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In addition to (Comparative Analysis of credit recovery mechanism of Private Sector & Public Sector Banks in Varanasi) Undertaken at
PUNJAB NATIONAL BANK
(Circle Office, VARANASI)
Prepared By: ABHISHEK SINGH Finance MBA 3rd-sem
Under Supervision of Mr. Anand Rai (Senior Manager, Credit Section)
I hereby declare that this project titled “CREDIT MANAGEMENT (Comparative Analysis of efficiency of credit recovery mechanism of Public Sector vs. Private Sector Banks in Varanasi)” submitted by me to Department of Business Administration University of Lucknow and Punjab national bank (circle office), Varanasi in partial fulfillment of requirements of MBA programme is a bonafide work carried out by me has not been submitted earlier to any other University Or Institution for the award of any degree diploma/ certificate or published any time before.
This project has been prepared as a part of an internship required during the completion of MBA program. I was involved with PUNJAB NATIONAL BANK (CIRCLE OFFICE), Varanasi, for 2 months, and I come across a lot of people who put in their time and effort towards acclimatizing me to the workings of their of organization .I express my thanks to my company guide Mr. ANAND RAI (senior Manager credit section) who motivated me in all my efforts. I would like to express my gratitude to the entire staff of PUNJAB NATIONAL BANK for supporting me during this project and providing me an opportunity to learn. It was truly wonderful learning Experience. These past 2 months were of utmost importance as they added value towards my path of Knowledge. I would like to end this acknowledgement by thanking the customers and people at large with whom I have interacted during the course of my training.
TABLE OF CONTENT
HISTORY OF BANKS Banking industry in India Vision of Banks in India Success Path for Banker Challenges facing by Banking industry in India Future challenges of Banks in India ○ Industry Segmentation ○ Major Key Players COMPANY DESCRIPTION ○ History of bank ○ Vision ○ Mission ○ Domestic network ➢ SWOT ANALYSIS ➢ MARKET POSITION OF PNB ➢ 2010 ACHIEVEMENTS BY PUNJAB NATIONAL BANK EARLY ○ ○ ○ ○ ○
CREDIT MANAGEMENT ○ ○ ○ ○ ○ ○ Introduction, functions and its effectiveness Types of Borrowers Partnership firms Preparation of credit proposal Guidelines for preparing credit proposal Documentation and creation of security
○ Disbursement, monitoring, renewal /review (types of guarantee)
➢ CREDIT PRODUCTS PROVIDED BY PUNJAB NATIONAL BANK
➢ CREDIT RECOVERY MEANING AND ITS PROCEDURE
RESEARCH WORK ○ Meaning and objective of research ○ Types of research ○ Importance and uses of research ○ Data collection method SURVEY ○ Statistical analysis ○ Charts and the interpretation of data ○ Findings
○ Conclusion ANNEXURE ○ Questionnaires ○ Report on customer services ○ Bibliography
This report has been completed in fulfilment of my management program, MASTER IN BUSINESS ADMINISTRATION (MBA) in the PUNJAB NATIONAL BANK. Objectives
➢ The main objective of this project is to get the practical knowledge of credit Management in the organization. ➢ To know about different credit recovery methods adopted by banks. ➢ To know which sector banks are more efficient in recovering its money. ➢ To get a good insight of banking industry. ➢ To know the significance of credit management. ➢ To get the practical experience of industry environment The scope of the project undertaken was: ➢ Study of credit management in banks. ➢ Study various methods of credit recovery. ➢ Analysis of the findings and observations of the study. ➢ Recommendations based on observations
➢ Study of difference in credit recovery pattern of public
and Private sector banks.
Early History of Banks
Currently, India has 96 scheduled commercial banks(SCBs) - 27 public sector banks (that is with the Government of India holding a stake), 31 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign banks. They have a combined network of over 53,000 branches and 49,000 ATMs. According to a report by ICRA (Investment Information and Credit Rating Agency of India Limited) a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively. Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India which started in 1786, and the Bank of Hindustan, both of which are now defunct. The oldest bank in existence in India is the State
Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India. Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India.(Joint Stock Bank: A company that issues stock and requires shareholders to be held liable for the company's debt) It was not the first though. That honor belongs to the Bank of Upper India, which was established in 1863, and which survived until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of Simla. When the American Civil War stopped the supply of cotton to Lancashire from the Confederate States, promoters opened banks to finance trading in Indian cotton. With large exposure to speculative ventures, most of the banks opened in India during that period failed. The depositors lost money and lost interest in keeping deposits with banks. Subsequently, banking in India
remained the exclusive domain of Europeans for next several decades until the beginning of the 20th century. Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madras and Pondicherry, then a French colony, followed. HSBC established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center.
The Bank of Bengal, which was later, merged with the Bank of Bombay and the Bank of Madras to form the Imperial Bank of India in 1921. The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in 1895, which has survived to the present and is now one of the largest banks in India. Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial and
other infrastructure had improved. Indians had established small banks, most of which served particular ethnic and religious communities.
Banking industry in India
The Banking Industry was once a simple and reliable business that took deposits from investors at a lower interest rate and loaned it out to borrowers at a higher rate. However deregulation and technology led to a revolution in the Banking Industry. Banks have become global industrial powerhouses. Banking services have become available 24*7*365 through ATM service, online banking, and in electronically enabled exchanges where everything from stocks to currencies can be traded. The Banking Industry at its core provides access to credit. In the lenders case, this includes access to their own savings and investments, and interest payments on those amounts. In the case of borrowers, it includes access to loans for the creditworthy, at a competitive interest rate. Banking services include transactional services, such as verification of account details, account balance details and the transfer of funds, as well as advisory services that help individuals and institutions to properly plan and manage their finances. Online banking channels have become the key in the last 10 years.
The collapse of the Banking Industry in the Financial Crisis, however, means that some of the more extreme risk-taking and complex securitization activities that banks increasingly engaged in since 2000 will be limited and carefully watched, to ensure that there is not another banking system meltdown in the future.
Vision of Banks in India
The banking scenario in India has already gained all the momentum, with the domestic and international banks gathering pace. The focus of all banks in India has shifted their approach to 'cost', determined by revenue minus profit. This means that all the resources should be used efficiently to better the productivity and ensure a win-win situation. To survive in the long run, it is essential to focus on cost saving. Previously, banks focused on the 'revenue' model which is equal to cost plus profit. Post the banking reforms, banks shifted their approach to the 'profit' model, which meant that banks aimed at higher profit maximization.
