You are on page 1of 84

A STUDY ON

“LOANS AND ADVANCES”


AT

AGRASEN CO-OPERATIVE URBAN BANK LTD

A PROJECT REPORT SUBMITTED IN PARTIAL FULFILLMENT


OF THE REQUIREMENT FOR THE AWARD OF THE DEGREE OF
MASTER OF BUSINESS ADMINISTRATION
BY
NADIYA NAEEM
H.T. No: 1204-10- 672-050
UNDER THE GUIDANCE OF

MS. NAZIA AFREEN

DEPARTMENT OF BUSINESS ADMINISTRATION

ST.ANN’S COLLEGE FOR WOMEN P.G CENTRE


(Affiliated to Osmania University and Approved by AICET, NEW DELHI)
(Accredited by NAAC with ‘A’ Grade)
Santosh nagar colony, Mehdipatnam,
HYDERABAD-500028

(2010-2012
ACKNOWLEDGEMENT

Working with Agrasen Co-operative Urban Bank Ltd, Hyderabad has been an educative,
interesting and motivating experience. I worked in “Agrasen Co-operative Urban Bank Ltd”,
siddiamber Baazar which has given me a comprehensive insight into “A study on Loans and
Advances” of “Agrasen Co-operative Urban Bank Ltd”.

I would like to thank Mr.Yogesh Agarwal (c.e.o) for giving me this wonderful opportunity to
work for “Agrasen Co-operative Urban Bank Ltd”. Mr.Yogesh Agarwal also being my project
guide has been a motivating source and a helping hand at every step in the project. I sincerely
thank him for his co-operation and guidance.

My sincere thanks to Principal Sr.K.Anhtonamma for providing me an opportunity to do this


project work.

I extend my sincere thanks to Assistant Professor Ms. Nazia Afreen, Head of the Department of
Business Administration for her valuable support.

I would also like express my gratitude to my respected internal project guide Ms.Nazia Afreen
Assistant Professor, Department of business Administration for her valuable guidance and
involvement.

Lastly I would like to thank all the people who equally supported me and provided me with
every possible help required for successful completion of my project.
TABLE OF CONTENTS

S.No CONTENTS Pg.No

1. CHAPTER-1

INTRODUCTION 1-8
INTRODUCTION ON LOANS AND ADVANCES 1-2
NEED AND IMPORTANCE OF THE STUDY 3
OBJECTIVES OF THE STUDY 4
SCOPE 5
RESEARCH METHODOLOGY 6
LIMITATION 7
ORGANISATION OF THE STUDY 8

2. CHAPTER-2

LITERATURE SURVEY 9-10


SURVEY-1 : Increased loan demand 9
SURVEY-2 : Investor’s strong support for fair value of loan 10
LITERATURE REVIEW 11-28
MEANING OF LOANS AND ADVANCES 11
IMPORTANT COMPONENTS OF LOANS AND ADVANCES 12
MAIN PURPOSE OF LOANS AND ADVANCES 12
PRECAUTIONS TO BE TAKEN BY BANKER 12-13
PRINCIPLES OF GOOD LENDING 13-15
CONSIDERATION ABOUT LOAN PROPOSAL 15-16
SPECIAL CREDIT SCHEMES 16
FACTORS AFFECTING LENDING DECISIONS 17
STYLE OF CREDIT 17-24
DIFFERENT PERIOD OF LOANS AND ADVANCES 24-25
TYPES OF SECURITIES OFFERED TO A BANKER 25-26
QUALITIES OF A GOOD SECURITY 26
GENERAL PRINCIPLES OF SECURED ADVANCES 26-27
METHODS OF CREATING A CHARGE ON SECURITIES 27-28
CONSORTIUM ADVANCES 28

3. CHAPTER-3

COMPANY PROFILE 29-49


AGRASEN CO-OPERATIVE URBAN BANK LTD 29
VALUES OF AGRASEN BANK 30
VISION AND VISION STATEMENT OF AGRASEN BANK 30
MISSION OF AGRASEN BANK 30-31
CORPORATE AND FINANCIAL OBJECTIVES 31-32
MAIN FUNCTIONS OF AGRASEN BANK 32-33
IMPORTANT FEATURES OF AGRASEN BANK 33
ESSENTIAL SERVICES PROVIDED BY AGRASEN BANK 34
BRANCH AND BRANCH MANAGERS 34-35
ORGANISATIONAL STRUCTURE 35-38
EMPLOYEE SATISFACTION AT AGRASEN BANK 38
LENDING SCHEMES AT AGRASEN BANK 38-42
ESSENTIAL DETAILS ABOUT LENDING SCHEMES 42-45
FINACIAL PERFORMANCE OF THE AGRASEN BANK 46-47
FINACIAL PROGRESS OF THE AGRASEN BANK 47-49

4. CHAPTER-4

DATA ANALYSIS AND INTERPRETATION 50-59


TABLES
GRAPHS

5. CHAPTER-5

CONCLUSIONS AND SUGGESTIONS 60-63


CONCLUSIONS 60-61
SUGGESTIONS 62

BIBILIOGRAPHY

BIBILIOGRAPHY 63
LIST OF TABLES AND CHARTS

S.NO TITLE Pg.No


1. Mortgage Loan 51

2. Vehicle Loan 52

3. Term Loan (S.S.I) 53

4. Term Loan (Others) 54


5. Cash Credit Overdraft (C.C.O.D) 55
6. Demand Loan Against Security (D.L.S.T) 56

7. Cash Credit Loan 57


8. Clean Demand Loan 58
9. Jewel Loan 59

ABSTRACT
India is a vast developing country which occupies most of the nation’s economy through public
sector units, which can be categories into small and medium scale industries. To cater capital
requirements of the industries the bank has come under the encouragement of state government.

Banks provide financial aid to their borrowers through various lending schemes. Banks offer
loans and advances which in turn play a significant role in the economic development of the
nations of the world; huge part of bank’s fund is employed in the form of loans and advances.
With the increase in the banking, the requirement for loans and advances has gone up. Industries
cannot run successfully without the bank advances. Most of the times industries depend on bank
advances to meet their sudden and urgent requirements. Through lending banks meet their
objective of making profit as well as provide its financial assistance to the borrowers in need.
Therefore bank and various lending schemes of the bank play a major role in the Indian economy
with references to different industries and borrowers.

Loans and advances are benefial to both the bank as well as borrowers. Loans and advances
benefit the borrower to enjoy the benefit of money required for their activities and benefit the
bank in the form of profits. The bank apart from lending also earns income by means of deposits,
interest and the discount of the funds. The income earned by means of deposits, interest and the
discount of the fund in turn gives an opportunity to lend the money. Lending money to different
kind of borrowers is an important function of the bank.

Agrasen bank provides the financial aid to various business, traders and industrial entrepreneurs.
Mainly to the new products (first product) promoters and also to the existing promoters who are
going in for expansion of their existing units. Therefore to overcome the financial crises of the
industries various banks and financial institutions have come up, to meet these crises.

The project mainly aims at the working of the bank. the main objective is to evaluate the
different lending schemes and performance of Agrasen bank the data analysis and interpretation
is considered for the past 5 yrs. This was conducted on outstanding loans and advances for the
various lending schemes of Agrasen bank. through this evaluation we get to know the returns on
various lending schemes, which is an asset to the bank.
CHAPTER-1

INTRODUCTION
INTRODUCTION

A Brief Introduction of Loans and Advances

In 1949, the BANKING REGULATION ACT defines banking as “Accepting for the purpose of
lending or investment of deposits of money from the public, repayable on demand”. One of the
primary functions of the bank is “Lending”. Lending of funds to general public, businessmen,
traders and industrial enterprises is one of the most important activities of a bank. Through
lending Co-operative banks meet their objective of making profits. The bank collects deposits
with the objective of lending and make profits out of the interest received. The main aim is to
deal in money and provide for those who need it. The banker performs the job of lending within
the framework of government policy, banking business and guidelines issued by the (R.B.I) in
India.

Greater part of bank fund is employed in the form of loans and advances. Loans bring good
money to the bank in the form of profit by charging interest. Lending function of a bank benefits
the bank in the form of profits and one who takes loans enjoy the benefit of the money required
for their activities. The Wheels of industry cannot run without the bank advances.

The term loans refer to the amount borrowed by one person from another. Thus, from the point of
view of the borrower it is “borrowing” and for the bank it is “lending”. Loan may be regarded as
‘credit’ granted where the money is disbursed and its recovery is made on a later date. When a
bank makes an advance in lump-sum against some security it is called loan. The loan amount
sanctioned is paid to borrower either in cash or by credit to his account. A certain amount of
interest has to be paid by the borrower for the loan that he has borrowed. A loan can be repaid in
lump-sum or in installments. Advance is a ‘credit facility’ granted by the bank. An advance is an
amount of money that is loaned from future earnings. Loans can be repaid over a longer length of
time whereas; advances are generally paid back over a shorter length of time. In the present
lesson these two terms are used interchangeably.
Public sector units play a predominant role in India as it occupies about 60% of the national
economy. Public sector units comprises of tiny, small and medium scale industries. To tackle the
problem of financial assistance the banks have come under the patronage of state government.

