of association or partnership deed as the case may be, income tax clearance certificate, sale deeds etc. PROJECT APPRAISAL IN KSFC A long standing experience has enabled KSFC to have its own method and standards for appraising a project. The Appraisal Department has been divided in to two groups. Each group has been allotted certain industries, which enables them to have in-depth knowledge and specialization in these industries. The efficiency with which project of different industries have been appraised is the result of this arrangement. The process of appraisal is carried out in phased manner as explained in following paragraphs. o Entrepreneur approaches the EG Cell: As mentioned earlier Entrepreneur Guidance Cell is the link between KSFC and the entrepreneurs. It guides the entrepreneur who approaches it. He comes to know about different schemes and clauses which are suitable for him or he may have an idea about the project already in his mind. In either case EG cell will issue a form, which should be filled up by the entrepreneurs and returned back to EG cell. This form contains basic details of the project like the product, the amount applied for, the organization and like. The EG cell then checks the EG form; if found correct and complete with all the enclosures, it will forward the same to screening committee. o Approval of the project by screening committee:

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Screening committee consists of top official including Executive Directors. Also it consists of legal, technical and financial experts. All will give their opinions about the project in the meeting, which should be attended by the entrepreneur. Depending upon the nature of the project the committee may ask for additional securities or the promoters equity or such other conditions. After clarifying some basic functions like type of security, amount to be bought in by promoters or partners etc., the committee will approve the project in principle and ask the EG cell to issue the application form along with the list of documents to be submitted. o Getting the filled-in application form and its verification: The entrepreneur then fills up the application form along with necessary details. He submits the form with the documents required. A half-percent of amount of loan will be collected as processing fee. It will check the documents are submitted. The case then will be forwarded documents are submitted. The case then will be forwarded to ADM Department for appraisal. Then starts the real work of appraising the project.

o Apprising the project by the ADM Department: The concerned tem of ADM Department will appraise the project. As already mentioned, the project is appraised on following factors, 1. Background of the entrepreneur 2. Technical appraisal 3. Commercial appraisal 4. Financial appraisal 5. Legal appraisal

Bapuji Academy of Management and Research, Davanagere. 34

o Background of the entrepreneur : As explained earlier, if the entrepreneur has a sound experience in the field, preference is given by Corporation Bank, but first generation entrepreneur is also given preference if they have sound technical knowledge. The following particulars of the entrepreneur are examined in detail-name, age, educational qualification, experience etc. net worth, stakes in other firms by the entrepreneur, special and technical qualifications of the entrepreneur etc. o Commercial/Market appraisal: The expert assisting each team carries it out. Generally the appraising team has the knowledge about demand, supply, competition, profit margin etc., of a particular industry. Hence it can easily judge the market potential for the proposed product. If the product to be manufactured is new or unique, then special market survey is carried out. The report of the same is included in project report.

Technical appraisal: It is the foremost important part of the appraisal and hence carried out in a more detailed

manner. 1. The term of technical experts will visit the unit for inspection of building if it already exists. It will also examine the area and location and the unit, type of building facilities -like water, power, road etc.

Bapuji Academy of Management and Research, Davanagere. 35

2. KSFC has got a list of registered suppliers of machinery. It consist the unit to purchase required machineries from these supplier chosen by entrepreneur is a reputed one than there is no problem. This is to make sure that the estimated production with these machines will be materialized. 3. The entrepreneur should get permission from municipality or any other concerned legal authority for constructing the building. 4. The technical team will also verify other factor to make sure that the project will not fail technically. Financial appraisal: The financial appraisal helps to find out the risk associated with financing the project. The team visits the unit and collect the information about profit expected along with probable sales, the cost of raw materials, cost of labor and such other aspects. Depending upon the information given by the entrepreneur and information collected on their own, financial experts will prepare several financial statements to be included in the project report, important ratio like DER, DSCR, etc. such as6. Breakeven point statement 7. Profitability statement 8. Internal rate of return statement 9. Cash flow statement 10. Loan requirement schedule -Cost of the Project: Cost over runs of projects besides distributing completion schedule also upset profitability calculations. That is why in larger projects, components of project cost must be set out so as to facilitate their comprehension and critical review and comparison with similar Bapuji Academy of Management and Research, Davanagere. 36