Success Path for Banker
One of the biggest challenges senior managers of the banks facing today is attracting customers and attaining growth, often in an environment where products and prices among competitors are close substitutes. Traditional bases for differentiation, such as product features or cost, are becoming less tangible. So the managements are forced to look for new ways to appear attractive to its target market and simultaneously retain the existing one. From the annual survey conduct by FICCI, we found that they rank their business strategies that have helped them in increased customer acquisition and retention (On a scale of 1 to 8 with 8 being the most important marketing strategy). The results of the
Mode score being accorded by the Public, Private& Foreign banks are presented below:
Technology has moved from being just a business enabler to being a business driver. Be it customer service, reducing operational costs, achieving profitability, developing risk management systems, we turn to technology for providing necessary solution. Technological up gradation was clearly identified as one of the most successful strategy in Customer Acquisition and Retention followed by Expansion of ATM Network, Advertisements and additional sales force. Customer Retention and Customer Satisfaction are inexorably interred - linked. While consumers may be happy to make payments and interact with their bank through convenient – and cheaper – banking channels, they still expect high standards of service. A consistent service reflects the bank’s brand and image across all channels. 93.75 per cent of respondent banks informed that superior service pre and post banking has been one of the essential factors rated high by their customers. helped them in winning customers. 75 per cent of respondent banks felt that Personal touch in the dealings has
Challenges faced by Banking industry in India
The banking industry in India is undergoing a major transformation due to changes in economic conditions and continuous deregulation. These multiple changes happening one after other has a ripple effect on a bank trying to graduate from completely regulated sellers market to completed deregulated customers market.
Future challenges of Banks in India
The Indian banks are hopeful of becoming a global brand as they are the major source of financial sector revenue and profit growth. The financial services penetration in India continues to be healthy, thus the banking industry is also not far behind. As a result of this, the profit for the Indian banking industry will surely surge ahead. The profit pool of the Indian banking industry is probable to augment from US$ 4.8 billion in 2005 to US$ 20 billion in 2010 and further to US$ 40 billion by 2015. This growth and expansion pace would be driven by the chunk of middle class population. The increase in the number of private banks, the domestic credit market of India is estimated to grow from US$ 0.4 trillion in 2004 to US$ 23 trillion by 2050. Third largest banking hub of the globe by 2040 - is that vision too far away?
Nationalized /Public sector banks ➢ Dominate the banking system in India. Private Banks ➢ Made banking more efficient and customer friendly. ➢ Jolted public sector banks out of complacency and forced them to become more competitive. Foreign banks ➢ Have brought latest technology and latest banking practices in India. ➢ Have helped made Indian banking system more competitive and efficient.
Major Key Players
Punjab National Bank (PNB) (BSE: 532461), is a state-owned financial services company located in New Delhi, India. It was registered on May 19, 1894 under the Indian Companies Act with its office in Anarkali Bazaar Lahore. Today, the Bank is the second largest government-owned commercial bank in India with about 5000 branches across 764 cities. It serves over 37 million customers. The bank has been ranked 248th biggest bank in the world by the Bankers Almanac, London. The bank's total assets for financial year 2007 were about US$60 billion. PNB has a banking subsidiary in the UK, as well as branches in Hong Kong, Dubai and Kabul, and representative offices in Amati, Dubai, Oslo, and Shanghai. Punjab National Bank is one of the Big Four Banks of India, along with ICICI Bank, State Bank of India and Canara Bank.
History of Punjab National Bank
• 1895: PNB commenced its operations in Lahore. PNB has the distinction of being the first Indian bank to have been started solely with Indian capital that has survived to the present. (The first entirely Indian bank, the Oudh Commercial Bank, was established in 1881 in Faizabad, but failed in 1958.) PNB's founders included several leaders of the Swadeshi movement such as Dayal Singh Majithia and Lala HarKishan Lal, Lala Lalchand, Shri Kali Prasanna Roy, Shri E.C. Jessawala, Shri Prabhu Dayal, Bakshi Jaishi Ram, and Lala Dholan Das. Lala Lajpat Rai was actively associated with the management of the Bank in its early years. 1904: PNB established branches in Karachi and Peshawar. 1940: PNB absorbed Bhagwan Das Bank, a scheduled bank located in Delhi circle. 1947: Partition of India and Pakistan at Independence. PNB lost its premises in Lahore, but continued to operate in Pakistan. 1951: PNB acquired the 39 branches of Bharat Bank (est. 1942); Bharat Bank became Bharat Nidhi Ltd. 1961: PNB acquired Universal Bank of India. 1963: The Government of Burma nationalized PNB's branch in Rangoon (Yangon).
1965: After the Indo-Pak war the government of Pakistan seized all the offices in Pakistan of Indian banks, including PNB's head office, which may have moved to Karachi. PNB also had one or more branches in East Pakistan (Bangladesh). 1960: PNB amalgamated Indo Commercial Bank (est. 1933) in a rescue. 1969: The Government of India (GOI) nationalized PNB and 13 other major commercial banks, on July 19, 1969. 1976: PNB opened a branch in London. 1986: The Reserve Bank of India inquired PNB to transfer its London branch to State Bank of India after the branch was involved in a fraud scandal. 1986: PNB acquired Hindustan Commercial Bank (est. 1943) in a rescue. The acquisition added Hindustan's 142 branches to PNB's network. 1993: PNB acquired New Bank of India, which the GOI had nationalized in 1980. 1998: PNB set up a representative office in Almaty, Kazakhstan. 2003: PNB took over Nedungadi Bank, the oldest private sector bank in Kerala. At the time of the merger with PNB, Nedungadi Bank's shares had zero value, with the result that its shareholders received no payment for their shares. PNB also opened a representative office in London.
2004: PNB established a branch in Kabul, Afghanistan.
PNB also opened a representative office in Shanghai. PNB established an alliance with Everest Bank in Nepal that permits migrants to transfer funds easily between India and Everest Bank's 12 branches in Nepal. • • 2005: PNB opened a representative office in Dubai. 2007: PNB established PNBIL - Punjab National Bank (International) - in the UK, with two offices, one in London, and one in South Hall. Since then it has opened a third branch in Leicester, and is planning a fourth in Birmingham. 2008: PNB opened a branch in Hong Kong. 2009: PNB opened a representative office in Oslo, Norway, and a second branch in Hong Kong, this in Kowloon. 2010: PNB received permission to upgrade its representative office in the Dubai International Financial Centre to a branch.
PNB India’s Leading Nationalised Bank 166 Scheduled Commercial Bank in Indian Banking System.
Ranked second strongest bank in Asia pacific by “The Asian banker” (Singapore)
Sh.K.R.Kamath (Chairmen and Managing Director)
With 32 years of experience in the field of banking, Mr Kamath has had a brilliant career and is well known personality in the Indian financial market. He joined Corporation Bank as officer trainee and worked his way up as General Manager. He was subsequently appointed as Executive Director of Bank of India and Chairman and Managing Director of Allahabad Bank, before his appointment as the CMD of Punjab National Bank in October 2009.
“To be a Leading Global Bank with Pan India footprints and become a household brand in the Indo-Gangetic Plains providing entire range of financial products and services under one roof"
"Banking for the unbanked"
The performance highlights of the bank in terms of business and profit are shown below:
Quarterly Net Interest Margin On Daily Average
SWOT stands for Strength, Weakness, Opportunities and Threats. Strengths and Weakness are the internal factors of the
company where as Opportunities and Threats are external factors. SWOT Analysis is the tool for auditing an organization and its environment. It is the first stage as planning. It can be used in conjunction with other tools as audit and analysis.
➢ Well known brand and long history ➢ Capture small retail sector ➢ Knowledge of Indian market ➢ Having sound market share
➢ Lack of unified global identity ➢ Not able to position itself correctly
➢ Growing Indian banking sector ➢ People are becoming more service oriented in global market
➢ From various competitors ○ Foreign banks ○ Private banks ➢ Future market trends
BSE: Market Position of PNB in Last Six Months
2010 Achievements National Bank
Credit Scenario in India
Against the backdrop of generally strong economic fundamentals, the credit growth has been impressive. The credit products have become more sophisticated with the increasing maturity of banks and growth of financial institutions. In order to decrease the borrowing cost and hedge interest rate risk the companies in India are increasingly using products Credit Linked Note, Credit Default Swaps, CBOs etc.
