Symbiosis School of Banking & Finance

“Constituent of Symbiosis International University

Re-Accredited by NAAC with ‘A’ Grade

Established under Section 3 of the UGC Act, 1956, vide notification No.
F.9.12/2001-U-3 of the Government of India”

Credit Appraisal of Retail Loans

(Bank of Maharashtra)

Internship Report Submitted to SIU in Partial Completion of the

Requirement of MBA Banking and Finance at Symbiosis School of Banking
and Finance

Pune- 412115

NAME OF THE STUDENT: PROJECT MENTOR (SSBF): PROJECT MENTOR/REPORTING OFFICER:

MAHIMA DUBEY (1802094041) Mrs. TRUPTI BHOSALE MR. KALIDASU SUBRAHMANYAM

&

MR. RASIK DHOBLE

15th APRIL 2019 TO 15th JUNE 2019

Certificate of Completion
Acknowledgement

I express my heartfelt gratitude to Symbiosis School of Banking & Finance for “providing me an
opportunity to undergo my Summer Internship”Training Program with Bank of Maharashtra. I
am extremely grateful to my external mentor Mr. Kalidasu Subrahmanyam (Chief Manager,
Shivaji Nagar Branch, Pune) for his timely guidance & valuable feedback. I would also like to
extend my sincere gratitude and appreciation towards Mr. Rasik Dhoble (Deputy Manager), who
provided me with an understanding of Banking Operations and Retail Loans. I would like to
thank him for his continuous support and availability for my doubt clearance. I would also like to
thank the entire staff of the branch for bestowing upon me their corporate experience, corporate
values & ethics. It was a mutually enriching and value adding journey. “I express my sincere
gratitude towards my internal guide”, Mrs. Trupti Bhosale, Assistant Professor at SSBF, Pune for
her timely guidance and encouragement to take up this new challenge.
INTRODUCTION

STUDENT PROFILE:

I, Mahima Dubey, am a student pursuing a post-graduation degree in Banking & Finance from
Symbiosis School of Banking & Finance. I have graduated in the discipline of Business
Economics (Major) and Psychology (Minor) from University of Delhi and completed my
schooling from St. Conrad’s Inter College, Agra, U.P. My Corporate exposure include a 2-month
summer internship at Mother Dairy Fruit and Vegetable Pvt. Ltd. In the finance domain.

Organization Profile:
Bank of Maharashtra founded by “V.G Kale and D.K Sathe” is a major public sector bank in
India. It was “registered as a banking company on 16 September, 1935 at Pune” and attained
autonomy in 1998. The bank has limited interference of government bureaucracy in its decision-
making process. “The bank has a Pan India presence with 1890 branches and the goodwill of 18
million customers. The bank has taken up a Business Transformation Program called "Utkarsha"
to enhance customer service. This initiative being undertaken to simplify and standardize the
existing process so as to bring in ease of operations and reduce turnaround time. Additionally,
the bank also has robust technology platform in place that provides ATM cum debit card
transactions, internet banking, e-payment of central taxes, online trading, instant transfer of
funds, across the country through the Real Time Gross Settlement and NEFT. The bank has
introduced "Maha-secure" a digital banking application that provides secured access to internet
banking for both retail & corporate customers & protect internet banking users from online
attacks customers an array of financial products under one roof, the bank has tied up with LIC &
United India for distributing Life-Insurance & Non- Life Insurance respectively & other
arrangements to sell Mutual Fund Products through its branches. The Bank continues with its
efforts of bringing in better products, processes & services so as to make banking a joyful
experience.”.”
NATURE OF PROJECT:

The interesting work profile revolved around studying credit appraisal proposals. The proposals
were varied in nature since the customer base was diversified and had business in different
industry. This aspect helped in understanding the nitty gritty of various industries and the
exposure broadened the knowledge about manufacturing and service sector of the economy. It
seemed like such an empowering experience since sanction of the credit facility could be a curse
or boon to both the parties involved. It demanded huge responsibility and one had to really
understand and gauge the creditworthiness of the loan seeker. All mental biases and
preconceived notions had to be kept aside while taking decisions. There was a new thing learned
each day and it added value and created mutually enriching experience.

