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A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank

CONTENTS
Page No.

1. 2. 3. 4. 5. 6. 7. 8. 9.

Introduction Objective of the study Scope of Study Hypothesis of the study Research Methodology Company Profile Theoretical Background Data Analysis and Interpretation Finding

2 5 7 9 11 13 15 29 35 37 39 41 43

10. Limitation 11. Suggestion 12. Conclusion 13. Bibliography

N.M.D. College, Gondia, 2013-14

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A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank

“A Study on Credit Appraisal Process in SME Sector of Axis Bank”

N.M.D. College, Gondia, 2013-14

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A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank

INTRODUCTION
Credit appraisal means a investigation/assessment done by the bank prior before providing any loans and advances/project finance of the project proposed its funding pattern and collateral security cover available for recovery of such funds. The small and medium enterprise today constitute a very important segment of the India economy. These SME units are now being funded by many government and private banks. The SME sector is one of the greatest contributors of domestic production as well as the export earnings. Many major mergers have taken place recently. The development of this sector came about primarily due to the vision of our late prime minister Jawaharlal Nehru who sought to develop core industry and have a supporting sector in the form of smell scale

enterprises. SME sector has emerged as a dynamic and vibrant sector of the economic small and medium enterprises t' SME s) constitute 6% of GDP, 34% of national exports and account the employment of more than 30million people. Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors. For the past three decades India's banking system has several outstanding achievements to its credit. The most striking is its extensive reach. It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of India's growth process.

Currently, India has 96 scheduled commercial banks(SCBs) - 27 public sector banks (that is with the Government of India holding a stake), 31 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign banks. They have a combined network of over 53,000 branches and 49,000 ATMs. According to a report by ICRA (Investment Information and Credit Rating Agency of India Limited) a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.

N.M.D. College, Gondia, 2013-14

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A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank

The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below:  

Early phase from 1786 to 1969 of Indian Banks Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms.

N.M.D. College, Gondia, 2013-14

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Gondia. College. 2013-14 5 .D.M.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank N.

2013-14 6 . To determine the method of credit appraisal in SME sector. N. College.D.M. Gondia.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank OBJECTIVES     To study the importance of credit appraisal. To provide guidelines to the branches to dispense credit to SME sector. To study impact of credit appraisal done in SME sector.

Gondia. 2013-14 7 .D.M.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank N. College.

M. 2013-14 8 .A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank SCOPE OF STUDY     Broad guidelines on lending to SME sector. College. Gondia.D. SME loan factory model. Training needs. Reporting and monitoring system N.

M.D.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank N. College. 2013-14 9 . Gondia.

College.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank HYPOTHESIS   The credit appraisal done in SME sector in axis bank facilitates the management: of credit. The credit appraisal of SMEs leads to the smooth management financial resources. N. Gondia. 2013-14 10 .D.M.

College.M.D. Gondia.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank N. 2013-14 11 .

A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank RESERCH METHODOLOGY The main objective of research paper is to study the credit risk assessment model of SBI Bank and total the commercial. RESEARCH DESIGN: A research design is the arrangement of the condition for collection and analysis of data. books. financial and technical viability of the project proposed its funding paten. 2013-14 12 .D. DATA COLLECTION Primary data: It will be collected through Informal interviews with Branch Manager and other staff members at Axis bank. Actually it is the blueprint of the research project. magazines. which is in manufacturing of Food color product. Gondia. College. Ltd. internal reports of Axis bank. Journal and websites. Research design used will be exploratory type. Case Study: To understand how credit appraisal is done. I will be taking cases study of Dynamic Products.M. N. ● Secondary data: It will be collected from Business Newspapers.

M.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank N. 2013-14 13 . Gondia.D. College.

