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1. Introduction. Executive Summary. Credit Appraisal. Importance of Credit Appraisal System. Objectives of the Research. Significance / Scope of the study. Limitations of the Research. 2. Theoretical Background Commercial Vehicle Industry Overview. Non-Banking Financial Companies (NBFCs). Role of NBFC‟S in Commercial Vehicle Financing. Financing procedure of Commercial Vehicle. 3. Company Profile. o Supreme Financial Services ltd. Introduction. Vision and Mission. Branches. 4. Research Methodology of the Project. Means of research. Primary Data. Secondary Data. 5. Data Analysis. Loan Appliers to Defaulters. Parameter used for credit appraisal. 5 C‟s of Credit 6. Findings. 7. Suggestions.
8. Conclusion. 9. Bibliography.
Credit Appraisal The process by which a lender appraises the creditworthiness of the prospective borrower. This normally involves appraising the borrower‟s payment history and establishing the quality and sustainability of his income. The lender satisfies himself of the good intentions of the borrower, usually through an interview. IMPORTANCE OF CREDIT APPRAISAL SYSTEM Financial institutions and banks are intermediate between lenders and borrowers. These financial intermediaries collect deposit and disburse it as loan and advance to the individual people, business, commercial, industrial entity. The loan and advance should be given to them who have the certain and predicted cash flow to repay the credit. If the manager fails to analyze the client‟s viability of repaying the loan, possibility of default may arise due to the fact. So the importance of APPRAISAL, in sanctioning the loan, is the key to identify the borrower‟s ability, expertise, efficiency, industrial analysis & business performance.
RECOVERY OF CREDIT: Appraisal is done to ensure the recovery of the credit along with the good supervision, monitoring and the relationship. In other words, the purpose of appraisal is to be sure that the proposed advance will be safe, liquid, and profitable and for acceptable purpose covered by adequate security. SAFETY: The most important measure of appraising a loan proposal is safety. Safety means the assurance of repayment of distributed loans. Company is in business to make money but safety should never be sacrificed for profitability. To ensure the safety of loan, the borrower should be chosen carefully. He should be a person of good character & capacity. LIQUIDITY: The banker must ensure that the borrower is able to repay the loan on demand or within a short period. This depends upon the nature of assets owned by the borrower & pledged to the company. E.g. goods & commodities are easily marketable while fixed assets like land & buildings can be liquidated after a time interval. Thus, the company regards liquidity as important as safety of the funds & grants loans on the security of assets which are easily marketable without much loss.
PROFIT:‘Profit’ is the blood for any commercial institution. Before approval of any loan project, the company authority has to be sure that the proposed project will be a profitable venture.
DIVERSIFICATION OF RISK:During sanctioning any loan, company has to be attentive about diversification of risk. All money must not be disbursed amongst a small number of people. NATIONAL INTEREST & GROWTH: The company would lend if the purpose of the advances can contribute more to the overall economic development of the country.
Objective of Study
To study the credit appraisal system of commercial vehicle finance.
To study the documentation required for credit appraisal.
To know the terms and conditions used in commercial vehicles financing.
To identify & suggest the scope for improvement in Credit Appraisal System.
Significance / Scope of the study
The Credit Appraisal is a holistic exercise which starts from the time a prospective borrower walks into the branch and culminates in credit delivery and monitoring with the objective of ensuring and maintaining the quality of lending and managing credit risk. The process of Credit Appraisal is multidimensional and includes, Management Appraisal. Technical Appraisal. Commercial Appraisal. Financial Appraisal. Economic Appraisal. Management Appraisal has received lot of attention these days as it is one of the long term factors affecting the business of the concern. Technical Appraisal emphasizes on the technical feasibility of the venture and also finds out the possible economic life period of the present technology. Commercial Appraisal focuses on the commercial viability of the project .It tries to find matters regarding demand in market, the acceptance of product in market. It also focuses on the presence of other substitutes of the product in the market.
