AN INTERNSHIP REPORT ON

³CREDIT APPRAISAL OF TERM LOAN IN SOUTH INDIAN BANK´

Submitted in partial fulfillment of the award of degree of Master of Business Administration

By:

MRIDUL MASSEY

TABLE OF CONTENTS
S.No
1 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 3 3.1 3.2

TOPIC
Introduction Introduction to Indian Banking Industry Indian Banking Scenario Scheduled Banking Structure In India Market Players of Banking Industry In India Growth Trends In India Technology In Banking Product and Technology Innovation Introduction To Credit Appraisal Research Methodology Statement of Problem Objective of Study Significance of Study Scope of Study Limitation Research Design Data Sources Different Bank Chosen Type of Loan Analyzed Sample Size Company Profile Performance of Bank Product Profile

Page No.
1-11 1 1 2 2-4 4-5 5-6 6-7 8-11 12-14 12 12 12 12 13 13 13 13 14 14 1516-18 18-24

3.3 4 4.1 4.2 4.3 4.4 5 5.1 5.2 6 6.1 6.2 6.3 7 7.1 7.2 7.3 7.4 7.5

Overview of Different Loan Schemes Credit Appraisal Process at SIB Process of Credit Appraisal Flow Diagram Hierarchical Structure for dealing Loan Proposal Process of Credit Appraisal for term loan Data Analysis & Interpretation Analysis of the Questionnaire Analysis of Secondary Data Finding, suggestion and conclusion Finding Suggestion Conclusion Annexure Sample Questionnaire Common Application for vehicle loan Checklist documents to be submitted with loan application Case analysis of term loan sanctioned to UPPCL References

24-30 31-54 31-34 35 36-37 38-54 55-64 55-58 58-62 63-64 63 63 64 65-82 65 66 67-68 69-81 82

CHAPTER 1: INTRODUCTION
1.1 INTRODUCTION TO INDIAN BANKING INDUSTRY
A bank is a financial intermediary that accepts deposits and channels those deposits into lending activities. Banks are a fundamental component of the financial system, and are also active players in financial markets. The essential role of a bank is to connect those who have capital (such as investors or depositors), with those who seek capital (such as individuals wanting a loan, or businesses wanting to grow).

In India, Banking industry is regulated by Reserve Bank of India (RBI), which is directly under control of Government of India. Reserve Bank of India (RBI) was established on 1st April, 1935 under the Reserve Bank of India Act. It was a private shareholder¶s institution till 1947. The bank was nationalized in 1948 under the RBI Act, 1948.The Reserve Bank of India acts as a banker not only to the central government but also to all state government. It plays a key role by offering all banking service to government by accepting Cheques, receiving and collecting payments, transferring funds, etc.

1.2 INDIAN BANKING SCENARIO Banking in India originated in the first decade of 18th century 4with The General Bank of India coming into existence in 1786. This was following by Bank of Hindustan. Both these banks are now defunct. The oldest bank in existence in India is the State Bank of India being established as ³The Bank of Bengal´ in Calcutta was the most active trading port, mainly due to the trade of the British Empire, and due to which banking activity took roots there and prospered. The first fully Indian owned bank was the Allahabad Bank, which was established in 1865. By the 1900s, the market expanded with the establishment of banks such as Punjab National Bank, in 1895 in Lahore and Bank of India, in 1906, in Mumbai both of which were founded under private ownership. The Reserve Bank of India formally took on the responsibility of regulating the Indian banking sector from 1935.After India¶s independence in 1947, the Reserve Bank was nationalized and given broader powers. At the beginning of the 20 th century, Indian economy was passing through a relative period of stability. Around five decades have elapsed since the India¶s First war of Independence, and the social, industrial and other infrastructure have developed. At that time there were owned and operated by particular communities. The banking in India was controlled and dominated by the presidency banks, namely, the Bank of Bombay, the Bank of Bengal and the Bank of Madras- which later on merged to form the Imperial Bank of India, and Imperial Bank of India, upon India¶s independence was renamed the State Bank of India. The presidency banks were like the central banks and discharged most of the functions of central banks. They were established under charters from the British East India Company. The exchange banks, mostly owned by the Europeans, concentrated on financing of foreign trade. Indian joint stock banks were generally undercapitalized and lacked the experience and maturity to compete with the presidency banks, and the exchange banks. There was potential for many new banks as the economy was growing. Lord Curzon had observed then in the context of Indian banking: ³In

respect i it seems we are behi the times. We are li e some ol fashioned sailing ship, di ided by solid wooden bul heads into separate and cumbersome compartments.´ Under these circumstances, many Indians came forward to set up banks, and many banks were set up at that time, and a number of them set up around that time continued to survive and prosper even now like Bank of India and Corporation Bank, Indian Bank, Bank of Baroda, and Canara Bank. 1.3 SCHE LE B ST CT E IN INDIA

1.4 MARKET PLAYERS OF BANKING IN INDIA There are many players in the market in banking industry. They all are providing better services but in this competition they are cutting down the market shares of each other. 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 t aded on stock exchanges) and 31 foreign r banks. They have a combined network of over 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. In India banking industry is divided in three partsPublic Sector Bank Private Sector Bank Foreign Bank. PUBLIC SECTOR BANK Public sector bank are those bank in which government of India have 51%or more than 51% share and the bank run by the government polices. These banks are also known as Nationalize Bank. First time in India on 1st July 1969, at the time of Indira Gandhi when she was the Prime Minister of India then 14 major commercial banks were nationalized and after that on 14th August 1980 six more banks were nationalized. The Nationalize Bank which are working in India are                  Allahabad Bank Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Syndicate Bank UCO Bank Union Bank of India Vijaya Bank State Bank of India IDBI Bank

ASSOCIATES OF STATE BANK OF INDIA        State Bank of Bikaner & Jaipur State Bank of Hyderabad State Bank of Indore State Bank of Mysore State Bank of Patiala State Bank of Saurashtra State Bank of Travancore

PRIVATE SECTOR BANK Private Sector Bank is that bank which is run by private organization and government of India did not have any stake in it. In India, there are many Indian private banks. Some private sector banks are ICICI Bank  HDFC Bank  UTI Bank/AXIS Bank  IndusInd Bank  Yes Bank  Kotak Mahindra Bank  South Indian Bank, etc. FOREIGN BANK Foreign Banks are those bank which are established outside the India and open there branches in India and operating there branches from there mother country. Some of the major foreign banks are      ABO AMRO STANDARD CHARTEREDING VASYA BANK HSBC BANK CITI BANK AMERICAN EXPRESS BANK, etc.

1.5 GROWTH TRENDS The Indian banking market is growing at an astonishing rate, with assets expected to reach US$1 trillion by 2010. An expanding economy, middle class, and technological innovations are all contributing to this growth. The country¶s middle class accounts for over 320 million people. In correlation with the growth of the economy, rising income levels, increased standard of living, and affordability of banking products are promising factors for continued expansion. The Indian banking Industry is in the middle of an IT revolution, focusing on the expansion of retail and rural banking. Players are becoming increasingly customer-centric in their A approach, which has resulted in innovative methods of offering new banking products and services. Banks are now realizing the importance of being a big player and are beginning to focus their attention on mergers and acquisitions to take advantage of economies of scale and/or comply with Basel II Regulation. ³Indian banking industry assets are expected to reach US$1 trillion by 2010 and are poised to receive a greater infusion of foreign capital,´ says Prathima Rajan, analyst in Celent's banking group and author of the report. ³The banking industry should focus on having a small number of large players that can compete globally rather than having a large number of fragmented players."

1.6 TECHNOLOGY IN BANKING In the six decades of independence banking has evolved in four different phases. During the fourth phase important initiatives were taken with regard to improve the banking system. The entry of foreign banks resulted in a paradigm shift in the way banking was done in India. The arrival of foreign banks and private banks with there superior state of the art technology pushed the Indian banks to adopt latest technology in market, so that they could retain there customer base. Information technology has been used under two different avenues in banking. One is communication and connectivity and other is Business process reengineering. Information technology enables sophisticated product development, better market infrastructure, implementation of reliable techniques for control of risks and help the financial intermediaries reach geographically distant and different market. In India banks as well as other financial entities entered the world of information technology and with Indian financial network (INFINET). INFINET, a wide area satellite network (WAN) using VSAT(very small aperture technology) was jointly set up by Reserve Bank of India and Institute for Development and research for banking in1999. INFINET which was initially comprised only public sector banks was opened for participation by other categories of members. The information technology act 2000 has given legal recognition for creation, transmission, and retention of electronic data to be treated as a valid proof in the court of law The Reserve Bank of India has assigned priority to the up gradation of technology in the banks. Substantial progress has been made for developing a modern, efficient, integrated and secure payment and settlement system for the financial service sectors. Modernization of clearing and settlement system through MICR based cheque clearing, popularizing electronic clearing services (ECS) and integration of RBI-EFT scheme with funds transfer schemes of bank, introduction of centralized fund management system (CFMS) are significant milestones in this regard. The coverage of electronic clearing services has been significantly effective to encourage non paper based fund and develop a centralized facility for effective payment. The scheme for electronic fund transfer operated by the reserve bank has been augmented and now it is present in 13 cities. The centralized fund management system (CFMS) which would enable banks to obtain account wise and centre wise position of their balances has been implemented in a phased manner from November 2001. Membership of INFINET has been opened to all the banks in addition to those in the public sector banks. At the base of all the interbank message transfers using the INFINET is the

structured financial messaging system (SFMS). It would serve as a secure communication carrier with templates for intra and interbank messages in a strict message format that will facilitate straight through messaging. All the interbank messages will be stored and switched to central hub at Hyderabad while the intra bank messages will stored in the bank gateway. Security standards of SFMS will match the international standards. Information technology has immense untapped potential in banking. Strengthening the information technology in banks could improve the effectiveness of asset liability of banks. Building up of a related data base would strengthen and enhance the forecasting of liquidity of banks at the branch level. This could enhance the risk management capabilities of banks.

