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SUMMER TRAINING REPORT SUBMITTED TOWARDS

THE PARTIAL FULFILLMENT OF POST GRADUATE
DEGREE IN INTERNATIONAL BUSINESS

CREDIT APPRAISAL AND
RISK RATING IN PUNJAB
NATIONAL BANK

SUBMITTED BY:

KRITIKA ARORA
MBA-IB (2009-20011)

Roll No. : A1802009075

INDUSTRY GUIDE FACULTY
GUIDE

Mr. ARUN KUMAR NIJHAWAN Mr.AJIT
MITTAL

SENIOR MANAGER
SENIOR FACULTY

Credit Appraisal and Risk Rating at PNB

AMITY INTERNATIONAL BUSINESS SCHOOL,
NOIDA

AMITY UNIVERSITY – UTTAR PRADESH

CREDIT SECTION, CIRCLE OFFICE: DELHI, 4th FLOOR, RAJENDRA BHAWAN, RAJENDRA PLACE, NEW DELHI

TELE; 25744450 Fax: 25731252

------------------------------------------------------------------------------------------------------------------------------------------------------------

TO WHOM IT MAY CONCERN
This is to certify that KRITIKA ARORA, a student of Amity International
Business School, Noida, undertook a project on “CREDIT APPRAISAL
AND RISK MANAGEMENT” at PUNJAB NATIONAL BANK from 1st
May to 30th June.
Ms.KRITIKA ARORA has successfully completed the project under the
guidance of Mr.ARUN KUMAR NIJHAWAN. She is a sincere and hard-
working student with pleasant manners.
We wish all success in her future endeavors.

Mr. ARUN KUMAR NIJHAWAN

Amity International Business School,Noida 2

Credit Appraisal and Risk Rating at PNB

Senior Manager

Circle Office Delhi

Punjab National Bank

CERTIFICATE OF ORIGIN

This is to certify that Ms. KRITIKA ARORA, a student of Post Graduate Degree in MBA in
INTERNATIONAL BUSINESS, Amity International Business School, Noida has worked in the
Credit Department of Punjab National Bank, Circle Office Delhi and has submitted this
project report entitled “Credit Appraisal and Risk Rating” at PUNJAB NATIONAL BANK,
under the able guidance and supervision of Mr. ARUN KUMAR NIJHAWAN, SENIOR
MANAGER, PUNJAB NATIONAL BANK. The period for which she was on training was for 8
weeks, starting from 1st MAY to 30th June.

This Summer Internship report has the requisite standard for the partial fulfillment the Post
Graduate Degree in International Business. To the best of our knowledge no part of this report has
been reproduced from any other report and the contents are based on original research.

Amity International Business School,Noida 3

A K Nijhawan Senior Manager. without which the completion of this project would have been extremely difficult. Ms. Credit). for enhancing my understanding of the subject and enabling me to appreciate finer nuances of the subject. Mr. Ajit Mittal Kritika Arora Professor Student AIBS MBA in International Business Amity International Business School ACKNOWLEDGEMENT Every work involves efforts and inputs of various kinds and people. Credit. Trilochan Kaur Anand (Manager. PNB Circle Office. I am thankful to all those people who have been helpful enough to me to the extent of their being instrumental in the completion and accomplishment of the project entitled “Credit Appraisal and Risk Rating at Punjab National Bank”. I sincerely acknowledge with deep sense of gratitude to my project guide Mr.Noida 4 . Sarkar (Senior Manager. Credit Appraisal and Risk Rating at PNB Dr. I would also like to express my deepest gratitude to Mr. Credit). Credit Risk Management Department) and the entire Credit Department for their help and guidance. Rohit Grover (Chief Manager. Amity International Business School.

I would like to thank Mr. Kritika Arora A1802009075 MBA in International Business Amity International Business School Amity International Business School.Noida 5 . HR) as he found me credible enough to work for PNB and selected me for challenging project. Credit Appraisal and Risk Rating at PNB Lastly. Nehal Ahad (Chief Manager.

. 36 8.... 57 11.1 PNB’s Loan Policy…………………………………. 19 7.6 Credit Appraisal Checklist…………………………… 46 CHAPTER 9 CREDIT RISK MANAGEMENT…………………………… 49 9. 49 9.. 14 CHAPTER 6 COMPANY PROFILE…………………………………….1 Credit Risk………………………………………. 13 CHAPTER 5 INDUSTRY PROFILE……………………………………. 8 CHAPTER 2 INTRODUCTION TO CREDIT APPRAISAL………………… 10 CHAPTER 3 OBJECTIVES…………………………………………. 38 8.2 Market Analysis…………………………………… 34 8.. 31 CHAPTER 8 CREDIT APPRAISAL…………………………………… 33 8.4 Financial Analysis…………………………………..1 Working Capital Assessment…………………………. 12 CHAPTER 4 RESEARCH METHODOLOGY……………………………. 19 7.1 CHAPTER 1 EXECUTIVE SUMMARY……………………………….3 Technical Analysis………………………………….1 Introduction……………………………………….3 Basel Accord & Risk Management……………………. 57 Amity International Business School.. 55 CHAPTER 11 ANALYSIS & INTERPRETATION…………………………..2 Assessment of Term Loans…………………………… 30 7. Credit Appraisal and Risk Rating at PNB CHAPTER PLAN Table of Content PART .5 Management & Organizational Analysis………………… 45 8.. 49 CHAPTER 10 POST SANCTION FOLLOW UP OF LOANS………………….. 17 CHAPTER 7 REVIEW OF LITERATURE……………………………….Noida 6 .2 Credit Risk Management System in PNB………………. 33 8.

3 Methods of Lending…………………………….………… 95 Conclusion………………………………………. 58 11.2.....4 Security …………………………………… 89 12. Credit Appraisal and Risk Rating at PNB 11.1.Noida 7 .6 Recommendations……………………………. 75 IV. 84 12... 65 11.2.2 Brief on the Process……………………………...4 Determination of the Applicable Rate of Interest…………. 90 12.. 60 11.. 10 0 PART –2 Amity International Business School...1. 57 11.. Legal Evaluation……………………….. 99 REFERENCES………………………………………………………. Management Evaluation…………………… 71 II.2 Credit Appraisal of ABC PARTS Pvt..5 Credit Risk Rating……………………………....1 ……………………………... 95 Findings………………………………………….....2 Basic Tenets of the Policy………………………... Ltd……………. 60 11.2.ABC PARTS PVT LTD 68 12. Financial Evaluation……………………. Objective 57 11..2.1 …………………………………..3 Present Proposal……………………………….2 Credit Appraisal Process at PNB……………………… 60 11. Borrowers Profile 68 12... 97 Recommendations………………………………. Technical Evaluation……………………. 78 12....... 98 Limitations………………………………………. 94 CHAPTER 13 CONCLUSION & RECOMMENDATIONS…….1 Flowchart………………………………….2....3 Risk Rating of the Borrower………………………. 71 I. 62 11.1. 77 V. Business Evaluation……………………… 73 III.5 Post Sanction Follow Up………………………… 66 CHAPTER 12 CASE STUDY.

139 17...5 Satisfaction of Respondents With Services Offered by PNB… 115 Branch CHAPTER 16 BANKING OPERATIONS IN BRANCH OFFICES ……………….2 Limitation of the Study……………………………….. 105 14.. 107 15.Noida 8 ....1 Opening of Saving Account by Individual…………………… 117 16.. 117 16. 113 15.……..2 Cash Deposit………………………………………………… 127 16...1 Share of Different Types of Accounts………………………...2 Statement of the Problem………………. 107 15.3 Need for the Study…………………………………………. Credit Appraisal and Risk Rating at PNB 10 CHAPTER 14 CUSTOMER SATISFACTION…………………………….....3 Conclusion………………………………………………….. 131 16.4 Consumers Willingness To Recommend PNB To Others…..... 140 Amity International Business School..1 Customer Satisfaction…………………………….5 Customer Facilities & Conveniences………………………… 136 CHAPTER 17 CONCLUSION & RECOMMENDATION………………………… 137 17.. 106 CHAPTER 15 ANALYSIS & INTERPRETATION………………………………. 103 14......3 Reason for Selecting PNB…………………………………… 111 15.1 Suggestion & Recommendation…………………………….. 2 14.6 Sample Method…………………………………………….. 3 14.7 Method of Data Collection…………………………………. 102 10 14..2 Ratios of the Services Offered by PNB……………………… 109 15..4 Scope of the Study……………………………………………….5 Objective of the Study……………………………………… 104 14. 104 14. 137 17..4 ATM Management & Maintenance Operation……………… 133 16.3 Cash Payment……………………………………………….

Project Financing discipline includes understanding the rationale for project financing. Companies that intend to seek credit facilities approach the bank. Financial requirements for Project Finance and Working Capital purposes are taken care of at the Credit Department. credit requirements of lenders. and how to determine the project's borrowing capacity. and raise the funds. The purpose of this project is to explain. Credit Appraisal and Risk Rating at PNB Chapter 1 EXECUTIVE SUMMARY This project was undertaken at the Punjab National Bank Circle Office Delhi. Non Fund Based Limits like Letter of Guarantee.Noida 9 . and analytical techniques to validate the project's feasibility Project finance is different from traditional forms of finance because the credit risk associated with the borrower is not as important as in an ordinary loan transaction. A knowledge-base is required regarding the design of contractual arrangements to support project financing. analysis. issues for the host government legislative provisions. Efficient management of credit portfolio is of utmost importance as it has a tremendous impact on the Banks’ assets quality & profitability. design the financing mix. tax and accounting considerations. Term loan for mega projects c. the manner in which risks are approached by financiers in a project finance transaction. In addition. how to analyze cash flow projections and use them to measure expected rates of return. credit is required for following purposes: a. which need to be effectively managed. Amity International Business School. public/private financing structures. allocation and management of every risk associated with the project. at the Credit Department. one must understand some project financing plans have succeeded while others have failed. in a brief and general way. Working capital finance b. what is most important is the identification. Such risk minimization lies at the heart of project finance. The ongoing financial reforms have no doubt provided unparallel opportunities to banks for growth. how to prepare the financial plan. Letter of Credit etc. public/private infrastructure partnerships. but have simultaneously exposed them to various risks. assess the risks. Primarily.

etc. But lending by nature cannot be an aggressive selling activity.competes with corporate lending for funds and for human resources. Amity International Business School. lending continues to be a primary function in banking. retail lending. Bank has to be competitive without compromising on the basic integrity of lending.Noida 10 . The quality of the Bank’s credit portfolio has a direct and deep impact on the Bank’s profitability. In the liberalized Indian economy. clientele have a wide choice. Credit Risk in all exposures calls for precise measuring and monitoring for taking considered credit decisions with suitable risk mitigants. Credit Appraisal and Risk Rating at PNB The concept of Credit Management is undergoing radical changes. External Commercial Borrowings and the domestic capital markets compete with banks. Also. risk premium. The study has been conducted with the purpose of getting in-depth knowledge about the credit appraisal and credit risk management procedure in the organization for the above said first two purposes. disregarding the risks involved. Credit portfolio should be well diversified in various promising sectors with a cautious approach to be adopted in risky segments.both personal advances and SME advances. In another dimension.

Intuitive guess work has little place in appraising the credit rating or credit needs of a corporate unit. Credit information of the borrowing company can be obtained by the following sources: 1. Published Books: Basic information about a company may be taken from printed sources like the Stock Exchange Year book. Credit Rating Agencies 5. Corporate Path finder’s data base. Credit Appraisal and Risk Rating at PNB Chapter 2 CREDIT APPRAISAL – AN INTRODUCTION Project / Credit appraisal is a skill which has to be acquired by study and supplemented by practice. Trade References 4. Press Reports 8. etc. The credit managers of banks and Non Banking Finance Companies (NBFCs) are duty bound to accept or reject a proposal on the basis of its viability or non . Factory Visit Amity International Business School. Banks and Financial Institution 2. Project / Credit appraisal is done by banks or financial institutions by obtaining credit information of the borrowing company. Charges Registered: Charges created on the assets of a company have to be registered with the Registrar of Companies. 10. Personal discussion 11. Bank References 3.viability. Company Financial Reports 7. 6. Stock Market Opinion 9.Noida 11 .

Key industry dynamics: 4. Management: 5.Noida 12 . one can gauge the policies of the management. Basic background information on the company: 2. Ratio Analysis b. Financials 7. 6. Reading of notes to accounts and other information: Careful reading and analysis of the notes on accounts. controlling and monitoring systems which have been put in place have to given. and its future planning. Intra firm comparison that is review of the trend of the ratios over the years within the firm and ii. Analysis can be done through: a. Details of the Security to be pledged: 8. c. performance of the company. Trend analysis: Trend analysis can be through: i. Information required to be submitted by the Company (Borrower) to the Bank The company should make sure that the following information required for processing credit requests are collected by the company for submitting it to the bank or financial institution in order to obtain the required credit facility: 1. Required facility 3. Amity International Business School. Inter firm comparison. Credit Appraisal and Risk Rating at PNB 12. Study of Financial Statements: Financial analysis determines the significant operating and financial characteristics of a firm form accounting data and financial statements. Management information system: Details of the planning. Present banking relationship: The bank requires full details of the present credit facilities being enjoyed at the moment.

credit appraisal for business units i. Credit Risk Rating Amity International Business School. for working capital loan or Term Loan • To understand the basis of credit risk rating and its significance • To utilize the above learning and appraise the creditworthiness organizations those approach PUNJAB NATIONAL BANK for credit. Financial Evaluation vi.e. Legal Evaluation v. Business / Industry Evaluation iii. This would entail undertaking of the following procedures: i. Technical Evaluation iv.Noida 13 . Credit Appraisal and Risk Rating at PNB Chapter 3 OBJECTIVES • To study broad contours of management of credit. the loan policy. Management Evaluation ii.

and Auditor reports Amity International Business School. Credit Appraisal and Risk Rating at PNB Chapter 4 RESEARCH METHODOLOGY The methodology being used involves two basic sources of information primary sources and secondary source. Registrar of Companies (Ministry of Corporate Affairs). power point presentations and PDF files prepared by the bank and its related officials • Referring to information provided by CIBIL. Income Tax files.Noida 14 . Primary sources of Information • Meetings and discussion with the Chief Manager and the Senior Manager of both Credit and Credit Risk Management Department • Meetings with the clients Secondary sources of Information • Loan Policy and Internal Circulars of the bank • Research papers.

7 per cent that existed between 1994-95 and 2002-03. The total assets of all scheduled commercial banks by end-March 2010 is estimated at Rs 40. the report forecasts that the pace of expansion in the balance-sheets of banks is likely to decelerate. massive manpower and lack of modern technology. Currently.000 branches of Scheduled banks spread across India.4 per cent during the rest of the decade as against the growth rate of 16. There are about 67. That will comprise about 65 per cent of GDP at current market prices as compared to 67 per cent in 2002-03. The growth in the Indian Banking Industry has been more qualitative than quantitative and it is expected to remain the same in the coming years. Bank assets are expected to grow at an annual composite rate of 13. It is expected that there will be large additions to the capital base and reserves on the liability side. The Indian Banking Industry can be categorized into non-scheduled banks and scheduled banks. The Public Sector Banks (PSBs). product range and reach- even though reaching rural India still remains a challenge for the private sector and foreign banks. Based on the projections made in the "India Vision 2020" prepared by the Planning Commission. Indian banks are considered to have clean. As far as the present scenario is concerned the Banking Industry in India is going through a transitional phase. Scheduled banks constitute of commercial banks and co-operative banks. ATMs. As far as foreign banks are concerned they are likely to succeed in the Indian Banking Industry. They are leaders in Internet banking.90. banking in India is generally fairly mature in terms of supply. On the other hand the Private Sector Banks are making tremendous progress. which are the base of the Banking sector in India account for more than 78 per cent of the total banking industry assets. phone banking. Credit Appraisal and Risk Rating at PNB Chapter 5INDUSTRY PROFILE THE INDIAN BANKING INDUSTRY The last decade has seen many positive developments in the Indian banking sector. Unfortunately they are burdened with excessive Non Performing assets (NPAs). strong and transparent balance sheets relative to other banks in comparable economies in its Amity International Business School. mobile banking. In terms of quality of assets and capital adequacy.Noida 15 .000 crores.

Credit Appraisal and Risk Rating at PNB

region. The Reserve Bank of India is an autonomous body, with minimal pressure from the
government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without
any fixed exchange rate-and this has mostly been true. With the growth in the Indian economy
expected to be strong for quite some time-especially in its services sector-the demand for banking
services, especially retail banking, mortgages and investment services are expected to be strong.
One may also expect M&As, takeovers, and asset sales.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak
Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed
to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any
stake exceeding 5% in the private sector banks would need to be vetted by them.

Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks (that is with
the Government of India holding a stake), 29 private banks (these do not have government stake;
they may be publicly listed and traded on stock exchanges) and 31 foreign banks. They have a
combined network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA
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.

The policy makers, which comprise the Reserve Bank of India (RBI), Ministry of Finance and
related government and financial sector regulatory entities, have made several notable efforts to
improve regulation in the sector. The sector now compares favorably with banking sectors in the
region on metrics like growth, profitability and non-performing assets (NPAs). Indian banks have
compared favorably on growth, asset quality and profitability with other regional banks over the
last few years. The banking index has grown at a compounded annual rate of over 51 per cent
since April 2001 as compared to a 27 per cent growth in the market index for the same period.

The interplay between policy and regulatory interventions and management strategies will
determine the performance of Indian banking over the next few years. Management success will
be determined on three fronts:

Amity International Business School,Noida 16

Credit Appraisal and Risk Rating at PNB

i. Fundamentally upgrading organizational capability to stay in tune with the
changing market
ii. Adopting value-creating M&A as an avenue for growth
iii. Continually innovating to develop new business models to access untapped
opportunities

Opportunities and Challenges for the Players

The bar for what it means to be a successful player in the sector has been raised. Four challenges
must be addressed before success can be achieved.

i. The market is seeing discontinuous growth driven by new products and services
that include opportunities in credit cards, consumer finance and wealth management
on the retail side, and in fee-based income and investment banking on the wholesale
banking side. These require new skills in sales & marketing, credit and operations
ii. Banks will no longer enjoy windfall treasury gains that the decade-long secular
decline in interest rates provided
iii. With increased interest in India, competition from foreign banks will only intensify
iv. Given the demographic shifts resulting from changes in age profile and household
income, consumers will increasingly demand enhanced institutional capabilities and
service levels from banks

Amity International Business School,Noida 17

Credit Appraisal and Risk Rating at PNB

Chapter 6 COMPANY PROFILE

Punjab National Bank (PNB) was set up in 1895 in Lahore - and has the distinction of being the
first Indian bank to have been started solely with Indian capital. The bank was nationalized in July
1969 along with 13 other banks. Today, PNB is a professionally managed bank with a successful
track record of over 110 years. The bank has the 2nd largest branch network in India, with 4525
branches including 432 extension counters spread throughout the country. PNB was ranked as
248th biggest bank in the world by Bankers Almanac, London. Punjab National Bank is not only
the first bank to specialize in credit rating models in India but also the first one to launch image
based cheque transaction system for collection of intra bank intercity cheques thereby providing
credits merely in 48 hrs in 13 cities.