It also focuses on the multiple scope of the product. Financial Appraisal is done to find out whether the promoter is having the capacity to raise finance both own equity and debt? What are the sources of margin? The scope of credit structure is incomplete without examination of credit proposal. Credit proposal has to be examined from the point of 5 C’s viz. Character. Capacity. Capital. Condition. Collateral. The Credit Policy of Supreme Financial Services has undergone changes to cope with the environmental changes, tap the available opportunities, achieve their commercial objective, fulfil social obligations and adhere to mandatory directed lending norms. The credit policy is studied under Coverage, Clientele, Marketing. The Supreme Financial Services has over the years designed and adopted the Best Practices Code. This in effect represents the Supreme Financial Service‟s philosophy towards effective Corporate Governance. Supreme Financial Services has specialised type of lending known as Segmented Lending in which Supreme Financial Services has set within it specialised branches for focused lending to various segments.
This segmented approach is expected to provide both market and customer focus for ensuring better business development, better development of expertise and better customer satisfaction. Supreme Financial Services has also set exposure norms which corresponds to the quantum of finance been credited. These exposure norms are as per the RBI norms and also the bank‟s specific norms. One of the important monitoring aspects in the credit portfolio is the periodic review of advance accounts. The vital decision to deploy the Supreme Financial Service‟s resources should necessarily be based upon the thorough assessment and Evaluation of the needs of the borrower. For this, a proper periodical review of any account is inevitable.
Limitations of the study
Difficulty in collection: It is difficult to collect more important and confidential personal documents. They are rarely recorded and more seldom preserved. They are generally destroyed after a short time.
Limitations of time: There are limitations of time so we can‟t measure the trends which are very slow. Due to lack time we can‟t have that much quality data.
Inadequacy of sufficient material: There is great dearth of journals and magazines in different areas in India to publish data concerning various aspects of problem. Even the data is collected; it is seldom published in time. Thus we can‟t use it for our purpose of research.
2. Theoretical Background
NON-BANKING FINANCIAL COMPANIES (NBFC’s) Definition under the RBI Act: Section 45I of the Reserve Bank of India Act, 1934 defines „„nonbanking financial company‟‟ As(i) A financial institution which is a company; (ii) A non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner; (iii) Such other non-banking institution or class of such institutions, as the Bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify; A company is, therefore, considered to be an NBFC if it carries on any of the financial activities listed under clause (i) to (vi) of section 45 I (c) of the Act. A financial system, which gives access to affordable credit to an extensive section of society, is imperative for sustainable economic growth for any country. In India, NBFC‟s typically function in unorganized and under-serviced segments of the economy, establishing a forte in those areas.
The NBFC business model is highly customer centric with a deep perception of customer needs. With a wider and specialized branch network, they are able to develop very close customer interaction and relationships, presenting unique last mile credit delivery. The vast and diverse character of India itself has inevitably assured a gap in the dispensation of credit and mobilization of savings. NBFCs have demonstrated that they can play a definite long –term role in the financial inclusion strategy of the country. They have succeeded in the mobilization of inactive assets and users of credit because of their innate capability to provide customized services according to the needs of the client. It is reflected by the steady increase in the levels of credit penetration that they are bringing about. The rigidity of the banking system‟s policies for lending, especially in the automobile and transport sector, is consequently giving NBFCs an opportunity to meet this unmet demand through their perceptive lending. Classification of Non-Banking Financial Companies (NBFCs) Equipment Leasing Company. Hire Purchase Finance Company. Housing Finance Company. Investment Company. Loan Company. Residuary Non-Banking Company. Miscellaneous Finance Company.
Commercial Vehicle Industry Overview:
The total commercial vehicle (CV) segment accounts for about only 5 percent of total automobile sales in India. The Indian Commercial Vehicle (CV) Industry is the lifeline of the economy. Approximately 66 percent of the goods and 87 percent of the passenger traffic in the country moves via road. The trends have clearly indicated that the CV demand is closely correlated with GDP growth rate (more strongly with the Index of Industrial Production, IIP) of the country and therefore, it is believed that a growth or slowdown in CV demand is a harbinger of an upturn or down turn in the economy respectively. The CVs can be classified on the basis of their Gross Vehicular Weight (GVW) as Light Commercial Vehicles (LCV) or Medium & Heavy Commercial Vehicles (M&HCV), with M&HCVs accounting for
approximately 58 percent of the total domestic CV sales. The CV industry has evolved tremendously over the years. From the days of traditional all purpose 9 tonner trucks, the industry has moved towards more usage specific vehicles. The developing road infrastructure is giving a push to a modern Hub & Spoke model of distribution of goods, which in turn is changing the kind of vehicles being deployed for goods transportation. The Industry is now witnessing a clear segmentation in demand, with vehicles more than 16.2 tonnes (M&HCVs & Multi Axle vehicles) being used for
transportation on the highways and less than 3.5 tonnes being used for intra-city or last mile transport. Similarly in case of passenger vehicles there is an increasing demand for luxury buses from the private players unlike earlier when the demand used to be largely driven by the State Transport Undertakings. The CV industry draws its demand from the economy and hence is prone to cyclicality. However, due to Greater versatility of usage, the LCV demand is less cyclical than the M&HCV demand. The growth in volume sales of Commercial vehicle in India has been strong, averaging 11 percent in real terms in the five years ended 2009-10. This compares with 13 percent in the five years ended 2004-05and -3 percent in the five years ended 1999-2000. We expect India‟s demand for commercial vehicles to remain strong. India‟s stock of commercial vehicles is currently low at six vehicles per thousand people versus 11 for China and 48 for other Asian peers. The gap is expected to narrow down in the coming years in wake of GDP growth and increase in infrastructure spending.