1.7 PRODUCT AND TECHNOLOGY INNOVATION A bank is a commercial or state institution that provides financial services, including issuing money in form of coins, banknotes or debit cards, receiving deposits of money, lending money and processing transactions. Traditionally banks used to perform the activity of taking money as deposits from general public for safety purpose and in turn it used these money to give loans and advances to them. Banks have influenced economies and politics for centuries. The primary purpose of a bank was to provide loans to trading companies. Banks provide funds to allow businesses to purchase inventory, and collected those funds back with interest when the goods were sold. For centuries, the banking industry only dealt with businesses, not consumers. But as the banking scenario changed and banks started to perform functions other than deposits and lending the perception of general public also changed. They started thinking the banks as not only deposit centers but also as investment centers. Seeing this change in people banks also launched innovative products which very much attracted the public. Although the basic type of services offered by a bank depends upon the type of bank and the country, services provided usually include. Taking deposits from their customers and issuing current (UK) or checking (US) accounts and savings accounts to individuals and businesses Extending loans to individuals and businesses Cashing Cheques  Facilitating money transactions such as wire transfers and cashier¶s checks  Issuing credit cards, ATM cards and debit cards 

  

Storing valuables, particularly in a safe deposit box Cashing and distributing bank rolls Consumer & commercial financial advisory services Pension & retirement planning

Besides this the modern technologies which banks adopted to provide their customers better facilities are in the way that they facilitated transactions.Financial transactions can be performed through many different channels: A branch, banking centre or financial centre is a retail location where a bank or financial institution offers a wide array of face to face service to its customers  ATM is a computerized telecommunications device that provides a financial institution¶s customers a method of financial transactions in a public space without the need for a human clerk or bank teller.  Mail is part of the postal system which itself is a system wherein written documents typically enclosed in envelopes, and also small packages containing other matter, are delivered to destinations around the world  Telephone banking is a service provided by a financial institution which allows its customers to perform transactions over the telephone  Online banking is a term used for performing transactions, payments etc, over the Internet through a bank, credit union or building society¶s secure website These were the technologies adopted by the banks but they also gave more products such as-:     Mutual Funds Life insurance policies Demat account Third party products

1.8 INTRODUCTION TO CREDIT APPRAISAL
It is a process by which a lender appraises the creditworthiness of the prospective borrower. It is a very important step in determining the eligibility of a loan borrower for a loan. Every potential borrower has to go through the various stages of a credit appra isal process of the bank, which might include an interview with the bank officials. However, just like every bank charges different rates for different loans from different customers, in the same way, each bank has its own set criteria that one must satisfy to qualify as a certified borrower of money/assets from the bank. All banks have their own rules to decide the credit worthiness of their borrowers. Information to be Collected: While assessing a customer, the bank needs to know the following information: Incomes of applicants and co-applicants, age of applicants, educational qualifications, profession, experience, additional sources of income, past loan record, family history, employer/business, security of tenure, tax history, assets of applicants and their financing pattern, recurring liabilities, other present and future liabilities and investments (if any). Out of these, the incomes of applicants are the most important criteria to understand and calculate the credit worthiness of the applicants. Based on these parameters, the maximum amount of loan that the bank can sanction and the customer is eligible for is worked out. The broad tools to determine eligibility remain the same for all banks. Besides the above said process, profile of the customer is studied properly. Their CIBIL (Credit Information Bureau (India) Limited) score is checked. Technical Feasibility Living standard What Bank Looks Bank For Decent living standard with some tangibles like T.V. & fridge will provide assurance to bank regarding your residential status. Presence of some undesirable elements like local goons or controversial areas adversely affects your loan appraisal process. At least one response is need from person to establish the identity of the person from contact point of view. Not an essential barrier but essential to understand the complex terms & conditions of bank loan. To establish the residential identity of person from human contact point of view & cross check of their loans.

Locality

Telephonic Verification

Educational Qualification

References

There are different methods to access the credibility of the customer. There are generally three different methods to arrive at the eligibility of the prospective customer 1) Installment to income ratio This ratio is generally expressed as a percentage. This percentage denotes the portion of the customer's monthly installment on the home loan taken. Usually, banks use 33.33 percent to 40 percent ratio. This is because it is has been observed that under normal circumstances, a person can pay an installment up to 33.33 to 40 per cent of his salary towards a loan.

2) Fixed obligation to income ratio This ratio signifies the importance of the regularity in the repayment of previous loans. In this calculation, the bank considers the installments of all other loans already availed of by the customer and still due, including the home loan applied for. In other words, this ratio includes all the fixed obligations that the borrower is supposed to pay regularly on a monthly basis to any bank. Statutory deductions from salary like provident fund, professional tax and deductions for investment like insurance premium, recurring deposit etc. are exempt from these fixed obligations. 3) Loan to cost ratio This ratio is used by banks to calculate the loan amount that an applicant is eligible to pay on the basis of the total cost of the property. This ratio sets the upper limit or the maximum loan amount that a person is eligible for, irrespective of the loan eligibility under any other criteria. The maximum amount of loan the borrower is eligible to pay is pegged as equal to the cost or value of the property. Even if the banks¶ calculations of eligibility, according to the above mentioned two criterions, turns out to be higher, the loan amount can't exceed the cost or value of the property. This ratio is set equal to between 70 to 90 per cent of the registered value of the property.Hence, while deciding on the maximum amount of loan a customer can be given, the banks use these; it also acts as a guide to determine the loan amount. Bankability Parameters Parameters Bank Statements Norms Check Points

Business continuity proof Credit interview

Profile of customer

Security

Ownership title CIBIL Report

6 months bank statements To check the average need to be furnished amount client is maintaining in the account is sufficient to pay the installment amount or not. Two year IT returns made To enquire primary source compulsory of income. For the big loan amount To check the general credit interview is attitude of customer along necessary. with efforts are put in to understand their needs better. Salaried professionals get Secured source of income an edge over business give them a edge income people. Asset of value equal to or To safeguard bank interest more than loan amount against any future default. taken has to be put as pledge or collateral. To be on the name or blood To establish the ownership relative of applicant. claim of the loan applicant. To check the credit history Bank tool to check any of the bank applicant. default incidence in loaning history of applicant.

Demand for the bank credit is affected by the following factors:       Absence of additional capacity generation Rightsizing, technological up gradation Mergers and amalgamation Slow down in incremental production within installed/ licensed capacity Absence of setting up of green field ventures Cost cutting particularly with regard to finding cheaper sources of funds to finance growth and working capital

Banks extends two types of credit facilitities to their corporate customers. The first type is known as Working capital finance is extended to meet the day to day short term operational requirements of the borrower. The second type of finance in the form of short term and medium term loans is provided to customers to meet his long term capital requirements for setting up the new project, expansion and diversification of the existing project and so on. This study is based on the term loan. To assess the financial health of organizations that approach South Indian Bank for credit for this would entail undertaking of the following procedures: 

    

Analysis of past and present financial statements Analysis of Balance Sheet Analysis of Cash Flow Statements Examination of Profitability statements Examination of projected financial statements Examination of CMA data

To assess the suitability of the company for disbursement of credit. This would involve the following actions: 

     

Use of credit rating charts Evaluation of management risk Evaluation of financial risk Evaluation of market-industry risk Evaluation of the facility Evaluation of compliance of sanction terms Calculation of credit rating

Determination of interest rate: This would entail the following sequence of actions. 

  

Collect data regarding financial health evaluation Noting down of credit rating Referencing the banks¶ interest rate guidelines circular Choosing the interest rate from the circular on the basis of financial health and credit rating

CHAPTER 2
RESEARCH METHODOLOGY 2.1) STATEMENT OF THE PROBLEM:
³Longer and complicated Credit Appraisal Process at South Indian Bank results in low revenue growth of Bank´

2.2) OBJECTIVE OF THE STUDY: 
  To completely understand the Credit Appraisal process of South Indian Bank. To Compare the Credit Appraisal period for different Banks in same domain. To understand the impact of longer credit appraisal period on potential revenue growth.

2.3) SIGNIFICANCE OF THE STUDY:
Credit Appraisal is the process by which a lender appraises the creditworthiness of the prospective borrower. It is a very important step in determining the eligibility of a loan borrower for a loan. Every potential borrower has to go through the various stages of a credit appraisal process of the bank, which might include an interview with the bank officials. Each bank has its own set criteria that one must satisfy to qualify as a certified borrower of money/assets from the bank. All banks have their own rules to decide the credit worthiness of their borrowers. Creditworthiness of a customer lies in assessing if that customer is liable to repay the loan amount in the stipulated time, or not. Here also, every bank has their own methodology to determine if a borrower is creditworthy or not. It is determined in terms of the norms and standards set by the banks. Being a very crucial step in the sanctioning of a loan, the borrower needs to be very careful in planning his financing modes. However, the borrower alone doesn¶t have to do all the hard work. The banks need to be cautious, lest they end up increasing their risk exposure. All banks employ their own unique objective, subjective, financial and non-financial techniques to evaluate the creditworthiness of their customers. The following study aims at the comparison of time of processing of the housing loan at South Indian Bank with its peer group banks in Private Sector to understand the effect of decreasing the time involved in the credit appraisal process upon the revenue growth of the bank.

2.4) SCOPE OF THE STUDY:
This study helps the banks, financial institution, companies, academicians, researcher and lenders to properly understand the process of credit appraisal and steps involved in the

process and hence helps them to devise ways to reduce the processing time without compromising with the risk involved in the process.

2.5) LIMITATION:

The various limitations of the study are:  It was difficult to gather the financial data of the banks so the better evaluations of the performance of the banks are not possible.  Since the Indian banking sector is so wide so it was not possible to cover all the banks of the Indian banking sector.  Persons interviewed were reluctant to share about the information about the loan they have taken  Most of the vital steps of the credit appraisal process is carried out at the regional office /head office hence only theoretical information could be gathered 

Limitation of time was a major constraint in making a complete study. The duration
was only four weeks. It was too limited to cover all the banking area. Many aspects could not be discussed in the present study.

2.6) RESEARCH DESIGN:
The research design for this project is basically analytical. Large number of data of different bank has been used and analyzed. 2.7 DATA SOURCES: PRIMARY DATA: Primary Data was collected through questionnaire and interviewing people who are currently availing loan. SECONDARY DATA: It was collected from the reports published by CRISIL, RBI and Banking Journals 2.8 DIFFERENT BANKS CHOSEN: AXIS ICICI HDFC KOTAK MAHINDRA SOUTH INDIAN BANK

2.9 TYPE OF LOAN ANALYSED: Home Loan Amount Rs 5 lakhs to Rs 20 lakhs

2.10 SAMPLE SIZE: 25 people

CHAPTER 3:
COMPANY PROFILE: SOUTH INDIAN BANK
South Indian bank (SIB) is one of the leading scheduled commercial banks in India with a strong focus on technology and service culture. South Indian Bank had a very humble beginning. SIB was formed on the 29th January 1929 by a group of 44 enterprising men, who with a capital of only Rs 22,000.00, joined together at Thrissur (now the cultural capital of Kerala ) to liberate the business community from the clutches of greedy money lenders. The bank gained the confidence and received the patronage of the public in increasing measure over the years and in the 1960s when there was a crisis in the banking industry in Kerala, South Indian Bank took over fifteen other smaller banks. One of the earliest banks in South India, ³South Indian Bank" came into being during the Swadeshi movement. The establishment of the bank was the fulfillment of the dreams of a group of enterprising men who joined together at Thrissur, a major town (now known as the Cultural Capital of Kerala), in the erstwhile State of Cochin to provide for the people a safe, efficient and service oriented repository of savings of the community on one hand and to free the business community from the clutches of greedy money lenders on the other by providing need based credit at reasonable rates of interest. Translating the vision of the founding fathers as its corporate mission, the bank has during its long sojourn been able to project itself as a vibrant, fast growing, service oriented and trend setting financial intermediary. Milestones The FIRST among the private sector banks in Kerala to become a scheduled bank in 1946 under the RBI Act. The FIRST bank in the private sector in India to open a Currency Chest on behalf of the RBI in April 1992. The FIRST private sector bank to open a NRI branch in November 1992. The FIRST bank in the private sector to start an Industrial Finance Branch in March 1993. The FIRST among the private sector banks in Kerala to open an "Overseas Branch" to cater exclusively to the export and import business in June 1993. The FIRST bank in Kerala to develop in-house, fully integrated branch automation software in addition to the in-house partial automation solution operational since 1992. The FIRST Kerala based bank to implement Core Banking System. The THIRD largest branch network among Private Sector banks, in India, with all its branches under Core banking System.

