Banking Industry

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The banking industry is the lifeline of any modern economy. It is one of the important financial pillars of the financial system, which plays a vital role in the success/failure of an economy. The banking system is the fuel injection system that spurs economic efficiency by mobilizing savings and allocating them to high return investment. The Indian banking can be broadly categorized into nationalized, private banks and specialized banking institutions. The Reserve Bank of India acts as a centralized body monitoring any discrepancies and shortcoming in the system. It is the foremost monitoring body in the Indian financial sector. The nationalized banks (i.e. government-owned banks) continue to dominate the Indian banking arena. Industry estimation indicates that out of 274 commercial banks operating in India, 223 banks are in the public sector and 51 are in the private sector. The private sector bank grid also includes 24 foreign banks that have started their operations here. Under the ambit of the nationalized banks came the specialized banking institutions. These co-operatives, rural banks focus on areas of agriculture, rural development etc. Paradigm Shift: Globalization, financial deregulation and improvement in technology have had a profound effect on the financial landscape in recent years. These developments have intensified competition and resulted in financial engineering through product innovation and business strategies. While market participants have now greater scope to diversify risk and manage it efficiently, this has also posed new risks and challenges to the financial system. Growth of financial firms across different business lines and across national boundaries has made the task of designing appropriate policies are more challenging. Regulatory and supervisory policies are,

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therefore, constantly assessed regarding their capabilities to meet the challenges of containing systemic risk in the financial system. The main challenge for the supervisory authority has been to maintain financial stability without curtailing the incentive to innovate. The Indian banking saw dramatic changes in the last decade or so ever since the advent of liberalization and India’s integration with the world economy. These economic reforms and the entry of private players saw nationalized banks revamp their service and product portfolio to incorporate new, innovative customer-centric schemes. The Indian banking finally woke up to the surging demands of the ever-discerning Indian consumer. The need to become highly customer focused (generated by high competitive levels) forced the slow-moving public sector banks to adopt a fast track approach. Taking a leaf out of the private sector banks, the public sector banks too went for major image changes and customer friendly schemes. These customer friendly programs included revamping of the product and service portfolio by introducing new product & service schemes (like credit cards, hassle-free housing loan schemes, educational loans and flexi-deposit schemes) integration of the branch network by using advance networking technology and customer personalization programs (through ATMs and anytime banking etc.). Marketing and brand building programs were also given a new thrust in the new liberalized banking scenario. To meet the personalized needs of the customer and in order to differentiate its services, banks repositioned themselves in specialized fields, like housing loans, car finance, educational loans etc. to optimally services to the customer. Two basic types of Banking finance 1. Retail financing 2. Commercial financing

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 Project finance Working capital finance

The entire banking finance can be classified as retail financing and commercial financing (corporate financing). Retail financing means lending to individuals, which currently is the bread and butter of the banks. Here the risk is spread over a number of individuals. The increase in the purchasing power and changing life styles are giving impetus to this. On the other hand, commercial financing means lending to companies. Companies were provided credit for different aspects of business. The NBFC’s are leading in this type of finance

Retail financing Banks are fundamentally in the business of lending. But until recently in India, with almost no incremental demand for loans from corporate, banks had to be content with investing depositors’ money in government bonds (gilts). The only other profitable investment opportunity was lending to small customers. Whether it was loans to buy durables, two-wheelers, car or homes, retail lending was the most promising game in town. Retail lending is now not an option but an imperative. The margins are better in retail, plus the risks get spread out over a basket of borrowers. It’s a growth area with tremendous scope. In this type of financing, bank have to conduct a field verification to ascertain whether the people who apply for loans actually live and work where they claim to. Especially, it is important in ‘un seasoned Credit’ (Refer key terms)

Commercial financing The commercial financing model in Indian banking can be broadly categorized into project finance and working capital finance. These two segments form the pivot

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around which banks operate. Various requirements of the businesses are served through this type of finance. Project finance Project finance may be defined as an arrangement of financing of financing long term capital projects, large in scale, long in life and generally high in risk. Banks also offer short terms loans to business houses, corporations to set up their projects. These loans are disbursed after the approval from the banks’ core credit validating committee. In India, there are 11 national level land 46 state levels financial and investment institutions that cater to long term funding requirements of the industry. The project finance segment is highly competitive with various players offering innovative schemes to entice corporate. Working capital finance In order to meet the diverse needs and requirements of the business community, banks offer working capital funds to corporate. Working capital finance is specialized line of business and is largely dominated by the commercial banks. Working capital loans are tailored to suit the precise requirements of the client, in any of the various instruments available or structured as a combination of cash credit, demand loan, bill financing and non-funded facilities. The bank’s accomplished credit crew will gauge the credit needs of each client and frame the exact solutions. Working capital finance limits are normally valid for one year and repayable on demand. Specific, self-liquidating loans are linked to the natural tenor of the transaction (bill finance, export credit etc.). Future challenges The three C’s The four transitions to be made The three C’s

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Capital: Most Indian banks now have adequate capital. They however, need large extra capital to grow in future. The big issue is whether the government or domestic equity investors can do the job (Or) is foreign money needed at once. Credit: Banks have fought shy of lending to the commercial sector till recently. Now credit is picking up. But with the best companies using internal cash or borrowing abroad, can banks tap new clients profitably-especially farmers and small and medium enterprises Consolidation: Indian banks have to merge if they are to face up to foreign competition. That’s what government wants. However, these mergers should be driven by market logic rather than government fiat. Size alone will not be the panacea. The four transitions to be made:  From branch based banking to hybrid channels (including micro credit groups)  From manpower intensive to technology intensive delivery  From a product driven to a customer driver approach  From single products to multiple products Future opportunities • • • Venture capital finance Consumer credit finance Micro finance

The major growth is going to be mostly in venture capital finance and consumer credit, especially in micro finance. Some of the emerging financial opportunities for the banks are: Venture capital finance Venture capital is known as the capital investment in a start-up enterprise, which carries highest element of risk and uncertainty. Venture capital is one of the

