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 GUIDE Mr. ARUN KUMAR NIJHAWAN MITTAL SENIOR MANAGER SENIOR FACULTY

FACULTY Mr.AJIT

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 hardworking student with pleasant manners. We wish all success in her future endeavors.

Mr. ARUN KUMAR NIJHAWAN

Amity International Business School,Noida

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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.

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Ms. Trilochan Kaur Anand (Manager. Credit.Credit Appraisal and Risk Rating at PNB Dr. PNB Circle Office. without which the completion of this project would have been extremely difficult. Ajit Mittal Professor AIBS Kritika Arora Student MBA in International Business Amity International Business School ACKNOWLEDGEMENT Every work involves efforts and inputs of various kinds and people. Mr. Credit). Amity International Business School. Credit Risk Management Department) and the entire Credit Department for their help and guidance. for enhancing my understanding of the subject and enabling me to appreciate finer nuances of the subject. Sarkar (Senior Manager. A K Nijhawan Senior Manager. Rohit Grover (Chief Manager. 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 . I would also like to express my deepest gratitude to Mr. Credit).

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

1 CHAPTER 1 CHAPTER 2 CHAPTER 3 CHAPTER 4 CHAPTER 5 CHAPTER 6 CHAPTER 7 EXECUTIVE SUMMARY………………………………. 57 Amity International Business School.1 7.1 PNB’s Loan Policy…………………………………. 55 ANALYSIS & INTERPRETATION………………………….... 38 Management & Organizational Analysis………………… 45 Credit Appraisal Checklist…………………………… 46 49 Credit Risk……………………………………….. RESEARCH METHODOLOGY…………………………….4 8.2 CHAPTER 10 CHAPTER 11 POST SANCTION FOLLOW UP OF LOANS…………………. 33 Market Analysis…………………………………… 34 Technical Analysis…………………………………..3 8 10 12 13 14 17 19 Working Capital Assessment…………………………..3 8.1 8.6 CHAPTER 9 CREDIT RISK MANAGEMENT…………………………… 9.2 7. 19 Assessment of Term Loans…………………………… 30 Basel Accord & Risk Management……………………. 31 33 Introduction……………………………………….5 8.. COMPANY PROFILE……………………………………. INDUSTRY PROFILE……………………………………. 49 Credit Risk Management System in PNB………………..2 8. 7. 11. 49 57 CHAPTER 8 CREDIT APPRAISAL…………………………………… 8.. INTRODUCTION TO CREDIT APPRAISAL………………… OBJECTIVES………………………………………….Noida 6 ..1 9.. 36 Financial Analysis…………………………………. REVIEW OF LITERATURE……………………………….Credit Appraisal and Risk Rating at PNB CHAPTER PLAN Table of Content PART .

...1.2. 11. Ltd……………...3 Present Proposal………………………………. 11. Business Evaluation……………………… III. Management Evaluation…………………… II.. I.3 Methods of Lending…………………………….5 Post Sanction Follow Up………………………… 11. 10 0 PART –2 Amity International Business School.. REFERENCES……………………………………………………….. 12..………… Conclusion……………………………………….. Credit Appraisal Process at PNB……………………… 11. Findings…………………………………………....3 Risk Rating of the Borrower………………………..1 Borrowers Profile 57 57 58 60 60 60 62 65 66 68 68 71 71 73 75 77 78 84 89 90 94 95 95 97 98 99 CHAPTER 12 CASE STUDY.6 Recommendations……………………………..1 Objective 12.2.5 Credit Risk Rating……………………………. 12...... 11...2.1.. Technical Evaluation…………………….2 Brief on the Process…………………………….4 Security …………………………………… 12.ABC PARTS PVT LTD CHAPTER 13 ……………………………. V.2 ………………………………….... 12.... 11... IV. 11......2 Basic Tenets of the Policy………………………. Limitations………………………………………. CONCLUSION & RECOMMENDATIONS…….Credit Appraisal and Risk Rating at PNB 11.2. Recommendations……………………………….2 Credit Appraisal of ABC PARTS Pvt. Legal Evaluation………………………...Noida 7 . 12.4 Determination of the Applicable Rate of Interest…………. Financial Evaluation…………………….1 Flowchart…………………………………..1. 11.2.

..…….2 16. 14.. 17.. 15. Ratios of the Services Offered by PNB……………………… Reason for Selecting PNB…………………………………… Consumers Willingness To Recommend PNB To Others…...3 14... 10 2 102 10 3 103 104 104 105 106 107 107 109 111 Scope of the Study……………………………………………….4 Share of Different Types of Accounts……………………….Credit Appraisal and Risk Rating at PNB CHAPTER 14 CUSTOMER SATISFACTION…………………………….5 Customer Facilities & Conveniences………………………… CHAPTER 17 CONCLUSION & RECOMMENDATION………………………… 17..2 Statement of the Problem………………. ATM Management & Maintenance Operation……………… 117 117 127 131 133 136 16. 113 115 15..4 Need for the Study…………………………………………..1 15... 137 137 139 140 Amity International Business School.3 15.. Method of Data Collection………………………………….. 14. 14. 16.6 14.3 Conclusion…………………………………………………....2 15.7 Objective of the Study……………………………………… Sample Method……………………………………………..4 Cash Deposit………………………………………………… Cash Payment………………………………………………..5 14..1 Customer Satisfaction……………………………....3 16....Noida 8 .5 Satisfaction of Respondents With Services Offered by PNB… Branch CHAPTER 16 BANKING OPERATIONS IN BRANCH OFFICES ……………….2 Limitation of the Study……………………………….1 Suggestion & Recommendation……………………………... 14... CHAPTER 15 ANALYSIS & INTERPRETATION……………………………….. 17...1 Opening of Saving Account by Individual…………………… 16.

Amity International Business School. Companies that intend to seek credit facilities approach the bank. assess the risks. Efficient management of credit portfolio is of utmost importance as it has a tremendous impact on the Banks’ assets quality & profitability. at the Credit Department. In addition. tax and accounting considerations. Non Fund Based Limits like Letter of Guarantee. Working capital finance b. but have simultaneously exposed them to various risks. what is most important is the identification. public/private financing structures. which need to be effectively managed. Project Financing discipline includes understanding the rationale for project financing. how to analyze cash flow projections and use them to measure expected rates of return. analysis. credit is required for following purposes: a. issues for the host government legislative provisions. The ongoing financial reforms have no doubt provided unparallel opportunities to banks for growth. the manner in which risks are approached by financiers in a project finance transaction. 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. The purpose of this project is to explain. and raise the funds.Noida 9 .Credit Appraisal and Risk Rating at PNB Chapter 1 EXECUTIVE SUMMARY This project was undertaken at the Punjab National Bank Circle Office Delhi. in a brief and general way. design the financing mix. public/private infrastructure partnerships. and how to determine the project's borrowing capacity. one must understand some project financing plans have succeeded while others have failed. Primarily. Letter of Credit etc. Term loan for mega projects c. allocation and management of every risk associated with the project. credit requirements of lenders. how to prepare the financial plan. Such risk minimization lies at the heart of project finance. A knowledge-base is required regarding the design of contractual arrangements to support project financing. Financial requirements for Project Finance and Working Capital purposes are taken care of at the Credit Department.

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

Credit information of the borrowing company can be obtained by the following sources: 1. Intuitive guess work has little place in appraising the credit rating or credit needs of a corporate unit. 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. 6. Press Reports 8. Published Books: Basic information about a company may be taken from printed sources like the Stock Exchange Year book. 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 .viability. Charges Registered: Charges created on the assets of a company have to be registered with the Registrar of Companies. Factory Visit Amity International Business School. Personal discussion 11. Stock Market Opinion 9.Noida 11 . Trade References 4. Project / Credit appraisal is done by banks or financial institutions by obtaining credit information of the borrowing company. Company Financial Reports 7. Banks and Financial Institution 2. Credit Rating Agencies 5. Bank References 3. 10. etc.

Trend analysis: Trend analysis can be through: i. and its future planning. Ratio Analysis b. Reading of notes to accounts and other information: Careful reading and analysis of the notes on accounts. performance of the company. Inter firm comparison. Details of the Security to be pledged: 8. c. controlling and monitoring systems which have been put in place have to given. 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. 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. Required facility 3. Key industry dynamics: 4. Financials 7.Credit Appraisal and Risk Rating at PNB 12. 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. Present banking relationship: The bank requires full details of the present credit facilities being enjoyed at the moment. Basic background information on the company: 2.Noida 12 . Management: 5. 6. one can gauge the policies of the management. Amity International Business School.

e. credit appraisal for business units i. the loan policy. iii.Noida 13 . This would entail undertaking of the following procedures: i. vi. iv. Management Evaluation Business / Industry Evaluation Technical Evaluation Legal Evaluation Financial Evaluation Credit Risk Rating Amity International Business School. ii. v. 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.Credit Appraisal and Risk Rating at PNB Chapter 3 OBJECTIVES • To study broad contours of management of credit.

Income Tax files.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. and Auditor reports Amity International Business School. Registrar of its related officials Companies (Ministry of Corporate Affairs). Primary sources of Information • • Meetings and discussion with the Chief Manager and the Senior Manager of both Meetings with the clients Credit and Credit Risk Management Department Secondary sources of Information • • • Loan Policy and Internal Circulars of the bank Research papers.Noida 14 . power point presentations and PDF files prepared by the bank and Referring to information provided by CIBIL.

the report forecasts that the pace of expansion in the balance-sheets of banks is likely to decelerate. Based on the projections made in the "India Vision 2020" prepared by the Planning Commission. As far as foreign banks are concerned they are likely to succeed in the Indian Banking Industry.90. There are about 67.4 per cent during the rest of the decade as against the growth rate of 16. It is expected that there will be large additions to the capital base and reserves on the liability side.Noida 15 . Indian banks are considered to have clean. banking in India is generally fairly mature in terms of supply.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. strong and transparent balance sheets relative to other banks in comparable economies in its Amity International Business School. The Indian Banking Industry can be categorized into non-scheduled banks and scheduled banks. massive manpower and lack of modern technology. That will comprise about 65 per cent of GDP at current market prices as compared to 67 per cent in 2002-03. which are the base of the Banking sector in India account for more than 78 per cent of the total banking industry assets. Unfortunately they are burdened with excessive Non Performing assets (NPAs). ATMs. As far as the present scenario is concerned the Banking Industry in India is going through a transitional phase. 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. They are leaders in Internet banking.000 crores. The total assets of all scheduled commercial banks by end-March 2010 is estimated at Rs 40. The Public Sector Banks (PSBs). mobile banking.000 branches of Scheduled banks spread across India. Scheduled banks constitute of commercial banks and co-operative banks. phone banking. On the other hand the Private Sector Banks are making tremendous progress. Bank assets are expected to grow at an annual composite rate of 13. Currently. product range and reacheven though reaching rural India still remains a challenge for the private sector and foreign banks.7 per cent that existed between 1994-95 and 2002-03. In terms of quality of assets and capital adequacy.