VISION: To emerge as the most preferred bank in the country in terms of brand, values, principles with core competence in fostering customer aspirations, to build high quality assets leveraging on the strong and vibrant technology platform in pursuit of excellence and customer delight and to become a major contributor to the stable economic growth of the nation. MISSION To provide a secure, agile, dynamic and conducive banking environment to customers with commitment to values and unshaken confidence, deploying the best technology, standards, processes and procedures where customer convenience is of significant importance and to increase the stakeholders¶ value. AWARDS a) The best ³Asian Banking Web Site´ award from Asian Banking & Finance Magazine South Indian Bank (SIB) bagged the best ³Asian Banking Web Site´ award from the Charlton Media Group, Singapore under the banner ³Asian Banking & Finance Retail Banking Awards-2008´. Among the 100+ nominations for the Best web site category from various banks in Asia, SIB emerged victorious to receive this award as the owner of the Best web Site (www.southindianbank.com). In a glittering international function at Singapore on 21st January 2009, Sri A G VARUGHESE, DGM (DICT) received this Award. This is the first time that SIB, an 80-year-old commercial old generation private sector bank, receives an International recognition, which adds one more feather on it¶s cap of enduring successes. The Bank had earlier won the prestigious Banking Technology Excellence Award in the year 2006 from IDBT, Hyderabad (The Technical Arm of RBI). b) Award from IDRBT for Banking Technology excellence. South Indian Bank has won a special award for excellence in Banking Technology from IDRBT (Institute for Development and Research in Banking Technology).The technical arm of the Reserve Bank of India. This award was presented to the excellent Contribution made in the area of Information Systems Security Policies and Procedures. Competing against top level banks in India across all categories such as Public sectors. Banks, Private Sector Banks, Foreign Banks and co-operative Banks, the recognition from IDRBT is really a feather in the Cap. c) The award for the ³Best Bank´ in the old generation bank¶s category ³Financial Express Award´ from Hon: Union Finance Minister Mr. Pranab Mukherjee .Financial Express Awards for ³India¶s Best Banks´ were selected by Ernst &Young

3.1 PERFORMANCE OF THE BANK The performance highlights of the Bank for the financial year ended 31st March 2009 are as follows: -

Key Parameters

Rs. in crore 2008-09 2007-08 15156.00 10754.00 25910.00 151.62 1160.98 13.80

Deposits Advances Total Business Net Profit Net Worth Capital Adequacy (%)-BaseL-I BaseL-11 EPS (Rs.) Book Value per Share (in Rs.) Net NPA as % of Net Advances Return on Assets (%)

18092.00 12145.00 30237.00 194.75 1304.00 13.89

14.76 17.23 15.02* 115.40** 128.43 1.13 0.33 1.09 1.01

* Weighted average and adjusted for issue of Bonus Share in the ratio Of 1:4 * * After issue of Bonus Shares in the ratio of 1:4 FINANCIAL PERFORMANCE Profit The Bank has registered a record net profit of Rs. 194.75 crore during the year. The Bank could achieve this substantial improvement in net profit mainly on account of higher scale of operations and better management of assets and liabilities of the Bank. The Profit and Loss Account shows an Operating Profit of Rs.372.58 crore before depreciation, tax and provision as per details given below: (Rs. in crore Profits before depreciation, taxes & provisions 372.58 Less: Depreciation: 13.90 Provision for NPA/NPIs: 21.87 Provision for depreciation on investments: 23.58 Provision for contingencies: 10.00 Provision for Income Tax/ Wealth Tax: 106.63 Provision for restructured Advances: 1.85 177.83 Net Profit: Brought forward from last year: Profit available for appropriation: 194.75 9.08 203.83

Appropriations Transfer to Statutory Reserve Transfer to Capital Reserve Transfer to Revenue & other reserves Proposed Dividend Dividend Tax on Proposed Dividend Carried over to Balance Sheet Total

49.00 0.50 100.00 33.90 5.76 14.67 203.83

3.2 PRODUCT PROFILE: 3.2.1PERSONAL BANKING: SAVING ACCOUNTS: These accounts are primarily meant to inculcate a sense of saving for the future, accumulating funds over a period of time. Whatever your occupation, we are confident that you will find the perfect banking solution. Open an account in your name or register for one jointly with a family member today.        Regular Privilege Group Salary Junior Savings Saral Savings Youth Plus Mahila

REGULAR SAVING ACCOUNT An easy-to-operate savings account that allows you to issue cheques, draw Demand Drafts and withdraw cash. Check up on your balances from the comfort of your home or office through Net Banking, Phone Banking and Mobile Banking. General Features: Accounts can be opened in joint names of family members. It helps family to accumulate savings. Cheques, Drafts, Interest warrants, Dividend warrants etc. In Indian rupees and foreign currencies can be collected and credited. Liberal withdrawal facilities. No Income tax deduction at source on interest. Standing instruction for remittance of insurance premium, rent and similar payments carried out. Balance held every day is eligible for interest. Nomination facility is also available. Along with the filled form, two passport-size photographs and documents like Passport/Ration card/Voter¶s card/PAN card as proof of address to our branch. You may register for the value-added services by filling up the respective forms.

Privilege Saving Account Privilege account is categorized into three parts a) Standard b) Silver c) Gold SB PRIVILEGE Monthly average balance Anywhere Banking charges Cash remittance Cash Withdrawal Transfer /Clearing RTGS/NEFT-fund transfer Internet-fund transfer Demand Draft/Pay Order Debit card charges Withdrawal from any ATM in India Anywhere Banking Facility Cheque Book STANDARD Rs 1000 Free Monthly 50000 Daily 10000 Monthly 50000 Free monthly 50000 Free unlimited Free monthly 10000 No AMC Free Free SILVER Rs 5000 Free Monthly 100000 Daily 20000 Monthly 100000 Free monthly 100000 Free unlimited Free monthly 50000 NO AMC Free Free GOLD Rs10000 Free Monthly 200000 Daily 50000 Monthly 200000 Free monthly 200000 Free unlimited Free monthly 100000 NO AMC Free Free One cheque book ( 25 leaves)

One cheque One cheque book (25 leaves) Book(25 leaves)

Features (in Brief) y Accounts can be opened in joint names y Complete Any Branch banking Facility y Payable at Par Cheques y International ATM cum Debit Card y Nomination facility available. GROUP SALARY SAVINGS ACCOUNT South Indian Bank¶s Group Savings Account (GSSA) is for the employees of various business / service enterprises.This scheme offers multiple advantages over and above a regular savings account. Features:      Available in 3 categories to suit the requirements of every employee Free any Branch Banking facilities No minimum transfer facilities No charges for not maintaining minimum balance Free Global ATM cum Debit card without AMC charges 



Free usage of other bank¶s ATM in India Free internet & Mobile Banking facilities.

Junior Account With a mission to impart µSaving Habit¶ among students South Indian Bank has come up with this product named µSIB JUNIOR¶. Features: SIB junior account can be opened even with Zero balance. A minimum balance of Rs 150        Easy introduction from the Principal. Free cheque book on attaining 18 years of age Free ATM-cum-Global Debit Card will be issued Free Demand Drafts/Payment orders will be issued for Child¶s Education. Free fund transfer from parents account to SIB junior account. Free career guidance Education loan consideration, subject to eligibility

YOUTH PLUS ACCOUNT Youth plus Accounts is exclusively for youth in the age group of 20 to 35 years. Features:          Minimum balance Rs 1000 Free internet banking and fund transfer Free Global ATM cum Debit Card Free Mobile Banking services Free Branch Banking facilities Personalized Cheque book. Free Depository account opening Free for life International Credit card Free subscription to Student¶s Economic Forum by e-mail.

Mahila Account South Indian Bank has launched a saving Bank A/c exclusively for women called SIB: MAHILA This packaged savings bank product is linked with recurring deposit with house to house. Travel insurance & accident death insurance cover.

Features: The A/c should be opened in the name of women in the age group of 18 years as above Can open with minimum balance of Rs 1000/ and a RD for a men minimum monthly installment of Rs 100/ for a minimum period of twelve months. 

       

Free accidental death insurance cover exclusively for the mahila account holder for Rs. 1 lac for the first year worldwide Free house to house travel insurance for Rs 0.50 lakhs Free remittance by the way of cash upto Rs. 50000 per month Free remittance by the way of transfer or clearing upto Rs 50000 Free cash withdrawal upto Rs 10000 daily Free purchase of 2 draft/ P.O up to Rs 10000 monthly Free 25 cheque leaves per year Free ATM cum debit card Free internet banking facility

SIBERNET ³Sibernet´ is the Internet Banking Service of South Indian Bank Ltd, which allows its customers to avail the bank¶s services through Internet. Advantages of Sibernet    Conduct Banking Operations from House/Office/Cyber-cafe Service available for 24 hours & 365 days a year Accessible from anywhere in the world using Internet.

ServicesOffered Inquiries 
      

Get complete details of all your accounts (SB/Deposit/Loan «) Print/Save the pass-sheet of any of your Operative accounts for any period. Cheque Status Inquiry Clearing Instruments Inquiry Lien Inquiry Nominee Inquiry Interest Details of Deposit Accounts Print Pass-sheet of any loan account for any period.

Funds Transfer Fund Transfer Request from own account to another account Requests Cheque book / DD/ Deposit Open. Simulate pre-closure of your deposit/loan account. Cheque book / DD/ Deposit Open. Mails Send secured instructions to your Relationship Manager.

Receive immediate reply from Relationship Manager. Alerts Receive important account related Alerts from the system. Deposit maturing soon, loan repayment alert, minimum balance alert« Receive important account related Alerts from the system. Customise Give different nick-names to your accounts for easy identification. Change the amount & date format as per your choice. Activity View the entire history of activity done by you in Sibernet Modelling The customer can make investment/credit decisions based on deposit/loan modelling tools Security Features     The software is from Infosys, a leading Indian Software house. Digital Certificate from VeriSign, a global pioneer in e-security ensuring 128-bit encryption. Complied with Global Standards while implementing the various layers of security features such as Firewalls & Anti-Virus Offering Sibernet services for Retail (Individuals/Proprietorship Concerns) and Corporate (Companies/Partnership Firms) customers. The additional services available to the corporate customers are as follows,

Multiple Users- The corporate can apply Internet Banking facility for the different officials responsible for operations in bank accounts. The Corporate also has the facility of setting up Work-flow rules (i.e. hierarchical rules for approving requests within the organisation). The corporate can also restrict the accounts being shown to different users, based on their designations, roles, divisions etc. (e.g. Divisional Manager-Production, Regional ManagerFinance etc). This would ensure secrecy in the Corporate Accounts . Limits - The corporate user can view the Corporate Limits granted to the different linked accounts maintained in all the branches of South Indian Bank. 3.2.2 NRI BANKING: Rich experience serving NRIs, have helped SIB in creating products and services that suit exact needs of customer. Wide range of accounts and technology based value added services. Presents a great opportunity for customer to begin a relationship with sib. In addition to

Savings Accounts, under NRE, NRO category, it also offer high return deposit schemes, in Indian Rupees (NRE/NRO) and Foreign Currency (FCNR/RFC). NRE Rupee Account - Non Resident External Rupee Account (Savings/ Deposits)        Accounts can be in the form of Savings or Term Deposit. Joint accounts are permitted. Account can be opened by direct remittance from abroad, transfer from existing NRE, FCNR (B) accounts or with foreign currency note, travelers cheque tendered personally by NRIs during their visit to India. Repatriation of credit balance permitted. No Income tax deduction at source on interest Balance is exempt from wealth tax and interest earned is exempt from Income Tax. Nomination facility is available

NRO Rupee Account - Non Resident Ordinary Rupee Account (Savings/Deposit) 

   

Accounts maintained in Indian Rupees for routing bonafide local remittance like rent. Joint accounts are permitted. Interest earned in the account is subject to Indian Income Tax. Account can be maintained in the form of Savings and Term Deposits. Restricted repatriation is offered.

