Executive Summary

Financial Institutions are investment linking the savers and users of fund These
intermediaries interpose between the ultimate borrowers and leaders permitting them efficient
transfer of funds. Individuals having surplus funds can lead them for reasonable return to
entrepreneurs who need funds to take the advantage of economically and financially viable
investment opportunities.
Now a day it is completely impossible to think a country without financial institution because
this institution plays a diversified role in the development of an economy. The most
important task of this institutions is building of capital which is the key factor of the
development of an economy. Banking sector and financial institution helps to flourish the
industrial sector by supplying the capital of the industries and other services like
intermediaries’ role in case of foreign business.
Credit risk is one of the most vital risks for any commercial bank. Credit risk arises from
non-performance by a borrower. It may arise from either an inability or an unwillingness to
perform in the pre-commitment contracted manner. The real risk from credit is the deviation
of portfolio performance from its expected value. Credit management is a dynamic field
where a certain standard of long-range planning is needed to allocate the fund in diverse field
and to minimize the risk and maximize the return on the invested fund.
This report is the fulfilment of the requirement for the evaluation process of the internship
program. The main purpose of the report is to have an overall idea about function and process
of credit risk management, analysing tools and techniques used to evaluate credit proposal,
analysing steps taken to recover Bank’s bad portfolio of HDB Financial Services. Lending is
one of the main functions of a bank. The objective of Credit Risk management of HDB
Financial Services is to minimize the risk and maximize institution risk adjusted rate of return
by assuming and maintaining credit exposure within the acceptable parameters. The Credit
Risk Management department is responsible for upholding the integrity of the Bank’s
risk/return profile. Also this report is based on my critical observation while working in the
credit division of HDB Financial Services. Lending is one of the principal functions of the
bank. Sound lending practice therefore, is very important for profitability and success of a
bank. For the sake of sound lending, it is necessary to develop a sound policy and modern
credit management techniques to ensure that loans/ advances are safe and the money will
come back within the time set for repayment. For this purpose, proper and prior analysis of
credit proposals is required to assess the risk.

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 Objectives of the study

1. To review the activities of credit department

2. To analyze the method used in minimizing company’s credit risk in credit process.
3. To assess the performance of bank’s credit activities.

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 INTRODUCTION

A Non-Banking Financial Company (NBFC) is a company registered under the Companies
Act, 1956 of India, engaged in the business of loans and advances, acquisition of shares,
stock, bonds, hire-purchase insurance business or chit-fund business but does not include any
institution whose principal business includes agriculture, industrial activity or the sale,
purchase or construction of immovable property.

The working and operations of NBFCs are regulated by the Reserve Bank of India (RBI)
within the framework of the [Reserve Bank of India Act, 1934] (Chapter III-B) and the
directions issued by it. On November 9, 2017, Reserve Bank of India (RBI) issued a
notification outlining norms for outsourcing of functions/services by Non-Bank Financial
Institution (NBFCs) As per the new norms, NBFCs cannot outsource core management
functions like internal audit, management of investment portfolio, strategic and compliance
functions for know your customer (KYC) norms and sanction of loans. Staff of service
providers should have access to customer information only up to an extent which is required
to perform the outsourced function. Boards of NBFCs should approve a code of conduct for
direct sales and recovery agents. For debt collection, NBFCs and their outsourced agents
should not resort to intimidation or harassment of any kind. All NBFCs’ have been directed
to set up a grievance redressed machinery, which will also deal with the issues relating to
services provided by the outsourced agency.

Industry Structure and Development

A large NBFC defaulted on five successive loan repayments amid large scale resignation of
the leadership put its headquarter on the block. In an unrelated development. One fund house
offloaded around 300crore worth of NCDs of a housing finance company at a discount,
sparking off fears not seen since Global Financial crises of 2008. Market grapevine suggested
a systematic liquidity problem in the NBFC space, while many analysts dug deeper to claim
assets-liability mismatch amongst most players. It led to a free fall in NBFC stocks and
resulted into in an avalanche effect that enveloped the entire NBFC sector. A kind of
contagion spread to other financial stocks, and the benchmark indices crashed, creating
bearishness all around. Consequently, liquidity dried up significantly. NBFC crises took its
toll on some very large sector like real estate and the economy at large. The government

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worked tirelessly to resolve the issues. The crises has since eased up and some liquidity has
returned to the markets.