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:

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Credit Appraisal and Risk Rating at PNB

i. ii. iii.

Fundamentally upgrading organizational capability to stay in tune with the changing market Adopting value-creating M&A as an avenue for growth 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. iii. iv. Banks will no longer enjoy windfall treasury gains that the decade-long secular decline in interest rates provided With increased interest in India, competition from foreign banks will only intensify 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

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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 MISSION a household brand in the Indo-Gangetic Plains providing entire range of financial products and services under one roof 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………

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53% respectively.96.42 16.71% and 0.85% share of CASA deposits. the Bank has the Gross and Net NPA ratio of 1.01 15. 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 ).98 14.15% and 5. the bank achieved a net profit of Rs 3905 crore. Bank has a strong capital base with capital adequacy ratio of 14.29 23. its’ ratio of Priority Sector Credit to Adjusted Net Bank Credit at 40. Today.09 (Rs in Crore) ORGANIZATIONAL STRUCTURE HEAD OFFICE CIRCLE OFFICE BRANCH OFFICE Amity International Business School.16% as on Mar’10 as per Basel II with Tier I and Tier II capital ratio at 9.35. with 40. with assets of more than Rs 2.633 crore.5% & Agriculture Credit to Adjusted Net Bank Credit at 19. During the FY 2009-10.931 crore.Noida 19 . The performance highlights of the bank in terms of business and profit are shown below: Parameters Operating Profit Net Profit Deposit Advance Total Business Mar'08 4006 2049 166457 119502 285959 Mar'09 5744 3091 209760 154703 364463 Mar'10 7326 3905 249330 186601 435931 CAGR(%) 22. 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 4.7% was also higher than the stipulated requirement of 40% & 18%. As on March’10.01% respectively.

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

taking into account the total working capital requirements as assessed earlier. by way of margins. the permissible limit. converting them into finished goods and realizing cash by sale of these finished goods.Noida 21 . Amity International Business School. the operating cycle consists of: Time taken to acquire raw materials and average period for which they are in store. 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.Credit Appraisal and Risk Rating at PNB normally insist on the stake of the enterprise at every stage.33). The margins stipulated will depend on various factors like salability. price fluctuations in the market for the commodity etc. That is. Normally. 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. liquid surplus. Bank finance is normally restricted to the amount of funds locked up less a certain percentage of margins. quality. it will be necessary to ensure that a reasonable proportion of the working capital is met from the long-term sources viz. liquid surplus or net working capital be at least 25% of the working capital requirement (corresponding to the benchmark current ratio of 1. Conversion process time Average period for which finished goods are in store and Average collection period of receivables (sundry debtors). durability. though this may vary depending on the nature of industry/ trade and business conditions. 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. While granting working capital advances to a unit. up to which the bank finance cab be granted is arrived.

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

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

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

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. ii. iii. iv. v. Trade practices Market conditions Whether it is bulky by the buyer Seasonality 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 Stock-in-process Finished Goods Sundry Debtors Expenses Total Current Assets Credit received on Purchases (months’ Purchase value) Advance payment on order received

Months requirement Months (cost of Production) Months cost of Production required to be stocked Months cost of Production (o/s credits) One month(normally)

Rs. A Rs. B Rs. C Rs. D Rs. E A+B+C+D+E Rs. F Rs. G

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

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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) Working Capital Requirement: 25% of A (B) Margin : 5% of A (C) Maximum Permissible Bank Finance (B-C) Important clarifications:
i.

120 30 6 24
In Rs lacs

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.

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The difference of (1. of 75% of the working capital gap (WCG= the total current assets . production plan and resultant credit needs of units. The current ratio is further improved i.79: 1 Amity International Business School. periodically. Since at that time.Regarding approach to lending: the committee suggested three methods for assessment of working capital requirements. The Committee was also asked to devise an information system that would provide. 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.33:1 Third Method of lending: Same as 2nd method. First Method of lending: According to this method.e. The MPBF method is the fall out of the recommendations made by Tandon and Chore Committee.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. owned funds and term borrowings. business forecasts. Banks would finance up to a max. The term ‘core current assets’ refers to the absolute minimum level of investment in current assets. operational data.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. there was scarcity of bank’s resources. 1. which was appointed later. Chore Committee. but excluding core current assets from total assets and the core current assets is financed out of long term funds. which is required at all times to carry out minimum level of business activity.17:1. This will give rise to a minimum current ratio of 1.Noida 28 .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. This will give a minimum current ratio of 1.e. further refined the approach to working capital assessment.

17: 1 Current ratio Less: CL .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 Borrowing 150 Less: 25% from LTS Less: CL – Bank Borrowing 128 MPBF 1.33: 1 Current ratio 69 150 56 1.Noida 29 . Amity International Business School.Credit Appraisal and Risk Rating at PNB Example: Current Liabilities Creditors for purchase Other current liability Bank borrowings Current assets 100 Raw material 50 Stock in process 200 Finished goods Receivables Other current assets Total Current Liabilities 350 Total Current Assets 200 20 90 50 10 370 (In Rs lacs) Calculating NWC First method of lending Total CA Less: CL – Bank Borrowing Second method of lending 370 Total CA 150 Less: 25% of CA Third method of lending 370 Total CA 92 Less: core CA from LT 370 95 275 Working Capital Gap 25% of WCG from long term sources MPBF Current ratio 220 55 165 MPBF 1.

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. ii. CMA assessment method is continued with certain modifications. 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. ii. iii. iv. v. Collection of financial information from the borrower Classification of current assets / current liabilities Verification of projected levels of inventory/ receivables/ sundry creditors Evaluation of liquidity in the business operation Validation of bank finance sought

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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.

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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 reserves + Capital Reserves representing surplus arising out of sale proceeds of Assets + Innovative Perpetual Debt instruments Revaluation Reserves (at a discount of 55%) + General Provisions and Loss Reserves + Subordinated Debt + Instruments Hybrid Debt Capital

Tier I Capital CAPITAL Tier II Capital

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).

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

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

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

the buy-back arrangements under the foreign collaboration. competitors' status and their level of operation with regard to production and products and distribution channels being used etc. Further.3 TECHNICAL ANALYSIS Amity International Business School. and influence of Government policies also needs to be considered for projecting the demand.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-avis prices of the competing products/substitutes. 8. practices. if any. Competition from imported goods. attitudes. requirements etc. discount structure. Government Import Policy and Import duty structure also need to be evaluated. 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. arrangement made for after sale service. Critical analysis is required regarding size of the market for the product(s) both local and export.Noida 36 .

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

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 demand. their supply position. The selected process of manufacturing indicating the adequacy. as and when required. availability and suitability of technology to be used along with plant capacity. specification. 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. Amity International Business School. product price and technology.Credit Appraisal and Risk Rating at PNB needed for various utility services. and in case of collaboration. price and performance as also suppliers' credentials. 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.Noida 38 . collaborators' present and future support requires critical analysis. wherever required.

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

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

If. maximizing production of the item giving higher contribution etc. As regards unit sales price. the business would incur loss.Credit Appraisal and Risk Rating at PNB achievable. While preparing profitability projections. labor. power. production is below this level. such as. A business earns profit if it operates at a level higher than the break-even level or break-even point. it is generally the same for all levels of output. Amity International Business School. on the other hand.Noida 41 . raw material. the past trends of performance in an industry and other environmental factors influencing the cost and revenue items should also be considered objectively. The breakeven point in an algebraic equation can be put as under: Break-even point (Volume or Units) Total Fixed Cost / (Sales price per unit . Generally speaking. there is neither profit nor loss. etc. 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.Variable Cost per unit) (Total Fixed Cost x Sales) / (Sales . The break-even analysis can help in making vital decisions relating to fixation of selling price make or buy decision. and optimizing product-mix to improve project profitability. the break-even analysis can help in understanding the impact of important cost factors.e. 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. progressive and efficient if it is able to earn enough profits not only to service its debts timely but also for future development/growth. Further.Variable Costs) Break-even point (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. a unit may be considered as financially viable.

the statement helps to analyze as to what an enterprise owns and what it owes at a particular point of time. capacity to service the debts etc. Financial Ratios While analyzing the financial aspects of project.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’. 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 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. managements' stake in the business.Noida 42 . In other words. 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. 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. • • • 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. The financial ratios which are considered important are discussed as under: Amity International Business School.

Equity = Share capital. free reserves. If the ratio shows a decreasing trend. This ratio of 1. the ratio could be considered at a higher level. This ratio provides a measure of the ability of an enterprise to service its debts i. after adjusting loss balance) projects. etc.e.Net Worth) Operating Profit (Before own funds and less on outside funds and vice versa Debt2 Service Coverage Ratio + Annual interest on long term debt Annual interest on long term debt + Repayment of debt 3 TOL / TNW Ratio Intangible Assets) 4 Profit-Sales This ratio gives the margin available after meeting Amity International Business School. lower the ratio higher is the degree of protection enjoyed by the creditors. `interest' and `principal repayment' besides indicating the margin of safety.5. It.Credit Appraisal and Risk Rating at PNB Ratio Formula Remarks There cannot be a rigid rule to a satisfactory debtequity ratio.5 to 2 is considered reasonable.Noida 43 . These days the debt equity ratio of 1. premium on shares.5:1 is considered reasonable. In financing highly capital intensive projects like infrastructure. The ratio may vary from industry to industry but has to be viewed with circumspection when it is less than 1. Other features like quality of management should be kept in view while agreeing to a less favorable ratio. etc. cement. however. But it is always desirable that owners have a substantial stake in the project. . it indicates that the borrower is relying more on his Total outside Liabilities (Total Liability . A Debt + Depreciation + Net Profit (After Taxes) very high ratio may indicate the need for lower moratorium period/repayment of loan in a shorter schedule. is higher in respect of capital intensive 1 Debt-Equity Ratio Debt (Term Liabilities) Equity (Where. Tangible Net Worth (Paid up Capital + Reserves and Surplus This ratio gives a view of borrower's capital structure.

the pricing structure This ratio is of a primary importance to see how best the assets are used.Noida 44 .Credit Appraisal and Risk Rating at PNB Taxes excluding Income Ratio from other Sources) Sales cost of manufacturing.Intangible Assets utilization of his assets. Amity International Business School. However. This ratio is indicative of short term financial position of a business enterprise.e. as in such cases the ratio tends to be high because the value of the denominator of the ratio is very low. Ratio analysis gives indications. to be made with reference to overall tendencies and parameters in relation to the project. Sales Output 7 Investment Ratio Total capital employed (in fixed & current assets) This ratio is indicative of the efficiency with which the total capital is turned over as compared to other units in similar lines. Higher the ratio greater the short term liquidity. caution needs to be exercised when fixed assets are old and depreciated. It provides a yardstick to measure the efficiency of production and margin on sales price i. It provides margin as well as it is measure of the business enterprise to pay-off the current liabilities as they mature and its 6 Current Ratio Current Assets Current Liabilities capacity to withstand sudden reverses by the strength of its liquid position. A rising trend of the ratio reveals that borrower has been making efficient Sales5 Tangible Assets Ratio Sales Total Assets .

which are assigned a `VALUE' after estimating the range of variation of such variables.Noida 45 . sales etc. 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. Sensitivity Analysis is a systematic approach to reduce the uncertainties caused by such assumptions made. and then the project viability is ascertained. Amity International Business School. plant capacity utilization. product-mix. The `VALUE' so assumed and taken into consideration for arriving at the profitability projections is the `MOST LIKELY VALUE'. 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.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. increasing or reducing the cost of inputs etc. 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. Higher a project's IRR the more desirable it is to undertake the project.