3.2.3 Business Accounts: SIB offers different types of Business Accounts such as Current Account, Overdrafts (OD), Cash Credits (CC) and Mercantile Credits. These accounts allow convenience of conducting day-to-day banking operations, in addition to offering working capital credit requirements. Normal Accounts 

        

Unlimited transactional facilities Cheque Book facility Deposit cash to your account from any of our branches Make balance inquiries Get statement of accounts Get Demand Drafts/Banker¶s Cheques Free Collection of local cheques/demand drafts Quick Collection of outstation cheques/demand drafts at a nominal fee Quick money transfer facilities from/to your account Bouquet of Value added services offered

Premium Accounts 
 

Unlimited transactional facilities Payable at par Cheque Book facility Complete anywhere banking facilities including cheques, cash deposit 

      

Separate Premium Categories such as General, Standard, Silver, Gold and Platinum which can be chosen as per your requirement (applicable to Current Accounts) Instant Money Transfer facilities Balance Inquiries Statement of accounts Allows instant fund transfer from one account to another Get Demand Drafts/Banker¶s cheques Collection of local/outstation cheques Bouquet of Value Added Services

Value Added Services 

        

New Pension System Cash Management Services(CMS) Online Trading - SIBer Trade PAN Service Agency (PSA) KYC Certification of Mutual Fund Investors Demat Services Any Branch Banking Mobile Banking Credit Card M-Commerce

3.3 OVERVIEW OF DIFFERENT LOAN SCHEMES: 1) CONSUMER DELIGHT (Loans for Consumer Durables) Target group: Any Indian citizen who has completed 18 years of age and having regular income OR profit making proprietary concerns having existence not less than 2 years. Quantum of loan: Maximum Rs. 2 lacs Purpose: For purchase of consumer durables and semi-durables. Margin: 25% Rate of interest: 14% Interest rebate: 1% Interest rebate for prompt repayment and closure on due date, to be adjusted at the tail end. Repayment period: 12 months to 48 months as EMI. Charges and fees: Processing charges, Inspection charges and penal interest for delayed payment as per rules. Penalty for foreclosure: 1% additional up to 12 months; beyond 12 months - NIL Disbursement: Payment direct to reputed suppliers along with margin money per invoice. Security: a) Primary ± Hypothecation of assets created b) Collateral ± Up to Rs.1.00 lac ± TWO independent coobligants, EACH with net worth by way of landed properties double the loan amount OR equal value of collateral like property, NSC, KVP, sv of LIC or our deposits. c) Above Rs.1.00 lac ± Equal value of collateral property OR security of NSC, KVP, sv of LIC or our deposits. Eligibility Criteria :a) Salaried Persons ± 7 times net salary. b) Other persons - 50% of income declared in IT return.

c) Proprietary concerns ± 50% of net profit as per audited financial statements. Priority Status: Loans to professionals for self- employment as defined for the purpose of eligibility for PS status should be categorized under professional & Self Employed. General Guidelines: a) The salary certificate / latest pay slip with earnings and deductions should be obtained from salaried persons. For others copy of latest audited financial statements, copy of latest

IT / Agricultural IT return or any other documentary evidence to the satisfaction of the bank to be produced. b) Land tax receipt, copy of other documentary evidence like possession certificate, etc. to prove the land holdings of borrower / coobligants to be preserved. c) Income of borrower should be stringently assessed giving allowance for his / her family maintenance, deductions for other loans etc. Assessment of the income should be clearly

worked out in the process note at branch for the verification of inspection officials. d) Only borrowers coming strictly under the scheme should be entertained. If there is any deviation, the application should be submitted to Regional Office. 2) _HOME LOAN SCHEME Target Group : Individuals or individuals jointly with spouses. Group of individuals are not permitted. Quantum of loan: Maximum Rs.50 lacs; Minimum ± not prescribed For renovations/additions/major: Maximum Rs.5 lacs repairs/ improvements etc. ROI A. Domestic & NRI home Loans Period 5 years upto Rs.20.00 lacs above Rs.20.00 lacs

Fixed rate # 9.50%

Floating rate BPLR - 4.50% (ie; 9.00% as of now) BPLR ± 4.00 % (ie; 9.50% as of now)

Fixed rate # 10.00%

Floating rate BPLR - 4.00% (ie; 9.50% as of now ) BPLR - 3.50% (ie; 10.00% as of now)

10.00% >5 yr- 20 yrs

10.50%

Purpose of the loan : a) Purchase of Flat or House b) Construction of Flat or House c) Purchasing land & constructing a House d) For major repair, renovation, extension or improvement Of flat or house.

e) Takeover of Housing loans from other banks & reputed Housing finance companies. f) Reimbursement of investments already made by the borrower provided the investment has taken place within One year. Loan component for land should not exceed 1/3rd of the total loan. Primary security: Land and building under EM Minimum security coverage on balance outstanding should be 125% for loans extended to new construction and purchase of new ready built flat / house and 143% for old house / renovation. : May be accepted if available : 20% of project cost for new constructions and purchase of new

Additional Security Minimum Margin ready built flat/ house

: 30% for old house / renovation Cost of stamp paper and registration charges can be included in the project cost. Priority status : Loans up to Rs.15 lacs comes under PS. Sanctioning powers : 1. Regional Heads 2. Chief Managers 3. Large Branches & above 4. Medium Branches 5. Small Branches : Rs.50 lacs : Rs.25 lacs : Rs.10 lacs : Rs. 5 lacs : Rs. 2 lacs

Period of loan ( including holiday) Minimum 5 years & Maximum 20 years For salaried class, duration of loan can be up to their date of retirement. In the case of all others, repayment period should not extend beyond 70 years of age of the borrower subject to a maximum repayment period of 20 years. Holiday / Moratorium for repayment Ready built house or flat : 3 months New construction (house only) : 12 months Holiday period interest: Can be funded or serviced Processing charges : 0.25% of the limit.

Early Closing penalty : 2% Penal interest : 2% for defaulted amount for the defaulted period.

Time frame for disbursement: 3 working days once all the documents including legal clearance is obtained. Eligibility Salaried persons: 50 times net take home pay.

Professionals; Business people; Agriculturists, Industrialists etc ± 4 times their annual income certified by a Chartered Accountant Operational guidelines: 1. In the case of married persons, spouse should join the documents in which case income of both the husband and wife can be considered to arrive at the repayment capacity. 2. Loan amount should be released only after the margin amount is invested by the borrower / remitted to the bank. 3. Loan amount should be released in suitable slabs in the case of new constructions for which stage agreement should be taken. Branch officials should visit the site and confirm progress in construction before release of each slab. 4. Valuation of the property by the branch alone for loans up to Rs.10 lacs and also by approved valuers for loans above Rs.10 lacs. 5. Building should be adequately insured including for earthquake. 6. If the house constructed is let out, the rental income should be remitted to the loan account at least equal to monthly instalments 3) SIB FORTUNE : This is a product to finance IPO / PUBLIC ISSUE of a company. This scheme will not cover advance against shares acquired from the market. Eligibility : Employees of reputed companies, professionals, business men or Others with income proof to repay the loan. Amount of loan : Minimum Rs.1 lac and Maximum Rs.5 lacs. Rate of interest : 12.50% Fixed Margin on issue price: 50% Repayment Period : 60 months Sanctioning Powers: AGM, RO / Branch : Rs. 5.00 lacs. Chief Managers, RO / Branch : Rs. 2.00 lacs. Purpose Selection of the Company who declares IPO / PUBLIC ISSUE: The company should be an existing profit making company for the last 3 years. If the IPO company is a newly floated company, the flagship company should satisfy the same conditions. Chairman / CGM may approve the company. Other Conditions: 1. Advance will be given only against shares offered in demat form. . 2. Share application shall contain the address of the bank branch only. 3. Applicant will have to open a Zero Balance SB A/c & DP A/c while executing documents and these account numbers will be given in the IPO / Share application form. 4. Borrower will sign blank share pledge form in advance. 5. After collecting the margin amount from the applicant, the bank will directly submit the IPO application with a Payment Order.

4) MERCANTILE CREDIT SCHEME Target Group : Any trader Quantum of finance : Min. Rs.1 lac: Max. Rs.50 lacs Purpose : Working capital Package of finance : CCOL for maximum 12 months Security: THE ADVANCE AMOUNT SHOULD BE SECURED WITH PRIMARY SECURITY AND ALSO WITH 100% COLLATERAL SECURITY WITHOUT MARGIN. Security Minimum Margin --------------------------------------------------------------------------------------------------1. Primary a) Hypothecation/pledge of goods (Perishable goods and goods under selective credit control shall not be accepted) b) Hypothecation of book debts not older than 4 months (Advance against book debts shall not exceed 40% of total credit under this scheme) 25%

40%

2. Collateral should be equal to loan amount NSC, KVP, sv of LIC, deposit receipt of our bank, post office deposits etc, under pledge with lien noted by the issuers. Gold ornaments under pledge with formalities applicable to general gold loans. (On market value as on date of sanction). Unencumbered property with branch/expert valuation, wherever applicable. This will be applicable also to loans in which submission of stock statement is waived. 3. Third party guarantees : Optional

4. Rate of Interest: Up to Rs.15 lacs with collateral : 12% (0.50% reduction under DGM/AGM, RO discretion) Above Rs.15 lacs up to Rs.50 lacs : 13% (1% reduction under DGM/AGM, RO with Collateral discretion) Which borrowers are eligible: This scheme is applicable only to borrowers who have completed 3 years of existence and with 3 years past financial statements. Essential documents to be collected for processing: a) Application in bank's format (Form No.151) b) Individual worth statements c) Financial statements for the last three years of which last financial statement Should not be older than 6 months. Audited financial statements for limits above Rs.10 lacs. Tax Audit to be completed if the sales exceed Rs.40 lacs. d) Copies of ST/IT assessment orders. e) Copies of original title deeds, EC, tax paid receipt etc.

f) Copy of legal verification certificate for take over accounts. g) Copy of pass book/computer sheet for one year for take over accounts. h) Copy of license from local bodies to conduct business. i) Sole proprietorship declaration, copy of partnership deed, articles of association, incorporation, company's resolution to avail facilities from our bank etc. j) Any other relevant documents that may be needed to substantiate the credit needs of the borrower. 5) MOBILOAN SCHEME CATEGORY ± I : 3 wheelers and 2 wheelers for personal / agricultural use. : High net worth individuals, professionals and salaried persons, agriculturists, firms and companies 3. Category of vehicles : Private vehicles 4. Quantum of loan : Rs.1 lacs maximum. (Rs.75, 000/- maximum for two wheelers) 5. Rate of Interest for 2 & 3 wheelers : 10.50% Minimum one guarantor/ co-obligant having net worth at least twice the loan amount. 6. Proof of income : For salaried persons, the net take home pay after reckoning the installment for the proposed loan should be minimum 50% of gross salary. For others, 50% of income shown in IT returns, Agricultural IT returns or as certified by a chartered accountant should be sufficient to repay the loan amount. 7. Repayment period : Maximum 60 months as EMI 8. Security : As given in (v) above & hypothecation of vehicle. 9. Margin : 25 % 10. Processing charges : 0.50% irrespective of loan amount. 11. Loan component : Basic cost + duties + taxes + octroi + one time life tax. 1. Type of vehicle 2. Borrower

CATEGORY ± II : Light Motor Vehicles (4 wheelers) : High net worth individuals, professionals, salaried persons, agriculturists, firms and companies. 3. Category of vehicles : Private vehicles 4. Quantum of loan : Rs.10 lacs maximum. 5. Rate of interest : 10% Minimum one guarantor/ coobligant having net worth at least twice the loan amount. 6. Repayment period : Maximum 60 months as EMI 7. Branches are allowed to extend Mobiloan without collateral also up to their sanctioning powers 8. Free accident insurance to cover the outstanding amount ± legal heirs are not burdened with repayment of the loan in case of death due to accident. Branches should therefore take Personal Accident Insurance Policy (death due to accident only) in the name of the borrower at Bank's cost and keep the policy along with loan documents. Premium to be debited to general Expenses ± Insurance. 9. Processing charges stands withdrawn. 10. The following documents may also be called for along with loan application: 1. Type of vehicle 2. Borrower

a) Bank account for the last 6 months; (b)2 passport size photographs; (c)Passport/Driving License/Voters ID card; (d) proof of residence; (e) Proof of Income (salary certificate for salaried people and IT return for self employed /agriculturists etc); (f) Details of guarantor 11 Free ATM card to be given (only to account holders). 12. Loan to be disbursed within 48 hours of receiving the application along with all the above mentioned documents. 13. Security : As given in (v) above & hypothecation of vehicle. 14. Margin : 25 15. Sanctioning Powers for Category I & II : All branches except rural branches under small category. Small Medium Large V. Large 4 lacs 5 lacs 6 lacs 7.50 lacs 16. Loan component : Basic cost + duties + taxes + octroi + one time life tax .

