SVKM’s NMIMS

Mukesh Patel School of Technology Management & Engineering

FORTNIGHTLY REPORT - 1
on

SCOPE OF BUSINESS LOAN AND CREDIT ASSESSMENT

By
Kanishk Tatiya
MBA (Tech.) Computer
SAP ID: 70471017059
Roll No: N056

Position: Credit Risk Analyst Intern

Industry Partner: HDFC Bank Limited

WE UNDERSTAND YOUR WORLD

1. INTRODUCTION
1.1 About The Organization
HDFC Bank Limited is an Indian banking and financial services company, headquartered in
Mumbai, Maharashtra. HDFC Bank is India’s largest private sector bank by assets and by market
capitalization as of April 2021. It is the third largest company by market capitalization on the Indian
stock exchanges. It is also the thirteenth largest employer in India with nearly 120,000 employees.

HDFC Bank was incorporated in 1994 as a subsidiary of the Housing Development Finance
Corporation, with its registered office in Mumbai, Maharashtra, India. As of 1st May 2021, the Bank's
distribution network was at 5,608 branches across 2,800 cities. It has a base of 1,16,971 permanent
employees as of 21 March 2020.

This business focuses on institutional customers such as

• Large corporates including MNCs
• Government bodies
• Emerging corporates
• Business banking/SMEs
• Infrastructure finance group

1.2 Products and Services

2. Activity Plan

Fig. Activity Plan

2.1 Internship Details

• The internship period is of 4 – months.
• The commencement date of the internship date was 10th May 2021.
• The termination date of the internship is 9th September 2021

2.2 Weekly Updates

1. First Week (10/05/2021 – 15/05/2021)
• In the first week of my internship, I was inducted into my department, allotted with my
industry mentor, and introduced to the structure and the culture of the company virtually.
• The department allotted to me is the department of retail credit banking which involves
appraisal of business loans. (Explained in detail on Pg. 5)
• The team consists of a Regional Credit head (RCH), followed by a Regional Credit Manager
(RCM), followed by 2 Area Credit Managers (ACMs) under which 18 Credit Managers (CMs)
operate.

2. Second Week (17/05/2021 – 21/05/2021)

• In the second week of internship, I was allotted with my project title: SCOPE OF BUSINESS
LOAN AND CREDIT ASSESSMENT
• A briefing of the project was provided to me by my industry mentor.
• The briefing involved how sourcing of business loans is done, the workflow of underwriting a
business loan and how recovery of a loan is performed. (Explained in detail on Pg. 8)
3. Third Week (24/05/2021 – 28/05/2021)
• In the third week of my internship, I was introduced to the concepts of business loan
appraisal.
• It involved the basic terminologies involved in assessing a business loan, the variety of
business loans offered and other business domains.
• I was involved in studying the concepts of business loan in detail.

4. Fourth Week (31/05/2021 – 04/06/2021)

• In the fourth week of my internship, I was trained on assessing various kinds of business
loans.
• It involved being online while a credit manager performs various kinds of business loans.
• I got the opportunity of experiencing the assessment of various kinds of business loans from
my credit managers. It involved how the verification of the loan applicant is done, the
financial calculations, eligibility of the applicant is assessed based on various financial ratios
and credit bureaus and how deviations in various credit policies are undertaken under the
supervision of higher level CMs.
• I was also given training on the LOS which is the software used in assessing the business
loans.

5. Fifth Week (07/06/2021 – 11/06/2021)

• In the fifth week of my internship, I assisted credit managers in scrutinizing business loan
applications of a diagnostic clinic, and a tours & travels proprietorship firm.
• It involved TVR of all the business applications which is a telephonic verification of the loan
applicant where he/she is asked various questions about his:
1. Business,
2. Banking details,
3. “Why does he/she require the business loan?”,
4. Other sources of income, etc.

6. Sixth Week (14/06/2021 –

• I am currently assigned to scrutinize a business loan of a chartered accountancy firm.
• Collection of all the financial and other necessary documents is done which will be followed
by the TVR and the underwriting of the business loan.
3. Department: Retail Credit Banking
The objective of the Retail Bank is to provide its target market customers a full range of financial
products and banking services, giving the customer a one-stop window for all his/her banking
requirements. The products are backed by world-class service and delivered to customers through
the growing branch network, as well as through alternative delivery channels like ATMs, Phone
Banking, Net-Banking and Mobile Banking.