projects. The main items of projects cost are: land site development, buildings, plant and machinery including design engineering and know-how fees, erection expenses, fixed assets and ancillary facilities like power, water, railway siding, preliminary expenses, preoperative expenses and provisions for contingencies. The rupee cost should be segregated from foreign exchange costs. It must be seen whether cost of equipment and other items have been ascertained after inviting competitive bids. If necessary advice of consultants of revaluating such bids may be obtained. Not only all costs should have been accounted for but all estimates relating to them must also be realistic. A. Working capital for starting and operating the enterprise: The margin for initial working capital requirements should be carefully worked out.The time between placing of order and computing working capital requirements. There should be sufficient margin for working capital as would enable the unit to meet anticipated cash losses. - Sources of finance: Where the cost-estimates of the project are found to be realistic, the next step is to identify the source from which the finance would be raised. Of the various sources, the principal ones are described below:

1> Promoters contribution: The promoters should have adequate stake in the project so that they retain undivided interest in the project. Their contribution should preferably be in the form of risk capital. In case of public companies, there is a statutory stipulation for contribution of a specific percentage of capital by promoters; the rest being offered to public for subscription. The lending institution normally insists on contribution of 20% of the project to be established in backward areas. Bapuji Academy of Management and Research, Davanagere. 37

2> Retained earnings and internal cash generation in the case of running enterprises: Estimation of these items will be made with reference to past performance of the concern and expected earnings from existing activities during the construction period. The retained earnings must be available either in cash or in the form of liquid assets. The internal cash generation estimates should be conservatively made taking into account existing repayment liabilities, rise in operational costs, normal capital expenditure and payment of reasonable dividends. Tem loans. Deposits from dealers and public, scale proceeds of existing obsolete assets and similar other sources. -Profitability Estimates: Profitability estimates are estimates of expected sales realization and expenses to be incurred by the unit. Excess of sales realization over expenses indicates the expected profit of the unit. Verification of the profitability estimates is highly essential for the proper appraisal of a term loan proposal. Mere checking of arithmetical calculation of various figures is not sufficient. The basis of various figures should be ascertained and checked to satisfy that profits shown in profitability estimates are realistic. Various items included in profitability estimates can be verified according to checklists given below: o Sales realization o Raw-materials and consumable stores o Utilities (power, fuel, water etc) o Repairs and maintenance o Wages and salaries Bapuji Academy of Management and Research, Davanagere. 38

o Rent and salaries o Depreciation o Administrative expenses o Selling expenses o Interest on term loans o Interest on bank borrowings o Profit -Cash flow Estimates: Cash flow estimates are prepared to ensure that the unit will have necessary cash with it and it will not face liquidity problem. The cash flow estimates includes source of funds and their deployment. While profitability estimates are prepared only from the year in which the unit is likely to commence production, cash flow estimates are necessary for the construction period also to ensure availability of cash according to requirement of the project. -Projected Balance-sheet: This is prepared on the basis of profitability estimates and cash flow estimates. The position of share capital, term loans, sundry creditors, bank borrowings, current assets etc. are ascertained at the end of the each year, according to the movements shown in cash flow and profitability estimates. Preliminary expenses are taken after deducing the amount, which is already written off from the expected profit of the unit. Cumulative surplus shown in profitability and estimates balance shown in cash estimates represents the position of cash and bank balance. Balance sheet is a snap shot of to confirm where the total of its assets side will be equal to the total of its liability side. On the basis of financial projections, the financial institutions use the following ratios. These ratios includedBapuji Academy of Management and Research, Davanagere. 39

o Debt-Equity Ratio:- It is the ratio between the contribution by owners and financial institutions. The financial institutions insist for minimum contribution from promoters to ensure that they take necessary interest in running the unit successfully. o Debt Service Coverage Ratio:- This ratio is calculated to find out the firms ability to generate surplus cash so that it can repay the loan installment along with interest. The formula for DCSR is, DSCR= PAT+D+I/L+I Where, PAT= Profit after tax D= Depreciation L= Loan repayment installment.