College.M. i. Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) and other four PSU insurance companies. The Bank has strengths in both retail and corporate banking and is committed to adopting the best industry practices internationally in order to achieve excellence. The Bank was promoted jointly by the Administrator of the specified undertaking of the Unit Trust of India (UTI . The Bank has a very wide network of more than 1281 branches and Extension Counters (as on 31sty March 2011).. This is one of the largest ATM networks in the country. The Oriental Insurance Company Ltd. The Bank's Registered Office is at Ahmadabad and its Central Office is located at Mumbai. Gondia.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank COMPANY PROFILE Axis Bank was the first of the new private banks to have begun operations in 1994. after the Government of India allowed new private banks to be established. The Bank has a network of over 7591 ATMs (as on 30th September 2011) providing 24 hrs a day banking convenience to its customers. National Insurance Company Ltd. and United India Insurance Company Ltd.D. 2013-14 14 . The New India Assurance Company Ltd. N.I)..e.

M. Gondia.D.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank Theoretical background N. College. 2013-14 15 .

This sector was recognized and given importance right from independence and is being encouraged ever since then. when the Ministry of Micro.D. imposed the Micro. Small and Medium Enterprises. College. N. An SME is known by different ways across the world. An SSI unit should neither be a subsidiary of any other industrial unit nor be owned or controlled by any other industrial unit. can be considered as an SSI unit and any investment of upto Rs 100 million can be termed as a medium unit. In India. Government of India. For instance.000 people.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank Theoretical background Small and Medium Enterprises or SMEs are vital for the growth and well being of the country. The policy statement put in place special legislation to recognize and protect self employed people in cottage and home industries. it gradually gained significance. Gondia.2006. 2013-14 16 . the small and medium enterprises (SME) sector is broadly a Term used for small scale industrial (SSI) units and medium-scale industrial units.M. 2006. it commenced on a small scale. Small and Medium enterprises Development (MSMED) Act. this sector was defined as an enterprise with investment in plant and machinery of up to Rs 1 laky and situated in towns and villages with strength of less than 50. District industries canters INTRODUCTION TO SME In the Indian context. When it started gaining momentum. however was changed according to the changing economic scenario and thus has separate definitions to it. because it employed a considerable number of people. This definition. Any industrial unit with a total investment in its fixed assets or leased assets or hire-purchase asset of upto Rs 10 million. Though. an SME definition for manufacturing enterprises is different from what an SME definition for service enterprises has to say. a standard definition surfaced only in October 2.

D. 5 crores but less then Rs. 1951. the MSMED Act 2006 defines micro.1951) The Manufacturing Enterprises are defind in terms of investment in piant and machinarey 2. small and Medium Enterprises Development (MSME) are classified as: 1 . 10 crores Service Sector Enterprises Micro Small Medium Investment in equipment less than Rs 10 lakhs over Rs 10 lakh but not exceeding Rs 2 crores over Rs 2 crore but not exceeding Rs 2 crores DESCRIPTION OF SME IN THE MANUFACTURING SECTOR The Term enterprise in the manufacturing context stands for an industrial undertaking or a business concern involved in the production. 2013-14 17 . For the Manufacturing Sector. Service Enterprises : The enterprises engaged in providing or rendering of service and are defind in terms of investment in equipment . They are an essential source of a country „s jobs. College. processing or preservation of goods for the list of eligible industries in the First Schedule to the Industries (Development and Regulation Act). 25 lakhs but not exceeding Rs.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank DEFINATION OF SME SME‟s are the engine of growth of any country „s economy . 5 crores Over Rs. Manufacturing Enterprises: The enterprises engaged in the manufacturing or production of goods pertaining to any industry specified in the first schedule to the industry ( Development and regulation Act . According to the Micro. 25 lakhs Over Rs. small and medium enterprises (MSMEs) as mentioned below: N. create entrepreneurial spirit and jobs in a country and are crucial for fostering competitiveness and employment . Gondia.M. Manufacturing Sector Enterprises Micro Small Medium Investment in plant and machinery Less than Rs.