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most important sources for financing innovation and creating wealth in an economy. In India, it took off late and only after the liberalization of the economy. Many financial institutions, though lately, started to find the right entrepreneurs. ICICI is showing keen interest especially in the area. Its Chairman K.V.Kamath, in a recent interview to The Economic Times, opined that he is optimistic about its future. The leading public sector bank SBI, is about to launch a venture capital scheme. As the SEBI and RBI policies are becoming more favorable to venture capital funding, it is only a matter of time for the entrepreneurial boom to evolve in this country. The dearth of capital for the entrepreneur in the rural areas is a great opportunity for the venture capitalists. Consumer credit finance It includes all asset-based financing plans offered to primarily individuals to acquire an asset. In this transaction, consumer pays the amount with interest over a period of time. From a modest beginning in the early eighties, the consumer credit has emerged as an important asset-based financial service in India. Whether it is loans to buy durables, two wheelers, car (or) homes, retail lending is the most profitable investment opportunity. Micro finance Micro finance (refer key terms), till now is a branch of consumer credit finance. But, it is soon emerging as a specialized activity on its own. India’s 60% of its population is in rural areas. The liberalized economy had not brought much change to rural economy. Till now, the credit finance is limited to urban people. The situation in this region is making financial institutes to look for unwind markets. The rural India spawns enormous opportunities for this micro finance. For several decades, many economies, including the Indian, experimented with subsidized credit for the poor. But the only tangible outcome was to increase in non performing assets (NPA). Then came the realization that the core issue for the poor was access to credit rather than cost of credit. Banks and other financial

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institutions gradually are looking at micro finance as an excellent way of generating revenue. The Need of the hour The one big lesson that the world’s policy elite learned after 1997 and 1998 was that you cannot have a strong economy without a strong banking system. The central bank have to concentrate on the most important components of banking reform-accounting norms, corporate governance, norms on exposure to individual sectors, etc. With out this Indian economy cannot grow at 7 per cent a year in a sustained manner. Large parts of the economy will be starved of bank credit unless financial capacity is increased manifold. It means more banking capital. The current short fall in banking capital is estimated between $6 billion and $8 billion. And the short fall will grow as banks try to step up their lending to a booming economy. But who brings the capital is of less importance. If it’s foreign banks and investors, then so be it. Hence the rising enthusiasm to bring down the government’s stake in listed public sector banks. Task before Central bank The acid test for the central bank will be the next generation of bank reforms. Indian banks have to deal with many issues ranging from capital adequacy to globalization. They will also have to ensure that small companies and farmers, who form the bedrock of the Indian economy in terms of output, employment and exports, are not starved of credit. And this lending should be done in a way that earns profits. It will be a balancing act that will be worth watching in the years to come.

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Performance of banks in 2007 1.36 Bank deposits as well as credit recorded a strong growth during the fiscal year 2006-07. Bank deposits and bank credit increased by Rs.1,85,244 crore (8.8 per cent) and Rs.1,36,643 crore (9.1 per cent), respectively, during the fiscal year 2006-07 (up to October 13, 2006) so far as compared with Rs.1,15,309 crore (6.5 per cent) and Rs.1,19,168 crore (10.3 per cent),respectively, during the corresponding period of 2005-06. Demand for bank credit continued to remain high in view of strong macroeconomic activity. Scheduled commercial banks’ nonfood credit, on a year-on-year basis, expanded by 30.5 per cent as on October 13, 2006 on top of the increase of 31.8 per cent a year ago. Provisional information on sectoral deployment of bank credit indicates that retail lending rose by 47.0 per cent at end-June 2006, year-on-year, with growth in housing loans being 54.0 per cent. Loans to commercial real estate grew by 102.0 per cent. The year-on-year growth in credit to industry and agriculture was 27.0 per cent and 37.0 per cent, respectively, at end-June 2006.

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Title
A case study of Credit appraisal mechanism and Credit risk evaluation at ICICI. Aim of project This project is an attempt to understand the various concepts of credit risk management and its policy. It aims at highlighting the importance of credit risk management for banks. With increasing competition, credit risk management should be the thrust area for banks. Apart from setting acceptable levels for credit risks, a quality index for credit approvals should also be generated, since a sound credit policy will always be a competitive advantage to the banks.

OBJECTIVES
To study and understand credit appraisal, sanction, monitoring mechanism and explore the causes leading to NPA’s. 1. 2. 3. 4. 5. To study different types of risk examined in credit Appraisal. To study Credit Evaluation process. To study different Credit evaluation techniques used in home loans. To identify the credit worthiness of the borrower To find the risk involved in loan repayment.

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NEED FOR STUDY: The need of the study to know the techniques that are applied in ICICI bank for appraisal of credit and reduce the risk of default. SCOPE OF STUDY (Boundary of the study): The boundary of the study is restricted to the information given by the company officer, the guides and various websites relating to this topic and RBI guidelines.

METHODOLOGY AND DESIGN: The study ahs been conducted in following manner 1. 2. 3. 4. Credit Approval procedure of ICICI Bank has been closely observed. Post sanction monitoring of the credit has been observed. Primary and Secondary information so gathered has been analyzed. Various regulatory procedures issued by RBI have been studied.

PERIOD OF STUDY The period of study is limited for 1 year of Company details.

SOURCES OF DATA: The data is collected from both primary and Secondary method.

TECHNIQUES 1) Loan to value (LTV) 2) Fixed Obligation on to Income Ratio (FOIR)

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3) Installment next to salary ratio(INSR)

LIMITATIONS  Confidential information of the organization cannot be disclosed as the matter of policy of organization.  As the project was limited for only two months, in-depth analysis of each subject could not be done.  The project is limited to the data provided by company.

Conclusion The Indian banking has come from a long way from being a sleepy business institution to a highly proactive and dynamic entity. This transformation has been largely brought about by the large dose of liberalization and economic reforms that allowed banks to explore new business opportunities rather than generating revenues from conventional streams (i.e. borrowing and lending). The banking in India is highly fragmented with 30 banking units contributing to almost 50% of deposits and 60% of advances. Indian nationalized banks continue to be the major lenders in the economy due to their sheer size and penetrative networks which assures them high deposit mobilization. Indian banks have three things before the advent of another round of reforms. First, they will have to strengthen their capital base. Second, they will have to improve their operating efficiency since high intermediation costs remain a big problem in India. Third, they will have to target new business opportunities that lie

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beyond the bread and butter business like working capital and trade finance: personal financial services, treasury and risk management. They have to keep capital to cover three types of risks: Credit risk, Market risk and operational risk. So, every thing from loan default to computer fraud has to be taken into account. And credit risk has to be dealt more sophisticatedly. The biggest benefit that government has to do is to implement credit risk transfer mechanism. The thrust for new markets, where there is a huge gap of demand and supply will make the banks to be imperative to be competitive and assertive by being attentive. At the same time, banks have to be professional in their approach. Already there are complaints about some companies for creating an environment of financial terrorism. This kind of approach will only lead to financial earthquake COMPANY PROFILE

Overview ICICI Bank is India's second-largest bank with total assets of about Rs. 2,513.89 bn (US$ 56.3 bn) at March 31, 2007 and profit after tax of Rs. 25.40 bn (US$ 569 mn) for the year ended March 31, 2007 (Rs. 20.05 bn (US$ 449 mn) for the year ended March 31, 2006). ICICI Bank has a network of about 614 branches and extension counters and over 2,200 ATMs. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset management. ICICI Bank set up its international banking group in fiscal

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2002 to cater to the cross border needs of clients and leverage on its domestic banking strengths to offer products internationally. ICICI Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in Singapore, Bahrain, Hong Kong, Sri Lanka and Dubai International Finance Centre and representative offices in the United States, United Arab Emirates, China, South Africa and Bangladesh. Our UK subsidiary has established a branch in Belgium. ICICI Bank is the most valuable bank in India in terms of market capitalization. ICICI Bank's equity shares are listed in India on the Bombay Stock Exchange and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).