Co-operative banks provide their customers with various lending schemes. Co-operative banks
offer certain benefits to meet their customer’s needs. As name suggest Co-operative means
voluntary association.

Agrasen Co-operative Urban Bank Ltd is one of the lending Co-operative bank established in the
year 1998 and monitored by centralized body, the R.B.I. This bank gives an assurance and
stability to their customer’s investments and saving options. This bank also provides various
schemes with guaranteed returns and free from speculation risk. The bank offers unlimited
facilities relating to loans and advances to cater different needs of the customers. Agrasen bank
provides the financial assistance to common people, traders, business and other financial
industrial enterprises and mainly to the new products of first generation entrepreneurs and to the
existing promoters going in for expansion.

The project aims at finding out how the bank is playing a major role in the Indian economy in
India with particular references to small and medium scale sectors and service enterprises. This
project deals with money lending business of Agrasen bank which covers major areas relating to
various lending schemes and policies of the bank.

The main objective is to know more about the loans and advances which helps us to explore
future prospects, to analyze the loan giving aspect of Agrasen Co-operative bank and to find out
different types of lending schemes provided at Agrasen Co-operative bank.

To evaluate the different lending schemes and performance of Agrasen bank the interpretation
and analysis is considered for the past 5 years. This was conducted on outstanding loans and
advances for the various lending schemes of Agrasen bank. Through this evaluation we get to
know the returns on various lending schemes, which is an asset to the bank.
NEED AND IMPORTANCE OF THE STUDY

The need and importance of undertaking the study of loans and advances is growing importance
for money lending business of banks. With the rapid increase in banking, the demand for loans
and advances and capital requirements has gone up. Lending money to different kinds of
borrowers against different securities is one of the most significant functions of a bank.

India had the method of lending from very early times and it is as well being continued till date
but with certain modernized pattern of banking, as to cater diverse natured financial requirements
of the community. Unlike the non-bankers, the modern lending system is provided with various
lending policies and schemes and facilities like financial discipline, periodic review of
statements which is beneficial for safety lending.

The co-operative banks offer certain benefits to meet their customer’s needs. As the name
suggests, co-operation means voluntary association for some common purpose.

Some of the essential features of the study are as follows:

 The loans and advances are beneficial to both the bank as well as the borrower.

 Industry cannot run without the bank advances.

 The banks offer loans and advances which in turn plays a significant role in the economic
development of the nations of the world.

 The bank works according to the rules and regulations and the guidelines by the RBI.
 Co-operative bank is an institution established on Co-operative basis and dealing in
ordinary banking.

 The banks are introducing new loans to meet the requirements of the various segments of
the society.
OBJECTIVES OF THE STUDY

 To ascertain the sources of borrowings and funding of loans.

 To elicit the fundamental information about various types of loans and advances
provided by Agrasen Co-operative bank.

 To evaluate the performance of Agrasen bank for the past 5 years in terms of
providing loans.

 To study the precautions to be taken while advancing the loans.

 To analyze the profit sources for a bank by providing loans and advances.

 To study the purpose for different advance schemes and their features offered by
Agrasen bank.

 To evaluate customer’s eligibility, procedure involved for the sanction of loans


and advances and the customer’s mode of repayment.

 To analyze and interpret outstanding balance of advances for various money


lending schemes of Agrasen Co-operative bank.

 To know more about loans and advances which help us to explore future
prospects.

 Loans and advances is an integral part of any banking business.

 To know the wide range of lending options available in lending schemes of


Agrasen bank.
SCOPE

This project on loans and advances is undertaken at Agrasen Co-operative Urban Bank Ltd. The
scope of this project deals with loans and advances of the concerned bank referring with money
lending business.

The scope is limited to the extent of detail study of various lending schemes at Agrasen Co-
operative Urban Bank Ltd. The study was limited to the advances by Agrasen Co-operative bank
to general customers, commercial institutions such as Corporate or industrial undertakings;
Traders; owners of buildings; commercial properties and applicants engaged in trade, etc. It also
analyzes the advance schemes provided by the bank with respect to customer’s eligibility for
loans, interest rate for different advance schemes, etc.

To evaluate different lending schemes and performance of Agrasen Co-operative Urban Bank
Ltd the interpretation and analysis is considered for the past 5 years. This is conducted on
outstanding balance of loans and advances for the various lending schemes. Through this
evaluation we get to know the returns on the loans and advances due to lending, which is an asset
to the bank.
RESEARCH METHODOLOGY

Methodology is referred to systematic approach of a project. An effective methodology


facilitated well disciplined an organized ways of structuring and resolving the issues.

SOURCES OF DATA:

The information presented in this report is through the primary and secondary data collected
from the bank.

Primary Data:

Primary data is data that has been previously published, i.e. the data is derived from a new or
original research study. It is information that is obtained directly from first hand sources by
means of surveys, discussions and personal observation or experimentation.

Sources of primary data:

 Discussions with expert managers of the bank


 interviews with department head (i.e., C.E.Os. of the bank)
 Personal observation of records

Secondary Data:

Secondary data is the data already gathered for one use that is then utilized for another purpose.
It is information that has been gathered by researchers and recorded in books, articles and other
publications.

Sources of secondary data:

 Brochures and annual records


 Books
 Internet
LIMITATIONS

 The study of loans and advances is limited for a speculated period of time.

 The study is related with the information of a particular bank (i.e., Agrasen bank).

 The accuracy of the study entirely depends upon the data provided by bank.

 Time was one of the constraints during study. The period of study is of 5 years.

 The performance evaluation of Agrasen bank is also limited to 5 years.

 This project on loans and advances is more like theoretical project.

 Some data vital to the study could not be accessed due to the confidentially policies of the
bank.

 The study is limited with local area bank.


ORGANISATION OF THE STUDY

CHAPTER- 1

This refers with the introduction part which involves a brief introduction of loans and advances,
the need and importance’s of study, objectives of the study, research methodology, Scope,
limitations and structure of the study.

CHAPTER- 2

This is based on the study of literature surveys and review. Literature survey includes two studies
of loans and advances such as increased loan demand and Investor’s strong support for fair value
of loans and literature review includes the introduction to loans and advances.

CHAPTER- 3

This includes the profile of Agrasen Co-operative Urban Bank ltd.

CHAPTER-4

This deals with data analysis and interpretation of outstanding amount for loans and advances on
various lending schemes at Agrasen Co-operative Urban Bank ltd.

CHAPTER-5

This covers with the conclusion of the study and suggestions.

The end of the report consists of bibliography.


CHAPTER-2
LITERATURE SURVEY
SURVEY – 1

Title: Increased loan demand

Source: Federal Reserve Board

Federal Reserve Board, senior loan officer conducted a survey on increasing demand for loans.
The survey found that about 25% of banks reported increase demand for commercial and
industrial loans from large and middle market firms. About 10% reported stronger loan demand
from small business

The credit quality of potential business borrowers also improved. More than half of domestic
banks said the credit quality of large and middle market loan applicant had improved while 35%
said the credit quality of potential small business borrowers had improved.

Through the first seven months of its fiscal year, 7(a) Loan Program was introduced and was
soon up 53% when compared with same period a year ago. In the fiscal year, more than $13
billion 7(a) loans had been approved and it is also expected that program could hit the authorized
limit of $17.5 billion before the end of the fiscal year. Therefore as a result it was found that
there was an increasing demand for loans.
SURVEY -2

Title: Investor’s strong support for fair value of loan

Source: CFA Institute

CFA head of financial reporting policy at CFA institute conducted a survey to ascertain investor-
member views on the fair value measurement of loans.

The survey found that CFA institute members strongly desire higher quality, more transparent
and more relevant information about asset values contained in fair value measures. The small no.
of banking analysts queried through other surveys pales in comparison to the board based
investor- member feedback before, during and after the financial crises.

Again in September, more than 70% or approximately 800 out of a total of 1,100 respondents,
stated that they want fair value as the primary measurement basis for financial loans and needs
strong support for the fair value of loans.
LITERATURE REVIEW
LITERATURE REVIEW

LOANS AND ADVANCES:

India had the system of banking from very early times, though it was not similar to banking of
modern times. In modern times banks act as financial intermediaries between the saving public
and investors and perform a number of functions. The financial resources mobilized by banks
will be lent to various borrowers in the form of loans and advances. Lending money to different
kinds of borrowers is one of the most important function of a bank. Lending is a risky business
but at the same time is significant as loans and advances granted by banks help in meeting short
term & long term financial needs of the borrowers.

The term ‘loan’ refers to the amount borrowed by one person from another. Thus, from the view
point of borrower, it is ‘borrowing’ & from the view point of bank it is ‘lending’. While granting
loans, credit is given for a definite purpose and for a predetermined period. Interest is charged on
the loan at agreed rate & intervals of payment. ‘Advances’ on the other hand is a credit facility
granted by the bank. Bank granted advances largely for short term purposes, such as purchase of
goods, meeting some short term trading, etc. However, like loans advances are also repaid. Thus
a credit facility repayable in installments over a period is termed as loans while a credit facility
repayable within one year may be known as advances.