To be a Leading Global Bank with Pan India footprints and become
CORPORATE VISION a household brand in the Indo-Gangetic Plains providing entire
range of financial products and services under one roof
MISSION Banking for the unbanked

With over 56 million satisfied customers and 5002 offices, PNB has continued to retain its
leadership position amongst the nationalized banks. From its modest beginning; the bank has
grown in size and stature to become a front-line banking institution in India at present. Based on
its sound and prudent banking experience and consistent profit performance, PNB looks
confidently to the future………the name you can bank upon………

Amity International Business School,Noida 18

the bank achieved a net profit of Rs 3905 crore. During the FY 2009-10. Credit Appraisal and Risk Rating at PNB PNB has achieved significant growth in business which at the end of March 2010 amounted to Rs 4.Noida 19 .71% and 0.7% was also higher than the stipulated requirement of 40% & 18%.01 Total Business 285959 364463 435931 15.5% & Agriculture Credit to Adjusted Net Bank Credit at 19.53% respectively. During the FY 2009-10.09 (Rs in Crore) ORGANIZATIONAL STRUCTURE HEAD OFFICE CIRCLE OFFICE BRANCH OFFICE Amity International Business School.35.15% and 5.85% share of CASA deposits.16% as on Mar’10 as per Basel II with Tier I and Tier II capital ratio at 9. Bank has a strong capital base with capital adequacy ratio of 14.42 Advance 119502 154703 186601 16. the Bank has the Gross and Net NPA ratio of 1. Today. The performance highlights of the bank in terms of business and profit are shown below: Parameters Mar'08 Mar'09 Mar'10 CAGR(%) Operating Profit 4006 5744 7326 22. with assets of more than Rs 2. As on March’10.931 crore. with 40.633 crore.98 Deposit 166457 209760 249330 14. PNB is ranked as the 3rd largest bank in the country (after SBI and ICICI Bank) and has the 2nd largest network of branches (5002 offices including 5 overseas branches ). its’ ratio of Priority Sector Credit to Adjusted Net Bank Credit at 40.01% respectively.96.29 Net Profit 2049 3091 3905 23.

arranges for a long-term loan from a financial institution or a bank towards a part of the cost of fixed assets. An industry will require funds to acquire “fixed assets” like land and building. The unit’s starts with a certain amount of capital. The two sources for meeting these requirements are the unit’s long-term sources (like capital and long term borrowings) and the short-term borrowings from banks. From these two sources after meeting the cost of fixed assets some funds remain to be used for working capital. as the funds required for carrying the required levels of current assets to enable the unit to carry on its operations at the expected levels uninterruptedly. manufacturing process. vehicles etc… and also to run the business i.1 WORKING CAPITAL AND ITS ASSESSMENT The objective of running any industry is earning profits. Working capital is defined. which will not normally be sufficient. and the materials and marketing mix.Noida 20 . The long-term resources available to the unit are called the liquid surplus or Net Working Capital (NWC).e. therefore. its day to day operations. This amount is the Net Working Capital or Liquid Surplus and will be one of the sources of meeting the working capital requirements. The activity carried on viz. plant and machinery.e. banks normally provide working capital finance by way of advantage against stocks and sundry debtors. It can be explained by visualizing the process of setting up of industry. The remaining funds for working capital have to be raised from banks. The unit. equipments. level of operations i. product. Thus working capital required (WCR) is dependent on i. Banks. Credit Appraisal and Risk Rating at PNB Chapter 7 REVIEW OF LITERATURE 7. however. Production and Sales) ii. do not finance the full amount of funds required for carrying inventories and receivables: and Amity International Business School. even to meet the cost of fixed assets. The volume of activity (viz. The purpose of assessing the WC requirement of the industry is to determine how the total requirements of funds will be met. production programme.

liquid surplus or net working capital be at least 25% of the working capital requirement (corresponding to the benchmark current ratio of 1. Normally. Various methods for assessment of Working Capital are discussed in detail: Operating cycle method: Any manufacturing activity is characterized by a cycle of operations consisting of purchase of raw materials for cash. While granting working capital advances to a unit. converting them into finished goods and realizing cash by sale of these finished goods. by way of margins. price fluctuations in the market for the commodity etc. The time that lapses between cash outlay and cash realization by sale of finished goods and realization of sundry debtors is known as length of operating cycle.33). it will be necessary to ensure that a reasonable proportion of the working capital is met from the long-term sources viz. That is. Amity International Business School. the operating cycle consists of: Time taken to acquire raw materials and average period for which they are in store.Noida 21 . though this may vary depending on the nature of industry/ trade and business conditions. the permissible limit. Margins are imposed with a view to have adequate stake of the promoter in the business both to ensure his adequate interest in the business and to act as a protection against any shocks that the business may sustain. quality. The margins stipulated will depend on various factors like salability. up to which the bank finance cab be granted is arrived. liquid surplus. taking into account the total working capital requirements as assessed earlier. durability. Conversion process time Average period for which finished goods are in store and Average collection period of receivables (sundry debtors). Credit Appraisal and Risk Rating at PNB normally insist on the stake of the enterprise at every stage. Bank finance is normally restricted to the amount of funds locked up less a certain percentage of margins.

Noida 22 . conversion process time. by reducing the length of operating cycle) a better management (utilization) of working capital results. we find that we can set up extremely clear guidelines for working capital management viz. It is obvious that any reduction in the length of the operating cycle can be achieved only by better management only by better management of one or more of the individual phases of the operating cycle period for which raw materials are in store. examining the length of each of the phases of the operating cycle to assess the scope for reduction in one or more of these phases. It can thus be concluded that by improving that by improving the working capital turnover ratio (i. stocks in process. Any reduction in either of the both will mean reduction in working capital requirement or indicate an efficient working capital management. working capital can be turned over or deployed after completing the cycle. the operating cycle of a pharmaceutical unit would be quite different from one engaged in the manufacture of machine tools. Factors. Looking at whole problem from another angle. which influence working capital requirement.e. bills (receivables) and finally backs to cash. Working capital is the total cash that is circulating in this cycle. The length of the operating cycle is different from industry to industry and from one firm to another within the same industry. FUND RM SIP RECEIVABLES FUND Amity International Business School. For instance. The operating cycle concept enables to assess working capital need of each enterprise keeping in view the peculiarities of the industry it is engaged in and its scale of operations. Operating cycle is an important management tool in decision –making. period for which finished goods are in store and collection period of receivables. Credit Appraisal and Risk Rating at PNB Operating Cycle is also called cash-to-cash and indicates how cash is converted into raw materials. finished goods. are Level of operating expenses and Length of operating cycle. Therefore.

x. viii. number of sources of supply iii. we require a more detailed analysis to assess the various components of working capital requirement viz. Factors. bills etc. insurance.g. therefore provide a measure of the working capital requirement of an industry. Criticality of the item. Minimum quantity supplied by the market (Minimum Order Quantity (MOQ)). ii. there is normally a time lag or delay or period Amity International Business School.. Cost of holding stocks (e. Transport and other charges (Economic Order Quantity (EOQ)). storage. Raw material: Any industrial unit has to necessarily stock a minimum quantum of materials used in its production to ensure uninterrupted production. Average consumption of raw materials. which affect or influence the funds requirement for holding raw material. Bankers provide working capital finance for holding an acceptable level of current assets viz. Their availability – locally or form places outside. are: i. vi. finance for stocks. finished goods and sundry debtors for achieving a predetermined level of production and sales. stock-in-process. But.Noida 23 . easy availability / scarcity. as bankers. ix. interest) vii. raw materials. Imported or indigenous. Stock in process: Barring a few exceptional types of industries. Quantification of these funds required to be blocked in each of these items of current assets at any time will. Availability on credit or against advance payment in cash. This raw material requirement is generally expressed as so many months requirement (consumption). v. Time taken to procure raw materials (procurement time or lead time) iv. Credit Appraisal and Risk Rating at PNB 1. Traditional method of assessment of working capital requirement The operating cycle concept serves to identify the areas requiring improvement for the purpose of control and performance review. Seasonality of the materials. when the raw material get converted into finished products within few hours.

Such funds blocked in SIP depend on: i. Against cash iii.Average quantities of each product. Seasonality of goods vii. Supply terms iii. Against advance payment ii. During this period of processing.Number of products handled at a time in the process iii. the raw materials get converted into finished goods and expenses are being incurred.e.The process technology v. direct sale to consumers or through dealers/ wholesalers. Sundry debtors (receivables): Sales may be affected under three different methods: i. The period of processing may vary from a few hours to a number of months and unit will be blocked working funds in the stock-in-process during this period. It will be necessary to stock certain amount of goods pending sale.The processing time ii. On credit Amity International Business School. Marketing arrangement. Pre-dispatch inspection vi.g. Minimum quantity that can be dispatched iv.Number of shifts. Transport availability and transport cost v. Variation in demand viii.Noida 24 . processed at each time (batch quantity) iv. Credit Appraisal and Risk Rating at PNB of processing only after which the raw materials get converted into finished product. Whether the manufacture is against firm order or against anticipated order ii. This stock depends on: i. The requirement of funds against finished goods is expressed so many months’ cost of production. Peak level/ low level of operations ix. Finished goods: All products manufactured by an industry are not sold immediately.

Credit Appraisal and Risk Rating at PNB

A unit grants trade credit because it expects this investment to be profitable. It would be in the
form of sales expansion and fresh customers or it could be in the form of retention of existing
customers. The extent of credit given by the industry normally depends upon:

i. Trade practices
ii. Market conditions
iii. Whether it is bulky by the buyer
iv. Seasonality
v. Price advantage
Even in cases where no credit is extended to buyers, the transit time for the goods to reach the
buyer may take some time and till the cash is received back, the unit will have to be cut out of
funds. The period from the time of sale to receipt of funds will have to be reckoned for the
purpose of quantifying the funds blocked in sundry debtors. Even though the amount of sundry
debtors according to the unit’s books will be on the basis of Sale Price, the actual amount blocked
will be only the cost of production of the materials against which credit has been extended- the
difference being the unit’s profit margin- (which the unit does not obviously have to spend). The
working capital requirement against Sundry Debtors will therefore be computed on the basis of
cost of production (whereas the permissible bank finance will be computed on basis of sale value
since profit margin varies from product to product and buyer to buyer and cannot be uniformly
segregated from the sale value).
The working capital requirement is expressed as so many months’ cost of production.

Expenses: It is customary in assessing the working capital requirement of industries, to provide
for 1 month’s expenses also. A question might be raised as to why expenses should be taken
separately, whereas at every stage the funds required to be blocked had been taken into account.
This amount is provided merely as a cushion, to take care of temporary bottlenecks and to enable
the unit to meet expenses when they fall due. Normally 1-month total expenses, direct and
indirect, salaries etc. are taken into account.

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Credit Appraisal and Risk Rating at PNB

While computing the working capital requirements of a unit, it will be necessary to take into
account 2 other factors,

i. Is the credit received on purchases- trade credit is a normal practice in trading
circles. The period of such credit received varies from place to place, material to
material and person to person. The amount of credit received on purchases reduces
the working capital funds required by the unit.
ii. Industries often receive advance against orders placed for their products. The
buyers, in certain cases, have to necessarily give advance to producers e.g. custom
made machinery. Such funds are used for the working capital of an industry. It can
be thus summarized as follows:

Raw materials Months requirement Rs. A

Stock-in-process Months (cost of Production) Rs. B

Finished Goods Months cost of Production required to be stocked Rs. C

Sundry Debtors Months cost of Production (o/s credits) Rs. D

Expenses One month(normally) Rs. E

Total Current Assets A+B+C+D+E

Credit received on Purchases
Rs. F
(months’ Purchase value)

Advance payment on order
Rs. G
received

WORKING CAPITAL REQUIRED (H) = (A+B+C+D+E)- (F+G)

Amity International Business School,Noida 26

Credit Appraisal and Risk Rating at PNB

2. Projected Annual Turnover Method for SME units (Nayak Committee)

For SME units, which enjoy fund based working capital limits up to Rs.5 crore, the minimum
working capital limit should be fixed on the basis of projected annual turnover. 25% of the output
or annual turnover value should be computed as the quantum of working capital required by such
unit. The unit should be required to bring in 5% of their annual turnover as margin money and the
Bank shall provide 20% of the turnover as working capital finance. Nayak committee guidelines
correspond to working capital limits as per the operating cycle method where the average
production/ processing cycle is taken to be 3 months.
Example:

Anticipated Annual Output (A) 120
Working Capital Requirement: 25% of A (B) 30
Margin : 5% of A (C) 6
Maximum Permissible Bank Finance (B-C) 24
In Rs lacs

Important clarifications:

i. The assessment of WC limits should be done both as per Projected Turnover Method and
Traditional Method; the higher of the two is to be sanctioned as credit limit. If the
operating cycle is more than 3 months, there is no restriction on extending finance at more
than 20% of the turnover provided that the borrower should bring n proportionally higher
stake in relation to his requirements of bank finance.
ii. While the approach of extending need based credit will be kept in mind, the financial
strengths of the unit is also important, the later aspect assumes greater significance so as to
take care of quality of bank’s assets. The margin requirement, as a general rule, should not
be diluted.

Amity International Business School,Noida 27

business forecasts.current liabilities other than bank borrowing) and the balance 25 % of the WCG considered as margin is to come out of long term source i. The difference of (1. there was scarcity of bank’s resources. the Committee was also asked to suggest norms for carrying current assets in different industries so that bank finance was not drawn more than the minimum required level. This will give rise to a minimum current ratio of 1. owned funds and term borrowings. Chore Committee.17-1) represents the borrower’s margin which is popularly known as Net Working Capital (NWC) of the unit Second Method of lending: As per the 2nd method Bank will finance maximum up to 75% of total current assets (TCA) & Borrowers has to provide a minimum of 25% of total current assets as the margin out of long term sources. The MPBF method is the fall out of the recommendations made by Tandon and Chore Committee. The Committee was also asked to devise an information system that would provide.Noida 28 . which is required at all times to carry out minimum level of business activity.e. Banks would finance up to a max. further refined the approach to working capital assessment. production plan and resultant credit needs of units. First Method of lending: According to this method. The term ‘core current assets’ refers to the absolute minimum level of investment in current assets. periodically. Credit Appraisal and Risk Rating at PNB MPBF Method (Tandon and Chore Committee Recommendations) The Tandon Committee was appointed to suggest a method for assessing the working capital requirements and the quantum of bank finance. which was appointed later. Since at that time.17:1. The current ratio is further improved i. but excluding core current assets from total assets and the core current assets is financed out of long term funds.Regarding approach to lending: the committee suggested three methods for assessment of working capital requirements.79: 1 Amity International Business School. operational data. This will give a minimum current ratio of 1.e. 1.33:1 Third Method of lending: Same as 2nd method. of 75% of the working capital gap (WCG= the total current assets .

17: 1 Current ratio 1.79: 1 The above example shows that the contribution of margin by the borrower increases when financing is shifted from First method to Second method which is known to be stringent from borrower point of view (Third method was not accepted by RBI).Bank Less: 25% from Working Capital Gap 220 150 69 Borrowing LTS 25% of WCG from Less: CL – Bank 55 150 long term sources Borrowing MPBF 165 MPBF 128 MPBF 56 Current ratio 1. Amity International Business School.33: 1 Current ratio 1.Noida 29 . Credit Appraisal and Risk Rating at PNB Example: Current Liabilities Current assets Creditors for purchase 100 Raw material 200 Other current liability 50 Stock in process 20 Bank borrowings 200 Finished goods 90 Receivables 50 Other current assets 10 Total Current Liabilities 350 Total Current Assets 370 (In Rs lacs) Calculating NWC First method of lending Second method of lending Third method of lending Total CA 370 Total CA 370 Total CA 370 Less: CL – Bank Less: core CA from 150 Less: 25% of CA 92 95 Borrowing LT 275 Less: CL .

Credit Appraisal and Risk Rating at PNB

3. Projected Balance Sheet Method (PBS)

The PBS method of assessment will be applicable to all borrowers who are engaged in
manufacturing, services and trading activities who require fund based working capital finance of
Rs. 25 lacs and above. In case of SSI borrowers, who require working capital credit limit up to Rs.
5 cr, the limit shall be computed on the basis of Nayak Committee formula as well as that based
on production and operating cycle of the unit and the higher of the two may be sanctioned.. The
assessment will be based on the borrower’s projected balance sheet, the funds flow planned for
current/ next year and examination of the profitability, financial parameters etc. unlike the MPBF
method, it will not be necessary in this method to fix or compute the working capital finance on
the basis of a stipulated minimum level of liquidity (Current Ratio). The working capital
requirement worked out is based on the following:

i. CMA assessment method is continued with certain modifications.
ii. Analysis of the Profit and Loss account, Balance Sheet, Funds flow etc. for the past
periods is done to examine the profitability, financial position, and financial
management etc of the business.
iii. Scrutiny and validation of the projected income and expenses in the business and
projected changes in the financial position (sources and uses of funds). This is carried
out to examine whether these parameters are acceptable from the angle of liquidity,
overall gearing, efficiency of operations etc.

In the PBS method, the borrower’s total business operations, financial position, management
capabilities etc. are analysed in detail to assess the working capital finance required and to
evaluate the overall risk. The assessment procedure is as follows:

i. Collection of financial information from the borrower
ii. Classification of current assets / current liabilities
iii. Verification of projected levels of inventory/ receivables/ sundry creditors
iv. Evaluation of liquidity in the business operation
v. Validation of bank finance sought

Amity International Business School,Noida 30

Credit Appraisal and Risk Rating at PNB

7.2 ASSESSMENT OF TERM LOANS
Term Loans are generally granted to finance capital expenditure, i.e. for acquisition of land,
building and plant and machinery, required for setting up a new industrial undertaking or
expansion/diversification of an existing one and also for acquisition of movable fixed assets.
Term Loans are also given for modernization, renovation, etc. to improve the product quality or
increase the productivity and profitability.

The basic difference between short-term facilities and term loans is that short-term facilities are
granted to meet the gap in the working capital and are intended to be liquidated by realization of
assets, whereas term loans are given for acquisition of fixed assets and have to be liquidated from
the surplus cash generated out of earnings. They are not intended to be paid out of the sale of the
fixed assets given as security for the loan. This makes it necessary to adopt a different approach
in examining the application of the borrowers for term credits.

For the assessment to Term Loan Techno Economic Feasibility Study is done. The success of a
feasibility study is based on the careful identification and assessment of all of the important issues
for business success. A detailed Project Report is submitted by an entrepreneur, prepared by a
approved agency or a consultancy organization. Such report provides in-depth details of the
project requesting finance. It includes the technical aspects, Managerial Aspect, the Market
Condition and Projected performance of the company. It is necessary for the appraising officer to
cross check the information provided in the report for determining the worthiness of the project.

The feasibility study is a part of Credit Appraisal process and the same is discussed in the
following chapter.

Amity International Business School,Noida 31

Credit Appraisal and Risk Rating at PNB

7.3 BASEL ACCORD & RISK MANAGEMENT
The Basel accord/accords refer to the banking supervision accords namely Basel I and Basel II
issued by the Basel Committee on Banking Supervision (BCBS).

BASEL I ACCORD

The 1988 Basel Accord primarily addressed banking in the sense of deposit taking and lending.
The main focus was Credit Risk. It described the strength of the Bank as measured by the Capital
employed. Accordingly it put a minimum level of capital adequacy (Capital to Credit Risk
Weighted Assets ratio) at 8%. Basel I allocated 4 risk weights i.e. 0%, 20, 50% and 100% to
different exposure types, based on the risk perceived on the exposure types under the credit
portfolio. Basel I provided a set norm for capital allocation which helped many banks to allocate
capital to counter the risks faced by them.

CRAR = Capital
Risk Weighted Assets (Credit Risk+ Market Risk +Operational Risk)

Paid Up Equity Capital + Statutory Reserves + Other disclosed free
Tier I
reserves + Capital Reserves representing surplus arising out of sale
Capital
proceeds of Assets + Innovative Perpetual Debt instruments
CAPITAL
Revaluation Reserves (at a discount of 55%) + General Provisions and
Tier II
Loss Reserves + Subordinated Debt + Hybrid Debt Capital
Capital
Instruments

Risk Weighted Assets
Basel I introduced the concept of Risk Weighted Assets (RWA). All the assets of a bank
(advances, investments, fixed assets etc.) carry certain amount of risk. In proportion to the
quantum of this risk, bank must maintain capital. Quantification of risk is done in percentage (0%,
20%, 50% etc.). Exposure when multiplied with these percentages gives risk based value of
assets. These assets are also called Risk Weighted Assets (RWA).