Legal appraisal: Corporation bank works to make sure that the loan is secured and the documents are

authentic. For this it needs various legal documents from the entrepreneur. A list of document to be given by the entrepreneur is issued at the time of issuing application. Further, during the process of appraisal, the term depending upon the nature of the project, will ask necessary additional security documents. The legal appraisal will be complete after all documents are verified. Thus the appraisal is carried out in a detailed manner. The stringent procedure is to make sure that entrepreneur has real interest in the project and loan is given for the good purpose. The primary objective of industrial development is always kept in focus while appraising the project. Corporation bank insists for more documents and margin to make sure that project becomes a success and also to safeguard its interest in the project. In case of default on the part of the entrepreneur it should be able to recover the loan amount by liquidating the pledged assets. The method of credit appraisal in Corporation bank is evolved out of its experience over the year and is always be scrutinized for improvement. Bapuji Academy of Management and Research, Davanagere. 40

Loan schemes of corporation bank

Sl.No Loan schemes

Bapuji Academy of Management and Research, Davanagere. 41

01 02 03 14 05 06 07 09 10 11 12

Loan Schemes For Commercial Complexes Loan Schemes For Development of Industrial Estates Loan Schemes to acquire Electro- Medical Equipment Loan Schemes to acquire Generators/Mobile Generators Loan Schemes For Hospitals, Nursing Homes and Medical Stores Loan Schemes For Acquiring Imported Second Hand Machinery Loan Schemes For Maintenance and Construction of Roads Loan Schemes For Marketing Related Activities- AMARA Scheme Loan Schemes For Mobile Canteens/Hotel Industry National Equity Fund Scheme Loan scheme for 1. Private Software Technology Parks/Bio-Technology Parks 2. Software Development Loan Schemes For Qualified Professionals Loan Schemes For 1. Ready Built Office/Construction of New Office Buildings 2. Acquisition of Loan/Buildings/ Commercial Space 3. Construction of Godowns and Warehouses Single Window Loan Scheme-Term Loan+ Working Capital Loan Schemes For 1. Technology Development and Modernization by SSI Units 2. Acquisition of ISO9000 Series Certification by SSI Units

13 14

15 16

17 18 19

Loan Schemes For Tourism Related Facilities Rental Discounting Scheme Loan Schemes For Financing Existing Assets and Enterprises Table No 3

Model of credit Appraisal Memorandum 01. Name of the Applicant/Unit 02. Address a) Office Phone No b) Factory Phone No : Bapuji Academy of Management and Research, Davanagere. 42 : :

03. Constitution 04. Size of the industry 05. Product proposed to be Manufactured/activity to Be carried out 06. Location a) Land (Area in Sq.ft.) b) Building (Sq.ft.) c) Others 07. Power requirement 08. Employment Potential 09. Name of the Bankers to bo approached for working capital 4. (A)Background of the Proposed project

: :

: :

: :

10. (B) Promoters Background Sl.No Name of the promoters Age years

: in Qualification Net worth Experience

Source: Bank booklet

Table No 4

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a. Net- worth statement of the promoters (movable/ Immovable properties and its value) as per performance A (please submit proof). b. Financial performance of the firm and associate concerns for the last 3 years: M/s Sl. No Particulars 1 Share capital 2 Reserve & Surplus 3 Net worth 4 Sales & other income 5 Net profit 6 Depreciation 7 Cash Generated Source: Bank booklet (Rs.in lakhs)

Table No 5

c.

Details of Plant & Machinery: (Rs.in lakhs) Sl. No Particulars Supplier Name Value

Bapuji Academy of Management and Research, Davanagere. 44

TOTAL Source: Bank booklet

Table No 6

d.

Market: (Give Details such as arrangement, firm tie- up, local or export etc :) ( Rs.in lakhs)

Cost of project/Expansion: Sl. No Particulars 1 Land Building & other civil works Plant & Machinery Contingencies Preliminary & pre-operative expanses Interest during implementation period Deposits Working capital Margin TOTAL Source: Bank booklet e. Means of Finance:

Table No 7

f. A. Equity (Rs.in lakhs) Sl. No 1 Particulars Promoters own capital/ share Capital Internal Accruals TOTAL

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Source: Bank booklet B. Debit : Term Loan Sl. No 1 Particulars K.S.F.C. Term Loan TOTAL TOTAL (A)+ (B)

Table No 8

Source: Bank booklet C D Debt Equity Ratio Promoters Contribution

Table No 9

g. Security Sl. No 1 2 3 4 5 Particulars Land & Building (Existing) Plant & Machinery(Existing) Land & Building(Proposed) Plant & Machinery(Proposed) Contingencies

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Source: Bank booklet h. i.