Objectives assigned by the mentor:

My project mentor, Mr. Kalidasu Subrahmanyam and Mr. Rasik Dhoble gave me an opportunity
to explore varied type of loan proposals due to its diverse customer base and their nature of
business. The major aim was to have a thorough understanding of the credit policy followed by
the appraisal mechanism. We planned the task assigned every morning followed by a brief
discussion during the end of the day. They gave a detailed explanation about what they
expected out of me before assigning any work and discussed the underlying concepts that I
could not perceive while working.
Framework of Study

The Indian commercial banks and other financial institutions are exposed to various risk while in
operation such as market risk, liquidity risk, interest rate risk, credit risk, etc. Credit risk is a
severe challenge that banks face as there can be default in repayment by borrower. This
requires banks to undertake a proper assessment of the prospective borrower and evaluate its
financial condition before granting credit facility. Lending is a core function of commercial banks
and hence they should not deter from giving credit due to the risk associated with it. According
to Llewellyn 1992, there has been an enormous increase in the number of banks who have
efficiently contributed to a rise in lending to borrowers. This rise in lending has been possible by
assigning credit scores which appraises whether loan should be granted to a customer or not by
assessing the creditworthiness. This process of assessment of borrower's creditworthiness
before granting a loan is known as Credit Appraisal. It comprises of detailed evaluation of
customer's nature of business, the technical, economic, financial and managerial feasibility,
borrower's character, collateral, capability and capacity, income, age, no of dependents, etc.
This process ascertains the risk involved by lending to a particular borrower.

According to the World Council of Credit Union, the primary aim of undertaking such an entailed
mechanism is to ensure that the loan is being granted in the right hands and for a justified
purpose in order to have continuous repayment of interest and principal. Lending activities are
guided by RBI's exposure norms and various credit policies which are strategies and measures
that are undertaken to guarantee repayment. According to Odongo 2004, the major operation of
financial institutions is mobilization of savings and then carrying out the process of lending to
earn higher interest, fee, commission and revenue. Banks have to adhere safety of its
depositor's fund to prevent capital erosion. Thus, it becomes essential to adequately assess
credit to minimize the default rate. If banks fail to assess the credit worthiness then they run into
losses and there is severe damage to goodwill as loan default creates a cost for the banks.
Thus, it is of utmost importance for financial institutions to strengthen their appraisal mechanism
for qualitative credit growth and ensure risk mitigation.

According to Sewagudde (2000), selecting applicants who have a high probability of loan
repayment and rejecting those who have a high probability of default defines the financial
viability of any financial institution. According to Miller and Van Horne (1994), credit can be
understood both in terms of asset and a liability as credit represents future receipts to the lender
and an obligation to the borrower in future. It can thus be summarized as the process of making
advances under specific repayment terms and conditions. All banks perform the basic function
of accepting deposits and granting credit by mobilizing funds and deployment for productive
use. Creation of credit generates revenue for banks and is quintessentially pivotal to its
operation. However, credit creation involves uncertainty on behalf of the counterparty defaulting
in its repayment obligations which gives rise to Credit Risk. In order to combat such a situation,
banks undertake critical evaluation of the creditworthiness of prospective borrower to ensure
repayment of interest and principal known as Credit Appraisal. It includes appraising the
borrower's profile, nature of business, age & income, previous credit history, etc. The process
begins from the time a prospective borrower makes a loan request followed by assessing the
viability of funds in terms of safety & liquidity and concludes with monitoring the risk inherent in
granting such funds. According to Feder and Just (1980), bank's lending activities are guided by
credit policies which are strategy and measures undertaken to ensure smooth process of
lending and loan repayment. If credit facility is not assessed properly, there can be default in
payments. Hence, credit appraisal mechanism is of quintessential importance.

As per classroom discussion on Credit Management, I have grasped the following concepts
which are as follows:

LOAN POLICY:

Loan Policy is a formal statement objective of a bank whose purpose is to ensure that bank
operates within prescribed risk tolerance. It indicates the responsibility attached to the Credit
Department and that the credit policy is frequently updated to include new products & to
respond to changes in risk environment or to adapt to regulatory directives.

CONTENTS OF LOAN POLICY:

The loan policy comprises of the following:

 PURPOSE: A loan should be availed for legal business activities and not for gambling or
speculation.
 OBJECTIVE STATEMENT: This statement comprises details about Asset Quality, what
type of loan is extended and to whom, percentage of priority sector lending, risk
tolerance that the bank can accept without hampering its normal operations, etc.
 LENDING AUTHORITY &RESPONSIBILITY: It includes officials being authorized for
various function with regards to sanction and disbursement of loan.
 CREDIT CONCENTRATION: When bank provides a loan, it has to select a targeted
portfolio mix by choosing preferred areas of lending and sectors to avoid. It should
ensure diversification and not concentrated to one individual, one sector or one
geographical location.
 APPRAISAL POLICY&PROCEDURE: It comprises economic, technical, financial and
market appraisal before granting a loan. It is a borrower’s critically evaluate
comprehensive creditworthiness, its nature of business, demand for product, location,
competitors, government policy, international trade scenario, market positioning, asset
quality, financial statement analysis, etc.
 RISK POLICY: It states the extent to which bank can take risk as per exposure norms
set by RBI. Banks also have to maintain sufficient funds in statutory reserves like Cash
 Reserve Ratio, Statutory Liquidity Ratio for Asset Liability Management and funds which
are left after making adequate provisions are available for lending.
 DOCUMENTATION: Different loan requires different documentation and the prospective
applicant has to comply scrupulously in order to get a loan sanction.
 LOAN LOSS PROVISIONING: A prospective applicant is critically evaluated before
making any disbursement. Banks use an internal risk rating system along with risk rating
of external agency to evaluate the financial strength & weakness of the applicant and to
derive at a particular interest rate. Higher the risk involved, higher is the interest charged
while extending credit facilities.
 SECURITY: Banks extend any credit facility against some security in the form of
property/assets against which loan is granted. This is known as primary security and
additionally bank also charge secondary security in the form of physical & financial
assets to bind the borrower in order to reduce its own risk.

PRINCIPLES OF LENDING:

Credit facility is extended by banks out of the funds mobilized as savings deposited by
customers. As per RBI norms, banks have to operate within the prescribed limits and have to
follow the below mentioned Principles of Lending:

The lending principles are categorized into two parts:

Activity and Individual.

Activity comprises of:

a) SAFETY OF FUNDS: The advances made by the bank should ensure safety in terms of
repayment of interest & principal by borrower. Also, the purpose for which the loan is
undertaken should be justified and the collateral secured should have clear title, marketability
and stability in value.

b) PROFITABILITY: When banks extend credit, they should charge higher rate of interest than
the borrowing rate. This is known as Interest Margin which is the difference between interest
receipt and interest expended. By maintaining adequate spread, banks ensure availability of
funds to pay its depositors while granting credit.

c) LIQUIDITY: Banks extend credit out of the funds mobilized as deposits and as such the
customer has the right to demand at any given time. So, banks have to ascertain how and when
the repayment of advances will take place in order to meet depositor's obligation.

d) RISK DIVERSION: Banks must have a diversified customer base in terms of nature and type
of borrowers, demography, geographical location, industry and sectors. It is done so as to
mitigate adverse financial effects of business cycle.
Under Individual:

the Cardinal Principles of Lending follow which comprises of

a) CAPITAL: It is the amount invested by the borrower in the business. It represents stake of
ownership

b) CHARACTER: It refers to honesty and integrity of the borrower. The borrower's character can
be judged by examining past records, enquiring from the market and area of his workplace.

c) CAPACITY: It refers to the management's ability to conduct business. The ability of the
borrower for running the business can be judged by his/her qualification, experience, etc.

d) COLLATERAL: It refers to the security received against the advances made. The collateral
should have clear title and should ensure stability of value and ready marketability.

e) CONDITION: Condition refers to situation in which the advances are made, one has to check
the condition of the country, government regulations, market and economic conditions, etc.

PRICING OF LOAN:

Earlier pricing of loan was calculated on base rate, however after April 1, 2016, it is now
calculated on Marginal Cost of Lending Rate so as to improve efficiency. It comprises of the
following:

 Marginal cost of funds which is the additional cost for raising one rupee of loan.
 Negative carry on Cash Reserve Ratio. Cash Reserve Ratio is a statutory requirement
by RBI and it is a non-earning asset for banks. It is referred to as negative carry since
had the same money been invested somewhere else, it would have earned interest
income.
 Operating cost covers the expenses for maintenance of accounts, manpower, other
operational expenses, etc.
 Tenor Premium which is a charge to cover the loan commitments.
 TYPES OF LENDING/CREDIT FACILITIES:

Banks provide credit facility based on duration of time i.e. either to meet short term needs or
long-term goals for a business organization. “Term loans are generally categorized as long
term in nature whereas Working Capital is short term in nature. It can be classified into the
following:

1. Fund Based Lending

2. Non-Fund Based Lending Fund Based Lending

1. Fund based lending is a type of lending facility where the lending bank commits the
physical outflow of funds. The various forms in which fund- based lending can be made
by banks are:
a) Loan: It is a single advance in which the entire amount of assistance is disbursed at
one time only, either in cash or by transfer to the borrower's account. The loan is
generally provided at a cost i.e. interest.
b) Overdraft: It occurs when money is withdrawn from a bank account and the available
balance becomes nil. In this situation, the account is period to be overdrawn. Thus,
under this facility, the company can withdraw in excess of the balance standing in bank
account.
c) Cash Credit: It is a short-term loan to a company. It is just like overdraft facility except
there is no need to open a formal current account. Also, this type of funding requires
security deposit to secure the loan given by the bank.
d) Bills Purchased/Discounted: This facility enables the company to get the immediate
payment against credit invoices raised by the company. The bank holds the invoices till
the customer has actually made the payment.
e) Working Capital Term Loans: This facility is a short-term business loan that is
commonly used to help businesses which are experiencing cash flow problems. To meet
the working capital needs of the company banks may grant the working capital term
loans for a period of 3 to 7 years, payable in yearly or half yearly installment.”

“2.Non-Fund Based Lending: Non-Fund based lending is a type of lending facility where the
lending bank does not commit any physical outflow of funds. The funds position of the lending
bank remains intact.
The various forms are:
a) Bank Guarantees: It is given by the bank to ensure that the liabilities of a debtor will be met.
This facility enables the customer to acquire goods, buy equipment and thereby expand business
activity.
b) Letter of Credit: It is regularly found in international trade. This facility is given when the
exporter and importer are unknown to each other. In this case, the importer applies to his bank
(Issuing Bank) in his country to open a letter of credit in favour of exporter whereby the
importers' bank undertakes to pay the exporter on fulfilling the terms and conditions specified in
the letter of credit.”
For estimating the risk from fund- based credit facilities the respective multiplied with respective
risk weights to calculate the exposures are risk weighted asset. It is done through the Foundation
IRB and Advanced IRB Approach. In case of non-fund-based credit facilities, they must be
converted to credit (loan) items as per factor described by Basel norms. This is known as Credit
Conversion Factor.

TERM LOANS APPRAISAL:

Term loan is a type of debt financing which is required for establishment or expansion,
diversification and modernization of an organization by acquisition of fixed asset. The
repayment period varies from 1 year to less than 10 years. Term loans are sanctioned for
acquisition of fixed assets such as land, building, plant/machinery, is given for a particular term
because it cannot be repaid like repayment of working capital finance from out of sale of current
assets over a short period. It can be repaid from the profit generated using these assets. It
involves higher risk because the repayment is dependent on the future earnings of the business.
etc.
METHODOLOGY
The methodology adapted to complete the given project was majorly through Secondary Source
of Data. Secondary data is the data collected through various other sources such as
organizational records government departments, census, etc. Secondary data is readily available
and economical. It is time saving and helps to improve the understanding of the problem. I
undertook a thorough reading of process manuals provided by banks RBI vide notification
circulars, financial statements of various clients, employee interaction. I collected information
about the client history as soon as I was handed a proposal which was followed by analysing the
financial statements through Key Financial Indicators. This was followed by writing a
summarized report. The project that I have undertaken is The Credit Appraisal Mechanism at
Bank of Maharashtra. A brief introduction of the organization is provided followed by detailed
understanding of Loan Policy and Lending Principles by Bank. I have also covered the various
types of lending facilities provided by the bank and then moved on to a detailed analysis of the
credit appraisal mechanism. The entire process carried out by Bank of Maharashtra for granting
loan is illustrated followed by understanding of Credit Specific Ratios. In order to gain valuable
insights, I have also presented two real life case study which I undertook at Bank of Maharashtra.
The case study covers Renewal of Cash Credit Limit, Renewal of Term Loan, Reduction of
Interest Rates and modification existing terms & conditions. This is followed by a case study on
Staff Housing Loan availed by one of the bank's employee where I covered the guidelines for
providing a home loan and assessment of the same. I have also covered my learning outcomes
while interning with Bank of Maharashtra.

Types of Appraisals:

1. Commercial Appraisal:
It involves understanding applicant's nature of business, demand for its product & how
well it is placed in the market, existing & future threats and competitors, relevant
government policies, international market scenario, effect of change in foreign exchange
rates, etc.

2. Technical Appraisal:
It involves an understanding of the applicant's physical assets such as machinery, other
manufacturing facilities, raw materials and other inputs, cost benefit analysis upcoming
mergers & acquisitions, investment in research & development, stock audit &
verification, etc. The assets should help in generating revenue and thereby acting as an
adequate capital.