Amity International Business School,Noida 32

market risk and operational PILLAR I risk.Noida 33 . Advances in risk management and the increasing complexity of financial activities / instruments prompted international supervisors to review the appropriateness of regulatory capital standards under Basel I. Thus these three parts constitute three pillars of Basel II. the Basel I accord was amended and refined which came out as the Basel II document. Credit Appraisal and Risk Rating at PNB BASEL II ACCORD Banking has changed dramatically since the Basel I document of 1988. Each part is called as a pillar. It also casts responsibility on the supervisors to review and validate banks’ risk measurement models. The Basel II document is structured into three parts. The regulatory capital will be focused on these three risks This pillar gives the bank responsibility to exercise the best ways to manage PILLAR II the risk specific to that bank. This pillar is compatible with the credit risk. To meet this requirement. 5 Estimation Chapter 8 CREDIT APPRAISAL Amity International Business School. This pillar is on market discipline is used to leverage the influence that other PILLAR III market players can bring DIFFERENCE BETWEEN BASEL I BASEL II Recognizes wide range of Collateral & 1 Limited role of collateral as risk mitigant 1 Guarantees as risk mitigant Recognizes Operational Risk and prescribes 2 Not recognizing Operational Risk 2 explicit capital charge for Risk weights assignment on transaction 3 3 Risk weight assignment on risk rating basis basis Not recognizing tenure or remaining time Recognizes the tenure or remaining time to 4 to maturity of exposures in risk 4 maturity of exposures in risk assessment assessment Provisions are through Asset Provisions are through Expected Loss 5 Classification.

as both of these factors have direct impact on its profitability. Technology Up gradation. Credit Appraisal and Risk Rating at PNB 8. qualifying remarks of auditors/inspectors etc. product obsolescence. Financial strength/standing of the promoters. reliability and reasonableness of projections. achievement of targets. etc. Industry Scenario & Outlook. adequacy of provisioning for bad debts. integrity and market standing/ reputation of promoters.Noida 34 . competition faced from the units engaged in similar Business Risks products. Background. In light of the foregoing risks. industry relations etc. In the present scenario efficient project appraisal has assumed a great importance as it can check and prevent induction of weak accounts to our loan portfolio. past financial performance. availability of inputs. track record in execution of project. availability of infrastructure facilities. cost of labor. reliability of operational data and Financial Risks financial ratios. expertise/competence of Management Risks persons holding key position in the organization. organizational set up and management hierarchy.1 INTRODUCTION Effectiveness of Credit Management in the bank is highlighted by the quality of its loan portfolio. which can be broadly classified as under: Government regulations and policies. demand and supply position. All possible steps need to be taken to strengthen pre sanction appraisal as always “Prevention is better than Cure”. Every Bank is striving hard to ensure that its credit portfolio is healthy and that Non Performing Assets are kept at lowest possible level. debt repayment. cost of raw material and other inputs. pricing of product. Operating efficiency. delegation and decentralization of authority. marketing. With the opening up of the economy rapid changes are taking place in the technology and financial sector exposing banks to greater risks. surplus available. etc. the banks appraisal methodology should keep pace with ever changing economic environment. The appraisal system aims to determine the credit needs/requirements of the borrower taking into account the financial resources of the client. Industry Risks Industry Rating. The Amity International Business School.

Following are the aspects.Noida 35 .financing or over - financing. which need to be scrutinized and analyzed while appraising: 8. Credit Appraisal and Risk Rating at PNB end objective of the appraisal system is to ensure that there is no under .2 MARKET ANALYSIS (Demand & Potential) Amity International Business School.

Credit Appraisal and Risk Rating at PNB The market demand and potential is to be examined for each product item and its variants/substitutes by taking into account the selling price of the products to be marketed vis-a- vis prices of the competing products/substitutes. discount structure. Competition from imported goods. the buy-back arrangements under the foreign collaboration. arrangement made for after sale service. practices. Further. competitors' status and their level of operation with regard to production and products and distribution channels being used etc. based on the present and expected future demand in relation to supply position of similar products and availability of the other substitutes as also consumer preferences.3 TECHNICAL ANALYSIS Amity International Business School. attitudes. 8. Critical analysis is required regarding size of the market for the product(s) both local and export. if any.Noida 36 . Government Import Policy and Import duty structure also need to be evaluated. and influence of Government policies also needs to be considered for projecting the demand. requirements etc.

Compatibility of plant and machinery. It is to be seen that site selected has adequate availability of infrastructure facilities viz. quality/properties. policies. its variants and the product-mix proposed to be manufactured in terms of its quality. Water. Plant Capacity and Manufacturing Process The selection of Plant and Machinery proposed to be acquired whether indigenous or imported has to be in agreement with required plant capacity. Location (which means the broad area) and Site (which signifies specific plot of land) selected for the Unit with its advantages and disadvantages.Noida 37 . Transport. Govt. the product. Communication. quantity. if any. firm arrangements for procurement of the same etc. policies regarding regulation of supplies and prices require to be examined in detail. their availability on a regular basis. application and current taste/trend requires thorough investigation. Purchase of reconditioned/old machinery is to be dealt in terms of laid down guidelines. investment outlay and production cost as also with the machinery and equipment already installed in an existing unit. value. while for the new unit it is to be examined whether these are of proven technology as to its performance. in respect of imported technology with quality of raw material is to be kept in view. policies and other factors. Govt. need to be assessed. particularly. Further. cost of indigenous and imported raw material. The technology used should be latest and cost effective enabling the unit to compete in the market. markets. Credit Appraisal and Risk Rating at PNB In a dynamic market. transportation charges. should be such that overall cost is minimized. state of information technology etc. principal inputs. The adequacy of size of land and building for carrying out its present/proposed activity with enough scope for accommodating future expansion needs to be judged. Also plant and machinery and other equipments Amity International Business School. Raw Material The cost of essential/major raw materials and consumables required their past and future price trends. Plant & Machinery. Location and Site Based on the assessment of factors of production. and is in agreement with the Govt. Power.

manufacturing process needs to studied in detail with capacities at various stages of production being such that it facilitates optimum utilization and ensures future expansion/ debottlenecking.Noida 38 . specification. and in case of collaboration. availability and suitability of technology to be used along with plant capacity. wherever required. The selected process of manufacturing indicating the adequacy. Plant capacity and the concept of economic size has a major bearing on the present and future plans of the entrepreneur(s) and should be related to the availability of raw material. as and when required. product demand. price and performance as also suppliers' credentials. Credit Appraisal and Risk Rating at PNB needed for various utility services. It is also to be ensured that arrangements are made for inspection at intermediate/final stages of production for ensuring quality of goods on successful commencement of production and completion. product price and technology. Amity International Business School. their supply position. collaborators' present and future support requires critical analysis.

It is to be ensured while appraising the project that cost and various estimates given are realistic and there is no under/over estimation.4 FINANCIAL ANALYSIS The aspects which need to be analyzed under this head should include cost of project. sensitivity analysis which are discussed as under: Cost of Project & Means of Financing a. travelling. Besides Bank’s loan. machinery and know-how expenses etc. financial ratios. pre-operative expenses like salary. provisions for contingencies to meet any unforeseen expenses. cost of incorporation of the Company. Resources are raised for financing project by raising term loans from Institutions/Banks Amity International Business School. interest during construction period. The major cost components of any project are land and building including transfer. break-even analysis. loading and unloading charges etc. market surveys. such as. debentures. cost of production. clearing. such as. its registration. duty. are also part of capital cost of project. specifications and justifications of land. the project cost is normally financed by bringing capital by the promoters and shareholders in the form of equity. insurance. registration and development charges as also plant and machinery. Credit Appraisal and Risk Rating at PNB 8. commission. Further. Recurring annual royalty payment is not reflected under this head but is accounted for under the profitability statements. unsecured long term loans and deposits raised from friends and relatives which are not repayable till repayment of Bank's loan. It also involves consultancy and know-how expenses which are payable to foreign collaborators or consultants who are imparting the technical know-how. these cost components should be supported by proper quotations. etc. price escalation or any other expense which have been inadvertently omitted like margin for working capital requirements required to complete the production cycle.Noida 39 . means of financing. Finally. advertisement. financial statements as also profitability/funds flow projections. Also included in it are capital issue expenses which can be in the form of brokerage. equipment for auxiliary services. start up expenses. ii. preparation of feasibility report. including transportation. Further. printing. preliminary expenses. mortgage expenses incurred before commencement of commercial production also form part of cost of project. stationery etc.

Profitability Statement The profitability statement which is also known as `Income and Expenditure Statement' is prepared after considering the net sales figure and details of direct costs/expenses relating to raw material. The economic appraisal includes scrutinizing all the items of cost. premium on capital issues. The projections of profit/loss are prepared for a period covering the repayment of term loans. selling/distribution. In case of project finance. office expenses. the promoter’s contribution should not be less than the proportionate share. as the promoters have now started raising funds through Euro-issues. etc. packing. It should be ensured that at any point of time.Noida 40 . to ensure that these are realistic and Amity International Business School. all other expenses like salaries. which are sometimes comparatively cheap means of finance. The above is an illustrative list. fuel. The resourcefulness. It is to be ascertained that requirement of finance has been properly tied-up for unhindered implementation of a project. The financing structure accepted must be in consonance with generally accepted levels along with adequate Promoters' stake. deferred term credits secured from suppliers of machinery which are repayable in installments over a period of time. A condition to this effect should be stipulated by the sanctioning authority in case of project finance. wages. power. on case to case basis depending upon the resourcefulness and capacity of the promoter to contribute the same. the promoter/borrower may bring in upfront his contribution (other than funds to be provided through internal generation) and the branches should commence its disbursement after the stipulated funds are brought in by the promoter/borrower. and examining the assumptions. consumable stores/spares and other manufacturing expenses to arrive at a figure of gross profit. Thereafter. Credit Appraisal and Risk Rating at PNB which are repayable over a period of time. Foreign Currency loans. willingness and capacity of promoter to contribute the same have also to be investigated. if any. depreciation and any other overhead expenses and taxes are taken into account to arrive at the figure of net profit. Subsidies and development loans provided by the Central/State Government in notified backward districts to attract entrepreneurs are also means of financing a project. interest.

As regards unit sales price. Break-Even Analysis Analysis of break-even point of a business enterprise would help in knowing the level of output and sales at which the business enterprise just breaks even i. Credit Appraisal and Risk Rating at PNB achievable. progressive and efficient if it is able to earn enough profits not only to service its debts timely but also for future development/growth. there is neither profit nor loss. such as. a unit may be considered as financially viable. the break-even analysis can help in understanding the impact of important cost factors. labor. While preparing profitability projections. maximizing production of the item giving higher contribution etc. the business would incur loss. etc. production is below this level. The break-even analysis can help in making vital decisions relating to fixation of selling price make or buy decision.Variable Costs) (Sales in rupees) The fixed costs include all those costs which tend to remain the same up to a certain level of production while variable costs are those costs which tend to change in proportion with the volume of production. on the other hand. raw material.Variable Cost per unit) (Volume or Units) Break-even point (Total Fixed Cost x Sales) / (Sales . The break- even point in an algebraic equation can be put as under: Break-even point Total Fixed Cost / (Sales price per unit . A business earns profit if it operates at a level higher than the break-even level or break-even point. the past trends of performance in an industry and other environmental factors influencing the cost and revenue items should also be considered objectively. Amity International Business School. it is generally the same for all levels of output. If. There should not be any optimism or pessimism in working out profitability projections since even a little change in the product-mix from non-remunerative to remunerative or vice-versa can distort the picture.e. Further. Generally speaking. and optimizing product-mix to improve project profitability.Noida 41 . power.

An appraisal of the projected balance sheet data of the unit would be concerned with whether the projections are realistic looking to various aspects relating to the same industry. It is derived by comparing the successive balance sheets on two specified dates and finding out the net changes in the various items appearing in the balance sheets. A projected Fund Flow Statement helps in answering the under mentioned points. A critical analysis of the statement shows the various changes in sources and applications (uses) of funds to ultimately give the position of net funds available with the business for repayment of the loans. managements' stake in the business. In other words. The financial ratios which are considered important are discussed as under: Amity International Business School. capacity to service the debts etc.Noida 42 . it would be advisable to analyze the important financial ratios over a period of time as it may tell us a lot about a unit's liquidity position. • How much funds will be generated by internal operations/external sources? • How the funds during the period are proposed to be deployed? • Is the business likely to face liquidity problems? Balance Sheet Projections The financial appraisal also includes study of projected balance sheet which gives the position of assets and liabilities of a unit at a particular future date. Financial Ratios While analyzing the financial aspects of project. the statement helps to analyze as to what an enterprise owns and what it owes at a particular point of time. Credit Appraisal and Risk Rating at PNB Fund-Flow Statement A fund-flow statement is often described as a ‘Statement of Movement of Funds’ or ‘where got: where gone statement’.

cement. Credit Appraisal and Risk Rating at PNB Ratio Formula Remarks There cannot be a rigid rule to a satisfactory debt- equity ratio. The ratio may vary term debt + Repayment from industry to industry but has to be viewed with of debt circumspection when it is less than 1. lower the ratio higher is the degree of protection enjoyed by the creditors. is higher in respect of capital intensive Debt-Equity projects. This ratio gives a view of borrower's capital TOL / TNW Intangible Assets) structure.e.Net Worth) 4 Profit-Sales Operating Profit (Before This ratio gives the margin available after meeting Amity International Business School. (Where. however. Tangible Net Worth (Paid up Capital + Reserves and Surplus . In financing highly capital intensive projects like free reserves. after adjusting loss balance) considered at a higher level. premium on shares. Other features like quality of management should be kept Equity in view while agreeing to a less favorable ratio. etc. etc. Coverage `interest' and `principal repayment' besides Ratio Annual interest on long indicating the margin of safety. A Debt + Depreciation + very high ratio may indicate the need for lower Net Profit (After Taxes) moratorium period/repayment of loan in a shorter Debt. But it is always desirable that owners 1 Debt (Term Liabilities) Ratio have a substantial stake in the project.5:1 is considered reasonable. infrastructure. It. This ratio provides a measure of the Service term debt 2 ability of an enterprise to service its debts i. If the ratio shows a decreasing trend. Equity = Share capital. the ratio could be . it 3 Ratio indicates that the borrower is relying more on his Total outside Liabilities own funds and less on outside funds and vice versa (Total Liability .5 to 2 is considered reasonable.Noida 43 . These days the debt equity ratio of 1. + Annual interest on long schedule.5. This ratio of 1.

However. It provides margin as well as it is measure of the business enterprise to Current 6 pay-off the current liabilities as they mature and its Ratio Current Assets capacity to withstand sudden reverses by the strength of its liquid position.e. It provides a yardstick to from other Sources) Ratio measure the efficiency of production and margin on sales price i. assets) Amity International Business School.Noida 44 . as in such cases the ratio tends to be Assets high because the value of the denominator of the ratio is very low. Credit Appraisal and Risk Rating at PNB Taxes excluding Income cost of manufacturing.Intangible depreciated. This ratio is indicative of short term financial position of a business enterprise. Ratio analysis gives Current Liabilities indications. to be made with reference to overall tendencies and parameters in relation to the project. Higher the ratio greater the short term liquidity. A rising trend of the ratio reveals that borrower has been making efficient Sales- Sales utilization of his assets. Sales Output This ratio is indicative of the efficiency with which 7 Investment Total capital employed the total capital is turned over as compared to other Ratio (in fixed & current units in similar lines. caution needs to 5 Tangible be exercised when fixed assets are old and Assets Ratio Total Assets . the pricing structure Sales This ratio is of a primary importance to see how best the assets are used.

and then the project viability is ascertained. Higher a project's IRR the more desirable it is to undertake the project. sales etc. The `VALUE' so assumed and taken into consideration for arriving at the profitability projections is the `MOST LIKELY VALUE'. The critical variables can then be thoroughly examined by generally selecting the pessimistic options so as to make possible improvements in the project and make it operational on viable lines even in the adverse circumstances.Noida 45 . which are assigned a `VALUE' after estimating the range of variation of such variables. increasing or reducing the cost of inputs etc. IRR should be higher than the Cost of the project (interest rate in case of project financing) Sensitivity Analysis While preparing and appraising projects certain assumptions are made in respect of certain critical/sensitive variables like selling price/cost price per unit of production. Sensitivity Analysis is a systematic approach to reduce the uncertainties caused by such assumptions made. The Sensitivity Analysis helps in arriving at profitability of the project wherein critical or sensitive elements are identified which are assigned different values and the values assigned are both optimistic and pessimistic such as increasing or reducing the sale price/sale volume. plant capacity utilization. product-mix. Amity International Business School. Credit Appraisal and Risk Rating at PNB Internal Rate of Return The discount rate often used in capital budgeting that makes the net present value of all cash flows from a particular project equal to zero.

qualifications. the management and the organization should be conducive to the size and type of business. and capability of the promoter. finance. the appraisal report should also comment on their performance in such concerns. In case the promoter(s) have interest.Noida 46 . in other words. The appraisal report should highlight the strengths and weaknesses of the management by commenting on the background. working conditions. Further. personnel. it should be ensured that professional managers are inducted to strengthen the organization. etc. It is seen that some projects may fail not because these are not viable but because of the ineffectiveness of the management and the organization in controlling various functions like production. and the other assigned essential functions. in other concerns as Proprietor or Partner or Director.5 MANAGEMENT & ORGANIZATION ANALYSIS Appraisal of project would not be complete till it throws enough light on the person(s) behind the project i. A business is more vulnerable if decision making in all the functional areas rests with a particular person. Amity International Business School.e. experience. relation with labor. key management personnel. `one man show'. management and organization of the unit. wage structure. marketing. and effectiveness of the internal control systems. In case it is not so. Credit Appraisal and Risk Rating at PNB 8.

2. attitudes. Expenses on marketing are done so as to popularize the product. import substitute.6 APPRAISAL OF PROJECT . Local/foreign consumer preferences. imports and exports in terms of quantity and value. export potential. 5. practices adopted. for promotion of product(s) and distribution channels being used.A CHECK LIST An indicative list of issues which need to be looked into while appraising a project is given below: 1. 6. Marketing policies in practice. Influence of Govt. 3. etc. requirements etc. 7. MARKETING 4. Technology advancement/Foreign Collaborator's Status/Buy-back arrangements etc. Competitors' status and their level of operation with regard to production and sales. Reasonable demand projections keeping in view the size of the market. supply position.Noida 47 . Credit Appraisal and Risk Rating at PNB 8. consumption level. knowledge and experience. Amity International Business School. Marketing professionals employed their competence. policies.

may be taken into account. its advantages/disadvantages. 3. Amity International Business School. Total project cost and how it is being funded/financed. price. type of skills required and its availability position in the area. Plant and machinery . 6.Noida 48 .its availability. clearance/ license. 2. product-mix and their application. 1. Contingencies and inflation duly factored in project cost. required. availability of infrastructural facilities. performance. Break-even analysis. Balance sheet projections should be realistic and based on latest available data. Plant and machinery with suppliers' credentials and capacity attainable under normal working condition. Location. TECHNICAL 4. Credit Appraisal and Risk Rating at PNB 1. Aspect of support of parent company. fund flow and cash flow projections. 5. Labor/ Manpower. 3. if any. Process of manufacturing indicating the choice of technology. specification. concessions. Unrealistic/ambitious sales projections without reference to past performance and FINANCIAL justification to be avoided. Govt. available there. wherever applicable. 2. Profitability projections based on realistic capacity utilization and sales forecast with proper justification. Govt. position with regard to its commercialization and availability. if any. 5. 4. 7. The components of financial ratios should be subjected to close scrutiny. 6. Product and its life cycle.

if any. 1. Project contribution towards creation and rate of increase of ECONOMIC employment opportunity. achieving self sufficiency etc. 4. Qualifications and experience of the promoters and key management personnel. 5. technical knowledge and marketing programme etc. 2. 3. Understanding of the project in all of its aspects - MANAGERIAL financing pattern. its impact on environment and pollution control To judge whether the project is viable. This involves taking an over-all view to analyse the strengths and weaknesses of the project.Noida 49 . Financial standing and resourcefulness of the management. Amity International Business School. Impact on increase in level of savings and income distribution in society and standard of living. delegation of adequate powers and entrusting responsibility at various levels. Project contribution to the development of the region. 3.e. wherein the promoters have the interest and how these are functioning. i. it can generate adequate surplus for servicing its debts within a reasonable period of time and still left with some funds for future development. Credit Appraisal and Risk Rating at PNB 1. It should also be analysed to see whether the management and organisation can prove effective for successful implementation of the project. Internal control systems. Other enterprises. 2.