Function of the Credit Department
Credit is a core banking function that enables attainment of the fundamental objective of assets transformation between its clients. The function is executed by way of extending fund based and non-fund based credit facilities to different clients. The Credit department endeavors to extend different products in the above two categories to the corporate clients in the country. The department aims to maximize the interest spread earned on funds available with the Bank while keeping the risk on the credit portfolio at acceptable levels. The department is the major contributor to the top line as well as bottom line of PUNJAB NATIONAL BANK. The department has been at the forefront of launching innovative corporate credit products.
The key strengths of the department are superior appraisal skills, understanding of risk, in-depth understanding of industry and relationship with leading Indian corporate, especially in the mid corporate segment.
Effective credit management
The effective management of credit involves choosing its best mix and use with respect to loan maturity terms, interest rates, and payment size and frequency. In other words, it shows the insight of knowing when to borrow, how much to borrow, and from where to borrow. As a result, you’re able to meet your required loan obligations without great stress or strain, and you have an overall debt repayment strategy. The ability to handle credit is influenced by many factors, such as your current and future income, your current and future expenses, the prevailing interest rate that you’ll have to pay on borrowed funds, the payment terms of your loans, and your financial discipline. Being able to handle larger debt payments means that if needed, you can safely borrow more money. Although every individual situation is unique, many financial advisors suggest a basic rule-of-thumb to determine your overall debt position. Compute the percentage of your take-home pay, also known as your disposable income, that’s required to service your debts TOUGH CHALLENGES IN CREDIT MANAGEMENT In their quest to more-effectively manage their corporate credit process, most banks face some tough hurdles. Even under ideal circumstances, the corporate credit management process presents challenges for most banks. Many banks face challenges with information technology (IT) systems that often hinder rather than help them. At many banks, the IT systems used by analysts, underwriters, loan officers, and portfolio and relationship
managers are often a mishmash of outdated customized legacy systems that make the loan management process convoluted and more difficult to navigate.
What part of a bank’s credit goes to which type of loans?
Credit limits are considered to various types of borrowers. Depending on the constitution of the borrower certain formalities are required to
be completed, and precautions need to be taken while dealing with them. A limited company may be private or public, incorporated under the Companies Act, 1956.It come into legal existence after the Registrar of Companies issues a Certificate of Incorporation. The following basic documents should be obtained for considering requests for advances to limited companies: Certificate of Incorporation ○ ○ ○ ○ Certificate of Commencement of Business Memorandum and Articles of Association Balance Sheets and Profit & Loss Statements Board Resolution
Restrictions on the Borrowings by a Company
The Memorandum of Association of the limited company should be scrutinized to ascertain that the purpose and the amount of advance facility sought are authorized by the Memorandum of Association. It must be ascertained whether there is any restriction on the borrowing by the company.
Restrictions on Borrowing Powers of Directors
The board of directors of a public limited company cannot borrow in excess of the paid-up capital and free reserves of the company without the consent of the company in a general meeting.
Restriction on Banking Arrangements with Other Banks
In the case of limited company borrowers, an undertaking should be obtained from them to the effect that they will not open any current account or approach any other bank for facilities without obtaining prior clearance in writing from the Bank. It should also be ensured that the company close their existing
accounts, if any, with other banks, unless satisfactory explanation is offered for continuing the accounts
A partnership firm is governed by the Indian Partnership Act, 1932. Original Partnership Deed should be verified to ensure that the provisions in the deed do not conflict with the terms of the account. A copy of the deed should be obtained. Important provisions/ stipulations affecting the operations of the bank account should be noted for ready reference. In every partnership account, the Partnership Letter completed and signed by all the partners in their personal capacity and on behalf of the firm should be obtained. In case of Retirement or Admission of a Partner Normally, the operations in the existing account should be put on hold to keep the retiring partner’s estate liable for the debts due to the Bank. The credit facility for the reconstituted firm should be got reviewed as soon as possible. In case of death of a Partner The operations in the existing account should be stopped / freezed to protect the Bank’s right against the estate of the deceased.
INDIVIDUAL BORROWERS Single Borrower
An account in the name of an individual is operated upon by the account holder him/herself. An individual borrower may authorize another person to operate the account under a Power of Attorney.
In case of more than one borrower, all must be made jointly and severally liable for borrowings. Authority to any of the joint debtor to operate on a deposit account does not automatically extend to borrowing without the concurrence of all account holders.
Proprietorship is in the name of a firm or a business owned by an individual who is its proprietor A declaration from the sole proprietor of the concern, whether functioning under his/her own name or a trade name, should be obtained in the personal capacity to the effect that no person other than the proprietor has any interest in the business as proprietor or otherwise and that the proprietor as the sole proprietor is and will continue to be personally liable for all the dealings and obligations in the name of business.
HINDU UNDIVIDED FAMILIES (HUF)
A Joint Hindu Family consists of all persons lineally descended from a common ancestor and includes their wives.
The documents should be executed by the Karta and also by all major co-partners or by the Karta, provided a letter of authority signed by all the major co-partners empowering the Karta to sign the documents on their behalf is furnished. An undertaking letter stating, that the advance is required for the ordinary purpose of the family business and all of them jointly and severally bind their interest in the Undivided Hindu Family and also those of their respective issues should be obtained.
CREDIT APPLICATION FORM AND INITIAL SCRUTINY Issuing Credit Application Form
Appropriate Credit Application Form of the Bank may be provided to the prospective customer, if: • The request is found to be prima facie in order and generally conforming to the credit policy and plan/s of the Bank / branch and basic principles of lending. The customer is agreeable to the Bank’s terms and conditions normally prescribed for such facilities.
Receipt of Credit Application Form
Credit Application Form submitted by the customer should be checked to ensure that: All the applicable items are properly filled-in, with appropriate remarks made against inapplicable items. It is signed by the borrowers and guarantors, wherever applicable. All the relevant details and necessary enclosures like statements, reports, certificates, balance sheets, assessment orders, forms etc., are enclosed.
A quick scrutiny of the Credit Application Form submitted by the customer may be carried out by reviewing the papers and financial particulars submitted by them. The observations contained in the note on discussions / interview with the customer may also refer to.
Pre Sanction Inspection and Credit Reports
Pre-sanction inspection should be conducted and credit reports collected for considering all the credit requests, except the following: • Advances against the Bank’s Term Deposit Receipts. • Advances against Shares • Advances against LIC Policies • National Savings Certificates • and other Government securities where the branch has directly registered its charge with the issuing authority and necessary proof to this effect is maintained on the branch record.