3. Financial Appraisal:
It involves an understanding of financial health of the business. The bank checks the
company's ability for repayment, its ability to absorb unanticipated losses, cost of the
project being undertaken, mode of deployment of funds, financial projections through
Net Present Value or Internal Rate of Return Method. They also undertake a Break-Even
 Analysis business reaches this point, the higher will be the profits which will lead to
earlier repayments of interest and principal. One of the crucial tools in Financial
Appraisal is using Credit Specific Ratios to gauge the financial health.

4. Management Appraisal:
It includes understanding background of all the Key Managerial Personnel, their
qualification, ability to take risk, the vision, mission & goals of the organization and
competence.

Process of Appraisal of a Retail Loan

The framework of appraisal of a retail loan in Bank of Maharashtra includes 16 steps, post which
loan disbursement takes place. The steps involved are:

1. Preliminary enquiry by customer-

It involves enquiry by potential customers,
willing to opt for one (or more) credit facilities provided by the Bank. The customers
either visit the branch or gather information online, through the website of the bank,
regarding interest rates, nature of credit etc.

2. Interview by Banker-
The banker carries out a conversation with the customer to be
able to understand him and his needs better.

3. Understanding the product required- Through interview, the banker is able to

understand the need of the customer and is able to suggest the product, best suited to his
needs.

4. Conveying the Product Details-

Once the product is chosen, the banker explains
features of the product to the customer. The features include all the details regarding the
product ranging from security, rate of interest etc to repayment.

5. Convincing the Customer-

After the product details are conveyed, it is of utmost
importance to convince the customer. This is done by explaining the advantages of the
product offered by the bank over the ones provided by the competitor.
 6. Handing over the application-
Further, application is handed over to the customer to
be duly filled by him/her (along with the co-borrowers and guarantors). Here, the
potential customer becomes the applicant.

7. Application submission by applicant (with all relevant documents)-

Next step is
the submission of application by the applicant for the loan. All the relevant documents
including security papers, agreements, salary slips, etc are to be submitted along with the
application. Discrepancies, if any, need to be explained with proof of the same.

8. Verification of KYC-
Verification of the customer is done through KYC (Know Your
Customer), which includes 4 steps, namely:
 “Customer Acceptance Policy
 Customer Identification Procedures
 Monitoring of Transactions
 Risk Management”

For KYC, an identity proof (Voter ID, Pan Card etc.) and a
residential proof of the borrower(s) as well as the guarantor(s) is required.

9. Due Diligence -
Reasonable steps are taken by the bank to ensure avoidance of a
fraud. A thorough due diligence review of the borrower and its business ensures that a
loan does not involve legal risks that the bank is unaware of, that could endanger the
repayment of its loan.

10. Obtaining CIBIL Report-

By obtaining CIBIL report, bank is able to access the number
of loans the borrower currently has as well as his repayment history. Through CIBIL
score, a rating of borrower is obtained and thus, banks decide whether to process the loan
or not.

11. Appraisal-
The appraisal of the loan involves verifying eligibility of the borrower
along with the objective to ensure safety of funds.
12. Sanction-
Sanction includes decision on the amount of loan and several others terms
and conditions, once the appraisal in done by the department. Pre-sanction visit is also
carried out by the bank for gathering and verifying necessary information.

13. Conveying sanction to borrower/ applicant-

The sanction letter is then given to the
applicant containing details of the eligible amount for the loan. The applicant may apply
for an amount equal to or less than sanction limit.

14. Receiving acceptance of Sanction-

The borrower then conveys the acceptance of the
sanction.

15. Preparation of Documents-

Once the sanction acceptance is received, all the necessary
documents are prepared by the bank.

16. Execution of Documents-

The documents once prepared are executed and the terms
and conditions are to be abided by the borrower. Signature of the borrower is received on
all relevant documents and the process of repayment is explained to him/ her again.

17. Disbursement-
Disbursement of the loan is the final step in the process. The amount
is credited to the borrower, as per the terms of the loan.
Housing Loan
a. Application Form
For due diligence the application form of the bank for Housing Loan consists of certain fields
including:

 Basic details such as Name, Age, Address, Occupation, Qualifications etc.