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

imports and exports in terms of quantity and value. import substitute. Expenses on marketing are done so as to popularize the product. consumption level.Noida 47 . Marketing policies in practice. 6. Competitors' status and their level of operation with regard to production and sales. supply position. policies. 5. Reasonable demand projections keeping in view the size of the market. Amity International Business School. export potential. requirements etc. Local/foreign consumer preferences. MARKETING 4.6 APPRAISAL OF PROJECT . Influence of Govt.Credit Appraisal and Risk Rating at PNB 8. knowledge and experience. 2. 7. etc. 3. practices adopted. Technology advancement/Foreign Collaborator's Status/Buy-back arrangements etc. Marketing professionals employed their competence. 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. attitudes.

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

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

settlement and other financial transactions. Risk Management Division HO.1 CREDIT RISK Credit risk means the possibility of loss associated with diminution in the credit quality of borrowers. 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.Noida 50 . 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. which is in place in the bank. trading. In a bank’s portfolio. Amity International Business School. commitments in relation to lending.Credit Appraisal and Risk Rating at PNB Chapter 9 CREDIT RISK MANAGEMENT 9. it is necessary to identify the areas of credit risk in each borrower as well as each industry. losses stem from outright default due to inability or unwillingness of a customer or counter party to meet.2 CREDIT RISK MANAGEMENT SYSTEM IN PNB A comprehensive credit risk management system. 9.

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. management.Credit Appraisal and Risk Rating at PNB CREDIT RISK MEASUREMENT In order to measure the credit risk in banks’ portfolio. 5crores Above Rs. These risks could be: • • • Internal and specific to the company. which are important for determining the credit quality/ rating of a borrower. The credit risk-rating models incorporate therein all possible risk factors. business and conduct of account. 20 lacs and up to Rs.5 crores and up to Rs. Amity International Business School. 50 lacs and up to Rs. 15crores Above Rs. 50lacs Above Rs. 15 crores (irrespective of any limit) Below Rs. industry information. 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. Inputs to the models are the financial. 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. the bank has developed the following models: Credit Risk Rating Model Small 2 Loans Small Loans Mid Corporate Large Corporate Non Banking Financial Corporation Model New Business Model New Project Model Total limits Applicable from the Bank Above Rs.Noida 51 . 5 crores Above Rs. The evaluation of a borrower is done by assessment on various objective/subjective parameters.

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

AA PNB.00 Above 72.00 up to 62.00 and below Amity International Business School.AA + PNB.50 up to 50.50 Above 70. Rating category PNB –AAA Description Minimum Risk Marginal Risk Score (%) obtained Above 80.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.B PNB.00 up to 40.00 Above 52.00 Above 42.00 Above 77.00 up to 42.50 up to 47.BB PNB.AAA PNB.00 Above 62.00 up to 72.50 up to 77.C PNB – D PNB-AA Modest Risk PNB-A Above 67.BB + PNB.A + PNB.50 Above 60.50 up to 67.50 up to 57.50 Grade within the rating Category PNB.50 Marginally Acceptable Risk PNB-B Above 47.B PNB. following matrix has been adopted in all the risk rating models.A PNB.00 30.50 Average Risk PNB-BB Above 57.50 up to 80.BB PNB.Noida 53 .50 Above 40.00 up to 52.AA PNB.A PNB.50 Above 50.B + PNB.50 up to 60.50 PNB-C PNB-D High Risk Caution Risk Above 30.50 up to 70.

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

Legal documentation vii. Credit Committee Linkage of loaning powers with risk rating categories ii. i.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.Preventive Monitoring System viii. b.Others a.Risk Based Pricing iv.Loan Review Mechanism vi.Noida 55 .Prudential Exposure limits iii.Portfolio Management v. b. Use of CIBIL data and RBI defaulters list Diversification of Risks Chapter 10 POST SANCTION FOLLOW UP OF LOANS Amity International Business School. Credit Approving Authority a.

to suggest practical solutions. sales. such as production. Some of the important goals of monitoring are listed as under: i. To ensure that the terms and conditions as stipulated in the sanction have been complied with. taking place in the conduct of the account for initiating timely corrective actions to check slippage of accounts to NPA category. To keep a watch on the project during implementation stage so that there are no time & cost overruns. Amity International Business School.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. 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. Further. To monitor operations in the account particularly cash credit facilities which indicate health of the account. affecting profitability.Noida 56 . and comparing these with the projections/estimates given by the borrower at the time of sanction of credit facilities. if any. It helps in keeping a watch on the conduct and operational/financial performance of the borrowal accounts. to gather information like reputation/financial standing etc. Fundamental goals help a bank to ensure safety of funds lent to an enterprise while. iii. etc. To obtain market report on the borrower. 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. if problems arise. flow of funds. The goals and objectives of monitoring may be classified into fundamental and supplementary goals. To evaluate operational and financial results. provisioning and derecognition of interest income on NPAs. ii. profit/loss. it also helps in detecting signals/symptoms of sickness and deteriorations. iv. 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. v. vi.

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

The borrowers should have the desired background. • Borrowers should be financially sound. measure and manage the credit risk and aims at ensuring sustained growth of healthy loan portfolio while dispensing the credit and managing the risk.1. This would entail reducing exposures in high risk areas.1 PNB’s LOAN POLICY 11. Amity International Business School.e.1. • Cost of the project and means of financing the same should be properly assessed and tied up. under-financing and over.e. it should be able to generate enough surplus so as to service the debts within a reasonable period of time. Both. experience/expertise to run their business successfully • Project for which the finance is granted should be technically feasible and economically/commercially viable i. they should possess adequate liquid resources to contribute to the margin requirements. optimizing the return by striking balance between the risk and the return on assets and striving towards maintaining/improving market share. emphasizing more on the promising industries / productive sectors/ segments of the economy. 11.Noida 58 .1 OBJECTIVE The Credit Management & Risk Policy of the bank at the macro level is an embodiment of the Bank’s approach to understand.Credit Appraisal and Risk Rating at PNB 11.2 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.financing can have an adverse impact on the successful implementation of the project. enjoy good market reputation and must have their stake in the business i.

3 METHODS OF LENDING 1. 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. Simplified method linked with turnover Simplified method based on turnover for assessing working capital finance up to Rs.Noida 59 . It will be our endeavor to introduce the same selectively in other areas also Amity International Business School. MPBF System Existing MPBF system with flexible approach shall be followed for units requiring working capital finance exceeding the above-mentioned amount iii. Service Sector and Film Production accounts.1. Cash Budget System Cash Budget System shall be followed in Sugar. For Working Capital i.2 crore (upto Rs. • 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. 5 crore in case of SSI units) ii.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. • • The policy sets out minimum or benchmark lending rate.

Credit Appraisal and Risk Rating at PNB 2. 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.Noida 60 . proper appraisal will be made by utilizing the services of specialized / Technical officers. Amity International Business School.

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

diamond exporters. Further annual review is carried out regularly by the bank even where enhancement in credit limits is not involved Amity International Business School. Enhancement of existing limits Once a proposal is received. if any 4.Noida 62 . Techno Economic Feasibility Analysis of the project (includes all the 5 evaluation) 3. processing fee etc) 5.33:1 (Except where a relaxation is permitted as in the case of sick/weak units. New proposal 2.). Various approvals of issues the borrower seeks (reduction of ROI. Various risks associated. 9. 8. current liabilities (other than bank borrowings) and net working capital 7.2. An undertaking by the borrower to submit his annual accounts promptly. etc. Maintenance of minimum current ratio of 1. Classification of current assets and current liabilities in conformity with the guidelines issued by the Reserve Bank/HO. proposal for financing working capital limits and term loans can relate to any of the following: 1. Maximum permissible bank finance (in case of WC limit) 2. Renewal of existing limits 3.Credit Appraisal and Risk Rating at PNB 11. financial statements. Risk rating of the borrower 6. chargeable current assets. project report and other important documents are used to evaluate: 1. Reasonableness of estimates/projection in regard to sales.2 BRIEF ON THE PROCESS At Punjab National Bank.

PNB was Amity International Business School.Noida 63 . 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.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. Ratings typically embody an assessment of the risk of loss due to failure by a given borrower to pay as promised. leasing and hire-purchase. policies and procedures. the constant re-evaluation of the loan portfolio and the sufficiency of provisions thereof. 12. and systems that play a role in the assignment of a rating. An internal rating refers to a summary indicator of the risk inherent in an individual credit quality in an individual credit. credit limits should be determined in accordance with such norms and in other cases in tune with past trends. management process. 2000 (FEMA). tea. 11. wherever applicable are complied with 11. In cases where deviations from norms/past trends are warranted.2. Provisions of Foreign Exchange Management Act. sugar and computer software industries will continue to be in force.Credit Appraisal and Risk Rating at PNB 10. The management of credit risk at PNB includes a continuing review of credit limits. Credit risk rating tools at Punjab national bank With respect to Punjab National Bank. Specific guidelines issued by RBI/HO for sanctioning credit limits for financing certain specific activities such as diamond exports. 13. based on consideration of relevant counterparty and facility characteristics. the approval of specific exposures and workout situations. In respect of industries where norms relating to inventory and receivables have been laid down by Reserve Bank/HO. A rating system includes the conceptual methodology. 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.