6) VITJNAN PRADHAN SCHEME (VPS) Target Group: Students desirous of pursuing professional courses in India and abroad. Courses eligible & amount of loan: Various courses For details please contact the branch. Purpose of finance a) Fees b) Caution deposits and refundable deposits c) Cost of study books / equipments d) Cost of uniform e) Hostel Boarding and lodging f) one time premium of life insurance policy without maturity return covering the entire period of loan with sum assured equal to the loan amount. Borrower Borrower shall be the student him/herself if he/she is major (completed 18 years). In the case of minor students, parents shall be the borrowers. Minimum Margin a) Up to Rs. 4 Lacs: NIL b) Above Rs.4Lacs: Studies in India: 15% c) Overseas studies: 25% Security Upto Rs 4 lacs - Guarantee of parents. No security required Above Rs.4 lacs -Guarantee of parents together with collateral security Period of loan / Repayments Repayment period will start from 1 year after qualifying exam or six months after obtaining employment, whichever is earlier. For overseas studies, the holiday is restricted to 6 months fixed after the qualifying examination. Loan should be repaid in 60 equal monthly installments after the holiday/moratorium as above. Rate of Interest: fixed at BPLR + TP - 2.50%

CHAPTER4: CREDIT APPRAISAL PROCESS AT SIB
4.1 PROCESS OF CREDIT APPRAISAL: The credit appraisal process at South Indian Bank is considered very thorough and conservative the bank undertakes the above steps to complete the credit appraisal process. 1. Meet the client: The branch manager finds the suitable clients with credit requirements for their business, if the Branch manager is satisfied with the client and its expectation with the bank the case goes to the regional office for a complete check and evaluation. PRE BALANCE SHEET APPRAISAL EXERCISES: a). Applicant should have a place to operate from. It can be either own premises or rented one. As a documentary proof having a place to operate from, photocopy of title deed / building tax paid receipt in case of own building or copy of the lease deed in case of rented building is to be obtained and verified with the building number and location. There should be power and electricity connection which are the basis for the show. By looking at the deed we can find out whether it is an own premise or a rented one. In case of a rented one how long the applicant can function from the premises. An access letter/ approval from the owner could be the additional safeguard. b). Legality of the Activity: In order to ensure that the activity proposed is an approved one by the law of the land, licence from the local body of the Administration like Panchayat / Municipality / Corporation is must. Apart from the confirmation that the activity is an approved one by the local authority, we can check the name of the applicant the constitution Address activity permitted and the period from the license. c). Statutory Requirements: i) Every activity/ resulting in sale has to be registered with the sales tax and Central Sales tax Authorities such copies of ST/CST registration has to be obtained as applicable ii) In case of Timber / Wooden Furniture Industries / Business, a permission / NOC is necessary from the Forest Department in addition to the ST/CST and the local body licence. iii) In case of manufacturing of medicines, Licenses from the Drug Controller and Excise Department are required for sales. iv) In case of food license from the food inspector of the local body is must v) In case of manufacturing industries, the pollution control board is the only authority to decide which is the polluting and which the non-polluting activity is. As such, all manufacturing industry should have the NOC/License from the pollution control board. vi) In case of the number of employees are more. Provident fund contribution and Employee State Insurance (ESI) are compulsory. It can be found out that how long the unit is functioning the name, address, constitution and the activity

General: In addition, copies of partnership, memorandum and articles of association, Certificate of incorporation, certificate of commencement of business. SSI registrations etc. are to be obtained wherever applicable. If it is running concern , financials for the last 3 years , audited one in case of the turnover is more than 40 lakhs, along with the sales tax assessment order , if not available, copies of annual S.T return filed to be obtained . If the profit shown in the P&L a/c is more than the taxable level, copies of IT returns filed also to be obtained. While the ST assessment /copies of returns would confirm the sales turnover, the IT return will confirm the profit. Only after obtaining these documents and making a market Study of the proposed activity and its feasibility once should venture into the analysis of the balance sheet leading to credit decision. 2. Take KYC Documents& Application form: The branch manager after the first course of interaction with the client asks for the various document required to appraise the project. KYC documents as mentioned in the policy guidelines are Know Your Customer (KYC) the customer can be best known with his financials and other vintage proofs mentioned in the requirement list. In the starting of the business broadly two requirements are required. a) Mandatory Requirements b) Statutory Requirements Mandatory Requirements and the documentary Requirements evidences needed for each case of appraising are: Mandatory Requirements 1) A suitable premise in a suitable place to operate from Documentary Evidence Copy of the rent agreement in case of leased properties and copy of the title deed in case of owned premises along with land tax and building tax receipts Power allocation letter from the electricity board/ Electricity bill Water connection letter from the water authority /Water bill

2) Power Allocation

3) Water Connection 4) Nature of Association a) Proprietorship b)Partnership c)Joint Venture d)Private Limited Company e)Public Limited Company

Declaration Copy of Partnership Deed Joint Venture Agreement Memorandum and Article of Association Certificate of Commencement of Business

The Statutory requirements and documentary evidences needed for each are: STATUTORY REQUIREMENTS State Government Licenses Ex. Sales Tax registration certificate Central Government License Ex. VAT Local Body License Ex. Shop Establishment Act , Factory License etc Department Specific Licenses such as license from a) Drug Controller in the case of Pharmaceutical connected activities including the medical shops b) Forest Department in case of Timber based industries including furniture c) Pollution Control board in case of Manufacturing industries d) Exercise Department in case of distilleries, manufacturing processes where alcohol content are involved e) Explosives department in case of Quarries and firework related business f) Geological survey in case of service Industries , job works and excisable items g) central exercise in case of Service Industries , job works and excisable items h) Approved plan and construction Permission from the competent authority in case of building / housing finance Along with estimates i) Land Tax, Building Tax , approved plan and completion certificate in case of buildings These documents provide: Evidence of association and activity Legality of association and activity Names and addresses of institutions Names and addresses of persons behind the show 3). Initial Dedupe Check: This is better known as initial de-duplication checks in this the bank checks the credit reporting of the client whether he holds any over-dues etc. The bank also checks the client in RBI defaulter list. 4).Check the Banking: The first thing the bank checks is the banking of the existing limit account if any, the bank tries to check the existing performance of client with the other banks, and in case more number of inward returns due to in-sufficiency of funds. Then this is DOCUMETARY EVIDENCES Copy of Sales tax registration Certificate VAT registration Certificate Copies of Shop Establishment / Factory registration certificate

Copy of license

Copy of license Copy of license Copy of license Copy of license Copy of license Copy of license Approved Plan , Permission letter Estimates

Tax Paid receipts

also a deviation and if there is over utilization of the limit on all the days then this calls for accountability by the client. 5).Audited financial test: The bank under takes a complete check of financials as mentioned in the requirements, these audited financials are put in software of the bank and then projections are made on the basis of financials and then various profitability ratios are analyzed and the financial soundness of the company is analyzed. The financial viability of the company is checked on various parameters as mentioned. 6).Deviation check: The bank after checking the financial soundness of the company goes for the verification of the deviation check of policy compliance, if any in case of major deviations the case is presented in front of the Regional office. 7).Internal Verification: The bank through its various sources makes a complete thorough investigation of the handling of business of the clients, this enables the bank to make sure that the client is not forging with the financials of the company. 8). Approval by Credit Department: Credit limit of the loan decides which level Management has to take the decision if the amount is too high the approval has to be taken from the Credit Sanction Department at head office located in Thrissur . 9).Decision on disbursal of loan: When the case is presented to risk department it analyses the variety of risk involved in the sanctioning of loan if it crosses the parameters then the possibility of disbursal of loan declines then the H.O makes its final approval on the limits required by the client and the limit deserved by the client, the bank makes it final way to the approval of the loans. 10. Discussion between client &Bank on approval: The banks proposes its terms and conditions to the client and the amount of loan that is approved to the client at what rate of interest and what proportion of collateral is kept by the bank, when the client agrees on all these terms then only the case reaches the sanctioning stage.

4.2 THE FLOW DIAGRAM OF THE PROCESS OF CREDIT APPRAISAL

Submission of Project Report along with the Request Letter.

Carrying out due diligence Preparing Credit Report

Determining Interest Rate

Preparing and submission of Term Sheet If not approved if approved Preparation of proposal

Submission of Proposal to designated authority Branch Manager, Regional Office, Head Office If No queries raised if queries raised

Project Rejected

Sanction of proposal on various Terms & Condition Communication of Sanction Terms & Condition Acknowledgement of Sanction
Application to comply with Sanction Terms & Condition & execution of Loan Documents

Solve the queries

Disbursement

4.4 Hierarchical Structure for dealing with Loan Proposals in South Indian Bank
Every bank has its own hierarchical structure for dealing with loan proposals. Branches of South Indian Bank are categorized as small, medium, large and exceptionally large branches. Above branches there are regional offices and above them is the head office which is at Thrissur. Branches and Regional offices are delegated with financial powers according to the classification of the branch and the seniority of the functionary heading the Regional Office Hence the credit decision has to be filtered and calibrated in such a manner that the value chain develops as the proposal flows up the line to the sanctioning authority in the bank .The building up of the value chain is essential to ensure that the duplication of the paper work is avoided, authority at each level to whom the proposal flows up has documented and decision making time is minimized. At every stage the loan proposal should be owned by the people handling it as a team and, with value addition the proposal should move to the next stage Value chain for large credit proposals: Originating branch has the skills and expertise to appraise and recommend properly documented large proposals. Regional office calls for the additional information if required Regional office forwards the complete proposal with all documents and recommendation to the head office for the decision Head office provides value addition by examining the proposal only from the policy, funds availability and the risk-return trade off consideration.