NBFC sector is more fragile than what it was one year ago. NBFCs would have to put with
higher funding costs. In October- December quarter better run NBFCs got easier access to
money compared to smaller or weaker NBFCs with poor track record and underwriting
capabilities. In the past, robust growth of over 20% gave NBFCs access to debt capital
regardless of assets quality. NBFCs are looking for newer avenues to diversify their leading
portfolios. Companies will further have to expand the asset base to add newer products and
reduce concentration on large clients. The governments increased focus on the rural economy
in the budget for 2018-19 could a boost for NBFCs with a significant portion of their assets in
rural area

Types of NBFCs

Asset Finance Company (AFC)

An AFC is a company which is a financial institution carrying on as its principal business the
financing of physical assets supporting productive/economic, such as automobiles, tractors,
lathe machines, cranes, generator sets, earth moving and material handling equipment’s,
moving on own power and general purpose industrial machines. Principal business for this
purpose is defined as aggregate of financing real/physical assets supporting economic activity
and income arising therefrom is not less than 60% of its total assets and total income
respectively

Investment Company (IC)

IC means any company which is a financial institution carrying on as its principal business
with the acquisition of securities.

Loan Company (LC)

LC means any company which is a financial institution carrying on as its principal business
the providing of finance whether by making loans or advances or otherwise for any activity
other than its own but does not include an Asset Finance Company.

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Infrastructure Finance Company (IFC)
Infrastructure finance companies deploy a minimum of three-fourths of their total assets in
infrastructure loans. The net owned funds are more than 3 billion and a minimum crediting
rating of 'A' and the Capital to Risk-Weighted Assets Ratio is 15%.

Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC)

IDF-NBFC is a company registered as NBFC to facilitate the flow of long term debt into
infrastructure projects. IDF-NBFC raise resources through Multiple-Currency bonds of
minimum 5-year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF-
NBFCs.

Gold Loan NBFCs in India

Over the years, gold loan NBFCs witnessed an upsurge in Indian financial market, owing
mainly to the recent period of appreciation in gold price and consequent increase in the
demand for gold loan by all sections of society, especially the poor and middle class to make
ends meet. Though there are many NBFCs offering gold loans in India, about 95 per cent of
the gold loan business is handled by three Kerala based companies, viz., Muthoot Finance,
Manapuram Finance and Muthoot Fincorp. Growth of gold loan NBFCs eventuating from
various factors including Asset Under Management (AUM), number of branches, and also the
number of customers etc. Growth of gold loan NBFCs occurred both in terms of the size of
their balance sheet and their physical presence that compelled to increase their dependence on
public funds including bank finance and non-convertible debentures. Aggressive structuring
of gold loans resulting from the uncomplicated, undemanding and fast process of
documentation along with the higher Loan to Value (LTV) ratio include some of the major
factors that augment the growth of Gold loan NBFCs.

Residuary Non-Banking Companies (RNBCs)

Residuary Non-Banking Company is a class of NBFC which is a company and has as its
principal business the receiving of deposits, under any scheme or arrangement or in any other
manner and not being Investment, Asset Financing, Loan Company. These companies are
required to maintain investments as per directions of RBI, in addition to liquid assets.

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Top NBFCs
 Power Finance Corporation Limited
Power Finance Corporation Limited was founded in 1988 and is a Navratna Status company.
Mukesh Kumer Geol is the Chairman and Managing Director of the company. PFCL is
known to provide financial assistance to different power projects in the country. It supports
organization involved in Power generation, transmission and distribution. The company is
also listed in National Stock Exchange [NSE] and Bombay Stock Exchange[BSE]

 Shriram Transport Finance Corporation Limited

Shriram Transport Finance Company Limited focuses on funding commercial and
business vehicles, besides others. The company was founded in 1979 and has been offering
funding services for Light Duty Trucks, Heavy Duty Trucks, Mini Trucks, Passenger
Vehicles, Construction Vehicles and Farm Equipments. The company’s specialisation is in
general insurance, mutual funds, common assets, stock broking and general protection.