The loans with exposure of above Rs 20 lacs have been rated individually. commitment and sincerity Financial flexibility Business Evaluation Range of services Quality of service offered Level of customer satisfaction Advertising / promotional strategies Amity International Business School.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. Inputs (parameters) to PNB Trac The rating tool is designed to cater all the industry. PNB Trac -.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. 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. Rating Model New Project Model Industry Limits ABC Sector Rs. 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.for its entire category of lending. 1200 lacs Facilities Required Term Loan Inputs to the Model for the above mentioned loan will be: CATEGORY Management Evaluation PARAMETERS / INPUTS Capital market perception of the group Risk bearing capacity Track record in debt repayment Management Setup Integrity.

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.00 75. Weights have been assigned to different parameters based on their importance.00% Weighted Score 22. better is its credit rating.00 50.Credit Appraisal and Risk Rating at PNB Economies of operation Ambience of service outlet Effectiveness of distribution channels Quality of infrastructure available Brand equity Expected market growth Locational advantage Technology adopted in the process Debt – Equity Ratio Financial Evaluation Repayment Period (in yrs) Foreign exchange risk Internal Rate of Return TOL / TNW Working capital cycle (in months) Project Implementation Risk Evaluation Project complexities Expected cost overrun Funding risk Expected time overrun Status of obtaining clearances Service period (in yrs) How the Rating is done 1.00 80.00% 25.00% 20.00 Weight 40.00 11. 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. 2. Example: Factor Financial Evaluation Business & Industry Evaluation Management Evaluation Conduct of Account % score obtained 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.50 16. Higher the score obtained by a company.25 Amity International Business School.00 12.Noida 65 .00% 15.

ATHIS MEANS THE RATING OF THE BORROWER IS PNB A11. Sub-BPLR Lending permitted by CMD: Sub-BPLR Lending permitted by ED: up to 5. 20 lacs Amity International Business School.75 refers to PNB. to boost the sector and encouraging more participation.00% below BPLR Applicable Rate of Interest (ROI) The BPLR attracts further a term premia of 0. For instance: i.75 Bank has determined Benchmark PLR (BPLR) after taking into account actual cost of funds.4 DETERMINATION OF THE APPLICABLE RATE OF INTEREST Benchmark Prime Lending Rate (BPLR) 61.Noida 66 .50% for term loans having a repayment reschedule over 3 years. BPLR has been fixed at 11%. BPLR is the reference rate for determination of rate of interest for the borrower’s accounts. RBI also grants certain rebates or lower ROI for lending to few sectors. The sub-BPLR lending lies in the vested powers of CMD/ED/GMs (Head Office)/Circle Heads. Sub-BPLR Lending permitted by Circle Heads: up to 1. operating expenses and a minimum margin to cover regulatory requirement of provisioning / capital charge and profit margin. These powers are defined in the Internal Circular of the bank.2. SME etc. At present.00% below BPLR iii. ii.Credit Appraisal and Risk Rating at PNB AGGREGATE SCORE The Aggregate Score of 61. Also the applicable ROI depends upon the credit risk rating and the Industry of the borrower. like Agriculture. Example: for Advances to NBFCs above Rs.50% below BPLR up to 3. sub-BPLR lending is also permitted. Sub-BPLR Lending In order to remain competitive in the market. which eventually depends on the rank of the officer and the credit risk rating of the borrower.

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. Speedy corrective/remedial actions/steps to prevent the account from becoming NPA as well as to minimize the loan losses.5 POST SANCTION FOLLOW UP APPLICABLE ROI BPLR + 1. PMS Index and Rank PMS Index is a numerical index consisting of 29 indicators Parameters grouped into 6 sections.50 % (The Base Rate system will replace the BPLR system with effect from July 1.50 % BPLR + 3.Noida 67 . whether the interest is being paid on time or not.2. 2010) If the proposal is considered viable and accepted by the bank then proper account in name of the borrower is created. whether the bank’s interest income is increasing or not. The account is reviewed from time to time in order to know whether the company has met with all the terms & conditions or not. Two of the most used methods for post sanction follow up are: 1.00 % BPLR + 3. whether there is overdraft in accounts or the funds are not utilized by the company at all. Thorough probe into reasons behind observed signals and analysis thereof. Penalty rates (weights) in the form of numerical values have been assigned to Amity International Business School. Preventive Monitoring System consists of two parts: i.Credit Appraisal and Risk Rating at PNB CREDIT RISK RATING AAA A BB 11.

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

/Corporate Office Constitution Date of incorporation Dealing with PNB since Industry/Sector Business Activity (Product) ABC Parts Private Limited 41.Noida 69 . New Delhi-110015 Private Limited 18/08/1960 Maintaining current account with PNB. was incorporated in 1960. The borrower has setup manufacturing units at 4 locations for manufacturing of Automotive Parts. Critical analysis of this form can reveal the diversion of short-term funds for long term uses. BACKGROUND The Company ABC Parts Pvt. Industrial Area. Engineering and Manufacturing of Auto and Tractor components. Chapter 12 CASE STUDY – ABC PARTS PVT. The Management of the company is experienced and working in the line since long and the party is Amity International Business School.1BORROWER’S PROFILE Group Name Address of Regd. Ltd. Manufacturing of Auto & Tractor Parts (Large Scale) Engaged in Designing. This company is an ISO-9001 – 2000 Certified Company and working speedily on achieving the TQ 14000. New Delhi for the last 8 years. LTD 12. DLF.Credit Appraisal and Risk Rating at PNB half year.

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

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

aged 46 years.Credit Appraisal and Risk Rating at PNB 12. Succession Planning: Is been taken care of 5. Looking at his rich experience along with his forward looking capabilities.2 CREDIT APPRAISAL FOR ABC PARTS PVT. promoted the business of auto ancillaries after completing his education.Noida 72 . he was honored by Udyog Patra Award • Shri Munish Kumar Bhunsali. Market reputation on the promoter / management of the company: Satisfactory 2. He has now been associated with this business for twenty-four years and is presently Managing Director of the company • Smt. aged 80 years. excellent work and ability to progress as per the changing industry scenario. MANAGERIAL EVALUATION 1. son of Shri Mahendra Kumar Bhunsali joined his father’s business after completing his Graduation. 4. is also a graduate. Meenal Bhunsali¸ W/o of Shri Munish Kumar Bhunsali aged 44 years. She has also been associated with the business for last eight years and presently Director in the company 3. Confidential Reports: Satisfactory Amity International Business School. LTD I. Brief Profile of Directors • Shri Mahender Kumar Bhunsali. He has been founder of the company and is presently the chairman of the company. 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.

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

Many auto majors have established facilities.Credit Appraisal and Risk Rating at PNB II. is gaining momentum fast. It is estimated that in the next 10 years the auto components industry will reach USD 33-40 billion. 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 increase in demand for auto components in India has also resulted in an increase in revenues and exports. the importance for precision auto components has been growing. which have also been aided by the liberal government policy. Exports of auto components from India have witnessed a CAGR of over 19% over the last six years. Auto MNC’s are also launching their latest models in India. BUSINESS EVALUATION Comments on industry scenario and industry outlook: The past few years have witnessed a continuous influx of global auto majors in India. Critically. The Government has extended various fiscal incentives and policy measures which have helped the industry. The domestic auto industry has also come up with new and quality models. outsourcing of automobile components that have relatively high engineering and design content from suppliers in low cost countries like India. Consequently. 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. which has set the domestic auto ancillary industry on a roll. To meet the combined demand from domestic and international customers the industry will have to Amity International Business School.Noida 74 . Also. Going by the current trends in the domestic automotive industry and as stated above. India crossed million-mark last fiscal. 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.

commercial vehicles) have an impact on auto ancillary demand. India's strength in exports lies in forgings.Credit Appraisal and Risk Rating at PNB make significant incremental investment Hence. Lower labour costs give Indian auto ancillary companies an absolute cost advantage.Noida 75 . The Indian auto component industry had an estimated 480 companies operating in this area in FY05. Demand swings in any of the segments (cars. while OEMs account for 27%. The fortunes of the auto ancillary sector are closely linked to those of the auto sector. employing more than 250.4 bn. One area where domestic units compare favorably with their international peers is it terms of costs. Share of exports to output is estimated to have increased from 15% in FY04 to 16% in FY05. But this is changing with more component manufactures investing in upgradation of technology in recent years Amity International Business School. Demand is derived from original equipment manufacturers (OEM) as well as the replacement market. castings and plastics historically.000 people and the industry exported goods worth estimated at US$ 1. with exports accounting for the balance 16%. Replacement demand accounts for close to 57% of total demand. two-wheelers. 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.

Noida 76 . Turning centers. 4.Credit Appraisal and Risk Rating at PNB III. Land & Building . The building area is sufficient for the installation of the plant and machinery and for smooth working of the unit.The Party has proposed to setup the designing .190 sq Mts The Party has already constructed approx 45000 sq feet Industrial Shed. TECHNICAL EVALUATION 1. annealing. 3. Amity International Business School. tampering furnaces which make the component to withstand strength in operating conditions of the parts. welding rods and store items etc. Manufacturing Process: The auto parts being manufactured under strict quality control by using latest CNC Machines of improved technology. carbonizing. 2. 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.340 sq feet at different locations in Delhi. engineering and manufacturing unit at Noida –II having the area of 11. 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. The party has submitted the quotations from the suppliers/manufacturers with the term and conditions for supply.e grinding shop. The party is also having HEAT TREATMENT SHOP with hardening. There are different types of shops i. Machine Shops. Raw Materials: The basic raw material required for the unit is forging of auto parts . The material is available through local suppliers/ units and most of the raw material is purchased from Delhi & NCR. The credential of the suppliers is verified for the supply of the machinery as per bank guidelines. stainless steel. ensuring high productivity and better quality to keep pace with the ever rising quality standards.. Faridabad and Noida.

which is the approved industrial area. All types of facilities like postal. The product shall meet all the specification requirement of their client. Quality Control: The party has proposed to set up in. Quality control test are being undertaken for raw material and other products at stages of production. 8.Noida 77 . Power: The party has taken the temporary power load connection of 20KW for completion of construction at Noida unit. So. are easily/already available.Credit Appraisal and Risk Rating at PNB 5. 9. 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. for Raw Material and finished goods etc. it is a developed industrial area and is connected to other parts of the country by roads and rails routes. sophisticated instrumentation laboratory. telecommunication. 6. Other Infrastructure: The unit of the party is situated at Noida. transportation etc. Amity International Business School. 7. testing laboratory etc.house R&D facility comprising of pilot plant facility. 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. The new plant will become operational in the mid of the financial year 2010-11 and production capacity of the company will increased. Staff and Labor: As the machines are semi automatic and the unit is located at the Nodia.