 PAN (Permanent Account Number)- necessary for CIBIL Score
 Date and Year of latest I.T. Return Filed
 Number of dependents
 Income and expenditure, thus net surplus
 Investments
 Details of Outstanding loans
 Means of Finance
 Proposed repayment period

Memorandum of sanction by the competent authority:

 Verification of mentioned details

 Reason for variances, if any
 Eligibility of the amount
 Salary (Gross and NET)
 EMI proposed
 Terms and Conditions

Form of Information from employer:

 Designation
 Retirement Age
 Salary with deductions

Guarantor’s Form:

 Basic details including Name, Age, Address, Qualification etc.

 Assets and Investments
 Details of borrowing
 Salary income
Form of Information of Co-Applicant(s):

 Basic details including Name, Age, Address, Qualification etc.

 Occupation
 Relationship with applicant

Along with the above-mentioned forms, there is a list of documents required for Housing
Loan Proposal:

From Borrower:

 Copy Of PAN/Voter ID
 Last 3 Years I.T. Returns
 Latest Salary Slip
 Residential Proof
 Photos Of Borrower
 Copy of agreement with builder
 Search Report
 Papers from Builders
 Visit Report

From Guarantor(s):

 Copy Of PAN/Voter ID
 Last 3 Years I.T. Returns
 Latest Salary Slip
 Residential Proof
 Photos

Other than these certain documents are to be obtained from the Builder, including:

 Documents of the Land

 City Survey
 Development Agreement with the builder
 Title Opinion of the builder
 Tax receipt etc.
 b. Note on Proposal for Advance
(Proposal under Maha-bank Housing Loan for purchase of
flat Scheme for Public)

Various details are to be filled with respect to:

1.Applicant

 Name
 Address
 Account Number
 Age
 Occupation
 Length of Profession
 PAN

2.Co-Applicant

 Name
 Address
 Account Number
 Age
 Occupation
 Length of Profession
 PAN

3.Proposed Property

 Location Address
 Builder
 Agreement Date
 Agreement cost
 Valuation
 Search Report and Title Report

Various other eligibility norms are checked such as purpose of loan, eligibility of applicants,
age criteria, KYC Norms, Pre-sanction verification, due diligence and existing facilities.

Then, project cost, margin and contribution are checked. Other terms and conditions are
cross verified by the bank.
c. Pre-sanction visit report

The pre-sanction is carried out by the chief manager along with the credit officer.
Following details are to be physically verified and filled:

 Name
 Loan Amount
 Name of Branch
 Name of Visiting Officer
 Current Residential Address
 Date of Visit
 Proposed property Address
 Cost of the Flat
 Area of Flat
 Locality of Project
 Name of Builder
 Construction Status
 Number of flats/houses already financed by BOM
 Amenities
 Water/Electricity connection
 Materials stored
 Car Parking Allotted
 Board Indicating name of project and builder
 Connectivity with road
 No. of labours working
 Expected Date of Possession
 Name of Person contacted at site for confirmations
 Remarks
 Observations
Case Studies:

I had been given cases of Housing, Education, Adhar Pension and Car Loans to study over the
period of 2 months. Below is the mentioned case study for Housing Loan:

CASE STUDY: Housing Loan for Mr. Rasik Laxmanrao Dhoble (Staff)

Mr. Rasik Dhoble, Deputy Manager, Bank of Maharashtra, was an applicant with Bank of
Maharashtra to avail Housing Loan. He has been associated with the Bank as Deputy Manager
with an annual salary of Rs 6.08 lacs. The following are the details:
Product: Staff Housing Loan
Purpose: To purchase a 2 BHK flat in Vardhman Aangan Society, Pune.
Amount Sanctioned: Rs 47,23,0000
Applicable Rate of Interest: 6.5% for 40,00,000 and 7% for 7,23,000
Repayment Schedule: Equated monthly 240 instalments or over a period of 75 years, whichever
is earlier.
Security: Mortgaging of the flat.
Documents:
 Application/ Request Letter for making credit facility available
 Demand Promissory Note
 Receipt for amount of loan
 Agreement for housing loan
 Letter of Authority
 KYC Documents
 Mortgage Declaration
 E-secured bank and Treasury receipt
 Mortgage letter of confirmation of equitable mortgage
 Certificate in respect of compliance of Terms and Conditions
 Letter of Understanding to be obtained from the borrower to deposit share certificate of
the Cooperative Housing Society
 Note on Proposal for housing loan
 Papers by Committee
 Papers of Guarantee
 Valuation Report
 Agreement to Sale
 Invoice
 Pre-Sanction Visit
 ITR Acknowledgement
 CERSAI

For approval and sanction of Staff Loans, the proposal with all the KYC Documents is
transferred to a Committee of Banking officials in Retail Loan Department. Proposal, when
approved by the committee, is taken further for sanction.
SIGNIFICANCE OF THE STUDY:

The work that I was allotted helped me gain a lot of insight into the working of a bank and all the
cases helped me to understand the credit assessment process being carried out by any bank. This
will hold me in good stead in securing a job in the credit department of a bank if the need arises
in the future.