At June 5, 2006, ICICI Bank, with free float market capitalization* of about Rs. 480.00 billion (US$ 10.8 billion) ranked third amongst all the companies listed on the Indian stock exchanges. ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madurai Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. In the 1990s, ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services group

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offering a wide variety of products and services, both directly and through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE. After consideration of various corporate structuring alternatives in the context of the emerging competitive scenario in the Indian banking industry, and the move towards universal banking, the managements of ICICI and ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be the optimal strategic alternative for both entities, and would create the optimal legal structure for the ICICI group's universal banking strategy. The merger would enhance value forICICI shareholders through the merged entity's access to low-cost deposits, greater opportunities for earning fee-based income and the ability to participate in the payments system and provide transaction-banking services. The merger would enhance value for ICICI Bank shareholders through a large capital base and scale of operations, seamless access to ICICI's strong corporate relationships built up over five decades, entry into new business segments, higher market share in various business segments, particularly fee-based services, and access to the vast talent pool of ICICI and its subsidiaries. In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI and two of its wholly-owned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by shareholders of ICICI and ICICI Bank in January 2002, by the High Court of Gujarat at Ahmedabad in March 2002, and by the High Court of Judicature at Mumbai and the Reserve Bank of India in April 2002. Consequent to the merger, the ICICI group's financing and banking operations, both wholesale and retail, have been integrated in a single entity. LOANS & ADVANCES

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ICICI Bank offers wide variety of Loans Products. Coupled with convenience of networked branches/ ATMs and facility of E-channels like Internet and Mobile Banking.

Home Loans

ICICI is No. 1 Home Loans Provider in the country, Loans offers some unbeatable benefits to its customers - Doorstep Service, Simplified Documentation and Guidance throughout the Process.

Car Loans

 ICICI the No 1 financier for car loans in the country. Network of more than 1500 channel partners in over 780 locations. Tie-ups with all leading automobile manufacturers to ensure the best deals. Flexible schemes & quick processing. Hassle-free application process on the click of a mouse.

Commercial Vehicle Loans

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 Range of services on existing loans & extended products like funding of new vehicles, refinance on used vehicles, balance transfer on high cost loans, top up on existing loans, Extend product, working capital loans & other banking products.

Two Wheeleeler loans

 ICICI offers competitive interest rates from the No

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Financier for Two

Wheeler Loans in the country. Finance facility up to 90% of the On Road Cost of the vehicle, repayable in convenient repayment options and comfortable tenors from 6 months to 36 months .

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Farm Equipment Loans

 Preferred financier for almost all leading tractor manufacturers in the country. Flexible repayment options in tandem with the farmer's seasonal liquidity. Monthly, Quarterly and Half-yearly repayment patterns to choose from. Comfortable repayment tenures from 1 year to 9 years.

Risk
Risk is inherent in all aspects of a commercial operation and covers areas such as customer services, reputation, technology, security, human resources, market price, funding, legal, and regulatory, fraud and strategy. Risk has been present always in the banking business but the discussion on managing the same has gained prominence only lately. Bankers world-wide have come to realize that the growing deregulation of local markets and their gradual integration with global markets have deepened their anxieties. With growing sophistication in banking operations, while lending and deposit-taking have continued to remain the mainstay of a majority of commercial banks However, for banks and financial institutions, credit risk is the most important factor to be managed. Credit risk is defined as the possibility that a borrower or counter party will fail to meet its obligations in accordance with agreed terms. Credit risk, therefore, arises from the banks' dealings with or lending to a

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corporate, individual, another bank, financial institution or a country. Managing risk is increasingly becoming the single most important issue for the regulators and financial institutions. These institutions have over the years recognized the cost of ignoring risk. However, growing research and improvements in information technology have improved the measurement and management of risk. It’s but natural therefore, capital adequacy of a bank has become an important benchmark to assess its financial soundness and strength. The idea is that banks should be free to engage in their asset-liability management as long as a level of capital sufficient to cushion their potential losses backs them. In other words, capital requirement should be determined by the risk profile of a bank.

CREDIT RISK Credit risk to an individual borrower or counter-party is measured as a sum total of all exposures to that borrower or counter-party, in whatever forms the exposure arises. These could be loans, advances, bills discounting, undrawn loan commitments, investments, securitized lending, contingent lending, commitments and guarantees, comfort letters in whatever form, interest receivable, fees receivable or derivatives’ replacement costs receivable, etc. Credit Risk of the Bank is made up of the concentration risk in its portfolio and the intrinsic risk from individual credit exposures in the portfolio. The credit risk of the Bank’s portfolio is dependent on factors external and internal to the Bank. The external factors being the state of the economy, volatility in commodity/equity prices, foreign exchange rates, interest rates, trade restrictions, economic sanctions, government policies, etc. The internal factors are in the nature of deficiencies in appraising, approving and managing individual credits, deficiencies in or non-compliance with credit policies / process / limits, inadequate

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monitoring and control systems, slackness in remedial management, etc. The components of credit risk are:

Credit growth in the organization and composition of the credit folio in terms of sectors, centers and size of borrowing activities so as to assess the extent of credit concentration.

Credit quality in terms of standard, sub-standard, doubtful and loss-making assets.

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Extent of the provisions made towards poor quality credits. Volume of off-balance-sheet exposures having a bearing on the credit portfolio. Thus credit involves not only funds outgo by way of loans and advances and

investments, but also contingent liabilities. Therefore, credit risk should cover the entire gamut of an organization’s operations whose ultimate ‘loss factor’ is quantifiable in terms of money

Need for Credit Risk Management:Credit risk is most simply defined as the potential that a bank borrower or counter party will fail to meet its obligations in accordance with agreed terms. The goal of credit risk management is to maximize a bank's risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters. Banks need to manage the credit risk inherent in the entire portfolio as well as the risk in individual credits or transactions. Banks should also consider the relationships between credit risk and other risks. The effective management of credit risk is a critical component of a comprehensive approach to risk management and essential to the long-term success of any banking organization.