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

84 32.94 84.68 1819.00 75.10 75.12 482.00 684.74 30.00 685.00 104.00 0.54 0.39 1868.40 144.35 31.00 32.00 0.44 113.2007 Audited Share capital Reserves and Surplus Share App.70 7.14 52.55 0.03.12 2.85 BALANCE SHEET: ABC PARTS PVT.00 1064.41 126.98 202.22 12.84 100.69 0.03.79 31.00 45.14 40.86 0.03.98 17.03.85 344.37 17.44 20.38 41.2007 Audited 1995.28 82.00 103.2010 Provisional 100.01 0.91 113.00 482.79 1119.59 340.03.55 31.39 121.65 26.01 31.00 496.2010 Provisional 2379.66 109.00 0.00 17.55 0.56 434.88 32.00 496.47 74.21 31.03.00 Amity International Business School.03.00 600.2011 Projection 175.00 1819.03.81 0.00 691.88 -7.86 461.00 1314.00 60.26 2502.2008 Audited 100.16 0.Credit Appraisal and Risk Rating at PNB V.68 0.92 31.12 0.61 3. Tax liability/ Loss Revaluation Reserves Net Worth Secured Loans Unsecured Loans Term Liabilities Working Capital Advances 100.00 751. FINANCIAL EVALUATION Financial Statements of the company are as follows PROFIT AND LOSS ACCOUNT: ABC PARTS PVT.38 40.08 104.59 1954.00 959.54 900.01 442.00 60.03.Noida 79 .2008 Audited 2047. LTD (In Rs.2011 Projection 4840.00 573.21 69.44 100.97 146.79 0.00 981.37 4405.00 31.42 92. Lacs) Sales Turnover % rise or fall in sales Cost of sales Operating Profit Other Income Profit Before Tax Provision for taxes Profit After Tax Depreciation Cash Profit 31. Lacs) 31.03.92 2270.48 685. Money Quasi Capital Def.2009 Audited 100.81 981.00 454.00 0. LTD (In Rs.00 675.55 0.67 117.00 542.2009 Audited 2584.45 0.00 1119.05 31.81 0.

10 0.30 0.54 3134. Lacs) 31.97 0.47 1452.00 0.55 31.20 1004.00 0.00 6.00 0.00 0.00 105. Not WO Non-current Assets Total Assets 496.00 0.00 2301.03.93 694.2010 Provisional 959.00 0.33 19.Credit Appraisal and Risk Rating at PNB Sundry Creditors Statutory Liabilities Adv from Customers Other current Liabilities Current Liabilities Total Outside Liabilities Total Liabilities Fixed Assets Depreciation Lease Asset Net Block Inventories Sundry Debtors Cash & bank balance Advances to suppliers Loans & advances Advance Tax Other Current Assets Current Assets Investments Security Deposits Margin Money Exp.40 633.27 919.16 0.19 44.00 0.91 1049.00 1665.86 1361.93 31.23 13.00 0.45 2410.18 0.07 2301.16 0.59 3015.65 0.2009 Audited 751.50 6.00 0.00 0.38 0.89 735.48 0.2008 Audited 675.29 792.03.00 243.39 0.14 0.67 0.83 979.00 1586.Noida 80 .00 0.00 848.22 1419.43 37.99 1398.00 1161.00 0.00 187.52 1701.00 0.59 2958.81 BUILD UP OF NWC: ABC PARTS PVT.34 31.07 1640. LTD (In Rs.35 68.32 1282.00 6.00 330.24 100.94 0.00 0.10 426.00 0.00 0.39 2410.00 6.07 400.48 685.04 932.40 602.00 113.48 0.60 0.03.48 3015.00 277.48 3240.45 3240.80 3.03.00 496.48 4272.72 38.00 138.85 1647.79 1119.2011 Projection 1314.44 2280.59 1735.00 0.19 0.03.72 6.00 0.00 0.33 64.00 1453.93 1830.00 985.00 0.28 403.02 326.47 2263.00 707.67 353.00 6.01 2078.22 Amity International Business School.00 0.24 2590.00 307.23 0.42 473.80 31.09 796.40 2372.00 0.00 2600.00 85.14 6.00 0.81 981.00 0.50 845.59 150.2007 Audited Long Term Approach Net Worth Term Loans Total Long Term Sources 600.83 6.48 0.57 0.75 1555.81 3998.13 4272.12 1732.59 1138.92 1204.55 1096.68 1819.

50 -526.94 1.71 31.23 1.43 Brief discussion on Financial Indicators 1.84 6.00 1314.59 1665.31 526.36 3.39 991.68 0.28 2600.00 600.28 2.46 1.00 600.45 985. Authorized capital of the company is Rs.2009 Audited 0.91 2.81 1.44 31.45 2.21 0.00 675.48 1592.38 2.57 2.03.00 675.83 6. The company already inducted Rs.59 1419.45 1049.57 4.48 0.04 6.21 1. Lacs) Intangible Assets TNW Investments in allied co.18 1.each. LTD (In Rs.00 Lacs as Share application money.00 751.28 1138. The Company will increase the Authorized Amity International Business School. which will be converted in to Paid up share Capital before disbursement of limits by the bank. 75.2008 Audited 0.03.00 959. Paid up capital are Rs.91 FINANCIAL INDICATORS: ABC PARTS PVT.55 1453.19 1.55 2.01 3.2007 Audited 0.25 2.25 8.47 1555.Credit Appraisal and Risk Rating at PNB Net Fixed Assets Other Non Current Asset Total Long Term Uses Surplus / Deficit Short Term Approach Current Liabilities (Sources) Current Assets (Uses) Surplus / Deficit 848.84 2.02 369.09 6.48 2607.00 959.72 -486.38 4.52 1452.31 273.100 Lacs comprising of 1 Lac-equity shares of Rs.68 1.55 1282.00 1314.each.44 1647.36 5. It has been projected at the level of Rs 175.57 273. Paid up capital / TNW a. 100/.00 1.00 Lacs during current year.04 1.10 248.2010 Provisional 0.36 1586.42 1.00 848.48 31.10 0.53 2.79 0.35 1.91 1204.52 486.97 -248.36 1161.03.59 4.00 0.14 -369.83 248.48 1459.81 0.42 31.40 6.Noida 81 .79 1. Adjusted TNW Current Ratio Debt/Equity NWC TOL/TNW TOL/ Adjusted TNW Operating Profit / Sales (%) PAT / Sales (%) FACR 31. 100 Lacs comprising of 1 Lacequity shares of Rs 100/.96 1.03.00 751.03.38 526.17 486.79 369.48 1.83 -273.01 3.98 7.2011 Projection 0.

In view of the recovery of economy since Oct. 20.2008 and further increased to Rs.30 crore during the financial year 2009-10.48.85 crores in 2008-2009. Increase in the production capacity of the company will increase the turnover of the company. 582.2007 and increased to Rs.03. Based on its existing clientele and the demand in the market of the products of the company.03. which will increase the production capacity of the company. Sales: Gross Sales of the company is showing increasing trend. Company is expecting the good growth rate in sale in coming financial years.03. The new plant of the company will become function in the mid of the financial year 2010-11.2011 due to retention of estimated/projected internal accruals and proposed induction of capital in the business. estimates/projections of TNW can be accepted.81 Lacs as on 31.1314. 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.55 Lacs as on 31. the estimated turnover of the company can be accepted.2009. 751. The company is estimating the sale on the basis of order in hand. the company is estimating its Gross turnover for the financial year 201011 at Rs. Keeping in view of the past trend of profitability.68 Lacs respectively as at 31. 25. It has been estimated / projected at Rs.2010 and 31.Noida 82 . Thus the company has registered a growth of more than 26% over the last year. It was Rs. due to fluctuation in the foreign market export sale of the company decreased from the last financial year. b. Keeping in view the overall growth in the automobile and auto part manufacturing market. Amity International Business School. But sale during the financial year 2009-10 did not register any growth.03.40 Crore.Credit Appraisal and Risk Rating at PNB Capital Limit after the Sanction of the Proposal but before the disbursement of the loan. 675. The company has good demand of its product in the market. 959. Sales have increased from Rs. The company has achieved net sales of Rs 22.03.47 crores in 2007-08 to Rs.79 Lacs and Rs.48 Lacs as on 31. TNW of the company is steadily increasing with full retention of profits. 2009. 2.

44 Lacs and for the year ending 31. Amity International Business School.The Company estimated these income by taking care of interest receivable on FDR and current discounts /rebate policies of the suppliers. 5. The other incomes of the company as per the provisional balance sheet for the financial year 2009-10 have Rs. Keeping in view the past records of the company.96% (PAT/Sale) upto 31.68% of turnover for the financial year 2008-09 in comparison to 8.2010. As per the provisional balance sheet for the financial year 2009-10 the company achieved profitability @ 4. Other income: The other income of the company includes interest on FDR.2009 were Rs.03. 4. The PAT of the company for the financial year 200809 was decreased because of increase in the depreciation and Interest expenditure 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.48 Lacs. Investments: The Company has made investments in Fixed Deposits.2008 were Rs. Profitability: PAT / Sale of the company for the financial year 2007-08 was 3% and for the financial year 2008-09 was 1% .84 Lacs. Estimates/Projections of Other Incomes can be accepted. The value of Fixed Deposits at the end of the financial year 2008-09 is Rs. Rebate and Discounts received. Due to expansion and installation of new equipments during the financial year.00 for the financial year 2010-11. The other incomes for the year end 31.Noida 83 .04%. 12. depreciation and financial expenses of the company increased disproportionately as compared to the increase in gross sale of the company. 17.39 Lacs. The company is estimating other income at Rs. 6. 20.Credit Appraisal and Risk Rating at PNB 3. Increase in the production capacity of the company will reduce the operation cost of the company and the profitability of the company will increase. Foreign Exchange Benefit etc. The company is estimating the profitability for the financial year 2010-11 at 7. 7.59% for the financial year 2007-08.03. These expenses were 10.03.

35:1 . 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. Current ratio: Current ratio of the company for the financial year ending 31. In spite of using its short term funds for the purchase of the capital assets the NWC of the company is positive.42. As per the provisional balance sheet for the financial year 2009-10 the current ratio of the company is 1.Credit Appraisal and Risk Rating at PNB 6. 3:1 and proves the long term solvency of the company.38:1. 1.e.22:1 which is little lower than the bench mark of the bank i.e.03.02:1 and for the financial year 2008-09 was 1. which is above the bench mark of the bank. 7. Hence keeping in view the past trends of the company estimates/ projections of Debt Equity ratio of the company can be accepted.03.17. Amity International Business School. As per provisional Balance sheet of the company the debt equity ratio for the financial year 2009-10 is 1.31:1.Noida 84 .2008 was 1.2007 & 31.21:1 & 1. The Company has estimated it debt equity ratio for current financial year at 1. Debt Equity Ratio: Debt Equity Ratio of the company for the financial year 2007-08 was 1. The company used its internal accrual for purchase of capital assets of the company.But current ratio for the financial year 2008-09 was 1.33:1 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. Keeping in view the past records/trends of the company estimated level current ratio can be accepted. The debt equity ratio of the company is below the acceptable bench mark of the bank i.