the customer's cash flows are ascertained to ensure the timely payment of principal and the interest. previous Loans. but does not exceed Rs 5 crore. Credit risk is a risk related to non-repayment of the credit obtained by the customer of a bank. continuity of employment.  The investment in plant and machinery in a small enterprise is more than Rs 25 lakh. In all these. Generally the credits facilities are extended against the security know as collateral. are taken into account while appraising the credit N.M. the cost excludes that of land. etc. College. financial & technical viability of the project proposed.D. Factors like age.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank  A micro enterprise is an enterprise where investment in plant and machinery does not exceed Rs 25 lakh. which are involved in providing financial funding to its customers. OVERVIEW OF CREDIT APPRAISAL Credit appraisal means an investigation/assessment done by the banks before providing any Loans & advances/project finance & also checks the commercial. It is generally carried by the financial institutions. Thus it is necessary to appraise the credibility of the customer in order to mitigate the credit risk. nature of employment. number of dependents. But even though the Loans are backed by the collateral. It is the process of appraising the credit worthiness of a Loan applicant. but does not exceed Rs 10 crore. credit cards. 2013-14 18 . its funding pattern & further checks the primary & collateral security cover available for recovery of such funds. banks are normally interested in the actual Loan amount to be repaid along with the interest. Gondia. Thus. building and the items specified by the Ministry of Small Scale Industries with its notification No SO 1722 (E) dated October 5. 2006. income. repayment capacity. BRIEF OVERVIEW OF CREDIT Credit Appraisal is a process to ascertain the risks associated with the extension of the credit facility. Proper evaluation of the customer is performed this measures the financial condition and the ability of the customer to repay back the Loan in future.  A medium enterprise is one where the investment in plant and machinery is more than Rs 5 crore.

also known as a borrower. small business Loans. however if proper credit evaluation techniques and monitoring are implemented then naturally the Loan loss probability / problems will be minimized. Other credit plans include personal Loans. and instead arranges either to repay or return those resources (or material(s) of equal value) at a later date. vehicle Loans.D.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank worthiness of a person.M. a credit is an agreement of postponed payments of goods bought or Loan. Every bank or lending institution has its own panel of officials for this purpose. There is no guarantee to ensure a Loan does not run into problems. trade. also known as a lender. BRIEF OVERVIEW OF LOANS Loans can be of two types fund base & non-fund base: A. a debt is formed. College. The first party is called a creditor. at all times. student Loans. A credit is a legal contract where one party receives resource or wealth from another party and promises to repay him on a future date along with interest. Non-fund Base includes:  Letter of Credit 19 N. We use credit to buy things with an agreement to repay the Loans over a period of time.    Character Capacity Collateral If any one of these are missing in the equation then the lending officer must question the viability of credit. thereby generating a debt. The most common way to avail credit is by the use of credit cards. home Loans. However the 3 „C‟ of credit are crucial & relevant to all borrowers/ lending. 2013-14 . With the issuance of a credit. Gondia. and pay for them later. while the second party is called a debtor. Credit allows you to buy goods or commodities now. Fund Base includes:   Working Capital Term Loan B. which should be the objective of every lending Officer. In simple Terms. which must be kept in mind. Credit is the provision of resources (such as granting a Loan) by one party to another party where that second party does not reimburse the first party immediately.