Loans and advances help the borrowers to meet their financial requirements and hence play a
significant role in the economic development of all the nations of the world.
THE IMPORTANT COMPONENTS OF LOAN AND ADVANCES:

Some of the important components of a loan and advances are as follows-

 Deposits or Down Payment;


 Installments; &
 Interest
PURPOSE OF LOANS & ADVANCES:

Loans are the promises for the future payments. A loan is a type of dept. The borrower needs to
repay the lender the sum of money loaned part by part over time in order to clear the debt. Loans
may be required for productive purposes, trading purposes, agriculture, transport and self-
employment. Loans and advances cater the capital requirements of the borrowers. The banker
should advance loans only for the purposes determined to be worthwhile by the Reserve Bank
and the Government.

PRECAUTIONS TO BE TAKEN BY BANKER:

A banker must take the following precautions while granting loans and advances to the
borrowers.

PRECAUTIONS TO BE TAKEN BEFORE SANCTIONING A LOAN-

 The applicant for a loan must be properly introduced to the banker.

 The banker must try to know the background of the applicant, i.e., his experience,
honesty, character, etc.

 The future profits should also be checked up by the banker to determine the borrower’s
loan repaying capacity within a stipulated period.
 In case the banker is not satisfied they can ask the applicant to furnish a guarantee from a
reliable party well-known to the bank.

PRECAUTION TO BE TAKEN AFTER SANCTIONING A LOAN-

 The banker must ensure that borrower pays the installments regularly.
 The banker must obtain the documents like a demand promissory note, an agreement of
hypothecation, a letter of guarantee and a letter of loan.
 The banker must ensure that the loan is properly utilized.

PRINCIPLES OF GOOD LENDING:

To do the business of lending successfully and profitably, a banker has to follow certain
principles, some of which are considered below:

SAFETY-

The very survival of banker depends on the safety of his loans and advances.

The ideal position is when all the advances are fully secured. To maintain a banking concern in a
sound condition, it is very essential that the safety of its advances to customers should be its first
principle. Care should be taken to ensure that the funds advanced are not subject to any risk of
being lost.

NEED OF LOAN-

Another important point to be studied by a banker before lending is the purpose for which a loan
is required and the resources from which the borrower is expected to repay.
SECURITY-

The security offered against the loan may be various. The security accepted by a banker to cover
a bank advance must be adequate, readily marketable, easy to handle and free from any
encumbrance. Securities may vary from gold and silver to stock exchange securities, goods,
documents of title to goods, insurance policy and immovable property.

NATURE OF BUSINESS-

A business may be sub-divided into many categories like manufacturing business, trading
business, import and export business, wholesale and retail business, a business having a
monopoly of the market or a business having a keen competition in the market. There may be
innumerable types of business and the repaying capacity of a borrower depends, to a great extent,
on the nature of the business he is engaged in.

LOCATION OF BUSINESS-

The location of a business largely influences the type of security that may be offered for a bank
advance. A bank, which has a large number of branches, is undoubtedly in a favorable position,
because the securities on which its money is advanced are well spread out.

LIQUIDITY-

Liquidity is another important principle of good lending. Banks which have a large capital of
their own and which borrow funds for long periods generally by the issue of bonds and
debentures, can safely lend the required amount for fixed assets, for they can afford to wait for a
long time for the repayment of their advances, since their liabilities do not mature on demand or
at short notice.

NATIONAL POLICY OBJECTIVES-

In a developing society like India, Banks are also required to fulfill some social responsibilities.
After the nationalization of banks in 1969, a major thrust in the lending policies of banks has
been to provide credit facilities to the so far neglected sectors of the economy. Banks are now
playing an active role in serving the development needs of the economy in conformity with the
national policy and objectives. In recent years banks have been providing finance on a large-
scale to agriculturists, small industrialists, professional persons, transporters, self-employed etc

PROFITABILITY-

The banker must also consider whether the loan granted by him fetches him fair return. The rate
of interest charged on loans and advances must be higher than that allowed on deposits. The
difference between the borrowing and lending rates constitutes an important source of income to
the banker. Interest on loans and advances is the chief source of banker’s profits.

DIVERSIFICATION OF RISKS-

A banker should not invest all his funds in the same industry or in the same group of industries,
for the reason that his own security becomes excessively dependent o the prosperity of that
industry or group of industries. It is desirable for the banker to lend moderate sums to large
number of customers rather than large sums to a few individuals.

Despite the changes in the lending policies, the banks follow the basic principles of sound
lending which are fundamental.

CONSIDERATIONS ABOUT LOAN PROPOSAL:

Businessman who requires a loan from bank gives applications for loan. The bank inturn will
examine the loan application. While examine the application the banker should take some point
into consideration

Such as-

 The banker should see the purpose for which money is borrowed, for that determines the
source from which repayment may be expected;

 The banker should lend small sums to a large number of customers rather than large sums to
a small number of individuals so that the banker may not incur in huge losses;
 The banker should not lend for long periods since his own deposits are repayable on demand,
as banker cannot afford to lock up his funds for long periods
 The banker should not lend up to the full value of the security, but should keep a proper
margin. This is for two reasons: The value of the security may fall and provision must be
made for the accrual of interest;

 When the borrowers are traders the bankers should examine the borrower’s business and the
borrowing power;

 The banker should collect information regarding the character, capacity of borrower from
some outsiders and credit information bureau;

 The banker should enquire into the possibilities of repayment by the borrower; and

 The baker should not advance money to a borrower without proper security.

SPECIAL CREDIT SCHEMES:

Many banks have formulated special credit schemes. Banks should take into account the
following points while granting loans and advances-

 The credit given by banks should be sufficient to meet the total requirements of
borrowers.
 Reasonable amounts should also be granted for meeting expenses for family maintaince
in case of persons who commence business and those who leave well- established jobs to
take up self- employment.

 Loans up to Rs.500 are disbursed on the basis of demand promissory notes or simple loan
agreement.
 Banks should help the borrowers in obtaining technical advice and guidance.
FACTORS AFFECTING LENDING DECISIONS:
There are three important factors affecting the lending decisions of lenders

FINANCIAL CONDITION OF BORROWERS- Lender wants to know about borrower’s


financial state before they give borrowers a loan. They want to confirm whether the borrower
have cash on his hand so that they can make a down payment.

ABILITY TO REPAY THE LOAN- Lenders think whether they can earn enough money now
and in the future to make payments. They want to know whether the borrowers have any debts
and lenders always look for borrowers with neat and clean credit.

CREDIT HISTORY- Lenders want to know about borrowers past payment habits. If lenders
find in borrower’s credit report that they had never been regular on their payments before, they
are not convinced to sanction borrower the loan.

STYLE OF CREDIT:

Banks finance capital requirements of their customers.

The main style of credit of systems of financing prevalent in our country is:

 Loan System
 Cash Credit System
 Overdrafts
 Purchase and discounting of Bills
LOAN SYSTEM-

When an advance is made to a customer without liberty to him of repaying with a view to
making a subsequent withdrawal, it is called a loan. A banker prefers to make an advance in the
form of loan, and secondly, it involves him with very little work because loans involve a small
number of receipts and payments.
ADVANTAGES OF LOAN SYSTEM-

FINANCIAL DISCIPLINE ON THE BORROWER:

As the time of repayment of the loan or its installments is fixed in advance, this system ensures a
greater degree of self-discipline on the borrower as compared to the cash credit system.

PERIODIC REVIEW OF LOCAL ACCOUNT:

Whenever any loan is granted or its renewal is sanctioned the banker gets an opportunity of
automatically reviewing the loan account. Unsatisfactory loan accounts may be discontinued at
the discretion of the banker.

PROFITABILTY:

The system is comparatively simple. Interest accrues to the bank on the entire amount lent to a
customer.

DRAWBACKS OF LOAN SYSTEM:

INFLEXIBILITY:

Every time a loan is required, it is to be negotiated with the banker. To avoid it, borrow in excess
of their extract requirements to provide for any contingency.

UNCONTROLABLE:

Banks have no control over the use of funds borrowed by the customer. However, banks insist on
hypothecation of the asset purchased with loan amount.

RENEWED FREQUENTLY:

Though the loans are fixed periods, but in practice they roll over, i.e., they are renewed
frequently.
COMPREHENSIVE DOCUMENTATION:

Loan documentation is more comprehensive as compared to each credit system.

TYPES OF LOAN

Banks grant loans for different periods- shorts, medium and long, and for different purposes.
Broadly, the loans grant by banks are classified as follows-

 Short Term loans


 Term loans
 Bridge loans
 Composite loans and
 Consumption loan

SHORT TERM LOANS:

Short term loans are granted to meet the working capital needs of the borrowers. These loans are
granted against the security of tangible assets- mainly the movable assets like goods and
commodities, share, debentures etc.

TERM LOANS:
Medium and long term loans are usually called term loans. These loans are granted for more than
a year and are meant for the purchase of capital assets for the establishment of new units and for
expansion or diversification of an existing unit. These loans are usually secured by the tangible

Assets like land, buildings, plant and machinery, etc. In recent years, Reserve Bank for India had
encouraged banks to lend for projects as well.