Credit Appraisal and Risk Rating at PNB Chapter 9 CREDIT RISK MANAGEMENT 9. Amity International Business School.2 CREDIT RISK MANAGEMENT SYSTEM IN PNB A comprehensive credit risk management system. it is necessary to identify the areas of credit risk in each borrower as well as each industry. In a bank’s portfolio. commitments in relation to lending.1 CREDIT RISK Credit risk means the possibility of loss associated with diminution in the credit quality of borrowers. settlement and other financial transactions.Noida 50 . trading. losses stem from outright default due to inability or unwillingness of a customer or counter party to meet. which is in place in the bank. in coordination with other HO divisions involved in disbursal of credit and also the risk management departments of various zonal offices identifies these risks areas and develops necessary tools and processes to measure and monitor the risk. 9. Risk Management Division HO. encompasses the following processes: • Identification of Credit Risk • Measurement of Credit Risk • Grading of Credit Risk • Reporting and analysis of rating related data • Control of Credit Risk CREDIT RISK IDENTIFICATION In order to take informed credit decisions.

Noida 51 . 5 crores The credit risk rating models have been developed with a view to provide a standard system for assigning a credit risk rating to all the borrowers on the basis of the overall credit risk involved in them. 20 lacs and up to Rs. management. 5crores Mid Corporate Above Rs. which are important for determining the credit quality/ rating of a borrower. industry information. 50lacs Small Loans Above Rs. The evaluation of a borrower is done by assessment on various objective/subjective parameters. 15crores Large Corporate Above Rs. The credit risk-rating models incorporate therein all possible risk factors. These risks could be: • Internal and specific to the company.5 crores and up to Rs. business and conduct of account. the bank has developed the following models: Credit Risk Rating Model Total limits Applicable from the Bank Small 2 Loans Above Rs. Credit Appraisal and Risk Rating at PNB CREDIT RISK MEASUREMENT In order to measure the credit risk in banks’ portfolio. Amity International Business School. The model evaluates the credit risk rating of a borrower on a scale of AAA to D with AAA indicating minimum risk and D indicating maximum risk. 5 crores New Project Model Above Rs. Inputs to the models are the financial. • Associated with the industry in which the company is operating or • Associated with the entire economy and can influence the repayment capacity and/ or willingness of the company. 15 crores Non Banking Financial Corporation Model (irrespective of any limit) New Business Model Below Rs. 50 lacs and up to Rs.

the better is its credit rating. which are involved in more than one industrial activity. The scoring of some of these parameters is subjective while for some others it is done on the basis of pre-defined objective criteria. However. • Wherever a particular parameter is not applicable. Weights have been assigned to different parameters based on their importance. conduct of account and financial evaluation will be done on a common basis.Noida 52 . for the business section. in percentage terms. no score should be given and the parameter should be made ‘Not Applicable’. Credit Appraisal and Risk Rating at PNB Evaluation methodology under rating models • The scores are assigned to each of the parameters on a scale of 0 to 4 with 0 being very poor and 4 being excellent. Higher the score obtained by a company. each business should be evaluated and scored separately. Weights assigned to different parameters have been loaded in the software. evaluation should be done separately for each business. the management evaluation. • The scores given to the individual parameters multiplied by allocated weights are then aggregated and a composite score for the company is arrived at. After allocating/evaluating scores to all the parameters. In such cases. taking into account the different industrial activity involved. the aggregate score is calculated and displayed by the software. Amity International Business School. • For multi-divisional companies. • The overall percentage score obtained is then translated into a rating on a scale from AAA to D according to a pre-defined range of scores.

BB + PNB-BB Above 52.C PNB-D Caution Risk 30.50 up to 67.00 up to 52.50 PNB.AA + PNB-AA Above 72.50 PNB.B - PNB-C High Risk Above 30.B + Acceptable Risk PNB-B Above 42.00 PNB.AA - Modest Risk Above 67.Noida 53 .00 PNB.00 PNB.00 PNB.A Above 60.50 PNB.A + PNB-A Above 62.00 up to 40.50 PNB.00 PNB.A - Average Risk Above 57.50 up to 70.00 up to 42.50 PNB.AA Above 70.50 up to 80.B Above 40.BB Above 50.BB - Marginally Above 47.50 up to 77.50 up to 57. Rating Grade within the Description Score (%) obtained category rating Category PNB –AAA Minimum Risk Above 80.00 up to 62.50 up to 50. Credit Appraisal and Risk Rating at PNB GRADING OF BORROWERS UNDER THE RATING SYSTEM In order to provide a standard definition and benchmarks under the credit risk rating system.00 and below PNB – D Amity International Business School.50 up to 47.50 PNB.AAA Marginal Risk Above 77.00 PNB.00 up to 72.50 PNB. following matrix has been adopted in all the risk rating models.50 PNB.50 up to 60.

validation of rating system. branches to rate the accounts An official designated by the Incumbent not connected Branch Office Officer/Manager. Basel II has placed certain minimum requirements which inter-alia require. CONTROLS Amity International Business School. Credit Appraisal and Risk Rating at PNB SYSTEM FOR ASSIGNMENT & APPRAISAL OF RATING The process of rating and vetting is as under: Loan Sanctioning Vetting/Confirming Credit Risk Rating Authority Authority Authority i. ELB/VLB Zonal CRMD Office ii. Large Corporate Branches i. In view of above fact. Banks must regularly compare realized default rates with estimated probability of default (PD) of each grade and able to demonstrate to its supervisor (RBI). Zonal CRMD in consultation Head Office with branches GM (RMD). In case of other Models. that the internal validation process enable it to assess the performance of internal rating and risk estimation system consistently and meaningfully. not only rating but consistent practices in evaluation of credit risk rating as well as evolving and updating robust data on various risk components is must for adopting IRB approaches. Credit Section with Processing/ recommending/rating of the concerned loan proposal In order to adopt internal rating based approaches (IRB) for credit risk.Noida 54 . process and estimation of all relevant risk components. In case of Large Corporate Zonal / Circle Model. HO ii.

Diversification of Risks Chapter 10 POST SANCTION FOLLOW UP OF LOANS Amity International Business School. i. Use of CIBIL data and RBI defaulters list b. Credit Appraisal and Risk Rating at PNB The Credit Risk Management process in the bank encompasses the following management Control techniques which help in mitigating the adverse impacts of credit risk in its credit portfolio. Credit Approving Authority a.Portfolio Management v.Noida 55 .Risk Based Pricing iv.Loan Review Mechanism vi. Credit Committee b.Preventive Monitoring System viii.Others a.Prudential Exposure limits iii. Linkage of loaning powers with risk rating categories ii.Legal documentation vii.

profit/loss. v. Further. Credit Appraisal and Risk Rating at PNB Supervision and Follow-up of bank credit has assumed considerable significance particularly after introduction of new norms of assets classification. ii. Fundamental goals help a bank to ensure safety of funds lent to an enterprise while. iv. To monitor operations in the account particularly cash credit facilities which indicate health of the account. To keep a watch on the project during implementation stage so that there are no time & cost overruns. System of supervision and follow up can be defined as the systematic evaluation of the performance of a borrowal account to ensure that it operates at viable level and. such as production. To ensure that the funds released are utilized for the purpose for which these have been provided and there is no diversion of such funds. The goals and objectives of monitoring may be classified into fundamental and supplementary goals. It helps in keeping a watch on the conduct and operational/financial performance of the borrowal accounts. flow of funds. To evaluate operational and financial results. it also helps in detecting signals/symptoms of sickness and deteriorations. Amity International Business School. and comparing these with the projections/estimates given by the borrower at the time of sanction of credit facilities. affecting profitability. To obtain market report on the borrower. taking place in the conduct of the account for initiating timely corrective actions to check slippage of accounts to NPA category. iii. if any. vi. supplementary goals are directed towards keeping abreast of problems arising out of changes in both the internal and the external environment for initiating timely corrective actions. to suggest practical solutions. To ensure that the terms and conditions as stipulated in the sanction have been complied with. etc.Noida 56 . Some of the important goals of monitoring are listed as under: i. if problems arise. sales. to gather information like reputation/financial standing etc. provisioning and derecognition of interest income on NPAs.

Preventive Monitoring System v. finished goods. To ensure charging of applicable rate of interest/penal interest/ commitment charges as per bank's guidelines. To detect signals and symptoms of sickness or deterioration taking place in conduct/performance of the account. Credit Appraisal and Risk Rating at PNB vii. To keep a check on aspects like accumulation of statutory liabilities. covers the following: i. ix. creditors. Quarterly Monitoring System vi. System of supervision & monitoring of credit as laid down by the Bank needs to be meticulously followed by the branches/controlling offices which.Noida 57 . viii. etc. raw-material. x. Inspection and Physical Verification of stocks – Stock Audit Chapter 11 ANALYSIS & INTERPRETATION Amity International Business School. inter alia. Conveying the sanction ii. Quarterly Review Sheet iv. stocks-in-process. Maintenance of Loan Document File iii. To ensure that the unit's management and organizational set-up is effective. debtors.

1.e. Both. optimizing the return by striking balance between the risk and the return on assets and striving towards maintaining/improving market share. under-financing and over.1. The borrowers should have the desired background. they should possess adequate liquid resources to contribute to the margin requirements. This would entail reducing exposures in high risk areas. experience/expertise to run their business successfully • Project for which the finance is granted should be technically feasible and economically/commercially viable i. it should be able to generate enough surplus so as to service the debts within a reasonable period of time.2 BASIC TENETS OF THE POLICY • All loan facilities considered only after obtaining loan application from the borrower and compilation of Confidential Report on them and the guarantor.1 PNB’s LOAN POLICY 11. • Cost of the project and means of financing the same should be properly assessed and tied up. 11. emphasizing more on the promising industries / productive sectors/ segments of the economy.financing can have an adverse impact on the successful implementation of the project. measure and manage the credit risk and aims at ensuring sustained growth of healthy loan portfolio while dispensing the credit and managing the risk.e. • Borrowers should be financially sound.1 OBJECTIVE The Credit Management & Risk Policy of the bank at the macro level is an embodiment of the Bank’s approach to understand. Amity International Business School. Credit Appraisal and Risk Rating at PNB 11. enjoy good market reputation and must have their stake in the business i.Noida 58 .

1. Cash Budget System Cash Budget System shall be followed in Sugar. Credit Appraisal and Risk Rating at PNB • Loans should be sanctioned by the competent sanctioning authority as per the delegated loaning powers and should be disbursed only after execution of all the required documents.2 crore (upto Rs. 5 crore in case of SSI units) ii.Noida 59 . Service Sector and Film Production accounts. BPLR = 11 % • The policy lays down norms for takeover of advances from other banks/ financial institutions • As a matter of policy the bank does not take over any Non-performing Asset (NPA) from other banks 11. It will be our endeavor to introduce the same selectively in other areas also Amity International Business School. • The policy sets out minimum or benchmark lending rate. • Projects financed must be closely monitored during implementation stage to avoid time and cost overruns and thereafter till the adjustment of the bank's loan. Tea.3 METHODS OF LENDING 1. Simplified method linked with turnover Simplified method based on turnover for assessing working capital finance up to Rs. MPBF System Existing MPBF system with flexible approach shall be followed for units requiring working capital finance exceeding the above-mentioned amount iii. For Working Capital i.

Term Loan In case of infrastructure/mega projects. The term loans with remaining maturity period of above 5 years shall not exceed 50% of the term deposits with remaining maturity period of above 5 years after taking into account the renewal of term deposits as per the past trend. Credit Appraisal and Risk Rating at PNB 2. proper appraisal will be made by utilizing the services of specialized / Technical officers.Noida 60 . Amity International Business School.

2 CREDIT APPRAISAL PROCESS AT PNB 11.1 FLOWCHART: Submission of Project Report along Carrying out Due Diligence on the with the Request Letter Client Determining of Interest Rate and Feasible Preparing Credit Report / Feasibility Preparation of Proposal Report and Risk Rating Not feasible Submission of Proposal to designated Submission of Proposal to designated Authority (Circle office) Authority Queries Re-verification and analysis of the Meeting with the client to clarify the Proposal queries No Queries Approval of request made by the client Vetting of Credit Risk Rating Report like Reduction of Interest Rates etc Acknowledgement of Sanction Terms Sanction of Proposal on various Terms & Condition by the client & Conditions Application to comply with Sanction Disbursement of Sanctioned Amount T&C. Credit Appraisal and Risk Rating at PNB 11.Noida 61 . Execution of Loan Documents from the branch office Procedures at Branch Office Level Procedures at Circle Office Level Amity International Business School.2.

Various approvals of issues the borrower seeks (reduction of ROI. 8. 9. Maximum permissible bank finance (in case of WC limit) 2.2. diamond exporters. Maintenance of minimum current ratio of 1. Various risks associated. Enhancement of existing limits Once a proposal is received. proposal for financing working capital limits and term loans can relate to any of the following: 1. if any 4. processing fee etc) 5. Credit Appraisal and Risk Rating at PNB 11.Noida 62 . current liabilities (other than bank borrowings) and net working capital 7. An undertaking by the borrower to submit his annual accounts promptly. project report and other important documents are used to evaluate: 1. financial statements.).33:1 (Except where a relaxation is permitted as in the case of sick/weak units. Risk rating of the borrower 6. Classification of current assets and current liabilities in conformity with the guidelines issued by the Reserve Bank/HO. Reasonableness of estimates/projection in regard to sales. Further annual review is carried out regularly by the bank even where enhancement in credit limits is not involved Amity International Business School. Techno Economic Feasibility Analysis of the project (includes all the 5 evaluation) 3. Renewal of existing limits 3.2 BRIEF ON THE PROCESS At Punjab National Bank. chargeable current assets. etc. New proposal 2.

Noida 63 .3 RISK RATING OF THE BORROWER Punjab National Bank uses a system of internal ratings for the assessment of the credit quality and risk profile of its borrowers. PNB was Amity International Business School. Ratings typically embody an assessment of the risk of loss due to failure by a given borrower to pay as promised. Credit Appraisal and Risk Rating at PNB 10.2. A rating system includes the conceptual methodology. Credit risk rating tools at Punjab national bank With respect to Punjab National Bank. wherever applicable are complied with 11. 13. leasing and hire-purchase. management process. sugar and computer software industries will continue to be in force. 12. An internal rating refers to a summary indicator of the risk inherent in an individual credit quality in an individual credit. In cases where deviations from norms/past trends are warranted. the approval of specific exposures and workout situations. the constant re-evaluation of the loan portfolio and the sufficiency of provisions thereof. tea. Specific guidelines issued by RBI/HO for sanctioning credit limits for financing certain specific activities such as diamond exports. 2000 (FEMA). and systems that play a role in the assignment of a rating. based on consideration of relevant counterparty and facility characteristics. credit risk rating has been developed with a view to provide a standard system for assigning a credit rating to the borrowers of the bank according to their risk profile. it should be ensured that these are justified and specific comments in this behalf are incorporated in the notes placed before the competent authority for sanction. The management of credit risk at PNB includes a continuing review of credit limits. 11. Provisions of Foreign Exchange Management Act. In respect of industries where norms relating to inventory and receivables have been laid down by Reserve Bank/HO. policies and procedures. credit limits should be determined in accordance with such norms and in other cases in tune with past trends.

Inputs (parameters) to PNB Trac The rating tool is designed to cater all the industry.for its entire category of lending. 1200 lacs Inputs to the Model for the above mentioned loan will be: CATEGORY PARAMETERS / INPUTS Capital market perception of the group Management Setup Management Risk bearing capacity Integrity. Credit Appraisal and Risk Rating at PNB also one of the first banks to develop their own credit models to ease up their way to risk management. This means that the bank would be able to do credit ratings on its own for its lending’s. The loans with exposure of above Rs 20 lacs have been rated individually. There are broad categories defined in every model that require different parameters or inputs (both quantitative and subjective) depending on the industry the borrower serves. commitment and sincerity Evaluation Track record in debt repayment Financial flexibility Business Range of services Level of customer satisfaction Evaluation Quality of service offered Advertising / promotional strategies Amity International Business School. The difference between ratings of two borrowers lie in the limits he/she is seeking from the bank and the industry of the same. To explain the above statement an example of the inputs is described below. PNB Trac -. Rating Model New Project Model Industry ABC Sector Facilities Required Term Loan Limits Rs.Noida 64 . while loans with exposure under Rs 20 lakh have been rated segment-wise on portfolio basis as per the terms of Basel II accord.

00% 12. Credit Appraisal and Risk Rating at PNB Economies of operation Brand equity Ambience of service outlet Expected market growth Effectiveness of distribution channels Locational advantage Quality of infrastructure available Technology adopted in the process Debt – Equity Ratio Internal Rate of Return Financial Repayment Period (in yrs) TOL / TNW Evaluation Foreign exchange risk Working capital cycle (in months) Project complexities Expected time overrun Project Implementation Expected cost overrun Status of obtaining clearances Risk Evaluation Funding risk Service period (in yrs) How the Rating is done 1.00 Conduct of Account 75.00 25.00% 11.Noida 65 . Example: Factor % score obtained Weight Weighted Score Financial Evaluation 55. The scoring of some of these parameters is subjective while for some others it is done on the basis of pre-defined objective criteria.00% 16.00 20.00 40.00 15. The scores given to the individual parameters multiply by allocated weights are aggregated and a composite score for the company is arrived at in percentage terms.00% 22.25 Amity International Business School. Higher the score obtained by a company. better is its credit rating.50 Management Evaluation 80.00 Business & Industry Evaluation 50. The scores are assigned to each of the parameters of each of the broad category in the different sections on a scale of 0 to 4 up to two decimal points with 0 being very poor and 4 being excellent. 2. Weights have been assigned to different parameters based on their importance.