Table No 10

Collateral Security Details & Its Value Brief Details of Profitability Estimated: (Rs.in lakhs)

Sl. No A B C D E F G H

Particulars Utilization Sales/ Income Expenditure Interest on Term Loan Profit before Tax Approximate Tax Liability Profit ofter Tax Depreciation

Source: Bank booklet j. Clearance Obtained Sl. No 1 2 Particulars PRC/PMT Land Allotment/Registration

Table No 11 Applicable Yes/No Yes/No Submitted Yes/No Yes/No

Bapuji Academy of Management and Research, Davanagere. 47

3 4 5 6 7 8 9 10

Lease Deed Building Plant Approval Power Sanction Letter Import Export Code Collaboration Approval Income Certificate Tax

Yes/No Yes/No Yes/No Yes/No Yes/No Clearance Yes/No

Yes/No Yes/No Yes/No Yes/No Yes/No Yes/No Yes/No Yes/No

No Objection Letter from Yes/No Pollution Control Board Registration of Company Source: Bank booklet Yes/No Table No 12

Analysis of Credit Appraisal Function (at Corporation bank Branch Office, Mudhol) Analysis of Applications Accepted a) Applications Accepted (Amount wise) (Rs. in lakh) Sl No Particulars 2006-07 Amount 94.05 256.00 60.00 410.05 2007-08 Percent Amount Age 22.94 62.43 14.63 100.00 80.50 324.00 105.00 Percent age 15.80 63.59 20.61 2008-09 Amount Percent 85 166 235 486 Age 17.49 34.16 48.35 100.00

1 2 3 4 5

10 Lakh 10 to 45 Lakh 45 to 150 Lakh 150 to 300 Lakh 300 Lakh and above Total Source: Bank booklet

509.50 100.00 Table No 13

It is observed from the above table that (1) applications for loans between Rs 10 lakh-45 lakh have been accepted to a great extent and no applications for loans above Rs 150 Lakh have been accepted. (2) Shares of different categories of applications in total have also varied from year to year and are not consistent. Bapuji Academy of Management and Research, Davanagere. 48

Fig 1 Analysis of Applications Appraised and Sanctioned b) Applications Appraised and Sanctioned (Sector-wise) ( Rs. in lak) Sl No Particulars 2006-07 2007-08 2008-09 Amount Percent Amount Percent Amount Percent 275.85 6.75 107.4 390 Age 70.73 348.1 age 71.90 28.10 100 519.80 50.04 569.84 Age 91.22 8.78 100

1 2 3

Small scale

Industry Transport Others Total Source: Bank booklet

1.73 27.54 136.05 100 484.15 Table No 14

It is observed from the above table that (1) applications for loans from small scale industry have been appraised and sanctioned to a great extent and no applications for loans transport and other segments are less. (2) Shares of different categories of applications in total have also varied from year to year and are not consistent.

Bapuji Academy of Management and Research, Davanagere. 49

Fig 2

a) Applications Appraised and Sanctioned (Weaker sections) (Rs. in lakh) Sl No 1 2 3 4 Scheduled Caste Scheduled Tribes Minority communities Women Particulars 2006-07 2007-08 2008-09 Amount Percent Amount Percent Amount Percent 15.00 36.75 Age 28.99 71.01 37.70 32.56 12.70 age 45.44 39.25 15.31 100.00 69.00 69.00 Age 100 100.00

Entrepreneurs Total 51.75 Source: Bank booklet

100.00 82.96 Table No 15

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It is observed from the above table that (1) amongst weaker section beneficiaries, applications for loans from scheduled caste, minority communities and women entrepreneurs have been appraised and sanctioned to a great extent and no applications for loans have been sanctioned for scheduled tribes. (2) Shares of different categories of applications in total have also varied from year to year and are not consistent.

Table No 3 B) Applications Appraised and Sanctioned (Amount wise) ( Rs. in lakh) Sl No Particulars 2006-07 Amoun Percent Age 22.74 64.44 12.82 2007-08 Amount 79.65 404.50 Percent Age 16.45 83.55 100.00 2008-09 Amo Percent Unt 55.05 184.88 320 559.84 Age 9.84 33.00 57.16 100.00

1 2 3 4 5

t 10 Lakh 88.70 10 to 45 Lakh 251.30 45 to 150 Lakh 50.00 150 to 300 Lakh 300 Lakh and 390.00

above Total Source: Bank booklet

100.00 484.15 Table No 16

It is observed from the above table that (1) applications for loans between Rs 10 lakh-45 lakh have been sanctioned to a great extent and no applications for loans above Rs 150 Lakh have been sanctioned. (2) Share of different categories of applications in total have also varied from year to year and are not consistent. Bapuji Academy of Management and Research, Davanagere. 51