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Sub-Classification of Credit Risk:-

a.) Direct Lending Risk - The risk that actual customer obligations will not be repaid on time. This occurs in products ranging from advances / overdrafts to bills discounting. It exists for the entire life of the transaction.

b.) Contingent Lending Risk - The risk that potential customer obligations will become actual obligations and will not be repaid on time. This risk occurs in products like Letters of Credit and Guarantees and exists for the entire life of the Transaction.

c.) Issuer Risk - The risk that the market value of a security or other debt instrument that the Bank intends to hold for a short period of time may change when the perceived or the actual credit standing of the issuer changes, thereby exposing the Bank to a financial loss. It also occurs in underwriting and distribution activities, when the Bank commits to purchase a security or other debt instrument from an issuer or seller, and there is a risk that the Bank may not be able to sell the instrument within a predetermined holding period to an investor or purchaser. In this event, the Bank is exposed to direct lending risk and unintended price risk as the holder of the instrument.

d.) Pre-settlement Risk - The risk that a customer with whom the Bank has reciprocal agreement may default on a contractual obligation before settlement of the contract. The risk is ideally measured in terms of the current economic cost to replace the defaulted contract with another (known as current mark to market -

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CMTM), plus the possible increase in the economic replacement cost due to future market volatility (known as the Maximum Likely Increase in Value -MLIV). As a proxy, this risk is often calculated as a specified percentage of the contractual obligation or using volatilities based on historical data/ simulations, etc

e.) Settlement Risk - This risk occurs when the Bank simultaneously exchanges value with counter-party for the same value date and the Bank is not able to verify that payment has been received until after the Bank has paid or delivered the Bank’s side of the transaction. The risk is that the Bank delivers but does not receive delivery and therefore, is exposed to direct lending risk.

f.) Clearing Risk - This occurs when the Bank simultaneously acts on the customer’s instructions to transfer or to order the transfer of funds before the Bank is reimbursed. Categorization of Credit Risk:

a.)Sovereign Risk - Risk dependent on a country’s current financial standing visà-vis foreign exchange controls, economy, political stability and focuses across the ability of the country to repay its obligations. b.)Industry Risk - Risk dependent on the economic climate relating to individual industries. c.)Issuer Risk - The risk that an individual, company, bank, etc., may be unable to repay its debts.

IMPORTANCE OF RISK MANAGEMENT Risk Management does not aim at risk reduction. Risk Management enables banks to bring their risk levels to manageable proportions without severely reducing their

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income. It enables a bank to take the required level of exposures in order to meet its profits targets. This balancing act between the risk levels and profits needs to be well planned. Risk Management is important in: • • • • • • • Implementation of strategy Development of competitive advantages Measurement of capital adequacy and solvency Aiding decision making Aiding pricing decisions Reporting and controlling of risks Management of portfolio transaction

RISK MANAGEMENT BASICALLY IS A FOUR STEP PROCESS WHICH INVOLVES: • • • • Risk Identification Risk Assessment for decision making Fixing credit price Risk control

Risk Identification: For a firm operating in a dynamic and multidimensional economic scenario, it is not possible to predict with 100% certainty about its future sales, cost and profitability aspects. However, it is possible to identify the critical elements, which will adversely affect the future outcome, if an analysis of the environment in which the company is operating is undertaking, different components of business are identified.

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Risks involved in various facets/ stages of business include 1. Pre-operative stage: Inadequate market study leading to wrong demandsupply gap identification, unsuitable product and technology selection leading to early obsolescence, poor site selection, lack of co-ordination and management, inability to establish financials and other linkages to ensure adequate finance in time, leading to time and cost over runs. 2. Operational Stage : Lack of measures to supply inputs like raw-materials, utilities, labour etc. in the right time, right place, at the right price and in right quality, low capacity utilization, low productivity, interruptions in production process and finally failure to maintain quality requirements Marketing Stage : Non-achievements of sales targeted, inadequate marketing efforts, price fluctuations, competition, government polices like 3.import/ exports policy, forex market changes etc

4.Finance Stage: Failure to supply timely and adequate finance to ensure liquidity, efficient use of costly inputs to match with change in interest rate, to meet commitments and finally failure to generate reasonable surplus for the stake holders.

Risk Assessment for Decision Making: This part of risk management is difficult due to variety of available methods, degree of sophistication and element of subjectivity involved in some areas. Many banks adopt credit scoring/ rating which is essential a for a default risk analyses or assessing the credit worthiness of the borrower for the purpose of granting/ rejecting his credit proposal and fixing interest rate based on rating. Under this process each type of risk is again divided under few key parameters and each parameter is assigned scores as per their degree of presence or absence over a scale.

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The key components identified with each risk area normally comprises of: 1.Managerial Risk • • • • Promoters’ integrity/ background Experience Conduct with others/ litigation pending Professionalism in management

System and procedure and compliance thereto 2. Operational Risk • • • • Technology and process Capacity utilization Availability of inputs like raw materials and utilities Availability of labour and productivity

3.Commercial Risk • • • • • Product viability- life cycle status Competition and future prospects Customer and market share trend Expected change in government policy affecting business Dependence on exchange rate changes- import/ export oritented units

4.Financial Risk • • • Liquidity position (current ratio) Solvency ( Debt Equity Ratio or Total indebtedness ratio) Margin maintenance (Net working Capital / Working Capital Gap)

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Gross profit margin Market command indicator( receivables/ sales vs. payables/ purchases)

5.Transaction Risk / Portfolio Risk • • • • Compliance of terms and conditions regarding documentation Fulfillment of repayment obligations Timely retirement of bills/ honoring of cheque Development of LC or Invocation of BG resulting in irregularity in funded facility • Total exposure in the related sector vis-à-vis tolerance level prescribed

In addition to these risks factors that are somehow measurable there may be some “passive risk” which entails risk or loss arising from crime, errors, frauds omission/ negligence, damage of assets or business interruptions etc. The factors stated above are illustrative and not exhaustive. However, to make the process simple and practicable at field level many banks have devised credit scoring/ risk rating on selected parameters. Further, all the parameters are not truly objective. Some of them are objective. Some of them are subjective. Accordingly, in order to instill objectivity in the assessment, all the parameters need to be quantified against a benchmark or a scale (say 0-6) depending upon pre-defined range of variation from the benchmark or degree of attributes. In Case of some parameters where no benchmark is available like profit margin etc., time series analysis may reveal a trend and accordingly score may be assigned. Aggregate credit-rating score signifying credit worthiness of risk rating score reveals degree of risk in the unit and it helps the bank in the following aspects: 1. To assess the borrowers credit risks