00% below BPLR Applicable Rate of Interest (ROI) The BPLR attracts further a term premia of 0.50% below BPLR ii. like Agriculture.Noida 66 . At present. to boost the sector and encouraging more participation.50% for term loans having a repayment reschedule over 3 years.2. These powers are defined in the Internal Circular of the bank.75 The Aggregate Score of 61. Example: for Advances to NBFCs above Rs. RBI also grants certain rebates or lower ROI for lending to few sectors. BPLR is the reference rate for determination of rate of interest for the borrower’s accounts.75 refers to PNB. Sub-BPLR Lending In order to remain competitive in the market. 20 lacs Amity International Business School. Sub-BPLR Lending permitted by ED: up to 3. Credit Appraisal and Risk Rating at PNB AGGREGATE SCORE 61.00% below BPLR iii. which eventually depends on the rank of the officer and the credit risk rating of the borrower.A- THIS MEANS THE RATING OF THE BORROWER IS PNB A- 11. operating expenses and a minimum margin to cover regulatory requirement of provisioning / capital charge and profit margin. Also the applicable ROI depends upon the credit risk rating and the Industry of the borrower. sub-BPLR lending is also permitted. BPLR has been fixed at 11%. Sub-BPLR Lending permitted by Circle Heads: up to 1.4 DETERMINATION OF THE APPLICABLE RATE OF INTEREST Benchmark Prime Lending Rate (BPLR) Bank has determined Benchmark PLR (BPLR) after taking into account actual cost of funds. SME etc. For instance: i. Sub-BPLR Lending permitted by CMD: up to 5. The sub-BPLR lending lies in the vested powers of CMD/ED/GMs (Head Office)/Circle Heads.

whether the bank’s interest income is increasing or not. Penalty rates (weights) in the form of numerical values have been assigned to Amity International Business School. Two of the most used methods for post sanction follow up are: 1.Noida 67 . • Thorough probe into reasons behind observed signals and analysis thereof. PREVENTIVE MONITORING SYSTEM (PMS) Objectives of PMS The objective of PMS is to track & evaluate the health of borrower’s account on a continuous basis and detect: • Unsatisfactory/adverse signals/indicators at an early stage in a comprehensive manner.00 % BB BPLR + 3. Preventive Monitoring System consists of two parts: i. whether there is overdraft in accounts or the funds are not utilized by the company at all. Credit Appraisal and Risk Rating at PNB CREDIT RISK RATING APPLICABLE ROI AAA BPLR + 1. PMS Index and Rank PMS Index is a numerical index consisting of 29 indicators Parameters grouped into 6 sections. whether the interest is being paid on time or not.2. • Speedy corrective/remedial actions/steps to prevent the account from becoming NPA as well as to minimize the loan losses. 2010) 11. The account is reviewed from time to time in order to know whether the company has met with all the terms & conditions or not.50 % A BPLR + 3.5 POST SANCTION FOLLOW UP If the proposal is considered viable and accepted by the bank then proper account in name of the borrower is created.50 % (The Base Rate system will replace the BPLR system with effect from July 1.

details of signals contributing to PMS Index Score. QMS includes the submission of data on the prescribed formats depending upon the economic activity of the borrower. which is known as PMS Ranking Scale. describes brief profile of the borrower. QUARTERLY MONITORING SYSTEM (QMS) Bank has prescribed the QMS system for monitoring performance of big borrower accounts enjoying working capital facilities of Rs. ii. The lower the PMS Rank. Based on PMS Index Scores a scale of 1 to 10 has been devised. also giving reasons for non-achievement of sales/production targets. which has eight parts. this form also indicates the `SOURCES' and `USES' of the funds generated by the unit. position of accounts. ii.Noida 68 . QMS II This form is required to be submitted within two months from the close of the half-year to which it relates. during the Amity International Business School. 2. better the health of account and vice-versa. Credit Appraisal and Risk Rating at PNB each indicator (parameter) depending upon their degree of impact on health of an account. In addition to providing comparative position of the actuals vis-a-vis the projections accepted at the time of sanction relating to the operations of the unit. PMS Report PMS Report. The section-wise maximum of cumulative scores is to be summed up to arrive at PMS Index Score. which is known as Cumulative score. QMS I This form is required to be submitted within six weeks from the close of the quarter to which it relates. reasons behind adverse signals and proposes corrective/ remedial steps with time frame. The PMS Rank indicates the state of health of an account. Under this system financial and operational information/ data is required to be submitted in two different sets of formats i. The score assigned to any parameter is stored for last one year at any point of time. 1crore & above from the banking system. It gives information about the operations of the unit and its performance for the quarter.

New Delhi-110015 Constitution Private Limited Date of incorporation 18/08/1960 Maintaining current account with PNB. Credit Appraisal and Risk Rating at PNB half year. LTD 12./Corporate Office 41.1BORROWER’S PROFILE Group Name ABC Parts Private Limited Address of Regd. Chapter 12 CASE STUDY – ABC PARTS PVT. Ltd. New Delhi Dealing with PNB since for the last 8 years. Critical analysis of this form can reveal the diversion of short-term funds for long term uses. Industrial Area. BACKGROUND The Company ABC Parts Pvt. was incorporated in 1960. This company is an ISO-9001 – 2000 Certified Company and working speedily on achieving the TQ 14000. Industry/Sector Manufacturing of Auto & Tractor Parts (Large Scale) Engaged in Designing. The Management of the company is experienced and working in the line since long and the party is Amity International Business School. Engineering and Business Activity (Product) Manufacturing of Auto and Tractor components. DLF. The borrower has setup manufacturing units at 4 locations for manufacturing of Automotive Parts.Noida 69 .

Noida 70 . in Rs.00 100% FIs/ Mutual Funds/UTI/Banks/FIIs NIL NIL NIL NRI’s/OCBs NIL NIL NIL Public NIL NIL NIL Total 100000 100.00 Non Fund Based ILC/FLC NIL Amity International Business School. The Company is supplying its product to manufacture of Automobile/Vehicles Manufacturer unit as Original Equipment Manufacturers. which reflects the broad vision of the company to withstand the changing environment. Because of their standing the company is getting repeated orders.house R&D facility in their unit. sophisticated instrumentation laboratory. The company has set up in. Credit Appraisal and Risk Rating at PNB having the regular orders for marketing of products and as well as contracts with corporate manufacturing units of Vehicles/Auto Mobiles.00 Secured Fund Based Ceiling 900. Lacs % Holding Promoters Holding 100000 100. SHAREHOLDING Major Share holders No.00 100% FACILITIES REQUIRED Secured/Unsecured (As per Nature Proposed RBI’s guidelines) Fund Based CC(H) 900. of shares Amt.. testing laboratory etc.

Credit Appraisal and Risk Rating at PNB ILG/ FLG NIL Non Fund Based Ceiling NIL Term Loan 1600.00 Secured TOTAL COMMITMENT 2500. In Lacs Amity International Business School.00 Secured Rs.Noida 71 .

son of Shri Mahendra Kumar Bhunsali joined his father’s business after completing his Graduation. Credit Appraisal and Risk Rating at PNB 12.Noida 72 . LTD I. Quality of Management (Including Corporate Governance): Management of the company is well experienced and have more than 40 year experience in the auto parts line. 4. MANAGERIAL EVALUATION 1.2 CREDIT APPRAISAL FOR ABC PARTS PVT. He has now been associated with this business for twenty-four years and is presently Managing Director of the company • Smt. aged 80 years. Confidential Reports: Satisfactory Amity International Business School. Looking at his rich experience along with his forward looking capabilities. Meenal Bhunsali¸ W/o of Shri Munish Kumar Bhunsali aged 44 years. excellent work and ability to progress as per the changing industry scenario. aged 46 years. Succession Planning: Is been taken care of 5. He has been founder of the company and is presently the chairman of the company. Market reputation on the promoter / management of the company: Satisfactory 2. Brief Profile of Directors • Shri Mahender Kumar Bhunsali. She has also been associated with the business for last eight years and presently Director in the company 3. promoted the business of auto ancillaries after completing his education. he was honored by Udyog Patra Award • Shri Munish Kumar Bhunsali. is also a graduate.

K) • Carraro India Ltd.. The company supplies its products to various ORIGINAL VEHICLE MANUFACTURERS like: • Escorts Tractors Limited. as a part of company’s overall expansion/integration plant for its production activities. The Company Intend to set up new machinery there for setting up a new plant to cater growing demands of its customers. For the above purpose.(Samey. Italy) • Samey Deutz Fahr India Ltd. near New-Delhi. On the other hand company have well experienced management. expansion. modernization program: The company is setting up a new manufacturing facility. France) • International Auto Ltd. good marketing team and vide market network of customers of its products. who have already placed orders to increase supply.190 sq. etc. 7. Italy) • Eicher Tractors (Valtra. (Carraro Spa. • Tractors and Farm Equipment Limited (Massey Ferguson U. that's why its components are used as Original Equipment in vehicles manufactured. Italy) • "Sonalika" International Tractors Ltd (Renault. meters has been allotted to the company by New Okhala Industrial Development Association. Marketing: The endless pursuit for quality excellence for over four decades has earned ABC the unswerving confidence of leading automotive and tractor manufactures. Brazil) • Ford New Holland (CNH. Borrowers' diversification.Noida 73 . Amity International Business School. Credit Appraisal and Risk Rating at PNB 6.. a plot of land measuring about 11.

is gaining momentum fast. To meet the combined demand from domestic and international customers the industry will have to Amity International Business School. outsourcing of automobile components that have relatively high engineering and design content from suppliers in low cost countries like India. Going by the current trends in the domestic automotive industry and as stated above. the importance for precision auto components has been growing. It is estimated that in the next 10 years the auto components industry will reach USD 33-40 billion. The domestic auto industry has also come up with new and quality models. Credit Appraisal and Risk Rating at PNB II. Consequently. which has set the domestic auto ancillary industry on a roll. The auto component sector is on a growth trajectory as is evident by the fact that an auto component has been designated as a “Thrust Sector” by the Government of India under the EXIM Policy. it is expected that the indigenous demand for auto components will also reach USD 13-15 billion in the next 10 years and about USD 20-25 billion would be exported. Many auto majors have established facilities. India crossed million-mark last fiscal. Also. Critically. Exports of auto components from India have witnessed a CAGR of over 19% over the last six years. The increase in demand for auto components in India has also resulted in an increase in revenues and exports.Noida 74 . Auto MNC’s are also launching their latest models in India. which have also been aided by the liberal government policy. BUSINESS EVALUATION Comments on industry scenario and industry outlook: The past few years have witnessed a continuous influx of global auto majors in India. the problems of high rejection rates which plagued the domestic auto ancillary industry has been overcome which is exhibited in number of overseas deals concluded by the domestic industry amidst stiff competition from other Asian countries. The Government has extended various fiscal incentives and policy measures which have helped the industry.

The Indian auto component industry had an estimated 480 companies operating in this area in FY05. Demand is derived from original equipment manufacturers (OEM) as well as the replacement market. employing more than 250. castings and plastics historically. commercial vehicles) have an impact on auto ancillary demand. But this is changing with more component manufactures investing in upgradation of technology in recent years Amity International Business School. Credit Appraisal and Risk Rating at PNB make significant incremental investment Hence. India's strength in exports lies in forgings. Share of exports to output is estimated to have increased from 15% in FY04 to 16% in FY05.Noida 75 . One area where domestic units compare favorably with their international peers is it terms of costs. The fortunes of the auto ancillary sector are closely linked to those of the auto sector.000 people and the industry exported goods worth estimated at US$ 1. the Indian auto component industry (and by sequel the forging industry) is poised to achieve a position in the top slot in the world and will be in all probability a major driver of growth and employment in the domestic economy. with exports accounting for the balance 16%. two-wheelers. while OEMs account for 27%. Lower labour costs give Indian auto ancillary companies an absolute cost advantage.4 bn. Replacement demand accounts for close to 57% of total demand. Demand swings in any of the segments (cars.

The party is also having HEAT TREATMENT SHOP with hardening. 4. engineering and manufacturing unit at Noida –II having the area of 11. Credit Appraisal and Risk Rating at PNB III.190 sq Mts The Party has already constructed approx 45000 sq feet Industrial Shed. Turning centers. The credential of the suppliers is verified for the supply of the machinery as per bank guidelines. The party has submitted the quotations from the suppliers/manufacturers with the term and conditions for supply. 3. The material is available through local suppliers/ units and most of the raw material is purchased from Delhi & NCR. 2.e grinding shop. tampering furnaces which make the component to withstand strength in operating conditions of the parts.. modern process control devices monitored by microprocessors and backed by a competent team of technical personnel to ensure strict quality norms as laid down by the OEM units/ Manufacturer of Tractors and other Vehicles. There are different types of shops i.Noida 76 . Raw Materials: The basic raw material required for the unit is forging of auto parts .The Party has proposed to setup the designing . Manufacturing Process: The auto parts being manufactured under strict quality control by using latest CNC Machines of improved technology. The building area is sufficient for the installation of the plant and machinery and for smooth working of the unit. carbonizing. Land & Building .340 sq feet at different locations in Delhi. Faridabad and Noida. Amity International Business School. stainless steel. annealing. Machine Shops. ensuring high productivity and better quality to keep pace with the ever rising quality standards. Plant and Machinery: It is reported by the party that they are one of the largest integrated plant of its kind for manufacturing Auto and Tractor Component in North India spread over sprawling area of 57. welding rods and store items etc. TECHNICAL EVALUATION 1.

are easily/already available. 8. Amity International Business School. All types of facilities like postal. Quality control test are being undertaken for raw material and other products at stages of production. 6. 9. Credit Appraisal and Risk Rating at PNB 5. transportation etc.Noida 77 . The product shall meet all the specification requirement of their client. Staff and Labor: As the machines are semi automatic and the unit is located at the Nodia. Production Capacity: The stated projections are accepted by the bank as they both match and are in sync the installed capacity and the market demand. telecommunication. which is the approved industrial area.house R&D facility comprising of pilot plant facility. Power: The party has taken the temporary power load connection of 20KW for completion of construction at Noida unit. there is no problem of skilled and unskilled labor and it will be easily available as per the requirement of the party as and when required for the proposed unit at Noida. 7. So. for Raw Material and finished goods etc. testing laboratory etc. sophisticated instrumentation laboratory. it is a developed industrial area and is connected to other parts of the country by roads and rails routes. Quality Control: The party has proposed to set up in. Other Infrastructure: The unit of the party is situated at Noida. The new plant will become operational in the mid of the financial year 2010-11 and production capacity of the company will increased.

Water Connection. The Director of the company has reported that they have obtained the all approvals required for the units for manufacturing of auto parts i.e. Pollution Control Clearance. The other units of the Company are already working at different locations in Faridabad and Delhi. Credit Appraisal and Risk Rating at PNB IV. Amity International Business School.e. Sales Tax. registration of the units with the concerned departments i. Electricity/Power Load Connection. SSI registration. LEGAL EVALUATION Status of various statutory approvals and clearances: For the Noida Unit Company has already obtained the Various approvals such as sanction of building plan.Noida 78 . Income tax. authorization from Pollution control board.

00 Term Liabilities 496. Credit Appraisal and Risk Rating at PNB V.05 104.88 4840.03.98 344.67 113.81 0.2011 Audited Audited Audited Provisional Projection Sales Turnover 1995.2009 31.03.00 Def.00 100.44 17.92 103.00 100.39 2047.86 981.12 1119. Tax liability/ Loss 0.00 32.Noida 79 .61 454.00 0.00 0.03.44 Provision for taxes 40. FINANCIAL EVALUATION Financial Statements of the company are as follows PROFIT AND LOSS ACCOUNT: ABC PARTS PVT.59 26. LTD (In Rs.38 100.85 Depreciation 41.54 Working Capital Advances 0.37 Cost of sales 1868.94 340.03.84 60. LTD (In Rs.03.55 685.79 900.21 442.79 45.79 1314.00 Quasi Capital 17.14 30.59 Profit After Tax 104.00 Revaluation Reserves 0.68 Share App.00 461.00 Cash Profit 146.21 121. Money 0.85 BALANCE SHEET: ABC PARTS PVT.00 0.00 175.01 1819.01 482.00 0.81 959.35 113.54 Unsecured Loans 0.2007 31. Lacs) 31.37 109.10 1064.00 Profit Before Tax 144.2008 31.00 0.86 981.03.42 2502.2008 31.00 100.00 40.97 52.03.00 Amity International Business School.22 434.39 20.68 Secured Loans 496.55 685.2010 31.2009 31.44 Other Income 17.47 117.91 74.56 Operating Profit 126.38 60.08 84.00 0.00 0.98 92.65 2379.00 675.00 69.00 0.40 7.92 684.81 32.00 0.00 75.01 1819.69 573.2011 Audited Audited Audited Provisional Projection Share capital 100.70 82.12 2584.26 -7.48 751.00 0.84 12.66 4405.28 2270.2010 31.03.14 100.74 3.16 691.00 Reserves and Surplus 482.03.00 0.55 202.45 32.2007 31.00 0.41 1954.55 542.12 1119.88 75. Lacs) 31.00 % rise or fall in sales 2.03.00 Net Worth 600.

Lacs) 31.67 796.00 0.00 0.55 1361.83 1647.2009 31.00 Exp.2008 31.48 Total Assets 2301.67 694.00 Non-current Assets 0.93 3015.40 3240.72 37.45 2958.00 Margin Money 0.00 0.00 0.00 0.00 0.50 Investments 0.29 1830.20 3998.03.00 0.22 243.38 68.00 0.00 0.12 1119.00 6.48 6.13 Total Liabilities 2301.57 38.00 0.01 1819.45 2263.00 0.68 Term Loans 496.93 2078.34 1732.10 919.81 BUILD UP OF NWC: ABC PARTS PVT.00 0.00 0.00 Statutory Liabilities 0.16 Lease Asset 0.52 1049.91 105.33 3.00 0.32 85.00 0.09 1586.43 403.00 0.00 Current Assets 1452.00 0.10 985.00 0.40 1453.00 64.00 0.00 Advance Tax 0.00 Adv from Customers 0.39 6.54 Total Long Term Sources 1096.44 1138.94 633.80 3134.75 307.00 0.59 Total Outside Liabilities 1701.23 353.00 0.72 1665.03.22 Amity International Business School.00 0.48 6.59 Current Liabilities 1204. Not WO 0.28 Sundry Debtors 735.48 6.97 1419.99 Depreciation 792.59 1282.92 187.03.89 602.48 751.00 138.24 4272.00 0.00 0.23 0.02 979.93 3015.86 981.47 330.40 3240. LTD (In Rs.18 1004.2007 31.00 Net Block 848.00 0.60 400.42 932.03.19 19.65 100.59 Other Current Assets 277.2011 Audited Audited Audited Provisional Projection Long Term Approach Net Worth 600.48 Security Deposits 0. Credit Appraisal and Risk Rating at PNB Sundry Creditors 496.Noida 80 .00 113.00 675.33 Cash & bank balance 13.80 326.00 Other current Liabilities 707.00 0.00 0.85 150.55 685.07 2410.00 6.07 1735.39 6.00 0.07 2410.79 1314.04 2600.35 473.83 Inventories 426.48 6.27 2590.00 Loans & advances 0.03.81 Fixed Assets 1640.81 959.00 0.19 845.14 1555.16 1398.14 44.30 Advances to suppliers 0.2010 31.47 1161.00 0.50 2372.24 4272.00 0.59 2280.

38 2.00 0.36 486.91 TOL/TNW 2.45 369.71 1.47 1161.83 Other Non Current Asset 0.18 4.36 486.00 675.00 0.03.42 1.00 TNW 600.35 1.45 -369.00 Lacs as Share application money.03.00 Lacs during current year.98 PAT / Sales (%) 5.59 Current Assets (Uses) 1452.43 Brief discussion on Financial Indicators 1.91 Short Term Approach Current Liabilities (Sources) 1204. 0.25 TOL/ Adjusted TNW 2.53 3.83 1.68 Investments in allied co.19 4.31 Surplus / Deficit 248.44 1138.39 6. 100 Lacs comprising of 1 Lac- equity shares of Rs 100/.36 4. which will be converted in to Paid up share Capital before disbursement of limits by the bank.10 985.02 1.17 1.57 1592.Noida 81 .59 1282.21 1.00 0. LTD (In Rs.96 7.10 991.01 2.38 2.2008 31.2007 31.each.55 273. Credit Appraisal and Risk Rating at PNB Net Fixed Assets 848.79 1459.48 751.21 1. It has been projected at the level of Rs 175.23 2.00 6.00 0.28 526.14 1555. Authorized capital of the company is Rs.48 1.00 0.04 2600. 100/.52 2607.09 1586.45 369.50 Surplus / Deficit -248.48 6. The Company will increase the Authorized Amity International Business School.52 1049.28 526.100 Lacs comprising of 1 Lac-equity shares of Rs.97 1419.00 0. The company already inducted Rs.46 Debt/Equity 0.91 FINANCIAL INDICATORS: ABC PARTS PVT.31 1.48 751. Paid up capital are Rs.36 -486. Lacs) 31.00 0.2009 31.00 0.84 2.81 959.01 2.84 2.57 3.83 1647. 75.2011 Audited Audited Audited Provisional Projection Intangible Assets 0.00 675.79 1314.00 Adjusted TNW 600.04 FACR 1.42 1.28 -526.57 3.94 1.2010 31.79 1314.68 Current Ratio 1.25 Operating Profit / Sales (%) 6.each.48 6.03.48 Total Long Term Uses 848.81 959.44 1.55 273.03.38 NWC 248.40 1453.55 -273.59 8. Paid up capital / TNW a.72 1665.03.