The HDFC Bank Preferred program for high-net-worth individuals, the HDFC Bank Plus and the
Investment Advisory Services programs have been designed keeping in mind needs of customers
who seek distinct financial solutions, information, and advice on various investment avenues. The
Bank also has a wide array of retail loan products including Auto Loans, Loans against marketable
securities, Personal Loans and Loans for Two-wheelers. It is also a leading provider of Depository
Participant (DP) services for retail customers, providing customers the facility to hold their
investments in electronic form.

HDFC Bank was the first bank in India to launch an International Debit Card in association with
VISA (VISA Electron) and issues the MasterCard Maestro debit card as well. The Bank launched its
credit card business in late 2001. By March 2015, the bank had a total card base (debit and credit
cards) of over 25 million. The Bank is also one of the leading players in the "merchant acquiring"
business with over 235,000 Point-of-sale (POS) terminals for debit / credit cards acceptance at
merchant establishments. The Bank is well positioned as a leader in various net based B2C
opportunities including a wide range of internet banking services for Fixed Deposits, Loans, Bill
Payments, etc.
4. Nature of Job
• Credit risk analyst are responsible for conducting detailed research on the financial history of
businesses and individuals to determine their creditworthiness. It entails evaluating financial
information and risks prior to granting loans to businesses or individuals.
• They assist in determining whether loans should be extended to loan applicants by
evaluating the information provided by potential borrowers, such as their financial liabilities,
credit history, employment, and income, to determine the risks of extending credit to them.
• Help the organization to determine new loans to be issued or lines of credit to be approved
based on their assessment of the credit worthiness of applicants.
• Involves preparing loan applications, credit modifications, and loan extensions for commercial
customers.

Outcomes:
• Learn how to underwrite commercial loans and prepare presentations.
• Decision making on credit applications under the supervision of senior underwriters.
• Learn how to utilize provided software to score credit applications.
• Work with the credit administrator on policies and procedures.
• Provides support for business developers on new customers
• Undertakes the analysis, evaluation, and underwriting of proposed credit facilities for
customers and prospects
• Assesses credit opportunities; identifies key risks, and structures alternatives working with
relationship managers and credit officers
• Responsible for conducting research on borrowers and industries
• Takes ownership of the credit process, making decisions in the best interest of the customer
and organization
• Responsible for measuring covenants put in place within loan agreements, with a clear
understanding of the effect and purpose of those loan covenants, and communicates the
compliance of the borrowers to the relationship manager and chief credit officer as needed
• Analyze more complex credits with assistance from senior department staff.
• Apply experience with comparable credits to recommend appropriate covenants, terms, and
conditions, and structure for a credit request.
• Identify policy exceptions within a credit request.
• Discusses risk ratings and the rationale for the determination of acceptable credits with the
relationship managers (RM) and credit approvers.
5. Market Segmentation of Customers
The bank provided business loans to the following entities:
1. Limited Liability Partnership (LLP) Firms
2. Private Limited Firms
3. Proprietor firm
4. Doctors/Physiotherapists / Bachelor of Homeopathic Medicine and Surgery (BHMS)
5. Chartered Accountants (CAs)
6. Architects

The banks do not provide business loans to:

1. Lawyers
2. Real Estate
3. Jewelers
4. Equity/Commodity/Derivatives Professionals
6. Process of a Business Loan Application
The process of a business loan application is as follows:
5. Sourcing of business loan is done by two entities:
a. Branch Sales Department
b. Direct Selling Agents (DSAs)
They are responsible for collecting various documents required for the loan assessment.
6. These documents are then transferred to the Risk Intelligence and Control (RIC) department
for scanning and verification.
7. After scanning of documents, the Central Counterparty Clearing House (CCP) is responsible
for performing ‘Quick Data Entry’ (QDE).
8. Now, the application travels to the credit department of the bank. Here, De-dupe referral of
the application is performed followed by ‘Detailed Data Entry’ (DDE).
9. Once the above steps are completed, the application finally comes to the stage of
underwriting where the assessment of the business loan is performed by the credit
managers.
10. Post the assessment of loan, if the loan is approved it is transferred to the operations
department of the bank to ensure accurate and appropriate transactions to the customers.
11. The banking operations team hence disburses the loan to the applicant.
7. Documents Required for Business Loan Appraisal:
1. Two year - P/L Statement
2. Income Tax Return (ITR) with computation
3. Audit report
4. KYC (inclusive of Bank policies)
5. Ownership Proof (For applicants with owned business)
6. Business Proof (For applicants with owned business)
7. GST Registrations / GST ITR
8. Banking documents of other accounts in other banks (T+2)
8. Financial Calculations:
1. Profit is calculated from the provided financial statements of the business loan
applicant.
2. Revenue Calculation of the business/income of the loan applicant.