BRIDGE LOANS:

Bridge loans are essentially short term loans which are granted to industrial undertakings to meet
their urgent and essential needs. In April 1995 Reserve Bank of India banned bridge loans
granted by banks financial institutions to all companies. But in October 1995 Reserve Bank
permitted the banks to sanction bridge loans finance against commitment made by a financial
institution or another bank where the lending institution faces temporary liquidity constraints
subject to the following conditions:

1. The term lending bank or financial institution must give a commitment to remit the amount
of the term loan to the bank concerned.
2. The period of such bridge loans should not exceed four months.
3. No extension of time for repayment of bridge loan will be allowed.
4. To ensure that bridge loan sanctioned is utilized for the purpose for which the term loans has
been sanctioned.

COMPSITE LOANS:

When a loan is granted both for buying capital assets and for working capital purposes, it is
called a composite loan. Such loans are usually granted to small borrowers, such as artisans,
farmers and small industries.

CONSUMPTION LOANS:
Though normally banks provide loans for productive purposes only, but as an exception loans are
also granted on a limited scale to meet the medical needs or the educational expenses relating to
marriages and other social ceremonies etc., of the persons. Such loans are called consumption
loans.

CLASSIFICATION OF LOANS AND ADVANCES

The loans and advances granted by banks are broadly classified into:

SECURED LOANS-

According to section 5(a) of the Banking Regulation Act 1949, a secured loan or advance means
a loan or advance made on the security of assets, the market value of which is not at any time
less than the amount of such loan or advance. Secured loans are most frequent.

UNSECURED LOANS-

Unsecured loan or advance means a loan or advance not so secured. Loans are sometimes
granted without any collateral security. Unsecured loans are not very popular in India, because of
the attendant risks and also because bankers do not have the means of knowing the credit-
worthiness of their borrowers.

CASH CREDIT SYSTEM-

Cash credit is one of the most important methods of lending in India.

Under this method, the banker fixes a limit for a customer, called the cash credit limit. The limit
is generally specified after taking into account the important features of the borrowings concern,
for instance, production, sales, inventory, past credit limits etc. The customer is allowed to
withdraw money from cash credit account according to his requirements. Similarly, he may
deposit money in the account as and when surplus funds are available with him. The cash credit
account is, thus, an active and running account to which deposits and withdrawals may be
affected period frequently. But the customer has to provide tangible assets as security for the
amount borrowed from the banker. The interest is charged on the actual amount utilized by the
customer and it is calculated only for the period of actual utilization only.
COMMITMENT CHARGE-

Since banks have to keep funds idle up to the credit limits sanctioned to customers, they may
levy a commitment charge on the utilized limits of credit. Reserve Bank of India had made it
obligatory for all scheduled commercial banks to levy a commitment charge at one per cent per

annum on the unutilized portion of the credit limits in excess of Rs.1lakh.With effect from
January 1, 1991 commitment charge was re-introduced with two objectives, namely:

(1) To bring about discipline in availing bank finance by borrowers and

(2) To facilitate better funds management by banks.

In the year 1996 Reserve Bank of India has advised the banks to evolve their own guidelines.
Thus, the commitment charge now depends upon the discretion of individual banks.

ADVANTAGES OF CASH CREDIT SYSTEM –

 FLEXIBILITY: The borrowers need not keep their surplus funds idle with themselves.
They can recycle the funds quite efficiently and can minimize interest charges by
depositing all cash accruals in the bank account. This system thus ensures lesser cost of
funds to the borrowers and better turnover of mind for the banks.
 OPERATIVE CONVENIENCE: Banks have to maintain one account for all the
transactions of a customer. The repetitive documentation can be avoided.

WEAKNESS OF THE SYSTEM:

 FIXATION OF CREDIT LIMITS: The cash credit limits are prescribed once in a year.
Hence it gives rise the practice of fixing large limits than is required for part of the year.
 BANK’S INABILITY TO VERIFY THE END USE OF FUNDS: Under this system the
stress is on security aspect. Hence, there is no conscious effort on the part of banks to
verify the end use of funds. Funds are diverted, without banker’s knowledge, to
unapproved purposes.
 LACK OF PROPER MANAGEMENT OF FUNDS: Under this system the level of
advances in a bank is determined not by how much the banker can lend at a particular
time but by the borrower’s decision to borrow at that time. The system therefore does not
encourage proper management of funds by banks.

OVERDRAFTS-

When a current account holder is permitted by the banker to draw more than what stands to his
credit, such an advance is called an overdraft. The banker may take collateral security or may
grant such advance on the personal security of the borrower. The customer is permitted to
withdraw the amount as and when he needs it and to repay it by means of deposit in his account.
Interest is charged on the exact amount overdrawn by the customer and for the period of its
actual utilization. Generally an overdraft facility is given by a bank on the basis of a written
application and a promissory note signed by the customer.

PURCHASE AND DISCOUNTIG BILLS OF EXCHAGE- Another important method of


lending by bank is purchasing and discounting of bills. There is a difference between collection
of bills and purchase and discount of bills. In collection of bills, the bank collects the amount of
the bill from the drawee /acceptor and credits the account of the customer. In purchase and
discount, the bank credits the amount of the bill to the drawer’s account before the realization of
the bill and, thus, lends money to the customer. The banker can demand payment from the
drawee on presentation this is the reason the term used in regard to demand bills is known as
‘purchase of the bills’. Bill matures after a period of time, the bank has to retain the bill till due
date and realize the amount on the date of maturity. This practice is called discounting of the bill.

ADVANTAGES OF PURCHASE AND DISCOUNTING OF BILLS:

 Safety of funds;

 Facility of refinance from Reserve Bank;

 Certainty of payment; and


 No risk of fluctuations in the value of the bill and profit to the bank.

DIS-ADVANTAGES OF PURCHASE AND DISCOUNTING OF BILLS:

In spite of the advantages possessed by this system, there exist some disadvantages

 Unpopularity of purchase and discounting bills of exchange system in India;

 Banks because of their greater liquidity borrow from the Reserve Bank the security of
government securities. Rediscounting bills with the reserve bank is considered a sign of
weakness of the bank; and

 Heavy stamp duty on the bills.

DIFFERENT PERIODS OF LOAN AND ADVANCES:

Banks grant loans for different periods and for different purposes. The different periods are as
follows-

 Short term loans;


 Medium term loans; and
 Long term loans.
SHORT TERM LOANS-

Short term loans are granted by banks to meet working capital needs of business. The working
capital needs refer to financial needs for such purpose as purchase of raw material, payment of
wages, electricity bill, taxes, etc. such loans are granted by banks to its borrowers to be repaid
within a short period of time not exceeding 15 months.

Short term loans normally granted against the security of tangible assets like goods in stock,
shares, debentures, etc. The rate of interest charged on short term loans ranges from 12% to 18%
per annum.

MEDIUM TERM LOANS-

Medium term loans are generally known as term loans. These loans granted for more than 15
months. In case of medium term loan, the period ranges from 15 months to less than 5 years.
Medium term loans are generally granted for heavy repairs, renovation, etc. such loans are
sanctioned against the security of immovable assets.

LONG TERM LOANS-


Long term loans are generally known as term loans. These loans are granted for more than 15
months. These loans are sanctioned against the security of immovable assets. The normal rate of
interest ranges between 12% to 18% depending upon the period, purpose, nature and amount of
the loan. Though banks may grant long term loans, they avoid granting loan for more than 5
years.

TYPES OF SECURITIES OFFERED TO A BANKER: Banks advance money against


securities. The different types of securities which may be offered to a banker are as follows-

1. Immovable properties, such as


 Land and building
2. Movable properties, such as
 Goods;
 Documents of title to the goods;
 Stock exchange securities;
 Life insurance policies;
 Fixed deposit receipts; and
 Book debts.
The banker should be very careful while accepting securities as security to the advances granted,
because sometimes securities have some inherent defects and are not easily marketable.
Therefore a bank should advance money against the good securities possessing certain qualities.

QUALITIES OF A GOOD SECURITY:

A good security must possess the following qualities.

 The security must be completely free from prior charges,

 The security offered should be easily marketable without loss in its value
,
 The securities should be easily storable
 A good security must possess the quality of durability,
 The security should be free from wide price fluctuations,

 The security must be capable of earning income

 The securities should be free from heavy cost of handling, and

 The securities should be fee from disabilities.


GENERAL PRINCIPELS OF SECURED ADVANCES:

The banker should observe certain principles while granting loans and advances against
securities.

 The banker must ascertain whether the borrower has a good title to the security,

 The banker should pay attention to the nature of security,


 The banker should see that these securities are completely free from defects, and
 The bank should see that proper documents, such as mortgages deed or pledge or
hypothecation arrangement containing all the terms and conditions of the charge are
executed.
METHODS OF CREATING A CHARGE ON SECURITIES:

Banker has to create a charge on assets to acquire the right to collect the amount due. There are
four methods of creating a charge against the securities such as
1. LIEN- Lien is the right of the creditor to retain the goods belonging to the debtor till his
debt is paid off.