PERIOD OF STUDY:

My period of study was for 2 months from 15th April, 2019 to 15th June, 2019 during which I
learnt and carried out resourceful insights. I developed a thorough understanding of the credit
appraisal process and its importance for commercial banks. I also learned about retail banking at
the ground level.

LIMITATIONS OF STUDY:

During my internship with Bank of Maharashtra, there were certain covenants I had to adhere by
while carrying out my research.
Some of the limitations are as follows:

 I was not provided access to client database nor any customer (credit) interactions were
allowed. Had that been allowed, I would be exposed to real life customer interactions
which would enhance my soft skills.
 The credit appraisal process comprises the entire gamut of various industries. Due to my
limited period of study, my analysis did not receive any exposure towards field work or
client meetings nor was a part of Technical Appraisal process since this was confidential.

LEARNING OUTCOMES:

Interning with Bank of Maharashtra provides various opportunities to gain insightful knowledge.
The following were the learnings:

 At Bank of Maharashtra the credit appraisal mechanism is very comprehensive which

entailed every data to appraise the creditworthiness of the applicant. It is extremely
meticulous, endowed with attention for detail. Having involved in this process, a person
learns to keep an eye for the minutest data which could make a significant difference
while granting loan.
 The major factors which guided the entire credit appraisal process involved a thorough
understanding of applicant's past records current financial position and future projections
about earnings.
 Having studied Credit Management as a subject in the Second Semester, there was an
opportunity to apply theoretical knowledge into practice. The major tools used for
Financial Statement Analysis was Ratio Analysis through Microsoft Excel. I got a hands-
on experience to further strengthen my existing core concepts by analysing the loan
proposals.
 Learning also involved calculation of CIBIL Score of various clients which was crucial in
decision making to grant credit. It also included some insights on the Risk Grading
Framework that Bank of Maharashtra followed to rate their prospective applicant. It
comprised of an internal grading system along with an external credit rating agency to
determine the overall risk by lending to its client.
 Customer Relationship Management was a solid foundation for Bank of Maharashtra as it
had clients who had been banking with them since the late 1900's. It taught how
important it is to retain the existing customers in order to have a stable and continuous
profitability.
 BIBLIOGRAPHY
For the completion of my project, the following sources have been utilized which are as
follows:

RESEARCH ARTICLES & JOURNALS:

 Financial Risk Management for Banking & Finance, Palgrave Macmillan, First Ed.
 Al-Tamimi, H. (2002). Risk Management Practices: An Empirical Analysis of the
Commercial Banks. Finance India, 3, 1045-1057.
 Altman, E (1993). Valuation, Loss Reserves and the Pricing of Corporate Bank Loans.
Journal of Commercial Bank Lending.
 Santomero, A.& Babbel, D. (1997). Financial Markets, Instruments and Institutions,
McGraw-Hill,Tobin & James (1958). Liquidity preference as behavior towards risk, The
Review of Economic Studios
 RBI, Report of the Study Group to Frame Guidelines for Follow-up and supervision of
Bank Credit, Tandon Committee Report-RBI, Bombay, 1975
 Reserve Bank of India, Repoof the Working Group to Review the system of Cash Credit,
Chore Committee Report RBI, Bombay, 1979.
 Reserve Bank of India, Report of the Committee to Review the system of the Cash
Credit, Chore Authorisation Scheme, RBI, 1999.
 Basel Committee on Banking Supervision, Principles for the Management of Credit
Risk", September 2000.
 Berhanu, A. (2005), Determinants of formal source of credit loan and repayment
performance, M.Sc. Thesis, Alemaya Univeristy.
 RBI, Report of the Study Group on Term Loan Participation arrangements (Ramanujan
Study Group). E&I. Bombay, 1971.
 International Journal of Management, Volume 2, Issue 5
 International Journal of Recent Engineering Research and Development (IJRERD)
Volume No. 01-Issue No. 06, ISSN: 2455- 761
 Raghavan R. S. "Risk Management in Banking", (2003) pg. 841-851
 Regulatory Standards (2002). Credit Union best Practice: Regulation and Supervision.
 Lidger Wood (1993): Micro Finance Handbook. An institution and Financial Perspective.
Washington D.C. World Bank.
 Kolapo, T. F, Ayeni R. K. and Oke, O. (2012), "Credit Risk Management and Banks
Performance", Australian Journal of Business and Management Research.
 Kurt K. (2015). Managing credit risk for credit unions, Halberd Associates White Papers
 OSEI-NYARKO20GEORGE.pdf RBI vide notification circulars.
 CARE Credit Rating Process- Professional Risk Opinion Student Research Paper
presented by United Business School.
 Annual Reports of Clients company.
 Process manuals and handbook provided by the bank
INTERNET:

 www.bomnet.in
 www.bankofmaharashtra.in
 www.wikipedia.org
 www.slideshare.net
 www.scribd.com
 www.managementguru.net
 backends.moneycontrol.com
 www.indiainfoline.com
 library.binus.ac.id
 www.cbecgov.in
 www.icaihyd.org
ANNEXURE

CREDIT RATIOS FOR ANALYSIS:

From credit analysis perspective, the lender is concerned about timely receipt of interest and
principal repayment obligation mainly from cash flow from operation. Following ratios are
crucial in the lending process:

1. INTEREST COVERAGE RATIO:

It is calculated as before Interest, Taxes, Depreciation & Amortization (EBITDA) divided

by interest. It shows the number of times the cash earnings of the firms are able to cover
the fixed interest liability of the firm. A ratio of less than one indicates that the firm is not
able to generate enough cash from operation to service its interest obligation. Thus,
higher the interest coverage ratio, the better it is for the company.

Interest Coverage= EBITDA/ Interest Expense.

2. DEBT SERVICE COVERAGE RATIO (DSCR):

It is the amount of cash flow available to meet annual interest, lease and principal
payments on debt. It is similar to interest coverage ratio with the difference that interest
coverage only covers interest obligation whereas DSCR takes all the debt obligation of
the firm. A DSCR of less than one indicates a negative cash flow i.e. firm need to resort
to fresh equity or debt to repay its existing debt obligation. Repayment without
generation of surplus profit will lead to reduction in working capital, tight liquidity
position and poor working operations of the business.

DSCR= Profit after Tax+ Depreciation+ Interest/ Interest + Instalment Expense

3. CURRENT RATIO:

It measures the short-term solvency of a firm as current assets would be utilized to pay
the short-term liabilities. A company with a current ratio of less than one indicates it has
financed its long-term fixed assets by resorting to short-term funds that result in liquidity
crisis in future. A high current ratio does not imply that a firm can meet short-term
liabilities on time by easily converting its current assets into cash as the firm might be
maintaining illiquid inventories or has not written off bad debts from debtors to inflate its
current ratio.

Current Ratio= Current Assets/Current Liabilities

4. QUICK RATIO:

It is a more stringent measure of liquidity than the current ratio because it excludes
inventories which may be difficult to convert into cash in short-term i.e. sell inventories and
realize cash from debtors

Quick Ratio= Current Assets- Inventories / Current Liabilities.

5. DEBT-EQUITY RATIO:

It indicates the management reliance on external debt compared to use of own equity for
financing long-term fixed assets. Higher than industry average is viewed as an aggressive
method of financing and increases she financial risk to the concern.

Debt-equity Ratio= Long-term debt/ Tangible Net worth

6. OVERALL GEARING RATIO/TOTAL DEBT TO EQUITY RATIO:

It indicates the management reliance on external debt compared to use of own equity for
financing total assets (i.e. fixed assets and current assets). Higher than industry average
increases the financial risk to the concern. This ratio is a more reliable indicator for leverage
compared to debt-equity ratio as it may happen that a firm might be resorted to higher than
industry average debt- equity ratio but has lower than industry coverage total debt to equity
ratio to reduce its interest cost.

Gearing Ratio= Long- term debt+ Short -term debt/ Net worth.

7. TOTAL DEBT TO CASH FLOW FROM OPERATION (CFO):

This ratio indicates the average tenure of the total debt which can be repaid from internal
cash accrual from operation. A higher than industry average ratio indicates that the firm is
highly levered and vice versa.

Total debt to CFO= Long-term debt + Short-term debt / Cash flow from operation.

8. TOTAL DEBT TO EBITDA:

This ratio indicates the average tenure the firm would require to pay off total debt ignoring
the factors of interest, depreciation & amortization and taxes. Higher than industry average
ratio indicates that the firm is highly levered and vice versa.

Total Debt to EBITDA= Long-term debt + Short- term debt / EBITDA.