 Bajaj Finance Limited

Bajaj Finance was founded in 2007 and is a unit of Bajaj Holdings and Investments. It
offers loans to doctors for career enhancement, home loans, gold loans, individual Loans,
business and entrepreneur loans and is an extremely popular finance company. Apart from
these, Bajaj Finserv also provides services like wealth advisory, lending money and general
insurance. It has over 1400 branches across the country with more than 20000 employees.

 Mahindra & Mahindra Financial Services Limited

Mahindra & Mahindra Financial Services Limited (MMFSL) was established in 1991 and
has over 1000 branches, and a customer base of over 3 million, all over the country. MMFSL
is one of the most renowned organizations and has two affiliates offering Insurance
services and rural housing financial services. It also specialises in offering gold advances,
vehicle advances, corporate advances, home credits, working capital advances and much
more.

 Muthoot Finance Limited

Muthoot Finance Ltd is India’s first NBFC tracing its history back to 1888, when it began as
a small lender from a village in Kerala. Muthoot Finance Ltd sanctions loans only against
pledge of gold ornaments. It is a leader in India’s gold loan and finance
market. Besides financing gold transactions, Muthoot Finance Ltd offers foreign exchange

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services, money transfers, wealth management services, travel and tourism services. Gold
coins are also sold at Muthoot Finance Branches. The company has its headquarters
in Kerala, India, and operates over 4,400 branches throughout the country.  It is also the
parent company of Muthoot Housing Finance (India) Ltd, which offers home loans

 Cholamandalam
Cholamandalam Investment and Finance Company Limited (Chola), was incorporated in
1978 as the financial services arm of the Murugappa Group. Chola started as an equipment
financing company and has surged ahead as a complete financial services provider offering
all kinds of services like - vehicle finance, home loans, home equity loans, SME loans,
investment advisory services, stock broking and a host of other financial services to
customers. Chola has 725 branches across India with assets under management above INR
35,000 Crores.

 L & T Finance Limited

L & T Finance Limited is a strong player in the non-banking financial sector and was
established in 1994. Headquartered in Mumbai, L & T offers funding services to
different sectors like trade, industry, agriculture, Commercial Vehicle loans, Individual
Vehicle loans, and corporate and rural loans. The company caters to more than 10 lakh
people. In 2010, L & T was awarded the “Company of the year” in the Economic Times
awards.

Concept of Credit Risk Management

Definition of Credit

The word credit comes from the Latin word “Credo” meaning “I believe”. It is a lender’s
trust in a people /firms or company’s ability or potential ability and intention to repay. In
other words, credit is the ability to command goods or services of another in return for
promise to pay such goods or services at some specified time in the future. For a bank, it is
the main source of profit and on the other hand, the wrong use of credit would bring disaster
not only for the bank but also for the economy a whole. The objective of the credit
management is to maximize the performing asset and the minimization of the non-
performing asset as well as ensuring the optimal point of loan and advance and their efficient

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management. Credit management is a dynamic field where a certain standard of long-range
planning is needed to allocate the fund in diverse field and to minimize the risk and
maximize the return on the invested fund.

Factors related with Credit

 Risk
 Time
 Interest rate
 Security or Collateral
 Operating Expense
 Legal Considerations
 Inflation
 Finance Charge

Credit Management

Credit management is the process of granting credit, the terms it’s granted on and recovering
this credit when its due this is the function within a bank or company to control credit
policies that will improve revenues and reduce financial risk. A credit manager is a person
employed by an organization to manage the credit department and make decisions concerning
credit limits, acceptable levels of risk and terms of payment to their customers. The role of
credit manager is variable in its scope.

Credit Management is a dynamic field in banking industry where a certain standard of long-
range planning is needed allocate the fund in different field and to minimize the risk and
maximize the return on the invested fund. While sanctioning of credit undertaken with some
steps like collecting of related documents and information filled-up credit application form,
scrutinizing, investigation, preparation of proposal, sanctioning, pre-disbursement
compliance, disbursement, supervision, monitoring.