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2. To make distinction between good and bad borrowers

3. To take a decision whether to lend or not on the basis of cut offscore 4. To fix the interest rates, margin requirement, collateral security and also to prescribe the non-monetary terms in sanction

Fixing Credit Price When a bank decides to extend lending support on the basis of risk / credit score, the next step should be to set risk based loan pricing, i.e., interest rates on the basis of basic principle of risk-return trade-off. After liberalization, banks in India have been permitted to structure interest rates in this line, for advances above Rs. 2 lakhs. The base rate, i.e., the rate available to the prime borrowers having zero / negligible risk is Prime Lending Rate (PLR) and as the risk becomes higher a risk premium is added to the PLR to determine the rate applicable for the unit. Interest rate chargeable = PLR + Risk Premium The higher the aggregate credit score, the better is the credit worthiness and lesser is the risk. Accordingly, interest rate becomes higher with decline in score. The scoring reviewed with each annual review of the account. As per the banks' policy and perception, a bank may be: a) Risk friendly b) Risk averse c) Pay-off oriented / gambling and d) Conservative / continuity oriented

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Risk Control: Risk is inherent in all lending decisions and cannot be eliminated completely. But control of the impact of risk in unfavorable situations can be understand in the business The control mechanism has two dimensions: 1. Ensuring adequate managerial control by imposing necessary additional monitoring terms and adhering to straight and continuous follow up and supervision measures as also counseling with the borrower, if needed. 2. Adopting available risk mitigating measures like insurance cover of assets against loss, damage, calamity, etc. Risk Management therefore cannot be a static activity in the current dynamic environment and hence needs regular evaluation.

Credit Risk Policy: • Every bank should have a credit risk policy approved by the board. The document should include Risk identification, risk measurement, risk grading/ aggregation techniques, reporting and risk control/ mitigation techniques, documentation, legal issues and management of problems loans. For controlling credit risk, Corporate Risk will, with the approval of the Board, establish suitable credit policies and procedures. The credit policies and processes will spell out the prudential exposure ceilings, the quantum and nature of exposure that can be taken on a borrower, the credit

standards that a credit should meet, the appraisal, approval & monitoring systems to be followed, the pricing & security framework of a credit, the remedial actions to be taken, etc., in managing credit.

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The credit risk policies approved by the Board should be communicated to branches/ controlling offices. All managers and senior managers should clearly understand the bank's approach for credit sanction and should be held accountable for complying with established policies and procedures.

Corporate Risk along with Corporate Banking and the Branch Heads will ensure compliance, by all concerned functionaries, with these policies in order to inculcate a sound credit risk management attitude. Aggregate credit risk will be contained within the risk appetite of the Bank. The Bank will price an exposure and set aside loan loss reserves appropriate to the expected loss from the credit risk position assumed. It will maintain adequate capital to cushion the estimated unexpected loss for that risk position.

The policies and procedures will be in keeping with the growth strategy, changing business conditions, the structure and needs of the organization and the Bank’s appetite for risk. These policies and procedures will be implemented consistently and conservatively and will ideally envisage an annual review.

Objective of Credit risk Management:For most banks, loans are the largest and most obvious source of credit risk; however, other sources of credit risk exist throughout the activities of a bank, including in the banking book and in the trading book, and both on and off the balance sheet. Banks are increasingly facing credit risk (or counterparty risk) in various financial instruments other than loans, including acceptances, interbank transactions, trade financing, foreign exchange transactions, financial futures,

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swaps, bonds, equities, options, and in the extension of commitments and guarantees, and the settlement of transactions.

Since exposure to credit risk continues to be the leading source of problems in banks world-wide, banks and their supervisors should be able to draw useful lessons from past experiences. Banks should now have a keen awareness of the need to identify, measure, monitor and control credit risk as well as to determine that they hold adequate capital against these risks and that they are adequately compensated for risks incurred. The Basel Committee is issued the document in order to encourage banking supervisors globally to promote sound practices for managing credit risk. Although the principles contained in those papers are most clearly applicable to the business of lending, they should be applied to all activities where credit risk is present. Credit Risk Management Strategy:• Building and sustaining a high quality of credit portfolio giving an improving risk-adjust yield to the Bank. • Limiting the Bank's exposure to certain categories of risk, which it understands and is in a position to manage within its risk appetite. Developing greater ability to recognize and avoid & manage potential problems. The functions of Credit Risk Management will essentially be to: • • Identify measure, monitor and control the credit risk of the Bank. Enforce implementation of the credit risk policy / strategy approved by the Board. • • Develop credit policies and procedures. Design and validate risk measurement systems, capital allocation models

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and pricing frameworks • • • • Monitor and protect portfolio quality Undertake loan reviews Identify risk opportunities and challenges. Ensure that the credit granting function conforms to the strategy, policy and limits set by the Board and that the role-responsibilities for line management are clearly spelt out. • • Propagate a healthy credit culture across the Bank. Independently assess individual risk exposures being assumed by business units (through Credit Risk Managers). • Conduct industry and sectoiral studies on an on-going basis, including impact analysis on specific sectors (by Industry Risk Managers). Steps required for proper management of credit risk:

Keeping in view the foregoing, a bank should have the following in place: -

1. Dedicated policies and procedures to control exposures to designated higher risk sectors such as capital markets, aviation, shipping, property development, defense equipment, highly leveraged transactions, bullion etc. 2. Sound procedures to ensure that all risks associated with requested credit facilities are promptly and fully evaluated by the relevant lending and credit officers. 3. Systems to assign a risk rating to each customer/borrower to whom credit Facilities have been sanctioned. 4. A mechanism to price facilities depending on the risk grading of the

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customer, and to attribute accurately the associated risk weightings to the facilities. 5. Efficient and effective credit approval process operating within the approval limits authorized by the Boards. 6. Procedures and systems which allow for monitoring financial performance of customers and for controlling out standings within limits. 7. Systems to manage problem loans to ensure appropriate restructuring schemes. A conservative policy for the provisioning of non-performing advances should be followed. 8. A process to conduct regular analysis of the portfolio and to ensure on-going control of risk concentrations.

Basel Committee on Credit Risk Management Sound credit risk assessment and valuation for loans Principle 1 A bank’s board of directors and senior management are responsible for ensuring that the bank has appropriate credit risk assessment processes and effective internal controls commensurate with the size, nature and complexity of its lending operations to consistently determine provisions for loan losses in accordance with the bank’s stated policies and procedures, the applicable accounting framework and supervisory guidance. Principle 2

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A bank should have a system in place to reliably classify loans on the basis of credit risk. Principle 3 A bank’s policies should appropriately address validation of any internal credit risk assessment models. Principle 4 A bank should adopt and document a sound loan loss methodology, which addresses risk assessment policies, procedures and controls, for assessing credit risk, identifying problem loans and determining loan loss provisions in a timely manner. Principle 5 A bank’s aggregate amount of individual and collectively assessed loan loss provisions should be adequate to absorb estimated credit losses in the loan portfolio.