Role of NBFC’S in Commercial Vehicle Financing The NBFC sector has been playing an important role in development of the Road Transport sector. The Banks have not been in a position to deploy more than 3 to 4 per cent of their funds to this sector. Therefore, disbursals to SRTOs (small road transport operators) have not been significant enough to support the Road Transport operators. Bank funding as a percentage of total funding in the commercial vehicle market has therefore not exceeded 25 to 30 per cent in the past. Recoveries have also not matched expectations.
Funding SRTOs requires specialised customer evaluation skills and infrastructure that is different from the requirements of typical bank borrowers. The operators are unable to provide necessary documentation and securities required for processing of the disbursal. The purpose of special schemes for SRTOs has been defeated by this inability to conduct business in this segment. Further, recovery management in this also requires special skills and infrastructure.
The NBFC sector has grown to fill this void. It has developed necessary focus and the infrastructure to operate successfully in this sector. The high share of funding to this sector reflects this fact. The NBFC sector therefore is in an excellent position to develop this role in the Industry.
Existence of recovery management systems and infrastructure to ensure high collection efficiency. Retail network geared to handle the funding requirements of commercial vehicle operators due to exclusive focus on this segment. Flexibility to design customized funding options to suit the needs of individual operators. NBFC‟s jointly participate with manufacturers to provide higher levels of customer service. They are in a position to offer vehicle service packages in addition to funding. This is done jointly with manufactures and dealers. Capability to induct new participants into commercial vehicle operating business by effective utilization of existing database infrastructure. Better capability to manage risk due to focussed infrastructure and activity.
Financing procedure of vehicles: According to Palish “In modern money using economy, finance may be defined as the provision of money at the time it is wanted” According to Bonneville and Dewey “Financing consist of the raising, providing connection with business” Here we are concerned with assets based financing. There are three most popular asset based financing. 1) Hire purchase financing 2) Lease financing 3) Loan
Hire purchase financing: Hire purchase finance is a popular financing mechanism especially in certain sectors of Indian business such as the automobile sector. In this, there are 3 parties the manufacture, the Borrower & Guarantor. The borrower may be the manufacturer or a finance company. The manufacturer sells assets to the borrower who sells it to the guarantor in exchange for the payment to be made over a specified period of time. MANUFACTURER BORROWER GUARANTOR
Hire purchases agreement is the agreement between the customer (borrower) & the finance company, which is the owner. The title of the vehicle passes on to the customer when the last due sum & one rupee. Till the last rupee, the right, title & interest in the vehicle along with any additions and improvements to the vehicles remain the absolute property of owner When a payment is more than 14 days late it is considered a default. Date of receipt is considered. Payment by post is considered the risk of the hirer. Increases in 0.85% bank interest rate results in a potent increase in finance charges. But in this regime of falling interest rates NBFC‟S also pull down rates accordingly. Supplier or dealer delivers the vehicle on behalf of owner but risk is not that of the owner. Increase the damage or non-delivery suffered by borrower and borrower charges commence as if vehicle were delivered terms of agreement remain. Borrower takes the insurance in the name of the owner. Owner may renew and recover from hirer. The policy taken and the insurance company have to be approved by the owner. Borrower obtains necessary license. Registration of the vehicle is in the joint name of owner and guarantor and copy of RC submitted to owner. Borrower pays sells tax.