Continuous supervision, monitoring and follow-up are highly required for ensuring the timely
repayment and minimizing the default of credit. Therefore, while analysing the credit
management of NBL, it is required to analyses its credit policy, credit procedure and quality
of credit portfolio.

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Credit Risk Management

Credit risk is most simply defined as the potential that a bank or financial institution
borrower or counterparty will fail to meet its obligations in accordance with agreed terms.
The goal of credit risk management is to maximize a bank’/ financial institutions 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. Bank should also consider the relationship between credit
risk and other risk. 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. For most banks and financial institutions loans are the largest and
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 treading 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 transaction

Objectives of the study

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4. To review the activities of credit department
5. To analyze the method used in minimizing company’s credit risk in credit process.
6. To assess the performance of bank’s credit activities.

Company Profile

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Housing and Development Board Financial Services (HDBFS) is a leading Non-Banking
Financial Company (NBFC) that caters to the growing needs of an Aspirational India, serving
both Individual & Business Clients.

Incorporated in 2007, we are a well-established business with strong capitalization. HDBFS

is accredited with CARE AAA & CRISIL AAA ratings for its long-term debt & Bank
facilities and an A1+ rating for its short-term debt & commercial papers, making it a strong
and reliable financial institution.

HDB Financial Services is operated by India’s largest private sector HDFC Bank. It offers a
variety of secured and non-secured financial loans through a network of more than 1,000
branches in 22 Indian states and 3 Union Territories. It provides secured and unsecured loans,
including personal and business loans, doctor's loans, auto loans, gold loans, new to credit
loans, enterprise business loans, consumer durables loans, construction equipment loans, new
and used car loans, equipment loans, and tractor loans. The company operates through
Lending Business and BPO Services segments. It is considered the fastest growing NBFC in
India today.

Parent Company
HDB Financial Services Limited is a subsidiary company of HDFC Bank.

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to
receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the
private sector, as part of the RBI's liberalisation of the Indian Banking Industry in 1994. The
bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its
registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled
Commercial Bank in January 1995.

Vision, Mission & Values

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Vision
To Be India’s most Admired NBFC; Through Great Execution, Driving Simplicity &
Developing Humility

Mission
To deliver innovative products and services to cater to the growing needs of an Aspirational
India, serving both Individual & Business Clients

Values
HDBFS maintains a strong commitment to ethical conduct. Transparency is ingrained in the
structure of our Code of Ethics and our compliance policies to ensure that the highest
standards of professional conduct are consistently reinforced and embedded in every corner
of the organisation.

Corporate objective
 High quality financial services with state of the art technology
 Fast customer service
 Sustainable growth strategy
 Follow ethical standards in business
 Attract and retain quality human resource
 Commitment to Corporate Social

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 Corporate Information
Name HBD Financial Services

Registered Office Radhika, 2nd Floor, Law Garden Road, Navrangpura,

Ahmedabad

Incorporated 2007

Parent Company HDFC Bank

Key Managerial Personal Mr.G. Ramesh, Managing Director & (CEO)

Mr. Harem Parekh, (Chief Financial Officer)

Ms. Dipti Khandelwal, (Company Secretary)

Statuary Audit M/s. B S R & Co. LLP, Chartered Accountants (ICAI
Reg. no. 101248W/W-100022)

Email compliance@hdbfs.com

website www.hdbfs.com

Tel no +91 79-30482717

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 Corporate Social Responsibility

Our CSR programs aim to empower the communities around us by enabling them with
sustainable livelihoods; promoting education and good health; and ensuring water security for
drinking and other purposes. To contribute towards these developmental areas, our Company
has adopted a series of positive socio environmental initiatives in collaboration with credible
organizations.

Promoting Education
Building learning skills and strong character has been the motto for our education initiatives.
Our programs strive to spark curiosity among children and teachers through experiential
learning and team work. The program adequately builds capacities of teachers and provides
them with effective tools to aid the teaching and learning process.

Key outcomes include:

 40000 children have access to healthy learning environment
 11000 children received meals daily in 181schools
 450 teachers trained to use effective teaching techniques
 375 schools were equipped with necessary learning tools.