2. PLEDGE- Pledge occurs when goods are delivered by one person to another as security
for the payment of a debt or the performance of a promise, with the understanding that the
goods pledge will be returned to the owner when the debt is paid or the promise is
fulfilled. The borrower is called the ‘pledger’. The pledge has the right to sell the property
pledged, upon default on the expiry of the stipulated time, or on giving reasonable notice
to the pledger.
1. MORTAGE- Mortgage is a conveyance of an interest as security for the payment of a
debtor for the discharge of some other obligation. The borrower is called ‘mortgager’ and
the lender ‘mortgage’.

2. HEYPOTHECATION- Hypothecation is a legal transaction in which Goods are given


as security for a debt without transferring either the property in them or the possession to
the lender. In the case of hypothecation, the borrower retains the possession of the goods.
CONSORTIUM ADVANCES

A new and important development in the field of bank lending in recent years in India is the
granting of credit by commercial banks on a consortium basis. In case the credit needs of a
borrower are very large, two or more banks join together to finance it jointly in proportion to
their capacities. This collaborative financing by banks is also known as ‘Participation Financing’
or ‘Joint Financing.’

There are two important advantages of participation financing:

 Banks be able to participate in financing very large loans and

 Banks may be able to diversify their risks. In recent years banks have started financing
through consortium basis not only working capital but term loans also.

In April 1997, Reserve Bank decided that it would not be obligatory on the part of the banks to
form a consortium even when the credit limits per borrower exceeds Rs. 50 crores. Thus, the
need based finance required by a borrower may be extended by banks either entirely on their
own or in association with other banks. But such banks shall have to observe the exposure limit
prescribed by Reserve Bank, i.e., credit to a single borrower should not exceed 25% of the net
worth of the bank and to the borrower’s group not more than 50% of net work.
CHAPTER-3

COMPANY PROFILE

AGRASEN CO-OPERATIVE URBAN BANK LTD.

The Agrasen Co-operative Urban Bank Ltd. was registered in the year 1997 and commenced its
operation on 30th August, 1998 under the guidance of Founder Chairman Mr.Sri. Balmukund
Gupta. It was stated with a share capital as 89 lakhs and bank made a net profit of Rs. 1.18 lakhs
with in a period of seven months.
Agrasen Bank is a leading co-operative Bank in Hyderabad with its operation driven by a cutting
edge Banking IT platform designed especially for co-operative sector. The Bank offers
personalized banking and financial solutions to its clients in the retail and corporate banking
arena through its four branches spread in prominent business areas of Hyderabad and
secunderabad. The bank have touched several milestones in the annals of banking history and is
marched ahead in the present technology driven environment giving the best of both the
personalized and state of art services to its customers.

The bank promoted by a group of dynamic entrepreneurs, made rapid strides and made its
presence felt in the early years of its establishment.

Mr. Sri. Shiv Shanker Agarwal is the Chairman of the bank, under his able guidance; the growth
has been multi-fold.

In this era of technology development where in e-com and dot.com business is developing
rapidly and banks have to face a tough competition in serving the customer by keeping the
commitment of profits to share holders. Banks is constantly upgrading the technology and
evaluating the new areas like dematerialization of shares and internet banking to withstand the
competition in the banking industry.

The Agrasen Cooperative Urban Bank Ltd believes in orienting its business in line with the
needs of its people, the environment and the community at large. The bank is bound by the
guiding principles of honesty, sincerity, confidence and service. It places people before power
and treats everyone on par irrespective of caste, creed or color.

The Agrasen Cooperative Urban Bank Ltd builds a stable and secure future by taking steps to maximize
and protect all that their customers have saved.

VALUES OF AGRASEN CO-OPERATIVE URBAN BANK LTD

The Agrasen Bank strongly believes in ethical values and self discipline to achieve higher
standards of Corporate Governance and continues to strive for excellence in operations through
transparency and accountability to its shareholders, government and others. The bank has been
practicing the principle of good corporate governance over the years. Corporate Governance at
the bank evolved by not only ensuring compliance with regulatory requirements but also by
being responsive to customer needs.

The main values of the bank are:

 Customer satisfaction through-


Providing quality service effectively and effiently; and

Periodic customer service audits.

 Maximization of stakeholder value.


 Success through teamwork integrity and people.
VISION

Vision of the Bank is to be a guided partner for its customers to help them in achieving their
financial objectives. The bank also effectively copes up with the challenges and capitalizes on
the emerging oppurnities while acting as a mentor to its customers in their financial goals.

Vision Statement:

“Helping people to achieve their Financial Objective”

MISSION

 To make investments in low risk and at safe options to help the customers in financially
securing their future.
 To provide customer service and product innovation to diverse needs of individual and
corporate clients.
 Continuous technology up gradation while maintaining human values.

 Progressive growth and achieve industry standards.


 Efficiency and effectiveness built on ethical practices.
 To create value for their customers by presenting various schemes with guaranteed returns
and free from speculation or risk.
 To provide assurance and stability to their customer’s investment.
 To create value for their employees by creating oppurnities for professional and financial
growth.
 To create value for share holders by increasing profitability.

CORPORATE AND FINANCIAL OBJECTIVES:

The principal object of the bank will be to promote the interest of all its members to attain their
social and economic betterment through self- help and mutual aid in accordance with the co-
operative principles.

The object of the bank shall be to engage in any one or more of the section 6 as amended by sec
56 of the Banking Regulation Act 1949 and in particular to carry out of the following forms of
business:

 To do banking business on co-operative principles by accepting for the purpose of


lending or investment of deposits of money from members as well as the public,
repayable on demand or otherwise and withdraw able by cheques, drafts, pay order, etc.
 To raise funds by issue of shares and any other securities as permitted by the regulatory
authority.
 To encourage thrift, self-help and co-operation among members.
 To prevent members from falling into permanent indebtness and to assist them financially
in times of difficulty and to help them to get out of debt.

 To amalgamate with another bank with same or similar objects.


 To engage in credit or debit cards.
 To do merchant banking business.
 To enter into participation, consortium arrangements with banks or financial institutions
with objects of making loans and advances.
 To act as agents for collection of money of various government and statutory bodies.
 To strengthen their overall effort to help their customers in meeting their financial
requirements.
 To offer highest quality of service to their customers.
 To deal honestly and fairly with others.
 To implement a smooth and functional banking facilities.
 To encourage horizontal interactions at all levels within their banking industry.
 To implement a management system this is flexible in operations.
 To retain the maximum finance growth.

MAIN FUNCTIONS OF AGRASEN BANK:

 Personal Banking- Agrasen bank’s customers focused professionals work with clients
and customers to achieve their financial goals.
 Business banking- Understanding the mission, strategy and culture of clients business is
one of the main functions of bank and taking financial solutions is the bank’s specialty.
 Deposits- A term deposit is a simple way to earn interest on customer’s money. Budget to
save for both short term and long term goals and watch customer’s dreams become reality
with Agrasen bank.
 Loans- Extensive experience with the business and financial markets make Agrasen bank
one of the most active lenders in banking sector.
 Services- Agrasen bank understand customers world and serve them with the needs.

 Safety of customer’s valuables- Agrasen bank cares to customer’s valuables and offers
safe deposit lockers and safe guards them.
IMPORTANT FEATURES OF AGRASEN BANK:

 Investments
Thirteen years ago the bank was having a total business of Rs.3.86 Cores whereas on 31 st
March, 2011 the total business of the bank was approximately Rs.259.71 Cores. The
Agrasen bank had just Rs.3.04 Crores of deposits and Rs.0.83 Crores of advances as on
31st March, 1999 whereas as on 31st March, 2011 the deposits and Advances were Rs.
150.11 Crores and Rs. 109.60 Crores respectively.

 Capital Adequacy-
The bank has been maintaining capital adequacy consistently beyond the required level
prescribed by RBI from time-time.

 Computerization-
Agrasen Bank is computerized from the very beginning of its established every operation
is carried through computer.

 Local Customer-Focused Service-


The Agrasen Bank’s idea of providing a local customer- focused service proved to be
good one, as due to the trust and confidence respond in it by the people bank has
achieved great heights.

ESSENTIAL SERVICES PROVIDED BY AGRASEN BANK


Agrasen Bank provides its customers with essential services to help them meet their need. Some
of the main services provided by Agarsen Bank are as follows:

Demand Draft Facility-

Demand draft facility is issued on all centers at competitive rates for all customers at Agarsen
Bank.

Locker facility available-

Locker facility is available for all customers at Agrasen Bank.

E-Payment-

E-payment facility for online payments of central and state government taxes at bank.