Borrower indemnifies the owner against any claims demands, loss and damage from a cause even beyond the control of the guarantor. Borrower cannot sublet or sell the vehicle during the term of the agreement. Expenses of reposition to be paid by the borrower. Delivery of vehicles concludes that hirer accepts it as it is. Guarantees or warrantees are given by the supplier/dealer/manufacturer not the owner. Increase the damage insurance claim negotiations steeled after consent of the owner. Any damage to vehicle not covered by insurance is born by borrower. The vehicle cannot be hypothecated or mortgaged to any other organization. The asset that is the vehicle is shown in the balance sheet of the hirer. Accordingly the guarantor can claim depreciation. Interest component of the instalment is a tax-deductible expense. Guarantor enjoys salvage value. There is a 5% service charge & 0.2% resale tax. Resale because the Hire Purchase agreements involves three parties and two transactions. Dealer or manufacturer, owner (finance) company and customer.
There are following three conditions. 1. The owner of the asset gives the possession of the asset to the hirer with an understanding that the hirer will pay agreed instalment over a specified period of time. 2. The ownership of the asset will transfer to the hirer to the on the payment of all instalments. 3. They will have the option of the terminating the agreement any time before the transfer of ownership of the asset. Thus for the hirer the hire purchase agreement is like a cancellable lease with a right to buy the asset. The hirer is required to show the hired asset on his balance sheet and is entitled to claim depreciation, although he does not own the asset until full payment has been made. The payment made by the hirer is divided in to two parts; interest charges and repayment of the principal. The hirer thus gates tax relief on interest paid and not the entire payment. Mobilisation of funds: In case of Hire purchase agreement the finance company can present the proposal to the bank and mobilized funds against it. These can be done, since the finance company is the owner of the vehicle till the complete payment is model thus the bank can hold the vehicle as security.
Lease financing: Leasing is widely used in Western countries to finance investment in USA, which has the largest leasing industry in the world. Lease is contract between a lessor, and the owner gives the right to use the asset to the user over an agreed period of time for a consideration called the lease rental. The lessee pays the rental to the lessor as regular fixed payments over a period of time at the beginning or at the end of the month, quarter, halfyear, or year. Although generally fixed, the amount and the timing of payment of Lease can be tailored to the lessee‟s profits or cash flows. In up-fronted Leases, more rentals are charged in the initial years and less in the later years of the contract. The opposite happens in back-ended Lease. At the end of the contract, the asset reverts to the lessor. Who is the legal owner of the asset. As legal owner, it is lessor not lessee, who is entitled to claim depreciation on the leased asset. In long term lease contract, lessee is generally given an option to buy or renew the Lease. Sometimes it is divided into two types- primary lease and secondary lease for the purpose of lease rentals. Primary lease provides for the recovery of the cost of the asset and profit through lease rentals during a period of about 4-5 years. It may be followed by a perpetual, secondary lease on nominal lease rentals.
Loan Procedure Marketing Executive
File Checking Documents Coordinator Initiating Verification
Central Processing Agency
Approval / Decline
Post Approval Documents
Most of the banks and financial institution are providing today finances for most of the automobiles. The most important automobile today being cars, two wheelers, commercial vehicles. These loans are given on various models at very competitive rates. If a person has the required eligibility and documents. He can avail the loans for any vehicle and any model of his choice.
There are two important segments in the auto loan market. New Vehicle loan Used vehicle loan. The loan is given to the person on the basis of the value of the vehicle. Usually 90% of the loan amount of the value of the vehicle is given in case of new one and in the case of old one. It is up to 80% of the value of the vehicle. Auto loan is a secured loan. As there are some physical assets involved in it and it can be hypothecated. Then it is called as hypothecated vehicle, which means that the motor vehicle is to be owned and acquired by the borrower in respect of which the loan is to be made by the financial institute.
2) Company Profile
Supreme Finance Services ltd
The Supreme Finance Services LTD. A NBFC leading Auto Finance company. The Group is one of the largest and well respected financial services conglomerates in India. The Groups main line of activates in financial services include chit fund use vehicle finance, three wheeler finance, auto dealership. The group has a customer base of 5000.thorough network of 14 offices all over Maharashtra. The Group has the largest force in the private sector. The Supreme Finance Services LTD Incorporated in 2010. In the State of Maharashtra, Pune
To be the most profitable global player with quality and technology leadership in the vehicle finance. Offering the finance solutions to satisfy ultimate customer needs.