Fig 3

B) Applications Appraised and Sanctioned (Scheme wise) (Rs. in lakh) Sl No Particulars 2006-07 Amount 76.50 129.00 74.75 55.00 6.75 12.00 36.00 390.00 2007-08 Percent Amount Age 19.62 108.15 33.08 40.00 19.17 26.00 8.00 14.10 100.00 1.73 3.08 192.00 10.00 9.23 100.00 484.15 Table No 17 Percent Age 22.34 8.26 5.37 1.65 20.65 0.00 39.66 2.07 100.00 2008-09 Amount 5.04 36.00 296.00 222.8 559.84 Percent Age 0.9 6.43 52.87 39.79 100.00

1 2 3 4 5 6 7 8 9 10 11

NEF TDMF SWS SHMS General Transports CLCSS Hotel CC CL EMES Total Source: Bank booklet

Bapuji Academy of Management and Research, Davanagere. 52

From the above table it is observed that there is no set pattern or trend in scheme wise applications appraised and sanctioned, with different schemes performing differently in different years.

Analysis of Actual Vs Budgeted Performance (Rs. in lakh) Sl No Particulars Budgeted Total SSI 600 460 450 300 550 460 650 Table No 18 Actual performance Total SSI 390 275.85 484.15 348.1 569.84 519.80 538.90* 428.50*

1 2005-06 2 2006-07 3 2007-08 4 2008-09 Source: Bank booklet

It is observed from the above table that actual sanction performance as compared to budgeted performance appraise to be satisfactory during the period under analysis. However in the year 2005-06 there has been significance unfavorable deviation.

Bapuji Academy of Management and Research, Davanagere. 53

Fig 4

Summary of Findings, Suggestions and Conclusions

Findings Credit Appraisal Procedure as Corporation Bank is very elaborate, comprehensive, and systematic but time consuming. Different schemes are available to cater to financial needs of all entrepreneurs. Sanction of assistance not evenly spread; performance not adequate in two taluks. Small loan of amounts sanctions less than ten lakhs coming down; Bulk of the sanctions are for loans between Rs 10 lakhs and Rs 150 lakhs. Sector wise, SSIs amounts for about 91% of the total credit saction; the rest by transport and other sectors. Credit flow to weaker section account for about 10-15% of total sanction.

Bapuji Academy of Management and Research, Davanagere. 54

Taluk wise, Mudhol Taluk accounts for about half of the credit sanction followed by Jamakandi Taluk; there two account nearly 20% of total credit flow from the branch office.

About 1/3 of the assistance is for sums between Rs 10 lakh to 45 lakhs.

Suggestions To mobilize business and to generate applications from Taluk less industrially developed, through entrepreneurship development program. To firmly appraise and educate prospective entrepreneurs about the procedures, requirements, processing time etc. To reduce conditional sanctions. To make the terms and conditions in general and interest rate structure in particular more competitive as compared to commercial banks. To be extra cautious in sanction of additional loans for cost escalation. To confirm applicants working capital tie up with banks before sanctioning term loans. To further strengthen pre-sanctions banks opinions local equity, net worth of applicants and track record etc. To popularize scheme other than traditional ones.

Conclusions Corporation bank credit appraisal system is fairly satisfactory but needs to be further fine tuned to meet the challenges of todays competitive finance markets and to succeed in the long run. Credit appraisal mechanism and assistance schemes are responsive and exhaustive. In spite of its current setback and problems, Corporation bank to succeed in the years to come, as its fundamentals resources and potential are very strong.

Bapuji Academy of Management and Research, Davanagere. 55

The project work undertaken at Corporation bank branch office, Mudhol has been an extremely satisfying and learning experience.

BIBLIOGRAPHY Periodicals / Journals Corporation Bank Annual Report 2008-2009 Bapuji Academy of Management and Research, Davanagere. 56

 Boocks D.D.Sharma, Research Methodology and Marketing Research Sulthanchand Publishers Revised Edition 2003 K.P.M Sundhram, Indian Economy Sulthanchand Publishers Revised Edition 1998 Websites http://www.googal.co.in/last accessed on date 10th March-2010 http://www.corporationbank.com last accessed on date 13th March-2010 http://www.wikipedia.org/swiki/bank last accessed on date 10th March-2010

Bapuji Academy of Management and Research, Davanagere. 57