General and vehicle Insurance-

General and vehicle insurance services are provided at bank

BRANCH AND THE BRANCH MANAGER

Siddiamber Bazar Branch (Head office): Sri Anand Agarwal

Malakpet Branch: Sri.T.Shanker Chandra Reddy

Rikab Gunj Branch: Mrs. Renu Kedia

Secunderabad: Sri.Preetam Singh

Agrasen co-operative urban bank ltd gives a great importance to its managers at all branches and
provide them with great facilities. The Agrasen bank considers its managers as greatest assets to
their bank.
ORGANISATIONAL STRUCTURE

MANAGEMENT AND THE MAIN PROMOTERS OF THE AGRASEN CO-OPERATIVE


URBAN BANK:

MANGEMENT-

The Agrasen cooperative Urban Bank Ltd is a bank working under the guidelines of Reserve
Bank of India and bank consists of efficient Chairman and Directors. In accordance with the
guidelines lay down by the Reserve Bank of India and in conformity with section 9(3) of the
bank nationalization Act the management of Agrasen Bank as on date invested with the board of
directors comprising of chartered Accountants, Advocates and businessmens, etc who take keen
interest in the development of the bank.
THE MAIN PROMOTERS OF THE BANK-

NAME DESIGNATION

Shri Shiv Shanker Agarwal Chairman

Shri Pramod Kumar Kedia Sr. Vice Chairman

Shri Vijay Kumar Pitti Vice Chairman

Shri Brij Gopal Bansal Director

Shri. H.L Agrawal Director

Shri. Kailash Chandra Agrawal Director

C.A Mukesh Agrawal Director

Shri. Narsing Das Director

C.A. Naveen Kumar Agrawal Director

Shri Om Prakash Agrawal Director

Shri. Rajender Prashad Agrawal Director

Shri Sharad Sanghi Director

Shri Suresh Kumar Agrawal Director

Shri Tulja Prasad Vimal Director

Shri Yogesh Agrawal General Manager/ CEO

The board of directors of the bank has responsibilities. The duty of board of directors requires to
place the needs of the bank, shareholders and employees. Board of director’s guide, counsel and
advice the bank’s employees also provide them with fresh ideas and unique perspectives for
expanding bank’s growth. Board of directors also enhance bank’s credibility with clients and
investors and expand a bank’s networking contacts.

The board of directors of the bank are comprise of Advocates, Charted Accountants,
Businessmens, etc who are knowledgeable and experienced experts interested in the growth and
development of the bank and believe in expanding the progress of the bank and satisfying the
members like managers and other employees of the bank.
Chairman

Sr.Vice Vice
Chairman Chairman

Director Director Director Director Director Director Director Director Director Director Director

General
Manager/
CEO

Key executives of Agrasen Co-operative Bank


Head Office (Siddiamber Bazaar Branch):
Mr. Yogesh Agarwal – General Manager / C.E.O
Mr. Pramod Thakur - Manager Advances
Mr. Anand Agarwal – Sr. Branch Manager
Mr. R.Upender – Assist Manager
Mrs. Santosh Sharma- Assistant Manager
Mr. S.Srinivas – Assistant Manager
Miss. Sapna Tiwari – Assistant Manager
Mrs. Manjulatha – Assistant Manager
Mr. G.Prasad – Assistant Manager
Mr. Ramesh Bjaj – Assistant Manager
Apart from board of directors the key executives of Agrasen Bank (Head Office) also play a very
important role in developing the bank and expanding its networking and growth. The bank
believes in Team work and gives its all members’ equal importance.

EMPLOYEE’S SATISFACTION AT AGRASEN CO-OPERATIVE URBAN


BANK LTD

Agrasen bank prides itself as a young and vibrant organization and recognizes its employees as
its greatest assets. Consequently, the employee satisfaction level in the bank is possibly, amongst
the highest in the industry. Bank offers an attractive compensation package. The employee’s
highest satisfaction does not stem from the compensation package alone the bank also provides
its employees with informal and transparent HRD policies. In spite of comprising employees
drawn from different and divergent backgrounds, the employees at Agrasen bank merge into
highly homogenous working group and help the bank to achieve its goals.

LENDING SCHEMES AT AGARSEN CO-OPERATIVE BANK

Agarsen bank through their lending schemes certainly helps their customers to make investments
in low risk, safe options that give assured returns over a period of time and help the customers in
financially securing the future. To provide such an assurance and stability to their customer’s
investment sand saving options, the bank present various schemes with guaranteed returns and
free from speculation or risk.

TYPES OF LOANS PROVIDED AT AGRASEN BANK:

 Mortgage loan
 Vehicle loan
 Cash credit loan

 Term loans (classified into two types)


Term loans (S.S.I)

Term loan (others)

 Demand loan against security (D.L.S.T)


 Cash credit overdraft (C.C.O.D)
 Clean demand loan(C.D.L)
 Jewel loan
Mortgage loan:

The bank provides its customers with mortgage loans i.e., when the borrower offers immovable
property like land and buildings as a security for a loan, charge there on is created in the form of
mortgage. The transferor is called mortgagor and the transferee is called mortgagee.

Purpose for mortgage loan:

Mortgage loan is provided to customers who are in need of loan to fulfill their general purposes
such as financial requirements for business and for better livelihood.

Vehicle loan:

The bank provides borrowers with vehicle loans which help them in taking vehicle loans on
getting loan from bank. Usually these loans are provided on keeping some securities like
hypothecation of vehicle, guarantee of spouse, etc
Purpose of vehicle loan:

Vehicle loan provided to borrowers who are interested in purchasing any vehicle.

Cash credit loan: The bank is providing cash credit facility. It is a type of loan and advance
which is given to the borrower against certain surety. But the entire amount is not given at one
particular time the bank opens account in the name of the borrower and allows him to withdraw
the money from time to time up to a certain limit determined by the values of stocks kept in the
borrower’s godown.

The debtors or borrowers continuous to withdraw small sum of money according to his
requirements but he cannot exceed the credit limit as allow to borrower. Interest is charged only
on the amount actually withdraw from the account.

Purpose of cash credit loan:The cash credit loans are sanctioned purely for business purpose. The
borrowers involved in business dealings are interested in cash credit loans.

Term loans: These loans are granted for more than a year and are meant for the purchase of
capital assets for the establishment of new units and for expansion or diversification of an
existing unit. These loans are usually secured by the tangible assets like land, buildings, plant
and machinery, etc. in recent years Reserve Bank of India had encouraged banks to lend for
projects as well.

Purpose of Term loans:

Bank provides term loans to the borrowers who are in need of money for business development,
purchase of capital assets and plant and machinery.

The term loans are classified into two types

Term loans (S.S.I)

Term loans (others)


Term loan (S.S.I) - under this term loans are provided to only small scale industries for meeting
their business needs. This loan is usually catered for the margin of below 50 lakhs.

Term loan (others) – Under this term loans are provided to other business concerns excluding
small scale industries. This loan is usually catered for the margin of above 50 lakhs.

Demand loan against security (D.L.S.T):

Demand loan against security is a loan given on fixed deposit. The entire amount of demand loan
is disbursed at one time and the borrower has to pay interest on it. The borrower can repay the
amount on time decided and agreed by the bank (lender). Mostly the repayment of the amount
depend upon the maturity period. D.L.S.T can also be renewed. Under this loan the borrower is
allowed to make deposits but cannot withdraw again and again.

Purpose of D.L.S.T loan:

The D.L.S.T loan is sanctioned to the borrowers to meet their both general purpose and business
purpose needs.

Cash credit overdraft (C.C.O.D): This loan is given against fixed deposit. Under this loan the
entire loan amount is not given at one particular time the amount is sanctioned to user again and
again according to the requirements of the borrower. which means the borrower can make
continuous deposits and can also continuously withdraw the amount from time to time according
to their requirements up to a certain limit determined and agreed by the bank .repayment of the
loan amount depend upon the maturity period, the repayment is to be done on time decided and
agreed by both the borrower and bank as a lender. The C.C.O.D can also be renewed.

Purpose of loan: This loan is sanctioned to help the borrowers in meeting their general and
business needs.

Difference between C.C.O.D and D.L.S.T:

C.C.O.D and D.L.S.T are the loans which are very nearly similar to each other.

The procedure of both the loans is same but there exist only one main difference.

The difference between C.C.O.D and D.L.S.T is:


In C.C.O.D the entire amount of loan is not given at one particular time, the borrower is allowed
to make deposits and withdrawals from time to time up to a certain limit.

Whereas in case of D.L.S.T the entire loan amount is given at one particular time, the borrower is
allowed to make deposits but cannot make continuous and time to time withdraws like C.C.O.D.

Clean demand loan:

The bank provides its customers clean demand loan against security. Under this loan the bank
advances its customers without taking some tangible security called clean demand loan. The
bank relies entirely on the personal liability and third person guarantee of the of the customer and
has nothing to fall back on in case of default in the repayment of such a loan.

The bank in this loan sanction only 1 lakh to 2 lakhs of amount which means the bank under this
loan does not lend above 2 lakhs of amount and the repayment period allowed under this loan is
only 3yrs to 5yrs unlike the other loans.

Purpose of clean demand loan: The clean demand loan is sanctioned to the borrowers who are in
need of amount to fulfill their personal needs but who need only small range of amount.

Jewel loan:

The bank is providing their customers with jewel loan. The bank advances jewel loan to the
borrowers who have gold. The jewel loan helps the borrowers to get cash on jewellery. Therefore
this loan is one of the most important loans provided by the bank to its borrowers. The bank is
providing Rs-2000 per gram of the gold. The purity of the gold is very essential under jewel loan.