PREPARATION OF CREDIT PROPOSAL
Credit Application and other particulars submitted by the customer, credit reports and reports / notes of pre-sanction inspection of the account carried out by the Bank officials would form the basic • Inputs for preparing the Credit Proposal. It is necessary that the person preparing the Credit Proposal is thoroughly
acquainted with the basic principles of lending and the up-todate guidelines, policies and procedures of the Bank and the guidelines / directives of the Reserve Bank of India and other regulatory authorities on the subject. • Credit Proposal should normally be prepared by the branch staff. In cases involving large limits and complex projects or in case of other exigencies, Credit Proposals can be prepared by or with the assistance of the officials at Zonal/Central Office. • The Bank has not standardized the Credit Proposal Format for processing credit requests of Corporate Banking customers as each credit proposition has its own peculiarities. Depending on requirements of each case, the proposal should be prepared covering all relevant areas.
GUIDELINES FOR PREPARING CREDIT PROPOSAL
The guidelines for preparing credit proposal based on the framework mentioned above are given below. Proposal Number Number the proposals serially from the beginning of each financial year. The Alfa Code of the Branch (short form of the branch name), financial year and serial number of the proposal would form the proposal number. Branch State the name of the branch to which the advance pertains. Name of the Company Mention full and correct title of the advance account. Date of Incorporation Mention the date of incorporation of the company. This can be ascertained from the Certificate of Incorporation issued by the Registrar of Companies. In case of non-corporate bodies, the date / year of establishment may be given
Line of Activity Give brief description of the nature of business / activities carried out by the borrower for which the facilities are proposed. In case of manufacturing / industrial concerns, give brief description of major processes / products.
Give full and correct address of the Registered Office of the borrower company.
Give full and correct address where the Administrative Office of the Company is situated. Board of Directors Give the list of Directors of the Company indicating against each name the type of office he/she holds, such as Chairman, Vice Chairman, Managing Director, Whole Time Director, Nominee of ____ (FI) etc. Indebtedness to Punjab National Bank
Give the extent of present and proposed fund based and non-fund based limits from our Bank.
Banker’s Reference and Rating by Credit Agency • Give highlights of the Bankers’ Reports obtained recently on the conduct of the accounts of the company and the other companies of the group. • In case the company has obtained credit rating from any Rating Agency, give the latest rating (and its brief description) along with the name of the Credit Rating Agency, nature of instrument/s for which rating is obtained, date of awarding the rating and its validity. Credit Risk Rating and Asset Classification Work out and indicate the Credit Rating as per the Credit Risk Rating system of the Bank. Also confirm that the asset
classification continues to be ‘Standard’. In case of new accounts, credit rating allocated by the leader of consortium / other financing banks and also confirmation that it continues as ‘Standard’ account may be given. Brief Background of the Company Give brief history background of the company. Also give brief description of major business / activities. In case of manufacturing / industrial enterprises, give brief description of the major processes and products. Give comments about the reputation of the company, quality and conduct of business, soundness of operations etc. Major Competitors and Market Share • Give brief particulars about the major competitors and market share of the company as well as main competitors. The information may be obtained from published data, where available and/or market enquiries. • Give price advantage, tariffs, marketing network, trends and prospects, main customers of the company visà-vis the competitors. Performance and Financial Indicators In case of existing companies, figures pertaining to four years i.e. last two years actual based on audited accounts, estimates for the current year and projections for the next year are normally given... The major items of figures for which information is to be furnished are given below given are as under:
Key Financial Indicators
a) Net Sales b) Other Income c) Operating Profit after Interest
d) Net Profit before Tax e) Net Profit after Tax f) Paid-up Capital g) Tangible Net-worth Ratios a) Profitability Ratios b) Turn over Ratios c) Liquidity Ratios d) Leverage Ratios
Assessment of Limits
Term Loans The request for the Term Loan limits should generally be accompanied by the detailed project report prepared by the Borrower. The bank official should appraise the project from different angles with the objective of justifying the investment. The main components of appraisal of a project are given below in graphic form for ready reference: The important Ratios that need to be considered for appraising the project are described below: Service Coverage Ratio (DSCR) ○ Debt Service Coverage Ratio (DSCR) ratio provides the measure of the ability of the project to service the repayment of its entire long term debt. It also serves as a guide to determine the period for repayment ○ The ratio is valuable as it indicates the margin of safety which exists for the Bank. A good DSCR should be two or
more. When it is less than two, greater care needs to be exercised. Internal Rate of Return Internal Rate of Return (IRR) is generally worked out by a process of trial and error. First cash flows are discounted at cut off rate and if NPV is negative at this rate, the project is rejected since IRR is less than the cut-off rate. Secondly if NPV is positive at the cut-off rate, cash flow is discounted at higher and higher rates, till such time NPV becomes zero. Break Even Point (BEP) Break Even Point indicates the volume of sales which the unit must achieve in order to cover its total costs. If the unit can sell more than the break even volume, it earns profit.
Sensitivity analysis indicates the degree of cushion available in the profitability of the project to withstand changes with assumed conditions
Format for Critical Project Information
➢ Assessment of Term Loan Requirement
1. Vocational Advantage 2. Cost of Project 3. Means of Finance 4. Schedule of Implementation 5. Project Requirements 6. Schedule of Implementation 7. Loan Eligibility
8. Margin 9. Status of Government Clearance 10.Financial Highlights 11.Refinance
➢ Working Capital Assessment
Risk Perception / Analysis
Some of the suggested risk parameters that may be commented upon in arriving at the risk perception are given below. All the parameters may not be applicable to each Credit Proposal. Also the degree of importance of each parameter may vary across the accounts and time. ○ ○ ○ Political. Regulatory Finance
Security documents establish the precise relationship between the Bank and the borrower and form the main basis for the Bank’s legal recourse in court of Law in case the borrower fails to repay the advance. While obtaining the documents, it should be borne in mind that, if the Bank is faced with a situation of remedying any defects or irregularities in the security documents at the time of filing a suit, it would be difficult to get the co-operation from the borrower and guarantor/s, if need be, and the Bank’s action against them might be affected.
Proper drafting/format of the documents and their correct stamping and execution are the three essential requirements of proper documentation. Instruments / documents, other than bills of exchange and promissory notes, executed out of India may be stamped within three months after being first received in India. In case of instruments chargeable according to the State Stamp Act, the stamps should pertain to the concerned State. Stamp duty should be paid to the Stamp Office of the State where the documents are executed. The stamp paper should normally be in the name of the Bank or the customer. The Stamp Law provides that any adhesive stamp affixed on an instrument should be cancelled in such a way that it cannot be used again. Such cancellation is done either at the time when the stamps are affixed or at the time of execution. All security documents obtained from the borrowers should be held in cloth-lined / plastic Security Dockets only.
Separate dockets should preferably be maintained for each facility of the borrower. The following information should appear on the outer cover: a. b. c. d. e. Name of the Account Account No. Type of Facility Limit Date of Sanction
Now the CREATION OF SECURITY which includes the third party guarantee. Guarantee is stipulated as a security to reinforce the safety of the Bank’s funds when guarantee is stipulated as one of the securities in an advance account.
Parties to the contract of guarantee are:
Applicant: The principal debtor – the party at whose request the guarantee is being executed. • Beneficiary: The party to whom the guarantee is being given and who can enforce it in case of default. • Guarantor: The party who undertakes to discharge the obligations of the applicant in case of his/her defaults.