45 -114.79 0.00 Lacs And.36 366.91 363.59 1426.C ) MPBF 31.07 31.00 Lacs from SBBJ.2011 Projection 979.72 718.91 1010.22 285.93 486.01 388.79 354.03.55 475.23 1162.65 929.85 1452. Lacs) Inventories Sundry Debtors Chargeable Current Assets Other Current Assets Total Current Assets Other Current Liabilities Working Capital Gap (A) Minimum Stipulated Working Capital -25% of TCA (B) Actual / Projected NWC (C) PBF 1 ( A .43 1258.67 353.2010 Provisional 932.03.01 461.00 900. JUSTIFICATION FOR WORKING CAPITAL SANCTION MAXIMUM PERMISSIBLE BANK FINANCE: ABC PARTS PVT.61 411.03.50 238. Ltd.58 830.56 31.14 442. 988.45 389.96 273.79 442.27 1647.80 1270.61 282.61 1555.21 366.02 463.89 1665.03.03.78 461.97 1204.12 1419.Noida 85 .B ) PBF 2 ( A .38 526.57 31.28 517.28 403.00 Lacs (by way of takeover of Term Loan of Rs.Credit Appraisal and Risk Rating at PNB 12.33 1382. Barakhamba Road.00 -114.14 588.79 369.2009 Audited 796.1600.79 416.54 900.42 473.26 755.12 290.02 326.00 Lacs for New Plant & Machinery at Noida Unit) 1.2008 Audited 602.61 482.52 248.3 PRESENT PROPOSAL The Borrower. ABC PARTS Pvt.45 31.89 735. for Sanction of Term Loan of Rs. approached to the Bank for the Sanction of following facilities:• • For Sanction of Working Capital Limit of Rs.83 800.35 956. 900. LTD (In Rs.00 Amity International Business School.24 248. 612. New Delhi and sanction of Fresh Term Loan of Rs.2007 Audited 426.

Noida. Promoters of the company have already contributed Rs.00 Lacs for purchase of New Plant & Machinery at new unit at New Okhla Industrial Area. Sources of Promoters’ Contribution and the time schedule as to when the funds will be brought.00 Lacs by way of share application money and Rs. 988.03. 60.Credit Appraisal and Risk Rating at PNB 2.79 1333. Summary of Cost of Project and Means of Finance Cost of Project Cost of Machinery Electricity and Water Connection Total Means of Finance Term Loan Unsecured Loans Share Capital & internal accruals Total Amount 1313. Promoters will introduce remaining amount of unsecured loans Rs.00 1333.Noida 86 .88 Lacs as unsecured loan up to 31. JUSTIFICATION FOR TERM LOAN a.79 Amount 988.12 Lacs during the current financial year.79 (In Rs.14.2010 as unsecured loans.00 75. Amity International Business School.00 270. b. Lacs) c. 75. Purpose: Sanction of Fresh Term Loan of Rs. The balance amount of promoters contribution & internal accrual will be arranged by 100% retention of profits for the financial year 2009-10 and 2010-11.79 20.

75 3.15 195.38 266.84 201213 350.72 164.83 149.91 201415 6202.83 149.69 Net sales Profit after Tax Depriciatio n Cash Profit (In Rs.3 3 256.69 606.23 822.98 155.9 2.33 Imp: Detailed projected financial statements are not shown in the report due to confidentiality of the data Amity International Business School.23 448.8 6 489.46 201617 7482.02 126.ABC PARTS PVT.96 31.8 835.08 201314 5648. DSCR calculation DEBT SERVICING COVERAGE RATIO .74 654.89 790.74 151.71 201516 6811.54 140.84 201617 551.03 691.7 188.7 207. 201011 4251.62 448.89 411.37 58.17 213.02 126.87 58.27 862.98 136.Noida 87 .67 130.54 140.27 755.2 781.11 197.27 161.0 5 551.77 5.97 197.2 385.ABC PARTS PVT.6 414.27 320.67 732.34 151.13 201718 570.46 4.25 592.02 136.17 1.4 6 316.66 143.8 202.85 201819 8237.25 188.02 201415 414.09 582.16 165.39 201819 606.47 201213 5145.02 719.55 176.38 266.44 213. Projections for the profitability of the project PROJECTIONS .41 805. LTD.16 590.03 143.83 224.57 201718 7850.81 220.26 228.33 1.13 4.15 856 58.36 2.62 702. LTD.29 2.29 220.7 3 385.56 201112 316.02 165.91 226.66 207.5 130.64 201112 4677.91 226. 2010PAT Depreciation Interest Sub Total Loan Instalment Interest Sub Total DSCR Average DSCR 11 256.59 201516 489.94 240.66 207.83 224.17 577.09 240.2 1 350.81 481.91 1.41 209.Credit Appraisal and Risk Rating at PNB d.92 201314 385.72 164. Lacs) e.6 5 570.55 176.

Present physical & financial status of project.35 1332.95:1 2.Credit Appraisal and Risk Rating at PNB f.2010 June. Implementation Schedule Activity Land Acquisition Building and Civil Construction Delivery of Equipment at site Installation of Equipments Commissioning of plant Start Date Already Already March .08:1 1.14 Total Cost 1313.79 (In Rs lacs) h.79 20.21:1 1.89:1 Minimum DSCR 1.79 18.17:1 g.00 1333. Detailed Sensitivity Analysis on DSCR Variation Impact of Reduction of Selling price by 5% Impact of Increase in Cost of Goods sold by 5% Impact of Increase in Rate of Interest by 1% Average DSCR 1.65 Cost to be Incurred 1313.10 July. Proposed Repayment Schedule Amity International Business School.65 1.10 Completion Date i. if any Basement of the factory building is already constructed.2010 Done June 2010 ( Shed Measuring 45000 Sq Ft is already Constructed) June. 2010 August.28:1 1. Present Financial Status of the project is PARTICULARS Cost of Construction Cost of Electricity and Water Connection Total Cost Incurred NIL 1.10 Sept.Noida 88 .

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

Munish Kumar Bhunsali Mrs.55 1671.68 519. Stock in process.10 394.31 Market Value 1100. Primary i) For working capital limits: Hypothecation of Company’s present and future raw material.95 389. Security Cover Available Description of Security Book Value 365.87 56. Nodia. finished goods. U.00 261.56 Immovable property As on 31.4 SECURITY 1.03.10 261.Credit Appraisal and Risk Rating at PNB 12.45 124. Kumad Bhunsali Position Chairman MD Director Net Worth As on 31.55 1671.00 40.Noida 90 .P. 988.00 519.50 (In Rs lacs) Amity International Business School.21 3347.21 2613. 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.63 (In Rs lacs) Land Situated at.87 56. Building and Sheds Plant & Machinery* Other Fixed Assets** Total iii) Personal /Corporate Guarantee: Name of Guarantor Mr.03.00 Lacs. M K Bhunsali Mr.

25 8-12% 6.Credit Appraisal and Risk Rating at PNB 12.75-2.00 3.42 1. FINANCIAL EVALUATION i.62 2.00 2.50-2.00 3.50 >25% <3.00 3.25-1.75 12-15% 5.00-2.00-3.00 1.50 15-25% 4.00 1.29 0.50 1.56 12.00-1.00 >2.08 2.00 1 5.00-5.00 2 4. Past Financials CO Value 2.00 <1.00 1.00 >2.38 1.00 Impact of contingent Future risk liability Impact of Expansion Subjective Assessment of Quality of inventory Financials Reliability of Debtors Transparency in accounting Amity International Business School.00 4 <1.5 CREDIT RISK RATING – ABC PARTS PVT LTD.00-4.00 <8% >6. The account was rated under the Large Corporate Model. Future risk and subjective assessment Category Parameter Comments There is no other contingent liability It will lead to more sales.00 2.50-1. The following rating have been obtained by both: branch office and zone office 1.68 2.25-1.00 3 2.25 1.00 <1.Noida 91 .00 Rate Category Parameter TOL/TNW Past Financials Absolute Comparison Current Ratio DSCR ROCE (Inv + Rec) / Net sales ii.00-1. The financial statements are prepared in accordance with generally accepted accounting principles The expected variance in the value may be less than 5% There is no disclosure of debtors Rate 4.00-4.50 1.10 4.53 Benchmark Values 0 >5.

00 3.00 3.00 The firm has achieved a sales growth of around 48% during the years 2007 – 08. It is expected that company will be in a position to achieve a sales growth of around 10 – 25% in the current year 3.00 Competitive position Expected sales growth Input related risk Availability of raw material Raw material is easily available from nearby and other critical inputs states Proximity to skilled Labor Production related risk State of technology used Product related risk Product range Product quality Marketing Distribution network Firm has a well developed distribution network Firm is mainly engaged in the processing of OEM Quality of product is reported to be better than the peers The firm has adopted proven technology better than its peers The firm is located in industrial in NOIDA inputs are available easily 3.00 4.00 3.00 3.Credit Appraisal and Risk Rating at PNB 2.00 4.00 3.00 3.00 3. BUSINESS EVALUATION A.Noida 92 . Market position evaluation Parameter Comments Rate 3.00 Geographical diversity of the Firm is selling its product directly to the vehicle market manufacturers Amity International Business School.00 3.

91 144.88 2208.79% 80% .57 0 1 2 3 4 Rate <75% 75% .79% 80% . Industry risk evaluation Industry risk evaluation for auto ancillary industry 75% 3.00 3.Noida 93 .89% 90% .00 <75% 75% . Subjective S. No.Credit Appraisal and Risk Rating at PNB B.89% 90% . Objective Parameter Actual gross sales Targeted sales Actual PBT Targeted PBT Co Value 2379.00 (in Rs lacs) B. 1 2 3 4 Parameter Management set up Commitment and sincerity Track record in debt payment Financial strength/ flexibility Comments The firm is in operation since 1960 The management is reported to be reliable and sincere The account is running satisfactorily with us Management is capable of arranging funds but with a time lag Rate 3. MANAGEMENT EVALUATION A.00 2.95% >95% 4.95% >95% 4.00 2.38 137.00 Amity International Business School.