Purpose of jewel loan: The jewel loan is provided to the borrowers who need cash on jewellery.

The essential details about the lending schemes at the Agrasen bank

Some of the important information regarding the lending schemes at Agrasen bank is:

ELIGIBILITY:

 18 yrs to 60 yrs
 In case of eligibility the bank apart from age bar consider repayment capacity of the
borrower as an important factor.

LOAN AMOUNT SANCTION: At the time of sanctioning loan to the borrower the bank some
important factors are taken into consideration such as requirement of borrower, valuation of the
secured property, bank funds and repayment capacity.

At the time of lending the bank also verify:

Balance sheet of the company (In case of business purpose loan)

Annual Returns (In case of personal purpose loan)

MARGIN:

 50% of distress value of property in case of mortgage loan and term loans.
 60% - 70% in case of jewel loan.
 70% in case of cash credit loan.
 70% - 80% in case of vehicle loan
 70% - 90% in case of cash credit overdraft, demand loan against security and clean
demand loans.

INTEREST RATE CHARGED:

20% rate of interest is charged.

REPAYMENT:

 Actual loan amount can be repaid from1yr to 10yrs.


Minimum period is 1 yr to 5yrs

Maximum period is above 5yrs

But it should not exceed 10 yrs for all types of loans excluding clean demand loan and
cash credit loans.

 Cash credit loans are sanctioned only for the period of 1 year.
 Clean demand loans are sanctioned only for the period of 3yrs to 5yrs.
 EMI (equal monthly installments) are equally calculated monthly on loan amount with
interest rate. This monthly installments should be paid every month regularly by the
borrower. EMI is calculated only on mortgage loan, clean demand loan and term loans.

SECURITY:

The bank follows three types of securities depending upon the situation demanding the loan. The
three types of securities are-

 Primary security- all documents essential for lending process.


 Collateral security- insured property rights with legal documents
 Third party guarantee- guarantee by any third party who is liable to repay the loan in case
the borrower fails to repay the loan amount.
RENEWAL FACILITY:

Renewal facility is provided by the bank on only three types of loans such as

 Cash credit overdraft (C.C.O.D)


 Demand loan against security (D.L.S.T)
 Jewel loan.
 Cash credit loans.
ENCLOSURES:

 Application of loan
 Legal agreement between bank and borrower accepting the terms and conditions decided
and agreed by both the parties.
 Loan sanction letter
 Statement of bank account of the borrower if any
 A copy of passport/ voters ID/ Pan card
 Proof residence
 Latest salary slips (salaried individuals)
 Proof of official address (for non salaried individuals)
 Copy of IT returns for the last 3 yrs.
 Hypothecation of any property on the name of the bank up to period of repayment of the
loan amount.
 Fixed deposit account receipt in case of D.L.S.T and C.C.O.D loans.

NON- PERFORMING ASSETS OF THE BANK:

Non- performing asstes of the bank plays a very important role in banking as it maintain the
records of the loans sanctioned by the bank, the amount of loans repaid by the borrowers and the
amount of loans and advances outstanding to the bank from different lending schemes provided
by the bank. Non-performing assets of the bank department work under the guidelines of R.B.I
and take action against the borrowers not responding to the bank and are not repaying the loan
amount on time.

In the area of reduction of NPAs, the bank has achieved a considerable measure of success this is
evident from the fact that the ratio of gross advances has come down.

Necessary provision has been made by the bank on all its non- performing assets as per the RBI
guidelines.

PROCEDURE OF AUCTION:
The banker send notice to the borrower informing that the loan due date is over and the loan
account must be settled as soon as possible. This will be treated as information to the party. If the
party does not turn up after receiving the first notice. The second notice will be issued to
borrower stating that if the borrower fails to setteled the loan account the banker will auctioned
the gold loan on a certain date for which a notification will come in the news papers and the
expenses of the publishing will be recovered from the borrower.

SETTELMENT OF AUCTION:

The procedure of the auction will be adjusted towards the amount outstanding in the borrower's
account with all the expenses incurred on bank from the borrowr.

After the adjustments if any amount is left it will be kept under sundry creditors account
(suspense account) when the borrower approaches the bank the balance amount is paid to the
borrower.

FINANCIAL PERFORMANCE OF THE AGRASEN BANK:

Thirteen years ago the bank was having a total business of Rs-3.86 crores whereas on 31 st march,
2011 the total business of the bank was approximately Rs-259.71 crores.

The Agrasen bank had just Rs.3.o4 crores of deposits and Rs.0.83 crores of advances as on 31 st
March, 1999 whereas as on 31st March, 2011 the deposits and advances were Rs.150.11 crores
and Rs.109.60 crorws respectively.

PARTICULARS BALANCE BALANCE


SHEET AS SHEET AS
ON 31-03- ON 31-03-
1999 (amt in 2011(amt in
crs) crs)

SHARE CAPITAL 0.89 9.19


DEPOSITS 3.04 150.11
ADVANCES 0.83 109.60
BUSINESS 3.86 259.71
PROFIT BEFORE TAX 0.01 3.58

NET PROFIT 0.01 2.51

This clearly highlights the well performance of the bank showing good profitability position as
the bank believes in orienting its business in line with the needs of its customers at large and
follow the principles of honesty, sincerity and service.

FINANCIAL PROGRESS OF THE AGRASEN BANK:

The bank has achieved great heights as the bank places people before power and treats everyone
equally. Few highlights are:
 The share capital of the bank has reached Rs.9.19 crores as on 31st March, 2011 from
Rs.6.16 crores as at 31st March, 2010.
 The total business of the bank has reached Rs.259.71 crores as on 31 st March, 2011 from
218.88 crores as at 31st March, 2010.
 The deposits of the bank are Rs.150.11 crores as on 31 st March, 2011 from Rs.138.00
crores as at 31st march, 2010.
 The reserve fund of the bank is Rs.6.67 crores as against 5.74 crores as at 31 st March,
2010.
 The advances have reached to Rs.109.60 crores as on 31st March, 2011.
 The profit before tax of the bank has reached Rs.3.58 crores as on 31 st March , 2011 from
Rs.2.11 crores as at 31st March,2010
 The profit after tax of the bank has reached Rs.2.51 crores as on 31 st March, 2011 from
Rs. 1.43 crores as at 31st March, 2010..

PARAMETER BALANCE SHEET BALANCE SHEET INCREASE/DECREASE


AS ON 31-03- AS ON 31-03-
2011 2010

SHARE CAPITAL 919.13 61561 49.30 (increased)

DEPOSITS 15011.31 13800.05 8.78 (increased)

ADVANCES 10950.98 8088.03 35.51 (increased)

TOTAL INCOME 1015.36 1695.69 12.95 (increased)

NET PROFIT BEFORE INCOME TAX 358.30 211.29 69.58 (increased)

NET PROFIT AFTER INCOME TAX 250.83 143.20 75.16 (increased)


-

NET WORTH 1820.21 1346.65 35.17

From the above mentioned parameter table the financial progress of the Agrasen bank from the
year 2010- 2011 is shown. In this parameter table the comparison is done between the 2010 and
2011 balance sheet to estimate the current financial progress and growth of the Agrasen bank.
According to this parameter table there is an overall increase in the performance of the bank in
all the fields which ultimately increased the growth and progress of the bank. With this parameter
table we can see increase in the business and net worth of the Agrasen bank.
The above graph shows the financial progress and increase in the business of the Agrasen bank.
In the year 2010 the bank was having a total income of Rs.1695.69 crores whereas on 31st March,
2011 the total income of the bank was approximately Rs.1915.36 crores. The Agrasen Bank had
just Rs.13800.00 crores of deposits and Rs.8088.03 crores of advances as 31 st March, 2010
whereas as on 31st March, 2011 the deposits and advances were Rs.15011.31 crores and
10959.98 crores respectively.

Since inspection, the Agrasen co-operative urban bank ltd has been classified as ‘A’ class bank
continuously.

The Agrasen co-operative urban bank ltd has achieved financial progress and outstanding
business due to the trust, support and confidence from all its people and patrons such as its
customers, shareholders, well wisher’s, bank’s devoted workforce and efficient guidelines from
the board of directors of the bank.

CHAPTER – 4
DATA ANALYSIS AND INTERPRETATION

DATA ANALYSIS AND INTERPRETATION


The main purpose of Agrasen bank is to accept the deposits from the public for the purpose of
lending. The bank has to manage the outstanding loans and advances of its lending schemes in a
better way so that they can earn good profits from their customers.

In this context, analysis and interpretation is done for the past 5 years regarding the loans and
advances outstanding to the bank in order to evaluate different lending schemes and performance
of Agrasen bank .Through this evaluation, we get to know returns on the loans and advances for
various lending schemes, which in turn is the profit receivable to the bank.