Preventive & Curative Healthcare

Our healthcare initiatives extend wide array of diagnostic and curative support to patients for
free or at nominal costs. These include eye care; kidney care; primary healthcare; awareness
on sexual & reproductive health; family planning methods; maternal health and child
nutrition.

Key highlights
 15000 patients in remote villages availed primary healthcare support through mobile
health clinic on a fortnightly basis
 10000+ HHs sensitized on reproductive and maternal health
 4000+ dialysis sessions were offered at subsidized cost
 2136 elderly patient treated for cataract.

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Water, Sanitation and Hygiene (WASH)
Our WASH interventions aim to build resilient communities by promoting good hygiene
practices among children and adolescents; providing access to sanitation facilities and
affordable clean drinking water.

 12500 HHS have access to affordable clean drinking water

 7500 children have access to clean sanitation facilities including hand washing station
in 27 schools
 50 under-served villages have access to adequate water for domestic purposes.

Enhancing Livelihoods
Livelihoods is a way of making a living that serves as an enabler to fight poverty at the
grassroots our livelihood programs are built on this dictum, and strives to bring families out
of the poverty cycle and financial miseries. Our Youth Training & Employability Program
imparts placement-linked training to unemployed youth on skill trades relevant to Beauty &
Wellness, Textiles, BFSI, ITEs, Retail, Healthcare and other sectors To enhance income
levels for small and marginal farmers, our initiatives have revolved around disseminating
information on sowing techniques, crop pattern, soil conservation practices and to ensure
adequate access to raw material such as seeds, fertilizers and water for irrigation purposes.

 3500 youths were trained on foundation and technical skills

 2500 youths were linked to employers in organization sector

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 Research Methodology
The research methodology means the way in which we would complete our prospected task.
Before undertaking any task, it becomes very essential for anyone to determine the problem
of study. It defines those tools that are used to gather relevant information in specific research
study, surveys, questionnaires and interviews are the common tools of research. I have
adopted the following procedure in completing my study report.

Data Source

It is important for researcher to know not only the research method but also knows
methodology. The procedure by which researcher goes about their work of describing.
Explaining and predicting phenomenon are called methodology. Method comprises the
procedures used for generating, collecting and evaluating data, all this means that it is
necessary for the researcher to design his methodology for his problem as the same may
differ problem to problem. For this research project researcher used only secondary data.
Source of Secondary Data

 Annual reports of banks

 Reports

 Internet

 Books etc.

Research Method

It is important for researcher to know not only the research method but also knows
methodology. The procedure by which researcher goes about their work of describing.
Explaining and predicting phenomenon are called methodology. Method comprises the
procedures used for generating, collecting and evaluating data, all this means that it is
necessary for the researcher to design his methodology for his problem as the same may
differ problem to problem
In this research project analytical research method is adopted

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Analyzing the Data

The analyzed data is presented by using following tools

- Bar Charts

- Pie charts

- Tables

LIMITATIONS OF THE STUDY

 The data collection is strictly confined to secondary data

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 Data Analysis and Interpretation

Coverage Product
▪ Personal Loan
▪ Doctors Loan
▪ Business Loan
▪ Auto Loan
▪ Gold Loan
▪ Loan Against Property
▪ Enterprise Business Loan
▪ Consumer Durables Loan
▪ Consumer Vehicle Loan

Product Amount Interest Rate Age Limit Processing Fees Loan Period

(Base Rate)
Personal Loan 1lac-7.5lacs 25% 21-60 2% 3years

Secured Personal 1lac-25lacs 23% 21-60 Less than10=2% 5years

Loan
More than 10= 1%
Business Loan 1lac-50lacs 18% 21-65 Less than10=2% 10years
More than 10= 1%

Loan Against 10lacs-5cr 15% 21-65 Less than10=2% 15years

Property More than 10= 1%

▪ Construction Equipment Loan

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 Common Document for Coverage Product

 Application form with customer signature

 Passport size photograph
 ID proof
 Address Proof
 Ownership proof (aadhar card & gas passbook mandatory)
 Business registration
 Income Document (ITR/ Salary slip)
 Current and Personal Account (minimum 6months)
 Property papers (as per product)

 Two cheque

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 Basic leading criteria for credit Analysis
Credit analysis is the method by which a financial institution calculates the creditworthiness
of a person, business or organization. While each lending situation, bank utilizes some
variation of "The Five C's of Credit" when making credit decisions.