Credit Appraisal and Risk Rating at PNB 4.00 75.50% for Working Capital limit.00% 15.00 3. CONDUCT OF ACCOUNT EVALUATION Parameter Comments No irregularity is observed with our bank in last 2 yrs Operations in account are healthy Timely submission of data Rate 3.50% + 0.00 11.50% for Term loan Imp: The rating as shown in the above section is not a replication of the original model in any form.Noida 94 .AA-) % score obtained 75.00 75.00% Weighted Score 30.25 71.00 Status of account Operations in account Submission of financial data TOTAL SCORE Factor Financial Evaluation Business & Industry Evaluation Management Evaluation Conduct of Account AGGREGATE SCORE (The Aggregate Score of 71.00 15.25 refers to PNB.00% 20.00 60.00% 25.00 Weight 40.25 THIS MEANS THE RATING OF THE BORROWER IS PNB AADETERMINATION 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.00 15.00 3. And the values and calculation of scores is for the purpose of understanding the process Amity International Business School.are: • • BPLR + 1. and BPLR + 1.

612 Lacs from State Bank of Bikaner and Jaipur) for purchase of new plant and machinery .00 (In Rs lacs) Amity International Business School. The Company has been in operation for past 40 years and has been earning profits continuously.00 2500. The overall financial position of the company is satisfactory.50% BPLR + 1. Keeping in view the increasing profitability and financial position of the company. the following are recommended i ii For Sanction Term Loan of Rs. Nature Fund Based Term Loan TOTAL COMMITMENT Applicable ROI BPLR + 1. the following were observed: • • • • The Management of the company is well experienced.00 Lacs ( including Takeover of Term Loan of Rs.50% + 0. For Sanction Working Capital limit of Rs.Noida 95 .50% Limits Sanctioned 900.00 1600. 1600.Credit Appraisal and Risk Rating at PNB 12. 900.6 RECOMMENDATIONS: On examining the request of the Company. The company has good track record in dealing with Banks.00 Lacs The facilities desired by the borrowers are subject to the given ROI and Terms and Conditions.

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

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

The BPLR system will soon be replaced by Base Rate system. Ratings. efficient recovery processes and available security. No specific guidelines are followed in such cases. At Punjab National Bank.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. 5. there are certain infrastructural projects which need to be prioritized. are done once a year. Amity International Business School. The present risk rating model does not have any mechanism to prioritize certain sectors of the economy. Also. With the deregulation of the financial sector. Also. 4. There is an immediate need for the banking sector to focus on credit and finance requirements of SMEs. which in some cases may not be sufficient. Some of the parameters in Business and industry evaluation are based on the information provided by company. 3. Circle Office the priority to appraise a proposal was given to new or fresh clients over the existing clients presenting proposals for renewal 2. There are certain sector in the economy where risk spread is low and certain sectors where spread of risk is high like real estate. the ability of the banks to service the credit requirements of the SME sector depends on the underlying transaction costs. Therefore. 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 risk rating model is not flexible to incorporate all these issues. as being performed at PNB. 1. Banks may choose any benchmark to arrive at the Base Rate for a specific tenor that may be disclosed transparently. 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.Noida 98 . 6. 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.

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

The credit appraisal decision are more of intuition and experience and since the time period was limited. hence best efforts were made to grasp the process as much as possible 4.Noida 100 . 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. 2. Therefore risks can only be minimized cannot be erased completely. The major limitation of this study shall be data availability as the data is proprietary and not readily shared for dissemination.Credit Appraisal and Risk Rating at PNB LIMITATIONS Like any other study this study too is not free from limitations. The major limitations of the study are listed below: 1. Hence. 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. out of the various ways in which risks can be managed. many risks are unexpected and the remedial measures available are based on general experience from the past. Due to ever changing environment.

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

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

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

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. The market is more aware and realistic about investment and returns from financial products.3NEED FOR THE STUDY  The deeper the company understands of consumer’s needs and satisfaction. the greater the expected contribution margin. the earlier the product or service is introduced ahead of competition. 14.Noida 104 . Amity International Business School. In this background this study tries to analyze the customer satisfaction towards banking services in general and PNB in particular.2 STATEMENT OF THE PROBLEM This Study will help us to understand the consumer’s satisfaction about banking services and products. products and services which are customer focused and hence provide high levels of value for money. organizes and interprets the Quality of service and product offered by banks. 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. Hence the study is very important. 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. 14. how a consumer selects. There are many factors which lead in high levels of customer satisfaction including. This occurs when they feel that the products and services that they buy have been specially produced for them or for people like them. This study will help banks to understand.

Amity International Business School.  To find out the differences among perceived service and expected service. 14. The study will be able to reveal the preferences.Noida 105 . according to the consumer’s need.5OBJECTIVE OF THE STUDY  To have an insight into the attitudes and behaviours of customers. it also help banks to know whether the existing products or services are offering are really satisfying the customers’ needs. needs.  This study will also help the companies to understand the experience and expectations of the existing customers. 14.Credit Appraisal and Risk Rating at PNB  This study will help companies to customize the service and product. satisfaction of the customers regarding the banking services.4SCOPE OF THE STUDY This study is limited to the consumers with in New Delhi city.

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

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

on the other hand. External Data. No. research books. was generated from magazines.1 SHARE OF DIFFERENT TYPES OF ACCOUNTS SL. NATURE OF ACCOUNTS NUMBER OF RESPONDENTS PERCENTAGE OF RESPONDENTS 1 . intranet and internet (websites).Noida 108 . Saving A/Cs 77 77% Amity International Business School.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.1 SHARE OF DIFFERENT TYPES OF ACCOUNTS TABLE 15. manuals and annual reports. Chapter 15 ANALYSIS AND INTERPRETATION 15.

Credit Appraisal and Risk Rating at PNB 2 3 4 5 Total Current A/Cs Fixed Deposits Loans Others 12 5 4 2 100 12% 5% 4% 2% 100% Graph .15.1 Classification based on nature of A/Cs Figure 1 Amity International Business School.Noida 109 .

loans.Noida 110 . and other products). RATINGS Account Opening Bank's availability behavior staff and Miscellaneous 1 2 3 4 5 TOTAL EXCELLENT VERY GOOD GOOD AVERAGE POOR 35 22 28 4 11 100 15 33 34 12 6 100 5 46 12 30 7 100 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. No. 15.2 RATINGS OF THE SERVRICES OFFERED BY PNB SL. 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.Credit Appraisal and Risk Rating at PNB Graph . 22% of them have rated them as ‘very good’. Amity International Business School.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’.Noida 111 . and 04% of them have rated as average’ while only 8% have rated as ‘poor’.

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

From this table we can infer that consumers give more importance for ‘Brand name’. and what are the important criteria or factors on which decision-making are done.Noida 113 . secondly they prefer ‘satisfaction’. 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.Credit Appraisal and Risk Rating at PNB Analysis: This table show the strengths and weaknesses of the brand.

RESPONSES NUMBER OF RESPONDENTS 1 2 Total Recommended Not recommended 93 07 100 PERCENTAGE OF RESPONDENTS 93% 07% 100 Graph .15. No.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 TABLE 15.Noida 114 .Credit Appraisal and Risk Rating at PNB 15.4 CONSUMERS WILLINGNESS TO RECOMMEND PNB TO OTHERS SL.

so that they are willing to recommend their bank services to others. Interpretation: Since the competition has increased in the field of benefits and service of banking.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. So customers are getting good service.Noida 115 . Amity International Business School.

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

Noida 117 .15.5 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.Credit Appraisal and Risk Rating at PNB Total 100 100% Graph . Amity International Business School. Presently the bank offers varieties of services and the customers are getting a good rate of return from their deposits. Only 12% of consumers are not satisfied. Interpretation: Most of the respondents are satisfied with the service offered by PNB. Customers are getting good service from the bank.

1 OPENING OF SAVING ACCOUNT BY INDIVIDUAL Types of Deposit Accounts: While various deposit products offered by the Bank are assigned different names.Credit Appraisal and Risk Rating at PNB Chapter 16 BANKING OPERATIONS IN BRANCH OFFICES 16. The deposit products can be categorized broadly into the following types. 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 .

iv) Notice Deposit means term deposit for specific period but withdraw able on giving at least one complete banking day’s notice. The same will contain details of information to be furnished and documents to be produced for verification and or for record. it is expected of the Bank official opening the account. B) The account opening forms and other material would be provided to the prospective depositor by the Bank. 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. 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.Credit Appraisal and Risk Rating at PNB number of withdrawals as also the amounts of withdrawals permitted by the Bank during any specified period. 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.Noida 119 . 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. If the decision to open an account of a prospective depositor requires clearance at a higher level. Amity International Business School.

folio charges. the Bank will normally stipulate certain minimum balances to be maintained as part of terms and conditions governing operation of such accounts. 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. All such details.. 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.Noida 120 . cash withdrawals. etc. Similarly. For Saving Bank Account the Bank may also place restrictions on number of transactions. duplicate pass book. the Bank may specify charges for issue of cheques books. Failure to maintain minimum balance in the account will attract levy of charges as specified by the Bank from time to time.Credit Appraisal and Risk Rating at PNB C) For deposit products like Savings Bank Account and Current Deposit Account. for given period. etc.

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

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. All CB branches shall use this form for opening new accounts. Amity International Business School. While feeding data of new accounts. 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. the CTO should enter all the information mentioned in the AOF and the particulars for generating customer ID. a common Account Opening Form for resident individual (Single & Joint) Account-PNB-1057 for branches other than CBB has been prescribed.

when a new account for customer is opened. In Finacle. This reduces the repetitive entry of information to be entered while opening multiple accounts for the same customer. The customer detail is used for MIS purpose. 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. A print out of this data should be taken out and preserved after verification and authentication by the officer. the system gives a Customer ID. Branch should ensure that only one “customer ID” is assigned to a customer for all his accounts.Noida 123 . 2) OBTENTION OF PHOTOGRAPHS Amity International Business School.Credit Appraisal and Risk Rating at PNB The authorized officer/Supervisor will verify the same. 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. 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.

STORAGE & RETRIEVAL SYSTEM i) ii) Scanning should be done on daily basis for new accounts The authorized officer will verify the signatures on line and ensure scanning of signatures of all accounts. In all subsequent deposit accounts opened by the depositor. i) Both the photographs submitted by the prospective customer are identical.F. 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. and Specimen Signature Slip (SSS). while attesting the photographs as above. 4) SIGNATURE SCANNING. authorized to open the accounts. the concerned officer should ensure that. Further.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. The signature of the attesting official should appear partly on the photograph and partly on the AOF / SSS. 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. iii) Signature should be scanned as per Customer ID Amity International Business School. 3) SPECIMEN SIGNATURES AOF shall be verified & preserved manually. by using a sign-pen/gel-pen.O. Every deletion and modification should be verified by authorized officer. two recent photographs of the applicant are to be obtained and affixed on the relative A.Noida 124 . The photographs so affixed should also be attested by the account opening authority under his/her full signature. mentioning his/her GBPA number and date and rubber stamp bearing the branch name be affixed below the signature.