Thus, a guarantee is a collateral contract consequential to a main contract between the applicant and the beneficiary. As a means of such safeguard, the bank seeks from the borrower the guarantee of another person for the prompt repayment of debt in case the borrower fails to repay. In the event of death of a single guarantor or of one of the joint and several guarantors, steps should be taken immediately to obtain a new guarantor in place of the deceased.
➢ Since a decision to substitute a fresh guarantee or to waive the guarantee of the deceased as mentioned above would take some time, steps should be taken to preserve the liability of the estate of the deceased guarantor to the Bank under the guarantee.
DISBURSEMENT, MONITORING, RENEWAL /
Disbursement of any advance (credit facility) should be effected only after: I) sanction of facility by the appropriate authority.
ii) Proper execution of security documents by borrower / guarantor and their checking and verification. iii) Compliance of all terms of sanction including creation and registration of charge over securities, where applicable. iv) Completion of account opening formalities, where applicable. Disbursement should be made as per the guidelines in this regard and subject to stipulations, if any, made in the sanction.
RENEWAL / REVIEW
Its Purpose is to all credit facilities, other than ad-hoc guarantees / letters of credit, are required to be renewed annually. The correct terminology is Review in case of Term Loans and Renewal in case of other facilities repayable on Demand. The “Annual Renewal/Review” exercise gives the Bank an opportunity mainly to assess: I. The performance of the borrower’s business activity. II. How well and effectively the borrowed funds were utilized. III. The borrower’s position with regard to plough back of profits. IV. Whether the limits are appropriate.
Issuing guarantees on behalf of customers is a major non-fund based business of banks. A guarantee is a contract to perform the promise or discharge the liability of a third person in case of his/her default. It constitutes a contingent liability which arises in the event of default by the customer. There are three parties to a bank guarantee: The Applicant customer - on whose behalf the guarantee is given, also known as Principal Debtor. ii. The Beneficiary - to whom the guarantee is given. iii. The Issuing Bank - who gives the guarantee, also called as the surety
Types of Guarantees
Bank Guarantees are broadly of two types:
Deferred Payment Guarantees
A Deferred Payment Guarantee is a contract or undertaking by the bank to the supplier that the price of machinery or goods supplied by them on deferred payment terms will be paid in agreed instalments with stipulated interest on the respective due dates, in case of default in payment thereof by the buyer. A deferred payment guarantee is akin to a term loan, and as far as the buyer is concerned, it serves the same purpose as that of a term loan. A company which desires to acquire plant and machinery can buy them by making full payment at the time of delivery itself, either from its own source, or by availing of a suitable term loan from a bank/financial institution
In case of a term loan, the bank makes the payment either to the buyer or directly to the seller and the buyer (borrower) repays his obligations in stipulated instalments to the bank. In the case of a deferred payment guarantee, the bank merely executes a guarantee on behalf of the buyer to the seller’s bank, who on the strength thereof discounts the seller’s bills drawn on the buyer.
ii) Ordinary Guarantees
Ordinary Guarantees are of two types - Financial Guarantees and Performance Guarantees.
It is a contract of guarantee, whereby the bank becomes the surety for the applicant who is the principal debtor and assumes all the liability of a surety under the Indian Contract Act. If the applicant fails to repay the underlying debt, the bank as surety is called upon to repay the unpaid portion of the debt.
It is a contract of indemnity, whereby the bank undertakes to indemnify the beneficiary to the extent of loss or damage suffered by the beneficiary as a result of non-performance or defective performance by the applicant during the warranty period. Although these guarantees are for performance of a contract or obligation, in case of default, the liability of the bank is to reimburse the loss or damage not exceeding the bank guarantee amount.
Text and Authentication of Guarantee
A bank should normally be issued in the form Standardized by the Bank. If a guarantee is required to be issued in a different format
due to insistence of beneficiary, it should be ensured that the guarantee is: • For a definite period. • For a definite object and enforceable on happening of a definite event. • For a specific amount. • Without any clause providing for automatic renewal on its expiry. Other guidelines and precautions to be taken while issuing guarantees are as follows: a.In order to prevent unaccounted issue of guarantees, as well as fake guarantees, as suggested by IBA, bank guarantees should be issued in serially numbered security forms. b.The body of the guarantee, as per the requirements of the beneficiary /applicant, should be typed in continuation sheets. c.The guarantee should be adequately stamped.
d.The guarantee should be signed by at least two authorized
signatories of the bank.
Banks are occasionally required to issue Solvency Certificates for the contractors / businessmen / companies. Solvency Certificates should be issued only to the customers having borrowing limits with the same bank or to those having satisfactorily conducted accounts for a minimum period of six months. The amount of Solvency / Capacity Certificate should be decided after satisfying about the customer’s means and capacity. The following aspects need to be taken into consideration for deciding the Solvency of the customer:
Volume of Business. Means and standing of the from audited Balance
Customer (Net worth should be verified Sheet and Profit & Loss Account, Statement
Of Assets & Liabilities, Income Tax, Wealth Tax, Sales Tax, Operations in the account. Track record/past performance in respect of
Returns etc.) ➢ ➢
work/contracts/business undertaken. ➢ Market report
Credit Products Provided By Punjab National Bank
➢ ➢ ➢ ➢ ➢ ➢
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Housing loan Car finance Two wheeler finance Personal loan Professional loan Education loan Loan against mortgage of property PNB Fin-Basket scheme Personal loan scheme for pensioners Reverse mortgage scheme Other credit scheme
Regular Housing Finance Scheme for Public PNB reaches out to you with fast, friendly and most convenient home loans for: Construction or purchase of house/ flat. • Purchase of house/ flat on First Power of Attorney basis from the original allot tee. Carrying out repairs/ renovations/ additions/ alterations to existing house/ flat. • Special Feature- To cover the loan outstanding, life Insurance cover is also available on payment of one time premium which can also be financed by the bank.
Available for purchase of New Car/ Van/ Jeep/ Multi Utility Vehicle (MUV)/ Sports Utility Vehicle (SUV) or for old vehicles that are not older than 3 years. Finance will be provided for purchase of vehicle of indigenous/ foreign makes
To meet all type of personal needs. Term loan/overdraft minimum amount of loan can be Rs. 50,000 /- and maximum amount of loan Rs. 4, 00,000/- or 20 times monthly salary whichever is less, depending upon the repaying capacity. And suitable guarantee is acceptable to the bank.
Professional loan scheme
PNB extends assistance to self-employed persons, firms and joint ventures of such professional persons engaged in professions such as: Medical practitioners including dentists, chartered accountants, cost accountants, practicing company secretaries, who are not in
regular employment of any employer, accredited journalists or cameramen who are free lancers, i.e. not employed by a particular newspaper/magazine, lawyers or solicitors, engineers, architects, surveyors, construction contractors or management consultants or to a person trained in any other art or craft who holds either degree or diploma from any institution established, aided or recognized by Government or to a person who is considered by the bank as technically qualified or skilled in the field in which he is engaged. Loans under this scheme may be granted for the purpose of financing purchase of equipment used by the borrowers, business premises, construction, making alterations or renovation of business premises/nursing homes or for working capital requirements, in their professions.
Education loan scheme
The scheme aims at providing financial support to deserving/meritorious students for pursuing education in India and abroad at APPROVED universities. The scheme takes care of increasing costs of admission, books, instruments, lodging/boarding etc. Two different schemes under this category which provided by bank are...