 Character

Character is the personal impression borrowers make on the potential lender. The lender
decides whether or not borrowers are sufficiently trustworthy to repay the loan. It is
important that loan applicants get a copy of their personal credit report and score before they
apply for the loan and make sure that the information is accurate and that there are not errors.
Managerial capacity is another important factor. Educational background and experience in
the business as well as past achievements in the industry will be reviewed. If a borrower does
not have experience in the new business, she/he needs to build a strong management team
that will show professional experience and commitment to start/grow the business

 Capital
Business loan applicants must have a reasonable amount invested in their business, equity
investment. This reflects a personal commitment and ensures that, when combined with
borrowed funds, the business can start and continue operations. For start-up businesses, banks
usually will require at least 20 percent of the total funds to be invested by the owners; for
some businesses the percentage could be higher. Funds for the equity investment have to be
available at the time of the loan application

 Capacity
Borrowers have to be able to demonstrate their ability to repay the intended loan from their
business operation. Banks will require detailed financial projections showing when business
income will become cash and when the expenses must be paid. Financial projections include
a cash flow statement, broken down on a monthly basis and covering three years after the
loan is received. A critical factor in loan approval is making sure the lender understands how
revenue projections will be generated. This is especially important when the projections are
for a new business.

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 Collateral
It is well known that cash flow and not collateral will repay the loan. However, collateral is a
form of security which can be used to assure a lender that borrowers have a second source of
loan repayment. Assets such as equipment, buildings, accounts receivable, and (in some
cases) inventory are considered possible sources of repayment if they can be sold by the bank
for cash. Banks will usually take for collateral assets that are usable in the business; however,
if the value of the business assets is not sufficient to secure the loan, banks can require
personal assets that remain outside the business as collateral.

 Condition
Lenders will also consider local economic conditions and the overall climate, both within the
industry and in other industries that could affect the business. Borrowers should prepare
market research. The research will provide important information about the industry and
enhance business decision-making. If an industry is expanding, this will provide a positive
factor for the credit analysis of the loan. Understanding these concepts and the process that
banks use for the credit analysis can help business owners to develop an approach to
maximize their creditworthiness and more effectively access business credit and financing.

These traditional C’s of credit should be thought of as commandants: Do this, check

this, and look for that. These rules have worked fairly well in the past, but in recent
years, bankers have learnt a few more C’s: Complacency, Carelessness,
Communication, Contingencies and Competition. The five things of bad credit to guard
against the lessons learnt from the most recent lending mistakes.

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Basic leading criteria according to HDB

Profitability

Source of repayment

Character and ability

of borrower

Purpose of the
facility

Term of the facility

Safety

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 Leading Process

The lending procedure as observed in HDB Financial Services is described in sequential

order:

Application from Scrutinizing Login

customer Documents
Available

Approval Personal
authority Discussion with
CIBCIBIL Report
Report
Determination customer

Preparation of Valuation of Credit

loan proposal Analysis
Collateral

Collection of Issuing Sanction Approval of Head

charge Letter Office
Documents

Loan Disbursement
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Application for Loan from Customer
A loan procedure formally starts with a loan application from a client. At first it starts from
the branch level. Branch receives application from client for a loan facility. In the application
client mention what type of credit facility he/she wants from the bank including his/her
personal information and business information. Branch Manager or the Sales Manager
conducts the initial interview with the customer.

Scrutinizing Documents Available

After receiving application from customer and view point of Sales Manager if the Bank
thinks that the prospective borrower will be a good one, then the bank will scrutinize the
documents. Required documents

In case of corporate client, financial documents of the company for the last three years. If the
company is a new one, projected financial data for the same duration is required.

Personal net worth of the owner (s).

In this stage, the bank requires whether the documents are properly filled up and duly signed.
Credit in charge of the relevant branch is responsible enquire about the ins and outs of the
customer’s business through discussing with him/them.

Login in system
After scrutinizing the documents credit manager of the respective branch login that file in the
system through which a unique number is given to the respective application through which it
is recognized till the repayment of loan amount.