LARGE CREDIT PROPOSALS ±VALUE CHAIN Stage1: Origination (Branch Office) i) Obtain loan application and connected documentation ii) Collect credit information, search reports& valuation reports iii) Interview borrower iv) Review supporting documents & information v) Conduct the detailed appraisal at branch office with instruction from regional office vi) Evaluate credit ratings of the industry/ sector and borrower as per the SIB policy vii) Make recommendation for acceptance/ rejection to H.O through C.O Stage 2: Regional Office A. Quick Review: i) Docklet the branch proposal with date stamp ii) Quick review of accompanying documentation & recommendations iii) Test check the credit appraisal format B. Value Addition i) Review compliances with audit / inspection reports ii) Review compliances with bank loan policy iii) Review with the visit reports of the controlling officers

iv) If required cal for further information v) If required review terms for sanction vi) Recommend acceptance / rejection to the head office Stage 3: Head Office A. Quick review i) Examine recommendation received from the Regional office ii) Ensure all needed documentation/ data / information received B. Value Addition Examine Proposal i) Credit rating of the industry/ sector and the borrower ii) Loan policy including exposure norms and capital allocation iii) Fund availability/ credit deposit ratio (CDR) iv) Pricing policy vi) Prospects (further business flows from group/ borrower) vii) Put up sanctions Memorandum containing essential details and Yes/ No recommendation. Stage 4 Sanctioning Authority i) Review sanction memorandum with Yes/ no recommendations ii) Consider value of group account¶s and borrower¶s accounts iii) Consider future prospects iv) Arrive at objective decision v) Accept/ reject proposal Stage 5: Reverse Flow: A. Head Office Convey yes/ no decision with reasons to Branch office with copy to Regional office B. Regional office Docket HO sanction/rejection letter C Branch Office i) Convey in writing yes/ No decision to borrower. Copy letter to Regional office ii) If yes decision, obtain acceptance of borrower on detailed sanction letter. Copy letter to R.O

4.4 PROCESS OF CREDIT APPRAISAL FOR A TERM LOAN:

4.4.1 FEASIBILITY STUDY OF THE PROJECT: 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. Project Details: Definition of the project. 
  

List the type and quality of product(s) or service(s) to be marketed. Outline the general business model (i.e. how the business will make money). Include the technical processes, size, location, kind of inputs Specify the time horizon from the time the project is initiated until it is up and running at capacity.

Relationship to the surrounding geographical area.   Identifies economic and social impact on local communities. Identifies environmental impact on the surrounding area.

MARKET FEASIBILITY Industry description. 
 

Describes the size and scope of the industry, market and/or market segment(s). Estimates the future direction of the industry, market and/or market segment(s). Describes the nature of the industry, market and/or market segment(s) (stable or going through rapid change and restructuring). 

Identifies the life-cycle of the industry, market and/or market segment(s) (emerging, mature)

Industry Competitiveness. 
  

Investigates industry concentration (few large producers or many small producers). Analyzes major competitors. Explores barriers/ease of entry of competitors into the market or industry. Determines concentration and competitiveness of input suppliers and product/service buyers. 

Identifies price competitiveness of product/service.

Market Potential. 


Will the product be sold into a commodity or differentiated product/service market? Identifies the demand and usage trends of the market or market segment in which the proposed product or service will participate. 

 

Examines the potential for emerging, niche or segmented market opportunities. Explores the opportunity and potential for a "branded product". Assesses estimated market usage and potential share of the market or market segment.

Sales Projection. 


Estimates sales or usage. Identifies and assess the accuracy of the underlying assumptions in the sales projection. 

Projects sales under various assumptions (ie. selling prices, services provided).

Access to Market Outlets.  Identifies the potential buyers of the product/service and the associated marketing costs.  Investigates the product/service distribution system and the costs involved.

ORGANIZATIONAL/MANAGERIAL FEASIBILITY Business structure. 
   

Outline alternative business model(s) (how the business will make money). Identify the proposed legal structure of the business. Identify any potential joint venture partners, alliances or other important stakeholders. Identify availability of skilled and experienced business managers. Identify availability of consultants and service providers with the skills needed to realize the project, including legal, accounting, industry experts, etc. 

Outline the governance, lines of authority and decision making structure.

Managerial Personnel Managerial Personnel play a key role in directing the working of the company. It is important for an organization to have a pool of efficient personnel who bear the capacity to bail the company out from crisis situation and work towards optimum utilization of organizational resources. Such capacity of the personnel can be determined by having complete details on following key aspects:        Market reputation on the promoter / management of the company Hands on experience of the management personnel in the industry / Business managed by qualified personnel Ability of the promoters / management to bail out the company in case of crisis (for example, this could be derived from a strong group company) Decision making ± Is it concentrated? Organisation structure / Succession planning / Labour relations Is any group company in default / Any Directors on RBI¶s negative list / Borrower¶s track-record in honouring financial commitment Length of relationship with the bank

TECHNICAL FEASIBILITY Technology plays an important role in maintaining a competitive position in this highly competitive market conditions. Investing in the proper technology is the key to success it irrespective of size of business thus for achieving its projected performance, it is important

for it to have sound technological background. Such technical competence of the project can be determined by having detailed study done on following key aspects: Determining Facility Needs. 


Estimates the size and type of production facilities. Investigates the need for related buildings, equipment, rolling-stock

Suitability of Production Technology. 


Investigates and compare technology providers. Determines reliability and competitiveness of technology (proven or unproven, stateof-the-art). 

Identifies limitations or constraints of technology.

Availability and Suitability of Location. 
        

Access to markets. Access to raw materials. Access to transportation. Access to a qualified labor pool. Access to production inputs (electricity, natural gas, water, etc.). Investigate emissions potential. Analyze environmental impact. Identifies regulatory requirements. Explores economic development incentives. Explores community receptiveness to having the business located there.

Raw materials. 
 

Estimates the amount of raw materials needed. Investigates the current and future availability and access to raw materials. Assesses the quality and cost of raw materials and markets of easily substituted inputs.

Other inputs 


Investigates the availability of labor including wage rates, skill level, etc. Assesses the potential to access and attract qualified management personnel.

FINANCIAL FEASIBILITY Estimate the total capital requirements.    Assesses the capital needs of the business project and how these needs will be met. Estimates capital requirements for facilities, equipment and inventories. Determines replacement capital requirements and timing for facilities and equipment.    Estimates working capital needs. Estimates start-up capital needs until revenues are realized at full capacity. Estimates contingency capital needs (construction delays, technology malfunction, market access delays, etc.    Estimates other capital needs. Estimated equity and credit needs. Identifies alternative equity sources and capital availability -- producers, local investors, angel investors, venture capitalists, etc.  Identifies and assess alternative credit sources -- banks, government (ie. direct loans or loan guarantees), grants, local and state economic development incentives.  Assesses expected financing needs and alternative sources -- interest rates, terms, conditions, covenants, liens, etc.  Establishes debt-to-equity levels.

Budgets expected costs and returns of various alternatives. 
 

Estimates expected costs and revenue. Estimates the profit margin and expected net profit. Estimates the sales or usage needed to break-even. 

Estimates the returns under various production, price and sales levels. This may involve identifying "best case", "typical", and "worst case" scenarios or more sophisticated analysis like a Monte Carlo simulation. 

Assesses the reliability of the underlying assumptions of the financial analysis (prices, production, efficiencies, market access, market penetration, etc.) 

Creates a benchmark against industry averages and/or competitors (cost, margin, profits, ROI, etc.). 

 

Identifies limitations or constraints of the economic analysis. Determines project expected cash flow during the start-up period. Identifies project an expected income statement, balance sheet, etc. when reaching full operation.

4.4.2 CREDIT REPORT AND CREDIT RATING The credit report is an important determinant of an individual's financial credibility. They are used by lenders to judge a person's creditworthiness. They also help the person concerned to narrow down on the financial problem areas. Credit report is a document, which comprises detailed information about the credit payment history of an applicant. It is mostly used by the lenders to determine the credit worthiness of an applicant. The business credit reports provide information on the background of a company. This assists one to take crucial business related decisions. People can also assess the amount of business risk associated with a company and then decide whether they would be comfortable in providing them with credit facilities. The degree of interest that would be shown by investors in their company can also be gauged from the business credit reports as they can get an idea of the conception of their customers regarding themselves. Since these records are updated at regular intervals of time they enable people to identify the risk levels associated with a business as well as its future. These reports also allow businesses to get detailed information about the financial status of business partners and suppliers.

Corporate Credit Rating Ratings can be assigned to short-term and long-term debt obligations as well as securities, loans, preferred stock and insurance companies. Long-term credit ratings tend to be more

indicative of a country's investment surroundings and/or a company's ability to honor its debt responsibilities. . The ratings therefore assess an entity's ability to pay debts. There is various organizations who perform credit rating for various business organization. South Indian bank follows a finely defined Credit Rating Model for assessing the creditworthiness of the applicant. The credit rating model asses various aspects of the projects and assigns scores against them thereby determining the risk level involved with the project. It is divided in Four Sections: 1. Rating of the Borrower 


Financial Risk Management Risk

2. Market Condition/ Demand Situation 3. Rating of the Facility 4. Business Consideration 5. Cash Flow related parameters

1) Rating of the Borrower: This part of credit rating model deals with assessing the financial and managerial ability of the borrower. The financial ability of the firm is derived by calculating ratios that determine the short term and long term financial position of the firm Short term ratios include Current Ratio, determines the liquidity position of the company over a period of one year. The current ratio is an indication of a firm's market liquidity and ability to meet creditor's demands. It is excess of current assets over current liability. If current liabilities exceed current assets (the current ratio is below 1), then the company may have problems meeting its short-term obligations. If the current ratio is too high, then the company may not be efficiently using its current assets. According to the guidelines given to South Indian Bank the ideal level is at 1.33:1 however the acceptable level is at 1.17:1. However at times current ratio may not be a true indicator, the current ratio for road projects is very high but this does not indicate that the company is not using its assets well but the ratio is high because the activity involves more in dealing with current assets. Hence it is important for the evaluator to understand the nature of the industry. Long term ratio include Debt Equity Ratio is a financial ratio indicating the relative proportion of equity and debt used to finance a company's assets. This ratio is also known as Risk, Gearing or Leverage. A high debt equity ratio is not preferable by an investor as the

company already has acquired high amount of funds from market thereby reducing the investor share over the securities available, increasing the risk. It is also important for the lender bank to assess the firm¶s debt paying capacity over a period. Such capacity is derived by calculating ratio like Debt Service Coverage Ratio minimum acceptable level is 1.50. It also necessary for the lender to determine the ability of the firm to achieve the projected growth by evaluating the projected sales with actuals.However such parameter remains non applicable if the business is new. Financial risk evaluation is only one of the parameter and not the only parameter for determining the risk level. It is important to evaluate the Management Risk also while evaluating the risk relating to borrower. It is the management of the company that acts as guiding force for the firm. The key managerial personnel should bear the capacity to bail out the company firm crisis situation. In order to remain competitive it is essential to take initiatives. Such skills are developed over years of experience, thus for better performance it is required to have a team of well qualified and experienced personnel.

2) Market potential / Demand Situation A Company does not operate in isolation there are various market forces that acts in either favorable or unfavorable manner towards its performance. Thus the rating would not give true picture if does take market or demand situation in consideration. The demand supply situation / market Potential plays an important role in determining the growth level of the company like i) Level of competition: Monopoly, favorable, unfavorable ii) Seasonality in demand: affected by short term seasonality, long term seasonality or may not be affected by seasonality in demand. iii)Raw Material Availability: iv)Location Issues like proximity to market, inputs, infrastructure: Favorable, neutral, unfavorable. v) Technology i.e., proven Technology- not to be changed in immediate future, technology undergo change, outdated technology. vi)Capacity utilization 3) Rating of the Facility:

The company can start functioning only after completing statutory obligations laid down by the governing authority. Such statutory obligation involves obtaining licenses, permits for ensuring smooth operations. Preparation and Submission of Financial Statements, Stock statements in the standard format within the given time schedule.