The different loans analyzed at Agrasen bank are:

 Mortgage loan
 Vehicle loan
 Term Loans (classified in two):

Term loan (S.S.I)


Term loan (Others)
 Cash credit overdraft (C.C.O.D)
 Demand loan against security (D.L.S.T)
 Cash credit loan
 Clean demand loan (C.D.L)
 Jewel loan

ANALYSIS IS DONE ON THE FOLLOWING CRITERIA:

On the basis of outstanding loans and advances of Agrasen Co-operative Urban Bank Ltd.

The total amount of outstanding loans and advances for the 5 years is analyzed for representing
the different lending schemes and performance of Agrasen Co-operative Urban Bank Ltd, by
using column charts.

X-axis represents financial years and y-axis represents the amount.

AMOUNT OUTSTANDING ON MORTGAGE LOAN

YEARS AMOUNT (in crs)

2006-2007 6.22

2007-2008 6.22

2008-2009 15.28

2009-2010 19.18

2010-2011 31.74
Analysis: The outstanding amount on mortgage loan is maximum in the year 2010-2011.
There is a gradual increased in amount from 2006-2011.

Interpretation: The reason for increase is due to public demand, as the customer are
interested in fulfilling their needs for certain purposes such as financial requirement for business
and for better livelihood.

OUTSTANDING AMOUNT ON VEHICLE LOAN

YEARS AMOUNT (in


lacs)
2006-2007 1.45

2007-2008 1.45

2008-2009 26.25

2009-2010 18.41

2010-2011 15.66
Analysis: The maximum outstanding amount on vehicle loan was in the year 2008-2009. The
minimum amount was for the first two years i.e., 2006-2008. Then there was a gradual decrease
from 2009-2011.

Interpretation: The reason for the gradual decrease for the outstanding amount was due to
the economic collapse for which the common man is not able to afford for the vehicle as the
vehicle has become a luxury when compared to day to day expenses.

OUTSTANDING AMOUNT ON TERM LOANS


The Term loans are classified in to two loans such as Term loan (S.S.I) and Term loan (others).
OUTSTANDING AMOUNT ON TERM LOANS (S.S.I)

YEARS AMOUNT(in lacs)


2006-2007 69.53

2007-2008 69.53

2008-2009 80.47

2009-2010 62.52

2010-2011 85.17
Analysis: The maximum outstanding amount was for the year 2010-2011. The minimum
outstanding amount was for the first two years i.e., 2006-2008. Then there was a fluctuation in
the amounts for the 2008- 2011.

Interpretation: The reason for the fluctuations in the amount was due to change in the market
and business environment as this loan is basically for the small scale industries. This is usually
catered for the margin of below 50 lakhs.

OUTSTANDING AMOUNT ON TERM LOAN


(OTHERS)
YEARS AMOUNT(in crs)
2006-2007 10.41
2007-2008 10.41
2008-2009 13.89

2009-2010 00.00
2010-2011 15.09
Analysis: The maximum outstanding amount was for the year 2010-2011. The minimum
amount was for the year 2009-2010 as there was no outstanding amount in this year.

Interpretation: The amount is fluctuating as the priority of the business changes according to
the economy of the market. This term loan is usually for the above 50 lakhs i.e., for the business
concerns who are already existing in the market and are developed.

OUTSTANDING AMOUNT ON CASH CREDIT OVERDRAFT (C.C.O.D)

YEARS AMOUNT(in crs)


2006-2007 13.03

2007-2008 13.03

2008-2009 15.33

2009-2010 16.76

2010-2011 26.35

Analysis: The maximum outstanding was for was for the year 2010-2011. The minimum
amount was for the 2 years 2006-2008. Then there was increase in the amount.
Interpretation: The amount is increasing as there is a great demand for this category of loan
as this is the loan amount on the fixed deposit and the repayment of the amount depends on the
maturity period. The (C.C.O.D) can be also
renewed therefore this is an extra benefit
YEARS AMOUNT(in crs)
for the 2006-2007 4.14 customers and hence there is an
increased in amount. There is also a benefit
2007-2008 4.14
to the customer as the customer can withdraw
2008-2009 5.56
amount according to their requirements
whenever they 2009-2010 6.50 needs.

2010-2011 7.26
OUTSTANDING
AMOUNT ON DEMAND LOAN AGAINST SECURITY (D.L.S.T)
Analysis: The maximum outstanding amount is for the year 2010-2011. The minimum amount
is for the first two years i.e. 2006-2008. Then there is a graduals increased in the amount.

Interpretation: The amount is increasing as this is the loan amount on the fixed deposit. The
(D.L.S.T) can also be renewed and the repayment of the amount depends on the maturity period
and the amount can be withdrawn at a time after the sanction of the loan. Therefore there is an
increase in the amount.

OUTSTANDING AMOUNT ON CASH CREDIT LOAN:


YEARS AMOUNT(in crs)
2006-2007 8.07
2007-2008 8.07
2008-2009 9.70
2009-2010 12.98
2010-2011 7.00

Analysis: The maximum outstanding amount is for the year 2009-2010. The minimum
outstanding amount is for the last year i.e.,. 2010-2011.

Interpretation: The amount has been gradually increasing for the first four years then it has
come down for the last year. As this loan is purely based for business purpose due to the
fluctuations in business environment the demand and outstanding amount of this loan has come
down.

OUTSTANDING AMOUNT ON CLEAN DEMAND LOANS (C.D.L)

YEARS AMOUNT(in lacs)


2006-2007 32.80

2007-2008 32.80

2008-2009 44.12

2009-2010 70.56

2010-2011 90.30

Analysis: The maximum outstanding amount is for the year 2010-2011. The minimum
outstanding amount is for the first two year 2006-2008. There is a gradual increase further.

Interpretation: There is a gradual increase in amount as it is a personal loan amount against


security, for a specified period .There is a demand for this loan as it is beneficial for the
customers to meet their general and personal needs.

OUTSTANDING AMOUNT ON JEWEL LOAN


YEARS AMOUNT(in crs)
2006-2007 1.66
2007-2008 1.66
2008-2009 4.27
2009-2010 6.44
2010-2011 10.15

Analysis: The maximum amount of outstanding is for the year 2010-2011. The minimum
amount is for the first 2 years. There is a gradual increase further.
Interpretation: The reason for the gradual increase in outstanding amount is due to increase
in gold value, for investment, business, security, marriage purpose and status purpose.

CHAPTER – 5

CONCLUSIONS AND SUGGESTIONS


CONCLUSIONS

 Mortgage loan: The loan amount is gradually increasing every year as there is a
great demand for various requirements for business, marriage and for better
livelihood.

 Vehicle loan: The amount is varying every year as the demand is also fluctuating
among the customers. The customer is very much aware of the market value and
is compromising with other necessities.

 Term loans: The amount is varying and fluctuating in the small scale industries
and other term loans every year. As the economy of the market is fluctuating the
amount on those loans is also varying.

 Cash credit over draft (C.C.O.D): The gradual increase in the amount is due to
the increase in the demand for this category of loan amount. As this loan given
against the fixed deposit, the customer can withdraw the amount whenever his
requirement is there and the repayment depends upon on the maturity period and
also can be renewed by the customer.

 Demand loan against security (D.L.S.T): There is a gradually increased in the


amount as this loan is given against the fixed deposit; the amount can be
withdrawn at a time after the sanction of the loan amount. The repayment depends
on the maturity period and this loan can be renewed by the customer.
 Cash credit loan: There is a variation in the outstanding amount of loans and
advances as it is purely based for the business purpose, therefore as and when the
business environment is fluctuating the effect is also seen on the valuation of the
amount.

 Cash demand loan (C.D.L): There is a gradual increase in the amount as it is a


personal loan amount. This caters great demand among customers for their
general and personal purpose.

 Jewel loan: There is a gradual increase in the amount as the demand for this
category is increasing every year. The valuation of the gold is also increasing
resulting in demand for business, marriage and status purpose.

The overall conclusions for all the categories of the outstanding amount of various loans and
advances is that various categories have different aspects depending upon the demand and
requirement of the customers need and also based on the bank facilities which attract the
customers for various categories of the loans and advances. This clearly highlights the well
performance of the bank showing good profitability position by providing various categories of
loans and advances.
SUGGESTIONS

 The bank should have a through over view on certain categories of loans so as to avoid
the fluctuations and declining of the amount.

 The bank should create enough awareness among their customer so as to increase their
outstanding amount.

 The bank can increase the various other loans and advances as they are the major sources
of regular income for longer period to the bank.

 The renewal facility should be provided for all the categories.

 The bank should increase longer period for repayment of amount to their customers.

 The bank should try to decrease certain percent of interest rate to attract their customers.

 Public and priority sector should be focused more by providing additional facilities.
 The bank can also take certain measures to maintain the current position and growth of
the various lending schemes.

BIBLIOGRAPHY
BIBLIOGRAPHY

BOOKS:

 Banking Theory and Practice : Dr. P.K Srivastava

 Banking and Financial Systems: G.Satyanarayana

 Annual Report of Agrasen Co-operative Urban Bank Ltd.

WEBSITIES:

 www.agrasenbank.org
 www.wikipedia.org
 www.allinterview.com
 www.ehow.com
 www.cfainstitute.org