To become a market leader in light transport vehicle finance segment, and achieve the status of world Class Company with finance and markets a wide range of financial products to the total satisfaction of customers in the state. I) II) III) Highly returns. Business ethics. Thorough continuous improvement of I) Total quality service II) 100% collection III) Resource productivity IV) Cost effectivene
Branches & Offices
PUNE COOPRATE OFFICE: SUPREME FINANCE SERVICES LTD. Gate No.9, Market Yard, Office No.313, 3rd floor, Mahalaxmi Market, Near Panan Mahamandal building, Pune 411037 Solapur: Vaibahvshali Chambers, Ground Floor, 1/5,Morji Peth, Old Pune Naka, Near Janata Bank, Solapur 413009 Tembhrni: Oswal Tawar Third Floor, Kurudwadi Road, Tembhurni, Tal. Madha Dist. Solapur. Latur: Ajinkya Arked Opp. Guru Hotel, Near Rajiv Gandhi Chowk, Ring Road, Latur 413512. Aurangabad: First Floor, Tulshi Chambers‟, Opp. Sun franchiesco School, Near Shriram General Ins. Co. Office, Akashwani, Jalna Road, Aurangabad 431005. Nagpur: Office No.6, A, 4th Floor, Mangalwadi Complex, J.B.Wing Sadar, Nagpur Beed: Sangale Building Navjivan Shikshak Colony, Near Samant Hospital, Behind S.T. Stand, Beed. Nanded: Shop No. 8, Kothari Complex, Shivaji Nagar Nanded 431605.
3) Research Methodology Methodology is the important part of research study, which enables the researcher to form blue print of the research undertake. Research methodology involves the systematic procedure by which the research starts from the time of initial identification of the problem to the final conclusions. This chapter deals with different steps which are undertaken by the investigator for gathering and organizing the data. It includes the description of research approach, research design, setting of the study, population, sampling techniques, criteria for selection of the samples size, limitation, method of data collection, development and description of the tools.
Means of research The research is based upon various types of information, which give knowledge concerning the problem. Now in order to carry on research successfully, information should be gathered from proper source. The more valid is the source of information, the more reliable will be the information received, which in turn, will lead to correct, and reliable conclusion.
Kinds of Data:
Primary Data: Primary data are the actual information, which are received by the researcher for study from the actual field of research. These data are obtained by means of questionnaires and schedules. The primary data are the facts there are many more methods of collecting the primary data. Such data are known as primary because the researcher attains them from the field of research directly and for the first time. For this study I had asked queries to the seniors, also gathered information by direct interacting with customers.
Sources of Primary Data: The sources of such information are the individuals and the incidents around them generally, primary source information is gathered through direct observation and interview methods. 1) Direct observation: The primary source of information is direct observation. The method requires that the researcher should personally and directly observes the conditions of his field study. It is the most reliable method for gathering information. I observed many things and got the lots of information. 2) Interview: In an interview, the researcher meets people and discusses the problems with them. During the course of this discussion, he gathers facts. Schedule includes a predetermined form of questions but the interview has not any definite form or order of questions. I have used this method, and discussed many things with the branch manager.
Secondary Data: Secondary data are the information, which is attained indirectly. The researcher does not attain them himself or directly. Such data are attained generally from published and unpublished material. It provides information of past which is not possible from any other source? To facilitate the study,
secondary data is important to know historical background of the concerning problem.
Sources of Secondary Data: 1) Records: Records occupy the most important place among public documents. Most of companies preserve so many types of a record of important information. I used much information from the records.
2) Published data: Published documents include data published by institutions from time to time. I used this data which company published for their customers.
3) Journals and Magazines: Journals and Magazines are important public documents including a variety of information, which can be usefully utilized in research. Most of this information is very much reliable. Letters to the editors published in various magazines and journals are an important source of information.
4) Other documents: Other document mainly include newspapers publish news, discussions on important issues, meetings and conferences. The reliability of this source is very high. Besides it, television public speeches are other important source of information
5) Internet: In today‟s world of information technology internet is the biggest source of the secondary data, I used internet for finding many data.
Loan Appliers to Defaulters The following is data of loan appliers and defaulters. The 90% of the customers are able to repay the loans but 10% failed to repay.