Vidya Lakshya Purti Sarvottam shiksha
Loan against mortgage of property
Scheme seeks to provide finance against mortgage of immovable property situated in Metro/ Urban/ Semi Urban centres. The scheme is designed to offer instant solutions relating to business needs or for personal needs such as, children's higher education, travel, daughter's marriage, medical emergencies, etc. Loan is, however, not available for speculative purpose.
The purpose is for personal and business needs.
Pnb Fin-Basket scheme
This scheme offers attractive benefits as part of a Package to those customers who have the capacity and are willing to avail a minimum specified loan amount under at least two or more specified Retail Loan Schemes. This scheme is only for authorized branches.
Personal Loan Scheme for Pensioners
All types of pensioners who are drawing their pension through our branches are eligible. This includes pensioners and Exemployees of our Bank. PNB’s pre 1986 retirees who are getting ex-gratia are also eligible. Further, pensioners whose pension is being received by the Bank through Department of Pension Disbursing Office (DPDOs) may also be allowed loan under the Scheme. And the purpose is to meet personal needs including medical expenses. The loan amount is maximum Rs.1, 50,000/- (Rupees one lace only) or amount equivalent to 18 months' net pension, whichever is lower. For Pensioners above the age of 75 years, the maximum amount of loan would be Rs.70, 000/-
Reverse Mortgage Loan - "PNB Baghban" for Senior Citizens
PNB is the first Public Sector Bank to come out with a Reverse Mortgage concept based product for senior citizen titled "PNB Baghban". The product addresses one of the very important requirements of the society in the fast changing culture of Indian society. The objective of this loan is to address the financial needs of senior citizens owning self occupied property (house), for leading a decent life.
The qualifying amount of loan will depend on the realisable value of residential property, after maintaining margin of 20%. The maximum qualifying amount of loan, along with interest, shall be restricted to Rs.100 lack.
Other Credit Schemes
➢ To meet your credit requirements, PNB is there with many attractive schemes to choose from
➢ Scheme for advances to Road Transport Operators for purchase of Truck, Buses and advances to owner-drivers of Taxi, Car, Scooter, Diesel Jeep, Station Wagons or Tempos etc. ➢ Scheme for advance to self-employed persons engaged in small business. ➢ Advance against Bank's own Deposits. ➢ Loans to individuals against Shares / Debentures / Bonds. ➢ Advances against Govt. securities, postal securities, IVPs, KVPs, Jewellery, FDRs of PNB Subsidiaries, Units of UTI & other Mutual Funds, Pensioner's Benefit Scheme etc.
It is the primary responsibility of the branch to monitor advance accounts, ensure that they are conducted as per the terms of sanction and the interest and instalments, wherever applicable are recovered promptly.
It is likely that despite follow up by the branch, some accounts become irregular/overdue. The branch should devise appropriate strategies and take necessary steps in consultation with the controlling authorities wherever required, for regularizing/effecting recovery in these accounts.
The general guidelines and procedural steps decided by the Bank to be followed by the branches are given in the following paragraphs.
The recovery of loan is a continuous and seamless process, which should start from the disbursement of a loan rather than on noticing certain undesirable features/developments. The branches should thus monitor the accounts on an ongoing basis immediately after disbursement a watch for any incipient problem in the account. In all accounts, instalment reminders should be sent 10 days before due date and interest advices as soon as applied. The actual recoveries should be closely monitored. Diary notes should be regularly maintained for obtaining Revival Letters. It should be ensured these are obtained well in advance. If conduct of the account is unsatisfactory, desirability of initiating legal action should be examined during the validity period of security documents. History sheet of each account for follow-up made and important events that have taken place in the account should be kept in the account folder.
Normally, an account which has the potential of becoming a major problem in near or distant future would show some symptoms quite early on. Some of these symptoms are quite common and easily discernible.
On detection of the symptoms, the pros and cons of retaining the account with the Bank should be examined in a dispassionate manner, in consultation with Zone/Central Office. In appropriate cases, attempts should be made to persuade the client to shift to some other bank. This should be done with utmost skill, tact and patience. The next stage of action should be when the account is being persistently irregular and likely to be categorized as a NPA. However, prior to that a thorough scrutiny of the account should be carried out and any pending formality in the area of documentation insurance, charge registration etc. should be undertaken, in complete cooperation with the client.
If our exposure to an account is a part of a consortium arrangement, branches must maintain formal and informal contacts with the consortium leader and other major participants in the arrangement.
The next step would be enforcement of securities. This would be two – pronged – securities which could be sold without mediation of Court e.g. sale of assets like shares pledged to the Bank. For the securities which can be sold through the intervention of court, legal action should be initiated fast.
Once recovery process starts in any account, Branches should immediately stop making any fresh commitments to the concerned borrowing unit as also to any other units of the same management. Further dealings with the unit/Group should be determined on the basis of advice of Zonal/Central Office.
Comparative Analysis of credit recovery mechanism of Public Sector vs. Private Sector Banks in Varanasi.
Objectives of the study
➢ To learn about credit recovery mechanism of public and private sector banks.
➢ To do the comparative analysis of public and private sector banks credit recovery pattern. ➢ To know the effort and level of efficiency of public and private sector banks in credit recovery mechanism.
Research methodology is a way to systematically solve the research problems. It may be understood as a science of studying how research is done scientifically. We study the various steps that are generally adopted by a researcher in studying his research problem along with the logic behind them. It is necessary for the researcher to know not only need to know how to develop certain indices or tests, how to calculate the mean, the mode, the median, standard deviation and chi – square, how to apply the particular research techniques, are relevant and which are not and what would they mean and indicate and why? Researchers also need to understand the assumptions underlying various techniques and they need to know the criteria by which they can decide that certain techniques and procedures will be applicable to certain problems and others will not.
What type of research design was used?
➢ Exploratory Research Design
Why was this type of design used?
Exploratory research is a type of research conducted because a problem has not been clearly defined. Exploratory research helps determine the best research design, data collection
method and selection of subjects. Given its fundamental nature, exploratory research often concludes that a perceived problem does not actually exist. Exploratory research often relies on secondary research such as reviewing available literature and/or data, or qualitative approaches such as informal discussions with consumers, employees, management or competitors, and more formal approaches through in-depth interviews, focus groups, projective methods, case studies or pilot studies. The Internet allows for research methods that are more interactive in nature: E.g., RSS feeds efficiently supply researchers with up-to-date information; major search engine search results may be sent by email to researchers by services such as Google Alerts; comprehensive search results are tracked over lengthy periods of time by services such as Google Trends; and Web sites may be created to attract worldwide feedback on any subject. The results of exploratory research are not usually useful for decision-making by themselves, but they can provide significant insight into a given situation. Although the results of qualitative research can give some indication as to the "why", "how" and "when" something occurs, it cannot tell us "how often" or "how many."Exploratory research is not typically generalizable to the population at large.
What data collection methods were used?
Primary Data Collection Methods:
In primary data collection, you collect the data yourself using methods such as interviews and questionnaires. The key point here is that the data you collect is unique to you and your research and, until you publish, no one else has access to it. There are many methods of collecting primary data and the main methods include:
Secondary Data Collection Methods:
All methods of data collection can supply quantitative data (numerical, statistical or financial) or qualitative data (usually words or text). Quantitative data may often be presented in tabular or graphical form. Secondary data is data that has already been collected by someone else for a different purpose to yours.