Description for the signature field should be used for noting down any specific instructions. It should be treated as a substantive requirement having real significance and not merely a formality.Noida 125 . The transactions relating to inoperative accounts should be in accordance with existing guidelines of the bank. v) vi) vii) More than one signature of the customer should be captured from the four specimen signatures given on the signature slip. The right to view signature of inoperative account is restricted to authorized officer.g. viii) ix) Irrelevant areas should not be scanned. It is to be ensured that the account of the introducer is at least one year old and conduct thereof has been satisfactory. e. The scanned signatures should also be authorized in the system by an authorized officer other than System Administrator. If the customer who wants to open suppose a fixed Amity International Business School. 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. Scanned signatures should be very clear. “these signatures are valid for amount below ten lacs”.Credit Appraisal and Risk Rating at PNB iv) Scanning of signatures should be restricted to System Administrator/ authorized officer. Inoperative account signatures shall be classified separately and access to such signatures would be controlled. The general user will not be able to see the signatures of inoperative accounts. joint signatures or any two etc. 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. Introduction is a mandatory requirement.

As far as possible. such as Passport. Ration Card Passport Amity International Business School. However. CA. The independent verification of Address may be done from ANY ONE of the following documents and keeping a copy of the document so verified. 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.Credit Appraisal and Risk Rating at PNB deposit account. 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. 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. his personal documents. introducer should personally come and introduce the account and in cases where it is not possible. Postal identification. 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. Pay Books.Noida 126 . Identification Cards of Armed Forces. fresh introduction is not required. ii. 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. along with the AOF: - i. C/C. SF. is already having an account viz. duly attested by the officer opening the account. Implication of introduction should be fully explained to the introducer.

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

Credit Appraisal and Risk Rating at PNB After the saving a/c is opened successfully the pass book is issued next day. 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.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.

Credit Appraisal and Risk Rating at PNB 16. will pass on the pay-in-slip/voucher to the CTO/clerk concerned for entry in the cash book/ computer. 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. he must. 000/-.Noida 129 . Where cash remittances are received by post or otherwise under cover of a letter from a customer. which should be signed by the depositor. give his full address.g. thereafter. whilst the voucher portion will be passed on to the respective sections for necessary action. After the cash has been counted and verified. 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. are duly mentioned in the relative pay-in-slips. if the amount of deposits is up to and including Rs. 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. in addition to signing the pay-in-slip.2 CASH DEPOSIT While receiving cash for credit to customers’ accounts. If deposits are tendered by a person other than the account holder.). Amity International Business School. the receiving cashier will (i) sign in full under the cash receipt stamp affixed on both parts of the pay-in-slip. be delivered to the depositors. the nature and number of the accounts and the names and addresses of the account holders etc. (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.10. This applies equally to casual customers tendering moneys for issuance of drafts and/or remittances etc. The counterfoils will. the staff concerned will ensure that the required particulars (e.

. 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. Both the receiving cashier and a checking official should sign cash receipts above Rs.Noida 130 .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.PNB-190) maintained for the purpose. 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.10000/-. cash receipt vouchers pertaining thereto may be sent by the cashier direct to the clerk concerned. Entries made in these long books and their totals will be checked by the officials Amity International Business School. To facilitate expeditious retirement of inward bills and demand drafts and the issue of drafts etc. The user shall note down the tran-id on the credit voucher and pass on the voucher to authorized official for passing verification. CASH BOOK All cash transactions must be entered in the cash book (Form No.10000/. The user shall enter the voucher to credit the customer account and the system shall generate a transaction ID (tran-id). duly signed by the receiving cashier only. in which each entry will be checked and initialed by a checking official.will be delivered to depositors direct.PNB-72) after the cash has been received or paid by the cashier. who will record them in 'cash book-cum-realization long book' (Form No. 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-cumrealization long book.

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. All tokens will be engraved with the name of the bank’s office and entered in the tokens in use register (Form No. etc. missing tokens being recorded in red ink. under authentication of in charge of cash book. before making payment. obtain the latter's signatures on the back of the document. The officer in charge of cash. 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. The CTOs use tokens for payments made by him within the prescribed limits. (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. At the close of business each day.PNB-135). as soon as the loss is discovered. and if found in order. while signing the cash book. The CTO/ cashier.Credit Appraisal and Risk Rating at PNB in charge of the respective sections. has been passed for payment by a duly authorized official. Each paying cashier and CTO will keep a list of the numbers of the missing tokens to guard against their misuse. As a measure of safety. Cashier. 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. 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. draft or debit voucher. that the cheque. The cash book will be signed by the Head cashier/Cash Officer. 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). will satisfy him from the chart of powers provided to him.PNB107). draft or cash order etc. the paying cashier should also enquire the name of the person receiving payment and the amount of the cheque. to the incumbent in charge who will (i) take steps to guard against its misuse. 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. At the end of the day. official in charge Amity International Business School.Noida 131 . In the evening. Any token which is found missing must be reported.

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

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

The number of transactions in a day was around 100. In the Patel Nagar Branch. For cheques drawn for a sum of less than Rs. large payments are handled by the head cashier. 20.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. in the appropriate columns. WITHDRAWAL There is no restriction on number of withdrawals. total of the cash book clearing sheets and opening and closing cash balances. i. Regarding the queue management a proper token system was there and the numbers were displayed on the electronic screen. all columns of the transfer journal will be totaled. ruled off. This window was taken care by the assistant. At the close of the day.000.Noida 134 . under the column "Debit Voucher Passed” in token of his having passed the corresponding debits. For the amount higher than Rs.e.per such cheque) would be recovered from the customers.000 different counter was there. This will be checked and signed by a checking official. 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. 20. For the amount less than Rs. prescribed charges (presently Rs. the official concerned will satisfy himself that the vouchers are initialed as having been entered in and released from the transfer journal. the windows differ by the amount of cash payment is to be done. that is to say. 10/. tallied and the totals being checked and signed by the officials’ in charge of the respective section. While doing so. have been generated on day to day basis during implementation phase and checked. All day end reports including Cash Book/Long Book /Transfer journals/Day Book /Exception Report etc. Amity International Business School. 50/-.

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 If PIN is not legible you should contact the card issuing branch and request for a duplicate PIN.Credit Appraisal and Risk Rating at PNB 16. In case of Non-Personalized card (without name) the card would be issued instantly. please contact Debit Card Cell at 011 – 23710021 or through email at debitcard@pnb.co. 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. ii. PIN based Debit Card (Maestro card) Signature based Classic Debit card (Master card) 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. balance enquiries and mini statement.4 ATM MANAGEMENT & MAINTENANCE OPERATION A Debit Card provides access to ATMs for cash withdrawals.Noida 135 . In case you do not get a satisfactory reply. on-line electronic payment for purchases from your savings / current (individual) accounts. in which case the deactivated card would be delivered at your address directly within 7-10 working days. 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. At present following types of Debit card Bank is issuing: i. iii. Debit card can be obtained from any CBS branch of PNB (irrespective of your account maintaining branch) by filling a Debit Card application form. Amity International Business School. 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). However you can send the duly filled application from along with proof of identity to HO for activation of the card.

contact our helpdesk no of ATM Switch at 011 -23765143.000 and Rs. However per transaction limit at ATM is Rs.respectively. 15. are also eligible for the issue of Debit Cards at the time of opening the account itself. 1800 180 2222 (Toll Free) Contact Numbers 0124 – 2340000 (Accessible from Mobile also. 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.000 only. 100 per Year will be levied after one year of Card issuance every year.In case you do not get the Call Centre no. Fee for the issuance of Debit card: PNB Debit Card is issued free of cost.000/. Amity International Business School.Noida 136 . 011 . For Signature Based Gold Debit Card. 25. • New customers. 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. who open their accounts after introduction. However a nominal fee of Rs. 15. the daily cash withdrawal limit at ATM and shopping limit at merchant establishments are Rs. If Debit card is lost or misplaced: You should immediately contact our below given no. However per transaction limit at ATM is Rs. 60.Credit Appraisal and Risk Rating at PNB Validity of PNB Debit Card: PIN based Maestro Debit card has no expiry date. having Savings Bank Account and Current Account. However Signature based Debit Card is valid for 7 years from the date of issue.000 only. 40. • Debit Card facility shall be extended to the individual customers only.23323672. of call centre to get the card hot listed / blocked.000 each.

Now reconciliation & complaint resolution system has been put into place. ATM Maintenance: Now for the ATM maintenance a single channel is made. besides sending SMS to customer’s mobile number if available. The complaints can now be lodged or resolution can be done by ‘SPARSH’ call centre. Branches if approached by customers. where operations through cheques are permitted. 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. Amity International Business School. to lodge the complaint & to get the docket-id from ‘SPARSH’. cards can be issued to both the account holders whereas in “Former or Survivor” accounts card can be issued only to the Former. in addition to using call centre service.id. Complaints resolution status updated on ‘SPARSH’ is now being done on day to day basis.Noida 137 . 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.Credit Appraisal and Risk Rating at PNB • Debit cards shall also be issued to individual customers having overdraft facility. In “Either or Survivor” accounts. have also been given the option to use the centralized mail. • Debit Card can be issued in Joint Accounts with “Either or Survivor”/”Former or Survivor” mandate.

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

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

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

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. 4. 2. however due care is taken to include all the relevant information needed. Therefore. Amity International Business School. which handicapped the research viz.2LIMITATIONS OF THE STUDY Although the study was carried out with extreme enthusiasm and careful planning there are several limitations. and collection of data was very difficult. 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. some respondents tend to give misleading information.Noida 141 . 3. the study had to be carried out based on the availability of respondents. Accuracy: It is difficult to know if all the respondents gave accurate information.Credit Appraisal and Risk Rating at PNB 17. It was difficult to find respondents as they were busy in their schedule. 1.

HDFC) breathing down its neck. Yet. 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. In short. which I hope will take them miles ahead of competition. I am sure the bank will find my findings relevant and I sincerely hope it uses my suggestions enlisted. PNB must also be alert what with Private Banks (ICICI.3CONCLUSION: Since the opening up of the banking sector. 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.Credit Appraisal and Risk Rating at PNB 17. private banks are in the fray each one trying to cover more market share than the other.Noida 142 . PNB is far behind SBI.

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