2011 due to retention of estimated/projected internal accruals and proposed induction of capital in the business. The company has good demand of its product in the market. Amity International Business School. b. Thus the company has registered a growth of more than 26% over the last year. Based on its existing clientele and the demand in the market of the products of the company. The company has achieved net sales of Rs 22. In view of the recovery of economy since Oct. 25.48.2007 and increased to Rs.03.48 Lacs as on 31. Increase in the production capacity of the company will increase the turnover of the company.68 Lacs respectively as at 31.1314. 959. Company is expecting the good growth rate in sale in coming financial years.79 Lacs and Rs. TNW of the company is steadily increasing with full retention of profits.03. It has been estimated / projected at Rs.03. Keeping in view the overall growth in the automobile and auto part manufacturing market.47 crores in 2007-08 to Rs.Noida 82 . The company is estimating the sale on the basis of order in hand. But sale during the financial year 2009-10 did not register any growth. Another reason of the healthy estimates are good government policies for export out of India and recovery of overall global market from the financial crunch. 751. Keeping in view of the past trend of profitability.2008 and further increased to Rs. Sales: Gross Sales of the company is showing increasing trend. 2009.55 Lacs as on 31. the company is estimating its Gross turnover for the financial year 2010- 11 at Rs. It was Rs.30 crore during the financial year 2009-10.03.03.2010 and 31.40 Crore. which will increase the production capacity of the company.81 Lacs as on 31. The new plant of the company will become function in the mid of the financial year 2010-11. the estimated turnover of the company can be accepted.2009. Sales have increased from Rs. 2.85 crores in 2008-2009. estimates/projections of TNW can be accepted. 20. due to fluctuation in the foreign market export sale of the company decreased from the last financial year. Credit Appraisal and Risk Rating at PNB Capital Limit after the Sanction of the Proposal but before the disbursement of the loan. 582. 675.

Noida 83 . 5.03. Rebate and Discounts received. Due to expansion and installation of new equipments during the financial year.84 Lacs. 6. The company is estimating other income at Rs. Credit Appraisal and Risk Rating at PNB 3.03.59% for the financial year 2007-08. Keeping in view the past records of the company. Investments: The Company has made investments in Fixed Deposits. 20.44 Lacs and for the year ending 31. Increase in the production capacity of the company will reduce the operation cost of the company and the profitability of the company will increase.03. depreciation and financial expenses of the company increased disproportionately as compared to the increase in gross sale of the company. Keeping in view the industry scenario and past trends of the company projections/estimates of the profitability of the company can be accepted.2010. 7. The other incomes for the year end 31.68% of turnover for the financial year 2008-09 in comparison to 8.2008 were Rs. Foreign Exchange Benefit etc. Other income: The other income of the company includes interest on FDR. 4. Amity International Business School. Estimates/Projections of Other Incomes can be accepted.04%. The value of Fixed Deposits at the end of the financial year 2008-09 is Rs. These expenses were 10.The Company estimated these income by taking care of interest receivable on FDR and current discounts /rebate policies of the suppliers. 17. The other incomes of the company as per the provisional balance sheet for the financial year 2009-10 have Rs.96% (PAT/Sale) upto 31. 12. The company is estimating the profitability for the financial year 2010-11 at 7. The PAT of the company for the financial year 2008- 09 was decreased because of increase in the depreciation and Interest expenditure of the company. Profitability: PAT / Sale of the company for the financial year 2007-08 was 3% and for the financial year 2008-09 was 1% .2009 were Rs.48 Lacs. As per the provisional balance sheet for the financial year 2009-10 the company achieved profitability @ 4.39 Lacs.00 for the financial year 2010-11.

Amity International Business School. The expansion in the capital assets has increased the size of the plant and profitability of the company which also improve the short term liquidity of the company.22:1 which is little lower than the bench mark of the bank i. Keeping in view the past records/trends of the company estimated level current ratio can be accepted. Current ratio: Current ratio of the company for the financial year ending 31. which is above the bench mark of the bank.31:1. Hence keeping in view the past trends of the company estimates/ projections of Debt Equity ratio of the company can be accepted.Noida 84 . 1.21:1 & 1. Credit Appraisal and Risk Rating at PNB 6. The Company has estimated it debt equity ratio for current financial year at 1.2008 was 1.03. In spite of using its short term funds for the purchase of the capital assets the NWC of the company is positive. As per provisional Balance sheet of the company the debt equity ratio for the financial year 2009-10 is 1.2007 & 31. 3:1 and proves the long term solvency of the company. As per the provisional balance sheet for the financial year 2009-10 the current ratio of the company is 1.e. Debt Equity Ratio: Debt Equity Ratio of the company for the financial year 2007-08 was 1.17. The company used its internal accrual for purchase of capital assets of the company.35:1 .e.42.02:1 and for the financial year 2008-09 was 1. The debt equity ratio of the company is below the acceptable bench mark of the bank i.33:1 which was due to expansion plan of the company and formation of long term assets of the company during the financial year 2008-09 to increase the overall profitability of the company. 7.03.But current ratio for the financial year 2008-09 was 1.38:1.

67 796.45 369.57 929.50 Other Current Liabilities 1204.79 388.00 461.1600.80 326.72 1665. JUSTIFICATION FOR WORKING CAPITAL SANCTION MAXIMUM PERMISSIBLE BANK FINANCE: ABC PARTS PVT.79 461.B ) -114. Ltd.85 463.02 979.03.93 416. 900.12 285.79 475.23 353.89 602.45 1382. LTD (In Rs.2010 31.45 830.03. New Delhi and sanction of Fresh Term Loan of Rs.00 Lacs from SBBJ.01 366.14 1010.2009 31.79 900.00 Amity International Business School. Lacs) 31.03.54 PBF 2 ( A .3 PRESENT PROPOSAL The Borrower.00 Lacs (by way of takeover of Term Loan of Rs.21 442.28 Sundry Debtors 735. 612.00 Lacs for New Plant & Machinery at Noida Unit) 1.83 1647.Noida 85 .58 800.00 Lacs • And.2011 Audited Audited Audited Provisional Projection Inventories 426.26 718.01 482. for Sanction of Term Loan of Rs.22 1258.89 Total Current Assets 1452. approached to the Bank for the Sanction of following facilities:- • For Sanction of Working Capital Limit of Rs.59 Working Capital Gap (A) 248.79 900.02 1270.78 366.61 517.12 956.14 1555.07 1426.97 1419.42 932.36 486.00 MPBF -114.91 Minimum Stipulated Working Capital -25% of 363.33 Chargeable Current Assets 1162.91 (C) PBF 1 ( A .24 354.61 389.61 Other Current Assets 290.38 TCA (B) Actual / Projected NWC 248.65 238.2007 31.43 403.2008 31.56 755. ABC PARTS Pvt.96 411.61 442.28 526. Barakhamba Road.03.35 473. Credit Appraisal and Risk Rating at PNB 12.27 282. 988.52 588.C ) 0.55 273.03.

Promoters of the company have already contributed Rs.79 Total 1333. 988.00 Total 1333. Lacs) c.79 (In Rs. The balance amount of promoters contribution & internal accrual will be arranged by 100% retention of profits for the financial year 2009-10 and 2010-11. Amity International Business School. JUSTIFICATION FOR TERM LOAN a.79 Electricity and Water Connection 20.00 Unsecured Loans 75. Noida. 75.00 Lacs by way of share application money and Rs. Promoters will introduce remaining amount of unsecured loans Rs.14. Sources of Promoters’ Contribution and the time schedule as to when the funds will be brought. b. 60.03. Summary of Cost of Project and Means of Finance Cost of Project Amount Cost of Machinery 1313.Noida 86 .2010 as unsecured loans.79 Means of Finance Amount Term Loan 988.00 Lacs for purchase of New Plant & Machinery at new unit at New Okhla Industrial Area.12 Lacs during the current financial year.88 Lacs as unsecured loan up to 31.00 Share Capital & internal accruals 270. Purpose: Sanction of Fresh Term Loan of Rs. Credit Appraisal and Risk Rating at PNB 2.

74 140.17 411.62 240.36 3.59 Imp: Detailed projected financial statements are not shown in the report due to confidentiality of the data Amity International Business School.71 654. LTD.02 Tax Depriciatio 224. 2010.44 197.33 Average DSCR 2.83 316.23 213.26 822. 2016.02 Depreciation 224.69 (In Rs.41 143.55 489.02 126.7 790.66 414. Lacs) e.81 266.3 4677.9 320.09 226.8 136.13 161. 2015.17 207.72 551.8 7482.08 592.91 385. 2014. 2018- 11 12 13 14 15 16 17 18 19 PAT 256.37 856 862.77 DSCR 1.54 570.2 165.98 805.03 149.6 8237.13 4.16 164.17 207.94 197. 2014.64 582.57 719.98 31.97 781.89 188. 2013.ABC PARTS PVT.5 Interest 220.87 835.29 207. 2017. 2012. 2017. 2013.56 1.0 7850.27 Sub Total 702.11 755. DSCR calculation DEBT SERVICING COVERAGE RATIO .15 130.27 151.03 149.15 130. 2011.34 58.69 3 6 1 3 6 5 5 Profit after 256.33 385.Noida 87 .29 209.02 126.16 164.23 213.2 165.72 551.7 155. 2016.4 5145.8 136. 2011.55 489. Projections for the profitability of the project PROJECTIONS . LTD.25 176.66 58.84 4.02 58. 2012.47 577. 2015.27 151.62 240.75 202. 2018- 11 12 13 14 15 16 17 18 19 4251. Credit Appraisal and Risk Rating at PNB d.27 Sub Total 448.96 Loan Instalment 228.91 590.02 2.7 6811.66 414.39 5.46 691.6 Net sales 6202.2 5648.91 448.38 350.46 195.25 176.89 188.83 316.41 143.38 350.74 140.ABC PARTS PVT.83 606.85 732.09 226.83 606.54 570.67 Interest 220. 2010.91 385.92 2.67 n Cash Profit 481.84 1.81 266.

65 18.08:1 1. if any Basement of the factory building is already constructed.65 1332.79 1313.35 20.00 Connection Total 1.10 Installation of Equipments June.10 Commissioning of plant August.10 i.14 1333. Credit Appraisal and Risk Rating at PNB f.79 Cost of Electricity and Water 1.95:1 1.21:1 Impact of Increase in Cost of Goods sold by 5% 2.89:1 1.2010 June. Proposed Repayment Schedule Amity International Business School. 2010 July. Present physical & financial status of project. Detailed Sensitivity Analysis on DSCR Variation Average DSCR Minimum DSCR Impact of Reduction of Selling price by 5% 1.17:1 g.Noida 88 . Present Financial Status of the project is PARTICULARS Cost Incurred Cost to be Incurred Total Cost Cost of Construction NIL 1313.28:1 Impact of Increase in Rate of Interest by 1% 1.2010 Sept. Implementation Schedule Activity Start Date Completion Date Land Acquisition Already Done June 2010 ( Shed Measuring 45000 Sq Ft is Building and Civil Construction Already already Constructed) Delivery of Equipment at site March .79 (In Rs lacs) h.

Noida 89 . of installment 84 Starting Date Oct 2011 End Date (Last installment) Sept 2018 Door to door tenor 102 months Amity International Business School. Credit Appraisal and Risk Rating at PNB Scheduled date of Completion of Project Sept 2010 Commercial Operations Date (COD Oct 2010 Implementation period (in months) 6 Months Moratorium (in months) 12 Months Repayment period in months/quarters/ Half year 84 Months No.

03. finished goods. M K Bhunsali Chairman 394.4 SECURITY 1.21 Total 2613.Noida 90 .95 261. 988. Kumad Bhunsali Director 124. Nodia.56 40.31 3347.00 Lacs. Stock in process.21 56.10 Mr. 365.50 (In Rs lacs) Amity International Business School.10 As on 31.03. Security Cover Available Description of Security Book Value Market Value Land Situated at.00 Mrs.87 Other Fixed Assets** 56. Primary i) For working capital limits: Hypothecation of Company’s present and future raw material. U. Credit Appraisal and Risk Rating at PNB 12.00 Mr.P.55 519. Munish Kumar Bhunsali MD 389.00 Building and Sheds 519.45 261.68 1100.55 Plant & Machinery* 1671. stores and spares and other current assets and Book Debts ii) For Term Loan: • First charges on plant and machinery purchased from fresh term loan of Rs.87 1671.63 (In Rs lacs) iii) Personal /Corporate Guarantee: Net Worth As on Immovable property Name of Guarantor Position 31.

Noida 91 .00 <1.00 1.50 2.00-2.25 1.00 Transparency in The financial statements are prepared in accordance 2.00 Future risk liability Impact of Expansion It will lead to more sales.5 CREDIT RISK RATING – ABC PARTS PVT LTD.25-1.62 Absolute Comparison ROCE 12.00 5.00 1.53 >6. Past Financials CO Benchmark Values Rate Category Parameter Value 0 1 2 3 4 TOL/TNW 2. 3.50-1.00 3.00 Net sales ii.00 2.50-2. Future risk and subjective assessment Category Parameter Comments Rate Impact of contingent There is no other contingent liability 4.00 5.50 2. The account was rated under the Large Corporate Model.68 Past Ratio Financials DSCR 1.25-1.00 6.00-4.00-3.00 >2.29 <8% 8-12% 12-15% 15-25% >25% 2.00 Amity International Business School.08 Current 1.42 <1.00 <3.50 1.00 Subjective accounting with generally accepted accounting principles Assessment of The expected variance in the value may be less than Quality of inventory 3.10 (Inv + Rec) / 0.00-1. FINANCIAL EVALUATION i. Credit Appraisal and Risk Rating at PNB 12.56 <1. The following rating have been obtained by both: branch office and zone office 1.75-2.00-4.00-5.00 4.00 4.00 Financials 5% Reliability of Debtors There is no disclosure of debtors 2.75 1.38 >5.50 >2.00 4.00-1.25 1.

00 Geographical diversity of the Firm is selling its product directly to the vehicle 3. BUSINESS EVALUATION A. Market position evaluation Parameter Comments Rate Competitive position 3. Credit Appraisal and Risk Rating at PNB 2.00 Product range Firm is mainly engaged in the processing of 3.00 Distribution network Firm has a well developed distribution network 3. It is expected that company will be in a position to achieve a sales growth of around 10 – 25% in the current year Input related risk 3.00 Expected sales growth The firm has achieved a sales growth of around 3.00 than its peers Product related risk 3.Noida 92 .00 and other critical inputs states Proximity to skilled Labor The firm is located in industrial in NOIDA inputs 3.00 48% during the years 2007 – 08.00 State of technology used The firm has adopted proven technology better 4.00 the peers Marketing 3.00 OEM Product quality Quality of product is reported to be better than 3.00 Availability of raw material Raw material is easily available from nearby 3.00 are available easily Production related risk 4.00 market manufacturers Amity International Business School.

95% >95% 4. Parameter Comments Rate 1 Management set up The firm is in operation since 1960 3.89% 90% .95% >95% 4.00 and sincere 3 Track record in debt payment The account is running satisfactorily with us 2.38 Targeted PBT 137. Subjective S. Industry risk evaluation Industry risk evaluation for auto ancillary industry 75% 3.00 The management is reported to be reliable 2 Commitment and sincerity 3.Noida 93 . No. Objective Co Parameter 0 1 2 3 4 Rate Value Actual gross 2379.89% 90% .00 Management is capable of arranging funds 4 Financial strength/ flexibility 2.00 Targeted sales 2208.00 but with a time lag Amity International Business School.57 <75% 75% .79% 80% .91 Actual PBT 144.00 (in Rs lacs) B.79% 80% . MANAGEMENT EVALUATION A. Credit Appraisal and Risk Rating at PNB B.88 sales <75% 75% .

AA-) THIS MEANS THE RATING OF THE BORROWER IS PNB AA- DETERMINATION OF ROI From the internal circular of the bank on ROI the corresponding ROI for auto ancillary firm having a credit risk rating of AA. and • BPLR + 1.00 Evaluation Management Evaluation 75. And the values and calculation of scores is for the purpose of understanding the process Amity International Business School.00% 15.00% 15.Noida 94 .00% 11.00 20.are: • BPLR + 1.00% 30. CONDUCT OF ACCOUNT EVALUATION Parameter Comments Rate Status of account No irregularity is observed with our bank in last 2 yrs 3.25 refers to PNB.00 Business & Industry 60.00 Conduct of Account 75.00 15.50% for Term loan Imp: The rating as shown in the above section is not a replication of the original model in any form. Credit Appraisal and Risk Rating at PNB 4.25 (The Aggregate Score of 71.25 AGGREGATE SCORE 71.00 Submission of financial data Timely submission of data 3.50% + 0.50% for Working Capital limit.00 40.00 TOTAL SCORE Factor % score obtained Weight Weighted Score Financial Evaluation 75.00 25.00 Operations in account Operations in account are healthy 3.

6 RECOMMENDATIONS: On examining the request of the Company. • The Company has been in operation for past 40 years and has been earning profits continuously.00 Lacs ( including Takeover of Term Loan of Rs.00 Term Loan BPLR + 1.00 Lacs The facilities desired by the borrowers are subject to the given ROI and Terms and Conditions. the following were observed: • The Management of the company is well experienced. the following are recommended i For Sanction Term Loan of Rs. 612 Lacs from State Bank of Bikaner and Jaipur) for purchase of new plant and machinery . Keeping in view the increasing profitability and financial position of the company.00 TOTAL COMMITMENT 2500. Nature Applicable ROI Limits Sanctioned Fund Based BPLR + 1.Noida 95 . Credit Appraisal and Risk Rating at PNB 12. 1600. ii For Sanction Working Capital limit of Rs. • The company has good track record in dealing with Banks.50% 1600. • The overall financial position of the company is satisfactory.50% 900.50% + 0.00 (In Rs lacs) Amity International Business School. 900.

The credit appraisal for business loans has been devised in a systematic way. Amity International Business School.Noida 96 . This method of assessment has certain flexibility required to avoid any rigid approach to fixing quantum of finance. Documentation 6. I have realized during my project that a credit analyst must own multi-disciplinary talents like financial. Credit risk assessment 5. Thus it extremely important for the lender bank to assess the risk associated with credit. Techno Economic Feasibility Analysis 4. During the study I learnt how the theoretical financial analysis aspects are used in practice during the working capital finance and term loan assessment. technical as well as legal know-how. It is a process of appraising the credit worthiness of loan applicants. Loan administration Punjab National Bank’s adoptions of the Projected Balance Sheet method (CMA) of assessment procedures are based on sound principles of lending. thereby ensure the security for the funds deposited by the depositors. The PBS method have been rationalized and simplified to facilitate complete flexibility in decision-making. There are clear guidelines on how the credit analyst or lending officer has to analyze a loan proposal. Financial statement analysis 2. Credit Appraisal and Risk Rating at PNB CONCLUSION& Chapter 13 RECOMMENDATIONS CONCLUSION The study at PNB gave a vast learning experience to me and has helped to enhance my knowledge. Working capital and its assessment techniques 3. It includes phase-wise analysis which consists of 6 phases: 1.

That is why Credit Risk Management system is an essential ingredient of the Credit Appraisal exercise. is extremely important. repayment capacity. Credit Appraisal and Risk Rating at PNB To ensure asset quality. PNB has formulated a Credit Risk Rating model.Noida 97 . historical / industry comparisons etc… depending on the industry. It considers important parameters like profitability. PNB Trac is one of the best rating models present till date. PNB Trac. efficiency of the unit. proper risk assessment right at the beginning. Amity International Business School.