& also to run the business i. whether given as security or not. College. plant. & repayable from out of the future earning of the enterprise. construction of. The excess of current assets over current liabilities is treated as net. An industry will require funds to acquire “fixed assets” like land. 2013-14 20 .e. Gondia. Working capital in this context is the excess of current assets over current liabilities.D. For production. The repayment should come out of the future cash accruals from the activity of the unit. Term Loan A Term Loan is granted for a fixed Term of not less than 3 years intended normally for financing fixed assets acquired with a repayment schedule. o The repayment of Term Loan is not out of sale proceeds of the goods & commodities per se. machinery..A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank   Bank Guarantee Bill Discounting Fund Base: Working capital The objective of running any industry is earning profits. funds are needed for purchase of raw materials/ stores/ fuel. buildings. vehicles. Funds required for day to-day working will be to finance production & sales.M. building. renovation or rationalization of plant. such as purchase of land. o The Term Loan is an advance not repayable on demand but only in installments ranging over a period of years. its day-to-day operations. for employment of labor. From the above definition. A Term Loan is a Loan granted for the purpose of capital assets. equipments. in installments. for power charges etc. for storing finishing goods till they are sold out & for working capital or liquid surplus & represents that portion of the working capital. financing the sales by way of sundry debtors/ receivables. as per a prearranged schedule. which has been provided from the long-Term source. the following differences between a Term Loan & the working capital credit afforded by the Bank are apparent: o The purpose of the Term Loan is for acquisition of capital assets. N. modernization. purchase of machinery. Capital or funds required for an industry can therefore be bifurcated as fixed capital & working capital. tools etc.

Term Loans would be repaid in a regular way from the anticipated income of the industry/ trade. technical aspects. a projection of future trends of outputs & sales & estimates of cost. The repayment of a Term Loan depends on the future income of the borrowing unit. College. flow of funds & profits. Longer the duration of the credit.M. to adopt a different approach in examining the applications of borrowers for such credit & for appraising such proposals. its capital assets.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank o The security is not the readily saleable goods & commodities but the fixed assets of the units. Financial aspects. The Bank‟s commitment is for a long period & the risk involved is greater. It may thus be observed that the scope & operation of the Term Loans are entirely different from those of the conventional working capital advances. economic aspects. Hence. the primary task of the bank before granting Term Loans is to assure itself that the anticipated income from the unit would provide the necessary amount for the repayment of the Loan. This will involve a detailed scrutiny of the scheme. N. An element of risk is inherent in any type of Loan because of the uncertainty of the repayment. 2013-14 21 . These distinctive characteristics of Term Loans distinguish them from the short Term credit granted by the banks & it becomes necessary therefore. These Loans are subject to a definite repayment programme unlike short Term Loans for working capital (especially the cash credits) which are being renewed year after year. Gondia. it may be observed that Term Loans are not so lacking in liquidity as they appear to be.D. greater is the attendant uncertainty of repayment & consequently the risk involved also becomes greater. returns. However.

The objective of LC is to provide a means of payment to the seller & the delivery of goods & services to the buyer at the same time Definition A Letter of Credit (LC) is an arrangement whereby a bank (the issuing bank) acting at the request & on the instructions of the customer (the applicant) or on its own behalf.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank Non-fund Base: Letter of credit The expectation of the seller of any goods or services is that he should get the payment immediately on delivery of the same.M. 2013-14 22 . guarantee is a collateral contract. or o Authorizes another bank to negotiate the Terms & conditions of the credit are complied with. Here arises the need of Letter of Credit (LCs). or to accept & pay such bills of exchanges (drafts). Thus. provided that Bank Guarantees: A contract of guarantee is defined as „a contract to perform the promise or discharge the liability of the third person in case of the default‟. At the same time the purchaser desires that the amount should be paid only when the goods are actually received. or o Authorizes another bank to effect such payment. against stipulated document(s). Gondia. The parties to the contract of guarantees are: a) Applicant: The principal debtor – person at whose request the guarantee is executed b) Beneficiary: Person to whom the guarantee is given & who can enforce it in case of default. or is to accept & pay bills of exchange (drafts drawn by the beneficiary). This may not materialize if the seller & the buyer are at different places (either within the same country or in different countries). The seller desires to have an assurance for payment by the purchaser. o Is to make a payment to or to the order of a third party (the beneficiary). c) Guarantee: The person who undertakes to discharge the obligations of the applicant in case of his default.D. N. consequential to a main co applicant & the beneficiary. College.