Surveys are used to collect quantitative information about items in a population. Surveys of human populations and institutions are common in political polling and government, health, social science and marketing research. A survey may focus on opinions or factual information depending on its purpose, and many surveys involve administering questions to individuals. When the questions are administered by a researcher, the survey is called a structured interview or a researcher-administered survey. When the questions are administered by the respondent, the survey is referred to as a questionnaire or a self-administered survey.
What Data Collection Devices were used?
In primary data:
Questionnaire Close ended Personal Interview observation
In Secondary Data:
Wikipedia & Encyclopedia Annual company report Government statistics
In this segment I am showing my findings in the form of tables. All the data which I got from the banks I have shown here with the help of tables ,pie chart , bar graph etc .Here I have shown questionnaire of 4 major banks and did not shown small banks data but results has been shown keeping in the mind data as a whole.
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Sample Size - 4 major banks* Area - Credit Recovery Type of Data - Primary data, Secondary data Industry - Banking Respondent - Bank Employees
Four major players have been selected for the purpose
Public Sector Bank
Punjab national bank (PNB) Oriental bank of commerce (OBC)
Private Sector Bank
Axis Bank Ltd Industrial Credit Investment Corporation of India Bank (ICICI)
QUES.1- Does your Corporate Credit Policy entails a Credit Recovery Policy/ Mechanism?
Sectors/Answer Yes/ No Public Sector Banks PNB YES OBC NO Private sector banks ICICI YES AXIS YES
INTERPRETATION OF DATA
This pie chart show more than 50% of private banks has credit recovery mechanism while in public sector banks very few banks have credit recovery mechanism.
Ques.2 Does your institution have a separate credit recovery department that handles collection of credits in default?
Sectors/Answer Public Sector Banks PNB Yes/ No YES OBC NO Private sector banks ICICI YES AXIS No
This pie chart represents that approx both sector have different department for credit recovery but in case of AXIS BANK they have
a credit recovery cell not proper separate department so in private sector banks we find few banks having separate department instead they have cells like SCRC(stressed Assets Recovery Cell). So, public sector banks have more seriousness towards their credit recovery.
Ques.3 No. of employees in the credit recovery/ credit department?
○ 05-15; ○ 15-30; ○ More than 30
Sectors/Answer No. of employees Public Sector Banks PNB OBC 5-15 15-30 Private sector banks ICICI AXIS 5-15 5-15
This figure shows that public sector banks which has more than employees in credit department in comparison to private sector banks so this shows a public bank efforts in credit recovery. In private sector they have very few employees regarding this purpose. So in diagram approximately 15-20% banks have more than 15 employees. So, this shows positive attitude of public sector banks towards credit recovery.
Ques.4Any standardized procedures for handling credit recovery?
Sectors/Answer Public Sector Banks PNB OBC Private sector banks ICICI AXIS
This diagram shows that majority of private sector banks and public sector banks. Both have their own standardize procedures for credit recovery. But the way of credit recovery by public sector is give maximum satisfaction to their customers in comparison to private sector.
Ques.5 Do you hire any agency for credit recovery?
Sectors/Answer Public Sector Banks PNB Yes/No Yes OBC Yes Private sector banks ICICI Yes AXIS NO
This diagram shows 80% of public sector banks hire outside agency for credit recovery while few private banks hire outside agency for recovery that’s why the level of NPAs are high in case of private sector banks.
Ques.6 How many reminders your institutions give before any legal proceeding?
○ 1-5 ○ 5-10 ○ 10-15 ○ 15-20 ○ More than 20 Sectors/Answer Public Sector Banks PNB No. of reminders 5-10 OBC 5-10
Private sector banks ICICI 15-25 AXIS 15-20
In this figure we can see that the number of reminder is send by the private sector bank and few reminders are sends by public sector bank. Because they believe in face to face interaction rather than knocking at the door by reminders again and again. Public sector sends reminder by making the gap of proper time period. Not after passing little bit if time.
Ques.7 Overall average recovery rate:
○ ○ ○ ○ ○ 20% 20-40% 40-60% 60-80% More than 80% Public Sector Banks PNB Overall average More recovery rate 80% OBC than 60-80% Private sector banks ICICI More 80% AXIS than 40-60%
This chart is self explanatory that how much private sector banks and public sector banks able to recover. We can see here that public sector banks able to recover more than 80% approx while private sector banks recover even less than or equal to 80% of its credit recovery cases. This shows difference of level of efficiency in credit recovery.
Ques.8 The average duration for recovery:
○ ○ ○ ○ ○ 1-15 days 15-30days 1-3 months 3-6 months More than 6 months Public Sector Banks PNB Overall average duration for recovery(Days) 1-15 OBC 1-15
Private sector banks ICICI 1-15 AXIS 15-30
This diagram shows that how quickly public sector banks able to recover their money in comparison to private sector banks. Public sector banks recover their money in easy instalments under the rules and regulations which specified by the RBI. In some cases
private sector banks not have proper way for making their recovery of money.
Ques.8 The average costs incurred in trying to collect the loans (e.g., costs of litigation, costs for external lawyers, valuation reports, auction or execution costs, experts.)
○ ○ ○ ○ ○ 1-5000 5000-10000 10000-15000 15000-20000 More than 20000 Public Sector Banks PNB Average cost incurred 500010000 OBC 1-5000 Private sector banks ICICI 1000015000 AXIS 500010000
This shows that average cost incurred by private sector banks is higher which shows a negative sign. Public sector has less cost incurred reason can be their fewer requirements in credit recovery because of their good employees and recovery procedure. Public sector banks have many optimal options to recover their amount like tagging, full amount settlement etc. This makes less NPA’S in comparison to private sector banks.
Ques.9 Compromise policy:
Sectors/Answer Public Sector Banks PNB Yes/No Yes OBC Yes Private sector banks ICICI Yes AXIS Yes
This figure shows that public as well as private sector banks both have facility of compromise policy. This gives the smoothness to the NPA’S customer as well as banks. When a customer is not in position of this service makes compromise between the customer and the bank for settlement of his account.
Ques.10 what additional changes or recommendations would you propose to improve and strengthen the area of creditor rights and recovery for banks, or to reduce the risk faced by lenders?
In both above case we find that public sector banks are comparatively lenient in their credit recovery process so mostly they have compromise policy moreover , government keep on coming with different schemes like one time settlement schemes , tagging etc While private sector banks use this policy in very few cases. Moreover, private sector banks keep on coming with new ways of credit recovery like incentives to employees for their recovery etc.
public sector banks are also coming with the customer beneficiary schemes under the supervisions of Government of India.
In the end we can say that public sector efficiency is high as compared to private sector banks which gives maximum satisfaction and services to their customers. Public sector banks are government bank so that public easily trusts on them. Which can be seen from above questions, table and charts private sector is providing more services in comparison to public sector bank but they are also losing their faith from the customer side because of more extra expenses, Private Taxes, more interest charged by them and less or not specified returns. While private sector need to have little control on its cost incurred in credit recovery process and should try to earn public faith with providing good services and investment products.