8.1 Ratios Calculated for Eligibility:

1. Debt Service Coverage ( DACR ) Ratio
2. Credit Turnover Ratio ( CTR )
3. Credit to loan ratio ( CTL )
4. Business Viability
5. Average Bank Balance (AVB)
6. Current Ratio

8.2 Credit Bureaus

Definition of credit score
A credit score is an indicator of a person’s creditworthiness, or their ability to repay debt.
It is usually expressed as a number based on the person’s repayment history and credit files
across different loan types and credit institutions.
Credit score is also known as a credit rating.

Credit scores in India

In India, there are four credit information companies licensed by Reserve Bank of India.
1. Credit Information Bureau (India) Limited (CIBIL),
2. Experian
3. Equifax
4. Highmark.

The most popular credit score in India is the CIBIL rating.

In assessment of business loans, CIBIL score is taken into consideration.

a. CIBIL credit score (for individual applicants):
• It is a three-digit number, which ranges from 300 to 900, with 900 being the best score.
• A good CIBIL credit score is 750 or higher.
 b. Corporate CIBIL Ranking (CMR) (For Business applicants):
• The CMR uses machine learning algorithms to predict the probability of any business
becoming NPA in the next 12 months.
• CMR provides a rank based on credit history data on a scale of 1 to 10, CMR 1 being the best
possible rank for the least risky and CMR 10 being the riskiest rank. The lower the CMR, the
lower the risk of NPA associated.

Why you need a good credit score

• Banks and lending institutions use credit scores to assess whether you are worthy of credit.
• The better your credit score, the higher are the chances of getting your loan approved.
• You are also likely to get additional benefits, such as low interest rates, better repayment
terms and quicker loan approval process.

Credit score calculation

Your credit score is calculated by an algorithm than considers several factors. Each factor gets a
different weightage in the calculation. The factors under consideration include the following:
1. Your repayment history across debt categories (such as loans and credit cards)
2. Your total credit balances
3. Balance between secured and unsecured loans
4. Number of loans and credit cards you have
5. Credit utilization
9. Software Used:
LOS System:
• Loan origination system (LOS) is as software which a borrower applies for a loan, and a lender
disburses it or rejects the application.
• The origination process includes every step from application to funding disbursement, or
rejection of the application.

Stages of loan origination in LOS system:

Loan origination takes place over multiple stages: The stages are:
1. Pre-qualification
Also known as pre-screening, pre-qualification is the very first stage of loan origination. Here the
lender checks the eligibility of the borrower for a particular loan and determines the authenticity
of the borrower. The borrower needs to submit identity proof documents to the lender to get the
loan. These documents include:
• ID proof such as a passport or a government-issued ID card
• Present employment status, and any certificate showing income status
• Credit score
• Bank statement and previous loan statements (if any)
Once the borrower submits these documents, the lender verifies them. Once the verification
stage is complete, the lender proceeds with the application process.

2. Application
The application process is where the borrower provides relevant information to request a loan.
The lender takes all the details from the borrower and proceeds with processing and
underwriting the loan.

3. Application processing
The lender processes the application after it is submitted. In the case of larger organizations such
as banks. Multiple departments review the application, one by one. It is essential to verify and
validate the application and check whether it is complete and authentic. The verification
department will contact the customer if the application requires any correction or if any
information is missing
4. Underwriting
Underwriting is a process by which credit managers analyse the financial information. To decide
how much funding the lender can allocate, they must consider multiple parameters. Lenders
have different scoring mechanisms, such as credit scores, risk scores, outstanding loans, etc. to
evaluate the eligibility of a borrower. LOS system takes care of calculating these scores.

5. Credit decision
The result of underwriting is the credit decision. The lender decides if the application will be
approved or denied at this stage. Loan origination systems can make this decision for the lenders.
It is easy to assess different risk factors and scores and conclude quickly.

6. Quality check
The final stages of loan origination is quality checking. The lending business is highly regulated.
Therefore, to ensure compliance, the lending organization must check that the processes are
error-free and compliant. The lender validates the internal and external regulations at this stage.
The lending organization verifies the application one more time before the funding.

NOTE: The details of the assessment of business loans cannot be shared as the
information is highly sensitive and cannot be made available in this report or anywhere.