At Punjab National Bank. Some of the parameters in Business and industry evaluation are based on the information provided by company. Also. the ability of the banks to service the credit requirements of the SME sector depends on the underlying transaction costs. 4. 1.Noida 98 . With the deregulation of the financial sector. there are certain infrastructural projects which need to be prioritized. The BPLR system will soon be replaced by Base Rate system. The risk rating model is not flexible to incorporate all these issues. 6. Also. the ratings do not take into account short term drastic changes like price level changes (which are an issue with any method based on accounting statements. Credit Appraisal and Risk Rating at PNB FINDINGS After completing the entire project at Punjab National Bank the following key findings as mentioned below were observed. No specific guidelines are followed in such cases. some of the parameters here may be rendered redundant in some cases and may push up/ push down the rating needlessly in these cases. The present risk rating model does not have any mechanism to prioritize certain sectors of the economy. 3. Therefore. which in some cases may not be sufficient. There is an immediate need for the banking sector to focus on credit and finance requirements of SMEs. efficient recovery processes and available security. are done once a year. Amity International Business School. There are certain sector in the economy where risk spread is low and certain sectors where spread of risk is high like real estate. 5. as being performed at PNB. since annual reports are based on historical cost basis of accounting and other changes like sudden mishap/ of the counterparty are not readily accounted for by the rating system due to long lag between repeat ratings on the same account. Banks may choose any benchmark to arrive at the Base Rate for a specific tenor that may be disclosed transparently. Ratings. Circle Office the priority to appraise a proposal was given to new or fresh clients over the existing clients presenting proposals for renewal 2.

Credit Appraisal and Risk Rating at PNB RECOMMENDATIONS The Credit Department at PNB Circle Office Delhi. Amity International Business School. However to make the process more flexible and efficient.Noida 99 . there is no such recommendation on the entire process. So. an electronic database should be designed carrying all the available and important information related to the proposals accepted. and it should be easily accessible to the Credit Department. This will help reduce paperwork and loss of information. works at its full potential and the staff is highly experienced and has a very strong intuitive sense.

out of the various ways in which risks can be managed. 2.Noida 100 . The major limitations of the study are listed below: 1. many risks are unexpected and the remedial measures available are based on general experience from the past. hence best efforts were made to grasp the process as much as possible 4. Therefore risks can only be minimized cannot be erased completely. Hence. Credit Appraisal and Risk Rating at PNB LIMITATIONS Like any other study this study too is not free from limitations. none of the methods is perfect and may be very diverse even for the work in a similar situation in the future Amity International Business School. Also the geographical scope of the project was limited to PNB Circle Office and the loans studied were of solely of businesses established majorly in NCR 3. The credit appraisal decision are more of intuition and experience and since the time period was limited. The major limitation of this study shall be data availability as the data is proprietary and not readily shared for dissemination. Due to ever changing environment.

Towards a High-performing Sector” Ben McClure.org/publ/bcbsc125. Paradigms of Working Capital Management.Khan & P. Seventh Edition PNB Journals (For internal circulation only) Credit Management & Risk Policy for the year 2008-09 Book of Instructions on Loans. From http://www. From http://ezinearticles.coolavenues. “India Banking 2010 . from http://www. Credit Appraisal and Risk Rating at PNB REFERNCES Mckinsey & Company.com/articles/fundamental/03/061803.asp Naila Iqbal. Investopedia.pdf M.php3 Principles for the Management of Credit Risk.investopedia. Financial Management.investopedia.asp Richard Loth. Risk Management in Financial Institutions. From http://www.K. The Working Capital Position.com/articles/basics/06/workingcapital. March 2005 Loans & Advances Circulars on • BPLR • Project Finance • Industry Rating • Loaning Powers and Guidelines for exercising such powers RBI Circulars and Guidelines Amity International Business School.Y.com/know/fin/jagdish_capoor_a. Investopedia.com/? Paradigms-of-Working-Capital-Management&id=1251489 Jagdish Capoor.Noida 101 . From http://www.Jain.bis. Working Capital Works.

Noida 102 . Credit Appraisal and Risk Rating at PNB Guidelines on Credit Appraisal Basel II Accord Base Rate PART -2 Amity International Business School.

DEFINITIONS: Definition 1: Customer satisfaction is equivalent to making sure that product and service performance meets customer expectations. Definition 2: Customer satisfaction is the perception of the customer that the outcome of a business transaction is equal to or greater than his/her expectation.1CUSTOMER SATISFACTION Customer satisfaction refers to the extent to which customers are happy with the products and services provided by a business. Amity International Business School. Customer satisfaction levels can be measured using survey techniques and questionnaires.Noida 103 . Credit Appraisal and Risk Rating at PNB Chapter 14 CUSTOMER SATISFACTION 14.

The market is more aware and realistic about investment and returns from financial products. There are many factors which lead in high levels of customer satisfaction including. Hence the study is very important. Credit Appraisal and Risk Rating at PNB Definition 3: Customer satisfaction occurs when acquisition of products and/or services provides a minimum negative departure from expectations when compared with other acquisitions. This study will help banks to understand. In this background this study tries to analyze the customer satisfaction towards banking services in general and PNB in particular.3NEED FOR THE STUDY  The deeper the company understands of consumer’s needs and satisfaction. This occurs when they feel that the products and services that they buy have been specially produced for them or for people like them. the earlier the product or service is introduced ahead of competition. Gaining high levels of customer satisfaction is very important to a business because satisfaction customers are most likely to be loyal and to make repeat orders and to use a wide range of services offered by a business. Amity International Business School.Noida 104 . the greater the expected contribution margin. products and services which are customer focused and hence provide high levels of value for money. 14. What is clear about customer satisfaction is that customers are most likely to appreciate the goods and services that they buy if they are made to feel special. organizes and interprets the Quality of service and product offered by banks. 14. how a consumer selects.2 STATEMENT OF THE PROBLEM This Study will help us to understand the consumer’s satisfaction about banking services and products.

Noida 105 .4SCOPE OF THE STUDY This study is limited to the consumers with in New Delhi city. 14.5OBJECTIVE OF THE STUDY  To have an insight into the attitudes and behaviours of customers. satisfaction of the customers regarding the banking services.  This study will also help the companies to understand the experience and expectations of the existing customers. according to the consumer’s need.  To find out the differences among perceived service and expected service. Amity International Business School. needs. Credit Appraisal and Risk Rating at PNB  This study will help companies to customize the service and product. it also help banks to know whether the existing products or services are offering are really satisfying the customers’ needs. 14. The study will be able to reveal the preferences.

SAMPLING METHOD Amity International Business School.6SAMPLE METHOD Convenience sampling method is used for the survey of this project. 14.In this method Researcher have the freedom to choose whomever they find. SAMPLE SIZE Sample size denotes the number of elements selected for the study.Noida 106 . For the present study.  To access the degree of satisfaction of the consumers. Credit Appraisal and Risk Rating at PNB  To produce an executive service report to upgrade service characteristics. thus the name convenience. This is the least reliable design but normally the cheapest and easiest to conduct .  To understand consumer’s preferences. 100 respondents were selected at random. All the 100 respondents were the customers of different branches of PNB. It is a non-probability sample.

Questionnaires were distributed to respondents and they were asked to answer the questions given in the questionnaire.Noida 107 . because it is an important method of data collection.7METHOD OF DATA COLLECTION To know the response. A convenience sampling technique was used to collect data from the respondents. SECONDARY DATA Amity International Business School. The questionnaires were used as an instrumentation technique. In sampling technique. 14. PRIMARY DATA A well-structured questionnaire was personally administrated to the selected sample to collect the primary data. Credit Appraisal and Risk Rating at PNB A sample is a representative part of the population. information is collected only from a representative part of the universe and the conclusions are drawn on that basis for the entire universe. It has been designed as a primary research instrument. the questionnaire method is used.

NATURE OF NUMBER OF PERCENTAGE OF ACCOUNTS RESPONDENTS RESPONDENTS 1 .1 SHARE OF DIFFERENT TYPES OF ACCOUNTS TABLE 15.1 SHARE OF DIFFERENT TYPES OF ACCOUNTS SL. Credit Appraisal and Risk Rating at PNB Two types of secondary data were collected for the preparation of the project work: Internal Data was generated from company’s brochures. No. was generated from magazines. manuals and annual reports. research books. External Data. intranet and internet (websites). on the other hand.Noida 108 . Saving A/Cs 77 77% Amity International Business School. Chapter 15 ANALYSIS AND INTERPRETATION 15.

15.Noida 109 .1 Classification based on nature of A/Cs Figure 1 Amity International Business School. Credit Appraisal and Risk Rating at PNB 2 Current A/Cs 12 12% 3 Fixed Deposits 5 5% 4 Loans 4 4% 5 Others 2 2% Total 100 100% Graph .

loans. and other products). Interpretation: This means most of the respondents are having Saving A/Cs which means the bank deposits are enriching as Saving A/Cs share is most. and 12% have Current A/Cs and rest of the respondents have 11% share of other A/Cs in total (which includes fixed deposits. 15.2 RATINGS OF THE SERVRICES OFFERED BY PNB SL. RATINGS Account Bank's staff Miscellaneous Opening availability and behavior 1 EXCELLENT 35 15 5 2 VERY GOOD 22 33 46 3 GOOD 28 34 12 4 AVERAGE 4 12 30 5 POOR 11 6 7 TOTAL 100 100 100 Amity International Business School. Credit Appraisal and Risk Rating at PNB Analysis: Above table shows that 77% respondents have Saving A/Cs.2 RATINGS OF THE SERVICES OFFERED BY PNB TABLE 15.Noida 110 . No.

Amity International Business School.15. and 04% of them have rated as average’ while only 8% have rated as ‘poor’. Credit Appraisal and Risk Rating at PNB Graph .Noida 111 . 22% of them have rated them as ‘very good’.2 Classification based on Rating of the service offered by PNB branches Analysis: From this table it could be inferred that 41% of the consumers have rated service offered like account opening as ‘excellent’.

15. Returns consumers are getting are also attractive.Noida 112 . As per my observation during the internship and from statistics the overall condition of the bank is not satisfactory. very good and excellent because of the customer service offered by the bank.3 Reason behind the Selecting of PNB Amity International Business School. The miscellaneous column includes the infrastructure.NO ATTRIBUTE SCORE RANK 1 Brand name 49 1 2 Customer service 32 2 3 Interest 16 3 4 Others 3 4 Total 100 Graph . facilities to the customers. There is a lot of customer to this branch as this is the main branch in Patel Nagar but the services offered by this branch is not satisfactory. The Customer Care Officer Mrs.15. etc. Poonam Grover is very calmly and patiently managing the customers and their problems.3 TABLE SHOWING REASON FOR SELECTING PNB SL. Credit Appraisal and Risk Rating at PNB Interpretation: Service offered by the bank is improving day by day. queuing system.3 REASON FOR SELECTING PNB TABLE 15. Majority of the customers rates good.

and what are the important criteria or factors on which decision-making are done. Credit Appraisal and Risk Rating at PNB Analysis: This table show the strengths and weaknesses of the brand. secondly they prefer ‘satisfaction’. From this table we can infer that consumers give more importance for ‘Brand name’. and then ‘returns on investment’. Interpretation: This purely shows that people are now looking forward for better customer service in addition to the brand name in which they are investing and the returns they are getting Amity International Business School.Noida 113 .

RESPONSES NUMBER OF PERCENTAGE OF RESPONDENTS RESPONDENTS 1 Recommended 93 93% 2 Not recommended 07 07% Total 100 100 Graph .4 CONSUMERS WILLINGNESS TO RECOMMEND PNB TO OTHERS TABLE 15.15.4 Classification based on the willingness to recommend PNB branch services to other banks Amity International Business School.4 CONSUMERS WILLINGNESS TO RECOMMEND PNB TO OTHERS SL.Noida 114 . Credit Appraisal and Risk Rating at PNB 15. No.

so that they are willing to recommend their bank services to others. So customers are getting good service. Credit Appraisal and Risk Rating at PNB Analysis: From this table it can be noted that the majority of consumers (93%) would like to recommend their bank services to others and only 07% of consumers would not like to recommend it to others. Amity International Business School. Interpretation: Since the competition has increased in the field of benefits and service of banking.Noida 115 .

5 SATISFACTION OF RESPONDENTS WITH SERVICES OFFERED BY PNB BRANCH TABLE 15. Credit Appraisal and Risk Rating at PNB 15. No.5 SATISFACTION OF RESPONDENTS WITH SERVICES OFFERED BY PNB BRANCH SL. RESPONSE NUMBER OF PERCENTAGE OF RESPONDENTS RESPONDENTS 1 Satisfied 88 88% 2 Not Satisfied 12 12% Amity International Business School.Noida 116 .

Presently the bank offers varieties of services and the customers are getting a good rate of return from their deposits.5 Classification based on satisfaction level of respondents Analysis: From the above table it could be inferred that 88% of the consumers are satisfied with the service and quality of products of their bank. Interpretation: Most of the respondents are satisfied with the service offered by PNB. Only 12% of consumers are not satisfied.15. Customers are getting good service from the bank.Noida 117 . Credit Appraisal and Risk Rating at PNB Total 100 100% Graph . Amity International Business School.

ii) “Savings deposits” means a form of demand deposit which is subject to restrictions as to the Amity International Business School. Definition of major deposits schemes are as under: - i) “Demand deposits” means a deposit received by the Bank which is withdraw able on demand.Noida 118 . Credit Appraisal and Risk Rating at PNB Chapter 16 BANKING OPERATIONS IN BRANCH OFFICES 16.1 OPENING OF SAVING ACCOUNT BY INDIVIDUAL Types of Deposit Accounts: While various deposit products offered by the Bank are assigned different names. The deposit products can be categorized broadly into the following types.

If the decision to open an account of a prospective depositor requires clearance at a higher level. iii) “Term deposit” means a deposit received by the Bank for a fixed period withdraw able only after the expiry of the fixed period and include deposits such as Recurring / Double Benefit Deposits / Short Deposits / Fixed Deposits /Monthly Income Certificate /Quarterly Income Certificate etc. The same will contain details of information to be furnished and documents to be produced for verification and or for record. Amity International Business School. v) “Current Account” means a form of demand deposit wherefrom withdrawals are allowed any number of times depending upon the balance in the account or up to a particular agreed amount and will also include other deposit accounts which are neither Savings Deposit nor Term Deposit. reasons for any delay in opening of the account will be informed to him and the final decision of the Bank will be conveyed at the earliest to him. to explain the procedural formalities and provide necessary clarifications sought by the prospective depositor when he approaches for opening a deposit account. Credit Appraisal and Risk Rating at PNB number of withdrawals as also the amounts of withdrawals permitted by the Bank during any specified period. iv) Notice Deposit means term deposit for specific period but withdraw able on giving at least one complete banking day’s notice. it is expected of the Bank official opening the account.Noida 119 . Account Opening and Operation A) The Bank before opening any deposit account will carry out due diligence as required under “Know Your Customer” (KYC) guidelines issued by RBI and or such other norms or procedures adopted by the Bank. B) The account opening forms and other material would be provided to the prospective depositor by the Bank.

the Bank will normally stipulate certain minimum balances to be maintained as part of terms and conditions governing operation of such accounts. All such details. Similarly. regarding terms and conditions for operation of the accounts and schedule of charges for various services provided will be communicated to the prospective depositor while opening the account.. additional statement of accounts. folio charges. duplicate pass book. Credit Appraisal and Risk Rating at PNB C) For deposit products like Savings Bank Account and Current Deposit Account. for given period. For Saving Bank Account the Bank may also place restrictions on number of transactions. etc. D) Savings Bank Accounts can be opened for eligible person / persons and certain organizations / agencies (as advised by Reserve Bank of India (RBI) from time to time) Amity International Business School.Noida 120 . the Bank may specify charges for issue of cheques books. etc. Failure to maintain minimum balance in the account will attract levy of charges as specified by the Bank from time to time. cash withdrawals.

Noida 121 . Credit Appraisal and Risk Rating at PNB Procedural Chart for new account opening:- Amity International Business School.

the CTO should enter all the information mentioned in the AOF and the particulars for generating customer ID. The new form (PNB-1084) also contains provisions for ‘Personal Information’ of the account-holder to establish his/her identity and monitor transactions in the account. Amity International Business School. While feeding data of new accounts.Noida 122 . Credit Appraisal and Risk Rating at PNB Types of Saving A/C • General saving a/c • NRE/ NRO a/c • Pension a/c • Salary a/c • Total freedom salary a/c • Mitra a/c • Student a/c Account Opening Form To simplify the existing procedure and to eliminate multiplicity of filling up of various AOFs for Savings Fund. Current Account & Term Deposit accounts and to adhere to the instructions of the Reserve Bank of India on due diligence in implementation of KYC policy and customer identification norms. For Centralized Banking Branches (CBB) separate form PNB-1084 has been prescribed in place of PNB-1057. a common Account Opening Form for resident individual (Single & Joint) Account-PNB-1057 for branches other than CBB has been prescribed. All CB branches shall use this form for opening new accounts.

Credit Appraisal and Risk Rating at PNB The authorized officer/Supervisor will verify the same. This reduces the repetitive entry of information to be entered while opening multiple accounts for the same customer. Branch should ensure that only one “customer ID” is assigned to a customer for all his accounts. when a new account for customer is opened. The authorized official should ensure completeness of personal information about the account holder and should ensure that all columns of AOF are filled in properly. 2) OBTENTION OF PHOTOGRAPHS Amity International Business School. This ID shall be utilized for opening other accounts of the same customer in the same branch or other CBB branches Required information about the customer is captured as a part of customer ID creation. In Finacle. A print out of this data should be taken out and preserved after verification and authentication by the officer. ACCOUNT OPENING IN CBB ENVIRONMENT The various controls required in the centralized banking branches (CBB) environment are as under: 1) CUSTOMER ID NUMBER All the customers shall be identified by a unique customer ID number under the CBB environment. the system gives a Customer ID.Noida 123 . The customer detail is used for MIS purpose.

while attesting the photographs as above.F. Further. The photographs so affixed should also be attested by the account opening authority under his/her full signature. and Specimen Signature Slip (SSS). 3) SPECIMEN SIGNATURES AOF shall be verified & preserved manually. ii) The prospective customer also puts his/her signature/thumb impression on the photographs in such a way that it partly lies on the photograph and partly on the AOF / SSS. i) Both the photographs submitted by the prospective customer are identical. two recent photographs of the applicant are to be obtained and affixed on the relative A. The signature of the attesting official should appear partly on the photograph and partly on the AOF / SSS. STORAGE & RETRIEVAL SYSTEM i) Scanning should be done on daily basis for new accounts ii) The authorized officer will verify the signatures on line and ensure scanning of signatures of all accounts. the concerned officer should ensure that. 4) SIGNATURE SCANNING. authorized to open the accounts. In all subsequent deposit accounts opened by the depositor. no fresh photograph is to be obtained and a reference of the existing account (wherein the photographs are available) is only to be made in the new AOF. Every deletion and modification should be verified by authorized officer. Credit Appraisal and Risk Rating at PNB In all new deposit accounts. iii) The photographs must be attested by the Incumbent In charge or other officer of the branch. by using a sign-pen/gel-pen.O. mentioning his/her GBPA number and date and rubber stamp bearing the branch name be affixed below the signature. iii) Signature should be scanned as per Customer ID Amity International Business School.Noida 124 .

6) INTRODUCTION TO A/C Accounts are normally not to be opened without obtaining proper introduction of an existing account holder of the Bank or a respectable member of local community known to the Bank. If the customer who wants to open suppose a fixed Amity International Business School. v) More than one signature of the customer should be captured from the four specimen signatures given on the signature slip. ix) Inoperative account signatures shall be classified separately and access to such signatures would be controlled. e. The general user will not be able to see the signatures of inoperative accounts. vi) Scanned signatures should be very clear. It should be treated as a substantive requirement having real significance and not merely a formality. 5) VIEWING OF SIGNATURE The signatures scanned as per Customer ID can be viewed from any account opened under any scheme for that particular Customer ID by entering the account number. The right to view signature of inoperative account is restricted to authorized officer. vii) Description for the signature field should be used for noting down any specific instructions. “these signatures are valid for amount below ten lacs”. The transactions relating to inoperative accounts should be in accordance with existing guidelines of the bank. It is to be ensured that the account of the introducer is at least one year old and conduct thereof has been satisfactory. viii) Irrelevant areas should not be scanned.g.Noida 125 . The scanned signatures should also be authorized in the system by an authorized officer other than System Administrator. Credit Appraisal and Risk Rating at PNB iv) Scanning of signatures should be restricted to System Administrator/ authorized officer. Introduction is a mandatory requirement. joint signatures or any two etc.