f) Bid bonds on behalf of exporters g) Export performance guarantees on behalf of exporters favoring the Customs Department under EPCG scheme. maturity & purpose. c) In respect of raw materials supplies or for advances by the buyers. a company or a high Net worth Individual and obtain ready cash this is known as discounting of bill. the N. “The bill of exchange is an instrument in writing containing an unconditional order.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank Purpose of Bank Guarantees Bank Guarantees are used to for both both preventive & remedial purposes. viz. The guarantees executed by banks comprise both performance guarantees & financial guarantees.M.” Discounting of bill of exchange: A seller (Drawer) if need cash. Branches may issue guarantees generally for the following purposes: a) In lieu of security deposit/earnest money deposit for participating in tenders. or to the bearer of that instrument. signed by the maker. d) In respect of due performance of specific contracts by the borrowers & for obtaining full payment of the bills. NBFC..D. may handover the B/E to the Bank. etc. College. a certain person. design/drawings in project finance. e) Performance guarantee for warranty period on completion of contract which would enable the suppliers to period to be over. b) Mobilization advance or advance money before commencement of the project by the contractor & for money to be received in various stages like plant layout. security. or to the order of. The guarantees are structured according to the Terms of agreement. Gondia. realize the proceeds without waiting for warranty) To allow units to draw funds from time to time from the concerned indenters against part execution of contracts. Bill discounting: Definition As per Negotiable Instrument Act. directing a certain person to pay a certain sum of money only to. 2013-14 23 .

Short Term source of finance 2. College. Certainty of payment 3.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank practice in India is that. Documentary Bills a.D. Flexibility o To Banks 1. Gondia. Types of Bills 1. Documents against acceptance (D/A) bills b. Documents against payment (D/P) bills 4. Clean Bills Advantages o To Investors 1. 2013-14 24 .normal maturity periods are 30.M. Safety of funds 2. the financing organization holds the original B/E till the drawee pays on maturity. financiers charge an interest on the bill amount for the duration of the bill which is called discount charges. 60. 120 days. Outside the purview of Section 370 of Indian Companies Act 1956 3. No tax deducted at source 4. Profitability N. 90. For discounting the bill. Demand Bill 2. Usance Bill 3.

College. 2013-14 25 .M. Gondia.D.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank Credit Appraisal Process N.

the State Bank of India and its group banks. non-scheduled banks and scheduled banks. Nationalization of banks in India took place in 1969 by Mrs. commercial banks can be further grouped into nationalized banks.     Nationalized /Public sector banks Dominate the banking system in India. The private sector banks are again spilt into old banks and new banks.D. which is governed by the Banking Regulation Act of India 1949 can be broadly classified into two major categories. In Terms of ownership. College. regional rural banks and private sector banks (the old / new domestic and foreign).A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank Classification of Banks: The Indian banking industry.M. Gondia. 2013-14 26 . Private Banks N. private sector and foreign banks. The Indian banking industry is a mix of the public sector. Scheduled banks comprise commercial banks and the co-operative banks. Indira Gandhi.

Have helped made Indian banking system more competitive and efficient.M.D. Gondia. College. 2013-14 27 . Jolted public sector banks out of complacency and forced them to become more competitive.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank     Made banking more efficient and customer friendly. Foreign banks Have brought latest technology and latest banking practices in India. N.

A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank MAJOR BANKS IN INDIA  Axis Bank  Indian Overseas Bank  ABN-AMRO Bank  IndusInd Bank  Abu Dhabi Commercial Bank  ING Vysya Bank  American Express Bank  Jammu & Kashmir Bank  Andhra Bank  JPMorgan Chase Bank  Allahabad Bank  Karnataka Bank  Bank of Baroda  Karur Vysya Bank  Bank of India  Laxmi Vilas Bank  Bank of Maharastra  Oriental Bank of Commerce  Bank of Punjab  Punjab National Bank  Bank of Rajasthan  Punjab & Sind Bank  Bank of Ceylon  Scotia Bank  BNP Paribas Bank  South Indian Bank  Canara Bank  Standard Chartered Bank  Catholic Syrian Bank  State Bank of India (SBI)  Central Bank of India  State Bank of Bikaner & Jaipur 28 N. College.D. Gondia. 2013-14  Centurion Bank  State Bank of Hyderabad .M.