4) Business Consideration: The length of relationship with the bank enables the lender to assess the previous performance of the account holder. A good track record acts in the favor of the applicant, however a underperformance make the lender more vigilant.The income value to the bank also given due consideration.Thus Credit Rating of the Business takes into consideration various aspects that directly or indirectly bears effects the performance of the business. After evaluating the risk level involved the lender bank decided on lending Interest Rate. They are categorized in 9 segments 1. lowest Risk CR-1 2. Low Risk CR-2 3. Medium Risk CR- 3 4. Moderate/ Satisfactory Risk CR- 4 5. Fair Risk CR- 5 6. High Risk CR- 6 7. Higher Risk CR- 7 8. highest risk CR- 8 9. NPA CR- 9

A business receiving Credit Rating above level 6 are not considered good from point of investment and thus are avoided. 4.4.3 RISK RATING: Industry risk Historical Risk Political/ Regulatory risk Macro economic factors Environmental protection Compliances Quotas , licenses Financial risk Strategic risk

Geographical concentration Threats of obsolescence Old economy sunrise

Contribution to economy GDP Stability,cyclicity & volatility Financial trends over

Technological up gradation , R&D Global trends, mergers and demergers Competition

or sunset sector Infrastructure constrain Ownership pattern

Specific sector bias Capital market risks and regulation

3-5 years Demand-supply position Default risk in past 35 years

New entrants, entry barriers Bargaining power of suppliers, threats of substitute products

Industrial relations

Entry for Proposal Format
y y y y y y y

Production Details Sales Profitability Remarks on sales / Total borrowings Analysis of estimates & projections Cash flow Statements Summary Summarized quarterly / half yearly / 9 months results

Production Details  Quantity  Items Produced Sales  Items sold Profitability Remarks on sales / Total borrowings Analysis of estimates & projections Cash flow statements summary

Entry for Rating
Industry Risk Production Stage Risk Raw Material  Indigenous, easily availability, non-seasonal, steady price  Imported item  Controlled item, Supply restricted  Availability uncertain fluctuation price Power & Fuel & Labour  Easy availability, fixed cost  Controlled Supply, fluctuating cost  Else Technology 

 

State of Art Current Technology Obsolete Technology

Infrastructure  Excellent  Satisfactory  Else R&D Arrangement  Available  Not Available Post Production Risk Demand Regular consumable item, import of the item subject to restrictions, non-perishable with demand  Short shelf life but with demand  Fashionable goods, electronic goods, prone to quick obsolesce Competition  Low with restricted entry for MNC¶s  Else Marketing Arrangements  With organized marketing agencies  Planned marketing strategy of own  Else Experience of the Promoters  Sound  Moderate  No past experience Employed Executives  Qualified Person in all key areas  Qualified persons in few key areas  Qualified persons in few areas  No qualified person employed

Operational Risk
Whether this is new a/c or not Supply of information to the bank  Prompt supply of Information  Delayed supply of information  Default in supply of information

Record of Irregularity  No irregularity  Any instance of irregularity Limit Management  Within DP with fluctuating balances  Occasional over drawings  Overdrawn Balance Compliance of sanction Stipulations  100% compliance  Else Collateral Security Collateral Cover >=100% >=75% >=50% >=25% <25% Parameters for credit- risk rating ±borrower¶s specific      Ownership and management risk Operational Risk Financial Risk Transactional/ Compliance risks Default risks

4.4.4 DETERMINATION OF INTEREST RATE

The interest rate is determined from the interest rate guidelines circular. This circular is regularly updated to reflect the bank¶s latest credit policies. The rupee credit is based on BPLR and the foreign exchange loans are based on LIBOR.The guidelines define how much interest rate is to be assigned for a particular credit rating and credit duration. However, credit rating and its use in determining interest rate is a theoretical concept and the bank may allow a reduction in interest rate under the following conditions: Good Client The organization is a long term client and brings good business to the bank. The organization¶s actions show that it intends to become a long term customer of the bank Banking Consortium

The organization is seeking credit from a consortium of banks. In some cases like this, the lead bank might decide the interest rate and all the member banks of the consortium follow this interest rate.

4.4.5 TERM SHEET Following a favorable feasibility check, credit rating the next step is preparing term sheet. A Term Sheet is brief document that provides details on aspects like:
y y

Account Details Financial highlights for immediate previous two audited years and projection for proceeding year

y y y

Nature of Project Cost of Project Means of finance 1. Nature of Facility 2. Purpose 3. Tenures of Loan 4. Interest rate Reset 5. Margin 6. Interest Rate, Commission 

Door to Door Tenor ie.the period within which the entire amount is to be disbursed.
o Repayment Terms o Prime Security o Collateral Security o Upfront fees ie the charges levied by the bank for processing the documents.

4.4.6 PROPOSAL An approved term sheet leads to preparation proposal. A proposal is prepared in standard format; this enables the bank to keep a proper track record and also facilitates proper comparison. A proposal a fully fledged document providing details on project submitted and requesting finance from bank. A proposal contains information on following aspects:

Details of Account: It includes name of the Account Holder, Date of incorporation, Line of Activity, Internal Credit Rating level, Address of the Registered Office, Name of Directors, Share Holding Pattern, Asset Classification, Purpose of the Loan.

Securities: Lenders often feel more confident about a loan if they are given a security interest in the assets of a business. Then, if the borrower does not repay the loan as promised, the lender can take the property the borrower pledged, sell it and use the proceeds to repay (or partially repay) the borrowed amount.it provides detailed information on nature of securities given in lieu of the Loan. They are of two types Prime securities, Collateral Securities Prime Securities: Pari Passu is a term used in banking transactions which means that the charge to be created is in continuation of an earlier charge which might be held by the same institution or by another institution. Collateral Securities: In lending agreements, collateral is a borrower's asset that is forfeited to the lender if the borrower is insolvent --- that is, unable to pay back the principal and interest on the loan. When insolvent, the borrower is said to default on the loan, in which case the lender becomes the owner of the collateral. It includes details on     Nature / Description of collateral security indicating area & location of property Value in Rupees. Date of valuation along with name of Valuer Insurance Amount & Date of Expiry

Personal guarantee / Corporate Guarantee if any, includes Name of the guarantor, Value of Guarantee. Financial Highlights: It provides details of important financial elements over a period of years. It includes details on Paid capital, Tangible Net worth, Net working Cpaital,Current Assets, Current Liabilities, Net Profit, Net Sales, Reserves and Surplus, Intangible Assets, Long Term Liabilities, Fixed Assets, Investments, Noncurrent Assets like guarantees , Cash Accruals, Capital employed. It also includes ratios like Debt Equity Ratio, Current Ratio, Debt Service Coverage Ratio and so. The interpretation of the financial data presented provides information on the performance trend of the company also of the Projections made. Such financial highlight plays an important role in assessing the financial strengths and weakness of the business.

Status of the project: A brief of Project In this part of proposal a brief about the project is explained, it includes information on nature, type of project, purpose of the project, commencement details, the promoters and related details of the project. If it is a on-going project it also gives details on progress and status of progress

Evaluation of Industry: This Section gives brief details on the 1. Scope of the industry 2. Growth level and overall performance of the industry 3. Recent Developments and Trend Evaluation Conduct of the Account: This section provides details on: Regularity in Submission of²     Stock Statements / Book Debt Statement QPR Statements / Half Yearly Statement Financial Statements CMA Data

Compliance to Terms of Sanction It furnishes information on following aspect:      Completion of Mortgage formalities Registration of Charges with RoC Whether documents valid and in force Compliance of RBI guidelines Whether consortium meetings held at prescribed periodic intervals where the Bank is the leader. Letter of Guarantee: A letter from a bank stating that a customer owns a particular security and that the bank will guarantee delivery of the security. A letter of guarantee is used by an investor who is writing call options when the underlying stock is not in his or her brokerage account. A Call Option is an agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period.

Financial Guarantee: A non-cancelable indemnity bond guaranteeing the timely payment of principal and interest due on securities by the maturity date. If the issuer defaults, the insurer will pay a fixed sum of money to holders of the securities. Financial guarantees are similar to a Standby Letter of Credit, but are issued by an insurance company. A Standby Letter of Credit is a form of insurance on an underlying agreement or obligation (contract), insuring all parties to the contract against failure to perform or pay on the part of one or another party to the contract. Standbys are issued by banks. Details of Sister/ Allied Concerns: This section provides information about the Sister/ Allied Concerns aspects like the performance, promoters, share holding pattern, operation exposure and experience from various banks. Terms and Condition: It is important both for the bank and the applicant to safeguard its interest, this could be achieved by settling at mutually acceptable terms and condition in order to ensure that both the parties the lender and borrower perform their part of obligation thereby not putting other party at loss. All loans are subject to regulations and conditions. The legal information relating to these regulations and conditions can be viewed in this section. It is advisable for both the parties to read this information carefully before approval.

4.4.7 DISBURSEMENT: After submission Proposal to Designated/ Sanctioning Authority for sanctioning the Term Loan. The authorities may raise queries, if any relating to projects and thereby convey it to the branch manager, the branch manager in turn addresses them to the borrower for necessary step to be taken, and such queries are required to be solved to the earliest by the applicant for further processing of the proposal. If the authorities are satisfied and have no further queries with respect to proposal, the Loan gets sanctioned and the disbursement would be released in as per the terms decided.

Disbursement Of the credit facility follows completion of the under noted process : a) Communication of the sanction letter to the borrower b) Confirmation of the terms of sanction by the borrower. c) Compliance of the pre-disbursement terms, if any prior to the release of the facility

d) Execution of the security documentation by the borrower and the guarantor (if any) as per the laid down procedure in the bank. e) If the credit facility is enhanced or modified supplemented agreements have to be executed by the guarantor and the borrower. After the process of documentation is finished and security interest created in the bank¶s favor. Drawings in the loan account are regulated by the drawing power generated as per the latest stock statement and statement of debtors and creditors submitted by the borrower to the branch office

4.4.8 FOLLOW-UP: This is most crucial stage in process of term loan assessment. Since amount of credit required is usually high, such amounts are disbursed in one installment, they are paid in installments. This helps the lender bank to understand and assess the utilization of funds disbursed by the lender Bank. Such evaluation is done by obtaining Lender¶s Engineer Report; it is report that provides complete details of the status of the project. It is prepared on monthly basis. It also provides CA Report, it verifies the Financial details furnished to bank for further disbursement.

Post lending supervision is a very crucial part of the credit administration system. It comprises of three stages viz. regular, surprise physical verification of the security by the operating staff at the branch level based on the ABC inventory classification , stock audit and scrutiny of the control statements ( debtors statement,quaterly/half yearly actual estimated financial statements) from the borrower. Any warning signals noticed in this stage should be promptly followed with the borrower. Regular verification of large debits and credits in the borrower should also be made to ensure that they represent normal trade transaction.

CHAPTER 5: DATA ANALYSIS & INTERPRETATION :
5.1 ANALYSIS OF THE QUESTIONNAIRE: Questionnaire analysis: 1. From where you have availed the housing loan? Name of Bank ICICI SIB AXIS HDFC KOTAK MAHINDRA
8%
16% 12%

No of People 3 10 6 4 2

ICICI SIB AXIS HDFC
40% KOTAK MAHINDRA

24%

Interpretation: In the questionnaire analysis it was found that the major portion of the sample i.e. 40% was from SIB 2. Time period for which you have availed the Loan?

Period for Loan <5 years 5-10 years 10-20 years

No of people 2 21 2

8

8

84

Interpretation: It can be infer from the data that most of the housing loan sanctioned by the different banks has tenure of 5-10 years. 3. Rate of interest Charged: Name of Bank Axis ICICI HDFC SIB Kotak Mahindra Percentage of Interest 14 16 14.25 12.75 13

Percentage of Interest
16 14 12 10 8 6 4 2 0
Axis ICICI HDFC SIB Kotak Mahindra

Interpretation: During the analysis of interest of home loan it has been found that SIB has the least interest rate of Home loan among its peer bank which means that it would be preferred for Home Loan. 4. Approximate days taken by bank to disburse the loan?