Principle 6 A bank’s use of experienced credit judgment and reasonable estimates are an essential part of the recognition and measurement of loan losses.

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Principle 7 A bank’s credit risk assessment process for loans should provide the bank with the necessary tools, procedures and observable data to use for assessing credit risk, accounting for loan impairment and determining regulatory capital requirements. Principle 8 Banking supervisors should periodically evaluate the effectiveness of a bank’s credit risk policies and practices for assessing loan quality.

Principle 9 Banking supervisors should be satisfied that the methods employed by a bank to calculate loan loss provisions produce a reasonable and prudent measurement of estimated credit losses in the loan portfolio that are recognised in a timely manner.

Principle 10

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Banking supervisors should consider credit risk assessment and valuation policies and practices when assessing a bank’s capital adequacy.

INTRODUCTION Risk is an inherent part of ICICI Bank’s business, and effective Risk Compliance & Audit Group is critical to achieving financial soundness and profitability. ICICI Bank has identified RISK COMPLIANCE & AUDIT GROUP as one of the core competencies for the next millennium. The Risk Compliance & Audit Group (RC & AG) at ICICI Bank benchmarks itself to international best practices so as to optimise capital utilisation and maximise shareholder value. With well defined policies and procedures in place, ICICI Bank identifies, assesses, monitors and manages the principal risks:

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Credit risk

(the possibility of loss due to changes in the quality of

counterparties) Market Risk (the possibility of loss due to changes in market prices and rates of securities and their levels of volatility) Operational risk (the potential for loss arising from breakdowns in policies and controls, human error, contracts, systems and facilities)

The ability to implement analytical and statistical models is the true test of a risk methodology. In addition to three departments within the Risk Compliance & Audit Group handling the above risks, an Analytics Unit develops quantitative techniques and models for risk measurement Credit Risk Management Credit risk, the most significant risk faced by ICICI Bank, is managed by the Credit Risk Compliance & Audit Department (CRC & AD) which evaluates risk at the transaction level as well as in the portfolio context. The industry analysts of the department monitor all major sectors and evolve a sectoral outlook, which is an important input to the portfolio planning process. The department has done detailed studies on default patterns of loans and prediction of defaults in the Indian context. Risk-based pricing of loans has been introduced. The functions of this department include: Review of Credit Origination & Monitoring • • • • Credit rating of companies/structures Default risk & loan pricing Review of industry sectors Review of large exposures in industries/ corporate groups/ companies

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Ensure Monitoring and follow-up by building appropriate systems such as CAS

Design appropriate credit processes, operating policies & procedures Portfolio monitoring • • Methodology to measure portfolio risk Credit Risk Information System (CRIS)

Focussed attention to structured financing deals Pricing, New Product Approval Policy, Monitoring Monitor adherence to credit policies of RBI

During the year, the department has been instrumental in reorienting the credit processes, including delegation of powers and creation of suitable control points in the credit delivery process with the objective of improving customer response time and enhancing the effectiveness of the asset creation and monitoring activities. Availability of information on a real time basis is an important requisite for sound risk management. To aid its interaction with the strategic business units, and provide real time information on credit risk, the CRC & AD has implemented a sophisticated information system, namely the Credit Risk Information System. In addition, the CRC & AD has designed a web-based system to render information on various aspects of the credit portfolio of ICICI Bank Market Risk Compliance & Audit Group

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ICICI Bank is exposed to all categories of Market Risk, viz., Interest Rate Risk (risk due to changes in interest rates) Exchange Rate Risk (risk due to changes in exchange rates) Equity Risk (risk due to change in equity prices) Liquidity Risk (risk due to deterioration in market liquidity for tradable instruments)

The Market Risk Compliance & Audit Department evaluates tests and approves market risk methodologies developed by the Treasury. It also participates in the new product approval process on a firm-wide basis and evaluates all new products from a market risk perspective

Operational Risk Management ICICI Bank, like all large banks, is exposed to many types of operational risks. These include potential losses caused by events such as breakdown in information, communication, transaction processing and settlement systems/ procedures. The Audit Department, an integral part of the Risk Compliance & Audit Group, focuses on the operational risks within the organisation. In recent times, there has been a shift in the audit focus from transactions to controls. Some examples of this paradigm shift are:

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Adherence to internal policies, procedures and documented processes Risk Based Audit Plan Widening of Treasury operations audit coverage Use of Computer Assisted Audit Techniques (CAATs) Information Systems Audit Plans to develop/ buy software to capture the workflow of the Audit Department

Before commencement of my project I compared home loans providers like ICICI& HDFC, I came to know that ICICI is best in home loan providing. The comparisons are given below

COMPARISON BETWEEN ICICI & HDFC
Eligibility criteria for Resident Indians:

ICICI: • Minimum age is 21 years.

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• •

Applicant must be salaried or Self-employed. For availing land loans, the property should be for residential use and purchased from a development authority or a registered co-operative society. The land in question must be for construction of a house, with clearly marked boundaries, leaving no room for legal wrangle on this count

For purchase/construction or extension of a non-residential property, the applicants has to be professionally qualified, self employed individuals with 3-years' work experience.

HDFC • • Stability and continuity of occupation and savings history Repayment capacity takes into consideration factors such as income, number of dependants, spouse's income, assets, liabilities • The applicant should have a steady source of income.

Eligibility criteria for NRIs: ICICI: • • Minimum age for loan application is 21 years. For Repayment tenor between 11-15 years, the loan applicant should be a Post Graduate or professionally qualified. HDFC: • Loan eligibility subject to 85% of the cost of the property

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Repayment capacity assesses factors such as income, age, qualifications, number of dependants, spouse's income, assets, liabilities

Stability and continuity of occupation and savings history

Loan Amount: ICICI: ICICI Bank offers home loans for purchase or construction of house and the loan amount to the extent of 85% of the cost of the property including the stamp duty and registration. The loan starts from 2 lakhs. The maximum loan that can be granted to an NRI for home loans is INR 1 crore while the minimum is INR 5 lakhs. HDFC: HDFC finances up to a maximum of 85% of the cost of the property inclusive of agreement value, stamp duty and registration charges. HDFC's Home Improvement Loan facilitates internal and external repairs and other structural improvements. HDFC finances up to 85% of the cost of renovation. For Land Purchase Loan, HDFC finances up to 70% of the cost of the land. Repayment: ICICI Maximum loan tenure is of 20 years. The loan must terminate before or when the borrower turns 65 years of age or before retirement, whichever is earlier. Repayment tenure for Salaried NRI applicants is up to 15 years and for Selfemployed is up to 10 yrs for purchase or construction of a new home. Maximum loan eligibility is 85% of the total cost of the property. HDFC