A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank N.D.M. 2013-14 29 . Gondia. College.

Risk arises out of Deficiencies / lapses on the part of the management (Internal factor) Uncertainties in the business environment (External factor) Uncertainties in the industrial environment (External factor) Weakness in the financial position (Internal factor) TO PUT IN ANOTHER WAY. 2013-14 30 .M. They can be compared to two sides of the same coin. and Mitigate the risk RISK ARISES IN CREDIT:      In the business world.D. Gondia. SUCCESS FACTORS BEHIND A BUSINESS ARE    Managerial ability Favorable industrial environment Adequate financial strength CREDIT & RISK     Go hand in hand. College. All credit proposals have some inherent risks. LENDER’ TASK   Identify the risk factors.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank DATA ANALYSIS A) CREDIT RISK ASSESSMENT & APPRAISAL PROCESS OF AXIS BANK CREDIT RISK ASSESSMENT RISK: Risk is inability or unwillingness of borrower-customer or counter-party to meet their repayment obligations/ honor their commitments. N. They are like twin brothers. excepting the almost negligible volume of lending against liquid collaterals with adequate margin. as per the stipulated terms.

based on risk-absorption/ risk-hedging capacity & risk-mitigation techniques of the Bank. 2013-14 31 .  But it‟s always prudent to have some idea about the degree of risk associated with any credit proposal. N.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank LENDING DESPITE RISKS   So.D. risk should not deter a Banker from lending.M. Gondia. College. A banker‟s task is to identify/ assess the risk factors/ parameters & manage / mitigate them on a continuous basis.  The banker has to take a calculated risk.

we turn to technology for providing necessary solution. While consumers may be happy to make payments and interact with their bank through convenient – and cheaper – banking channels. reducing operational costs.75 per cent of respondent banks informed that superior service pre and post banking has been one of the essential factors rated high by their customers. they still expect high standards of service. 75 per cent of respondent banks felt that Personal touch in the dealings has helped them in winning customers. Customer Retention and Customer Satisfaction are inexorably interred .M.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank Technology has moved from being just a business enabler to being a business driver. Gondia.linked. 93. achieving profitability. A consistent service reflects the bank‟s brand and image across all channels.D. 2013-14 32 . Advertisements and additional sales force. Technological up gradation was clearly identified as one of the most successful strategy in Customer Acquisition and Retention followed by Expansion of ATM Network. College. developing risk management systems. Be it customer service. N.

A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank Challenges facing by Banking industry in India The banking industry in India is undergoing a major transformation due to changes in economic conditions and continuous deregulation.M. College. trying to graduate from completely regulated sellers market to completed deregulated customers market.D. N. Gondia. 2013-14 33 . These multiple changes happening one after other has a ripple effect on a bank Refer fig.

warehouse warratts and receipts. N.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank Banking Activities Over the last three decades. marine insurance policies and various other documents.D. In India. credit cards and circular notes to customers wishing to travel abroad as also to effect purchase and shipment of goods. pass through the hand of bankers. imports into and exports out of the country are financed by banks. 2013-14 34 . Now days. they have not to deal with bills of exchange. According to survey done by FCCI. providing them with working capital finance and to a certain extent. The range of services provided by our banks stretches from rural finance at one end to international banking at the other. College. with finance for fixed capital requirements also. As bankers they advance money on securities and issue letter of credit. Gondia. spread and scope of activities of banks in India. Thus. venture capital and financial services in general. mutual funds. They assists industrial undertaking by underwriting their debentures and shares.M. new financial services and products and the human resource development. but also with bills of lading. They serve as custodian of stocks and shares and other valuables. the banking industry is entering several new activities in the areas of merchant banking. The business profile of banks has transformed dramatically to include non-traditional activities like merchant banking. the bankers have to deal with a large number of matters. and document relating to the goods so imported and exported. traveller‟s cheque. leasing housing finance. Following shows most profitable noninterest income of bank. railway receipts. at one time or another. there has been a remarkable increase in the size.