CIB Report
After generation LOS for the application file, the Credit Manager fetches the credit
information for obtaining a credit inquiry report of the customer from there. This report is
called CIB (Credit Information Bureau) report. The purpose of this report is to be informed
that whether or not the borrower has taken loans and advances from any other banks and if
so, what is the status of those loans and advances i.e. whether those loans are classified or
not.

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Project Inspection
Officials of the credit department will inspect the project for which the loan is applied.
Project existence, its distance from the bank originating the loan, monitoring cost and
possibilities are examined.

Approval Authority Determination

Any credit proposal needs to be evaluated on the basis of financial information provided by
the loan applicant. Financial spread sheet analysis which consists of a series of quantitative
techniques is employed to analyze the risks associated with a particular loan and to judge the
financial soundness and worthiness of the borrower. Besides, lending risk analysis is also
undertaken by the bank to measure the borrower’s ability to pay considering various risks
associated the loan. These quantitative techniques supported with qualitative judgment are the
most important and integral part of the credit approval process used by Bank Asia Limited.
This is the credit analysis phase. In fine, the ability & willingness of the borrower to repay
the loan is most important to determine.

Preparation of loan proposal

Obtain legal opinion on the collateral provided by the applicant, whether those are properly
submitted- regular and up to date or else those documents are fake. Furthermore, the
valuation of the collateral is done by Third Party Valuation Company. Both the market value
and distress value are determined.

Valuation of Collateral
The branch starts processing the loan at this stage. Based on the analyses (credit analysis)
done by the branch, the branch prepares a loan proposal. The proposal contains following
important and relevant information.

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Credit Analysis
If the proposal meets HDBFs lending criteria and is within the manager’s discretionary
power, the credit line is approved. The manager and the sponsoring officer sign the credit line
proposal and issue a sanction letter to the client.

If the value of the credit line is above the branch manager’s limit then it is sent to head office
for final approval with detailed information regarding the client (s), credit analysis and
security papers.

Approval of Head Office

Head office processes the credit proposal and afterwards puts forward an office notice if the
loan is within the discretionary power of the head office Credit Committee or board
memorandum if the loan requires approval from the Board of Directors

Issuing Sanction Letter

If the Credit Committee of the head office or the Board, as the case may be, approves the
credit line, an approval letter is sent to the branch. The branch then issues a sanction letter to
the borrower with a duplicate copy. The duplicate copy duly signed by the borrower is
returned to the branch of the bank. This duplicate copy returned by the applicant proves that
the borrower agrees with the terms and conditions of credit line offered by the bank.

Collection of charge Documents

After issuing the sanction advice, the bank will collect necessary charge documents. Charge
documents vary on the basis of types of facility, types of collateral.

Loan Disbursement
Finally, loan is disbursed by the branch through a loan account to the name of the borrower
and monitoring of the loan starts formall

26
 Methods of credit risk management used by
HDB Financial Services

When a problem loan is detected the responsible loan officer takes the corrective
action and tries to minimize the loan losses by allowing different facilities to the
client. The steps followed by HDBfs to manage the delinquent clients are:

Persuasion

 This is the first step practiced at HDBfs to manage the problem loan. This step
involves:
 Open discussion with the borrower about the problem he is facing.
 Discussion with third party to find out the underlying reasons.
 Issuing "First Reminder" letter to inform the due date and due instalments.

 If the party doesn't response issuing "2nd Reminder" and then "3rd Reminder"
letter.

Negotiation:
If the persuasion failed, the loan officer negotiates a plan of action with the borrower
to save both the bank and the borrower from possible loss. This calls for certain
sacrifices on the part of the bank and borrower in their mutual interest. The plan of
action in HDBFS consists of the following:

 Revise loan agreement

 Concession of interest (if the client is difficult to manage)
 Rescheduling of the loan and giving instalment facility to repay the overdue
amount beside the regular instalment

Litigation
If the client fails to repay the loan even after rescheduling the loan, HDBfs goes for
taking legal action against the delinquent client to recover the loan. The branch
manager sends a letter to the head office credit department informing the borrower's
reluctance to repay the loan. Following measures are taken:
 Filing case against the client