Postal identification. such as Passport. Implication of introduction should be fully explained to the introducer. Identification Cards of Armed Forces.Noida 126 . the branch should send a letter of thanks (as per annexure-I) by Registered Post to the introducer immediately along with self addressed stamped envelope and obtain his confirmation in writing. Credit Appraisal and Risk Rating at PNB deposit account. is already having an account viz. fresh introduction is not required. CA. his personal documents. along with the AOF: - i. C/C. Passport Amity International Business School. duly attested by the officer opening the account. Pay Books. SF. introducer should personally come and introduce the account and in cases where it is not possible. The independent verification of Address may be done from ANY ONE of the following documents and keeping a copy of the document so verified. 7) VERIFICATION OF ADDRESS Independent verification of address in all the accounts is an integral part of the procedure for opening an account and this is required as an additional precaution and not as a substitute of introduction. Ration Card ii. Police and Government may be accepted for the purpose of introduction in all deposit accounts provided the account opening authority is fully satisfied about the genuineness of such document. However. As far as possible. if the prospective account holder is not in a position to offer introduction of an existing account holder / respectable member of local community known to the Bank. OD then this fact must be noted in the AOF with details of the said account and as he/she has already been introduced while opening the earlier account.

as the case may be. Cheque Book is to be issued only after receipt of such confirmation from the depositor and / or introducer. in this connection. Any document or communication issued by an authority of Central Govt. A letter (as per annexure-I) is to be sent by registered post at the cost of the customer. if possible enquiry on telephone is made by a reference to the telephone directory so as to ensure that the persons representing the firms are genuine. including introducer. in the Bank premises. Identity Cards issued by Armed Forces. as applicable. The Communication confirming any change in address of the depositor should be sent both to his old as well as to his new address by registered post.. Credit Appraisal and Risk Rating at PNB iii. The officer opening the account should verify the same from the original and put his signature having verified the original. Pan / Gir Number or Form 60 / 61 The prospective account holder is required to mention his / her PAN / GIR no. A letter of authority (as per annexure-II). Form No. or Local Bodies showing residential address viii. To the extent possible. in the Account Opening Form. Amity International Business School. Driving License v. This is also to be recorded in the account opening form. In case of accounts to be opened in the name of firms. Cheque Book is to be issued only after receipt of such confirmation from the depositor and / or introducer. Copy of the electricity bill or telephone bill showing residential address vii. 60 / 61.Noida 127 . for debiting postage expenses. Any other documentary evidence in support of the address given in the declaration. is required to be obtained. should also be obtained from the customer. Police Department. In case the customer is not having the same. Photo Identity Cards issued by the Election Commission iv. State Govt. Government Department and any other institute of repute vi. both to the customer and the introducer (if the latter has not come personally to the branch for giving introduction) to seek their confirmation for having opened the account with the bank and given introduction respectively. the AOFs etc. should be completed and signed by all concerned. as the case may be.

THE NUMBER OF A/C OPENED IN THE LAST 3 MONTHS ARE (01 MAY 2010 – 30 JUNE 2010) General a/c – 142 Mitra a/c – 60 Student a/c – 81 NRO a/c – 2 Salary a/c – 92 Total a/c opened = 377 Amity International Business School. Credit Appraisal and Risk Rating at PNB After the saving a/c is opened successfully the pass book is issued next day.Noida 128 . The whole process of opening a new account takes 15-20 minutes if all the details are filled properly and the documents required are provided.

This applies equally to casual customers tendering moneys for issuance of drafts and/or remittances etc. are duly mentioned in the relative pay-in-slips. Counterfoils and voucher portions of pay-in-slips of receipts in respect of cash must be signed in full by receiving cashier before these are released from the cash book.10. thereafter. the receiving cashier will (i) sign in full under the cash receipt stamp affixed on both parts of the pay-in-slip. In case of doubt the slip should be sent to the CTO for verification and utmost care should be taken to ensure that the customer is not unduly inconvenienced.). the staff concerned will ensure that the required particulars (e.Noida 129 . If deposits are tendered by a person other than the account holder.2 CASH DEPOSIT While receiving cash for credit to customers’ accounts. (ii) write the amount received by him on both parts of the relative pay-in-slip in such a way as to prevent subsequent additions and alterations therein and (iii) after entering the amount received in respect of each pay-in-slip separately in his long book. Amity International Business School. After the cash has been counted and verified. which should be signed by the depositor. 000/-. whilst the voucher portion will be passed on to the respective sections for necessary action. in addition to signing the pay-in-slip. the official receiving the cash will ensure that the cash is deposited in the appropriate account and that the authority is recorded on the voucher and authenticated by him.g. will pass on the pay-in-slip/voucher to the CTO/clerk concerned for entry in the cash book/ computer. if the amount of deposits is up to and including Rs. he must. be delivered to the depositors. give his full address. Credit Appraisal and Risk Rating at PNB 16. Where cash remittances are received by post or otherwise under cover of a letter from a customer. the nature and number of the accounts and the names and addresses of the account holders etc. The counterfoils will.

CASH BOOK All cash transactions must be entered in the cash book (Form No. duly signed by the receiving cashier only. The amount of each transaction and the name of the account to which it relates will be entered in the appropriate columns of the cash book. The user shall note down the tran-id on the credit voucher and pass on the voucher to authorized official for passing verification. Entries made in these long books and their totals will be checked by the officials Amity International Business School. The user shall enter the voucher to credit the customer account and the system shall generate a transaction ID (tran-id). To facilitate expeditious retirement of inward bills and demand drafts and the issue of drafts etc. In no circumstances should any action be taken on a cash receipt voucher unless it has been signed by a checking official in token of having checked the entry in the cashbook or cash book-cum- realization long book.10000/-. Both the receiving cashier and a checking official should sign cash receipts above Rs. who will record them in 'cash book-cum-realization long book' (Form No.. The verifying official shall enter the tran-id noted on the credit voucher at the relevant menu and authenticate the transaction after verifying the correctness of the particulars of the transaction. in which each entry will be checked and initialed by a checking official.PNB-190) maintained for the purpose. Credit Appraisal and Risk Rating at PNB It is important that no receipt or counterfoil relating to cash should be released until it has been signed in full by a checking official except that counterfoils/receipts for cash deposits up to and including Rs.will be delivered to depositors direct.10000/. cash receipt vouchers pertaining thereto may be sent by the cashier direct to the clerk concerned.PNB-72) after the cash has been received or paid by the cashier.Noida 130 .

All tokens will be engraved with the name of the bank’s office and entered in the tokens in use register (Form No.Noida 131 . The CTOs use tokens for payments made by him within the prescribed limits. under authentication of in charge of cash book. draft or debit voucher. all tokens will be collected by the cashier and checked by the incumbent in charge or the officer in charge of cash under his initials in the relative register and will be kept with the cash in hand. official in charge Amity International Business School. The officer in charge of cash. The total number of vouchers will be tallied entered on either side of the cashbook and the balance in hand will be expressed both in words and figures. At the end of the day. before making payment. Cashier. has been passed for payment by a duly authorized official. and if found in order. will ensure that the closing balance of cash shown in the cash book agree with the balance shown by the cashier in the daily cash balance book (Form No. the total of cash entries recorded in the aforesaid long books along with the number of vouchers will be carried over to the main cash book by the cash book writer. Credit Appraisal and Risk Rating at PNB in charge of the respective sections. the CTO concerned will tally both sides of the cashbook and add the opening and closing cash balances through the system to the receipt and payment sides respectively ensuring that the grand total on the receipt side agree with the grand total on the payment side. missing tokens being recorded in red ink. Each morning the cashier will distribute the tokens to the staff concerned against their receipt according to the lots determined by the incumbent in charge (or officer in charge of cash). draft or cash order etc. will satisfy him from the chart of powers provided to him. the paying cashier should also enquire the name of the person receiving payment and the amount of the cheque.PNB-135). Each paying cashier and CTO will keep a list of the numbers of the missing tokens to guard against their misuse. to the incumbent in charge who will (i) take steps to guard against its misuse.PNB- 107). The CTO/ cashier. (ii) ensure that the necessary entry is made in the tokens in use register and (iii) will institute enquiries with a view to its recovery. that the cheque. as soon as the loss is discovered. In the evening. Any token which is found missing must be reported. etc. At the close of business each day. obtain the latter's signatures on the back of the document. As a measure of safety. while signing the cash book. The cash book will be signed by the Head cashier/Cash Officer.

be handed over to the official in charge of daybook section against his receipt in the cashbook. Cash payment vouchers will. Sr. thereafter. Amity International Business School. Credit Appraisal and Risk Rating at PNB of cash book.Manager/ Manager and the officer in charge of cash. The numbers of receipt per day are around 200.Noida 132 .

while releasing vouchers from the transfer journal. Long Book/Transaction Log The teller will generate the Cash payment long book having record of all payments made by him during the day. where it is not generated on computers.PNB-70). the teller shall tally his cash balance in hand. The authorized official shall verify the instrument. Entries made in a transfer journal will be serially numbered generated by the system and the number indicated on the relative voucher. The checking official. This will be ensured by the concerned section in charge. pass it and then verify the transaction in the system. He shall note down the Tran-id on the debit instrument and pass the instrument on to the authorized official for passing the entry. At the end of the day. The concerned authorized officer shall compare entries in the long book with the payment vouchers and confirm (by putting his initials against individual entry that all payments made by the teller have been recorded properly. will initial in the appropriate column on the voucher in token of having verified that the entries are correctly recorded and that the necessary formalities have been observed. Amity International Business School. verify it and post the transaction in the relevant menu option. which will also satisfy him that transfer vouchers are branded with the rubber stamp of the section. TRANSFER JOURNAL All transfer vouchers will be recorded in the transfer journal (Form No. He will also initial in the cage bearing contra entry number. The contra entry number(s) will be indicated in the cage provided for on the voucher for the purpose.Noida 133 .3 CASH PAYMENT The CTO shall receive the payment instrument. Credit Appraisal and Risk Rating at PNB 16. with the object of exercising control on such vouchers and balancing of transfer transactions every day. prepare denomination wise summary of currency notes on the long book and hand over the cash to the cashier/head cashier against his receipt on the long book.

the windows differ by the amount of cash payment is to be done.000.000 different counter was there. large payments are handled by the head cashier.per such cheque) would be recovered from the customers. 20. ruled off. The number of transactions in a day was around 100. total of the cash book clearing sheets and opening and closing cash balances. While doing so. All day end reports including Cash Book/Long Book /Transfer journals/Day Book /Exception Report etc. that is to say. WITHDRAWAL There is no restriction on number of withdrawals. This will be checked and signed by a checking official. Regarding the queue management a proper token system was there and the numbers were displayed on the electronic screen. tallied and the totals being checked and signed by the officials’ in charge of the respective section. under the column "Debit Voucher Passed” in token of his having passed the corresponding debits. This window was taken care by the assistant. i. Amity International Business School. At the end of the day the totals of all the transfer journals together with the total number of vouchers will be carried into the transfer analysis register (which will be balanced by adding. For cheques drawn for a sum of less than Rs. in the appropriate columns. have been generated on day to day basis during implementation phase and checked. prescribed charges (presently Rs. 20. For the amount less than Rs. 50/-. the official concerned will satisfy himself that the vouchers are initialed as having been entered in and released from the transfer journal. 10/. Credit Appraisal and Risk Rating at PNB The official signing the debit voucher shall also sign on the corresponding credit vouchers at the space earmarked for the purpose.Noida 134 . In the Patel Nagar Branch. At the close of the day. For the amount higher than Rs. all columns of the transfer journal will be totaled.e.

You can also transfer funds through ATM to your own / other PNB accounts and also transfer / receive funds to / from any MasterCard or Maestro card holder (Debit or Credit card) of other selected banks. in which case the deactivated card would be delivered at your address directly within 7-10 working days. If one do not received personalized card even after 10 days of giving the request at the branch / call centre you should contact the Branch / call centre to enquire about the status of your request. on-line electronic payment for purchases from your savings / current (individual) accounts.co. Signature based Gold Debit card with photo (Master card) PIN is a unique 4 digit number that allows you to access your account through Debit Card at ATMs. Signature based Classic Debit card (Master card) iii. However you can send the duly filled application from along with proof of identity to HO for activation of the card. At present following types of Debit card Bank is issuing: i. You can also get a Debit Card through PNB 24 Hour Call Centre by making a call at 1800 180 2222 (Toll free) and 0124-2340000 (accessible from mobile also). In case you do not get a satisfactory reply. Credit Appraisal and Risk Rating at PNB 16.4 ATM MANAGEMENT & MAINTENANCE OPERATION A Debit Card provides access to ATMs for cash withdrawals.Noida 135 . please contact Debit Card Cell at 011 – 23710021 or through email at debitcard@pnb. Amity International Business School. In case of personalized card (with name) the card would be issued in 7-8 working days. You can collect the Duplicate PIN from the branch after 7 working days. In case of Non-Personalized card (without name) the card would be issued instantly. Debit card can be obtained from any CBS branch of PNB (irrespective of your account maintaining branch) by filling a Debit Card application form. PIN based Debit Card (Maestro card) ii. balance enquiries and mini statement.in If PIN is not legible you should contact the card issuing branch and request for a duplicate PIN.

ELIGIBILITY Eligible for PNB Debit card •All existing Account holder who are maintaining minimum balance and who regularly operate their account are eligible for the issuance of Debit Card. However per transaction limit at ATM is Rs.000 only. For Signature Based Gold Debit Card. contact our helpdesk no of ATM Switch at 011 -23765143. having Savings Bank Account and Current Account. Amity International Business School. Credit Appraisal and Risk Rating at PNB Validity of PNB Debit Card: PIN based Maestro Debit card has no expiry date.000 and Rs. 60. are also eligible for the issue of Debit Cards at the time of opening the account itself.Noida 136 . 15. For PIN Based Maestro Debit card and Signature Based classic Debit card the daily cash withdrawal limit at ATM and shopping limit at merchant establishments are Rs. 1800 180 2222 (Toll Free) Contact Numbers 0124 – 2340000 (Accessible from Mobile also. who open their accounts after introduction. the daily cash withdrawal limit at ATM and shopping limit at merchant establishments are Rs.000/.23323672.In case you do not get the Call Centre no.000 only. However per transaction limit at ATM is Rs. • Debit Card facility shall be extended to the individual customers only. However a nominal fee of Rs. • New customers. Fee for the issuance of Debit card: PNB Debit Card is issued free of cost. 15. However Signature based Debit Card is valid for 7 years from the date of issue. 011 . 25. of call centre to get the card hot listed / blocked.respectively. If Debit card is lost or misplaced: You should immediately contact our below given no. 40.000 each. 100 per Year will be levied after one year of Card issuance every year.

Now reconciliation & complaint resolution system has been put into place. Amity International Business School. cards can be issued to both the account holders whereas in “Former or Survivor” accounts card can be issued only to the Former. In “Either or Survivor” accounts. besides sending SMS to customer’s mobile number if available. • Debit Card can be issued in Joint Accounts with “Either or Survivor”/”Former or Survivor” mandate. in addition to using call centre service. Complaints resolution status updated on ‘SPARSH’ is now being done on day to day basis. Credit Appraisal and Risk Rating at PNB • Debit cards shall also be issued to individual customers having overdraft facility. to lodge the complaint & to get the docket-id from ‘SPARSH’. Branches if approached by customers. In joint Accounts where account has to be jointly operated Debit Card shall not be issued unless mandate for operation of account is changed to “Either or Survivor” or “Former or Survivor” basis. have also been given the option to use the centralized mail. where operations through cheques are permitted.id. ATM Maintenance: Now for the ATM maintenance a single channel is made. The complaints can now be lodged or resolution can be done by ‘SPARSH’ call centre. This shall mean and include personal loans extended to individual customers in the form of a regular overdraft limit such as clean overdraft facility or overdraft facility against FD/NSCs/LICs etc. which is in the nature of a personal loan.Noida 137 .

There were hardly one or two seats for the customers. But due to large number of people it gets break more often. They were written both in Hindi and English.5 CUSTOMER FACILITIES AND CONVENIENCES Physical facilities: A proper sitting place was not available. Credit Appraisal and Risk Rating at PNB 16. Punctuality & staff cordiality: The staff members were highly motivated toward the work. For the disposal of the cheques the forms were kept properly on the table and proper instructions were written as to how to proceed.Noida 138 . The queue management system was missing in this branch. The functions in the branch start well in time. They are very helpful and gave all kinds of assistance to the customers. There were no proper instructions and the sign boards present on the different counters. The most of the staff members was not wearing any name plates. The lunch hours were not too long and they come back to their seat on time. But after the notice came for wearing the name plates everyone was made sure that they wear the name plates. They strictly followed the time line. The pass book printer was in the working condition and was performing nicely Amity International Business School. They were punctual and most of the time busy doing the work. Routine banking operation: The indicators were bilingual. Both the cheque box and the electronic machine were present. They need to work on the seating arrangements for the customers.

 PNB should adopt effective promotional strategies to increase the awareness level among the consumers. If they are dissatisfied. As there is intense competition.1SUGGESTIONS & RECOMMENDATIONS  With regard to banking products and services.  The PNB brand name has earned a lot of goodwill and enjoys high brand equity. PNB should work hard to maintain its position and offer better service and products to consumers. Hence PNB should try to bring their new product and services to the attention of potential early adopters.Noida 139 . Amity International Business School. Hence greater focus should be given to these attributes.  Due to the intense competition in the financial market.  Return on investment company reputation and premium outflow are most preferred attributes that are expected by the respondents. Credit Appraisal and Risk Rating at PNB Chapter 17 CONCLUSIONS AND RECOMMENDATIONS 17. PNB should adopt better strategies to attract more customers.  PNB should ask for their consumer feedback to know whether the consumers are really satisfied or dissatisfied with the service and product of the bank. consumers respond at different rates. depending on the consumer’s characteristics. then the reasons for dissatisfaction should be found out and should be corrected in future.

only the customers will be satisfied. so PNB should employ the strategies to convert the want in to need which will enrich their business. Credit Appraisal and Risk Rating at PNB  The bank should try to increase the Brand image through performance and service then.  Majority of the people find banking important in their life.Noida 140 . Amity International Business School.

2LIMITATIONS OF THE STUDY Although the study was carried out with extreme enthusiasm and careful planning there are several limitations. however due care is taken to include all the relevant information needed. some respondents tend to give misleading information. Accuracy: It is difficult to know if all the respondents gave accurate information. 1. and collection of data was very difficult. 4. 2. Sample size: Due to time constraints the sample size was relatively small and would definitely have been more representative if I had collected information from more respondents. It was difficult to find respondents as they were busy in their schedule.Noida 141 . 3. Credit Appraisal and Risk Rating at PNB 17. which handicapped the research viz. Time Constraints: The time stipulated for the project to be completed is less and thus there are chances that some information might have been left out. Therefore. the study had to be carried out based on the availability of respondents. Amity International Business School.

PNB is far behind SBI.Noida 142 . I am sure the bank will find my findings relevant and I sincerely hope it uses my suggestions enlisted. Credit Appraisal and Risk Rating at PNB 17. which I hope will take them miles ahead of competition. I am sure the bank has a very bright future to look forward to and will be a trailblazer in its own right Amity International Business School. I would like to say that the very act of the concerned management at PNB in giving me the job of critically examining consumer satisfaction towards financial products and services of the company is a step in their continual mission of making all round improvements as a means of progress. private banks are in the fray each one trying to cover more market share than the other. Yet.3CONCLUSION: Since the opening up of the banking sector. PNB must also be alert what with Private Banks (ICICI. In short. HDFC) breathing down its neck.