A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank N. 2013-14 35 . College.D. Gondia.M.

College. industrial.D. business. management risks & are rated separately N. 2013-14 36 . financial & technical viability of the project proposed its funding pattern & further checks the primary or collateral security cover available for the recovery of such funds  Credit is the core activity of the banks & important source of their earnings which go to pay interest to depositors.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank FINDINGS  Credit appraisal is done to check the commercial. Gondia.M. salaries to employees & dividend to shareholders  Credit & risk go hand in hand  In the business world risk arises out of:    Deficiencies / lapses on the part of the management Uncertainties in the business environment Uncertainties in the industrial environment Weakness in the financial position  Bank‟s main function is to lend funds/ provide finance but it appears that norms are taken as guidelines not as a decision making  A banker‟s task is to indentify/assess the risk factors/parameters & manage/mitigate them on continuous basis  The Credit Appraisal process adopted by the bank take into account all possible factors which go into appraising the risk associated with a loan  These have been categorized broadly into financial.

A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank N. Gondia. College. 2013-14 37 .M.D.

some of the technicalities may not reveal which might cause destruction to the information and exploration of the problem.M.D. will be based on certain assumptions. ● The study is academic in nature. N. whatever suggestions generated. ● Information provided by respondents may be biased. 2013-14 38 . ● As some of the information is not revealed. ● Finding of the study will be based on the assumptions that respondents have given correct information.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank LIMITATIONS OF STUDY ● As the credit rating is one of the crucial areas for any bank. Gondia. College.

College.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank N.M. 2013-14 39 . Gondia.D.

 Banks should also provide consultancy services and professional guidance at the time of setting up for considering the long-term and short-term financial requirements of a small unit for lending purposes.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank SUGGESTION  Timely finance should make available to the small units keeping in view their needs. N.M. Gondia. 2013-14 40 .  The borrowings should be made cheaper by lowering the rate of interest on landings of commercial banks.D.  The Entrepreneurs are of the opinion that they are not getting proper assistance from the Government employees in documentation to obtain the loan from the funding institutions. College.

A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank N.M.D. 2013-14 41 . College. Gondia.

M.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank CONCLUSION  Finance management is the backbone of any organizations and hence yields a number of job options ranging from strategic financial planning to sales.  In all. past records. industry. as well as type of business. projected data and estimates. goals. But. 2013-14 42 . long term plans also plays crucial role in increasing chances of getting project approved for loan. promoters. it is seen that credit appraisal is basically done on the basis of fundamental soundness. N.  Usually. the viability of the project from every aspect is analyzed. experience. College. it can be concluded that credit appraisal should therefore be based on the following factors. the same are applied at Axis Bank:      Financial performance Business performance Industry outlook Quality of management Conduct of account Axis Bank loan policy contains various norms for sanction of different types of These all norms do not apply to each & every case.D. our conclusion was such that credit appraisal system is not only looking for financial wealth. after different types of case studies. Axis Bank norms for providing loans are flexible & it may differ from case to case. Gondia. Other strong parameters also play an important role in analyzing credit worthiness of the firm/company.  From the study of Credit appraisal of SME.

College.D.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank N. 2013-14 43 . Gondia.M.

C.in www.wikipedia.bankersindia.M. College.A Study on Credit Appraisal Process in SME Sector with Respect to Axis Bank BIBLIOGRAPHY Web Sites     www.indianbankassociation.com www.Axis Bank. Gondia.com www.com Books  Credit and banking” By: K. Nanda N. 2013-14 44 .org.rbi.D.com www.