 
<5 years 5-10 years 10-20 years

 

 

Percentage of Interest

Name of Bank AXIS ICICI SIB KOTAK MAHINDRA HDFC

Average Number of Days taken to Disburse the Loan 23 33 42 32 28

Average Number

Day ake he L a

Di bur e

Interpretation: This graph clearly identifies the problem of lengthy credit appraisal process at SIB which takes in an average 42 days to disburse the loan which majorly points out at the rigorous procedure followed by the bank to disburse the loan 5. On what basis you have selected the bank for the Home Loan

Basis Faster appraisal process

No of Respondents 8

Rate of interest Service rendered by bank Image of the bank

10 3 4

¡

¤£

¢ ¡ ¡¤ ¤ ¢ ¢¡ ¡ ¡

50 40 30 20 10 0

Av rag Numb r f Da t Di bur th L an

tak n

Respondents
32%

12%

40%

Inference: From the above sample it is evident that after interest rate customer gives immense importance to the faster credit appraisal process when they approach the bank for the purpose of loan 5.2 ANALYSIS OF SECONDARY DATA OF THE 5 CHOSEN BANK (SOURCE CRISIL . 1. Growth in the number of Branches No of ranches 2008 626 745 1250 180 491 Growth 2009 786 1400 1408 220 519 25.55910543 87.91946309 12.64 22.22222222 5.702647658

AXIS HDFC ICICI KOTAK MAHINDRA SIB

Growt in
100

m er of Branc es

50 Gr wth in Numb r f Branch 

©

0 

© 

© ©

Imag

f th bank

¦

S r ic r nd r d by th bank

¦¦ ¦ ¦ ¨¦

¥¦ ¦

§¦

Rat

f int r t

¥¦ §

¥

¦¥

16%

Fa t r Apprai al Pr c

Interpretation: The chart shows that the growth in the SIB is the least which shows that SIB is relying on Class Banking and it is not focusing on mass banking. Analysis: If we thoroughly analyze the data we see that the branch network of SIB has grown by on 5.17% in comparison with it peers which have considerably grown at a faster pace. 2. Deposits and advances DEPOSITS 2008 AXIS HDFC ICICI KOTAK MAHINDRA SIB 87626 100769 244431 16424 15156 Growth 2009 111374 142812 218348 15645 18092 27.1015452 41.72215662 -10.67090508 -4.743058938 19.37186593

Growt In Deposits
50

40
30

10
0

-10 -20

AXIS HDFC ICICI KOTAK MAHINDRA SIB

ADVANCES 2008 2009 59661 81557 63427 98883 225616 218311 15552 16625 10454 11852    

AXIS

HDF

ICICI

OTA AHINDRA

SIB

Growth 36.70069 55.90048 -3.2378 6.899434 13.37287 

  

20

Gr wth In D p it

Interpretation: The chart gives a clear picture of SIB conservative in case of lending process Analysis: If we properly analyze the data we see that all the banks except south Indian bank have achieved more growth in advances as compared to the growth in the deposits which clearly points out that the bank is reluctant to lend and has a longer and time taking credit appraisal process 3. Growth in Investments: Investments Growth 2008 2009 33705 46330 37.45735 49394 58818 19.07924 111454 103058 -7.53315 9142 4572 9110 -0.35003 6075 32.87402

AXIS HDFC ICICI KOTAK MAHINDRA SIB

Gr w h I I ve me
40 30 20 10 0 -10

!

Gr wth In Inv tm nt

!

! 

60 50 40 30 20 10 0 - 0

Gr w h I Adva ce
Gr wth In Advanc  

Interpretation: The chart clearly points out that SIB in very keen player in investment and treasury operation. Analysis: Only Axis has recorded more growth in investments than SIB which clearly focuses on the fact that SIB is banking more on investments then relying on the advances which can fetch returns. 4. Growth in Interest Income: INTEREST INCOME 2008 7005 10115 30788 2535 1291

Growth 2009 10835 54.67523 16332 61.46317 31093 0.990646 3373 1687 33.33 30.6739

AXIS HDFC ICICI KOTAK MAHINDRA SIB

Growt In Interest Income
70 60 50 40 30 0 10 0

Interpretation: Sib has less interest income as compared to all other banks except ICICI Analysis: We can analyse that SIB has got less interest income due to its low operation in lending business.

$ #

%$ $

#

"

Gr wth In Int r t Inc m

5. Growth in NPA: NET NPA RATIO Growth 2008 2009 0.42 0.4 -4.7619 0.47 0.63 34.04255 1.55 2.09 34.83871 1.78 0.33 2.39 34.26966 0.55 66.66667

AXIS HDFC ICICI KOTAK MAHINDRA SIB

Growt In PA
35 30 25 20 15 10 5 0 -5

Gr wth In NPA

Interpretation: The graph clearly explains that SIB has got good asset management quality in it. Analysis: If we properly analyze the data we get that Sib has got second least growth in NPA which means that it has a very good credit risk management policy and has good loan recovery policy. But it is reluctant to lend.

&

CHAPTER 6
6.1 FINDINGS:  The credit appraisal process carried out at SIB is sound and bank has good parameters to appraise the project.  The credit department thoroughly analyses the credit requirement of the company and the capacity to service the debt.  The credit appraisal passes through various stages and evaluations before it is appraised  Analysis of the data of questionnaire reveals that the credit appraisal process in SIB takes more time then compared with its peer banks. 

Analysis of the secondary data reveals that SIB is conservative in granting advances and has time taking credit appraisal process due to which the growth in the revenue is less as compared to its peer bank

6.2 SUGGESTION:      The credit appraisal process should be made faster without exposing to the risk. More people should be trained to handle the credit appraisal process More authority should be given to the Branch Manager to sanction the loan Banks should focus more on retail customers All the documents required to appraise the project should be asked at the time of application only rather than later by the bank

6.3 CONCLUSION:
Credit Appraisal is a process of appraising the credit worthiness of loan applicants. The funds of depositor¶s i.e. general public are mobilized by means of such advance / investment. 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. But at the same time it is the source of fund for the bank hence if the process is made faster without compromising with the risk factors it will attract more customer which will result in higher revenue for the bank.

ANNEXURE
1. Sample Questionnaire:
Questionnaire on Home Loans NAME: _______ Questionnaire No.

Sir/Madam, This research project is a part of our curriculum. This is a general study of Home loan disbursed by different banks. We seek only your general views. We thank you for your cooperation and assure you complete confidentiality of the information you will so kindly, sincerely and patiently share with us. 1. From where you availed Housing Loan. a) ICICI b) HDFC c) AXIS d) South Indian Bank e) Kotak Mahindra 2. Time period for which you have availed the loan. a) <5 years b) 5-10 years c) 10-20 years 3. Rate of interest at which you have availed the housing loan ---------4. Approximate time taken by the bank to disburse the loan? ---------days. 5. On what basis you selected the Bank for Home loan? a) Faster appraisal process b) Rate of interest c) Service rendered by bank d) Image of the bank

2. COMMON LOAN APPLICATION FORM FOR PRIVATE VEHICLES 1. Name of the applicant (with age, name of father) :

2. Address with contact telephone number: a) Office: b) Residence: 3. Resume about the applicant: (Nature of employment) 4. Name, address and relevant details of all guarantors/ Coobligants etc. 5. Purpose of Loan: 6. Amount of loan required 7. Period of loan repayment 8. Repayment obligations (EMI) 9. a) Annual income of the applicant b) Annual income of guarantors/coobligants : : : : : -------------------

c) Total Income : d) Total expenses including repayment obligations: ------------------e) Net Surplus : =========== 10. Other relevant information: Place: Date: (Signatures of all borrowers with name) ------------------------------------------------------------------------------------------------------

----

Encl: Individual worth statements, proforma invoices, tax receipts, salary certificates, copy of financial statements etc. should be enclosed as the case may be.

3. CHECK LIST OF DOCUMENTS TO BE SUBMITTED WITH LOAN APPLICATION

MERCANTILE CREDIT SCHEME a) Proof of residence b) Proof of income and net worth of borrower and coobligant. c) Voters ID/passport/driving license/pancard d) Details of collateral offered e) If property is offered as security, EC for 13 years, latest tax paid receipt and possession certificate f) Profit & Loss Account and Balance Sheet for the immediate preceding 3 years g) Copy of License from local bodies to conduct the business. h) Copies of ST/ IT assessment orders. i) Copy of pass book/computer sheet of the account for one year for take over accounts. j) Copy of legal verification certificate for take over accounts. k) Copy of initial sanction order and current sanction order for take over accounts. l) Two passport size photographs each of borrower and coobligant MOBILOAN a) Proof of residence b) Proof of income and net worth of borrower and coobligant. c) Voters ID/passport/driving license/pancard d) Details of collateral offered e) If property is offered as security, EC for 13 years, latest tax paid receipt and possession certificate f) For agricultural vehicle loans, documentary evidence for land holding. g) Proforma invoice for the vehicle. h) Copy of bank account for the last 6 months i) Two passport size photographs each of borrower and coobligant VITJNAN PRADHAN SCHME (VPS) a) Proof of residence b) Proof of income and net worth of borrower and coobligant. c) Voters ID/passport/driving license/pancard d) Details of collateral offered e) If property is offered as security, EC for 13 years, latest tax paid receipt and possession certificate f) Copy of bank account for the last 6 months g) Two passport size photographs each of borrower and coobligant h) Mark List of the qualifying examination i) Proof of financial requirements for the course certified by head of the educational Institution to which admission is sought by the student. k) Details of LIC policy, if any, in the name of the student SIB: CONSUMER DELIGHT SCHEME a) Proof of residence b) Proof of income and net worth of borrower and coobligant. c) Voters ID/passport/driving license/pancard d) Details of collateral offered

e) If property is offered as security, EC for 13 years, latest tax paid receipt and possession certificate f) Copy of bank account for the last 6 months g) Two passport size photographs each of borrower and coobligant h) Proforma invoice from reputed suppliers of consumer durables. SIB LIFE LINE SCHEME a) Proof of residence b) Proof of income and net worth of borrower and coobligant. c) Voters ID/passport/driving license/pancard d) Details of collateral offered e) If property is offered as security, EC for 13 years, latest tax paid receipt and possession certificate f) Copy of bank account for the last 6 months g) Two passport size photographs each of borrower and coobligant h) Estimate of expenses certified by the head of the speciality/ Department with diagnosis and treatment contemplated. SIB: HOMELOAN SCHEME a) Proof of residence b) Proof of income and net worth of borrower and coobligant. c) Voters ID/passport/driving license/pancard d) Details of collateral offered e) EC for 13 years, latest tax paid receipt and possession certificate in respect of property. f) Copy of bank account for the last 6 months g) Two passport size photographs each of borrower and coobligant h) Plan and estimate certified by a qualified engineer. i) Plan approval and sanction from local bodies for construction j) Copy of employment contract, salary certificate/pay slip, current work permit, relevant pages of passport, name and full address of the employer/sponsor abroad and address and contact phone number of a close relative in India in the case of NRIs.

REFERENCES
Websites:
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www.worldbank.org.in www.iibf.org www.sib.com www.rbi.org.in www.mospi.nic.in www.moneycontrol.com www.indiainfoline.com www.bankinginfo.com

BOOKS Financial Management- Theory & Practice by Prasana Chandra, Tata McGraw HILL. (7th Edition) Marketing Management-By Philip Kotler, Pearson Education Ltd. (13th Edition) Credit Management ± By Arun Chatterjee

Bank Financial Management ± By Indian Institute of Banking & Finance

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