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In case of home loans to purchase, home improvement loan (or) construct houses, the maximum period of repayment is 15 years or retirement age, whichever is earlier. For home extension maximum term is 20 years subject to your retirement age. Loan Processing Charges: ICICI: 0.5618% of loan amount is charged towards Administrative fee or Rs.2,000 whichever is higher. HDFC: 1% of the loan amount applied plus applicable service taxes and cess. INTEREST RATES: ICICI: Fixed: up to 20lakhs 10.5%, more than 20lakhs 13%. Floating: up to 20lakhs 9.5%, more than 20lakhs 12%. HDFC: Fixed: 13.25%. Floating: 11.25%.

HOME LOANS

TYPES

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• • • • • •

Home Loans Office Premises Loans Loan Against Property Property Overdraft Part Fixed, Part Floating Home Loan SmartFix Home Loans

Eligibility
Home loan   Applicant must be at least 21 years of age when the loan is sanctioned. The loan must terminate before or when you turn 65 years of age or before retirement, whichever is earlier.  Applicant must be employed or self-employed with a regular source of income.

Land loan   Applicant must be at least 21 years of age when the loan is sanctioned. The loan must terminate before or when you turn 65 years of age or before retirement, whichever is earlier.  Applicant must be employed or self-employed with a regular source of income.  Applicant must be purchasing a plot of land for residential use.

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The purchase has to be from a development authority or from a registered co-operative society. The purchase of the land must be for the construction of a house. The plot of land must be clearly demarcated with clear boundaries.

 

Office premise loan     Applicant must be at least 21 years of age when the loan is sanctioned. The loan must terminate before or when you turn 65 years of age. Applicant must be self-employed with a regular source of income. The loan can be for the purchase / construction / extension of a nonresidential property.  A loan for renovation or improvement will be given only at the time of acquisition of property.  Professionally qualified and self-employed individuals (doctors, pathologists, chartered accountants, cost accountants, company secretaries, architects, engineers, consultants, lawyers, chemists) can apply.  A minimum of 3 year's work experience is a must.

Home Equity Loans   Applicant must be at least 21 years of age when the loan is sanctioned. The loan must terminate before or when you turn 65 years of age or before retirement, whichever is earlier.

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Applicant must be employed or self-employed with a regular source of income.

Applicant must be the owner of a self-occupied property.

Loan Amount
A number of factors are taken into account when assessing your repayment capacity. • • • • • • • Applicant income Age Number of dependants. Qualifications. Assets and liabilities. Stability/ continuity of employment. Business.

However, there are ways by which applicant can enhance his eligibility.  If his spouse is earning, put him/her as a co-applicant. The additional income shall be included to enhance his loan amount. Incidentally, if there are any co-owners they must necessarily be co-applicants.  Applicant fiancée's income can also be considered for sanctioning the loan on combined income? The disbursement of the loan, however, will be done only after applicant submit proof of his marriage.

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 Providing additional security like bonds, fixed deposits and LIC policies may also help to enhance eligibility.  While there is no need for a guarantor, it could be that having one might enhance applicant credibility with ICICI. The final amount to be sanctioned will depend on applicant repayment capacity. However, what applicants ultimately are entitled to will have to conform within the limits fixed for each loan also when the company looks at the total cost, registration charges, transfer charges and stamp duty costs are included.

Sanctioning
Documents

Bank statement for the last six months.  Income Documents e.g. Latest Form 16, Certified IT returns for latest 3 years.   Admin Fee cheque. Loan Enclosure letter.

Other Documents for Individual Borrowers:   Photo Id Proof. Residence Address Proof.

For Non Individual Borrowers:   Id Proof. Office Address Proof.

Disbursement

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 Applicant loan will be disbursed after he identify and select the property or home that you are purchasing and on your submission of the requisite legal documents.  The 230 A Clearance of the seller and / or 37I clearance from the appropriate income tax authorities (if applicable) is also needed.  On satisfactory completion of the above, on registration of the conveyance deed and on the investment of applicant own contribution, the loan amount (as warranted by the stage of construction) will be disbursed by ICICI Bank. List of documents for disbursement Standard documents:     Loan Agreements Disbursement Requests Post-dated cheques Personal guarantor's documents

Home Loan Interest Rates for Resident Indians
• • • • • •

Adjustable Rate Home Loan Fixed Rate Home Loan Part fixed Part Floating Rate Home Loan Smartfix Home Loan Balance Transfer of your existing home loan from other banks. The interest rate on ICICI Bank Home Loans is linked to the ICICI

Bank Floating Reference Rates are 9.5 & 12%. Fixed rates are 10.5 & 13%. Description of Charges Home Loans

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Loan Processing Charges / Home Loans : 0.5618% processing /admin fee or Renewal Charges Rs. 2000/- whichever is higher Loan OD against Property or Office Premises Loans : 1% of loan Prepayment amount or Rs. 2,000/- whichever is higher 2 % on the principal outstanding on full prepayment

Charges Solvency Certificate NA Charges for late payment Home Loans : 2% per month Home OD : 1.5% of the (loans) outstanding amount subject to minimum of Rs. 500/- & Maximum of Rs.5000/Charges for changing from 1.75% on principal outstanding fixed to floating rates of interest Charges for changing from 1.75% on principal outstanding floating to fixed rates of interest Cheque Charges Document Swap Rs. 500/-

Retrieval Rs. 500/Rs. 200/-

Charges Cheque bounce charges

Service Tax and other govt. taxes, levies, etc. as per prevailing rate is charged over and above these charges

Standard Interest Rates for Resident Indians The interest rate on ICICI Bank Home Loan is linked to the ICICI Bank Floating Reference Rate (FRR)/PLR. As mentioned in the press release, the FRR/PLR has gone up by 0.5%. Consequently interest rate for all customers under Adjustable Rate Home Loans (ARHL) will go up by 0.5%. To know the impact of change in FRR on your existing Home Loan Tenure

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Repayment tenure:

 Home Equity Loans - Maximum loan tenure of 15 years.  Office premise loan - Maximum loan tenure of 15 years.  Home loan – Maximum loan tenure of 20 years. Loan repayment procedure:  All loan repayments are done via equated monthly installments (EMI).
EMI procedure:

 An EMI refers to an equated monthly installment. It is a fixed amount which you pay every month towards your loan. It comprises of both, principal repayment and interest payment.
Commencement of repayment:

 EMI payments start from the month following the month in which the full disbursement has been made.