27
 Financial Analysis

(in crore)

I-GAAP Under Ind AS

Particulars 2014-15 2015-16 2106-17 2017-18 2018-19

Total Revenue 2527 3302 5714 7027 8724

Profit Before Tax 530 817 1058 1436 1724

Profit After Tax 349 534 696 933 1153

Assets Under Management 19290 25905 34277 44268 55425

Shareholders’ Funds 3125 3561 5362 6040 7178

Borrowings 15277 19612 25587 35753 45015

Earnings Per Share 6.63 7.64 9.64 11.94 14.71

Book Value Per Share 44.68 50.58 68.73 77.15 91.36

28
Total Revenue

total revenue
10000

9000 8724

8000
7027
7000

6000 5714

5000

4000
3302
3000 2527
2000

1000

0
2014-15 2015-16 2016-17 2017-18 2018-19

total revenue

Interpretation- Through graph it is clearly shown that the total revenue of HDB
Financial Services increasing every year i.e in 2015-16 there is 30% increase while in 2016-
17 there is increase of 73%, in the year 2017-18 there is increase of 23% similarly in 2018-19
there is an increase of 24%

29
Profit after Tax

profit after tax

1400

1200 1153

1000
933

800
696

600
534

400 349

200

0
2014-15 2015-16 2016-17 2017-18 2018-19

profit after tax

Interpretation – With the above shown graph it is observed that company’s profit after
tax in 2015-16 increase by 53% from previous year. Similarly, in year 2016-17 it is 30%, in
year 2017-18 its 34% and in 2018-19 it is 23.5%

30
Assets Under Management

Assest Under Management

Assest Under Management
60000
55425

50000
44268

40000
34277

30000
25905

19290
20000

10000

0
2 01 4- 15 2 01 5 - 16 20 16 - 1 7 2 0 17 - 1 8 2 01 8- 19

Interpretation- company is showing increasing trend of assets under management

which is 34% in year 2015-16, in year 2016-17 it is about 32% wherein 2017-18 its showing
increase of 29% and in year 2018-19 there is increase in 25% from previous year

31
Earnings Per Share

earning Per Share

11.94

9.64

7.64
6.63

4
3
2
1

2014-15 2015-16 2016-17 2017-18

earning per share

Interpretation- Along with increasing revenue company is also showing wealth

maximization of its shareholders i.e. 16% in the year 2015-16, 17% in the year 2016-17, 23%
in year 2017-18 and 24% in 2018-19.

32
 Findings

 The role of credit is imperative in a financial institution.

 These credit schemes serve as the major source of revenue generation for the
company and as such needs to be handled with a lot of care.
 “Loan against Property” is one of the key products of HDB Financial Services
Ltd.
 The company has been able to retain its high performance through loan
products such as Business enterprise loan, mortgage and personal loan for
consumers.
 Company is constantly expanding and improving its performance.
 Credit manager at kishangarh branch has given less authority regarding to the loan
sanction limit.
 Company may face difficulties during the pay- off of its debt as company is worthy in
fixed assets but in case of current assets and liquidity then company is not in a
position to settle down in any emergency

33
 Suggestions
 Company should take some more strict action against delinquent clients
 Some more authority must be given to the credit department at HDB
Financial Services kishangarh branch so that they can work more effectively.
 Company might face liquidity problem during the pay off its debt.

34
 Conclusion

 Under this project it is analysed that HDB Financial Services is doing good in its
business and it is on number one in Rajasthan Region.
 As far as the credit department is concerned the company is going good but it is
analysed that the credit manager is not giving the full authority to take the
decision regarding the loan limit.
 It is being analysed that the company is following all the necessary steps for credit
management.

35
 References
Books
 Banker’s handbook on credit management by IIBF
 Bank credit management by G.Vijayaragavan of Himalaya Publication
Annual Report
 Annual Report of HDB Financial Services 2019

Websites

 www.hdbfs.com
 www.actico.com
 www.imarticus.org
 www.sas.com
 www.economicestimes.com
 www.nelito.com

Appendix

 Annual Report of HDB Financial Services

36