➢ Number of Branches should be increased covering a wider area in various states. ➢ A wide publicity to be given about the organization and its products through various means of communications to keep growth momentum. ➢ More number of training and educational programmers’ should be included in Banks schedule. ➢ Developing a learning culture through continuous learning process.
My experience with Punjab National Bank is outstanding. While working in Punjab National Bank I found that this bank has developed manifold by their long experience and due to facilities and services they provide to their customer and this growth rate can be kept up if they start to go in semi-urban areas. In last couple of years they have opened many new branches and they should open many more. The working staffs are very co-operative in nature and due to that the bank will also get good benefit. Punjab National Bank has provided their customer Net-banking facilities and due to that transactions are done fast. Charges at Punjab National Bank is on lower side when we compare it with other Banks.
Credit Recovery Questionnaire
Does your Corporate Credit Policy entail a Credit Recovery Policy/ Mechanism ✔ Yes ○ NO Does your institution have a separate credit recovery department that handles collection of credits in default? If yes, describe the following: ✔ YES
No. of employees in this department ✔ 05-15; ○ 15-30; ○ More than 30 Any standardized procedures for handling credit recovery ✔ Yes ○ No
If no whether Credit Department itself is handling recovery ○ Yes ○ No ✔ NA Do you hire any agency for credit recovery? ✔ Yes ○ No How many reminders your institutions give before any legal proceeding? ○ 1-5 ✔ 5-10 ○ 10-15 ○ 15-20 ○ More than 20 Overall average recovery rate : ○ 20% ○ 20-40%
○ 40-60% ○ 60-80% ✔ More than 80% The average duration for recovery : ✔ ○ ○ ○ ○ 1-15 days 15-30days 1-3 months 3-6 months More than 6 months
The average costs incurred in trying to collect the loans (e.g., costs of litigation, costs for external lawyers, valuation reports, auction or execution costs, experts.) ○ ✔ ○ ○ ○ 1-5000 5000-10000 10000-15000 15000-20000 More than 20000
What additional changes or recommendations would you propose to improve and strengthen the area of creditor rights and recovery for banks, or to reduce the risk faced by lenders?
✔ Time to time new government policy ✔ Auction by government of NPA,s ✔ Schemes for agriculture loans
Source: Mr. Anand Rai (Sr. Credit Manager)
Credit Recovery Questionnaire
Does your Corporate Credit Policy entail a Credit Recovery Policy/ Mechanism ○ Yes
Does your institution have a separate credit recovery department that handles collection of credits in default? If yes, describe the following: NO whether Credit Department itself is handling recovery ✔ Yes ○ No • No. of employees handling Credit Recovery Machenism ○ 05-15; ✔ 15-30; ○ More than 30 Any standardized procedures for handling credit recovery ✔ Yes ○ No Do you hire any agency for credit recovery? ✔ Yes ○ No How many reminders your institutions give before any legal proceeding? ○ 1-5 ✔ 5-10 ○ 10-15 ○ 15-20 ○ More than 20 Overall average recovery rate : ○ 20%
○ ○ ✔ ○
20-40% 40-60% 60-80% More than 80%
The average duration for recovery : ✔ ○ ○ ○ ○ 1-15 days 15-30days 1-3 months 3-6 months More than 6 months
The average costs incurred in trying to collect the loans (e.g., costs of litigation, costs for external lawyers, valuation reports, auction or execution costs, experts.) ✔ ○ ○ ○ ○ 1-5000 5000-10000 10000-15000 15000-20000 More than 20000
What additional changes or recommendations would you propose to improve and strengthen the area of creditor
rights and recovery for banks, or to reduce the risk faced by lenders?
Hiring outside agency
Credit Recovery Questionnaire
Does your Corporate Credit Policy entail a Credit Recovery Policy/ Mechanism ✔ Yes ○ No Does your institution have a separate credit recovery department that handles collection of credits in default? If yes, describe the following: YES • No. of employees in this department ✔ 05-15; ○ 15-30; ○ More than 30 Any standardized procedures for handling credit recovery
✔ Yes ○ No If no whether Credit Department itself is handling recovery ○ Yes ○ No ✔ NA Do you hire any agency for credit recovery? ✔ Yes ○ No How many reminders your institutions give before any legal proceeding? ○ 1-5 ○ 5-10 ○ 10-15 ○ 15-20 ✔ More than 20 Overall average recovery rate : ○ ○ ○ ○ ✔ 20% 20-40% 40-60% 60-80% More than 80%
The average duration for recovery : ✔ ○ ○ ○ ○ 1-15 days 15-30days 1-3 months 3-6 months More than 6 months
The average costs incurred in trying to collect the loans (e.g., costs of litigation, costs for external lawyers, valuation reports, auction or execution costs, experts.) ○ ○ ✔ ○ ○ 1-5000 5000-10000 10000-15000 15000-20000 More than 20000
✔ What additional changes or recommendations would you propose to improve and strengthen the area of creditor rights and recovery for banks, or to reduce the risk faced by lenders? ✔ Incentive based recovery ✔ More efficient agency hire ✔ More professional employees hire ✔ More strictness in giving loans
Source: Piyush Singh (Credit Recovery Manager)
Credit Recovery Questionnaire
Does your Corporate Credit Policy entail a Credit Recovery Policy/ Mechanism ✔ Yes ○ No Does your institution have a separate credit recovery department that handles collection of credits in default? If yes, describe the following: No If no whether Credit Department itself is handling recovery ✔ Yes ○ No • No. of employees handling credit recovery machenism ✔ 05-15; ○ 15-30; ○ More than 30 • Any standardized procedures for handling credit recovery ✔ Yes ○ No Do you hire any agency for credit recovery?
○ Yes ✔ No How many reminders your institutions give before any legal proceeding? ○ 1-5 ○ 5-10 ○ 10-15 ✔ 15-20 ○ More than 20 Overall average recovery rate : ○ ○ ✔ ○ ○ 20% 20-40% 40-60% 60-80% More than 80%
The average duration for recovery : ○ ✔ ○ ○ ○ 1-15 days 15-30days 1-3 months 3-6 months More than 6 months
The average costs incurred in trying to collect the loans (e.g., costs of litigation, costs for external lawyers, valuation reports, auction or execution costs, experts.) ○ ✔ ○ ○ ○ 1-5000 5000-10000 10000-15000 15000-20000 More than 20000
Compromise policy: ✔ Yes ○ No
What additional changes or recommendations would you propose to improve and strengthen the area of creditor rights and recovery for banks, or to reduce the risk faced by lenders? Ans: ✔ Increase revenue authority role in recovery ✔ Faster judicial process for settlement of cases ✔ More efficiency in operation
www.thebanker.com www.asianbanker.com www.icicibank.com www.axisbank.com www.pnbindia.in http://en.wikipedia.org/wiki/Punjab_National_Bank
www.pdffound.com http://company-profile.reportlinker.com/o0293333/PunjabNational-Bank.html http://www.rbi.org.in/scripts/BS_CircularIndexDisplay.aspx? Id=2494 www.strategy-business.com
Annual reports & presentations ➢ Annual report 2010 by PNB ➢ Final presentation by PNB ➢ Analyst presentation by PNB
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