Pay mode of EMI:

 The EMI is to be paid every month through post-dated cheques (PDCs) or Electronic Clearing System (ECS)*. If you are opting for PDCs, then you will have to provide 36 PDCs upfront. The PDCs are to be dated on the 1st of

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every month. However, if applicants receive his salary a few days later, ICICI provide the flexibility of dating the cheques for the 7th of the month.

If a PDC bounces:

 In the case of a bounced cheque or delayed payment, charges and outstanding dues will be charged as per the prevailing company policy. You can replace old PDCs with new ones within 5 - 7 working days.
Pre-EMI interest:

 In the case of part disbursement of the loan, monthly interest is payable only on the disbursed amount. This interest is called pre-EMI interest (PEMI) and is payable monthly till the final disbursement is made, after which the EMIs would commence. Pay mode of PEMIs:  The first PEMI is payable by cheque by the end of the month in which the disbursement is made and each subsequent PEMI at the end of every month till the commencement of EMI.

Insurance Plans for Home Loan Home Insurance plans, provide cover to Home loan in the face of any unforeseen event happening to life. In case of any of these happenings, family will have the support of the insurance cover to pay for the outstanding Home loan, without being burdened by the loan EMI's.

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ICICI Bank Home Loans has “Home Safe Plus“ & “Home Assure/Health Assure“ two exclusive and innovative insurance plans to insure Home Loan.

HomeSafePlus*
Key Benefits of HomeSafePlus
• • • •

No medical checkup Comprehensive insurance plan for individual, home and its contents Single premium long-term insurance plan Premium paid for the Critical Illness cover is eligible for tax benefits u/s 80D of the Income Tax Act Sum Insured remains constant throughout the policy period (loan O/S amount to come to bank, rest goes to individual) Multiple applicants can be covered under the same loan Simple application form

• •

Home Assure/Health Assure#
Key Benefits of Home Assure/Health Assure
• •

Life Cover from Home Assure for the entire home loan tenure Critical Illness cover from life threatening illnesses like cancer, coronary artery bypass, heart attack, kidney failure, stroke, major organ transplant Special non-medical limits only for ICICI Bank Home Loans customers Dual benefit to customers, Life Cover from Home Assure and Critical Illness Cover from Health Assure Dual tax benefits, Section 80C benefits under Home Assure, Section 80D benefits under Health Assure Simplified claim procedure

• •

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As a part of my project work the following work is done by me at ICICI Firstly I seen files of different types of individuals for home loans

INDIVIDUALS

HOMELOAN

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SALARIED

SELF EMPLOYED PROFESSIONAL

SELF EMPLOYED NON

PROFESSIONAL

DOMESTIC

NRI

And then the credibility and worthiness is evolved by the following procedure and tests. PROCEDURE:

CREDIT APPRAISAL MEMO BANK STATEMENT ANALYSIS  Number of cheque bounces  Number of minimum balance charges  Front page of pass book  All bank Accounts are ok  Is the latest salary slip credit is as per salary slip  Any regular debits

Obligation summary PARTICULARS All documents as per norms APPLICA NT Y/N COAPPLICANT Y/N

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Not a negative profile Age norm met Minimum qualification norm met Number of dependents norm met Minimum employment norm met Minimum income norm met Ownership grid norm met Special norm for defense Software category norm met Personal guarantee not required

Y/N Y/N Y/N Y/N Y/N Y/N Y/N Y/N Y/N Y/N

Y/N Y/N Y/N Y/N Y/N Y/N Y/N Y/N Y/N Y/N

After seeing that all the norms are met then field investigation is done for the following • • • • Residence Office Tele verification Property verification

The field investigator gives his report and then the information given by the customer is matched with these reports to conform the following  Residence not in negative area  Property not in negative area  Office not in negative area  Residence with in geographical limits  Property with in geographical limits  Office with in geographical limits Applicant should qualify the following  Qualification  Number of dependents ------- minimum SSC ------- maximum 5

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 Accommodation  Company type

-------

owned/rented/company

------- GOVT/PSU/MNC/PVT

 Years in current employment  Years in total employment Then document check is done 1. Application form with photo & sign 2. Age proof as per norms (document SSC) 3. Salary slips or salary certificates 4. Bank statement start date end date 5. Signature verification document Additional documents if relevant  If cash salary secondary income proof  Annual benefit proof  Job conformation proof if applicant < 23 years  Company particulars if private limited  Variable income proof (latest four months salary slips)  Existing loan repayment record

Some important terms and formula used in calculation of amount to be issued. FOIR (fixed obligation income ratio) = EMI + loan obligation/gross salary

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INSR (income net salary ratio) = EMI + loan obligation/net salary LTV (loan to value) = loan amount/ property cost Loan amount possible = eligible salary/EMI factor

Calculation of eligible salary 7500 to 8000 ----- 45% 8000 to 25000 ----- 50% 25000 and above ----55% It is also dependent on service left in organization Maximum period is for 20 years EMI factor is calculated on basis of ROI and tenure of loan CALCULATION OF LOAN AMOUNT TO BE ISSUED
CASE

1 SALARIED

LOCATION: WARANGAL
NAME: XYZ

(NOT REVIELED DUE TO PRIVACY REASONS)

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LOAN SCHEME: FIXED 14% TERM Income computation Basic DA HRA CEA EA Total Net salary as per salary slips (-) Appraised obligations Applicable FOIR 50% Loan amount possible 100% 100% 13000 750 1000 1000 250 16000 13000 ------8000 600000 : 15YEARS

Loan amount as per loan to value (LTV) 680000
CASE

2 SALARIED : WARANGAL (NOT REVIELED DUE TO PRIVACY REASONS)

LOCATION

NAME: ABC

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LOAN SCHEME : VARIABLE 12% TERM Income computation Basic DA Total Net Salary (-) Appraised obligations Applicable FOIR 50% Loan amount possible 100% 100% 14000 1000 15000 10500 ------7500 510000 : 12YEARS

Loan amount as per loan to value (LTV) 585000

CASE

3 SELF EMPLOYED NON : WARANGAL

PROFESSION

LOCATION

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NAME:

(NOT REVIELED DUE TO PRIVACY REASONS)

LOAN SCHEME : VARIABLE 12.5% TERM Income computation NET PROFIT ELLIGIBILE INCOME p.m (-) Appraised obligations Applicable FOIR 50% Loan amount possible Loan amount as per loan to value (LTV) ------13750 1317000 1350000 :12YEARS

2005-2006
250000

2006-2007
350000

25000