Year Loans Sanctioned Defaulters
2008 1236 123
2009 2150 215
2010 1614 161
Loans Sanctioned Defaultres
0 1 2 3
Parameter used for credit appraisal
Parameter Technical feasibility Economic viability Bankability
DOCUMENTS Field Investigation, Market value of asset LTV(Loan to Value), IIR Past month bank statements, Asset and liabilities of the applicant
1) Technical feasibility:
Technical Feasibility Living standard
Telephonic Verification Educational Qualification Political Influence References
What company is looking for Decent living standard with some tangibles like T.V. & fridge will provide assurance to bank regarding your residential status. Presence of some undesirable elements like local goons or controversial areas adversely affects your loan appraisal process. At least one response is need from person to establish the identity of the person from contact point of view. Not an essential barrier but essential to understand the complex terms & conditions of bank loan. An interesting reference point in the sense that they are one of major category of loan defaulters. To establish the residential identity of person from human contact point of view & cross check of their loans.
2) Economic Feasibility: Economic viability Installment to income ratio
-IIR for salaried cases would be capped at 60% of Net income in general -Pension Income cases IIR to be restricted to 40%a
Fixed obligation to ratio Loan to cost ratio
income FIOR kept at 55% LTV amount to 80%
3) Bankability: Parameter Bank Statements Norms Checkpoints 6 months bank statements need To check the average to be furnished. amount client is maintaining in the account is sufficient to pay the installment amount or not. Business continuity Two year IT returns made To enquire primary source proof compulsory. of income. Credit interview For the big loan amount credit To check the general interview is necessary. attitude of customer along with efforts are put in to understand their needs better. Profile of customer Salaried professionals get an Secured source of income edge over business income give them a edge. people. Security Asset of value equal to or more To safeguard bank interest than loan amount taken has to against any future default. be put as pledge or collateral. To be on the name or blood To establish the ownership relative of applicant. claim of the loan applicant.
5 C’s of Credit:
1) Character: It refers to the honesty and integrity of the person. Borrowers are not necessarily reliable or honest and the lender must look for evidence of good
character, if it exists. Frequently, this can be ascertained during an interview. The lender must, however, be sure to make his own assessment and not rely on the decision of an existing lender, or similarly on a key individual in the company – so called name lending. 2) Capacity: It refers to the actual ability of the borrower to enter into a contract with the lender. It relates to the technical, managerial and financial means. It also refers to how the company monitors and manages its risks and the suitability of the assets in the company to generate sufficient levels of cash to repay the loan. 3) Capital: Capital refers to the investment or the stake that the borrower has in the firm. This is important to understand the capability of the individual. It is important for analysis as it determines how well the firm is capitalized and does the borrower has reasonable stake or he is willing to let it go down the tubes and walk away from the obligations. 4) Collateral: It analysis other potential sources of repayment of the obligations if these are supported by collateral security. Typically the amount of security required will depend on the type of business enterprise and the circumstances.
5) Conditions: It discusses the competitive environment of the firm and how well the firm fits in. It also considers any economic event that will affect the repayment ability of the firm and also the purpose for which the loan is required. Findings 1) Supreme finance Services Limited is one of the trusted financial institutions in NBFC, with 5000 satisfied customers. 2) Credit Appraisal plays the most significant role in funding the right and eligible person. 3) From the responses of the customer, the staff of Supreme Finance is cooperative. 4) Supreme finance provides refinance facility if the customer shows a good Repayment Track Record (RTR). 5) From the information customers are satisfied with Supreme Finance, 35% customers are old customer. 6) From the data the loan procedure of company is easy as compared to others. 7) In the company the recovery rate is 90%. 8) Credit & risk go hand in hand.
1) The company should try for reducing the documentation required for loan.
2) Company should appoint customer relationship manager for better customer relations.
3) The company should provide door step service to the potential customer.
4) Company should provide special offerings to old customer.
CONCLUSIONS The credit appraisal of Supreme Finance is simple to understand and easy to calculate Which helped me to understand the credit appraisal system. Sometimes credit goes to wrong person then also it will not affect the performance of the company because company gives loan against hypothecation (HP) of vehicle. The loan systems starts from verifying and checking the necessary documents, collection the actual cost in terms of monthly instalment and end‟s with No Objection Certificate (NOC). In the company the credit manager is the only person who takes care of proposals. The credit manager should consult the recovery manager that a person is not a default gist. If the customer taking loan twice then credit manager should check his previous record.